Jetsgo, one of Canada's three low-cost carriers, has ceased operations and filed for creditor protection.
Analysts had predicted that all three low-cost players could not survive a sustained fare war, but Jetsgo's demise came sooner than expected.
The industry has been abuzz since January when Raymond James analyst Ben Cherniavsky warned in a research note that Montreal-based Jetsgo was "the weakest link" in Canadian aviation. "Difficult market conditions resulting from competitive pressures" is Jetsgo's explanation for why it grounded its 32 jets and laid off all 1,350 employees.
A battle had been raging between WestJet and Jetsgo following the latter's invasion of WestJet's traditional western Canada stronghold. Jetsgo began adding western cities in January and planned to triple capacity in that region by this month. Analysts wondered how the market could absorb the 16% more seats Jetsgo planned in the Vancouver-Calgary market already served by WestJet and Air Canada.
WestJet launched a strong counter-attack. It dropped fares to 10-20% below Jetsgo's on western Canada routes where they competed or where Jetsgo planned to start. WestJet chief executive Clive Beddoe said that the carrier would shift from a strategy of yield enhancement to defence of its market share. "All-out war" was one analyst's description.
Jetsgo was also plagued by a growing list of safety incidents. Canada's transportation safety board had launched investigations into several non-fatal mishaps. Transport Canada had ordered Jetsgo not to fly above 28,000ft (8,500m) because of flaws in its high-altitude operations manuals. Lower altitude flying hurt Jetsgo's fuel efficiency.
Analyst Cherniavsky had warned that Jetsgo's older Boeing MD-83s and Fokker 100s were a handicap because of their high fuel costs and growing maintenance needs. He also criticised Jetsgo's rapid growth. Formed in 2002 as a privately held company, the airline did not build a strong base and expand from it, but grew rapidly from the outset. Before it stopped flying, it had a network of 20 Canadian and 10 US cities.
Some of Jetsgo's biggest creditors may prefer to see the airline liquidated instead of drawn-out efforts to revive it. A group of Canada's largest airports on the other hand say they are more interested in a quick recovery.
WestJet and Air Canada are clear beneficiaries of Jetsgo's demise. Air Canada may grow its fleet to fill some of the vacuum. WestJet could reconsider its plan to slow down. Instead of using the 15 737NGs expected this year as replacements for its last 737-200s, it could use some of them for growth. CanJet, Canada's other low-cost carrier, is relieved that Jetsgo's planned thrust into Canada's maritime provinces in April is no longer a threat.
DAVID KNIBB SEATTLE
Source: Airline Business
