By the time Tim Morgan left WestJet in 2005, the airline he co-founded could no longer be considered a discount carrier. Certainly not by the standards of latter-day discounters like Ryanair, famous for selling seats between European cities for as little as $25. When news surfaced in November that his oilpatch charter company, Enerjet, hired a New York investment bank to help it raise $80 million, though, some analysts began wondering whether Morgan wants to start a Ryan-esque discount airline by mid-2013.
Crazy talk? Could a tiny airline born under the bad sign of 2008’s global economic meltdown crack the ultra-low-cost market in Canada’s notoriously expensive airspace? Nobody else has even tried, including U.S. discount airlines Jet Blue and Allegiant, scared off by the high landing fees and taxes here. Yet those airlines, and others like Dublin-based Ryanair and Spain’s fast-growing Vueling, prove the low-cost model can reap pro?ts.
Enerjet, with just three Boeing NextGen 737-700s, cudrrently earns most of its revenue by ferrying about 1,000 workers a week from Edmonton and Calgary to the oilsandRyas in northern Alberta. Asked if the $80 million might merely be a ?nancial buoy to keep his airline a?oat, president and CEO Tim Morgan retorts that Enerjet, wobbly just two years ago, is now pro?table. “It’s to expand our business,” says Morgan, 57.
But is “expand” code for a move toward a discount operation? “Let me put it this way,” he says. “There’s all sorts of opportunity for us. If I said we were going to do [a discount carrier], I’d probably be wrong. If I said we weren’t going to do it, I’d probably be wrong too. For sure, we are in the charter market, and for sure we are going to expand.”
If anyone can bring cheap fares to Canada, Morgan can, says airline analyst Rick Erickson. “Tim is a resourceful guy. You cut his arm and Jet A [aviation fuel] would pour out. He’s got a lot of street smarts.”
It’s the $80 million that makes Fred Lazar, a professor of economics at Toronto’s York University, wonder what Morgan’s up to. The sum seems excessive if Enerjet only intends to expand its charter model. But it could be enough to launch a discount airline. When JetBlue was founded in the larger U.S. market in 1999, it had only US$128 million.
But ?ying in Canada presents its own challenges. Last year, Lazar wrote a report revealing up to 40% of Air Canada’s and Westjet’s ticket prices derive from government policy. The World Economic Forum says Canada ranks a dismal 125th out of 139 counties when it comes to competitive airport fees and ticket taxes.
A Canadian discount airline that kept operating costs about 40% below WestJet’s might survive by tapping into a penny-pinching domestic leisure market that cares little about amenities, Lazar says. Likely routes would be from cities such as Toronto, Calgary and Vancouver to sunspot destinations in the U.S., Mexico and the Caribbean.
Enerjet does seem to be testing the discount winds. Last fall it launched “JumpOnEnerjet.ca,” the world’s only eBay airfare store. It’s currently offering auctions on one-way trips from Calgary to Kelowna and Edmonton. Winning bids in November ranged from $35.85 (plus taxes) to $91. More ?ights will be offered over the holidays.
The eBay scheme will help keep WestJet and Air Canada off balance, since they can’t match Enerjet’s auction-based fares, says Morgan. “We heard that the public doesn’t like the fares that are out there, so we said, well, what’s the public willing to pay?” As long as the prices meet Enerjet’s operating costs, the strategy will continue.