Upstart airlines’ future looks bleak after Canada Jetlines closure

Article content

Canada Jetlines Ltd. temporarily ceased operations on Thursday after four of its executives resigned on Monday, including chief executive Brigitte Goersch.

The leisure airline joins the ranks of smaller Canadian airlines to run into financial difficulties, saying it has been unable to raise the funds needed to continue flying and that it plans to file for creditor protection. It also said passengers with existing bookings should contact their credit card company for refunds.

Article content

Shares of the company, which trades on the NEO Exchange, were halted Wednesday afternoon.

Headquartered in Mississauga, Ont., Jetlines launched in September 2022 and provided charter and scheduled flights from Toronto to destinations throughout North America and the Caribbean.

But one expert said the carrier had been struggling to get planes off the ground for a while, pointing to repeated requests for short-term financing to keep operations running.

John Gradek, a lecturer at McGill University’s Aviation Management Program, said Jetlines had been on the “edge of insolvency” for nearly a year.

In June, the company closed a $2-million loan and announced it would be using the proceeds to repay the remaining principal amount owed to Square Financial Investment Corp. after securing a separate $2-million loan in May.

In its last quarterly report, Jetlines reported a $6.4-million net loss, up $2.7 million from the same period in 2023.

“You need cash in order to survive in Canada,” Gradek said, noting that Jetlines had been chasing high-volume, competitive markets by branding itself as an upscale carrier instead of focusing on generating steady income and profits.

Article content

Article content

He said that with just six planes in operation, it faced lower odds of survival than medium-sized competitors such as Porter Airlines Inc., which bills itself as providing elevated economy service and recently announced it would be expanding its fleet last year.

The more concerning problem, Gradek said, is whether Canada’s commercial aviation market is broken. If Jetlines shuts down for good, it will be the third Canadian carrier to discontinue services this year, following the shutdown of ultra-low-cost airline Lynx Air and the folding of Swoop into WestJet Airlines Ltd.

Flair Airlines Ltd. has also faced challenges: its CEO stepped down this summer and it must follow through on a payment plan to resolve $67 million in unpaid federal taxes.

Gradek said Jetlines’ financial troubles are just “a further nail in that coffin” for newer, smaller airlines.

Earlier this year, the Competition Bureau announced it was launching a market study to examine what changes could be made to improve competition in the airline industry.

“Despite the promising entry and expansion by some airlines, the Canadian market appears challenging for many carriers,” spokesperson John Power said in an email. “This includes low-cost and ultra-low-cost carriers, which seem to face more difficulties in Canada compared to other countries.”

Article content

Jacques Roy, a professor of transport management at HEC Montreal business school, said Canada has always been “a two-airline market,” with major players Air Canada and WestJet and a few niche carriers.

“There’s not been much room for additional players,” he said, adding that even carriers that try to adopt low-cost formulas struggle in the long term. “The existing airlines will not let you gain market shares without trying to resist.”

Roy said Canada is a larger country with a smaller population, which means low-cost airlines don’t work as well compared to those in the United States or Europe. Passengers are less willing to fly for four to five hours from Toronto to Calgary in a small seat with little service.

“I don’t see much future for smaller operators, other than niche operators,” he said, citing Porter as an example.

Gradek also believes there’s been a lack of oversight of carriers such as Jetlines by Transport Canada, which manages their licences. He was previously a member of the Transportation Appeal Tribunal of Canada, a quasi-judicial federal body that holds hearings over decisions made by Transport Canada upon request by affected parties.

Article content

He said the minimum requirements to grant an airline operating certificate should be revised and that airlines should undertake financial and operational audits more frequently, which should be made public, too.

“The licence to operate Canada Jetlines should have been looked at months ago, and, in my opinion, should have been suspended because Canadians need to have an airline that they can trust, that has a good governance model, that has financial stability,” Gradek said. “Our friends at Canada Jetlines did not have any of that.”

Email: slouis@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

Article content