Source: The Toronto Star
Grounded Jetsgo strands passengers
Deep-discount airline bails out, seeks bankruptcy shelter
MONTREAL - Discount airline Jetsgo was burning money in spades when the Montreal carrier pulled the plug early today, stranding thousands of its passengers and leaving its employees suddenly out of work, court documents reveal.
Michel Leblanc, founder and majority owner, angrily blamed "attacks" by rival WestJet Airlines as one of the reasons that drove Jetsgo to seek and obtain court protection from its creditors today.
The privately owned discount airline, which didn't previously publish financial reports, says it lost $55 million in the eight months ended Feb. 28 - including $22 million since Jan. 1 - according to documents filed today in Quebec Superior Court.
In a shutdown reminiscent of the demise of charter carrier Canada 3000 Inc. in 2001, Jetsgo grounded all its planes without warning and sent its employees home on the eve of the heavy March break travel season in Ontario.
The abrupt shutdown in the middle of the night, which left 17,000 passengers without a flight, prompted criticism about the Montreal-based discount airline's business dealings and its treatment of customers.
Jetsgo competitors Air Canada and WestJet Airlines of Calgary quickly announced capacity increases to handle demand from Jetsgo ticketholders. But WestJet CEO Clive Beddoe also said he expects fares will rise by up to 10 per cent this year as the Canadian airline industry continues to consolidate.
Meanwhile, travel groups noted that Ontario, British Columbia and Quebec all have compensation funds that will reimburse travellers if a flight ticket is bought through a registered travel agent. Meanwhile, some credit cards - but not all - offer travellers protection as well.
The Jetsgo airline had 29 aircraft flying to 20 destinations in Canada, nine in the United States and the Caribbean, flying 280,000 passengers a month, said the court document.
Leblanc, who owns 90 per cent of the airline he began in 2002, was holed up in his office in an industrial park in Montreal today. One manager who emerged from the building said Leblanc was as grey as his suit.
"We deeply regret that this had to happen," Leblanc said in a statement. "The decision to cease operations was only taken after difficult deliberation."
This didn't mollify the company's 1,200 employees.
Baggage loader Mario De Zilwa, 39, of Brampton, Ont., said he didn't find out until he arrived at work this morning that his job at Toronto's Pearson International Airport was gone after a year and a half.
"It keeps happening over and over - guys coming and opening airlines, running them for a couple of years and then they just close it down, screw the public up, screw the employees up," De Zilwa said.
Jetsgo said in its filing it was profitable until the spring of 2004, and was even in talks with National Bank for a $100-million initial stock issue that would boost the airline's finances.
However, the company alleged its problems began when WestJet gained access to Jetsgo's internal computer systems and "launched a co-ordinated attack" on Jetsgo's business, profitability and value.
This included WestJet's strategic move to Toronto's Pearson from Hamilton airport, which the court filing said had "a devastating effect" on Jetsgo, already based at Pearson, and forced it to withdraw from its planned stock issue.
Last fall, Jetsgo filed a $50-million suit against Calgary-based WestJet for corporate espionage.
However, the airline has also had operational mishaps which contributed to its problems.
Transport Canada is investigating two separate engine problems during the last week, as well as an erratic landing in Calgary in January.
In any case, the collapse of Jetsgo will fundamentally alter the Canadian airline market, which has been battered for years by high jet fuel prices, cutthroat competition and the slide in air travel after the 2001 terrorist attacks.
With Jetsgo unlikely to be revived, its demise will lessen competition in the Canadian airline industry and leave rivals Air Canada, WestJet Airlines and CanJet in better financial shape.
"It's going to rid the market of a weak company," said economics professor Ray Canon at University of Western Ontario. "Obviously, Jetsgo was not long for this world."
Canon pointed to the fact that Jetsgo had an old, inefficient aircraft fleet.
Brokerage Dlouhy Merchant Group estimates Jetsgo accounted for 10 to 12 per cent of domestic capacity
"With no costs to cut and virtually no assets, Jetsgo will not resurface," said the firm. "This news fundamentally changes the airline landscape."
Stock prices soared for rivals Air Canada and WestJet, which said they try to help stranded Jetsgo passengers and crew members.
Spokeswoman Laura Cooke for Air Canada said the timing of Jetsgo's failure makes it tough because aircraft are already full due to the March school break starting Monday.
Jetsgo had at least 18 flights scheduled to leave Pearson Airport - Canada's air transport hub - this morning, including domestic and transborder destinations.
In Ottawa, federal Transport Minister Jean Lapierre offered sympathy but little else. He said some Jetsgo passengers may be able to get refunds, depending on their circumstances.
Joseph D'Cruz, a University of Toronto professor of management, says Jetsgo's demise was only a matter of time.
He said the airline had been competing irrationally by cutting fares far below costs, and this financial stress led to operational problems and more to recently safety issues that he called alarming.
Leblanc has been involved in starting up and operating several airline ventures. He sold Royal Airlines to Canada 3000 for $84 million in shares, then cashed out most of his stock before Canada 3000, then the country's leading charter airline, went bankrupt.
Fidelity Investments owns the other 10 per cent of Jetsgo, after investing $25 million in late 2003.
The documents reveal that Nav Canada tried to seize Jetsgo aircraft Monday.
RSM Richter Inc. is acting as monitor in the bankruptcy process.