Friday, March 11, 2005

Jetsgo death spiral came with 'ridiculous' fares aboard aging jets

Gary Norris
Canadian Press

Friday, March 11, 2005

TORONTO (CP) - As fly-by-night operations go, they don't go out much more flamboyantly than Jetsgo.

The little airline, operating outdated planes with a smiley-face logo and fares as low as one cent, appears to have been an accident waiting to happen. "I think something cataclysmic happened on the financial side, possibly on the safety side," independent airline analyst Rick Erickson said from Calgary after Friday's sudden closure of the company.

"Something significant happened very quickly."

In its bankruptcy court filing Friday, Jetsgo said it lost $55 million in the last eight months and $22 million since Jan. 1.

But right up until its middle-of-the-night collapse, the airline was still selling tickets and running its chirpy advertising - "Pay a little. Fly a lot."

"I won't call it shady, but it wasn't right to do that," said Stanley Kershman, a bankruptcy specialist at law firm Perley-Robertson, Hill and McDougall in Ottawa.

"They knew they were having financial difficulties way before now."

Jetsgo's abrupt termination - stranding thousands of customers and disrupting the plans of about 17,000 people a day on the very eve of the March-break travel surge - resembles the sudden death of Canada 3000 in 2001 but contrasts with the orderly closure of Greyhound Air in 1997. That low-fare airline's demise was announced more than two weeks before its final flight.

"What's particularly galling is the timing of this," Mel Fruitman, vice-president of the Consumers' Association of Canada, said of the Jetsgo collapse.

"You sit back and wait till you've got a whole bunch of people booking and then you pull the plug on all of them just before they're about to leave - when they're all on their way to the airport?"

Fruitman loaded much of the blame onto federal regulators.

"They have known for some time that Jetsgo was flying basically on a wing and a prayer," he said.

"Jetsgo has been offering absolutely ridiculous fares, like $1 from Vancouver to Toronto, and the airline obviously cannot make money at that rate. Why didn't the government do something at their various agencies to prevent this from happening?"

Industry analyst Erickson said there has been "lots of innuendo in the industry over the past four or five months" about Jetsgo's future.

"I thought, though, they'd managed to get through the most difficult part of the year."

Jetsgo's fleet of 160-seat MD83 and 100-passenger Fokker 100 aircraft - none newer than eight years old - were "gas-guzzlers, maintenance hogs," Erickson said.

That pinched hard as the cost of fuel spiralled upward over the past year, while operational problems multiplied.

Jetsgo stranded hundreds of people during a Christmas snowstorm, and Transport Canada ordered it to fly no higher than 28,000 feet because of flight-manual deficiencies uncovered after a thrilling landing in Calgary in January, which resulted in minor damage.

Jetsgo death spiral came with 'ridiculous' fares aboard aging jets

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...Continued

On March 4, a Jetsgo plane scattered pieces on a Toronto runway after engine trouble, and the following day an engine problem caused an unscheduled stop in South Carolina.

But as recently as two weeks ago Jetsgo was still expanding, adding flights between Vancouver and Regina with $1 promotional fares.

"It's been obvious from the response that consumers appreciate

competition and the value it produces," Michel Leblanc, the founder and president of the privately owned airline, said then, proclaiming Jetsgo as "Canada's only true national low-cost airline."

It was still advertising a "lucky penny sale - fly across Canada and the U.S. for a penny" in newspapers published Friday.

Details of its collapse are likely to come out of court proceedings under the Companies' Creditors Arrangement Act, but "I don't believe we're ever going to see them come out of this restructured, like Air Canada has," Erickson said.

This is "unfortunate for consumers, marvellous for WestJet, marvellous for Air Canada," he added, as well as being disastrous for the Montreal-based airline's 1,200 or so employees.

As for ticket holders, lawyer Kershman said that if they can't get relief from their credit-card issuers or from the travel-industry compensation plans in some provinces, they rank among Jetsgo creditors "right at the bottom rung."

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