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David Solloway, President at Canada Jetlines Limited, is photographed at Vancouver International Airport in Richmond, British Columbia, Thursday, July 10, 2014. Rafal Gerszak for The Globe and Mail (Rafal Gerszak For The Globe and Mail)
David Solloway, President at Canada Jetlines Limited, is photographed at Vancouver International Airport in Richmond, British Columbia, Thursday, July 10, 2014. Rafal Gerszak for The Globe and Mail (Rafal Gerszak For The Globe and Mail)

Low fuel prices buoy hopes at discount start-up Canada Jetlines Add to ...

David Solloway has seen airlines come and go in his 42 years in the industry.

With jet-fuel prices tumbling since last summer, the Canada Jetlines Ltd. president believes the start-up company will be in the right place at the right time to launch a new airline this September.

The idea is to create an ultra low-cost carrier (ULCC), borrowing the no-frills concept from companies such as Ryanair in Europe and Spirit Airlines in the United States.

Canada’s aviation history is littered with carriers that went out of business for a variety reasons, notably the challenges of operating in a sprawling country. Despite the checkered past, there is an opening for a new Canadian entrant, industry observers say.

“We’re building a route network for 16 planes,” Mr. Solloway said in an interview in a spartan office near Vancouver International Airport. “Our business model will have cost savings in how we operate. The vast majority of our reservations will be done over the Internet.”

Western Canada plays a prominent role in the Jetlines vision, with Vancouver and Winnipeg serving as hubs. Edmonton, Fort McMurray, Ottawa and Montreal are among the proposed destinations. Within 18 months of the first departure, the goal is to expand to Hamilton as the hub in Central Canada.

Jetlines plans to start out small with two jets in operation and one backup. Mr. Solloway, 63, said consumers shouldn’t be fooled by the humble beginnings. Calgary-based WestJet Airlines Ltd. launched with only three planes in 1996.

The start-up’s business model is to lure consumers with low fares and to charge for anything extra. Plans call for a $25 fee for each carry-on bag and $20 for each checked bag.

Getting off the ground will be much easier said than done. A Globe and Mail investigation into Jetlines’ fundraising drive shows an array of relatively small investments, including money from some of the company’s executives, friends, family and a wide assortment of contributors. Some of the investments have been token amounts of less than $5,000.

Jetlines hopes to attract $3-million in funding this spring, but that would still be far short of the goal to raise $50-million to finance the launch.

The Vancouver-based company, which is applying to trademark the motto Flying Your Way, has raised almost $2.5-million in total since the fall of 2013. Jetlines chief executive officer Jim Scott and his wife, Holly, have invested $192,000 for 1.3 million shares, or a 16-per-cent stake.

On March 9, Jetlines received a promising inquiry from a Canadian private-equity company, which could become a lead and strategic investor. Whether this latest potential saviour of the Jetlines business model will bear fruit remains to be seen. There is also a potential strategic partner holding talks with Jetlines.

The list of possible major investors has been shrinking, however. Halifax-based charter carrier CanJet, which got stung during a previous foray into scheduled service and closed those operations in 2006, won’t be doing any deal with Jetlines, two industry sources said. And potential foreign investors such as Irelandia Aviation and Indigo Partners don’t have any interest in pouring money into Jetlines.

Since July 30, 2014, Jetlines has raised $1-million from 85 purchasers spread over three issues of securities, regulatory filings show.

Since 2013, there have been nearly 185 investors in the fledgling carrier. Almost $5,000 has been invested by Vancouver lawyer Kevin Sorochan, through Soro Law Corp. Mr. Sorochan does legal work for Jetlines. His father Donald, a lawyer who serves on the board of directors at Jetlines, invested $30,000 while Jetlines interim chairman John Sutherland invested $10,000.

To make it attractive for contributors, Jetlines issued shares at low prices to recognize the high risk involved with the aviation venture. It’s a case of high risk, high reward, Mr. Scott said.

Efforts to raise big money have been disappointing. As Jetlines embarked on a road show in December to test the interest of major investors in Central Canada, declining oil markets hammered the share prices of energy companies. That made the prospective investors, who saw the value of their oil and gas shares plunge, nervous about plowing money into Jetlines, Mr. Scott said.

An attempt by Jetlines to merge with Inovent Capital Inc. flopped last month, leaving Inovent chief executive officer David Brett fuming. The two sides are now embroiled in a messy legal dispute. “We were going down the aisle to the altar and I found out that somebody else was in the picture. It’s disappointing and hard to fathom,” Mr. Brett said.

Jetlines denies any wrongdoing, saying it has acted ethically and honestly, portraying the fight with Inovent as an unnecessary distraction.

The big customer draw at Jetlines will be deeply discounted ticket prices – low enough to persuade them to forget about collecting loyalty points from frequent flier programs at the country’s two largest carriers, Air Canada and WestJet. Domestically, the cheap airfares will be also targeted at people who would otherwise drive long hours to their destination. For cross-border flights, Jetlines reckons that ticket prices reasonably close to the low rates offered by U.S. carriers at airports near the Canada-U.S. border will entice Canadians to fly from Vancouver, Winnipeg or Hamilton.

Jetlines officials have been working long hours to prepare reports required to seek regulatory approval to launch from the Canadian Transportation Agency and Transport Canada. Jetlines released its route map in February, generating buzz among consumers. “People are asking us, ‘When can we buy tickets for here or there?’ It’s tremendous,” said Mr. Scott, a former pilot with Hong Kong-based Cathay Pacific Airways.

Through e-mails and social media, Jetlines heard from passengers who are frustrated by high ticket prices charged by Air Canada and WestJet.

Industry analysts caution that if Jetlines manages to launch and expand to have 16 jets in its fleet within three years as planned, the start-up will be in for a rough ride, with WestJet’s regional Encore unit positioned to do battle. Air Canada and its regional partners are also at the ready. Other competitors include Sunwing Travel Group, which has grown over the years to become a large charter operator to leisure destinations. CanJet has a new vacations division.

Learning lessons from discounter Jetsgo Corp.’s collapse in 2005, Jetlines has decided to stay away from Calgary and Toronto – those two cities have airports where WestJet and Air Canada are strong.

Industry experts note that WestJet strayed from its discount roots long ago.

“Canada is one of the largest remaining markets in the world that lacks an ultra low-cost carrier. A principal attraction to prospective investors is that ULCCs are delivering among the strongest financial results in the global airline sector,” said Robert Kokonis, president of airline consulting firm AirTrav Inc.

Two Canadian entrants are possible, though industry experts say there isn’t room for two discounters in Canada.

Jet Naked, the temporary name of a no-frills airline proposed by WestJet co-founder Tim Morgan, is contemplating opening for business, though no date has been set. Mr. Morgan, who is the CEO at Calgary-based charter operator Enerjet, pointed out that Jetlines placed an order for five Boeing 737 Max jets to be delivered starting in 2021, even though the start-up has yet to fly one passenger. “What does Jetlines bring to the picture? They have no earnings,” he said. “They certainly have an uphill battle.”

Mr. Solloway insists that Jetlines will make inroads in North America. Jetlines has its sights set on operating with seven Boeing 737-300 jets and nine Boeing 737s in the 700 or 800 series, which have a longer range than the 737-300s. Air Canada and WestJet have access to Bombardier Q400 turboprops for regional service.

Jetlines says it expects to have roughly 1,000 employees and contractors in three years. Costs will be kept low through website bookings and expenses controlled by operating a fleet with a single aircraft type, the Boeing 737, instead of multiple models of planes that would cost more money to maintain, said Mr. Solloway, whose grandfather and father worked in the airline business.

Mr. Solloway once worked at Oasis Hong Kong Airlines Ltd., which flew between Vancouver and Hong Kong for less than 10 months, before stopping flights in 2008. His previous jobs include serving as a general manager at Canadian Airlines, which he left in 1992, eight years before that financial troubled carrier was taken over by Air Canada, which itself went through painful restructuring in 2003-04.

The aviation veteran, who started his career in 1973 at CP Air, has enjoyed the perks of travelling around the world. He worked as a general manager in the 1990s for United Airlines in Bangkok, Hong Kong and New Delhi. Instead of preparing for retirement, he is settling in at Jetlines for his next aviation adventure.

“We’ll start with Vancouver and move to Alberta and eastward as soon as we can,” Mr. Solloway said. “We’re in the middle of talking to numerous aircraft leasing companies to get the best possible terms. Where and when we fly will be our secret sauce.”

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