The Company: Enerjet
Enerjet is a fledgling charter airline and tour operator. The Calgary-based company has leased two 131-seat Boeing 737-700 Next Generation planes to launch its business. First, Enerjet is tapping into the industrial sector, including transporting workers to and from northern Alberta's oil sands. Then it will seek to start tour and leisure operations in the fall of 2009, hoping to offer non-stop flights to sun destinations from smaller Canadian centres. No cities have been selected yet for service, but "secondary airports" could be targeted in places in Alberta such as Lethbridge, Grande Prairie and Fort McMurray, as well as B.C. communities such as Kamloops, Kelowna and Prince George. Enerjet, which produced preliminary business plans under the temporary name NewAir & Tours Group, says it is keen to blaze an entrepreneurial trail. Its "core strategy is to capitalize on uncontested market space, focusing simultaneously on low costs and differentiation from any closely related competitor." Enerjet is being modelled after Allegiant Travel Co., a Las Vegas-based firm that runs a vacation division and low-cost airline, but the Calgary executives are adapting the U.S. concept for Canada.
Founded: Enerjet's initial business plan was developed in 2007 by four former WestJet Airlines Ltd. executives, led by WestJet co-founder Tim Morgan. Mr. Morgan, WestJet's former head of operations who used to pilot planes for Canadian Regional, is guiding Enerjet with William Lamberton, former WestJet vice-president of marketing. They're being supported by Gareth Davies, former WestJet vice-president of technical services, and Alan Mann, a former WestJet accounting executive. Their new Enerjet duties: Mr. Morgan is president and chief executive officer; Mr. Lamberton is marketing vice-president; Mr. Davies is vice-president of technical operations, in charge of locating aircraft and overseeing maintenance; and Mr. Mann is chief financial officer. Also helping launch Enerjet are Tim Morgan's brother, Darcy, who is an Enerjet director, as well as communications vice-president Dean McKenzie, who previously crafted WestJet advertisements.
Company background: Enerjet completed its primary phase of financing in the spring of 2008. Although Enerjet won't discuss a figure, industry experts have estimated that roughly $50-million has been raised so far from private investors. Toronto-based private equity firm Westerkirk Capital Inc. took part in the initial round of financing, and is among Enerjet's 400 shareholders. Enerjet has its hands full just preparing to launch flights, so it expects to stay a private entity in the foreseeable future, although it hasn't ruled out an initial public offering in the long term. Mr. Morgan envisages Canadian investors supplying at least 75 per cent of total financing for NewAir, keeping within rules that limit foreign ownership of domestic carriers to 25 per cent of voting rights.
Staff: Nearly 150 non-union employees are expected to be in place by next fall's launch. There are currently about 50 staff.
Regulatory approvals: In late November, Enerjet received its air operators certificate from Transport Canada and its air operators licence from the Canadian Transportation Agency. With the approvals, Enerjet embarked on a "soft launch" with its maiden flight on Nov. 30, transporting workers from northern Alberta's oil sands to Gander in Newfoundland and Labrador.
Competition: Enerjet believes there's a niche market that's being overlooked by WestJet and Air Canada - "Middle Canada." That's a reference to markets that are under-served or neglected by Canada's two largest carriers. Air Canada and its affiliate, Jazz, have trimmed flight schedules amid high fuel prices and the economic downturn, including cancelling or scaling back routes to smaller communities. On the other hand, WestJet has been generally adding seat capacity. WestJet and Air Canada have an advantage in offering multiple leisure destinations. Transat, Sunwing, Signature, Sunquest, Air Canada Vacations and WestJet Vacations are among the established players on the tour side. Enerjet doesn't want to go head-to-head against these players, seeking instead to build a boutique brand.
Marketing: Enerjet expects to market its leisure flights directly to smaller Canadian cities and towns, including having executives participate in local events such as flipping pancakes. "Especially in smaller centres, where we expect our audience to be particularly receptive and responsive, [we]will host and sponsor events with a homegrown flavour designed to nurture meaningful relationships and foster local goodwill," says Enerjet, which is keeping its other marketing plans under wraps for now.
Goals: Enerjet is on a quest to build an aviation firm that bucks traditional business models. To get direct non-stop flights, many Canadians in smaller centres have to make their way to a major hub such as Vancouver, Calgary, Toronto and Montreal. Enerjet wants to carve business from its base in the West as the "homegrown" tour operator, though it could eventually expand eastward. It will be emphasizing its point-to-point service, reducing the odds of something going wrong such as lost luggage and long waiting times at the airport, as consumers too often experience with connecting flights.
Strengths: Fuel-efficient Boeing 737-700 planes will lower operating costs. As well, with a softened aircraft leasing market, Enerjet has been able to secure attractive leasing rates. The management team, with their experience from WestJet, is prepared to tackle the ups and downs of the aviation business. They could have gone with lower upfront costs of older planes such as McDonnell Douglas MD-80s, but decided it's worth it to obtain the Boeing 737-700s to keep fuel bills and maintenance costs under control. Aviation is already in Mr. Morgan's veins. His other ventures include flight-training firm Morgan Air and business-jet leasing company Air Partners Corp. Mr. Lamberton, who is also president of Classic Canadian Tours, knows his way around packaging hotels, car rentals and recreational activities. Classic Canadian Tours has packaged trips for consumers in markets such as Brandon, Man., Kamloops, B.C., and Terrace, B.C.
Challenges: Enerjet will be launching services during what is shaping up to be an economic downturn in 2009, with many travellers likely cutting back on their holiday budgets. As well, despite the recent drop in oil prices, jet fuel expenses remain relatively high. It also remains to be seen whether residents in smaller Canadian centres will gravitate to limited non-stop service, when they're accustomed to either making air connections at major hubs or driving to the closest big airport for their desired flight.
Industrial market: Northern Alberta's oil sands employ thousands of people, both on construction sites and at production plants. Major players include Syncrude, Suncor and Imperial Oil. While the sharp drop in oil prices has slowed the pace of growth, there's still plenty of economic activity in store for the long term, Mr. Morgan says. Enerjet, which has signed a multiyear deal to provide chartered flights for Suncor Energy Oil Sands LP, also has other industrial projects in mind.
Leisure market: Enerjet wants to focus on what it calls the "reverse starburst." It would offer departures from numerous Canadian sites, and concentrate on a single destination point for a limited time, such as Las Vegas or Mexico. "The niche destination will allow us to highlight the vacation spot of the year," Enerjet says.
Advice sought from Small Business Incubator panel:
1. What are your thoughts on the broader economy? Mr. Morgan and Mr. Lamberton are wondering about where the U.S. dollar is headed, relative to the Canadian dollar. What are the odds of a bounce after Barack Obama becomes U.S. President and moves into the Oval Office. And more broadly, where is the world and Canadian economy is going, both short and long term. Commodities are being followed by Enerjet, notably forecasts for crude oil prices, which have plunged since reaching a record high of more than $147 (U.S.) a barrel last July. Enerjet still believes that Canadians would stick with their holiday plans, but acknowledge that some will scale back their vacation budgets.
2. How do you view Enerjet's value-added strategy to "up sell" to consumers without turning them off? Enerjet plans for now to launch with a single-class cabin, with a low base fare, but ancillary revenue is important. Examples of potential "added-value" offerings would be insurance, checked luggage, entertainment, meals, drinks and seat selection. Mr. Lamberton hopes that as long as Enerjet provides excellent service, then consumers would willingly pay extra for meals and wine. As a boutique operator specializing in providing convenience for travellers in smaller Canadian centres, Enerjet wants its brand to bring good feelings. There won't be seat-back screens where everyone gets video screens, but the planes will be equipped with XM Radio Live. The trick will be to present choices to consumers who want low prices, yet seek comforts. Core service would include return air travel, carry-on luggage and in-flight snacks and water. Those may seem to be a given, but in the U.S. commercial airline industry recently, user-pay fees have been spreading. Enerjet is striving to create the "perception of high value to its customers without necessarily attaching the high-value price tag."
3. What are some of your views on what works and what doesn't when keeping staff motivated, especially considering that Enerjet is a startup? Enerjet wants to maintain its focus on efficiency and have a low-cost structure, paying attention to "cost per available seat mile." The company also wants to hire for attitude and train for skills, but need to retain employees in the competitive marketplace of oil-rich Alberta. A profit-sharing program is being considered, as well as paying slightly above industry averages for wages. An entrepreneurial spirit is sought, with the goal of having pioneering staff who are nimble and are motivated by incentives beyond base monetary rewards. Mr. Morgan and Mr. Lamberton say they are believers in giving decision-making powers to front-line staff, which helps to retain employees. They say they recognize than it's better to have a low attrition rate than bear the costs of ongoing retraining. Mr. Morgan and Mr. Lamberton are also proponents of mentoring, bringing aboard newcomers such as Ross Brown (airports and marketing) and Matthias Morel (marketing).
4. How do you see the travel market as a whole unfolding in the 2009? The upcoming holiday season is expected to be challenging for tour operators. While Enerjet won't be in the leisure side this winter, it will be monitoring events closely. Enerjet plans to rotate its vacation destinations. In the winter, it could be Mexico, then Las Vegas in the spring shoulder season, Newfoundland in the summer and Vancouver in the fall. The question is how much the recession will hurt business and leisure travel, and how long those effects may linger, potentially hitting Enerjet as it opens its leisure operations in the fall of 2009. Will baby boomers still spend like they have in the past to escape Canadian winters? How much will consumers scale back their travel budgets?
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