Canada's No-Frills Airline Jetlines Signs Agreement With Boeing To Acquire Twenty-One 737 Max Aircraft Even Before Its Launch

Canada Jetlines Ltd, a fledgling airlines, sprang a big surprise by signing an agreement with Boeing Co to buy 21 new 737 MAX aircraft with the condition that it will be delivered to the airline only in 2021. Over all, the agreement includes five orders and purchase rights for another 16 planes.

The Financial Post reported that the budget airlines is set to start its operations in 2015 Spring. Now, it is in the process of hiking investor interest with road shows for its $50-million initial public offering. What makes the deal interesting is that the fledgling no-frills airlines is making a major investment even before it started flying and showing the confidence that it will stay put in business for another six years to add more aircraft to the fleet.

Business Model

Jetlines Canada is led by Dave Solloway, who has 22-year experience with the Canadian Airlines. In an interview with Global News, company president Solloway said Jetlines will pursue a low-price model by following successful models of budget airlines elsewhere and will be stripping just about every conceivable frill. The new airliner will start flying out of Vancouver to secondary airports across Canada. Solloway has listed some of them as Victoria, Saskatoon, Winnipeg, Kitchener-Waterloo and Hamilton as examples of secondary airports.

The no-frill airline is looking to lure customers with rock bottom airfares. It plans to embrace the ultra-low-cost model pioneered by carriers like Ryanair in Europe and Spirit Airlines in the U.S. with their significantly low fares. "Our fares will be 25 to 40 percent lower than the cheapest fares offered by Air Canada and WestJet," said Solloway.

On the economics of the airlines, Solloway said, "basically you purchase a seat and seatbelt. Everything else, from luggage to snacks, comes at an additional charge." Jetlines is also mulling packing more seats or "condense the airplane". This will be to lower the cost per customer. In the matter of flight crew also, it will be sparse with the carrier keeping staff levels leaner compared to other higher-end carriers.

On fleet expansion plans, Sollaoway refused to go into the details of Jetlines' contract with Boeing, except saying it is "very flexible." But some sources say the company will put down a large, non-refundable deposit to secure the aircraft. Jetlines is hoping to launch the service by leasing two old-model 737-300s in 2015, then build up to a fleet of 16 planes before it takes the delivery of the first 737 MAX aircraft in 2021.

Competition

Explaining the strategy to face the existing big players, Solloway said, "we have a short-term, and medium-term plan before we get into the new technology to ensure operating costs are well below the major Canadian domestic airlines". But Solloway made clear that Jetlines is fully prepared to face a backlash from Air Canada and WestJet. He said his airline company has a very fierce competition reaction built into the business plan.