http://www.financialpost.com/magazine/s ... ?id=269856
Room for one more?
Can small cities support a new, low-cost airline? Tim Morgan, a WestJet founder, is betting on it
Scott Deveau, Financial Post Business Published: Tuesday, February 05, 2008
Tim Morgan spent nearly a decade toiling in the background at WestJet Airlines Ltd. He may have been one of the company's founders and its head of operations until 2005, but chief executive Clive Beddoe, whom Morgan had helped recruit back before the company's launch in 1996, was the face of the airline and its success. Today, however, Morgan isn't content to sit in the shadows. He's back in the airline business, attempting to raise $75 million to start a new Canadian carrier, tentatively called NewAir & Tours. And this time, thanks to the reputation he built at WestJet, Morgan is taking centre stage in the execution of the business plan.
Scheduled to launch by early fall, NewAir is currently little more than a proposal that Morgan, 53, is shopping to potential backers. The company hasn't leased any aircraft, it's still waiting for the Canadian Transportation Agency to grant its operating licence, and it has yet to decide on a final name. Still, Morgan's concept - a low-cost charter carrier serving the leisure travel market in small Canadian cities - is winning support. The first round of financing last fall, which raised $13 million, was oversubscribed, and attracted deep-pocketed investors like the Thomsons, Canada's richest family.
"We see an opportunity to get into middle Canada," says Morgan. "When I say middle Canada, I mean the Brandons, the Saskatoons, the Fort McMurrays and the Grand Prairies, and provide a service they can't get today." Tapping into trends like the aging of the baby boomers, a general upswing in leisure travel and the new prosperity of the western provinces, Morgan plans to create a Calgary-based carrier focused on charter services, flying to domestic holiday destinations during the summer and to hot spots like Las Vegas and Mexico through the winter. The plan relies on the belief that people in smaller cities will prefer a competitively priced "hometown airline" that flies out of local airports over travelling to airports in larger cities that are hours away.
The business model that NewAir is copying has already proven successful in the U.S. with Las Vegas-based Allegiant Air, which flies from smaller cities such as Bismark, N.D., and Bangor, Maine, to holiday destinations in Florida, Nevada and Arizona. But is there room for another carrier in Canada? Even the recent past is littered with examples of failure in both the low-cost and charter segments, with the collapse of carriers such as Jetsgo, CanJet and Harmony Airways. What's more, the Canadian airline industry may be flying into headwinds in 2008, just as NewAir is getting off the ground, with analysts issuing warnings about rising fuel costs and the fact that airline capacity is poised to outstrip demand for the first time in five years. Calgary-based aviation consultant Rick Erickson, however, gives Morgan's plan a fighting chance. "It's a new model. It certainly hasn't done in Canada before," he says. "And I'm astounded by the number of these secondary markets that are currently under-served."
Moreover, Erickson says the company has a competitive edge thanks to the team attached to the project, which includes WestJet's former head of marketing, William Lamberton, its former head of technical services, Gareth Davies, and Alan Mann, a former accounting executive. "You cut these guys and they will bleed jet fuel," Erickson says. "They're aviation guys through and through, especially Morgan."
According to Morgan, anyone who doubts there's enough demand in smaller cities to support his new carrier should look at the success of WestJet's Edmonton-Kelowna flight. When it launched in the 1990s, there was no service between the cities. WestJet's decision to put a plane on the route stimulated a market for what quickly became a popular connection. "At WestJet, we tried not to stand in the middle of the road. It's going to be the same thing with NewAir," Morgan says. "We are a travel and tour company, and we are going to do business in offbeat markets. Our intention is not to compete against Air Canada or WestJet. We are going to create our very own market."
When Morgan left WestJet more than two years ago, he cited "personal reasons" for his departure. These days, he's more forthcoming about events surrounding his decision, admitting that it had a lot to do with the direction the airline was heading and his own dealings with Beddoe. "I couldn't be there while the airline went left and I went right," Morgan says. "WestJet is becoming this premium economy carrier and my objective was always to be a cost-effective carrier."
Morgan, however, has no criticism of the role Beddoe played in the launch of the airline back in the mid-1990s and its future development. Although it was Morgan, as head of aviation firm Morgan Air Services, and co-founder Mark Hill, a Calgary real estate agent, who came up with the idea of bringing a low-cost carrier to Canada, the duo reached out to local real estate magnate Beddoe for his business savvy and his network of moneyed contacts. "Clive had a larger business background and was more recognizable," Morgan says. "He had a reputation, and for me to stand in a role like the one he played at the time would have been wrong. It may have put WestJet at a disadvantage."
A self-proclaimed "technical type," Morgan possesses what business associates have called a sort of "western practicality" back then that would have ruffled feathers among federal transport regulators and potential investors in central Canada. "I'm a bit of a redneck," says Morgan, who became interested in aviation as a youngster, watching crop dusters fly over the fields of the farm he grew up on. "I drive a pickup truck. I'm from Alberta. Sometimes when people tell me ‘no' it doesn't quite work."
These days, however, Morgan is demonstrating that he learned a few things during his tenure at WestJet. He's currently handling most of the dealings with government authorities - a process that includes licensing, credential checks and proof of financial backing, which tends be a hurdle for most aviation start-ups - and he hopes to have his company's flying licences from the Canadian Transportation Agency in place in the first few months of this year. "I've butted heads with a few guys in Ottawa, but in the end we ended up working well together," Morgan says.
The larger issue, of course, will be standing up to - and standing out from - the competition. Morgan acknowledges that Canada's airline industry can be cutthroat. For that reason, he plans to focus on serving western cities during the company's initial phases, where there are only two major tour operators - WestJet Vacations and Edmonton-based Fun Sun - compared to nine in central Canada. In addition, Morgan hopes that by sticking to smaller markets, and focusing initially on western Canada, NewAir will not provoke competitive backlashes from major carriers and tour operations, which operate out of larger centres.
In fact, Morgan says his firm would be more inclined to vacate a route than enter into a price war with a competitor. But even if the latter were to happen, he's not too worried. "We will be well capitalized, enough so that if a competitor were to sit on us, they'd have to sit on us for an entire year and not allow one person on to our planes. I doubt they'll do that, especially when we're not in their market."
But even these are issues for another day, says Morgan. His focus remains on raising money, dealing with transport regulators and looking forward to life in the pilot seat at NewAir. "I'm excited," Morgan says. "You know what I like most about it? I can look around and see all the people who are excited about NewAir, too."
