WestJet, Air Canada shares soar following Jetsgo's collapse

Shares in WestJet Airlines and Air Canada's parent, ACE Aviation Holdings, soared in heavy trading Friday following the overnight collapse of rival discounter Jetsgo.

WestJet (TSX:WJA) stock was up $4.43 to close at $15.60 an increase of almost 40 38 per cent. More than 9.5 million shares had changed hands.

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ACE Aviation Holdings (TSX:ACE.b) saw its stock climb $4.81 to $37 a 15 per cent rise.

Several investment dealers upgraded WestJet's stock or raised their price targets. WestJet is widely seen as benefiting the most from Jetsgo's demise.

Jetsgo is a privately owned company so is not traded on any stock exchange.

Analysts not surprised by Jetsgo's demise

Analysts who follow the Canadian airline industry said Friday that Jetsgo's demise was a collapse just waiting to happen.

"I was not at all surprised," said airline analyst Joe D'Cruz of the Rotman School of Management. "It was only a question of when, not whether, this was going to happen," D'Cruz said.

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"Jetsgo has been an airline in serious financial stress for quite some time, and in the middle of that they decided to take on WestJet in a price war," he said in an interview on CBC Newsworld.

"Here's an airline trying to fight a price war without a war chest."

Just how serious Jetsgo's problems were was revealed when it filed court documents in Quebec on Friday. It said it had lost $55 million in the eight months ending Feb. 28 and $22 million of that loss coming since the start of the year.

Jetsgo had from 7 to 10 per cent of the domestic air market. Analysts said all of its rivals would benefit from its demise.

"The industry has been overserviced for a long time," said David Carr, editor of Wings magazine. "Too many seats chasing too few bums, as we often say. Now we've got some rationalization."

Carr recalled that Jetsgo used to send him monthly reports trumpeting its high load factors. Those reports had stopped, he said.

Ben Cherniavsky, an analyst at Raymond James Ltd., issued a report in late January that called Jetsgo the "weakest link" in Canada's airline industry.

"There is indeed a good chance that Jetsgo will disappear," he wrote at the time. "We believe Jetsgo has spread its network too thin."

D'Cruz said Jetsgo bought and leased older aircraft that were tougher to maintain and more costly to operate. He said that was the source of some of their recent problems.

Transport Canada was reviewing airline's safety

Transport Canada has been investigating the airline for six weeks for a variety of problems. Following an incident on Jan. 20 when a Jetsgo plane veered off a runway in Calgary, Transport Canada ordered a review of Jetsgo's flight safety program as well as its flight documentation and training records.

As a result of that review, Transport Canada found "deficiencies" and earlier this week gave the airline 30 days to address the problems.

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But that was just the latest in a series of problems for Jetsgo.

Soaring fuel prices, intense competition, and cutthroat price wars (often started by Jetsgo) made for a perfect storm that ultimately grounded what had been Canada's third-largest scheduled airline.

At one point, Jetsgo was offering one-way flights for $1, as long as the return leg was booked at its regular discount prices.

Fare wars are not easy things to weather for airlines without deep pockets and Jetsgo had ramped up its schedule in recent weeks, announcing several expansions to its network.

Just before Christmas, a severe winter storm hit Toronto, forcing Jetsgo to cancel dozens of flights and stranded thousands of passengers. Because its air crews were already at their maximum allowed flying hours, the recovery was slow and costly.