Skyservice shuts down, plans to wind up business
Published Wednesday, March 31, 2010 9:55PM EDT
TORONTO - Travel agents scrambled to ease vacationers' fears Wednesday after Skyservice Airlines cancelled flights and later said it was winding up operations, grounding its 17 planes for good and laying off 860 workers.
"Recent changes in the Canadian vacation tour market combined with Skyservice Airlines' debt level have rendered the company unable to maintain profitable operations," the airline said in a statement.
"As a result, one of the company's secured lenders applied for the appointment of the receiver."
The airline, which employed 1,200 people at its peak, filed for receivership in Ontario Superior Court after missing a debt repayment deadline and cancelling scheduled flights out of Toronto's Pearson International Airport.
FTI Consulting will oversee the liquidation of assets so creditors can be repaid.
The announcement left Dr. Shankar Sivananthan's vacation plans up in the air. He was set to travel from Toronto to Cancun, Mexico, on Saturday with his fiancee, but his travel agency called to tell him the airline had folded and they were trying to make alternative arrangements.
"I asked if there was a timeline for when I'd know, or what's happened in the past and apparently they've never faced this in the past," he said.
He added that he would be upset if his flight were delayed by even a day because, as a doctor with limited vacation time, he has to plan vacations several months in advance.
"I have to be back in Toronto the next Sunday, so if they say we can fly you Monday to Monday, well, I can't do that."
On Wednesday, only one Skyservice flight out of Canada -- to the Dominican Republic -- was affected by the airline's shutdown. Skyservice's main customer, Sunquest Vacations, said it had no planes in the air.
Sunquest, owned by global travel giant Thomas Cook PLC, said it has organized replacement flights with Air Transat and Enerjet for customers affected by the shutdown of Skyservice flights to the Caribbean and Mexico. It said it has made plans to have 95 per cent of its customers flying within 24 hours of their scheduled flights with Skyservice.
Most of Skyservice's tour operator customers have made arrangements for replacement flights, said a company spokesman. Travellers whose vacations involved flying with Skyservice should call their tour operators for information.
Elsa Nunez, a travel agent with Toronto-based Amigo Travel Ltd., said she found out the airline had shut down after receiving a barrage of calls from clients concerned about their travel plans.
"(It) is really sad... we found out this morning because a client called, not because we heard it on the news or we were forewarned or anyone sent us an email," she said.
"Obviously it didn't happen overnight, but I think that they should have made some announcement this morning so it would give people a chance. It was a shock to us because nobody had told us anything, so we're scrambling to find out what's going to happen with these clients."
Airline analyst Robert Kokonis of travel consultancy Air Trav Inc. said he has no doubt that within a month all of the passengers with flights booked on Skyservice will be accommodated.
But he questioned whether there would be enough seats available to protect travellers set to depart in the next week given "this short notice prior to departure."
The news will likely be something of a boon to its competitors -- it gave lift to the stock of rival Air Transat (TSX:ARZ.A), sending it up 14 per cent Wednesday to $13.99.
Kokonis said the airline's closure will also benefit consumers in the long-run because it will bring stability to the marketplace.
"If you want to consistently have a $39 fare out of Vegas, great. But don't expect the airline to necessarily to stick around for the long-term because they can't make money at that level," he said.
"Consumers have to understand there's a balance between having good competitive fares and also having fares that basically are sustainable in that particular segment."
Skyservice has been an important part of Canada's travel industry, although not one of the better-known players since it's primary role is to supply planes and seating capacity to other companies.
The shutdown of Skyservice was caused in part by ownership changes in the travel industry. Concerns were raised earlier this year about whether Skyservice could maintain its business with key customer Signature Tours, after it merged with Skyservice competitor Sunwing earlier this year -- giving Signature its own flying capability.
Skyservice had told lender Thomas Cook that it might not be able to both continue operations and pay the lender $8.6 million of debt that came due Tuesday, according to court documents filed Wednesday.
On Wednesday morning, Thomas Cook petitioned the courts to put the company into receivership.
Sunquest had booked more than 165,000 seats on Skyservice between February and April. And to protect passengers from an operational disruption at the airline, Thomas Cook took on $8.6 million of Skyservice's debt in February, Sunquest spokesman John Lute explained.
"Sunquest (effectively) became a creditor because they were a customer," Lute said. "They were hoping to do what they could to keep Skyservice flying and they took on that debt, which basically got Skyservice time."
Skyservice had struggled with debt after being purchased three years ago in a leveraged buyout by private equity firm Gibralt Capital Corp. of Vancouver. The company faced an excess capacity -- essentially empty seats on its aircraft -- as consumers cut back on vacations during the recession.
It had been attempting to negotiate cost-cutting measure with its employees but was not able to reach a deal.
Kokonis said he predicted the downfall because Skyservice wasn't moving quickly enough to evolve its business model in the wake of integration in the industry.
Since the recession set in, some airlines have begun reworking their operations, slashing the number of destinations they serve and reducing their overall flights to battle a slowdown in business.
Last April, tour operator Conquest Vacations went out of business, blaming tour industry overcapacity and price wars. The collapse left vacationing Canadians stranded abroad, with many forced to cover hotel bills and other costs the company didn't pay before it went under.