Yukon investors wasted no time snatching up 636 shares of local airline Air North in only three days.
The shares were sold at $7,500 a piece last week — earning the airline $4.77 million.
“We started accepting subscriptions last Monday and they were all gone by Wednesday,” airline president and founder Joe Sparling said on Monday.
“It went much faster than I expected it would.”
The share offering was part of the Yukon Small Business Investment Tax Credit program, which is designed to encourage Yukon investors to invest their money in the territory.
Participants receive a one-time-only Yukon tax credit equal to 25 per cent of the investment.
For the airline, the search for local equity financing was more than just chasing after some extra spending money and a tax break.
“It makes good business sense for Air North to strengthen its local ownership component,” said Sparling.
“After the conclusion of all of these offerings, we’re at the point where almost one in 10 Yukoners will have a direct equity stake in the airline.
“And that’s a pretty significant proportion.”
In October, Sparling received the 2007 Transportation Association of Canada Achievement Award.
The award recognized Sparling’s “hands-on management style, strategic thinking and perseverance, which grew Air North from its humble beginning, one aircraft serving the mining industry, to a successful northern company.”
Sparling says that the key to the airline’s success over its 30 years of operation has been local support.
“One of the things that we’ve found is that our local shareholders really do become great supporters for the airline because they tell their friends, family and business associates about us and encourage them to travel with us,” he said.
“It’s one of the challenges when you’re a small airline — while we’re well known in the Yukon, we’re not that well known outside of the Yukon and it’s difficult for us to market ourselves effectively in all of the different places that people might come from to visit the Yukon.
“Almost all the people who are coming up to the Yukon are coming up to either do business with Yukon people or coming to visit with Yukon relatives or friends.
“So if we have the Yukon individuals marketing on our behalf by encouraging the visitors to fly with us, that’s probably the most effective form of advertising that we could do.”
Air North is planning to use the money raised through the share offering to acquire two new aircraft.
A newer generation Boeing 737 will service the airline’s jet routes, while a newer generation turboprop aircraft will serve on its northern routes.
The purchase is expected to cost between $12 and $15 million.
The new aircraft shouldn’t be viewed as an expansion, said Sparling.
The purchase is part of the airline’s modernization program.
“Although, we don’t really intend to sell any of the existing airplanes; we’ll likely keep them for backup and charter purposes,” he said.
“So from that standpoint we will still have additional aircraft in the fleet.”
The shares will carry a five-year term.
Each year, the shareholder will receive four flight segments plus four per cent in cash dividends
They also receive a Yukon tax credit.
At the end of the term, shareholders can either have their money back, or convert to a different class of share.
The new share will no longer have the cash dividend or the money-back guarantee but will still preserve the flight benefits.
“It is a good investment,” said Sparling.
“Our first two original offerings came up for conversion redemption in September of this year and of 320 shareholders, 288 elected to convert their stock.”
Air North’s last share offering was held in 2002 when shares were going at $5,000 a piece.
The $1,500 increase in share price is indicative of the success the airline has been experiencing the past five years.
Last year “was a very busy year for the company and thus far 2008 has been busy as well and we’re looking forward to the entire year being busy for us,” said Sparling.
“All indications are that perhaps the growth that’s been experienced in the airline industry in the past couple of years will likely slow a little bit, but it should nonetheless remain a healthy industry.”
The business is not without its challenges.
Last month, the BC government announced a new carbon tax on fuel, which will cause trips from Vancouver to be a little more expensive.
And this week the price for oil reached new highs — nearly hitting $110 a barrel.
High gas prices drive up costs for the airline and when those costs are passed on to passengers it tends to stifle the demand for travel, said Sparling.
“Fuel efficiency is a fundamental component of our fleet modernization program,” he said.
“Both of the new aircraft that we intend to acquire will provide significant fuel savings for us.”
Sparling dismissed rumours that other airlines, such as WestJet, might be looking to move into the Yukon market.
“There’s always rumours. I can’t speak for WestJet, but I’m sure they’re always looking at new places to go,” he said.
“The reality is that the Yukon market is fairly small. I don’t think we’re likely to see three airlines operating up here.”
Similarly, Air North has no plans to expand out of its Yukon market.
“We want to continue to provide quality and affordable transportation within the Yukon and between the Yukon and our gateway cities,” said Sparling.
“I think we recognize that our strengths really lie in our own backyard and if we get too far from our own backyard then we’re really no different from the next guy.
“We want to stay in the area that we think we are strongest.”