WESTJET ON SHOPPING SPREE
Ten Dreamliners on order
WestJet Airlines is used to dealing with busy air traffic controllers.
That’s a good thing, because the company is now taking off with two new initiatives that will keep the runways full in the years ahead.
But is the Calgary-based company taking on too much at one time, or simply proceeding with its natural evolution to becoming a much larger carrier?
WestJet held its annual meeting Tuesday morning with CEO Gregg Saretsky mapping out the company’s future and discussing several key business pieces under development.
He talked about the recently unveiled strategy to launch an ultra-low-cost carrier (ULCC) later this year, served by an initial fleet of 10 Boeing 737-800s.
At the same time, he provided more details about the company’s plans to acquire more wide-body aircraft and ramp up its international aspirations.
WestJet said Tuesday it will buy 10 Boeing 787-9 Dreamliners, with delivery slated between 2019 and 2021, with an option for another 10 aircraft.
No price tag was released. The company noted these longerhaul planes are 20 per cent more efficient than the Boeing 767s it now flies to Europe, and have a range of more than 14,000 kilometres.
That means the company, founded as a small discount airline in 1996, will be able to add new international destinations to markets in South America, Asia and Europe. Last May, the airline began its transatlantic service, flying from five Canadian cities into London-Gatwick.
Saretsky sees these moves as part of a broader strategy, with the various pieces fitting together to cover a larger segment of the market — and provide customers more options.
“Some people are saying, ‘Wow, it sure feels like there’s a lot on the go,’” he told shareholders.
“When I think about our 2017 flight plan, I see a lot of puzzle pieces coming together nicely.”
With its ultra-low-cost carrier, WestJet aims to bolster its coverage in the “thrift” category of air service, trying to capture some of the estimated 5.5 million Canadians who cross into the United States annually to take cheap flights from locations such as Bellingham, Wash., or Buffalo, N.Y.
No-frills airlines offer discounted fares, with services unbundled and customers paying extra for add-ons such as meals or carry-on bags.
At the other end of the market, the new wide-body fleet will fly longer distances with more luxury.
Saretsky said the ULCC will help WestJet “defend our lowcost position in Canada,” as new entrants attempt to gain a foothold in the domestic market.
But skeptics question the wisdom of WestJet taking on two initiatives simultaneously and spreading itself too thin. They also wonder if the new low-cost carrier might cannibalize existing customers.
WestJet, which reported first-quarter earnings of $48.3 million, has also seen turbulence affect its home turf of Alberta due to the recession.
More than $1 billion came out of Alberta’s travel economy since 2015, and one-quarter of the company’s flights originate in the province.
The wide-body strategy should help diversify revenues by tapping into growing economies in Asia and South America, while the low-cost carrier will target new markets and customers in North America.
Industry analyst Cameron Doerksen, of National Bank, said the international blueprint is a natural extension for WestJet, although it may prove challenging as many of these routes are already served by established competitors.
The company has the financial resources to expand — it will not take on additional net debt to acquire the new Dreamliners — although the question is whether it has the human capital to develop both projects at the same time, he said in an interview.
“The bottom line for me is I’m a little skeptical about it. To me, probably the biggest thing is the risk of simultaneously pursuing these two fairly major strategic initiatives and the heightened execution risk,” said Doerksen. But WestJet isn’t deterred. Co-founder and board chairman Clive Beddoe noted when the airline first took flight in 1996, people bluntly asked him why the fledgling Calgary firm would survive while other upstarts had failed.
“My only response was just watch us. I tell you the same thing today. Watch us,” he said in an interview after Tuesday’s meeting. “We’ve proven the naysayers wrong in the past.”
The wide-body fleet will be acquired over three years, he said, while the experience of flying into London-Gatwick has shown the international market can be successfully stimulated.
As for its low-cost carrier, Beddoe said putting 10 planes into the new business will be a relatively simple process given its track record.
“I’ve always likened the airline business to a conveyor belt. The reality is as airlines start up, they have a very low-cost structure … and progressively your costs climb. It’s just inevitable, and so you move up the conveyor belt,” he said. “As our costs climb, how do we recapture that bottom end of the market in order to ensure we’re not going to fall off the end of the conveyor belt.”
And so the company is moving ahead with its twin initiatives.
Some may see it as an aggressive expansion strategy; others will view it as a necessary defensive measure. Regardless, the one thing WestJet isn’t doing is sitting still as the Canadian airline industry evolves.