WestJet or­ders longer range Boe­ings as part of wider ex­pan­sion plans

Cape Breton Post - - Business - BY IAN BICKIS

WestJet Air­lines Ltd. (TSX:WJA) has set out a plan to ex­pand both in­ter­na­tion­ally and into ul­tra-low cost of­fer­ings that has raised con­cerns from some an­a­lysts about be­ing overly am­bi­tious.

The com­pany said Tues­day it has or­dered 10 Boe­ing Dream­lin­ers with the op­tion for 10 more, that will al­low it to serve new des­ti­na­tions in Asia, South Amer­ica and Europe with higher-end of­fer­ings like lie-flat seat­ing.

The move comes as WestJet is also mov­ing ahead with a plan to launch a sep­a­rate ul­tra-low cost brand that will start with 10 planes and of­fer a bare-bones ser­vice.

Com­bined, the new av­enues of thrift and lux­ury set the com­pany up for a new era of growth, said chief ex­ec­u­tive Gregg Saret­sky at WestJet’s an­nual meet­ing Tues­day.

“The op­por­tu­nity to ex­pand both in the low cost space, while at the same time grow­ing our long-haul busi­ness, is some­thing that cre­ates a plat­form for fu­ture growth that has been un­prece­dented in our 21-year his­tory,’’ he said.

Na­tional Bank an­a­lyst Cameron Do­erk­sen re­sponded to the plan by low­er­ing his rat­ing of WestJet to un­der­per­form, cit­ing in part the com­pany’s over­all ul­tra-low cost strat­egy, the sig­nif­i­cant money that will be needed to ex­pand abroad and the com­pli­ca­tions of do­ing both at the same time.

“We are con­cerned WestJet has too many new strate­gic ini­tia­tives un­der­way si­mul­ta­ne­ously, which could im­pair suc­cess­ful ex­e­cu­tion,’’ wrote Do­erk­sen in an an­a­lyst note.

WestJet shares have fallen to their low­est lev­els in nearly a month. They were at $22.03 in mid-af­ter­noon trad­ing, down 81 cents or about 3.6 per cent.

Saret­sky said at the an­nual meet­ing that WestJet’s re­cent ex­pe­ri­ence of start­ing its En­core re­gional brand sets it up well for the task.

“t’s a lot of work, but only three years ago we started a brand-new air­line, which has grown from noth­ing to 45 air­craft, so I be­lieve we have all the foun­da­tions to make start­ing two new ini­tia­tives re­ally quite doable,’’ he said.

Do­erk­sen said in his note, how­ever, that in­ter­na­tional routes add a greater de­gree of com­plex­ity and that while the ac­tual cost of the 10 new planes is likely much lower than the list price of $7.4 bil­lion, it is still sig­nif­i­cant.

WestJet has re­duced some of the com­plex­ity of the plan by spac­ing out the launches, with the first Dreamliner 787s not sched­uled to be de­liv­ered un­til 2019, well af­ter it ex­pects to launch its dis­count brand.

The ul­tra-low cost car­rier, or ULCC, should be in oper­a­tion by early next year with a no-frills struc­ture mod­elled from the likes of Euro­pean car­ri­ers Ryanair and easy­Jet.

“The fo­cus on the ULCC is to have the ab­so­lutely, rock-bot­tom en­try fare, and then you pay as you con­sume for all the other prod­ucts and ser­vices,’’ Saret­sky said on the con­fer­ence call.

Saret­sky said the new dis­count air­line’s costs would be about 6.5 cents per avail­able seat mile, com­pared with 10 cents for its WestJet op­er­a­tions, as it does away with free ex­tras like snacks and squeezes more trav­ellers into the planes.

CP PHOTO

WestJet Air­lines Pres­i­dent & CEO Gregg Saret­sky, left, and board chair­man Clive Bed­doe share a mo­ment of hu­mour as they hold a model of the Boe­ing 787 Dreamliner af­ter the pur­chase of this air­plane was an­nounced at the com­pany’s an­nual gen­eral meet­ing in Calgary, Al­berta, on Tues­day.

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