WestJet launching international expansion
WestJet Airlines has spent the past 22 years carefully extending its reach, expanding from Canada to other parts of North America, into sunshine destinations and European cities.
On Wednesday, the Calgarybased airline revealed details about a bigger, bolder plan to embark on an international expansion, one designed to reshape where the company goes in the future.
Starting next spring, it will launch three new Boeing 787-9 Dreamliner aircraft out of Calgary, offering non-stop flights from the city to London- Gatwick, Paris and Dublin.
WestJet officials expect the flights into the United Kingdom and France will provide seats for about 4,500 passengers a week.
“We chose Calgary because it’s so underserved,” CEO Ed Sims said Tuesday at a Calgary Herald editorial board.
“We have got this fantastic opportunity to really turn Calgary into an absolute, genuine, international transatlantic hub.”
The company already flies into these three cities on smaller, older planes departing from locations in Eastern Canada.
Choosing these destinations for the new planes might not sound as exotic as flying into China or Japan (as had been rumoured), but it is an attempt to manage the expansion risk.
The arrival of the US$280-million Dreamliners — a wide-body plane capable of flying a range of 14,000 kilometres — gives WestJet the ability to reach into these European markets directly from Western Canada, while potentially flying into Asia or South America in the future.
“In some ways, for me, Asia and Latin America can wait. They are still out there,” said Sims, who took over as CEO earlier this year.
“We took a view there’s enough risk taking this aircraft on in the first place, without unnecessarily incurring the risk of flying new routes that we hadn’t served before.”
With a total of 10 Dreamliners slated to arrive by 2021 — and an option to buy 10 more — the company has its eye on further incursions around the globe, taking on Air Canada as it strives to boost its premium and international travel business.
Sims hopes international traffic will grow, making up between 15 to 20 per cent of WestJet’s entire passenger traffic within three years, up from around five to 10 per cent today.
Analysts worry the company is setting itself up for much higher execution risk with its strategy. Not expanding into growing global markets would be a mistake, said Sims.
“Sooner or later as you expand — and we have a very large domestic fleet already of 170 aircraft — you run out of people within your own domestic market that you can continuously carry,” he said.
“We have to take advantage of what’s happening around the global economies to make sure we continue to bring both premium travellers in, and international visitors into Canada.”
Founded in 1996, WestJet has slowly broadened its international reach, flying into the U.S. markets in 2004 and heading into Dublin a decade later, before adding London- Gatwick in 2016 and Paris earlier this year.
However, there’s no question the foreign strategy comes with greater risk.
Industry analysts have questioned the wisdom of the company expanding abroad, while recently launching Swoop, an ultra low-cost carrier now operating in Canada.
“The biggest challenge is going into international markets that are already quite well served by existing airlines,” said National Bank analyst Cameron Doerksen.
“They are really going to have to compete on price to take away (market) share from the established main line competitors like Air Canada.”
Analyst Chris Murray of AltaCorp Capital Corp. notes WestJet has long held a cost advantage over Air Canada and other domestic competitors with lower labour and maintenance costs, but that benefit will disappear in the international arena.
The company could also face higher labour costs domestically as its pilots and flight attendants have unionized.
“They are moving into areas where they haven’t historically operated and, as you can imagine, the complexities significantly increase as you enter international service,” Murray said.
“There is a lot of competition out there, so the question is: How do you differentiate yourself from that competition without impacting your finances?”
The timing comes during a period of growth in international travel and tourism.
Air transport spending rose nine per cent in the second quarter compared to a year ago, according to an AltaCorp Capital report.
This trend, along with WestJet’s plans to base the Dreamliners out of Calgary, is a positive signal for the city’s airport as it becomes a hub for international travellers.
Calgary Airport Authority CEO Bob Sartor noted the facility’s international business has risen eight per cent this year. He expects double-digit growth in 2019 as WestJet’s European connection takes off.
“It will dramatically increase the number of passengers using the international terminal and we need that — it’s a new terminal and was designed to grow,” Sartor said Wednesday.
“It will bring a lot of tourism in from these destinations and that’s good, not only for the airport but the surrounding area.”
Despite the concerns about the risk of expanding abroad, Sims remains confident the company will retains its traditional advantages while WestJet looks to evolve and reach new destinations around the world.
“The (WestJet) model in the future will be a low-fares domestic airline, feeding and being fed by a premium international operation. So we will retain that low-fare advantage within our home market,” he added.
“We love where the company is headed next.”