Pilots union may hinder WestJet’s expansion plans: analysts

WestJet Airlines pilots’ recent decision to unionize will create challenges for the company’s ambitious growth strategy, analysts say, and brings uncertainty as the airline looks to expand internationally and launch an ultra lowcost carrier.

On Monday, Moody’s revised its rating outlook for WestJet from stable to negative, in part due to execution risk of moving toward an ultra-low-cost carrier and expanding its international reach.

“The negative outlook reflects our view that WestJet will be challenged to achieve the deleveraging we had previously expected, with its concurrent wide body expansion program and the creation of an ultra-low-cost carrier,” said Moody’s vice-president and senior analyst Jamie Koutsoukis.

More than 1,400 WestJet pilots will join the Air Line Pilots Association, an international pilots union, after pilots voted Friday to unionize.

While the move was not a surprise — WestJet pilots tried to unionize in 2015, but 55 per cent voted against it — president and chief executive Gregg Saretsky said the airline was “disappointed with the outcome of the vote.”

WestJet’s stock dropped four per cent shortly after the union vote Friday, and dropped just under one per cent to $21.81 on Monday.

Earlier this month, WestJet agreed to purchase at least 10 Dreamliner aircraft from Boeing Inc., part of a larger strategy that will see the company look for growth in both longer haul and ultra-low-cost segments.

Analysts initially cautioned that WestJet may be taking on too much risk by simultaneously expanding with an ultra-low-cost carrier and longer-haul, international routes.

With the new union set to weigh in on those plans, analysts say WestJet’s growth strategy is in for a period of uncertainty.

“In our view, operating flexibility is a major downside risk facing WestJet given the fact that the company is about to further expand its wide body services in 2019, and roll out its ULCC initiative in late 2017/early 2018,” said Canaccord Genuity Corp. analyst Doug Taylor in a note to clients.