Not that WestJet has avoided turbulence. In February the company said its fourth-quarter income tumbled nearly 46 per cent to $41 million, on sales of $616 million. Last month, the airline’s load factor dipped, a sign of fewer bums in seats. Southwest Airlines, the U.S. discount carrier that served as the model for WestJet, has posted its first quarterly loss since 1991. Likewise, analysts say WestJet could also slip into the red. But after years of consistent profit, it has the balance sheet strength and flexibility to endure a few quarters of trouble, something Air Canada does not.
Despite the harsh downturn, WestJet plans to keep growing. This fall, WestJet takes possession of seven new planes, followed by another 43 over the next four years, bringing its total fleet of Boeing 737s to 121. As WestJet’s fleet of new aircraft grows, it will enjoy an even greater cost advantage over Air Canada. New planes, like new cars, come with warranties, meaning WestJet won’t have to pay as much for repairs. Cordle estimates Air Canada already pays 290 per cent more in maintenance costs than its western rival.
It’s a similar situation with WestJet’s younger workforce. Next to WestJet’s hangar at the Calgary airport, construction crews are putting the finishing touches on a new $100-million head office building—paid for, it’s worth noting, with cold, hard cash—to house its growing workforce. WestJet also has agreements to take over neighbouring property when space is needed for future buildings. Many of those new workers will start at entry-level pay. Yet as Air Canada shrinks, younger, lower-paid workers will be the first to go. “The more WestJet grows, the lower their cost structure becomes and the lower the fares they can offer,” says Cordle. “It’s such a competitive difference that WestJet is effectively driving Air Canada into bankruptcy.”
Of course, even bankruptcy wouldn’t end this fight. Instead, it could intensify it. David Newman, an analyst at National Bank Financial, says Air Canada would likely, as it has before, launch a price war to defend its market share. And even if WestJet surpasses Air Canada, that will present its own challenges. How long before Canadians begin to grumble about WestJet’s dominance? And how will it maintain its unique culture and cost advantages? “WestJet would prefer to have Air Canada in the market,” Newman says. “Wouldn’t you rather have a competitor that’s 30 per cent more costly than you?”
So perhaps there’s a distinction to be made in WestJet’s ambitions. The airline’s goal is to become the dominant player in Canada’s skies, but not necessarily the only player, a goal which Air Canada long pursued to self-destructive lengths. But as WestJet inevitably usurps Air Canada to become the country’s largest domestic airline, the older carrier might pause to take some lessons from its conqueror. “Without a doubt WestJet is in the top three or four airlines in the world in terms of their efficiency, profitability, culture and quality of the service,” says Cordle. “It is the airline model of the future.”
