Todd Korol / Reuters
It all threatens to create an even bigger competitive headache for Air Canada, according to industry insiders. When the country’s biggest airline flew out of bankruptcy protection six years ago, its business plan was to match WestJet’s low prices in the domestic marketplace and make up for any shortfalls by focusing its energy on exploiting its vast international network (WestJet’s costs are estimated to be about 30 per cent lower on any given domestic flight). In general, long-haul overseas flights are more profitable because airlines can charge higher fares—passengers are often willing to pay more for additional comforts on flights longer than four or five hours—and have more opportunities to make money hauling time-sensitive cargo in their holds, including everything from Atlantic lobster to auto parts. And so, Air Canada invested heavily in new aircraft, including state-of-the-art Boeing 777s and yet-to-be-delivered 787 “Dreamliners.” It also set about refurbishing cabins on older aircraft. Now most of its long-haul planes boast executive class cabins with lie-flat seats.
Erickson, for one, wonders whether WestJet’s alliance strategy is a prelude to operating its own overseas flights. The airline followed a similar pattern in the packaged holiday business: in 2003, it entered into a multi-year partnership with industry heavyweight Transat that saw it fly charter flights to destinations in Mexico and the Caribbean. But, after realizing how profitable selling packaged holidays can be, it launched its own WestJet Vacations business. “I think they’re going to do the same thing in the international arena,” says Erickson, suggesting that Boeing’s long-range 787 would be an ideal plane for the job. Unlike Air Canada, WestJet currently flies one kind of airplane—Boeing’s 737—which helps keep maintenance and pilot training costs down. But the downside is that it limits the airline mainly to destinations within North America.
Not everyone thinks overseas flights are in WestJet’s future. Peter Wallis, who worked with Saretsky at Canadian Airlines and is now the president of the Van Horne Institute at the University of Calgary, says adding another aircraft type would add too much cost and complexity to WestJet’s relatively simple business model. “I think they will stick to their knitting,” he says. “The big differentiator between WestJet and others has been costs.” However, Saretsky, like his predecessors, has suggested that WestJet’s original low-cost model is not a religion and must be adapted to market realities. Indeed, WestJet has made a number of tweaks as it has grown into a major North American player with 88 planes (and another 47 on order over the next six years). They include adding frills like seatback television sets, leather seats and, most recently, a complicated computerized reservation system that will allow it to sell Air Canada-style fare classes and add-ons.
Still, as Air Canada continues to slash costs and become more competitive on the home front, the possibility of tapping the generally higher-margin business of transoceanic flying has to be on WestJet’s radar. It wouldn’t be the first time a discount airline has tried to make the leap. In 2005, Irish discounter Ryanair tried to take over Aer Lingus, which was more of a conventional carrier with routes to North America. But the deal fell through. Others have tried without success to replicate the discount airline phenomenon on long-haul flights, including Oasis Hong Kong Airlines and Ottawa’s Zoom Airlines, both of which have since gone out of business.
The risk is that the further WestJet flies away from its low-cost roots, the greater the likelihood it will bite off more than it can chew. The graveyard of the aviation industry is littered with examples of airlines, from Canadian Airlines to Jetsgo, whose grand designs left them in financial ruin. WestJet also needs to be mindful that its other competitive advantage—its vaunted employee culture—isn’t dulled by unfettered expansion. Although it’s hard to quantify, WestJet has reaped huge rewards from its friendly, motivated staff and its decision to treat passengers as “guests” as opposed to merely “bums in seats.”
So far, WestJet has resisted the temptation to overreach. But for how long? “They keep talking about becoming one of the five best airlines in the world,” says Erickson, noting that such accolades are usually earned by major international players with vast global networks, like Singapore Airlines, Cathay Pacific and Emirates. “But how can you do that if you’re not even known outside of Canada?”
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