WestJet aims for turnaround after turbulent year that saw profits plunge
Calgary-based company predicting growth of 40% on per share basis
WestJet Airlines Ltd. aims to lift its lagging profits over the next four years, predicting earnings growth of 40 per cent on a per share basis between 2019 and 2022 after a turbulent year that saw profits plunge.
Soaring fuel costs, labour unrest, and steep competition at home and abroad caused Canada's second-largest airline to incur its first loss in 13 years during the second quarter, followed by a steep year-over-year drop in the third quarter — which nonetheless bounced back into the black.
Revenues and efficiency were "nowhere near" the airline's potential, chief executive Ed Sims said at a WestJet investor conference Tuesday in Toronto.
Strong demand, more branded fares and higher ancillary fees will boost its revenue per available seat mile to between two per cent and four per cent in 2019, Sims said.
Branded fares bundle various perks — such as pre-reserved seats and baggage checks — at a higher total price.
Earlier this year, the airline launched transatlantic service on the first three of an expected 10 Boeing 787 Dreamliner aircraft in a bid for business passengers that challenges Air Canada's transatlantic dominance.
A crowded domestic market resulted in "over-supply" and weaker revenue per available seat mile — a key industry metric that divides operating income by passenger carrying capacity.
A freshly expanded Flair Airlines, soon-to-launch Canada Jetlines Ltd., and Air Canada's low-cost Rouge are all crowding the budget airspace that WestJet has flown into with its four-month-old, ultra-low-cost Swoop.
The market saturation means WestJet will "step back from profitless volume," Sims said.
The airline aims to grow passenger capacity by between 6.5 per cent and 8.5 per cent next year, mainly through three Dreamliners embarking on non-stop service from Calgary to Dublin, Paris and London's Gatwick Airport this spring.
Only a sliver of the beefed-up capacity will come from the domestic realm, where Swoop plans to expand its fleet to 10, WestJet said.
The airline is battling with Air Canada on a number of fronts. Its Encore regional service goes up against Air Canada Express and its ultra-low-cost Swoop airline recently launched flights to the U.S. and the Caribbean, in competition with Air Canada's six-year-old Rouge unit.
On top of a long-range fleet that still dwarfs WestJet's, Air Canada's recent deal as the lead of a consortium to buy the Aeroplan reward program from Aimia Inc. represents another potential advantage Sims hopes to reduce through a travel rewards partnership with Mastercard and the Royal Bank of Canada.
Undaunted by Aeroplan purchase
Sims appeared undaunted by his biggest competitor's purchase of Aeroplan, announced Nov. 26.
"I don't have a concern," he said in an interview Friday.
"I think competition in this space is healthy. It forces both coalitions to strengthen the relationship, and I would characterize our relationship with RBC and Mastercard as every bit as strong as our competitor's relationship with TD, CIBC and VISA.
"We fully expect a number of our passengers to be carrying both cards," he added.
On Tuesday his airline broadened its codeshare agreement with Qantas Airways, giving WestJet access to the Australian carrier's flights between Los Angeles and Sydney, Melbourne and Brisbane, along with any attendant reward miles. WestJet's joint venture with Delta Air Lines, announced in July, opens up more of the southern U.S. and western European markets via flights to Atlanta and Barcelona. Nonetheless, luring high-flying passengers away from Air Canada without an alliance network to top it off could prove tough.
WestJet remains outside the constellation of major airline alliances, comprised of Star Alliance — of which Air Canada is a member — SkyTeam and Oneworld.
Next year, WestJet expects to spend about $1.1 billion on deposits and purchases related to the Dreamliners and Boeing 737 MAX narrow-body aircraft. It also plans expenditures of about $980 million in 2020 and $1.1 billion in 2021 on seven more Dreamliners.
The company has signed a letter of intent to sell and lease back the first three Dreamliners, on track for delivery early next year.
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