Westjet delivers first quarter profit increase, begins plans for Asian partnership

A Westejt Boeing 737-700 departs Vancouver International Airport May 2, 2019 (photo: Brett Ballah).

Both of Canada’s national airlines weathered severe winter storms and plane groundings in the first three months of the year, turning impressive profits through trying conditions.

Westjet reported Tuesday that it made $45.6 million between January and the end of March, a 33% increase over 2018’s profit, flying a record 6.3 million guests in the process.

Monday, Air Canada reported net earnings of $345 million in the same period.

Both airlines were beset by severe winter weather through January, that saw Air Canada cancel 40% more flights than the previous year and the grounding, on March 13, of the Boeing 737 Max after a pair of deadly crashes in Indonesia and Ethiopia.

Westjet and Air Canada have responded to the crisis by shifting planes, rerouting passengers, and grounding certain flights.

Westjet chief executive Ed Sims said the 13 airline’s grounded Max aircraft represented 10% of planned system capacity. “Nonetheless, for the last 18 days of March, our absolute revenue was adversely impacted as we spent considerable effort re-accommodating thousands of disrupted guests, in the process losing some of our ability to capture close-in high-yield premium traffic.”

Sims said Westjet had covered 96% of its system capacity despite the grounding, while he said the entire non-Max fleet would be deployed during the busy summer months. The grounded aircraft, meanwhile, were being reconfigured with a new premium class seat for their eventual return to service.

Sims said revenue in Westjet’s premium seats was up a staggering 76% over the previous year. He said that was due to better revenue management – people paying full premium fare – and higher spending by frequent flyers. The airline also made more money in ancillary sales, such as meals and checked bags.

Westjet is in the midst of an overhaul of its strategy, shifting from a low-cost airline to a globally competitive carrier, with its first flights to Europe from its Calgary hub aboard 787 Dreamliner aircraft with a true business class last month, which Sims said is performing extremely well.

“We have not overstressed the business,” Sims told shareholders at the company’s annual general meeting Tuesday, “by flying new routes to new parts of the world that have a short-term excitement but long-term complexity. We are flying on tried and tested routes, on which we have flown first on narrow-body 737 operations, followed by the 767, followed now by the 787.”

In a strategy mirroring Air Canada’s, Sims said the company will increasingly focus its flights on its three hubs – in Calgary, Vancouver and Toronto.

Sims said Westjet’s next step is to look towards Asia.

“We will now start thinking about who the appropriate trans-Pacific partnership is. We will start to build a truly global network.”

A Swoop 737 taxis at Abbotsford International Airport in January (photo: Brett Ballah).

At the same time, Sims said Westjet’s low-cost subsidiary Swoop performed as expected, lowering costs for the company, and generating almost $40 in ancillary sales per traveller.

“Swoop… is the shock absorber, for the Westjet group, shielding and protecting Westjet from new entrants who could otherwise cause significant economic challenges for our organization,” he said.

Swoop is in a pitched battle with rival Flair Airlines for low-cost or à-la-carte travellers who choose what to pay for, right down to a paper boarding pass.

“However, as Swoop is still very early in its maturation curve – not even celebrating its first anniversary until June of this year – we are learning from our first winter of operations. Through the softer shoulder months (fall and spring), we experienced greater variability at Swoop than in our core Westjet business.”

Sims said the airline would turn increasingly to on-line travel aggregators – such as Expedia – to help smooth the peaks and valleys, though this would pressure on costs as each site would demand a cut of the action.

Sims also said Westjet was working towards more harmonious relations with its various unions, announcing a multi-year deal with flight dispatchers, concluded Tuesday.

“In the space of three months we have concluded three harmonious settlements for a significant number of our Westjetters,” said Sims.

“This represents a significant turning of the tide with regards to our labour relations.”