After a challenging 2018, Westjet sees increasing profits in 2019 and beyond
Increasing premium-class revenues and cutting $200 million in costs at the heart of airline’s strategy
Ailine increasing capacity between six and eight per cent next year, mostly on overseas routes
Buffeted by turbulence in 2018, some of it severe, Westjet today predicts a better performance for investors in 2019, arguing its transition from a domestic Canadian flier to a global airline will start to pay off.
The airline was beset by major challenges in the past 12 months as weather delays, higher fuel costs and a threatened strike by pilots took a toll on summer bookings. The difficulties have led to questions about whether the airline was abandoning its roots as a folksy, fun, friendly airline.
Nothing at an investor day Tuesday in Toronto suggests Westjet is about to change course.
Westjet expects to increase capacity between 6.5 and 8.5 per cent in 2019, led by the introduction of Boeing 787 Dreamliners on services to Europe. Capacity within Canada will only increse marginally, thanks to expansion at the airline’s ultra low-cost entity, Swoop.
Westjet says its revenue per available seat mile – a key airline measure of financial performance – will increase between two and four per cent in 2019, driven higher by solid demand, a new business class product and an increase in Westjet’s charges for the first checked bag. It also predicts Swoop will earn an extra $40 per passenger by charging passengers for things big and small, right down to carry-on bags.
The airline is introducing Dreamliner service in 2019 with premium, revenue-driving features, such as lie-flat seats in business class and an expanded premium economy cabin. It is also introducing an enhanced premium cabin on Boeing 737 aircraft. Westjet will spend more than $3 billion on new planes in the next three years.
At the same time, Westjet says it will hold the line on costs despite the growth, finding ways to save $200 million in the next two years, through a variety of measures. In its WestJet-2018-Q3-Report, Westjet revealed that costs soared more than 13 per cent in the first nine months of 2018, and net earnings fell more than 73 per cent.
Westjet is in the midst of an overhaul of its image. The company came into existence in the mid-1990s, vowing cheaper fares and friendlier service than its main rival, Air Canada. Now, the two airlines are looking more and more alike, flying many similar routes at similar times, with similar classes of service inside their aircraft.
The transition has contributed to more difficult labour relations at Westjet, with pilots barely averting a strike earlier this year, and a successful unionization drive by flight attendants in 2018.
|Year ended December 31, 2019|
|RASM||Up 2.0% to 4.0%|
|Fuel cost per litre|
|CASM, excluding fuel and profit share||Flat to up 2.0%|
|System capacity||Up 6.5% to 8.5%|
|Domestic capacity||Up 1.0% to 3.0%|
|Effective tax rate||29% to 31%|
|Capital expenditures||$1.0 to $1.2 billion|
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