With fuel costs and competition in flux, WestJet, a Canadian airline, targets a high-paying market segment.
WestJet Airlines Ltd. says strong demand, higher-paying passengers, and its new, ultra-low-cost subsidiary will bolster revenue in 2019 as the company continues its transition from regional airline to international player.
“We’re not seeing any potential slowdown in our booking curve,” said John Weatherill, vice-president in charge of pricing and revenue in a press release.
Despite tight domestic competition and volatile fuel prices, the Calgary-based company aims to boost revenue per available seat mile –an industry metric of how much cash each seat on the plane brings in– by between 2% and 4% in 2019. According to CEO Ed Sims, revenue from premium economy passengers shot up 70% last year.
The airline is starting to reap the benefits of more branded fares, which bundle various perks such as extra leg room and on-demand dining, and ancillary fees for meals and baggage. The proportion of WestJet passengers who opted to upgrade to a higher fare increased by 36% in the fourth quarter of 2018, up from 6% at the start of the year.
The 23-year-old airline plans to grow passenger capacity by between 6% and 8%–down half a percentage point from its previous target–largely through three Boeing 787 Dreamliner aircraft which will operate non-stop services from Calgary to Dublin, Paris, and London’s Gatwick Airport beginning this spring.
The intercontinental service will be bolstered by the acquisition of an expected 10 additional Dreamliners in a bid for business passengers that challenges Air Canada’s transatlantic dominance.
Intense competition remains a concern. 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 eight-month-old, ultra-low-cost Swoop.
“We still see risks related to increased [ultra-low-cost carrier] competition, labor, and execution around the company’s international growth strategy,” said analyst Cameron Doerksen of National Bank Financial.
WestJet earned $29.2 million in the fourth quarter of 2018, down from $47.8 million in the same period a year earlier. Profits amounted to 26 cents per diluted share for the three months ending Dec. 31, compared with 41 cents per diluted share in the fourth quarter of 2017. Revenue totaled $1.19 billion in the last three months of 2018, up from $1.12 billion a year earlier.
Kevin Chiang, an analyst with CIBC World Markets, cited a “healthy demand environment and strong revenue growth. While fuel has become a lot more volatile, we have greater comfort in our view of expanding profitability from Canada’s two largest airlines,” he said in an investor note.
Clear skies for WestJet.
