Bloomberg News

WestJet Weighs Wide-Body Jets for International Flights

December 06, 2012

WestJet Airlines Ltd. (WJA) is evaluating adding long-haul international routes and has begun talks with Boeing Co. (BA:US) and rival Airbus SAS about wide-body jets that could fly farther than its single-aisle fleet.

Discussions are preliminary and focused on availability, capability and pricing, WestJet Chief Executive Officer Gregg Saretsky said at an investor presentation today. The airline has no definitive plans to purchase wide-body aircraft, and any decisions will probably be delayed until it’s satisfied with new Encore regional unit.

“There’s an opportunity for us to start exploring this notion of a possible wide-body long-haul international operations,” Saretsky said. The airline is just starting to review “what that might look like,” he said, and has no immediate plans to order aircraft

Buying bigger planes and adding longer routes would give WestJet more ammunition as it seeks to win market share from larger competitor Air Canada. (AC/A) The discounter resumed flights to New York’s LaGuardia airport in June and plans to open its new regional unit by 2013 to serve locations now only reached by Canada’s largest airline.

“WestJet has been all about a game changer recently,” Walter Spracklin, a Toronto-based analyst at Royal Bank of Canada, said in a telephone interview. “2013 is going to see a significant departure from the textbook low-cost carrier strategy. You’re seeing them now tap growth areas that go beyond that strategy.”

‘Huge Interest’

Spracklin has an outperform rating on Calgary-based WestJet’s stock.

The new Encore unit’s first group of communities will be announced in early 2013, the company said. WestJet has placed an order for Q400 turboprops from Bombardier Inc. (BBD/B) to supply that business.

“We’ve had a huge amount of interest expressed by Canadian communities from coast to coast looking for WestJet to liberate them from the high cost of air travel,” Saretsky said. “Many of these communities are provided service by a single carrier with airfares for one-hour segments that are well above what we charge for a transcontinental flight.”

Total seating capacity will increase 7 percent to 8 percent next year as WestJet rolls out more flights with its regional unit, the company said.

WestJet is modifying its fleet of single-class 737s, which have an average age of 5.8 years, to offer premium economy seating with extra legroom.

Fare Packages

That will give the airline flexibility to offer fare bundles targeting customers from business travelers who want extra legroom and to have amenities included in the total cost to economy passengers who want only basic service and are willing to pay separately for extra items, if needed.

The “seating strategy has opened the company up into a new way of maximizing revenue,” Spracklin said. “Now you have premium economy that you can bundle a fare structure around.”

Premium seating and fare bundles will allow Saretsky “to capture pricing in areas where one fare structure didn’t,” he said.

At the same time, Air Canada (AC/B) is moving to open its own low- cost carrier with service to holiday destinations in Europe and the Caribbean. Air Canada is also considering purchases of mid- sized jets amid growing confidence it will return to profitability next year after an anticipated fifth straight loss.

The Montreal-based airline is in talks with Boeing, Airbus and Bombardier Inc. for more than 100 aircraft, Chief Commercial Officer Ben Smith said in a telephone interview.

Air Canada rose 0.6 percent to C$1.79 at the close in Toronto, while WestJet added 0.4 percent to C$19.94.

WestJet said costs for each seat flown a mile, excluding fuel and profit sharing, will climb as much as 3 percent in 2013, compared with gains of as much as 3.5 percent this year. Capital expenses will rise to $320 million to $340 million from $270 million to $280 million this year, the company said.

To contact the reporter on this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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