WestJet Airlines Ltd. (WJA) agreed to purchase 65 Boeing Co. (BA:US) 737 Max planes with a list value of $6.3 billion, helping bolster the carrier’s edge over Air Canada in using fuel efficiency to reduce costs.
The 737 Max will decrease fuel burn and carbon dioxide emissions by 13 percent compared with the most efficient single-aisle jets currently on the market, Calgary-based WestJet, Canada’s second-largest carrier, said in a statement today.
As oil prices touch five-year highs this week, WestJet Chief Executive Officer Gregg Saretsky is counting on a fuel-efficient fleet as part of a plan to cut expenses by C$100 million ($95 million) by the end of 2015. WestJet’s fuel cost per available seat mile, a measure of efficiency, was 4.5 cents last year, compared to Air Canada (AC/A)’s gauge of 5.3 cents, according to data compiled by Bloomberg.
“When I look at WestJet I’m seeing a huge cost advantage,” Chris Hensen, a fund manager at Manulife Asset Management Ltd., which oversees about C$1 billion, said by phone from Toronto before today’s release. “Air Canada has closed the gap a bit but it’s still there.”
WestJet, which is tied with JetBlue Airways Corp. for having the youngest fleet in the Americas, signed a letter of intent to purchase 40 of the 737 Max 8 planes and 25 of the 737 Max 7, according to the statement. Delivery for the new planes is scheduled to start in September 2017, the company said. WestJet plans to make a purchase agreement before Sept. 30 of this year.
This upgrade substitutes 15 of WestJet’s current 737 plane orders, for a net increase of 50 committed deliveries, WestJet said. The carrier estimates 2013 capital expenditures will be as much as C$710 million, up from from its previous projection of a maximum of C$630 million, according to the statement.
WestJet’s fleet, which is comprised mostly of Boeing 737s, has a mean age of 6.7 years, compared to Air Canada’s average of 12.6 years, the Bloomberg data show.
WestJet slipped 1 percent to C$21.80, while Air Canada advanced 5.3 percent to C$2.80 at the close in Toronto. Boeing added 1.6 percent to $104.93 in New York.
CFM International, the joint venture between General Electric Co. (GE:US) and Safran SA (SAF), said WestJet also ordered engines for the planes with a list price of $1.7 billion.
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