HAve some Kool-aid and blame it on Fuel cost, or Air Canada, or the Fed's, or...........
WestJet tries to mitigate fuel costs
Joanne Lee-Young .CanWest News Service
Thursday, October 13, 2005
VANCOUVER -- The rising cost of fuel has hit net earnings hard at WestJet and the company is trying to keep airfares down, president and CEO Clive Beddoe said.
"We can control some of the other costs, but regrettably fuel used to be 18 per cent of the business. It is now 40 per cent," Beddoe told the Vancouver Board of Trade in a speech about the future of his low-cost airline. "We have offset some of this, but we haven't offset it sufficiently.
"We are trying to keep airfares down to keep people stimulated to travel," Beddoe said. "The incredible cost of fuel is a major, major challenge. It is extremely volatile, more so than you are seeing at the pumps. In August, we were paying 60 cents a litre. In September, 76 cents. Last week, it was 96 cents. That is a 50 per cent increase in basically 30 to 40 days so it is very hard to manage."
To cope, WestJet has tried several ways of making its fleet more fuel efficient: first, it has added eight-foot high winglets on the end of its airplanes. This "quite advanced technology reduces fuel burn by 3.5 per cent, which doesn't sound like much, but is a significant savings when you are paying $400 million on fuel a year," Beddoe said.
Also, it is aggressively retiring old planes. "The introduction of new airplanes is a significant part of our efforts to keep costs and airfares down. The net effect to us is about $60 million a year in savings," Beddoe said.
Beddoe said that while a fully loaded 737-200 plane at cruising altitude burns 3,200 to 3,600 pounds of fuel per engine per side, by comparison, a newer model 737-600 uses only about 1,900 pounds of fuel.
In 2005, WestJet added five new generation 737-800s, seven 737-700s, and three 737-600s. Next year, it is expecting delivery of ten new generation 737-600s and two 737-700s.
Once these new planes are in the air, Beddoe said it will "be all about utilization" and the company will turn up the number of hours per day that planes are in the air to further maximize their investment, which is about $40 million per plane.
Last week, while the proportion of available seats filled dipped for WestJet, Air Canada posted another monthly record for attracting travellers. At the time, Beddoe responded that it was a reflection of the market still absorbing capacity that WestJet is adding.
Beddoe said airfares could be shaved if airport authorities changed the structure of their landing charges. They could "differentiate the cost of landing an airplane per the time of takeoff and the time of landing. If that were done, you would see that the fixed cost of an airport could be spread over that many more flights. A classic example of this would be using the bridge. We are on the bridge for about half an hour, but we get charged same amount as, say, Air Canada that sits on the bridge for an hour and a half. That seems inequitable to me and hopefully we can see airports change this attitude ... and thereby bring down some of the cost to the consumer."
Some industry watchers expect Ottawa may change its policy of limiting foreign ownership in Canadian airlines to just 25 per cent, by lifting it to 49 per cent. This would pave the way for foreign investment dollars at a time when airlines, especially small ones, in Canada are not only battling fuel prices and stiff competition, but trying to expand.
Beddoe, however, showed lukewarm interest in any such change and thinks the industry has already taken care of that problem. At the end of August, WestJet joined other airlines including Air Canada and Transat in creating a dual-share structure so that variable shares could be held by non-Canadian owners and counted as one vote unless the total number of foreign-held shares exceeds 25 per cent of total common shares. This allows "foreigners (to) buy our shares and get different, flexible voting rights so that we stay within that 25 per cent. Quite frankly, I don't think that going to 49 per cent is a big issue."
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