WestJet to rejig fare structures in search of revenue
Aims to generate greater revenue from ticketing options
Chris Sorensen Financial Post
Friday, November 04, 2005
WestJet Airlines Ltd., which yesterday posted a healthy increase in its third-quarter earnings, plans to follow Air Canada's lead by introducing a system of air fares that encourages passengers to pay more for their tickets.
Calgary-based WestJet is hoping passengers will opt to "buy-up" by offering, in addition to its regular air fares, higher-priced fares that come with such extra services as the ability to choose seats or change flight plans without incurring a penalty.
The concept, touted as a success by Air Canada, will be made possible by WestJet's investment in a new reservation system to be implemented next year.
"Our existing system only allows us to display one fare," Clive Beddoe, WestJet's chief executive, told analysts during a conference call. "We can't bundle benefits with different fares the way Air Canada does. That's an ambition we've had for many years, but our [existing] technology does not allow us to do that."
In addition to allowing WestJet to better manage its pricing and seat availability, Mr. Beddoe said the new reservation system will also permit it to partner with other airlines in the future, including small domestic carriers that could act as a feeder network for WestJet's main routes.
The technology will also make it possible for WestJet to join an international alliance of air carriers, pushing more foreign traffic on to its domestic network.
The opportunities being considered as a result of the new reservation system are among several examples of how WestJet is steadily moving away from its roots as a low-cost, no-frills airline. Other new strategies include trying to lure more business passengers and attempting to increase market share in Eastern Canada.
WestJet said yesterday its efforts were "clearly" paying off and contributed to third-quarter earnings that rose 43% to $30.3-million (23 cents a share) beating average analysts' estimates. Meanwhile, the airline recorded a 31% rise in quarterly revenue to $406-million. "Overall, we think the results are moderately positive for the stock," wrote Nadi Tadros, an analyst at Desjardins Securities, in a research note.
But sources have told the Financial Post that WestJet's evolving business model is also among the reasons that Tim Morgan, Westjet's former vice-president in charge of operations, abruptly left the airline last month for unexplained "personal reasons."
However, Mr. Beddoe said yesterday the departure of Mr. Morgan, one of WestJet's four co-founders, had nothing to do with strategic differences. "There's some conjecture that there was some disagreement on an operational basis between Tim and I. That's absolutely incorrect and unfounded," he said. "The reason for Tim's leaving was entirely and 100% personal."
As well, he downplayed concerns about the impact of Mr. Morgan's departure, saying WestJet is undergoing an evolution in management and has slowly been building a second tier of senior managers. "I'm very, very pleased with where the company's going and the evolution of the organization and its management team," he said.
"The day-to-day operations of this airline are in very good hands."
Air Canada ACE.B-T Last Trade:Nov 11, 2005 16:10 EST
Last: C$ 35.000 Net Change: C$ 0.390 % Change: 1.13%
WestJet Airlines WJA-T Last Trade:Nov 11, 2005 15:56 EST
Last: C$ 11.910 Net Change: C$ 0.410 % Change: 3.57%
