WestJet's new baggage

[Blastor]

WestJet's new baggage, No longer an upstart,
carrier feels growing pains

Chris Sorensen

Financial Post, Saturday, February 19, 2005

WestJet Airlines Ltd.'s decision to battle rivals with more aggressive pricing is worrying analysts -- not because it is an abrupt shift in strategy, but because it suggests deeper problems for the company and the industry as a whole.

After posting its first-ever quarterly loss of $46-million, WestJet chief executive Clive Beddoe said this week the airline plans to offer more lower-fare seats to maintain market share and protect key routes from advancing competitors.

With this move, WestJet is shifting from its strategy of improving profit margins by adding such extras as leather seats and live television to its planes, allowing it to charge more for tickets.

Among the fears is that WestJet's decision to offer more low fares, although good news for consumers, will further depress industry yields, or the amount of money airlines earn on each seat sold.

"When the one player who has been, more or less, the most disciplined operator decides to chase price, it's not very good for the industry in general," said Nadi Tadros, an analyst at Desjardins Securities.

"That means lower pricing for everybody. And in that case, nobody really wins."

WestJet, however, is gambling that its lower cost-structure -- which should be reduced further with management's decision to speed up the replacement of its ageing Boeing 737's with more fuel-efficient models -- will allow it to run its smaller rivals into the ground.

In addition to a rejuvenated Air Canada, Calgary-based WestJet now faces stiff competition from Jetsgo Corp. and CanJet Airlines on several key routes. "We cannot let any carrier gain a foothold in any sector of our market," Mr. Beddoe said during a conference call.

But heightened competition is only one of many problems faced by WestJet -- and it's far from clear whether a strategy of filling more planes with cheaper fares will help matters.

Like other carriers, the airline is grappling with dramatically higher fuel costs, airport fees and navigational charges. In addition, the company has been forced to absorb legal costs associated with a $220-million Air Canada lawsuit that alleges WestJet stole confidential route information.

Mr. Tadros, who this week downgraded WestJet's shares to "sell," calculated a 16% year-over-year increase in costs for WestJet flights of comparable lengths.

Meantime, WestJet's load factor, or percentage of seats filled on its planes, dropped to 67.5% in the most recent quarter, compared with 70.3% during the same period the previous year.

The company blamed part of the decrease in loads on problems with its computerized booking system, which has since been fixed.

However, at least one analyst suggested WestJet's weakened third- and fourth-quarter results may also be attributed in part to WestJet's lack of access to Air Canada's booking information -- currently the subject of the carrier's lawsuit against WestJet.

"We believe the information ... was potentially very valuable and could have allowed the company to better manage its seat inventory," wrote Claude Proulx, an analyst at BMO Nesbitt Burns, in a research note.

WestJet has denied Air Canada's allegations and launched a countersuit.
But what is clear, according to several analysts, is there are too many airlines chasing too few passengers. That's why some have suggested WestJet's focus on pricing may be a thinly veiled move to hasten the collapse of one of its key competitors.

"Maybe they're trying to push Jetgso to the wall," said Karl Moore, a business professor at McGill University. "That would certainly help calm the competitive environment."

Several have speculated privately held Jetsgo is the most vulnerable player in an industry suffering from overcapacity and may be the brink of collapse. But BMO's Mr. Proulx predicted Jetsgo is not about to disappear in the short term. "We are receiving information that Jetsgo is not about to run out of liquidity," he said in a research note.

Jetsgo has flatly denied it is in financial trouble. If that's the case, then WestJet could find itself in a prolonged battle with its rivals that will further hurt its margins, share price, and even reputation -- depending on the outcome of Air Canada's espionage suit.

"They thought they had the magic formula," said Douglas Reid, a business strategy professor at Queen's University in Kingston. "But WestJet has just discovered that they're a normal corporation like every other.

"And now they have to get out there and grunt it out like everybody else."


© National Post 2005

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[RL206]

Blastor, this is not a new thing in the business world unless you are subsidized by the government.

[Typhoon pilot]

[quote="Blastor"][quote]WestJet's new baggage, No longer an upstart,
carrier feels growing pains

Chris Sorensen

Financial Post, Saturday, February 19, 2005


A little old ain't it ?

Happy now DA900?

[DA900]

Typhoon pilot you could have just posted the date instead of the whole thing.

Blastor even I have to admit thats a little old and not really relevant anymore since the circumstances have changed making the environment incomparable.

[lazionic]

I guess you guys missed when Blastor posted this???

Blastor
Rank 7
Rank 7


Joined: 01 Mar 2004
Posts: 631
Location: North America

PostPosted: Sun Feb 20, 2005 1:18 pm Post subject: WestJet's new baggage Reply with quote:

[DA900]

Oops you are right... touche.

Sorry Blastor It did seem a little odd that he would post such an old article.

Its RL206 fault! He did that on purpose. LOL