dukepoint wrote:"Slow and steady", "let's start with three older machines"........... That's a 20 year old business plan. It worked well in 1996. This is not the same business environment. Is it the right strategy today? I ask this because WJ is a legitimate concern, with serious financial backing. Both Boeing and Airbus would fall over themselves to secure a sizeable Widebody order with you guys.
AC is cherry picking the profitable overseas routes. WJ is at serious risk of getting shut out of the overseas market, IMO. As far as I know, the Federal Government won't just let Westjet have slots in Heathrow, or compete in the Japanese market. It's far more complicated than that. The government won't grant a scheduled international route to a second Canadian carrier if they have reason to believe the market is already well served.....as far as I know.
Why do I care? I have a ton of WJ stock; so I'd call it a serious vested interest.
DP.
The Heathrow Slot Committee manages slots at Heathrow, not the Federal Government of Canada. The determination of who flies between Forign countries can be found Air Service Agreements between countires. These agreements specify how many carriers from each country, how much capacity or frequencies per week, or ultimately fully liberal agreements enabling open skies with no limitations or restrictions. The last time I was involved, the Canada UK bilateral specified two UK and two Canadian carriers. I can't recall if cities were specified or not.
The same process exists for other foreign countries and how they are to be served to and from Canada. The Canada Japan bilateral has provisions for two Canadian and two Japanese, then another Canadian carrier and Japanese carrier can be designated. I don't know what the agreements contains.
As for cherry picking profitable routes, a route is only profitable is a carrier can exceed it's costs. A market is not profitable in and of itself. The cost to participate with determine if it's profitable or not. On top of that, scheduled service is a commitment to operate on a year round basis. Low season operations can challenge year round profitability. The Japan to Canada market, at one time, had 24 seasons in one years, corresponding to demand from Japan. The shortest season was four days. It was all set around public holidays and when people travelled the most.
Airlines are lucky today because access to true traffic numbers and actual fare data is readily available, making it very easy to determine if a market is worth getting into. Throw in sophisticated modeling software, like SABRE's APM (Airline Profiability Model) and airlines can determine the most cost effective and profitable way to cycle airplanes and serve markets. These modelling tools take input data such as market pricing, market sizes, market shares, fleet types, competitor fleet types, etc and enable you to look at different scenarios. These have been around for twenty years.
The other piece that can displace good traffic is the prorated share of revenue from long haul traffic. International airline tickets, that domestic sectors, see the revenue prorated using weighted miles. In simple terms, if the long haul sector was 80 miles and the short haul 20 miles, the long haul sector would get 80% of the ticketed revenue. When you take a Hong Kong to Calgary journey sold at $800 return, that connects in Vancouver, you could see the YVR-YYC sector get $20-30. Given the strong local business market, do you want to displace high yield for low yield. Now, before anyone jumps on me, I am greatly over simplifying and not mentioning yield management, booking inventories, provisos, etc. But, the fact remains that long haul interline flow can cause a yield hit on a short haul sector.
I fully understand where you're coming from. I do. I also know that Gregg and his team have a lot of international experience prior to going to WJ. They are former Canadian alumni...of which I am too. As I said before, if there is a compelling business case to grow the fleet into new aircraft types, believing the effort would contribute to sustained profitability, we would be reading about such expansion.
I will close with the caveat that I have been away from the Canadian industry for many years and no longer live in Canada, but I am still in the industry and know how the game works. And, I don't work for Westjet. In fact, I've never flown on Westjet. I'm just a big fan of theirs because they're not trying to be the best of a mediocre bunch. They have an excellent senior team that I have known for many years and I have every confidence in them managing their growth.
