WestJet’s new chief executive says the Calgary-based airline wants to capture about half of the Canadian market in coming years, but it may need different planes to serve smaller centres if it hopes to succeed.
WestJet (TSX:WJA) now has about 38 per cent of the Canadian market, CEO Gregg Saretsky told the National Bank Financial transportation and logistics conference in Toronto.
“Our growth plan is geared to getting closer to (a) 50 per cent share,” Saretsky said.
In contrast, Air Canada (TSX:AC.B) estimates it has 56 per cent of the domestic market. The airline told the conference that it has so far achieved just over half of its target of $500 million in annual cost savings by the end of 2011.
Saretsky said WestJet expects to have about 45 per cent of the market within two to four years, but it will be more difficult to reach 50 per cent because many Canadian markets are too small to support WestJet’s current fleet of 119-seat planes.
While no decision has been made to acquire smaller aircraft, he acknowledged that WestJet has regular, internal discussions about it.
“Do we acquire a second fleet type? Is it an Embraer or a Bombardier aircraft? Is it a turboprop or a jet? Or do we just buy seats from an airline that can provide that through a capacity-purchase agreement,” Saretsky told analysts.
Analyst David Tyerman said WestJet’s 50 per cent goal will be challenging.
“It’s probably getting tougher for WestJet to take share at this point than it was in the past because in the past there were so many places they didn’t fly,” said Tyerman of Genuity Capital Markets in Toronto.
“It’s just obvious that as you start to get up to a higher percentage, it just gets harder to do that,” he said.
There’s not enough traffic on some routes to fill WestJet’s 119-seat planes, he added. “The only way you can do it is using small aircraft, regional jets or turbo props.”
Tyerman said Air Canada cost-cutting is needed for the airline to be as profitable as possible and to protect its market share.
But he says current cuts aren’t aimed at jobs.
“A lot of the staff reductions were a long time ago,” he said. “It doesn’t seem to be focused on removing a lot of labour content. I think it’s a lot more about making the place efficient.”
For example, Air Canada renegotiated its capacity purchase agreement with Jazz Airlines last year and that lowered its cost, he said.
“Some of it is trying to get better deals at airports, the Canadian (ones) typically (being) fairly expensive airports relative to global airports,” Tyerman said. “It’s going to suppliers and getting volume discounts, it’s operational and looking at how you redeploy crews.”
Meanwhile, Saretsky said WestJet’s focus is still to be one of the best low-cost operators of a Boeing 737 fleet. WestJet has plans to increase its fleet to 135 jets in 2016 from 88 now.
And he repeated that WestJet plans to increase its international reach in areas such as the Asia-Pacific and the Indian subcontinent through agreements with other carriers.
Saretsky also said that as the economy improves, the airline will be able to increase the use of its planes and add red-eye flights.
Meanwhile, he described it as business as usual for the Calgary-based airline now that he has taken over from departing CEO Sean Durfy, who announced last week that he was leaving the company for personal reasons as of April 1.
Saretsky joined WestJet in June 2009 as vice-president of WestJet Vacations before becoming vice-president of operations in October. He has also held positions with the now-defunct Canadian Airlines and Alaska Airlines.
Durfy said he will stay on until Sept. 1 to help with the transition.