WestJet sees robust growth, mulls interline links
December 4, 2007
CALGARY, Alberta, Dec 4 (Reuters) - WestJet Airlines Ltd has no plans to restrict capacity growth as some U.S. carriers are doing because it sees no cracks in the strength of Canada's economy, WestJet's chief executive said on Tuesday.
WestJet, the No. 2 Canadian carrier, has been buoyed by brisk domestic and transborder travel and a strong Canadian dollar, which tempers the impact of high fuel prices. "The economy in Canada is very robust. Our plan going forward is to continue at approximately 10 percent (available seat mile) growth or better," WestJet CEO Sean Durfy told reporters after a speech to a business audience.
"I think what's happening in the U.S. is you're seeing consolidation, there's a lot more competition in the U.S., a lot more peripheral players in the U.S. and a lot more legacy carriers in the U.S. trying to get their costs down."
Delta Air Lines Inc said on Tuesday it expects its 2008 domestic capacity will fall by as much as 5 percent, and Southwest Airlines Co said it plans to slow its capacity additions by about half to 4 percent to 5 percent.
Both U.S. carriers blamed waning consumer confidence and soaring fuel prices for the moves.
But the Canadian dollar has proved to be a hedge against fuel and other U.S.-dollar-denominated costs for WestJet.
Durfy said the Canadian currency recent retracement to around par with the greenback had minimal effect because oil prices have also retreated from levels close to $100 a barrel.
"The correlation is still there so we have no problems in the future. If both come down together it's good for us," he said.
The Canadian dollar slipped to around 99 U.S. cents on Tuesday in the wake of a Bank of Canada rate cut, after setting a modern-day record high above US$1.10 in early November.
In the third quarter, the currency-fuel effect helped WestJet cut unit costs by 0.6 percent despite a 59 percent year-to-date rise in oil prices. Fuel makes up a quarter of the airline's costs.
Durfy said 35 percent of capacity will be earmarked for U.S., Mexican and the Caribbean vacation destinations this winter, making up for weaker domestic demand.
Next year, the company's vacation unit is expected to generate as much as C$120 million ($120 million) in revenues, up from an estimated C$50 million in 2007, he said.
Meanwhile, WestJet has been in talks with as many as 70 airlines around the world as it looks to start up interline activities in earnest next year, Durfy said.
Many of those are in the Oneworld Alliance of carriers, which currently has no Canadian connection to compete with the Star Alliance. WestJet's chief competitor, Air Canada, is a Star Alliance member.
Last month, the Globe and Mail newspaper reported WestJet was in talks with Air France about an interline deal, under which the airlines would co-operate on reservations, ticketing, baggage handling and other services.
WestJet's interline capabilities have been restricted by its reservation system, which is now being upgraded.
"One of the things that, fundamentally, we won't do is we won't hurt the business model we have," Durfy said. "Code-share and interline are usually based on the legacy types of airlines. We're not a legacy airline, we're a low-cost model."
WestJet shares rose 45 Canadian cents to a 52-week high of C$21.65 on Tuesday.