tcook052

http://business.financialpost.com/20...aft-next-year/

WestJet Airlines Ltd. could bring in wide-body aircraft for in-house flying as soon as next year, the company disclosed to its pilots in a private presentation Thursday.

The Calgary-based carrier currently has a so-called “wet-lease” agreement in place with Thomas Cook, in which Thomas Cook provides pilots and two Boeing 757s to WestJet for its flights to Hawaii in the winter months. That contract, however, expires in the spring of 2015.

WestJet’s management has been evaluating the possibility of placing a purchase order for larger, longer-range aircraft. But in the interim, the carrier is floating the idea of “dry leasing” some Boeing 767 or Airbus A330 wide-body aircraft that will use its own pilots and crews when the Thomas Cook contract expires, according to those who attended the town hall with the pilots Thursday in Calgary.

airbus320

AC would have competition.

robsaw

Well, if they start going to some year-round, longer-range routes, then it at least makes some sense to lease aircraft longer-term and fly with their own crew instead of wet-lease seasonally. I'm sure they could pick-up some good deals on 767's & A330 for a few years until they can get new widebody aircraft if it looks like a success.

WR Cage

Fixed the quote for you.

The legacy thoughts out of the head shed at WestJet was do Encore operation first and then go directly to 787 widebody operation in the last half of the decade. This is the best indication that WS Big Shots are looking at the rouge expansion and not seeing much left over for WS to pick up in 2017-2019 timeframe.

When AC and WS go head to head, its rare that one beats up the other. However the third place operator exits the market and WS takes their spot. WS took over from Jetsgo on the transcon market and WS took over from Canjet on the Atlantic Canada market. On LAS, WS took over from HP/US.

sokolov

And on the East Coast they wait until Porter is bust? Is that the idea?

BTW, there is now a route with four operators: YHZ-YYT/YYT-YHZ

AC, WS, PD and 5T (Fridays in summer). 5T is hard to beat if you have lots of luggage.

Is there any other route in Canada with four competing carriers?

TheGreatestX

Edmonton-Yellowknife

Air Canada, WestJet, Canadian North, First Air

opethfan

Except in profitability, which is a key separator.

I'd expect WS to make a move soon if they're planning on ordering 787s. Even with a strong Boeing relationship, there aren't many slots available for the 787, or A350. Which makes me think that maybe A330s will be leased in the meantime if / while waiting for 787 deliveries. 767s may be an option as well, but many on the used market will be older with more cycles, and may not fit as well with WS' cargo ops.

YYCguy

I hear that there are some 787 "teens" that are looking for owners. Apparently they are heavier and have about 1000 nm less range than the latest versions. Also quite a bit cheaper. Would these be of interest to WS?

WR Cage

Here is a couple of fast facts regarding AC and WS profitability:
- In domestic market both AC mainline and WS mainline make money. Where AC loses money is the AC express routes, both where ACE competes with WS/WS-Encore and where WS has no market presence.
- In the transborder vacation market, AC mainline breaks even or loses a little bit of money on routes that compete with WS. However AC rouge turns these routes into profitable status. This is because AC rouge has better market mix than AC mainline (mainline cannot sell business cabin to save their life). Additionally, WS makes a lot of money on the transborder vacation markets through package deals at WS Vacations. If WestJet Corp split out the airlines results from the vacation package tour results, it would likely result in the airline operation losing money on a stand-a-lone basis.
- In the transborder business market, AC has a large presence but WS has very small presence. The markets where WS and AC compete are money losing propositions for WS. However because the presence is small, other segments of the WS business make-up/hide these losses.
- In the Caribbean market WS makes a lot of money off the Vacation package market, but AC has a very small presence. If WestJet Corp split out the airlines results from the vacation package tour results, it would likely result in the airline operation losing money on a stand-a-lone basis.
- AC loses money in Q1 and Q4 on the Asia, S America, and Europe international operations where WS has no presence. During Q3 where AC makes up for their international losses, AC results are comparable to WS.

WR Cage

Look at the number of airlines with multiple seat configurations for the 763 and you will get an idea of problems WS would have introducing this type into the fleet. The different door positions are good example of what occurs throughout the 763 fleet. AC for one had 4 different subtypes that drove maintenance, operations, flight crew teams batty with different equipment configurations.

WS has to minimize the different subfleet types in order to maintain consistency and low cost operations. Its not a matter of finding 6 763s, its a matter of finding 6 763s that were outfitted with common equipment and configuration. Its for this reason the 332 and 333 aircraft becomes attractive. Although the 332/333 is bigger than 763, there is a lot fewer configuration differences.

I suspect that WS will kick the tires on the 787 teens and will come to the same conclusion as Transaero and other airlines, the number of equipment modifications and other differences is substantial enough that the 787 teens are not likely to be profitable operation. Likely only potential for 787 teens is to have Boeing make the required modifications and then conduct their own leasing operation on this unique fleet of 8 aircraft.

HangTen

If everything makes money at Air Canada, then why are they always near the bottom of the heap when the profitability rankings are released every quarter?

On the other hand, if everything is so marginal at WJ, why are they always near the top of the heap?

This debate about where Air Canada makes money has gone on for years.

The answer is the transatlantic. And most of that occurs from May 1 to October 10th. The transpacific used to be pretty lucrative but that is no more and won't be for along time. South America is pretty good, but is a tiny part of their business. The domestic transcon is still good for all and I'd bet Toronto to Los Angeles is pretty good as well.

The rest, as a whole, is a necessary evil to fill the transatlantic / transcon network. There are some exceptions to the rule where they don't yet compete with low cost airlines but those are opportunities are dwindling month by month, route by route. Phoenix-Toronto is the latest route that is going to turn from the black to the red next fall I think and a whole bunch of profitable regional routes will disappear as Encore grows in Toronto over the next 36 months.

The leisure sun flying is necessary for to burn the gazillions of aeroplan points out there.

IMO, the biggest threat facing Air Canada's is what happens to their profitability when Westjet pushes further into Europe with even a small wide body fleet, backed by their domestic network, that Transat doesn't have. Fares are going to tumble, just like they have everywhere else.

If that sector goes from big profit margins down to break-even due to lower cost competition, like what happened like dominos domestically, on the transborder and to the sun, it could cause big problems for big red down the road.

It is really hard for these legacy airlines to cut costs far and fast enough to keep up with the LCC's that keep expanding like weeds. By the time they restructure or come up with a new "low cost" scheme, the LCC virus morphs again and attacks another previously healthy limb that was keeping the rest of the tree alive. Then the legacy has to start the cost cutting process all over again, often with more desperation as there are even fewer healthy limbs left on the tree to subsidize the losses.

It's one thing to lose 5% on a round trip flight that costs $10,000 to operate. The losses really pile up quickly when a 15% route that costs nearly $300,000 to fly a round trip turns into a break-even or worse.

Its a really tough position for the old legacy airlines to be in and there are no easy solutions. Qantas is figuring that out, even though they were thought of as the most innovative legacy airline out there just a few years ago with their Qantas / Jetstar scheme.

opethfan

I think what's most surprising or troubling for AC is that WS seems to not just be profitable from a financial standpoint, but they also seem to have a mostly contented workforce. There's no big push for unionization and apparently it's harder to get employed by WS than it is to be accepted to Harvard (according to a speech made at SFU a few months ago).

If WS have money coming in; a happy, competitive workforce; a growing feeder network; a large number of efficient new planes coming in; strong customer satisfaction; a growing OneWorld relationship; and if they bring in widebodies for long haul flying, AC could be in quite a lot of trouble.

sokolov

Why do you think that is the case?

Symmetre

BINGO!

WR Cage

AC adventures in the regional market have been nothing short of abysmal from a financial case. The pure regional routes lose buckets of money because they cannot consistently fill the airplane on a daily basis(i.e. the Monday morning flight to Timbuktu is full but the Tuesday to Saturday services are wide open).

The reason AC maintains the regional markets is because they feel that their customer base demands this service. For example in AB AC flies Edmonton to Grande Prairie as these flights are demanded by AB government. So if AC wants to be profitable on YEG-YYZ, they also need to service Grand Prairie flight.

The further complicating problem for AC was that in order to spin out Regional flying they had to offer premium to the TSX market. AC has been trying for years to lower their premiums paid to Chorus/Jazz Aviation and this is why they are keen on moving traffic to Georgian and Sky Regional.

Please go back an reread my original post. I am not saying that everything at AC makes money or the WS is a marginal operation.

However what I am saying is that instances where WS mainline goes up against AC mainline, both companies are making money (albeit WS makes more than AC). Where AC is losing money are markets not currently served by WS. Likewise where WS makes most of their money AC does not have high frequency service. However AC rouge is the game changer for AC, seat density and flight crew wages are much more in line with WS on AC rouge than AC mainline.

The other point to make is there is a big difference between making money (generally considered positive cashflow from operations) and net income (the figure most business media folks have been focusing on). In cashflow terms AC netted over 700 million last year on net income of 10 million. The financial delta is mostly due to differences between US GAAP and IFRS, particularly in pension accounting. If AC reported using US GAAP instead of IFRS, their net income figure would be about 600 million rather than 10 million.

I am not alone in being an accountant desiring to burn their professional designation over recent changes to IFRS. Particularly over changes to pension accounting rules. Took me a lot of time with the AC financials and IFRS/IAS pronouncements determine how AC can claim "best financial year ever" and then post a 10 million dollar net income.

Here is a big hint into the future, watch for AC to post close to 1 billion dollar profit as the pension liability unwinds.

WS core senior management is currently contending with significant union drives at both the Flight Attendant and Pilot groups. Likely one or both will be unionized in the next 18 months. If one group gets unionized, then expect the above wing Passenger Service Agents in Canada to also go unionization. Ramp crews are only WS employees in YYZ, YYC, and Grande Prairie, so I would not expect them to get unionized any time soon. Same goes for maintenance workers (not enough membership to make unionization worthwhile).

With all this talk of unionization, I don't expect WS to fall off a cliff in the next 24 months, but their profitability will slowly and very gradually deteriorate as the union starts to win concessions or WS offers more concessions to PACT in order to keep out unionization drive.

Don't expect WS to ever join Oneworld or another alliance. They have a very low threshold for accepting outbound codeshare and prefer to contract with individual airlines over specific routes.