WestJet
is pressing for Canadian corporate business by adding frequencies in key
business markets, growing a new frequent flyer program and expanding
partnerships with other carriers. Canada's number-two player on May 2 will
launch additional peak-time services from Toronto to both Montreal and Ottawa,
up by two daily flights to 10 and nine, respectively. The carrier, which in a
December investor presentation claimed nearly 40 percent of the domestic Canadian market, indicated that the announcement is a "springboard
for other strategic initiatives that are planned to improve the value we
provide for business travelers."
As part of service expansion in the lucrative Eastern
Triangle business travel markets, WestJet will allow passengers on to
"take an earlier or later flight on the same day" without paying a
fee.
Not everyone immediately was sold on the carrier's latest incursion
against market leader Air Canada. During WestJet's earnings call last week, RBC
Capital Markets transportation analyst Walter Spracklin called the addition of
Eastern Triangle flights "a head-scratcher," as WestJet, using Boeing
737s, tries "to emulate with a larger aircraft some of those higher-frequency
[services] in an already crowded market."
As WestJet CEO Gregg Saretsky sees it, business flyers will
be there to fill those planes. He claimed "several major national
companies" signed corporate deals in the past year, with more coming, but
none were identified.
"It's no secret that Toronto-Ottawa, Toronto-Montreal
markets have the largest concentration of business travelers in the
country," Saretsky said. "There's $600 million of revenue at play,
and we believe our approach has been a very conservative one. We're not trying
to match frequencies by these other competitors. What we think we're doing is a
smart move by having hourly frequencies at seven, eight, nine in the morning
and four, five, six in the evening for a total of 10 flights a day in
Toronto-Montreal and nine flights a day for Toronto-Ottawa, which isn't up
dramatically from schedules we've operated in those markets in the past."
WestJet executive vice president of marketing and sales Bob
Cummings added that "now is the time to really step it up and become that
relevant, meaningful alternative for corporate travel across Canada. This is a
step in that direction, and there will be further announcements that will
enhance our measured approach into that market."
Expanded Eastern Triangle service hardly is the carrier's
first move aimed at corporate Canada. WestJet in the past year launched its
first frequent flyer program—one that Cummings claimed is particularly attuned
to business traveler needs—and installed the SabreSonic reservations system,
which lays the foundation for more corporate travel initiatives and partnership
agreements.
"With the major reservation system enhancements now
firmly behind us," Saretsky said, "we'll be adding fare products that
increase the flexibility for business travelers and growing our schedule
utility to this segment through our codeshare relationships."
WestJet last year launched its first U.S. interline
agreements with American Airlines and Delta Air Lines, with a longer-term goal
to "turn those into codeshare agreements," Saretsky said. The carrier
this year expects to implement at least three codeshare deals and ultimately
secure a codeshare partner "from each of the geographic regions around the
globe," he added.
Business
Passengers Powering Positive Revenue Trends
Canaccord Genuity transportation analyst David Tyerman told
WestJet management during last week's earnings call that "you still don't
look like a business-traveler airline in some ways. Specifically, you obviously
don't have any kind of premium seat arrangement and also you lack the kind of
loyalty program that [Air Canada's] Aeroplan, for example, would have, with all
the points you get from international travel."
Saretsky acknowledged those limitations, saying that travelers
who are "heavily invested in competitors' frequent flyer programs at the
elite levels are probably not candidates to move into our program. But we have
a very compelling value proposition that gets Canadian CFOs quite excited by
the opportunity to save lots of money."
Even without a business-class product—the carrier has no
immediate plans to add one—WestJet attributed much of its fourth-quarter
revenue per available seat mile growth to a larger base of business passengers.
CFO Vito Culmone said, "We believe RASM growth for the first quarter of
2011 will be roughly in line with what we've see in the past fourth
quarter."
Meanwhile, stronger passenger yields evident from the second
half of 2010 have been "an encouraging sign that the economy is gradually
recovering and WestJet is benefiting from additional pricing power,"
Saretsky said. Those factors, along with higher fuel costs, prompted WestJet in
January to successfully hike fares twice, each by C$5 to C$10 one way, based on
length of haul. Air Canada would not comment on whether it had matched those
price increases.
While a growing number of business passengers lifts revenue,
the diversification of WestJet's booking channels adds costs. The airline in
2010 spent C$255.7 million on sales, marketing and distribution, up from C$172.3
million in 2009. "This is primarily attributable to the distribution
channel shift we have experienced under the new reservation system," Culmone
said, referring to the SabreSonic installation that began in 2009. "The
new systems allow for greater ease of use for travel agents, but also lead to
higher commissions, incentives and transaction fees that come with use of the
indirect channels." WestJet claimed a roughly 60/40 split between direct
and indirect distribution.