First off, there is a lot to unpack with today's Q1-2017 announcement at Westjet. Highlights:
- Return on Invested Capital (ROIC) is the key metric at WS. For the current quarter its down to 10% for the trailing 12 months from a target of 13-16%.
- Revenue per Available Seat Mile (RASM) has positive year over year figures for the first time in 2 years of quarterly results.
- Cost per Available Seat Mile (CASM) went up faster than RASM. Mostly due to fuel being higher than prior year.
- the new ULCC will be truly separate from mainline. So a pax will not be able to fly YXE-YYC-AZA on a single ticket. Further there will be no interlining between the ULCC and WS.
- New EVP Commercial that comes from a legacy airline, the incumbent EVP Commercial will head up the ULCC operation. Not mentioned on the call, but the incumbent EVP Commercial worked closely with Clive Beddoe and was - in my opinion - the "founding son" of the original four founding fathers.
- Crew for the ULCC will come from existing mainline ranks, but will be separate bid positions. (so there will be a mainline 737 captain and ULCC 737 captain on separate lists). No difference in pay rates from what I can tell.
- Dreamliners will have lie flat business class cabin in addition to a premium economy cabin. There will be a three class configuration with regular economy.
- Effectively 15 737max aircraft have left the fleet plan (it is common practice to never take up options that are converted from firm orders. In this case, the transfer to options allows the manufacturer to save face by not advertising the fact the order has been permanently cut).
- The 2019 max reduction is 3 max8 and 3 max9. The 2020 reduction is 3 max7, the 2021 reduction is 2 max7 and 4 max 8.
- There appears to be no increase in capital requirements for purchasing 10 789s vs 15 737max. At list prices, the 789 is worth 2.2-2.5 737max aircraft. If the first statement is true, then WS got one helluva deal on the dreamliners. Also if true, the net purchase price WS got would be equivalent to the AC purchase price for 789s after all the delay and performance rebates were factored into the AC purchase price.
Quote:
Originally Posted by Bigtime
[SIZE="4"]Alright, let the speculation begin!
(1) What becomes of the four 767-300's?
(2) Do they by chance move over the ULCC that WestJet is proposing, or do they fly off into the desert?
(3) With the MAX 737's coming with onboard ovens does the addition of the 787 indicate that we may see a true business class product roll out into the fleet?
(4) What potential new routes could we see launched from YYC with the 787's?
(5) Does WestJet take a stab at the Asia market from YYC and YVR?
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(1) I predict the 763s last WS mission will be as the beer can handed out by FA's on the LAS run. For clarity, the 3 789s to be delivered in 2019 can replace the 763 summer program.
(2) No chance the 763s move over to the ULCC. There might be a chance that WS picks up some better 763 models for widebody growth, but no chance the ULCC will see a widebody aircraft.
(3) Yep, this bolsters the opinion that WS mainline will become more aligned with AC mainline services. Hot food and domestic first class on the 737s, small lie flat cabin on Dreamliner, WestJet branded lounges, loyalty program improvements. The biggest outlier question is whether WS joins and alliance.
(4) YYC-Bejing Daxing Airport is within easy reach of the Dreamliner. Daxing will launch in 2019 timeframe. Here is a youtube regarding construction:
https://www.youtube.com/watch?v=rDJ4ao59qBU
AC is expected to stay in PEK with other Star Alliance airlines. The current China to Canada bilateral is filled to capacity on the Chinese side, so I don't expect any new route rights until atleast the opening of Daxing.
China Southern (CZ) and China Eastern (MU) will move to Daxing, so I suspect that one airline will get the rights to Daxing-YVR route and immediately start daily operations. This would put the route at between 4-5 daily widebody flights and squeeze out WS. Same situation at YYZ, AC plus one of CZ or MU will dominate the market.
(5) Asia is a definite yes, however beyond a big push for Daxing, I don't know if there is much for WS to do in Asia.
Japan is an extremely seasonal market. December to February is pretty much a Flight attendant and Pilot personal transportation service just to keep up the slot. Also the Japanese are very protectionist, so WS would have to do a deal with JL in order to get market access.
TPE is a possibility once the Chinese situation is resolved. But if WS attempts to go into both China and Taiwan simultaneously, the Chinese will say "no wonton soup for you".
The problem with YVR is that every Chinese airline is all ready there. Plus the Chinese are willing to take a pounding on route profitability just to block their domestic competitor, so the market (YVR-China) is the definition of irrationality.
Here is the big play with regard to the new international terminal.
- Fly a Dreamliner on the 8am YYZ-YYC and park it at gate 70. Do the reverse operation at 12:30pm.
- Fly an outbound noon departure to YYC-Daxing (gate 76), YYC-NRT (gate 78), and YYC-HKG (gate 74).
- Your 8am YYZ-YYC will have 200+ asia connection pax. The front door for the domestic to international connections is at gate 70. Its a short walk to the other Asia bound flights and much shorter connection than anything available at YVR. Return has the same functionality for Toronto pax using Calgary as a connection point.
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