WestJet Airlines Ltd. (WJA)’s proposed regional unit would tap a $1.98 billion market by using turboprop planes to serve airports with runways too small for the company’s Boeing Co. jets, its finance chief said.
WestJet, Canada’s second-biggest carrier, said Jan. 16 that it may create a short-haul regional airline as early as 2013 to serve new cities and boost revenue. The new unit would use about 40 turboprop planes, Calgary-based WestJet said in a statement.
“When you look at the regional market in Canada and the U.S. transborder, we think that’s about a C$2 billion market but we’re not participating in that market today,” Chief Financial Officer Vito Culmone said today at a Canadian Imperial Bank of Commerce conference in Whistler, British Columbia.
The company is meeting with employees this month to get input on the plan, which would let more passengers access WestJet’s 71-city network in North America and the Caribbean. The short-haul unit also would let the company offer direct service between cities such as Regina, Saskatchewan, and Winnipeg, Manitoba, Culmone said.
Cities have been contacting the company, he said. “They want our service and we can’t deliver that service” with Boeing 737 aircraft.
“The most important thing for us now is engaging with our employee base,” Culmone said. “We are undergoing a two- to three-week heavy ‘town hall’ sort of session with WestJetters to ensure they understand why it’s right from a strategic perspective. And then, we will take it from there.”
Potential Plane Order
Hamzah Mazari, a Credit Suisse analyst in New York, said Bombardier Inc. (BBD/B) is the favorite to build turboprops for WestJet because of the unit’s proposed 2013 start date. Montreal-based Bombardier’s French competitor, Avions de Transport Regional, has sold out its production for about three years, he said.
“The only issue hindering a Bombardier order is if WestJet starts a low-cost airline,” Mazari wrote in a note to clients today. “Discussions with Bombardier are likely in advanced stages given an order would have to be placed this year for delivery in 2013 if the airline is approved.”
Culmone didn’t discuss the potential plane order during his presentation, which was broadcast on the Internet.
WestJet fell 1.8 percent to C$11.34 at the close in Toronto. Bombardier was unchanged at C$4.50.
There is about a 60 percent probability that WestJet employees will approve the regional unit, Mazari said, citing unspecified “checks” made by Credit Suisse.
The company considered acquiring existing Canadian regional carriers before deciding to start its own unit, Culmone said.
WestJet doesn’t expect to be able to fly into Billy Bishop Toronto City Airport because of the limited number of takeoff and landing slots, Culmone said. Air Canada, the country’s biggest carrier, and closely held Porter Airlines Inc. both use the downtown airport.
WestJet flies to 30 Canadian cities with its fleet of 97 Boeing (BA) planes. The company plans to take delivery of another 38 aircraft through 2018. It also has the option to return 35 leased planes during the period, Culmone said.
The regional carrier “is a key opportunity to accelerate our flow into our network,” he said. “We think the regional accelerates the growth of the 737, it doesn’t decelerate it.”
WestJet may use the regional unit to increase service to New York City and attract business travelers, Culmone said. The company successfully bid for eight slot pairs at New York’s LaGuardia Airport in November, and that access “dovetails nicely with potential regional,” he said.
Culmone also said WestJet will consider introducing more comfortable “premium” seats “at some point.” No decision has been made, though “the economics of premium seating are fairly enticing,” he said.
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