WestJet Raids Air Canada for New York Business Fliers

WestJet Airlines Ltd. (WJA) is bidding to pry passengers from Air Canada in the C$2 billion ($1.92 billion) cross-border business travel market by returning to New York’s LaGuardia Airport.

Canada’s second-largest carrier began service today between Toronto, the country’s financial hub, and LaGuardia with the first of seven daily round trips. An eighth will be added on July 12.

WestJet’s foray into New York escalates the challenge to Air Canada, the country’s biggest airline. Founded in 1996 with a focus on vacationers, Calgary-based WestJet now holds more than a third of Canada’s air traffic after the discount carrier established a foothold in the Eastern Triangle linking Toronto, Ottawa and Montreal.

“New York is really our first big push into the business market into the U.S.,” Bob Cummings, executive vice president of sales and marketing, said in an interview. “We are pretty close to capped out with the leisure market with respect to our life cycle. We’ve barely scratched the surface on corporate travel.”

Cummings said business fliers make up about 40 percent of what WestJet estimates is a C$5 billion U.S.-Canada air-travel market. More than 937,000 people flew between New York and Toronto in 2010, the largest trans-border route, according to Statistics Canada data.

‘Step Up’

“If you’re a business traveler in the Eastern Triangle, you probably from time to time need to come into New York,” said Jeff Straebler, an independent airline analyst based in Stamford, Connecticut. “As far as your frequent-flier programs are concerned, you would like to keep that all in one place. So adding LaGuardia is clearly a step up for WestJet in terms of their ability to compete.”

WestJet bid $17.6 million in winning the right in November to make eight LaGuardia round trips daily. That gives business fliers more options than the twice-daily Toronto flights in WestJet’s first LaGuardia venture, which began in September 2004 and lasted less than 10 months before the airline pulled out, saying the route wasn’t viable.

“This is a fairly significant challenge for Air Canada (AC/A),” Cameron Doerksen, an analyst at National Bank Financial in Montreal, said in a telephone interview. “Eight flights a day is a sizable increase in capacity. It’s a route that Air Canada has a very big presence on. There are other airlines on that route, obviously, but Air Canada is the largest player there.”

Air Canada

Air Canada added three daily nonstop flights last month between New York’s John F. Kennedy International Airport, the city’s chief overseas gateway, and Toronto’s Pearson International. It flies as many as 38 daily round trips from Canada to New York airports.

“Frequency is a big component for the business traveler,” Straebler said. “If they miss a flight and the next flight is in an hour, as opposed to three hours, that’s a big deal.”

Canada’s closely held Porter Airlines, which flies to New Jersey’s Newark Liberty International Airport from Toronto’s Billy Bishop Airport, added two daily flights this year, boosting its total to as many as 13. United Continental Holdings Inc. (UAL) increased Toronto-Newark service in December.

Airlines prize business travelers because they fly frequently, often at the highest, last-minute fares. A Toronto- New York round trip tomorrow would cost C$556.50, or as little as C$304.49 a month from now, according to WestJet’s website.

Business Travelers

Business travelers fill about 20 percent of seats on WestJet’s coach-only Boeing Co. (BA) 737 jets, Cummings said, a proportion the carrier wants to boost in the next few years. Under study is whether to add more comfortable “premium” seats, he said.

WestJet has about 22 percent of the business-flier market in Canada and about 15 percent of the combined U.S.-Canada market, Cummings said. Each percentage point is roughly equivalent to about C$30 million a year of revenue, he said.

Keeping corporate passengers is important to Air Canada (AC/B), which has multiple classes of service. A walkup business-class fare tomorrow would cost about C$2,228.

“What we’ve done on New York is that we decided to increase our frequency to all three airports,” Air Canada Chief Executive Officer Calin Rovinescu told reporters in Calgary after the carrier’s annual meeting today. “We’re going to be ready for the competition.”

Operating Costs

WestJet’s cost to fly each seat a mile was 23 percent cheaper than Air Canada’s last year, according to data compiled by Bloomberg. That helped propel WestJet to a seventh straight annual profit, with net income of C$148.7 million on revenue of C$3.1 billion. Air Canada’s 2011 net loss of C$255 million was its fourth in a row.

While WestJet gained 28 percent this year to C$15 as of 4 p.m. today in Toronto, Air Canada’s Class B shares, the most actively traded, tumbled 12 percent to 87 Canadian cents. The 12-carrier (BRAIRNAV) Bloomberg Industries North American Airlines Index has gained 4.7 percent in the same period.

Agreements with two of the largest U.S. carriers also are part of WestJet’s business-flier strategy. WestJet and Delta Air Lines Inc. (DAL) began a partnership to share booking codes on certain routes on Jan. 23, following a similar accord with AMR Corp. (AAMRQ)’s American Airlines last year.

Delta Agreement

Under the Delta agreement, members of both airlines’ loyalty programs can earn awards on code-share flights. Passengers get boarding passes for all flight segments at the first check-in, and tag bags for their final destination. Air Canada has a code-sharing agreement with United, and the companies want to create a trans-border joint venture.

“We needed strong code-share partners to take care of the point of sale in the U.S.,” WestJet’s Cummings said. Ties to Delta and American in New York will help “get people to step onto our planes. Without that point of sale in the U.S. and the connectivity beyond the New York market with Delta, the economics would be pretty darn difficult.”

Additional jets may help WestJet woo more business travelers. Lease options may expand today’s 98-plane fleet to 135 by 2018, according to Cummings and a WestJet presentation.

WestJet’s focus for now will be on ensuring the LaGuardia route’s success, he said. The carrier will begin a new short- haul unit in 2013, and Cummings said WestJet will consider serving new U.S. cities “in a couple of years.”

“What you will see us announce are markets with a business or corporate component,” he said. “New York and Chicago are big business markets. The other business markets are pretty obvious: Boston, Washington, Houston, Dallas, those types of cities. As we ramp up the effort into New York, we will look to learn from that and apply that to future endeavors.”

To contact the reporter for this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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