Photographer: Brent Lewin/Bloomberg

WestJet Charts Long-Haul Course With $5.4 Billion of Dreamliners

  • Canadian carrier to expand service in Asia and South America
  • Boeing beats out Airbus amid weak market for wide-body jets

WestJet Airlines Ltd. plans to order as many as 20 Boeing Co. 787-9 Dreamliners valued at $5.4 billion, adding the wide-body to its fleet as Canada’s second-biggest carrier expands long-distance service.

The move takes a page from Air Canada, which has relied on the Dreamliner’s fuel efficiency to lower operating costs. The order also helps clarify WestJet’s strategy for competing with the country’s largest carrier by entering new markets in Asia and the Western Hemisphere.

“This answers one of the primary questions about WestJet’s future but is a significant increase in overseas capacity,” Doug Taylor, a Canaccord Genuity analyst, said in a note to clients.

The order marks a victory for Chicago-based Boeing over Airbus SE amid depressed sales for twin-aisle jets. WestJet Chief Executive Officer Gregg Saretsky said last year that the carrier would evaluate competing aircraft models from Boeing and the European planemaker if it decided to expand the wide-body fleet. WestJet’s order means Canada’s two biggest airlines will fly the 787, with Air Canada operating 24 Dreamliners at the end of last year.

Read more: Boeing and Airbus brace for a slowdown in jet purchases

WestJet fell 3.6 percent to C$22.01 at 11:52 a.m. in Toronto. The shares earlier dropped as much as 5.7 percent, the biggest intraday decline in six months, after the carrier reported earnings that missed analysts’ estimates. Boeing rose less than 1 percent to $183.08.

With a range of more than 14,000 kilometers (8,700 miles), the Dreamliner “will give WestJet the ability to serve new destinations in Asia and South America, and to expand its service offerings into the European market,” the Calgary-based company said in a statement Tuesday. The carrier now operates some leased Boeing 767 aircraft that are more than 20 years old on European routes.

Adding Frills

Founded in 1996 to cater to leisure travelers, WestJet has been moving away from its original no-frills model -- patterned after U.S.-based Southwest Airlines Co. -- by adding premium economy seats, rolling out a short-distance unit and starting overseas flights to European destinations such as London. Last month WestJet said it planned to start an ultra-low-cost carrier to fend off Canadian upstarts.

WestJet plans to buy 10 of the 787-9 for delivery between early 2019 and the end of 2021, with options for 10 more of the planes to be handed over through 2024. The purchase would be valued at as much as $5.4 billion based on list prices, though discounts are typical in the industry. WestJet also will convert orders for 15 single-aisle 737 Max jets, listing for a combined $1.7 billion, to options.

The Dreamliner order likely will elevate capital spending over the next several years, Cowen & Co. analyst Helane Becker said in a note to clients. “Clearly a lot happening in Calgary, which may cause growing pains along the way,” she wrote.

Watching Debt

WestJet plans to the 787 purchases with operating cash flow without taking on debt, Saretsky said.

“We’ve essentially canceled 15 Max deliveries in the same window, which takes a significant amount of capex out,” Saretsky said on a call with analysts. “That creates the money that we’ll use to fund the acquisition of 10 787s.”

The Dreamliners probably will include a business class with lie-flat seats, as well as premium-economy and regular-economy cabins, he said.

Separately, the airline’s proposed ultra-low-cost carrier probably will start operating in the beginning of next year with its own name and Boeing 737 aircraft reconfigured to hold 189 seats, Saretsky said.

The unit will offer “absolutely rock-bottom” entry fares and charge passengers for products and services such as food, in-flight entertainment and carry-on luggage, Saretsky said, citing Europe’s EasyJet Plc and Ryanair Holdings Plc as comparable models.

WestJet reported first-quarter profit of 41 cents a share, trailing the 51-cent average estimate of analysts surveyed by Bloomberg. Revenue was C$1.11 billion ($810 million), while analysts predicted C$1.12 billion.

— With assistance by Julie Johnsson

    Before it's here, it's on the Bloomberg Terminal.