Investors sometimes ask why Southwest Airlines has avoided straying too far from its roots. They wonder if it should assign seats, or add a business class cabin, or sell meals on board. But Southwest almost always prefers simplicity. Given how much WestJet — once a Southwest clone — has struggled as it has evolved, we now understand why Southwest is so conservative.
For 52 consecutive quarters, Canada’s WestJet Airlines has posted a profit. But there’s reason to believe that impressive streak may end by June, even as many other North American airlines report near-record profits, despite rising fuel prices.
Canada’s No. 2 airline is struggling because of several factors, including aggressive moves by competitors, more expensive fuel prices, higher-than-expected costs related to a recent strategy shift, and labor unrest. WestJet’s pilots have government permission to strike as soon as May 19 to protest low wages and what they are are unfair work rules, and some potential customers, fearful a strike might disrupt their travel plans, already may be booking elsewhere.
“What we’ve seen over the last two weeks is a significant deferral of bookings, while some guests will either postpone travel plans or make other decisions,” CEO Ed Sims said Tuesday.
This is a big change for an airline that is still essentially an all economy class-carrier, and it’s not clear it will work. WestJet plans to use the new 787s to expand long-haul flying next year, but Air Canada is expected to vigorously move to protect its profits.
The challenges at the low end of the market are different.
WestJet’s discount airline, called Swoop, is slated to begin flying next month, and should have 10 aircraft by the third quarter of next year. But Swoop is a major issue for the WestJet’s pilots union. Understandably, WestJet wants to keep costs as low as possible, but pilots have objected to how the company has recruited pilots.
“We strongly believe that the WestJet pilots who built this airline must be flying WestJet airplanes, which includes Swoop,” Capt. Rob McFadyen, a union leader, said at a rally Tuesday. “The company simply cannot outsource our jobs.”
Both the 787 and the new discount airline will almost certainly test investors’ patience, as over the next several months both projects will produce big costs, while generating little revenue. But over the long-term, Sims said he is confident they’re the right move to ensure the airline’s viability. After taking over for Saretsky — he had been chief commericial officer since May 2017 — Sims said he never considered changing the company’s strategy.
“We are in a pivotal year of our evolution,” he said. “We are making the necessary investment now to build the infrastructure required to transform our business.”