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Analysis: Joint Venture Between Delta, WestJet Changes Landscape

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Analysis: Joint Venture Between Delta, WestJet Changes Landscape

Analysis: Joint Venture Between Delta, WestJet Changes Landscape
December 06
11:44 2017

MIAMI — Rumors had been quite high about a potential partnership between WestJet and a legacy U.S. airline, as the Canadian low-cost carrier (LCC) seeks to strengthen its operations before the arrival of its ten Boeing 787-9 Dreamliners that were ordered earlier in May.

READ MORE: Analysis: WestJet Buys 10 Boeing 787-9s

Today, those rumors proved to be true. Atlanta-based Delta Air Lines (DL) announced that it has reached an agreement with WestJet—Canada’s second-largest carrier—to “deepen their existing partnership by entering into a comprehensive transborder joint venture that will increase travel choices between the U.S. and Canada.”

According to Delta, both airlines signed a Memorandum of Understanding (MoU), in which an all-new Joint Venture (JV) will be formed once it passes regulatory approvals from both U.S. and Canadian authorities.

The new JV not only aims to coordinate both airlines’ flight schedules and add numerous nonstop flights through a seamless connecting process; it will also offer enhanced frequent flyer benefits between both airlines’ programs, Delta SkyMiles and WestJet Rewards.

For the Canadian carrier, this is a big step forward. Ed Sims, WestJet’s Executive Vice President Commercial admitted that “this agreement will bring heightened competition and an enriched product offering to the transborder segment, both of which will benefit our guests.”

READ MORE: Does it Make Sense For Delta to Buy A Stake in WestJet?

With such a robust and global partner, WestJet’s ambitions to expand its frontiers to Asia, Europe, and South America will be attainable in a much shorter time, as Delta is perhaps the most prolific carrier in the long-haul market in and out of the American continent.

Also, WestJet already operates a healthy code-share operation with Delta partners, Air France-KLM, and Delta is, in fact, one of WestJet’s most important frequent flyer partners.

Existing Relationship Taken To A New Level


Delta and WestJet have been codeshare partners since 2011. Both carriers launched a reciprocal codeshare agreement covering 24 domestic Delta routes from seven hubs, three trans-border WestJet routes, and onward service on WestJet to eight domestic points in Canada.

The codeshare steadily deepened over the interceding four years, as the carriers expanded the agreement to cover 41 new Delta domestic routes, including seven from Seattle, four transborder routes, and eight domestic routes operated by WestJet’s regional Encore wing.

Delta Increases Global Footprint


This JV, however, may be the first step of yet another significant Delta investment into another big player in the region, expanding its massive footprint in the American continent.

Currently, Delta holds stakes and/or joint ventures with Aeromexico and GOL in Latin America, Korean Air (waiting for approval) and China Eastern in Asia, Virgin Atlantic and Air France-KLM in Europe, and Virgin Australia in Oceania.

READ MORE: ANALYSIS: Delta, Air France-KLM, Virgin Atlantic, and China Eastern Announce Blockbuster Deals

The Atlanta-based giant will now reign as the dominant carrier in the North/Central/South American region with its existing 49% ownership in Aeromexico and potential further investment in GOL, once Brazil’s regulators approve the move.

History is made as the first WestJet Boeing 737 MAX 8 lands at Toronto Lester B. Pearson International Airport (YYZ/CYYZ) on October 12 2017 on its first revenue flight from Calgary (YYC/CYYC) as WJA662 (c) copyright Andrw H. Cline 2017.

This proposed JV with WestJet suggests that an additional equity investment could be expected, as Delta may want to strengthen its footprint in the American arena, especially now that WestJet will expand overseas with the arrival of its Dreamliners, starting in January 2019.

READ MORE: Delta and Korean Air Launch Joint Venture

It is also likely that Delta’s decision to move forward with this JV is because it wants to gain some terrain where competitors are slightly stronger. A new, ultra-low-cost, long-haul operation under Delta’s watch could prove beneficial and compete with the likes of Norwegian, Level, and Joon, among others, in the immediate future.

Likewise, the recent Canadian expansion announced by American Airlines last week hints that potential negotiations between WestJet and the Dallas/Fort Worth-based carrier may have crumbled in favor of Delta, especially now that AA is no longer selling WestJet code-shared flights since early last week.

The CSeries vs. Boeing Factor


It would be logical, too, to see Delta investing in WestJet to dilute the current Bombardier CSeries situation by sending some of its 75 CSeries planes to the Canadian airline.

Delta’s CSeries planes are expected to be delivered by spring 2018 and may face a 300% tariff coming from a trade dispute with Boeing.

READ MORE: Analysis: Delta CEO Says That It Will Not Pay CSeries Tariffs

According to a story published by Reuters, however, Aeromexico may be in line to take some of those planes, too, avoiding the tariffs that the Department of Commerce has said it will apply to the Canadian planes ordered by Delta.

READ MORE: Analysis: Airbus Acquires 50% of Bombardier CSeries

Ironically, however, WestJet is not only a big Bombardier Q400 operator; it is an even larger Boeing 737 operator and has an outstanding $6.3 billion order for 40 737 MAX 8s and 25 737 MAX 7s.

Likewise, the upcoming ten Dreamliners (with options for ten more, all valued at a whopping $5.4 billion), will fill up one of the strongest Boeing fleets in the continent.

The Delta Experience in Canada?


“We look forward to applying Delta’s experience building successful joint venture partnerships to this important segment of transborder travel, the second-largest international segment for U.S. travel,” said Steve Sear, Delta’s President – International and Executive Vice President – Global Sales.

As Canada’s second-largest airline eagerly awaits for a long-haul expansion, Delta’s drive and experience may be the perfect ingredient for a healthy future. Currently, Delta’s involvement in its newest investment, Aeromexico, seems to be paying off good results. Currently, the Mexican carrier has a former Delta VP, Mike Medeiros, as a newly appointed COO.

Therefore, any future Delta equity stake into WestJet may bring some reassurance that the Atlanta-based carrier’s top management will guarantee that the Canadian airline will be in good hands. It remains to be seen, however, whether Delta will come through with such investment in WestJet and continue strengthening its footprint in the region.

Currently, WestJet has a fleet of 125 airplanes, of which 121 are Boeing 737-600/700/800/MAX 8 and four 767-300. Delta, on the other hand, has 864 active aircraft flying around the world, of which 174 are Boeing 737-700/800/900(ER) and 80 Boeing 767-300(ER)/400.

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About Author

Enrique Perrella

Enrique Perrella

Commercial Pilot and Embry-Riddle Aeronautical University Graduate. Aviation MBA, Av-Gas Addict, Spotter, Globetrotter, Airplane Collector, Cook, AS Roma fan, and on my free time, I fly the Airways Ship. Favorite airline, airport and aircraft: Viasa, Tokyo-Haneda, and MD-11. Love to Fly, Fly to Love.

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