WestJet’s Shift In Relation to Canada’s Macroeconomic issues
One of our Airways big machers, Chris Sloan told me I was Calgarian. He’s close. I grew up in Edmonton. I am an Albertan. If I really cared, I probably would’ve stabbed him with a traditional Edmonton greeting for getting the city wrong. I… I lived there when there was a lot of knife crime. He said I could give a unique perspective as an Albertan. So, here’s a legit ex-pat Albertan perspective.
So, here’s the thing. Canada is probably one of the most protectionist, regionalist, ostensibly free-market countries when it comes to aviation.
Air Canada comes first. Star Alliance comes second, but by that it is usually implied to mean Lufthansa.
After the collapse of Canadian Airlines – there’s only been one full-service airline within Canada. Honestly, the government seemed to have wanted it that way.
Why is a very long, complex, and obtuse argument best left handled by someone who didn’t grow up in Alberta?
Thing is; Canada’s getting bigger. Until economic policies based off of “Sunny Ways” and hamstringing the Western Economy so that favoured provinces can buy foreign oil in U.S. Dollars took place – cities outside of Toronto and Montreal were starting to really grow and contribute to Canada’s GDP. Though Alberta’s own provincial government also values ideas over numbers. It’s really hard being Canadian. Which is why I kiss my U.S. Passport every single morning.
There was premium, long-haul, demand from cities other than Toronto, Vancouver, and Montreal! Not that there ever was much, you’re not a “real Canadian” if you fly First Class. Unless you’re from an old Quebec family… then you’re jet’s fine. Minnesota Nice weirdos up there in the Frozen North.
And remember, WestJet ordered these airliners when it looked like Alberta and the rest of Western Canada would continue to have economic growth. Things like this are why WestJet’s CEO Ed Sims has admitted that with current economic conditions, WestJet’s shift from SouthWest protege to Canadian II is, to paraphrase “a little too much.” In the words of Kevin O’Leary. “Not even a weed can grow in Canada’s business climate.” That’s not their fault, by any means. No airline, or business, should have to deal with a government openly hostile to free enterprise.
It’s 2019, Canada’s next federal government will not alienate the West. That’s a given. They may spend a lot of time giving into an illegal Dairy Cartel – but they will not forget that Canada is more than two Provinces.
Just a few more months of Western Alienation.
Delta and WestJet are getting closer. This is true. Thing is. Unlike Air Canada and Lufthansa. WestJet is not really an international connecting carrier. Their network in Canada is extensive, but overseas – and even outside of stereotypical sun destinations within the U.S. they don’t offer much.
Air Canada does a lot of sixth freedom business with customers in America flying Air Canada to various destinations. They can compete on price because the Canadian dollar is worthless. They can compete on schedule because most of their destinations are on the way to somewhere in Asia or Europe. Somehow, they are also faster from New York to Australia.
WestJet doesn’t have this. WestJet is unaligned. WestJet needs an alliance.
WestJet does have a pending, joint venture with Delta across the 49th. Thing is, Canada’s economic conditions at the moment are not exactly fostering growth. Even with launching Atlanta (for connectivity) and Austin (for both the growing Delta presence and Austin’s burgeoning tech scene) – that doesn’t change Canada’s bleak future. Again, the Canadian dollar is worthless. It’s pretty much a ruble with pretty colours and politically motivated iconography. Not much tourism. Even less so when no one has a job to generate their worthless plastic.
There are no big infrastructure projects within Canada, like a Pipeline, to stimulate the economy. There are no incentives to open manufacturing plants in Canada despite the record high unemployment and 1990’s currency values – the government has made it nigh impossible for the economy to grow.
Why is Air Canada doing okay? Inertia. They’ll be fine even if they go under. They’re the major player and they have the support of Old Canada.
Honestly, WestJet’s in for an era of challenges unless something changes later this year. I’m not saying Vote Scheer – because he’ll sell Alberta down the river just as hard for his milk buddies. But I’m saying there is a VERY good third option. And his name ain’t Jagmeet. Copy?
Really, until Canada gets its head out of the sand and engineers a robust enough economy that they can raise interest rates and deflate the housing bubble – it doesn’t matter if WestJet designed a machine that eliminated their entire cost structure. Western Canada’s just as broke as they were during the days of Daddy Trudeau and the NEP.
They have bigger fish to fry than Delta. Like, perhaps, lobbying for Maxime Bernier, or the Alberta Tories. Really, that’s all they need to do. Get Notley out, Alberta improves. WestJet improves. Etc. Etc.
Unless Delta injects a significant equity stake while WestJet is in this awkward transition, the
The Parallels to Virgin Australia
They look the same on paper. Except Virgin Blue was started to fill a totally different niche than WestJet was. Virgin Blue was a disruptor in the Australian Air Market that went Premium because…
Ya know what? I painted myself into a logical corner there.
Australia’s always had two airlines.
Canada only had two full-service airlines because of some pretty crazy acts of parliament in the era of TCA and CP. For a long time, Canada’s third airline was Wardair. Wardair – an airline that flew Trans-Atlantic 727s.
As Canada’s air travel market “liberalized” – Canadi>n collapsed and merged with Air Canada.
Why did Virgin Blue become V Australia, then Virgin Australia?
The dream of higher RASM. One must remember. The collapse of Ansett hit Australia a lot harder than the demise of Canadi>n. You ever wanted a free RAAF flight between Sydney and Melbourne, that was the time.
Australia does a lot more business up and down its east coast in terms of pax numbers than any city. Including the “rapidair” corridor of Toronto-Ottawa-Montreal. They don’t compete at all in terms of demand. The yield is high, but all the government and corporate oligarchs flying that route are ACMM1 or higher. Golden handcuffs, kickbacks from the Mulroney Era – no one’s flying WestJet on my mum’s tax dollars – that’s for sure. The yields are also not comparable.
The only route equivalent to SYD or MEL to PER is YYZ-YVR.
In terms of business traffic. Canada is fragmented. Going upmarket could push up yields, but that requires macroeconomic fundamentals I’ve already discussed that just aren’t there.
Where it gets better, though, is that Virgin Blue, into V Australia, into Virgin Australia ordered way too much plane with an absolutely bone-headed cargo door configuration to keep them from ever earning money below. Even with that, they have to weight-restrict on SYD-MEL. Sad.
The 787-9. Probably the lowest-risk widebody that has ever existed to experiment with.
320 seats, only 16 of them in business class. That’s an experiment. That’s not all in on Premium long-haul. Proportionally, Mint takes up more space on a JetBlue A321
WestJet is also, in the words of their Chief Commercial officer “aggressively pursuing” cargo contracts to help the 787-9 generate more revenue. Something Virgin Australia really could not do. They can on their A330s, this is true – but it becomes a challenge to provide integrated freight solutions.
Really, long-term, I think WestJet has a brighter future than Virgin Australia – unless Canada continues to sell itself and its people down the river.
WestJet can do something Virgin Australia can never do. Be a connecting carrier, and with their soon-to-be-approved joint venture with Delta, they are working to position themselves like that and make both an Alberta-friendly and connecting friendly international schedule. With the way the CAD is, someone buying a lowest economy bucket WestJet fare in U.S.D is equivalent to a trillion Canadian dollars as they get stuck in a liquidity trap heading for hyperinflation. That trillion CAD could buy a loaf of bread. Maybe. And if the CAD only stays at 1990’s Liberal Party talked and dragged down levels. More Forex dollars will be given to Quebec as transfer payments.
Oh, wait. No, that’s what’d happen. Canada has the highest corporate taxes in the World – before the carbon taxation. It’s insane.
WestJet until later this year is in for a world of hurt. No matter what. If Canada makes a terrible decision next election, WestJet’s doomed – but that’s the least of their problems as Canada will go the way of Maduro-era Venezuela. Can eat your dog. Can’t eat an airplane.
Canadians: Vote socks out. Save your country before it becomes more than just a “post-national” state. I don’t want to have to add “failed” in front of it!