Vancouver International Airport

WestJet’s solid 1Q2013 performance is dampened by concerns over capacity expansion

WestJet’s significant 33% growth in profits year-over-year during 1Q2013 is being overshadowed by the airline’s planned 9% to 10% capacity growth during 2Q2103 amidst a softer yield environment that shows no immediate signs of retrenchment. The carrier is repeatedly stressing that its decision to expand capacity is sound, highlighting passenger spill it experienced during 2012 when it achieved record load factors of nearly 83%.

While the bulk of WestJet’s planned 6%-7% domestic capacity expansion during 2Q2013 will be dedicated to transcontinental routes, the carrier’s launch of its new regional carrier Encore is occurring as demand patterns are somewhat unpredictable given a slight uptick in the Canadian unemployment rate in Mar-2013 and more profitable close-in bookings showing some signs of weakness.

Porter sets its sights on becoming Canadian aviation’s third force

After quietly allowing its rivals to grab headlines in 2012 with the unveiling of new subsidiaries, Canada’s Porter Airlines has followed through on plans to declare its long-term strategy, boldly proclaiming its ambitions to become a strong third force in Canada’s aviation market. Underpinning Porter’s efforts are the carrier’s plans to introduce Bombardier CSeries CS100 narrowbodies in a drive to broaden its reach to markets beyond the eastern half of Canada and the US.

Porter’s evolution follows hints dropped by the carrier in recent weeks that it would table its long-term vision going forward after Air Canada and WestJet dominated Canadian aviation discourse in 2012 by unveiling plans to create their respective subsidiaries Rouge and Encore. Porter now envisions the 107-seat narrowbody aircraft joining its existing fleet of Bombardier Q400 turboprops to allow for expansion into western Canada, and new transborder markets on the US west coast and Florida.

WestJet refrains from full assault on Air Canada with Encore’s Q400 launch

Canada’s WestJet appears to be taking a predictably measured approach with the debut of its new regional subsidiary Encore in Jun-2013, keeping the majority of the new carrier’s operations close to its Calgary base until its calculus for the 78-seat Bombardier Q400 is proven out. As expected, WestJet is heightening competition with Air Canada in some of the small markets where it plans to deploy Encore’s turboprops, but is also introducing new points from some of those airports.

WestJet is also not ignoring mainline expansion, reflected in the launch during 2H2013 of two new US markets – the Dallas hub of partner American Airlines and Myrtle Beach, South Carolina.

WestJet has moved quickly in its development of Encore, disclosing plans to expand into the regional market in early 2012. After unveiling its desire to create a new carrier WestJet’s management worked to attain employee approval for the establishment of Encore, ordered 20 78-seat Bombardier Q400s and determined that Calgary (WestJet’s headquarters location) would serve as the initial base for the new carrier.

Air China builds its N American network while Hainan Air to use A330 instead of 787 to Chicago

The North American market continues to outperform for Chinese airlines, a result of high demand and more limited competition than on European routes. In addition to Air China's forthcoming Beijing-Houston service, the carrier will add another four weekly services to New York JFK. A decade ago Air China had only a three times weekly Beijing-New York service, reflecting the rise of China as both a country and aviation market.

Air China's 2013 capacity to North America will be 183% greater than in 2003 and is quickly closing in on United Airlines' position as the largest carrier between North America and China.

In China it is not just the flagship and government-preferred Air China looking to expand. Hainan Airlines last year announced a Beijing-Chicago service to start in Mar-2013 with Boeing 787s. Following delayed Chinese certification of the 787 – which was stalling well before the aircraft's Jan-2013 grounding – Hainan has pushed the launch back to Sep-2013 and plans, for now, to operate the service with A330-200s.

The route marks the first high-profile long-haul route for Hainan Airlines, which has faced route restrictions as the government seeks to protect incumbents.

WestJet continues its hybrid evolution, watching costs as it weighs a potential widebody operation

Canada’s second largest carrier WestJet is adopting the strategy of many low-cost carriers worldwide through the creation of a hybrid model to bolster its share of the lucrative travel market. While in the short-term all the carrier’s efforts are focused on the launch of its new regional carrier Encore in 2H2013, WestJet is examining several options beyond its five year plan, including the possible deployment of widebody aircraft.

If WestJet opts to seriously consider deploying aircraft into long-haul markets beyond its current transborder offerings, the carrier will unleash competition against rival Air Canada in one of its last protected business segments.

WestJet joins many low-cost carriers including its North American counterpart JetBlue that are transforming their business models from a pure low-cost structure to a hybrid model in order to expand their passenger base to capture lucrative corporate travellers.