Durfy a loss to WestJet at a vital time; 'New World Carriers' moving to the next level


Sean Durfy's imminent departure from WestJet, where, as President and CEO, he led it through a complex period of evolution, will be a considerable loss - as investors clearly thought, this week driving the company's share price down steeply yesterday. The airline is on the brink of leaping into a more global role, having emerged from being a small western Canadian low cost airline over the past decade. His replacement, Gregg Saretsky, is well qualified to cover the international side of WestJet's evolution, having spent much of his previous time with Alaska sewing up and overseeing airline alliances.

  • WestJet's President and CEO, Sean Durfy, is leaving the company, causing a decline in the company's share price.
  • Durfy's replacement, Gregg Saretsky, has experience in international airline alliances from his time at Alaska Airlines.
  • Both WestJet and Virgin Blue have transitioned from small low-cost airlines to larger regional and international carriers.
  • WestJet and Virgin Blue have both faced challenges in upgrading their distribution systems to facilitate inter-airline communication.
  • Both airlines have ties to major alliances, with WestJet aligned with Air France-KLM and Virgin Blue linked to Delta.
  • While Virgin Blue has reported a turnaround profit, WestJet's outlook is less optimistic, presenting challenges for the new CEO.

Mr Durfy's departure, on 01-Apr-2010, coincides with Virgin Blue's CEO Brett Godfrey stepping down from that airline, in his case after ten years and having established the airline with financial backing from the Virgin Group. Mr Godfrey joined the WestJet board in 2006, the same year Mr Durfy became President, and there has since been much cross-fertilisation of ideas.

Apart from that link, the two airlines have much in common. Each stepped boldly into the breach left by the failure of their respective countries' junior legacy airlines, Canadian and Ansett. And each has recognised the need to adapt into a wider role, as growth within the initial concept became more constrained. See related report: Canada, Australia, Emirates & Etihad: Case study of protectionism vs liberalism. Who's got it right?

Virgin Blue was the first low cost airline to frame the concept of evolution into a low cost near-full service airline, which Mr Godfrey branded as a "New World Carrier". The model seeks to raise the profile of the basic product in order to attract higher yielding passengers, while keeping a tight rein on costs. Virgin Blue has morphed into a regional and international airline today, operating Embraer jets and B777s, in addition to the basic B737NG model.

Meanwhile, WestJet has stayed with the B737NG, more closely following the core LCC model. But, like Virgin Blue, management has struggled hard over the past three years to move from the low-frills Navitaire/Open Skies distribution system to a more sophisticated, interactive model which allows the airline to communicate with other carriers - an essential part of a bigger, internationally connected role. That process has not been easy, but the two carriers have proceeded to overcome that hurdle now, WestJet finally making the switchover in Oct-2009.

Another parallel is the two carriers' closeness to the SkyTeam alliance. WestJet is fully aligned with the Air France-KLM led team and is now codesharing; Virgin Blue's link is more specifically with Delta at this stage (a proposed JV on Pacific operations has been tentatively approved by Australia's competition body and is awaiting US DoT approval), but a SkyTeam tie-up must be on the cards.

And, in each case the airlines are to be led in future by executives who are well-versed in the art of inter-airline alliances, in Virgin Blue's case ex-Qantas' John Borghetti. See related report: Virgin Blue announces former Qantas exec, John Borghetti, as new CEO

One big difference however is the financial end. Both remain profitable, but the trend diverges. Virgin Blue, with its international subsidiaries, reported a turnaround profit for the most recent half, to 31-Dec-2010, and expects to be profitable over the full 12 months. WestJet too was profitable (Mr Durfy was "ecstatic") in the quarter to the end of Dec-2010, but its outlook is less bright. The new CEO takes over at a tricky time.

Mr Saretsky will still be able to draw on the entrepreneurial skills of founder and current Chairman, Clive Beddoe and Mr Godfrey has not announced that he will be stepping down from the WestJet board. But the running is now up to him and he will not be short of challenges, both domestically and in developing the carrier's international network, real and virtual.

He has only been with the airline since Oct-2009, having joined WestJet Vacations, from Alaska Airlines in Jun-2009. His strengths there, in addition to his alliance development, were in expanding ancillary revenues and establishing a highly successful rewards programme - all features that the carrier will now be relying on.

He will be most interested in ensuring the viability of the airline he now heads. But, for observers, comparing the evolution of two very similar airlines will offer many useful indicators of the direction that more than one LCC around the world is likely to follow. See CAPA's landmark report: Global LCC Outlook Report

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