Canada’s second largest airline WestJet is starting 2016 by battling undervaluation by the market while still enjoying its stature as one of the few airlines globally to hold investment grade status. The dive in WestJet’s stock price is driven by trepidation over the airline’s planned growth. During 2016, its capacity expansion could reach 11%, well above Canada’s projected GDP growth of 1.7%.
Investors also seem jittery about WestJet’s planned long haul expansion to London Gatwick with Boeing 767 widebodies given the existing capacity in the market. Rival Air Canada has responded by adding new service to Gatwick on its low cost subsidiary rouge. WestJet seems undeterred by the added competition, and stresses its long haul experiment with four widebody aircraft is a low risk proposition.
The airline is also touting flexibility to scale down its growth projections should conditions worsen. But for now WestJet believes its expansion in 2016 is warranted given its strong financial position and numerous quarters of profitability. For now, the company sees no reason to scale back its ambitions.
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