Much of the increased domestic capacity that WestJet will see this year can be attributed to new red-eye flights, says WestJet president and chief executive Gregg Saretsky.
Adding the new red-eye flights is a low-cost way to add available seat miles (ASMs), as the aircraft generating them would be otherwise unused during those hours, he says, speaking on 16 May at the Bank of America Merrill Lynch 2013 Global Transportation Conference in Boston.
"Our young fleet allows us to push utilisation, so the incremental capacity, much of that growth is coming on red-eye flights," says Saretsky. "We've added red-eyes from each of the three western Canadian cities: Calgary, Edmonton and Vancouver to Toronto, and we have new red-eye flying into Trinidad and Tobago, the largest Caribbean market from Canada," he says.
WestJet increased capacity by 6% year-over-year in the first quarter of 2013. Domestic available seat miles decreased 3.9% to 40.6%, which will expand as its regional carrier WestJet Encore starts taking delivery of new Bombardier Q400 aircraft in June. Transborder available seat miles increased 14.1% to 59.4% of ASMs flown in the quarter.
The carrier expects its domestic capacity to increase by 6% to 7% in the second quarter and 5% to 6% in 2013 as it adds seats with the new regional operation. It also plans to add system capacity of up 9% to 10% in the second quarter, or 7.5% to 8.5% in 2013. Air Canada, on the other hand, is expecting domestic capacity to increase 0.5% to 1.5% for the full year, and system capacity up 2% to 3%.
Analysts have pointed out that WestJet's yield improvement last quarter slowed down from previous expectations. The carrier recorded a 0.7% yield improvement in light of added capacity in both transborder and domestic markets. But WestJet is not the only carrier seeing yields affected by new capacity coming on line. Air Canada said on its first quarter earnings call that the yield environment is challenging, after seeing yields decrease by 1.1% year-over-year.
Despite this, Saretsky tells investors he believes the numbers look to be on target with Canada's domestic product expanding between 1.5% and 1.6% this year.
"I think it is quite aligned," he says.