WestJet unfazed by Air Canada's productivity plans

Washington DC
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WestJet remains confident in its ability to manage costs despite the productivity and cost benefits its rival Air Canada is planning to see from modernising its fleet, says Vito Culmone, executive vice-president and chief financial officer of the Calgary-based low-cost carrier.

Speaking from the Cowen and Company Global Transportation Conference in New York, Culmone acknowledges the savings Air Canada expects to see from its Boeing 777-300ER and 787 deliveries.

"Those are going to provide them with significant productivity gains as they outlined yesterday," says Culmone.

In spite of this, WestJet has cost advantages over its rival, especially on routes within Canada, says Culmone.

"We currently have a meaningful cost advantage on Air Canada, particularly in the domestic market, of, call it, 20% to 25%," he adds.

Domestic competition has been heightening in Canada, especially on regional routes as WestJet gets ready to launch its regional subsidiary Encore on 24 June. The new airline will provide short-haul service to cities within Canada and across the US border with a fleet of Bombardier Dash 8 Q400s.

In anticipation of that move, Air Canada began transitioning Q400s to western Canada in February to get a head start on providing turboprop service to the market where Calgary-based Encore will make its debut.

The Canadian rivals are both in the process of executing cost-cutting initiatives. Air Canada told investors on 10 June that planned fleet moves and cost-saving initiatives could shave 15% off of its 2012 cost per available seat mile (CASM) including fuel. This follows a previous cost transformation programme launched in 2009 that provided the airline with a Canadian dollar (C$) $530 million ($519.9 million) in annual savings by November 2011.

On the other hand, 17-year-old WestJet only recently started a formal cost savings programme as it looks towards maturing costs. In January, it launched an initiative to bring down annual costs by C$100 million by the end of 2015. The airline so far is satisfied with how its costs are tracking this year, Culmone says.

Air Canada's 2012 CASM totalled 17.4 Canadian cents (17 cents) last year, and the timeline for when the 15% reduction could be realised has not been specified. Air Canada is guiding that full-year CASM adjusted for fuel will decrease 0.5% to 1.5% for 2013. WestJet's CASM including fuel for 2012 was 13.83 Canadian cents and it expects that number excluding fuel and profit sharing to be flat or up 1% this fiscal year.