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WestJet outlines path to axing C$200 million in costs

Extended maintenance intervals, network changes and customer service tweaks are among factors that will help WestJet achieve its goal to save C$200 million ($152 million) in the next two years, WestJet chief financial officer Harry Taylor tells FlightGlobal.

The changes will help right a ship that Taylor admits has been burdened by ballooning costs amid a major organisation-wide transformation.

"Over the last couple of years our aggregate costs have grown faster than aggregate revenues. That's never a recipe for financial success," says Taylor.

WestJet posted a C$28 million operating loss in the second quarter as operating expenses surged nearly 14%. The Calgary- based company, which once operated a traditional point-to-point low-cost model, is moving upscale, acquiring Boeing 787s and adding premium seating in a bid to lure more business travellers.

To address rising costs, WestJet announced in May it had moved forward by two years, to 2020, a goal to eliminate C$200 million ($152 million) from its operation.

WestJet aims to cut C$60 million this year (of which it has already identified savings worth C$40 million), another C$60 million in 2019 and the final C$80 million in 2020, Taylor says.

A number of changes will generate savings, including a plan to extend by several months the intervals between aircraft maintenance checks – particularly B and C checks, he says.

Such changes require Transport Canada approval and, Taylor stresses, will not compromise safety.

WestJet is developing the new intervals in partnership with Boeing.

The airline is also renegotiating new sales and distribution contracts, such as those with global distribution systems, and is eliminating some unprofitable flying, says Taylor.

He notes the company will end service to Mexico City this fall and has cut flight frequencies on many routes, including those to places like Denver and Quebec City.

More broadly, WestJet has slashed by six percentage points its originally-planned fourth quarter capacity growth to help boost fares and yields.

"We need to get yields growing. We need to get margins expanding… We need to lead the market by reducing capacity," Taylor says.

Then there is what Taylor calls "guest atonement" – in other words, how WestJet handles customers inconvenienced by operational disruptions.

"We were exceedingly generous in trying to atone for the inconvenience we caused our guests," Taylor says, noting that WestJet generously provided meal vouchers, hotel rooms, dollar-based credits and flight rebooking.

"We have dialed it back to industry standard, or maybe a little bit more," says Taylor.

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