BUSINESS

WestJet and Air Canada pursue their own paths to international revenue growth

11/19/2013 06:05 EST | Updated 01/23/2014 06:58 EST
Canada's two largest airlines are both targeting international growth, with WestJet dipping its toe in European waters and Air Canada trying to boost its share of U.S. passengers flying through Canadian hubs.

Calgary-based WestJet Airlines says next summer's launch of service to Dublin will help it learn about the European market and its different regulations, operational requirements, taxation and carbon emissions rules.

"There's four five other markets potentially that the (Boeing 737-700) can serve out of St. John's, NL, and use St. John's as a bit of a launching pad," chief financial officer Vito Culmone told Scotiabank's transportation conference on Tuesday.

He said sales to Dublin have been "very very strong" since the route was announced last Friday.

The 2014 summer schedule is set, so any new destinations would have to wait, a company official later clarified. WestJet plans to use three of the narrowbody aircraft on the route.

Culmone said WestJet (TSX:WJA) has had discussions with Boeing and Airbus about acquiring wide-body aircraft that are better suited for long-haul flights, but that the company is focused over the coming years on expanding its new regional Encore service and the delivery of more fuel-efficient, re-engined Boeing 737 Max aircraft.

Air Canada CEO Calin Rovinescu called WestJet's Irish foray an "interesting move" but "insignificant" to his airline's own expansion plans involving its low-cost carrier Rouge.

"So while they may have plans and ambitions in the future, at this stage it's a non event as far as we're concerned and that's not going to affect our decision on the ramp up of Rouge one way or another," he said in a separate presentation.

Rouge launched service last summer with just four planes — two large aircraft destined for Europe and two smaller planes for sun spots. It plans to operate 33 aircraft by the end of next year as it moves older planes from its mainline fleet upon delivery of new Boeing 777 and 787 aircraft.

Rovinescu said aircraft carrying additional seats will help the carrier's efforts to reduce costs and sustainably improve profits.

Air Canada (TSX:AC.B), Canada's largest airline, is seeking its own international growth by expanding service to Asia and Europe. Rovinescu said the airline could tap into $400 million in additional revenues if it get its fair share of the U.S. passengers flying abroad.

The airline currently has just 0.3 per cent of that market but figures it could add 1.1 million passengers by boosting its share to 1.5 per cent by servicing secondary U.S. markets like Philadelphia and Boston.

"So as we compete with the other powerful hubs such as Chicago, JFK and some the international hubs, we expect to pick up a large portion of that U.S. to Europe and Asia traffic," Rovinescu said.

Air Canada's chief executive said WestJet Encore, with six Q400s in Western Canada, isn't yet a significant factor, but the Montreal-based carrier isn't waiting until it grows before reacting.

The airline is working with partners such as Sky Regional to drive down costs. It also launched a request for proposals to operate service to the United States and is pressuring partner Chorus Aviation (TSX:CHR.B) to further cut costs.

"We would be open to see if there are solutions because they have always been a very good partner," Rovinescu said of Chorus, which operates the Jazz subsidiary.

Meanwhile, Culmone said WestJet's Encore could generate $400 million to $600 million in additional annual revenues with its hoped for share of the $2-billion market in Canada and the United States using aircraft with 50 to 75 seats.

Encore plans to launch service in Eastern Canada next summer and operate 16 planes by year-end when service is extended across Canada. Service to the United States could be added by the end of 2015.

WestJet has firm orders for 20 Bombardier aircraft and options for 25 more to reach its estimate of the number of planes needed for a mature market.