A strategic Analysis of WestJet Airline Company

Give a  strategic Analysis of WestJet Airline Company………………….

Answer:

Business description

WestJet Airlines Limited is a Canadian airline company that provides low cost, quality air travel to both local and overseas destinations. The company’s head office is located at 22 Aerial place NE, in Calgary, Alberta. According to the company website, WestJet currently offers flights to 70 destinations in Canada, the United States, Mexico, and the Caribbean. The company is the second largest airline in Canada and currently owns 91 Boeing 737 aircraft. Additionally, WestJet airlines Ltd has more than of eight thousand employees under its payroll.

Company History

WestJet was established by four Canadian entrepreneurs; Clive Beddoe, Donald Bell, Tim Morgan and Mark Hill  on 29 February 1996 in the city of Calgary, located in the province of  Alberta in western Canada. The negative consequences of the Gulf war and an economic downturn in the early 1990s had gravely affected the airline industry due to prohibitive fuel prices and low passenger rates.

Clive Beddoe conceived the idea of starting an airline that offered low-cost, high quality services in air travel across the western region of Canada, structuring their business model in a similar fashion to the US airlines Morris Air and Southwestern Airlines, that had managed to weather the tough industry conditions at the time (Simon, 2002). The company started by providing transport to five cities; Kelowna, Winnipeg, Edmonton, Vancouver, and Calgary. The only aircraft they had at the time were three Boeing 737-200s and their staff comprised of only 220 employees.

By the end of 1996, the airline had added three more Canadian cities to its route: Victoria, Saskatoon and Regina. The airline came to be a great success and by the end of 1999, it had flown a total of two million passengers to destinations within western Canada. 1999 also saw the company carrying out its first Initial Public Offer of stocks, which managed to raise 30 million Canadian Dollars. The money from the Initial Public Offering was then directed to acquiring more planes in line with the company’s plan of growth (Martin, Feils and Allen, 2005).

In the year 2000, WestJet Airlines started a campaign to extend its reach into the eastern territories of Canada. The airline’s route stretched out eastward to Hamilton and Ontario in March that year, Moncton and New Brunswick in April, Ottawa in June, and finally Montreal in September (James Brooke, 2000). This saw a 77 percent increase in the company’s profits and a 54 percent increase in capacity. In the same year, the company also made a deal with Boeing to increase its fleet of jets to a total of 30 by the end of the decade (Pritchard, 2000).

By 2003 WestJet had added fourteen Canadian destinations to its network and by the end of 2004 the airline had expanded into the United States (CBC News, 2004), progressing into international flights by 2007. The airline was also given top position in corporate culture rankings by Waterstone Human Capital for four consecutive years up to 2008 and in 2010 and acquired a prestigious position in the corporate cultures hall of fame as a result (WestJet, 2011). According to the WestJet’s official website, the company is currently the leader in affordable and quality air travel in Canada providing transport to 71 destinations with 96 Boeing 737 aircraft as at December 12, 2011.

 

Key executives In WestJet airlines Limited

  • Clive Beddoe: Chairman of the Board of Directors of WestJet from September 2007.
  • Gregg Saretsky: President and Chief Executive Officer of WestJet.
  • Vito Culmone: Executive Vice-President, Finance, CFO.
  • Bob Cummings: Executive Vice-President, Sales, Marketing and Guest Experience.
  • Cameron Kenyon: Executive Vice-President, Operations.
  • ·         Ferio Pugliese: Executive Vice-President, People and Culture.
  • ·         Cheryl Smith: Executive Vice-President and Chief Information Officer.

Business model of WestJet Airlines Limited

WestJet’s Market

According to the company’s website, WestJet aims to provide services to individual travelers who prefer to use affordable means of air transport on flights lasting up to 10 hours (2012). The company also targets travelers on business trips who prefer the cost-saving services offered by the airline (2012).

Presently, WestJet’s market is comprised of the areas served by the airplane. In North America, WestJet serves 67 destinations, 30 of which are located in Canada and 17 in the United States (WestJet, 2012). WestJet’s primary hub is located at Calgary international Airport. The second largest market is located at Pearson International Airport in Toronto. Other major hubs include Winnipeg (James Armstrong Richardson International Airport), Edmonton (Edmonton International Airport) and Vancouver (Vancouver International Airport). Majority of Canadian travelers access WestJet’s transport services from these sites.

            Secondary markets that are served by the airline are located in the United States in Las Vegas (Mc Carran International Airport), Los Angeles (Los Angeles International airport), San Francisco (San Francisco International Airport), and Newark (Newark International Airport).  

WestJet SWOT Analysis

Strengths:

Following five consecutive years of having a position as one of Canada’s most admired corporate cultures by Waterstone Human Capital, WestJet was inaugurated into the corporate cultures hall of fame in 2010.  The company occupies the position of being the second largest airline in Canada. The success of this company is derived from its strategy of providing affordable and quality air travel. Profitability in the company has encountered steady growth for seven consecutive years up to 2011. Revenues realized by the airline were in excess of three billion dollars in 2011, 17.8 percent growth from 2010. Year-over-year revenue per available seat mile for the company grew by 8.6 percent while capacity in available seat miles expanded by 8.5 percent in 2011.  WestJet’s earnings before tax (EBT) margin was pegged at 6.8 percent, which is one of the highest in the North American airline industry.

According to WestJet’s official website, The company increased its airline partnership alliances in 2011 and boosted the number of flights to major destinations. Partnerships with other airlines are made in order to increase the range of destinations that they can offer to travelers. Partnerships have been made in both code-share and interline agreements. Code-share agreements with Cathay Pacific, Delta Airlines and Japan Airlines allow WestJet’s customers to access international destinations beyond the airline’s network, with the advantage of not having to make multiple reservations. Interline partners include Air France, Alitalia and British Airways among others. Interline arrangements make it possible for other airlines to sell tickets on behalf of WestJet airlines (Field, 2009). They also have the added advantage of providing customers with the convenience of using a single booking to travel with several airlines in a timely manner (Airline Business, 2011).

According to WestJet’s website, The company is on the forefront of environmental protection, having in their possession 30 percent more fuel efficient Boeing 737-series passenger jets (2011). The company is conscious of its relations to existing and potential customers and it has a regularly updated company website, together with an extremely useful travel planning site called MyWestJet where members can view their travel itineraries, store booking information and manage their flight bookings. The company is also involved in more than one thousand community programs in Canada and such as the WestJet Cares for Kids community investment program that works with aid organizations involved in children’s health concerns. The company also supports more than 25 festivals in Canada as a strategy to maintain its visibility and enhance community participation.

Weaknesses:

WestJet only provides flights to destinations within the Americas. This shows that the company lacks the capability to provide flights to destinations spanning the globe which represent a large portion of market share in an age of globalization. Travelers looking to travel to destinations outside WestJet’s network may turn to other airlines that provide these destinations. Additionally, the company does not provide differentiated services based on class, such as first class service with more comfortable seating for those willing to pay above normal rates.

 

 

Opportunities:

Despite offering destinations in the Americas, WestJet needs to diversify their services and expand their network to them international scene. The company aims to increase their fleet of aircraft by 2016 in order to cater for increased demand by the market. This is in line with their vision, which is to be among the five leading international airline companies by 2016. Additional opportunities available to the company include the addition of first class service for customers who prefer added service at higher cost. Additional opportunities exist in terms of enlargement of their network. The company should include more destinations in the region in order for its services to reach a larger number of people.  The company should also strive to be the leader in air travel in Canada, by that ensuring that its goals are met according to plan to enhance its growth and outperform Air Canada, the market leader.

Threats:

Alternative modes of transport such as cars, buses, trains ocean liners and ferries constitute a threat to WestJet’s market share. WestJet also faces the threat of losing customers to other airlines in North America such as American Airlines and Porter.  As the company enters the international market, it will face a larger number of competitors in the affordable air travel sector, along with more established airlines from other countries. The high and unstable costs of fuel, together with the small profit margins gained against the costs of providing international travel and oscillations in the global economy present major threats to the company’s prospects of expansion into the international sphere. Terrorism contributes to the threats faced by every airline and WestJet is not an exception.

Technology presents a significant threat to WestJet Airlines in this era of constant technological improvement and change. Most airlines in the industry are always at constant risk of falling behind in the technological arena due to disruptive developments in air travel technology.  An example is the Airbus A380, which is the biggest commercial aircraft made in history.  The construction of the aircraft includes two levels of passenger space which have the added advantage of increased capacity and more space for enhancements that provide comfort and improved passenger experience. The new standards of air travel that are likely to be brought about by this new aircraft will shift rankings among competitors; since the early adopters will reap the benefits gained from the increased volume and reduced cost of travel. Boeing’s long-haul 787 Dreamliners are also new entrants into the aircraft market. They have the capacity to travel great distances on a single tank of fuel, providing the advantage of speed and punctuality over other aircraft (Mutzabaugh, 2011).  Due to the price of these aircraft and their level of operation, WestJet is unlikely to adopt this new technology and therefore gaining a competitive edge over its rivals.

The prevailing situation in the global economy has forced businesses to reduce their expenditure in order to stay competitive. This has been manifested in the reduction of the frequency of business flights made by company executives and staff. Furthermore, vacation trips made by individuals and families have gone down due to the current economic downturn which translates to lower purchasing power per individual. The status of air travel as one of the most costly forms of transport contributes greatly to public avoidance of this form of transportation in favor of alternative forms such as trains and ferries.

Due to its status as an international airline, WestJet airlines is obliged to follow the regulations that apply in the different countries that it provides services to. Aerial routes plied by the airline have to be prepared in strict accordance to government-specific regulations. Rules and regulations include descriptions of restricted airspace, and established paths to be followed by commercial airlines. Lack of adherence to regulations such as flying through restricted airspace and following undesignated paths may lead to costly penalization for the airline and may also place passengers and crew in danger. Additionally, flight paths that bypass restricted zones may result in greater distances covered, which may result in increased fuel usage, thus exposing the company to greater costs. Another form of government regulation that may have undesired consequences is the Temporary Flight Restriction issued by the United States’ Federal Aviation Administration. This regulation outlines locations that are out of bounds for aircraft due to a potentially dangerous situation or an activity that requires aircraft to avoid the area (Federal Aviation Administration, 2012). Unforeseen increases in fuel consumption may result when flight paths are suddenly diverted for great distances without prior notice.

WestJet also faces challenges originating from society. Due to climate change and public awareness of global warming and greenhouse emissions, industries in all sectors including aviation are finding themselves under increasing pressure to reduce their emissions of pollutants and “go green”. Consumers are more aware of the environment that they live in and they find it rational to choose products that are environmentally friendly and contribute less to global emissions of greenhouse gases. Carbon dioxide is ranked as the most prevalent greenhouse gas. The air transport industry is among the most culpable groups when it comes to carbon dioxide emissions. This is because jet airplanes produce more carbon dioxide than motor vehicles using gasoline.  Commercial jets produce more carbon dioxide per passenger in one trip than a motor vehicle produces in a typical month (Stoller, 2006). In an effort to meet the wishes of their customers who had shown preference to more environmentally friendly air travel, WestJet acquired Boeing 737- Next Generation aircraft. These aircraft would provide more environmentally friendly transport as they produce thirty percent lower carbon emissions than the previous aircraft (WestJet, 2012). According to WestJet’s official website, Additional developments towards attaining fuel economy and reduced emissions include Blended Winglet Technology to reduce fuel consumption by 2.7 percent on each flight.

The aging North American population is also a point of concern in terms of the customer base that WestJet depends on for their growth. Demand for air travel is set to decline with the retirement of the alder section of the population who represent a significant portion of the Canadian population (Statistics Canada, 2005). The reduction in purchasing power of the older generation coupled with health issues is likely to influence their lifestyles and consequently their travelling habits.  In order to guarantee their continued operation, WestJet needs to source new customers and create incentives that will draw the older generation towards using their services.

 Competitors to WestJet Airlines Air Canada   

Air Canada is Canada’s largest airline and the leader in passenger transport in Canada. The airline also leads in the country in providing travel between the United States and Canada and also between Canada and the rest of the world. Air Canada currently provides scheduled services to more than 32 million passengers in 170 destinations worldwide. According to their official website, the company’s mission is “connecting Canada to the world” and its vision is “Building loyalty through passion and innovation” respectively (2012). Air Canada provides a range of services to its customers to enhance their flying experience and increase recurrent customers. Among these are mobile services that allow travelers to check in using their mobile phones, obtain their electronic boarding pass, get updated on flight information and book their flights. Additional services listed in their website include convenient check-in facilities branded as Kiosk Check-in, comfortable waiting facilities such as maple leaf lounges and concierge services for privileged customers (2012).

American Airlines

American Airlines is an established commercial airline headquartered in Fort Worth, Texas. The company is among the largest airlines in the world with more than 3000 daily flights to over 250 destinations across the globe. According to the company’s website, providing safe, dependable and friendly air transportation to their customers constitutes the mission of the airline (American Airlines, 2012). The airline offers personalized in flight services and travel options ranging from coach class to first class service, which provides flat beds and screens for privacy.

American Airlines also provides reward programs for customers such as the AAdvantage, which has lasted for over 25 years. The airline also has a membership service named the Admirals Club with 40 sites worldwide and lounge facilities all over the world. In order to facilitate efficient travel for its customers, the airline is a member of Oneworld Alliance. According to the company’s official website, the airline has agreements with codeshare partners such as Cathay Pacific and Quantas. Regional partners include American Connection and American Eagle Airlines.

Vision, Mission and Strategic Goals of WestJet Airlines Limited

According to West Jet’s official website, the company’s vision is to be among the top five international airlines in the world by 2016. The company aims to change the existing standards in airline travel by providing customers with quality service that emphasizes warm relations between staff and travelers in a caring environment. The vision statement of the company reads: “By 2016 WestJet will be one of the five most successful international airlines in the world providing guests with a friendly and caring experience that will change air travel forever.”

WestJet’s corporate values include the following:

  • Commitment to safety
  • Positivity and passion in providing their services
  • Appreciation of their employees and customers
  • Creating a pleasurable, friendly and caring atmosphere
  • Making the interests of the company’s staff parallel to the interests of the company
  • Creating a culture based on honesty, openness, and commitment.

Strategic Analysis

WestJet’s strategic plan provides a multifaceted approach to boost revenues and foster company growth. In their strategic plan, the company aims to focus on people and culture. This involves creating a positive corporate culture which will facilitate the growth, development and commitment of the employees. Secondly, the company plans to enhance the services provided to customers by regularly providing a memorable experience for its customers. Thirdly, WestJet Airlines aims to focus its energies on cost reduction. This will enable the company to attain a leading profit margin in comparison to other airlines in North America. WestJet also plans to boost revenue and growth by launching a new regional airline that will provide affordable travel over short distances.

The company plans to launch a new short haul airline in 2013 as announced by the company’s board of directors on January 16, 2011.  According to WestJet, the new aircraft will allow the company to provide air transport services to smaller communities within Canada who need affordable air transport over short distances (2012). Smaller, more efficient turboprop aircraft will be used by the airline to provide air travel services to smaller communities, increasing the volume of flights and forging links between existing markets. This will facilitate the company’s aims of realizing average annual compound growth rate in available seat miles of up to seven percent.

As part of their strategy, the company also plans to create affiliations with airlines across the world in all continents. Additionally, the company is looking forward to providing regular transport to New York City and is in the process of requesting for landing slots at La Guardia Airport. WestJet also aims to accomplish its strategic goal of expanding its fleet by adding three Boeing 737 aircraft to their line.  Further implementations proposed by the company with the view of accomplishing their strategic plan include assessing and making improvements on their accounting procedures in order to strengthen their finances.

Key Products, Services and Brands Offered by WestJet airlines Limited

Among the products offered by WestJet are travel packages and reward programs that provide attractive deals and incentives that act to draw new customers to the airline and retain existing ones. WestJet offers a travel package under the brand WestJet vacations. According to the company, the package presents customers with the opportunity to save money when reserving flights for certain destinations. Additionally, the packages are reliable and easy to book and provide the customer with a distinctive and personalized vacation experience (2011).

Other products showcased in WestJet’s official website include reward programs such as WestJet Rewards and WestJet RBC MasterCard (2012). WestJet Rewards is a program that gives customers the opportunity to redeem a percentage of their expenditure when they use the airline. The reward program also offers bonuses such as free tickets for travel companions, free access to exclusive lounge facilities and the advantage of selecting desirable seating positions.

WestJet RBC MasterCard is another reward program provided by the company that gives bonuses to holders in the form of points referred to by the company as WestJet dollars. Card holders get the opportunity of redeeming a percentage of money spent on the airline’s services depending on their frequency of using the airline.

 

Conclusion

Despite the challenges that face WestJet Airlines Limited such as the global economic downturn, fuel price fluctuations and a limited network of destinations, the company has a generally positive outlook. The internal strengths of WestJet Airlines Limited outweigh their weaknesses, which is a significant achievement for an airline company of their size and age. WestJet airlines have demonstrated their ability in developing their strengths to stay on the competitive edge and surpass their rivals in the North American airline industry. The company is aware of their weaknesses and their 2011 agenda is focused on addressing these problems with plans to increase regional capacity and enhance market penetration. Opportunities for the company exist in many fronts, such as expansion and cost reduction. Furthermore, the company shows great ability in transforming their weaknesses into opportunities and maximally exploiting these opportunities. WestJet plans to grow rapidly in the next five years and become world leaders in the aviation industry. While WestJet is faced with numerous threats to its continued growth, these have little effect on the company’s direction at present. Furthermore, most of the threats facing the company are shared with other airlines as well, which means that WestJet’s competitive edge is not at significant risk.  Being a successful company that is considering expansion into new markets, WestJet is faced with an eventful future which demands focus and determination to rise above the hurdles they are likely to face in their campaign to be among the leading airlines in the world.

 

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