In general, complexity is the enemy of any good low-cost airline. Sure, by nature, legacy carriers have complexity in spades, and that’s why low-cost carriers try to avoid it; they can get a big cost advantage by staying simple. Canada’s WestJet used to bask in simplicity. It made huge margins while big brothers Canadian and Air Canada saw their dominance chipped away. But now, WestJet is anything but simple. Just last week it added another layer with WestJet Link, its first true US-style regional carrier capacity purchase agreement. This seemed like a good time to pause and look at just how complex this airline has become… and then scratch my head wondering how it keeps succeeding.
Flash back to 1996. WestJet took to the skies with just a few 737-200s from its Calgary home. The airline was inspired by Southwest, as all low-cost carriers were back then. One class of service, short flight segments, and… simplicity. At the time, Air Canada and Canadian were locked in a battle for supremacy, and WestJet was just a speck of dirt. But things changed quickly. WestJet grew, and grew, and grew. It didn’t need to roll out bells and whistles. It just needed to keep adding seats in new markets with low fares attached to them.
For the first few years, WestJet stayed in the western half of the country. By 2000, however, Air Canada had acquired Canadian and that meant opportunity knocked. WestJet headed east to continue its expansion. By 2002, Air Canada was scratching its head to figure out what to do about WestJet. It finally launched Zip, the airline with various fluorescent-colored aircraft that tried to clone WestJet out of Calgary. You might as well have called it Shuttle by Air Canada. It lasted only two years. Meanwhile, WestJet kept covering the country.
By the time Air Canada shut Zip down, WestJet was becoming more competitive. It changed its focus from secondary airports like Hamilton to primary airports like Toronto. Why? Well, that’s how you grow.
See, Canada isn’t all that big. It has a total population of around 36 million. That’s smaller than California. More importantly, that population is clustered. There are only 6 metro areas in the whole country with more than a million people. That means that at some point relatively quickly, WestJet was bound to run out of expansion opportunities. Once it moved into primary airports, it also started looking beyond the borders into the US and then eventually the Caribbean. Anywhere those 737s could fly, WestJet had to be considering it.
By the end of the first decade of the millennium, WestJet had already covered much of what it could do with 737s. That’s when the complexity came out. Just look at some of the things it launched.
- 2009 – Switched to Sabre reservation system to handle more complexity
- 2010 – Added WestJet credit card and frequent guest programs
- 2011 – Began codesharing with American, Delta followed later
- 2013 – Launched Encore, a wholly-owned regional airline using Q400s to serve smaller cities
- 2013 – Added Plus extra legroom section to all 737s
- 2014 – Began flying 737s over the Atlantic to Dublin from far Eastern-Canadian cities
- 2015 – Ditched the single fleet (not counting previously-leased 757s) and acquired 767s initially to fly to Hawai’i
- 2015 – Morphed Plus into a Eurobiz style premium cabin (blocked middle seat) on 737s and a long-haul premium economy-style cabin on the 767s
- 2016 – Began flying 767s over the Atlantic to London/Gatwick
- 2017 – Ordered at least 10 787s to replace the 4 767s starting in 2019 and to expand into Asia; aircraft will have Plus cabin but also business class with flat beds
- 2017 – Introduced WestJet Link, a capacity purchase regional agreement with Pacific Coastal Airlines to serve cities too small for Encore
- 2018 – Swoop will launch, WestJet’s ultra-low cost carrier
Need a moment to catch your breath? Within one decade, WestJet will have completely remade itself from a simple, low-cost carrier into a legacy airline-type structure that actually makes some legacy airlines look like simple operations. It sounds crazy, but WestJet apparently just needs to keep finding ways to grow or it gets bored. I know a decade is a long time, but for a transformation like this, it’s really not.
You would think this would weigh heavily on WestJet’s earnings. After all, this kind of shiny object distraction has sunk many an airline before. Since 2012, WestJet has kept its annual operating margin above 10 percent. Last year in 2016, it was 10.7 percent. This year appears to be a bit behind that. Yes, WestJet has been one of the rarities in North America in that its margin has shrunk over the last few years. But it hasn’t fallen off a cliff as you might expect.
Every time WestJet comes up with some new idea that only adds complexity to the operation, I think it’ll be the straw that breaks the camel’s back. But so far, that hasn’t been the case. I guess we can just continue looking forward to more complexity until that day comes.
