Canadian carrier WestJet has lowered its capacity growth this year as a rebound in the fall-off in both leisure and business travellers remains difficult to predict.
Overall available seat mile growth is falling from five percent to three percent, which is largely being accomplished through schedule tweaks, said carrier CEO Sean Durfy today during an earnings call with analysts and investors. Those adjustments include eliminating red eye service and flights on less popular days for travel such as Tuesdays and Thursdays.
Yet he cautions that in the airline industry if too much capacity is pulled out at once a unit revenue bump is achieved fairly rapidly, but usually a carrier faces challenges in getting its unit cost to fall as quickly.
Durfy highlights some weakness in the Canadian domestic market as demand by both leisure customers and business passengers is being squeezed.
WestJet management says since November generally the carrier has discounted fares by 10%-15% to meet its load factor targets of 78%-82%. While it is too early to predict what will happen in the summer period, WestJet management hopes the peak demand during that time period "will break the cycle of having to discount".
Still, Durfy acknowledges that with booking curves moving closer to travel it is tough to look at historical data to predict demand during the summer months. "I think people are holding back to wait for positive news," he explains.
Performance on the carrier's transborder, sun destination markets remained fairly consistent during the first quarter as Durfy explains WestJet was "able to keep yields up" on those routes.
WestJet plans to retain a presence in some of those transborder markets during the second and third quarter as its relationship with Southwest continues to evolve. Southwest links to WestJet's website from it own through what Southwest deems as "pre-codeshare distribution."
Their formal codeshare is scheduled to start during the fourth quarter of this year once WestJet's new reservation system powered by Sabre goes live. Durfy stresses the development of the system is both "on time and on budget". WestJet in 2007 took a $30 million write off to scrap development of aiRES, which currently serves as Virgin America's reservations platform.
Once the Sabre system is functional Durfy says WestJet's planned codeshares with both Southwest and Air France/KLM should start promptly.
WestJet estimates additional costs to bring the Sabre system online from now into 2010 of $5-$10 million annually. But Durfy stresses WestJet's ability to recoup that cost in codeshares alone. Stressing the additional revenue generated by fare bundling capabilities through the Sabre platform, Durfy points to "tremendous upside".
Source: Air Transport Intelligence news
