A decade ago, when WestJet Airlines had about 50 Boeing 737s, its executives crunched the numbers and calculated that the airline would saturate the North American market when its fleet reached 90-100 mainline narrowbodies. That left them wondering whether to add new aircraft types or simply slow their expansion.

Unlike its U.S. counterpart, Southwest Airlines, which has stuck with the 737 and only waded tentatively into international markets, Calgary-based  WestJet chose a more daring approach as its fleet neared 100 aircraft, moving first to build a wholly owned regional subsidiary called WestJet Encore. In June 2013, Encore launched in Western Canada with two Bombardier Q400 turboprops, the first of an initial order for 20. Now Encore has 18 Q400s, which have enabled WestJet to expand its footprint across Canada, especially in cities that were too small to support much, if any, mainline service.

The new Encore network laid the groundwork for a larger experiment coming this summer. In a move that could considerably alter the trajectory of the airline, WestJet will begin flying four Boeing 767s, all former Qantas aircraft that it will initially operate around North America and from Edmonton and Calgary to Hawaii. But by the middle of 2016, the airline will deploy them on long-haul routes, perhaps to Europe, Asia or the Middle East. An announcement on destinations is expected in late spring or early summer.

Airline executives emphasize that the widebodies are a low-cost experiment. Unlike the Q400s, which were bought new, WestJet never seriously considered placing an order for new widebodies. But it is already having discussions with Airbus and Boeing about future orders. If WestJet can achieve 12% return on capital in the first two years, it likely will proceed with a new aircraft order. And executives are thinking big. 

“With a network and partnerships like we have, why couldn’t we have 30 or 40 [widebodies]?” CEO Gregg Saretsky tells Aviation Week. “That’s ultimately where I think it goes. And widebodies can fly 11 hr. We could do Asia. We could do Latin America. We could do Middle East. We could do Europe. It puts all geography into play.”

LAYING THE GROUNDWORK

Before WestJet could start operating like a major network carrier, albeit one with lower costs, it needed to streamline operations. The airline had been cobbled together with a handful of used aircraft in 1996, and it was not built to sustain turboprop or long-haul operations. The founders never expected the airline to fly east of Winnipeg, Manitoba. 

One of its first changes was to switch its reservations system to Sabre, a 2009 move that at first frustrated travelers but allowed WestJet far more functionality. Next, WestJet built up codeshare and interline agreements, including with Delta Air Lines and American Airlines. Both relationships help WestJet feed its flights and are expected to continue. “Because of the way our network has developed, it doesn’t make sense for us to jettison American and go with Delta or vice versa,” Saretsky says, acknowledging each might prefer an exclusive partnership with WestJet. “Their choice is to have us as a partner or not have us as partner, given that Air Canada is already in the Star Alliance.”

Another operational improvement came early last year, when WestJet opened new crew bases in Vancouver and Toronto. Even with a mainline fleet of about 100 737s, WestJet had relied on a single crew base in Calgary, a system that was never efficient but caused major problems during winter snowstorms in Eastern Canada.

A fourth major move happened last summer, when WestJet began seasonal service between St. John’s, Newfoundland, and Dublin with a 737-700. Just as with the 767s, WestJet called the route an experiment, saying it wanted to test selling transatlantic flights on both sides of the Atlantic in multiple currencies. Previously, it had only sold tickets in U.S. and Canadian dollars. This summer, it is adding a similar route from Halifax, Nova Scotia, to Glasgow, Scotland. 

But the most vital step forward came with the introduction of the Encore Q400s. The lack of a turboprop put WestJet at a major disadvantage against Air Canada, which has been able to profitably serve many of Canada’s smaller communities with Beechcraft 1900s, deHavilland Dash 8s and Q400s operated by partners. In some cases, WestJet avoided markets, while in others, it served demand with a once-daily 737 flight.

Headquarters  Calgary, Alberta
Year founded  1996
Key hubs  Calgary and Toronto 
Annual revenue  C$3.98 billion (U.S. $3.15 billion)
Annual net earnings  C$284 million (U.S. $224.1 million)
Operating margin 12%
Full-time employees  8,700
Destinations  93
Current fleet  107 Boeing 737-600s, -700s and -800s and 18 Bombardier Q400s
Available seat miles (ASMs) 25.6 million (54.3% domestic, 45.7% international) 
Load factor  81.40%
Cost per ASM (CASM)  C13.68 cents (U.S. 10.83)
CASM excluding fuel and profit share C9.15 cents (U.S. 7.24) 
Average aircraft utilization  11.8 hr. per day
Average stage length  936 mi. 
 

​WestJet took delivery of 15 Q400s through the end of 2014, and it will add 15 more by the end of 2016. It also retains options for another 15 of the aircraft in 2016-18. 

The Encore Q400s, all with 78 seats, mainly feed WestJet’s hubs, though they also have other purposes. WestJet also is using them to connect dots, allowing the airline to open new routes, such as between Regina, Saskatchewan, and Winnipeg. In the near future, WestJet also expects to use the Q400s to the U.S. to open new markets, perhaps rust-belt cities it cannot profitably serve with mainline aircraft.

“I am much more excited about the Q400 opportunity than the widebodies,” says Ben Cherniavsky, a Vancouver-based analyst at Raymond James. “The widebody is a much more competitive market. The beauty of the regional opportunity in Canada is that it is a monopolized market. Air Canada is the only airline that services a long list of destinations in Canada that can’t be reached with a 737.”

WIDEBODY PLANS

While it may be possible for WestJet to grow even if the widebody experiment fails, just about everyone at the airline’s Calgary headquarters has high hopes for the next phase of expansion.

The obvious initial international destination for the 767s is Europe, since Glasgow and Dublin are already on the schedule. But Saretsky says executives have seriously considered deploying them elsewhere, perhaps to Asia. “Why not Shanghai or Beijing?” he asks.

Since WestJet has learned to sell in pounds and euros, Saretsky suggests WestJet probably would not have much difficulty selling in Chinese renminbi or Japanese yen. WestJet would have less competition with Asian routes, as other low-cost carriers have generally avoided them.

“The Asian markets are less seasonal, and they are growing much faster,” Saretsky says. “It might make sense to get in on the ground floor and establish a position in a market that is developing, especially if we can lean on a partner in the Asia-Pacific region to help.”

Leading the charge to explore new markets is Bob Cummings, WestJet’s executive vice president for sales, marketing and guest experience. A former cell phone company executive—he helped launch the first mobile-phone network in Romania—Cummings is bullish about entering emerging markets before low-cost competitors. In many markets, there is only one or two established airlines, often flag carriers not known for nimbly reacting to new competition.

“From a commercial end, to jump in there right off the bat, there’s some sex appeal to do that,” Cummings says. “But when you do all the operations and languages and everything else, you also want to ease into it.”

This comment suggests that WestJet might start with Europe. But Europe has a couple of drawbacks. First, it is well covered by both Air Canada and Canada's largest charter carrier, Air Transat, which operates some scheduled flights, too, to 27 European destinations. And second, it is highly seasonal, with demand dropping when the weather gets colder. Still, Saretsky says WestJet could make Europe work. 

“It’s a market that has a massive summer peak,” he says. “You look at Air Transat and all the places they are serving from Budapest to Prague. And remember when Air Transat does it, they are serving these markets all point-to-point. When they fly from Toronto to Nice, France, they live and die on the demand between Toronto and Nice. We are a network carrier, so our whole network west of Toronto would connect with our widebodies.”

Cherniavsky, the investment analyst, says WestJet should probably avoid Europe. He notes that Air Canada has historically had a problem deploying widebodies during the winter, and he suspects WestJet may have a similar issue. “You have to avoid the trap of what Air Canada has done, which is to structure a fleet and a labor pool that is entirely organized around the opportunity to fly Canadians everywhere they want to go in July and August,” he says. 

Some markets in Asia would solve that problem. But Cherniavsky argues that Shanghai or Beijing may not be the answer, especially if new aircraft arrive and can fly even longer distances. “Who doesn’t talk about emerging markets these days?” he says. “I think everyone is obliged to have a plan for China. I know they have a track record of being somewhat creative with their capacity. Australia perhaps? There are a lot of alternatives.”

FUTURE GROWTH

So far, WestJet executives say they have made no decision on which new widebody aircraft might work best. They say they are considering the Boeing 777 and 787 as well as the Airbus A330neo and A350

But what if the widebody experiment is a failure? WestJet would still grow and modernize its fleet, though likely at a less aggressive rate. It intends to remain a 737-dominant carrier, and it plans to slowly modernize and upgauge. Westjet is disposing of its 10 oldest 737-700s; it sold some in 2014 and will sell the rest this year, replacing them with 10 new 737-800s.

Longer term, WestJet has placed an order for 65 Boeing 737 MAX aircraft to arrive in 2017-27.  The airline has some flexibility with lease renewals and estimates it will have 120-164 737s by 2023. It now has 107 737-600s, -700s and -800s. On the turboprop side, WestJet says it could have as many as 45 by 2018, up from 18 now. 

Whether or not the carrier adds widebodies, it should still be able to increase revenues by taking better advantage of ancillary opportunities and adding to its share of the corporate travel market. Historically, WestJet has been more of a leisure-oriented carrier with a simplified fare structure and few fees, but recently that has changed.

The airline has started unbundling its product and last year began charging some travelers for their first checked bag. The new bag fee has gone so well that Saretsky admits the airline probably should have instituted it sooner, but executives were fearful it would dilute WestJet’s brand. Now, in a move that would be cheered by investment analysts, the airline is evaluating whether to add a row of seats to its 737-800s. 

Executives also suspect WestJet can take a larger share of Canadian business travel within North America. To serve business demand, it will begin flying in September between Calgary and Houston. That is about as close to a pure business route into the U.S. as WestJet has ever attempted, but the carrier’s executives believe it is achievable, mainly because of the strong oil economies in both markets, as well as feed from partners.

“Leisure has been our bread and butter,” Cummings says. “We are not at growth limits, but we sit down and say, ‘We may have some other opportunities.’ Now it’s more of a portfolio approach.”

But those are all minor matters. What is more likely, the executives say, is that WestJet will succeed with widebodies. 

“I think the low-cost, widebody, long-haul model has proved itself in all sorts of geographies,” Saretsky says. “So why not North America? It’s a matter of time.” 

Editor's note: This story has been updated to clarify details about WestJet's fleet renewal plans and the nature of Air Transat's business.