Airline and Westjet Essay

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WESTJET IN 2009: THE FLEET EXPANSION DECISION1

Ken Mark wrote this case under the supervision of Professor Stewart Thornhill solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.
Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of
Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.
Copyright © 2009, Ivey Management Services

Version: (A) 2010-08-26

INTRODUCTION

On April 27, 2009, a senior executive at WestJet Airlines Ltd. (WestJet) was reviewing his company’s expansion goals for the next few years. In support of its future growth, WestJet was considering adding smaller Bombardier or Embraer airplanes to its fleet of single-model Boeing 737s. Although adding smaller planes would allow WestJet to increase its market share by offering short-haul trips and connections, the senior executive considered the impact the decision would have on WestJet’s strategy.
“We don’t feel any time pressure to go to a second fleet,” said Bob Cummings, WestJet’s executive vicepresident of guest experience and marketing. “But there is definitely a tipping point where this organization needs to seriously consider going to a second fleet. It just makes sense that in the life cycle of this organization, we would move beyond the consideration phase.”2
WestJet was well-known in Canada for its cheerful employees, irreverent corporate culture, low fares and upbeat commercials. From its roots as a Calgary-based startup in 1996, WestJet had become the second largest airline in Canada, growing revenues at an average annual rate of 37 per cent for 11 years. It had been profitable in 11 out of 12 fiscal years since 1997, and was poised to become Canada’s dominant airline. Despite the economic downturn in 2008, WestJet was one of only three global airlines that were profitable in 2008, leaving it well-positioned to take advantage of an economic recovery.
By the start of 2009, WestJet had a 36 per cent share of its domestic market to Air Canada’s 57 per cent.
According to rumors, Air Canada was poised to suffer another setback: in early April 2009, a news report suggested Air Canada was preparing to restructure its operations, possibly including a bankruptcy filing.
The timing seemed right for WestJet to continue gaining ground on its chief rival. The addition of new, smaller jets could be the catalyst for further growth.

1

This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of WestJet or any of its employees.
2
Brent Jang, “WestJet Eyes Smaller Planes,” The Globe and Mail, April 14, 2009, p. B7.

Authorized for use only by David Fisher in Strategy at University of Ontario Institute of Technology from Jul 14, 2014 to Jul 25, 2014.
Use outside these parameters is a copyright violation.

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In Canada, the deregulation of the airline industry, which started in 1988, allowed carriers to establish airfare and conditions of carriage without government regulation. Competition within the industry was fierce, and the price wars benefited consumers looking for bargains. From 1988 to 2008, the cost of air travel, defined as “cents per revenue passenger mile,” fell from 15.1 cents to 12.4 cents.3
Air Canada, along with its affiliated regional carrier, Jazz Air, was
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