Westjet Strategic Analysis

A strategic Analysis of WestJet Airline Company Student Name: Institution: A strategic Analysis of WestJet Airline Company 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 1, 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 th...