WestJet forced to discount airfares as ‘Alberta effect’ hits travel demand

Click to play video: 'WestJet says demand falling fast as Alberta struggles'
WestJet says demand falling fast as Alberta struggles
WATCH: WestJet's CEO says carrier has had to cut routes because of falling demand. Reid Fiest reports. – Feb 2, 2016

The country’s second-biggest airline, WestJet, says it has seen a “sudden and very deep” drop in travel demand to and from its home province of Alberta, forcing the airline to aggressively cut airfares in order to fill planes.

A week after WestJet said it was moving quickly to reduce service to and from centres like Calgary and Edmonton, executives for the airline noted discounts have been introduced to keep customers flying on remaining flights.

“We are discounting to fill seats in and out of Alberta,” Bob Cummings, WestJet’s head of commercial affairs, said on a conference call.

The fall-off in demand has been fast.

“I think what we’re seeing is a delayed effect,” Gregg Saretsky, CEO of the Calgary-based airline said on the call.

Severance payments to laid off workers in the oil-and-gas sector and related fields as well as performance bonuses that were based on results before oil’s sharp crash “kept things afloat for most the year” last year, Saretsky said about the broader economic picture in the province.

Story continues below advertisement

“We really didn’t start to experience much softness in our bookings until late in the [year]. And it was sudden, and it’s gotten very deep.”

MORE: WestJet reduces service in Calgary and Edmonton 

Worse than 2008

The slowdown WestJet is seeing in the Prairies is becoming more protracted than what the airline witnessed in the last major recession in 2008. “We’re seeing more softness today in Alberta than we saw at that period of time,” Saretsky said.

WestJet’s shares plunged more than 10 per cent Tuesday after the carrier reported weaker earnings through the final three months of the year, the performance negatively impacted almost exclusively by what WestJet officials called the “Alberta effect.”

Industry watchers and investors have grown increasingly critical of growth plans WestJet is embarking on at home and abroad this year, complaining that the added “capacity” at the airline is creating pressure on airfare prices beyond just Alberta – a good thing for fliers but bad for the airline’s financial performance.

“There’s an awful lot of discounting in the market, an awful lot of promotions and seat sales,” Ben Cherniavsky, an airline analyst at financial services firm Raymond James, said.

WestJet said it still plans to take advantage of the downturn in oil prices and savings it’s reaping from jet fuel – an airline’s biggest expense – to pursue its growth strategy.

Story continues below advertisement

WestJet isn’t selling seats at a loss, even in Alberta, Saretsky said. But the executive did offer a caveat.

“If [the rest of] Canada starts to catch the cold from Alberta, we’ll clearly have to revisit our capacity plans.”

WATCH: WestJet officials say the airline has seen a sudden and deep drop in travel demand to and from Alberta. Tracy Nagai reports.

Click to play video: 'WestJet officials lower fares due to ‘Alberta effect’'
WestJet officials lower fares due to ‘Alberta effect’

Sponsored content