Low-cost Swoop airline attracting new breed of infrequent flyers, WestJet says

Swoop enters the Canadian ultra-low-cost carrier market.
Swoop enters the Canadian ultra-low-cost carrier market. CNW Group/WestJet

Nearly a week after launching ticket sales for its ultra-low-cost carrier Swoop, WestJet Airlines Ltd. says it hasn’t lost business at its main airline, suggesting it has found a new market of infrequent flyers.

READ MORE: Extra-low-cost airline Swoop to launch June 20; offers $0-fare promotion

“Clearly what we’re seeing is that Canadians like low fares,” Ed Sims, executive vice-president, commercial, told a conference call with financial analysts Tuesday to discuss the airline’s fourth-quarter results.

“It’s been six days since we went on sale. We’re tracking Swoop’s growth on an hourly basis and we’re seeing no signs of cannibalization (of WestJet ticket sales).”

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WestJet matched analyst expectations by posting earnings of $48.5 million or 42 cents per diluted share for the last three months of 2017, down from a profit of $55.2 million or 47 cents per diluted share a year earlier, as costs rose, particularly for fuel.

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Revenue totalled nearly $1.12 billion, up from nearly $1.02 billion in the fourth quarter of 2016.

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Last week, WestJet announced Swoop will launch on June 20 with flights between Abbotsford, B.C., and Hamilton. It will add flights involving Edmonton and Winnipeg by the end of July for a total of 45 weekly flights.

Ticket prices are about 40 per cent cheaper than comparable flights, WestJet says, but its seats are more densely packed and there are fees for options like carry-on luggage, food and extra leg room. It’s expected to compete with Flair Airlines and Canada Jetlines.

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“Subject to regulatory approval, Swoop will expand outside of Canada later this year and could grow to a fleet of as many as 30 to 40 aircraft,” CEO Gregg Saretsky said on the call on Tuesday.

He said Swoop will start with three aircraft in June, have six by September and will grow to 10 by the spring next year.

WATCH: WestJet’s new ultra low-cost carrier, Swoop, will offer low prices for few services. As Reid Fiest reports, it comes as other smaller carriers that have tried to do the same, scale back their deep discounts. (Sept. 2017)

Click to play video: 'Swoop is WestJet’s solution to ultra low fares'
Swoop is WestJet’s solution to ultra low fares

Pilot recruitment is progressing well, Saretsky said, adding his preference is to allow pilots from WestJet and WestJet Encore to seek promotions with the new airline.

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He said WestJet is negotiating with the Air Line Pilots Association, International, the union that won the right to represent WestJet pilots last year, to maintain one seniority list for all of its pilots, thus allowing pilots to move from one brand to another without losing pay and seniority rights. Under the current contract, pilots can take a leave of absence to try flying for Swoop and still return to their old jobs, he said.

WestJet said it intends to grow its margins this year, buoyed in part by expectations of an economic recovery in its home province of Alberta, but chief financial officer Harry Taylor conceded it planned to do the same thing last year and failed.

He said fuel, which accounts for about 24 per cent of operating costs, increased by 15 per cent in the fourth quarter and consumption was up by almost five per cent compared with the same period of 2016.

READ MORE: Westjet’s new ultra-low-cost airline to be called Swoop

Analyst Walter Spracklin of RBC Capital Markets said WestJet’s first-quarter 2018 guidance of about five per cent growth in revenue per available seat-mile is higher than he expected.

But he said its forecast for between four and five per cent growth in capacity in the current quarter is less than expected and will leave WestJet behind in its quest for annual capacity growth of 6.5 to 8.5 per cent.

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He added there is “some risk” that the company won’t be able to achieve its goal of keeping average cost inflation to between one and two per cent in 2018, given higher cost hikes in the current quarter.

WestJet said its costs per available seat-mile rose 5.5 per cent to 13.57 cents in the fourth quarter, up from 12.86 cents in the year-earlier period. Excluding the cost of fuel and employee profit sharing, the cost per available seat mile increased 3.6 per cent to 10.23 cents compared with 9.87 cents in the fourth quarter of 2016.

WestJet grew capacity as measured by available seat miles by 5.6 per cent compared with a year earlier, while traffic measured by revenue passenger miles climbed 8.8 per cent.

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