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Has WestJet lost its competitive advantage over Air Canada?

WestJet competitive advantage

WestJet competitive advantageWestJet’s (WestJet Stock Price, Chart, News TSX:WJA) share price may be flirting with a two-year low but it’s far from clear if and when a bounce-back will occur, especially since the airline seems to have lost much of the competitive advantage it once had over Air Canada, says Bruce Murray, CEO of the Murray Wealth Group.

Last Friday, WestJet and its pilots agreed to a settlement process to avoid a strike, with management admitting that the threat of a strike over the past month has significantly impacted bookings. New CEO Ed Sims said that the looming strike threat has cost the airline “tens of millions of dollars” so far.

“After four weeks of operating under a strike threat that has been very damaging both financially and to our reputation, I could not sit back, stand by and watch the organization be effectively slow-baked into this position, so we were coming very close to our form of action,” said Sims.

The airline’s troubles have hit its share price, too, with the stock tumbling almost 25 per cent year-to-date and now hitting lows not seen since mid-2016. That stands in glaring contrast to Air Canada whose fortunes have improved in recent years and whose share price has tripled since mid-2016.

WestJet lost competitive advantage over Air Canada because of what the latter did right…

The comparison is apt but perhaps overdone, says Murray, who argues that just because Air Canada has done well in righting its ship doesn’t mean that WestJet is necessarily in dire straits.

“Air Canada has better route structures, they’ve got global reach. Years ago, you could buy Air Canada at $2 and WestJet was selling at $25. Today, Air Canada’s caught up at $25 and WestJet is at $20. [But] WestJet hasn’t done anything wrong, it’s still a good company,” says Murray to BNN Bloomberg.

“WestJet is a well-run company and it did very, very well. But Air Canada’s got so much leverage. We own Air Canada and we think Air Canada will continue to do better but that doesn’t mean that there’s anything wrong with WestJet,” he says.

Today, WestJet starts up a Halifax/Paris flight route, a first for the carrier as it takes steps to broaden its global reach. Those expansion efforts are likely to be costly over the short and medium term, says Murray.

“When you enter new markets, you lose money for a few years. Startups are always costly. So, I suspect that’s what’s really going on. They’ve had some changes in management as the company has moved through its progress,” he says. “WestJet was a low-cost provider against a big lumbering behemoth that was not well run, but as the other company has become better and better run, WestJet’s competitive advantage has diminished.”

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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