So far, WestJet has taken a cautious approach to long-haul operations, testing two short routes with Boeing 737-700s. But now, the airline will take a bigger plunge, flying its first widebodies across the Atlantic. And if all goes well, WestJet could soon place its first real order for long-haul aircraft.

The airline entered the overseas market in 2014 with a seasonal flight from St. John’s, Newfoundland, to Dublin, adding a second one a year later from Halifax, Nova Scotia, to Glasgow, Scotland.In May 2016 it will extend its reach with four ex-Qantas Boeing 767s, all flying to London’s Gatwick Airport.

If it can earn a 13-16% return, WestJet may place a new aircraft order. CEO Gregg Saretsky told Aviation Week earlier this year the airline would consider the Airbus A330neo and A350, and the Boeing 777 and 787.

WestJet’s Gatwick strategy is likely on firm footing. Executives at WestJet and competitor Air Canada say there is strong spring, summer and early fall demand from Canada to Europe. Moreover, the Calgary-based carrier has impressive cost control—its second-quarter cost-per-available seat mile, not including fuel and profit margin, was C9.28 cents ($0.07)—and the airline has a loyal customer base and strong brand awareness in Canada. Plus, Gatwick is an inviting airport, with enough capacity and relatively low costs.

WestJet will fly the 767s from May-October from five airports: Toronto (daily); Vancouver, (six times per week); Calgary, Alberta (five times); Edmonton, Alberta (twice); and Winnipeg, Manitoba (once). It will also fly a 737 daily to Gatwick from St. John’s.

In preparation, WestJet has been building its WestJet Encore operation—which flies Bombardier Q400s—as well as adding airline partners. “We have some very strong codeshare airline partners,” WestJet interim CFO Candice Li said at a Sept. 16 investor conference. “That will definitely help with the feed and flow. The last few years we spent energy building out our [domestic] network and ensuring that we have the frequencies [to feed hubs].”

The carrier is betting its unique Gatwick pricing for connecting fares will differentiate it from competitors. Canadians from “select” smaller cities—Prince George, British Columbia; Kamloops, British Columbia; and Grande Prairie, Alberta, were given as examples—may add a connecting flight for C$20 each way. The same goes for Europeans, who can visit several other Canadian cities for £10 ($15) per segment.

 

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WestJet also will seek higher-margin traffic with a premium cabin. Priced like premium economy, it will have six seats across, each 20 in. wide with a roughly 38-in. pitch. The airline hopes this will attract corporate travelers not permitted to buy business class.

Focusing on London seems to make strong business sense, Raymond James analyst Ben Cherniavsky tells Aviation Week. “Serving overseas markets adds a new level of complexity to WestJet’s model, so taking it one step at a time—or one city at a time—will keep operations more manageable,” he says. WestJet has never taken a “divide and conquer approach to growth,” he adds.

However, there are concerns. While the 767s have been well-maintained by Qantas, they are older and might not be as reliable as 737s. WestJet plans to have one spare in Canada most of the time, but if an aircraft has mechanical troubles in London, that will not help.

There’s also competition. According to a National Bank Financial report, Air Transat, Air Canada and British Airways plan 113 weekly flights next summer between WestJet’s six markets and all London airports. WestJet will only have a monopoly from Winnipeg. For Toronto-London, other airlines plan 62 weekly flights.

Air Canada has higher costs, but it is prepared. In 2013, it launched a lower-cost subsidiary called Rouge, transferring Airbus A319s and Boeing 767s from the mainline carrier and loading them with seats. Rouge flies throughout Europe, including to Lisbon, Portugal; Dublin; and Athens, Greece, but does not serve London. That changes next May when Rouge flies from Toronto to Gatwick, a route it announced after WestJet indicated its strategy.

Air Canada’s President, Benjamin Smith, tells Aviation Week his carrier has long expected WestJet to expand. “We know how hard international routes can be,” Smith says. “I’m sure WestJet will find international markets to be a challenge.”

Air Canada’s major advantage is its relationships with other airlines. Most effective for the carrier is an immunized joint venture with United Airlines, Lufthansa, Austrian Airlines, Swiss International Air Lines and Brussels Airlines, an alliance that allows Air Canada to easily sell in Europe and North America. Air Canada also is a member of Star Alliance.

WestJet could be hurt by its lack of close partners. However, it codeshares with British Airways, and WestJet says it will seek to add more partners and strengthen existing relationships.

The airline has not yet signaled its plans after October 2016. This winter, the 767s will fly between Alberta and Hawaii but long-term WestJet may have bigger ideas.

“There is some opportunity,” Li says. “The 767 can definitely make the hop to China and Japan, but at the moment we are focused on the service to the U.K.”

—With Madhu Unnikrishnan in Las Vegas.

This article was originally published on September 25 for Aviation Week & Space Technology subscribers.

Source: WestJet Plots Major Overseas Expansion With 767s | Commercial Aviation content from Aviation Week