'The little airline that could' shows Air Canada the way
by Margret Kopala

Published by the Ottawa Citizen, November 15, 2003

The announcement earlier this week that Air Canada would receive a $650-million injection from business magnate Victor Li brought its nemesis and Canada's biggest airline success story, WestJet, to new prominence on the nation's business pages.

In the 30 years since discount fares arrived, few airlines have been as big a hit. In fact, things look so good for the Calgary-based airline that industry analysts suggest that, with current trends and Air Canada in the initial stages of yet another restructuring, it could become Canada's largest carrier by 2005.

Perhaps no venture more typifies the West's new spirit of innovation and self-reliance.

From its inception in 1996, when four Calgary entrepreneurs saw an opportunity to provide low-fare air travel across Western Canada, WestJet has been a textbook study in combining a bold business sense with seizing opportunities in a timely and nimble way.

Researching other successful airlines in North America, they modelled WestJet on the leading U.S. low-fare carrier of some 28 years, Southwest Airlines. "WestJet adopted Southwest's modus operandi -- employees first, customers second and shareholders third," says Douglas Reid, professor of strategy at Queen's School of Business. "People were key. They realized customers need value relative to price. They kept costs down in order to pass them on to customers."

With three original Boeing 737-200 aircraft, 220 employees and the Southwest corporate culture in hand, the airline started flight operations on Feb. 29, 1996 to Vancouver, Kelowna, Calgary, Edmonton, and Winnipeg.

In 1999, with several more western destinations among its routes, WestJet completed its initial public offering of 2.5 million common shares and became a public company. The new capital purchased additional aircraft and built a head office and hangar facilities in Calgary.

Fortuitously, 1999 was also the year in which Canadian Airlines, the hugely indebted and ungainly composite of Pacific Western, CP Air and Wardair that attempted to compete head-on with Air Canada before and after privatization, collapsed. "After three bailout attempts and fearing the political consequences of letting a western airline fail just before an election," says York University's Schulich School of Business professor Fred Lazar, "the federal government suspended the Competition Act and allowed Canadian and Air Canada to merge."

The ill-fated restructuring, which had Air Canada seeking bankruptcy protection in April this year, gave WestJet the opening it needed. By 2003, it was flying to major destinations throughout Central and Eastern Canada to become the most successful low-cost carrier in Canadian history. WestJet's employees-first philosophy, which sees 85 per cent of its workers participate in a voluntary share-purchase scheme, is a major factor in its success. When the Teamsters tried to organize the airline's flight attendants, WestJet workers formed a non-union association to deal with management. That, plus the perception that unions are to blame for Air Canada's problems, make formal unionization difficult.

Its chairman and CEO, Clive Beddoe, is another factor. Unfailingly outspoken, he recently derided Air Canada's "scorched-earth policy," with which he alleges the airline will try to weaken the competition by remaining in court-ordered bankruptcy protection for as long as possible to avoid making payments while selling seats well below cost. He's also criticized the federal government's high rents, whose costs airport authorities pass to travellers in fees and taxes.

But the real secret of WestJet's success, says Prof. Reid, is Air Canada. "Air Canada has helped WestJet by alienating its own customers. Typical is a rumour that the new regime will charge customers for the privilege of choosing their own seats!" More concretely, Prof. Reid cites Air Canada's poorly judged purchase of Canadian, the painful integration of the two companies' employees and Air Canada's policy of aggressive growth at the expense of profit.

As for its future, WestJet last month completed a $150-million share offering with a separate $100-million line of credit from the Ontario Teachers' Pension Plan. It expects to operate continentally in 18 months as a scheduled low-fare carrier. By 2008, the company's target is to own 96 Boeing aircraft, one more than Canadian Airlines owned in 1999.

In an industry notorious for failure, is WestJet setting itself up to be another western Canadian pioneer-in-the-sky? Another little airline that couldn't?

Not if WestJet sticks to its game plan. "A disciplined strategy, moderate growth and avoiding traps are key," says Prof. Reid.

And not if the playing field stays level. "So long as the rules apply to everyone, we're ready to compete," says a WestJet spokesperson, in true new-spirit-of-the-West style.

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