WestJet’s Suncor Contract

001With the current price of oil sinking to around $50 per barrel (based on the crude oil trend at the time of writing), WestJet finds itself in an interesting position. The low price of oil has helped lower WestJet’s Cost per Available Seat Mile (CASM; for more information about this topic check out Airways Podcast #5 V. Bhaskara& R. Anand). While WestJet’s operational costs have been reduced, the low price of oil has negatively impacted a significant portion of the carrier’s passenger base.

Despite the airline’s ability to reduce fares and increase profits because of the lower fuel costs, WestJet has been forced to cut, or reduce capacity on, a number of domestic services in Western Canada. This decline in air travel to, and through, Alberta is both a consequence of job cuts in the oil sector and a reduced workforce traveling & engaging in cyclical employment. These sector cuts and market downsizing by WestJet made significant headlines in Western Canada and created adverse publicity for the usually positive carrier.

However, following the recent announcement by Suncor Energy, the Calgary based carrier may have a reason for new optimism.

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On the 20th of September 2016, news broke about a planned partnership between Calgary based WestJet and Wood Buffalo’s Suncor Energy. The multi-year contract, which is set to begin in early November, reportedly includes 100 flights throughout Western Canada and also signifies the termination of Suncor’s in-house charter operation. While little information was released about the terms of the contract, it can be speculated that a charter boost will, at a minimum, help to stabilize WestJet’s domestic operations.

From a financial standpoint, WestJet’s decision to cut money-losing routes and incorporate Suncor’s charter operations should be seen as a savvy business move given current market conditions. By taking their aircraft off unprofitable routes and re-allocating them to a guaranteed charter sector, WestJet should reduce its financial liabilities (if only slightly). Similarly, Suncor’s decision to support an Alberta based company and reduce their liabilities, by selling their 3 Bombardier CRJ-900’s, should help minimize their costs associated with transporting seasonal workers.

In terms of raw details, WestJet plans to utilize its fleet of Boeing 737 NG and Bombardier Q 400 aircraft to accommodate the seasonal traffic. Despite the planned start date for operations being November 6th, 2016, I was unable to find any additional information on the duration of the contract or the financial terms negotiated between the two Alberta companies. However, it was announced that the two companies had been in talks over charter operations for a few months prior to the announcement, dating back to early 2016. It was also mentioned that the Fort McMurray fire evacuation flights served as a “quasi” trial run for the planned operations.

With flights set to begin in the next few weeks, I hope to be able to update this post as new information becomes available.

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