Maybe Expansion Didn't Ruin WestJet
Before the pandemic, Canada's top LCC had lost focus. But private equity appears to be having some success with a turnaround.
Dear readers,
When WestJet began transforming from simple to complex roughly a decade ago — first by creating Vancouver and Toronto hubs to complement its Calgary base, while adding widebodies and turboprops, and later by creating ULCC subsidiary Swoop — I figured management had made a mistake. WestJet had thrived for so long by copying Southwest: How could management mess with that secret sauce?
I had good reason for the skepticism. By summer 2018, when the airline’s streak of 52 consecutive profitable quarters ended, WestJet had lost some of its mojo, another example of an airline that grew too fast and lost its identity. In late 2019, Onex, a Canadian private equity firm, pounced on the then-undervalued company, taking WestJet private in a deal worth $5 billion Canadian, including assumed debt (today about $3.5 billion U.S.).
As a public company, WestJet made many mistakes in its attempted metamorphosis. But we're now seeing in the United States what happens when a LCC refuses to change with the times, believing it must protect its history or its culture, or crap like that. What worked two decades ago — like a single-cabin LCC that only flies within North America — isn’t guaranteed to work forever, especially in a world where people seek premium experiences and international travel.
I now think WestJet has gotten it right, more or less. It turns out that the 2015-19 transformation may have rehabilitated the airline, orienting it toward future trends. Sure, some moves failed, including the now-closed Vancouver and Toronto connecting hubs, and Swoop, and the bigger-than-needed orders for Dreamliners and Q400s. But the rapid growth gave Onex the building blocks to turn WestJet into an airline that could meet post-Covid trends. While Southwest struggles, WestJet benefits from long-haul airplanes, premium cabins and extra-legroom seats, a big partnership with Delta, and all the other things that airlines need to make big profits in 2024.
In an interview earlier this month at the IATA Annual General Meeting, WestJet CEO Alexis von Hoensbroech1 told me how he and his very hands-on board (it has four current or former airline CEOs, including Air France-KLM’s Ben Smith) decided which of WestJet’s assets to keep and which to jettison.
"Post pandemic, we sat down and thought about: what should be our strategy going forward?" von Hoensbroech told me. "Who should we be? Because we were starting to become everything to everyone, and that's never good. A good strategy is more about what you don't do than what you do."
Read on to learn about some of the decisions they made about the fleet, the network, and the low-cost subsidiary. And yes: there’s a tease about an IPO, too.