Will This Low-Cost Airline's Latest Move Shake Up the Industry?

Ever since the merger between Canadian Airlines and Air Canada (TSX: AC.B) more than a decade ago, Canadians have been limited in their choice of carriers for travel beyond North America. In fact, at one time, the consolidation of Canadian Airlines and Air Canada threatened to control even the domestic market so much that the carrier was developing the title Air Monopoly.

But WestJet Airlines (WJA) has become a formidable competitor to Air Canada on many domestic routes and even some Canada-U.S. routes. As WestJet launches its first-ever scheduled trans-Atlantic flight, I'll look at what this could mean for WestJet, Air Canada, and the traveling public.

To Ireland
The news that WestJet will begin offering flights from St. John's, Newfoundland, to Dublin, Ireland, has attracted the attention of much of the aviation and Canadian mainstream press. Obviously, the aviation reporters see this as another development in the expansion of WestJet, an airline that has seen massive growth over the past decade.

Major news outlets, meanwhile, see this as a story that affects ordinary people, many of whom travel internationally, and WestJet's trans-Atlantic developments could be big news.

Smart move
Why would WestJet choose to fly from St. John's to Dublin, of all routes? Well, this really carries a few advantages. One major advantage is that the length of the flight isn't really much longer than some existing flights the airline takes within North America. After all, St. John's is near the eastern edge of Canada, and Dublin is near the western edge of Europe.

With this shorter distance comes a significant fleet organization bonus. Like the American low-cost carrier Southwest Airlines (LUV -6.96%), WestJet loves the Boeing 737. Although the WestJet fleet includes a number of Bombardier Q400 Turboprops as well, the Boeing 737 is WestJet's only jet aircraft.

In keeping with the Southwest-way of fleet management, WestJet wants to continue operating its heavy 737 fleet while going trans-Atlantic. Fortunately, the flight from St. John's to Dublin allows WestJet to operate it with a Boeing 737-700. By using the 737 on the route, it negates the need for the airline to acquire large, more expensive widebody aircraft to service the route.

But the reasons for operating a routine flight to Dublin go beyond just keeping the jet fleet as all 737s. WestJet also formed a maintenance agreement with Eirtech Aviation, which is based in Dublin. The maintenance covers the advanced warning cabin pressurization system on WestJet's 737 aircraft. So to get the aircraft worked on by Eirtech, WestJet would have to fly 737s to Dublin anyway. Might as well put some people on them and collect some extra revenue.

Should Air Canada be scared?
WestJet has long been a thorn in Air Canada's side, but Air Canada has long held the advantage in trans-Atlantic travel since WestJet, well, didn't fly trans-Atlantic. So this latest move should panic Air Canada and its shareholders, right?

Well, we have to consider the facts here. WestJet's trans-Atlantic expansion looks to be more of a long-term planned-out operation rather than a full attack of the market. In addition, WestJet still seems to be considering its options. As of now, WestJet's aircraft delivery schedule through 2027 has no widebody aircraft, but back in August, WestJet's vice president of sales acknowledged that the airline will probably consider such aircraft in the near future, citing the size of the domestic Canadian market as being around a tenth of the domestic U.S. market.

Even then, actual deliveries and trans-Atlantic flights on a major scale are probably at least a few years off for WestJet. With that time, Air Canada should be able to solidify its trans-Atlantic operations while cleaning up its balance sheet. Will Air Canada face larger trans-Atlantic competition from WestJet in the future? Very likely. But should Air Canada freak out because of the St. John's-to-Dublin flight? Absolutely not.

Expansion
As WestJet's vice president of sales mentioned in August, the Canadian market is only so large, and WestJet will probably look to expand beyond it. This first move of operating a flight from St. John's to Dublin is a wise move, as 737 aircraft would have to be flown to Dublin for maintenance anyway, and the distance of the flight allows WestJet to continue using its favorite jet aircraft, the Boeing 737.

WestJet has taken much of its strategy from Southwest Airlines' playbook and is now seeking to expand beyond its home. Air Canada may feel threatened initially, but there is plenty of time for the Canadian flag carrier to prepare and become a solid competitor to WestJet on trans-Atlantic routes.

This move primarily affects Canadian and European travelers, as this is where WestJet's trans-Atlantic flights would fly. Travelers in these markets can look forward to greater choice in trans-Atlantic travel in the future but shouldn't expect expansion from WestJet to take place overnight.