Canada's WestJet to partner with Delta, grow fleet by 2020

(Reuters) - Canada’s WestJet Airlines Ltd on Wednesday announced a joint venture with Delta Air Lines to boost trans-border flights and said it expects to nearly double the number of aircraft owned by the carrier by 2020 as it target both cost-conscious passengers and higher-paying customers.

FILE PHOTO - Snow covered mountains are seen under the wing of a WestJet commercial flight on route from Vancouver to Calgary November 23, 2010. REUTERS/Mike Blake/File Photo

Canada’s second-largest carrier is evolving from a single brand into “a model of multiple airlines,” offering higher-end service while also launching an ultra-low-cost carrier in 2018 to target customers on a budget, chief executive Gregg Saretsky said during WestJet’s investor day.

“We just got to the point where the single brand can no longer fulfill all the missions we’re seeking to fulfill,” he said.

WestJet, which competes against Air Canada, also said it had struck a preliminary agreement with Delta to coordinate schedules for new non-stop flights in the United States and Canada, along with frequent flyer points.

WestJet said the agreement is expected to be signed in the first half of 2018 and will likely take effect in 2019 after Delta and WestJet receive all required regulatory approvals.

Calgary-based WestJet is targeting an annual operating margin of between 10 percent and 12 percent in 2018 to 2020, consistent with last year, and an improving annual return on invested capital that is expected to exceed 13 percent in 2020.

WestJet said it intends to increase the number of aircraft fully owned and paid for by the airline, as opposed to leased, to 96 by 2020 from 51 at the end of the third quarter.

The total fleet will grow from 165 planes, including jets and props, to 189 in 2020.

Some analysts remained cautious, however, about WestJet’s plans at a time when organized labor has unionized the company’s pilots and is aiming to organize other staff as well.

“We remain concerned about execution with so many simultaneous initiatives under way, all in a climate of unease on the labor front,” wrote AltaCorp Capital analyst Chris Murray in a note to clients.

Ahead of its investor day, the carrier laid out plans to save C$140 million ($110.6 million) to C$200 million in costs through 2022.

WestJet said its plans to attract and retain premium travelers, among other revenue-generating strategies, represent an annual opportunity of between C$300 million to C$500 million through to 2022. The company also said it expects to trim expenses next year to C$780 million compared with C$1 billion in 2017.

WestJet stock was up 0.45 percent to C$26.52 in early afternoon trading.

($1 = C$1.27)

Reporting by Taenaz Shakir in Bengaluru and Allison Lampert in Montreal; editing by Jonathan Oatis and G Crosse