Company News

CORRECTED-UPDATE 2-Canada's WestJet to partner with Delta, grow fully owned fleet by 2020

(Corrects headline, paragraphs 1 and 3 to clarify the fleet is fully owned and paid for by the company. The error also appeared in a previous version)

Dec 6 (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 its fully owned aircraft by 2020 to meet growing passenger traffic.

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.

Canada’s second-largest carrier said it intends to increase its number of fully owned and paid for aircraft to 96 by 2020 from 51 at the end of the third quarter, as the airline eyes both price-sensitive passengers and higher-paying customers.

WestJet, which competes against Air Canada, said it struck a preliminary agreement with Delta to coordinate schedules for new nonstop flights in the United States and Canada.

WestJet Chief Executive Gregg Saretsky said in a statement that the company will invest in initiatives that would support its transition from a “low-cost point-to-point model into a high value-based network airline with a global footprint.”

WestJet’s decision preceded the launch of its new ultra-low-cost carrier, Swoop, which is expected to begin service next summer.

Some analysts remained cautious about WestJet’s plans at a time when organized labor has unionized the company’s pilots and are eying other staff.

“We remain concerned about execution with so many simultaneous initiatives underway, all in a climate of unease on the labour front,” AltaCorp analyst Chris Murray wrote in a note.

Low and ultra low-cost flight are a hot market for airlines as passengers look for cheaper air travel. Swoop will charge lower fares but generate higher fees for services such as meals.

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

It 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 C$780 million in expenses next year, compared with C$1 billion in 2017.

“We believe this guidance should be seen positively on the margin as it confirms that WestJet’s multiple expansion programs are not going to come at the expense of near-term profitability and balance sheet,” Canaccord Genuity analyst Doug Taylor wrote in a note to clients. ($1 = C$1.27) (Reporting By Taenaz Shakir in Bengaluru and Allison Lampert in Montreal; Editing by Arun Koyyur, Shounak Dasgupta and Jonathan Oatis)