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Airline Industry Analysis Essay

Describe the trends in the Canadian airline industry in the 1990s and explain how they affected the competitive situation in 1999.
By the beginning of the 1990s, the Canadian Airline industry’s main feature was its deregulation from the side of the Canadian government, which caused the start of the famous battle between two largest airline companies of Canada- Air Canada and Canadian. In the 1990s the number of passengers carried by Canada’s domestic airlines grew very fast “from 36.8 million to 45.4 million and the number of revenue passenger kilometers flown increased 41.5 percent, from 66.8 billion to 94.5 billion”. [1]. Starting 1990s, there was such a trend in Canadian Airline industry as the increasing number of international and transborder (to the USA) flights. The increasing number of transborder flights was caused by the “Open Skies” agreement between Canada and the United States, which allowed airline companies to carry local traffic within these countries- the USA and Canada. Speaking about the airports used by Canadian airlines, it is necessary to mention, that passenger traffic in Canada was served by a few airports, including the largest ones in Toronto, Vancouver, Ottawa, and others. Severe competition between largest carriers Air Canada and Canadian created a hostile competitive environment for both companies; however, it gave other small carriers an opportunity to grow without any apparent obstacles. By 1999 Air Canada became the most significant air carrier. Due to the financial difficulties that Air Canada’s primary competitor, Canadian, experienced it soon merged it and became the leader, creating a threat of monopoly in the Canadian airline industry.

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Describe the competitive environment for WestJet.
WestJet emerged in 1996 with its primary aim to provide passengers with low-fair airline services. The model of WestJet was adopted from the American Southwest airlines, which using low-fare airline model became one of the most profitable airlines in the world. Providing low-fare airline services WestJet was able to compete with traditional carriers, such as Air Canada and EasyJet. Soon, the Southwest system expanded an estimated “40 percent of passengers were either through or connecting” [1]. It was unpleasant news for major carriers, who were already facing fierce competition among each other. Thus, specific measures to improve the situation had to be taken, and major carriers started to implement fare-cuts, promotional incentives and low-fare subsidiary operations. However, these actions were somewhat challenging to be taken due to the high cultural habits existing for a rather extended period. Air Canada and Canadian were trying to match the low-fare services offered by WestJet with the help of various measures, including bonuses, discounts for frequent users, etc. In conclusion to this point, it is necessary to emphasize that competition in the field of Canadian Airline industry was rather stiff, and sometimes even unfair. For this reason, the Canadian government had to implement measures to create bona fide competition in this field of the Canadian economy.

However, West Jet faced competition not only inside Canada, but some of the United States’ air carriers also compete with WestJet, including United Shuttle, Delta Airlines’ Delta Express and U.S. Airways’ Metrojet, and in Europe, British Airways’ GO. To enter WestJet’s market, these companies would have to reduce their prices, which they are not willing to do. Thus, they are unlikely to enter WestJet’s market.

Identify WestJet’s generic business-level strategy and explain your choice.
The generic business-level strategy of WestJet was copied from the Southwest Airlines model operation in the USA. Generally speaking, the Southwest model was developed to offer passengers low-fare services. That’s why all key elements of this strategy were developed to achieve this goal. The dominant policy of WestJet included low-fare and short-haul operations, which were offered mainly to travelers, who were very much concerned with their budget planning. WestJet focused on “lower employee-to-aircraft ratios,” simplification of maintenance and effective training programs for the crew. The results of these measures were rather obvious: WestJet was able to reduce its operating costs, which became 40-50 percent lower than operating costs of Air Canada and Canadian. WestJet offered its customers personal traveling (non-business traveling), short-haul flights, open seating, direct ticketing (without any travel agents), single class services without frills, and casual culture within the company operations. Thus, it is possible to state that WestJet targeted middle-class clients who preferred cheap, fast and comfortable flights too expensive and prestigious ones. Major competitors of WestJet weren’t able to offer the same services at such low prices, and they only had to bear losses while trying to implement new low-fare services.

Generally speaking, WestJet became so successful because of its low-cost strategy, which it adopted from the very beginning.

Describe how WestJet’s generic business-level strategy earned it a competitive advantage.
As we’ve spoken about the major strategy of WestJet, it is necessary to explain how this strategy helped the company to earn the competitive advantage over other carriers operating in the country. Providing passengers with low-fare services WestJet by 1999 became a very successful carrier. Its profits were continuing to increase, due to the excellent reputation, which it was able to build a reliable and qualitative company. It was able to overcome some problems concerning safety regulations, which it faced during the start-up period. Because WestJet saved on its operating cost, by 1999, it was able to purchase a fleet of airplanes, to establish a route network, which was organized specially to provide short-haul point-to-point services in Western Canada. Its passenger volumes were growing in a rather quick manner together with continuing growth of the profitability. So, the business-level strategy used by WestJet achieved the main goal of the company and earned a competitive advantage. The key points used in WestJet’s strategy included low fares offered to the travelers daily, high-quality service provided to all of the customers as well as high consideration of customers needs; all of which was offered in a friendly, but casual way.

Identify and discuss WestJet’s appropriate investment strategies. Be sure to identify the factors to consider when choosing an investment strategy.
It is known that the primary operational environment of WestJet is Western Canada. That’s why its investment strategy should focus on the expansion of the company in this area. It should invest the money into the purchase of new aircrafts and the renewal of already used ones. The company should think about the modernization of the services provided to attract more passengers. The major factors that should be considered while implemented this strategy are awareness of the innovations designed by the competitors, and assurance that customers need this kind of services. Being so successful in Western Canada WestJet should not hurry to expand into the Eastern Canada, due to the chance of facing severe competition from the side of more experienced companies operating there. On the contrary, WestJet should choose the investment strategy that would help the company to attract more customers in Western Canada and increase profits. On the other hand, if WestJet decides to expand into Eastern Canada, its growth potential will double, and the company would be able to gain twice as much profit as it was able to gain while staying just in Western Canada.

First of all, WestJet should expand its market share by offering long-distance flights, this would create more competitive advantage and allow WestJet to grow.

Which entry strategy did WestJet use to enter the airline industry in 1996?
While entering Canadian airline industry, WestJet used the strategy of the Southwest Airlines operating in the United States. This strategy appeared to be different from the traditional strategy used by major carriers in Canada. There are three main principles that distinguish the Southwest model from the conventional one. The first principle is based on the focus of carriers on “price-sensitive passengers,” meaning that passengers, using the airline services, will prefer to use cheaper services rather than luxurious ones, due to the thorough budget planning. The strategy used by WestJet employed a system of short-haul and point-to-point routes. But the main principle of WestJet, which allowed it to enter the airline industry, is providing customers with low-fare services without any special frills. The latter gave WestJet an opportunity to attract a lot of customers, which soon became “brand loyal.” This was the central strategy. However, WestJet also used “other business models being pursued in the industry such as charter, scheduled charter, and full- or luxury-service medium- to a long-haul point-to-point carriage, but these were less central to the WestJet situation”[1].

What are some of the opportunities and challenges facing WestJet in 1999?
According to the plan presented by WestJet’s CEO Stephen Smith, the company’s opportunities include further expansion by adding of about three to four aircrafts annually; however, the company didn’t plan to enter the Eastern Canada in the nearest future, because “Westjet was, quite logically, concerned about not overextending itself” [1]. Later companies management considered the possibility of the expansion into the east. The possible advantages of this expansion are the increase in the growth potential of the company, which appeared to be twice as large if the company stays mainly in Western Canada. As WestJet offers services at low cost, it would be able to gain a certain share of the market in the East, which puts WestJet in a very favorable position. Besides expanding into the East, WestJet also has an opportunity to grow in the center of the country.

Possible challenges of WestJet include the possibility of other companies to reduce their costs and offer customers services at low and more attractive prices, which would obviously influence WestJet.

What would you recommend to WestJet regarding expansion plans in Eastern Canada?
Speaking about the expansion plans of WestJet I think that it should first learn the competitive environment carefully enough to gain an individual market share in the new area. It is necessary for WestJet to consider the fact that it might face keen competition while entering. However, from my point of view, it should take the opportunity and expand into the Eastern Canada, Despite the difficulties that WestJet may face. As the company was able to reach success in Western Canada, it should try to do the same in the East, because people are everywhere the same, and low-cost airline services will anyhow become popular.

References
Joseph N. Fry and Roderick E. White. WestJet Looks East.
http://c1dsp.westjet.com/guest/about/historyTemplate.jsp

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