Case Study Turbulent Flight Plan

Eighty-two percent. Thats the market share held by Air Canada, the sole remaining
major Canadian airline, after its takeover of money-losing Canadian Airline in the
spring of 2000. And the Canadian airline industry now is going through some
major upheavals. Consumer facing an airline market thats more reliant on a single
carrier than any other major western nationeven Germanys Lufthansa only has
60 percent of the marketare complaining about the almost total monopoly. They
are critical of flights being overbooked, extremely long lines at check-in, and
telephone call centers with half-hour-plus waits on hold, and prices that cost the
passenger less to fly to Europe than to the next province. In response, the Canadian
government encouraged discount airlines and stood behind their attempts to make
it in the market. The house of commons passed legislation in May 2000 that
defined abuse of dominant position and empowered the competition Bureau
(equivalent to U.S. Federal Trade Commission) to punish companies engaging in
price gouging. This legislative move was promoted by Air Canadas competitive
attack on WestJet Airline for moving into markets in eastern Canada. WestJet
Airlines is one discount airline struggling for a smooth flight in this increasingly
turbulent environment.
Of the six scheduled discount airlines started in Canada in the last 20 years, only
WestJet based in Calgary, Alberta, is still flying. It serves 13 western Canadian
cities and has 5 % of the Canadian market. But Stephen C. Smith, president of
WestJet, has made a strategic decision to take the company national.
WestJet, started in 1996, mimics the southwest Airlines Strategic model.
Southwest Airlines, a U.S. airline, has enjoyed phenomenal success with a strategic
formula of low fares and short-haul routes. WestJets fares are an average of 40 %
lower than Air Canadas. it offers one class of seating has no meals on board or
executive lounges in airports, and concentrates on flight of 400 miles or less.
Passengers dont have tickets, only confirmation numbers. And to cut costs,
WestJet encourages ticket sales through the internet, which now accounts for about
11 percent of its tickets sold. Whenever possible, it lands at smaller airports that
charge low user fees. One deviation from southwests strategy is the WestJet does
assign passengeror guestto specific seats.
As many of these strategies illustrate, Smith has made a commitment to keeping
operating cost low. In addition, like Southwest, WestJet flies one class of jet, the
Boeing 737, which minimize pilot training, maintenance costs, and gate turnaround
time. To keep its employees (over 1,100 of them) nonunionized and thus, giving
the company more control over wages and salaries, WestJet uses several
incentives. A major one is that all workers who have Been with the company at
least three months participate in a profit sharing plan --$4 million was shared
among eligible employed 1999. In addition, 70 percent of the employees
participate in a stock purchase plan, in which WestJet matches employees
contribution up to 20 % of their salary.
Smiths no-frills model appears to be working. During its four year of operation,
WestJet growth has been steady. Revenue passenger miles (a key operating
measure in the airline industry) were up $4 % for the first four months of 2000. In
April 2000, 78 % of available seats were filled, compared to 71% in April 1999.
WestJet also consistently makes a profit. A spokes person for a Canadian consumer
group said, WestJet is tightly run and well managed There are not many
(passengers) complaints. However, some experts say that Smiths strategic
decision to compete nationally is a gamble that will either make or break WestJet.
its a risk, and this isnt and industry that tolerates a lot of mistakes. To
accommodate its national expansion, WestJet ordered 20 new Boeing 737 jets to be
delivered over eight year and plans to lease 10 more. Also, WestJet competitor, Air
Canada started its own discount carrier in summer 2000, serving WestJet
stronghold, western Canada. Although industry analysts say that unionized Air
Canada will have a hard time matching nonunionized WestJet cost structure, some
feel that WestJet may be overextending itself and expending faster than demand
for its services.

Questions
1. What competitive advantages do you think WestJet has? What competitive
advantages do you think Air Canada has? Explain your choices.
2. What competitive strategy does WestJet appear to be following? Explain
your choice.
3. How could Stephen Smith have used SWOT analysis in developing his
strategy to go national? Do an abbreviated SWOT analysis using
information from case.
4. What do you think of WestJet strategic decision to compete nationally?
What suggestions might you make to Stephen Smith?



Reference; - Strategic Management, Chapter 8, Management by Stephen P.
Robbins, 7
th
Edition