WestJets price leader strategies

The airline industry is a tough competitive environment, yet WestJet, a low-cost carrier is one of the most successful airlines in Canadian history. WestJet’s ability to control internal cost structure has given them a “leading edge” (no pun intended) in the airline industry today, allowing them to offer lower fares to their consumers.

Profit is what is left over once all costs are subtracted; being the price leader without the lowest costs is a one way ticket to bankruptcy. That’s why WestJet implemented a price leadership strategy is to ensure an efficient and distinct cost structure. These are some examples of WestJet’s strategies, implemented to keeping costs down and in turn allow for lower airfares for their consumers.

•  Lower staff costs: Pilot salaries are 75% of the industry average. Staff salaries are 95% of the industry median. They offer generous stock options to compensate for this. WestJet uses 75 employees to support each plane, whereas Air Canada uses 180. WestJet employees are also not unionized.
• Lower maintenance and training costs. WestJet uses Boeing 737 airplanes exclusively. They stock parts and train staff based on one model of plane.
• Lower ticketing costs and distribution overhead. WestJet was among the first   to use direct consumer phone bookings and electronic ticketing. They were also leaders in on-line bookings.
• More efficient flight schedule and service model. They use an A to B model rather than a web and spokes model, which is common with airlines such as Air Canada. Air Canada accumulates people in hub cities to get them to the spokes, which are smaller centers. There is a higher cost structure to support the 1-2 hours between flights for the hub and spokes model. WestJet, by efficiently providing a city to city service only, keeps non-flying time to a minimum, and costs down.

Clive Beddoe, President and CEO estimates that WestJet’s costs are half of Air Canada's. Air Canada may lower their fares, paint the planes a different colour and brand them as Zip and Tango, but if the business model is not based on a low cost structure, it cannot remain competitive as a low cost carrier.

Now that you understand how WestJet can make their airfares much more affordable for passengers, would you consider flying with WestJet?




Reference
http://www.charleson.ca/pdfs/issue726.pdf