Big News - WestJet Goes Private!
“The Point. - WestJet going private could mean more consolidation in the market as they look to compete against Air Canada. ”
WestJet Plane in Disney Livery (WestJet Media Relations)
Wow - big news in the Canadian aviation industry today. WestJet has accepted an offer from Onex Corporation to go private, which means that they would no longer be traded on the Toronto Stock Market. Onex is no stranger to aviation, in 2006 they put in a bid for Qantas that ultimately didn’t go through, they tried to merge Air Canada and Canadian Airlines in 1999 and they even owned Lufthansa Group’s Sky Chefs back in the day.
As a carrier of over 25 million passengers a year, (Including my trip to Costa Rica last year!) you are probably asking what it means for you and the prices of your holidays, so I wanted to share my own perspective on this deal.
What does it mean for the business?
WestJetters: The famous WestJetters own their airline, a perk that is pointed out in the companies advertising and to future employees. This transaction still needs approval of stockholders, including WestJetters, but some of these employees stand to gain from this deal. Employees had the ability to contribute up to 20% of their salary to WestJet stock which was matched dollar for dollar by the company. For an employee who had been with the company for 15 years and contributed $2K a year to the stock purchase plan, not an outrageous sum, their stake in the company was worth about $90K this weekend, but after this sale, they are in line to earn a nice $60K premium for a total of $150K - not bad at all!
Foreign Ownership - Down the line they could sell part of their share to a foreign owner. As of last week, Air Canada (and other airlines) have received permission from regulators to increase foreign ownership from 25% to 49%. This could be a value play by Onex to increase the share price and then sell part of the company off to a foreign financier now that there are more sources of financing available in the market.
“Synergies” - Famously used by private equity firms, Onex will look for ways to improve the business. I don’t believe they will take the slash and burn approach that 3G Capital used with Tim Hortons, I think that most of the efficiencies will be in the scheduling of the aircraft to get more use out of them.
Expansion and Further Acquisitions - In their 2017 Investor Day deck they outlined their plan to compete to multiple customer segments with different value propositions and furthered this by showing how other airlines are already doing this worldwide. As of now, Swoop hasn’t rapidly expanded and their 787s are just taking off but what if they decided to go big and infringe in Air Canada’s domain by acquiring Air Transat? We know that Air Transat is on the market, so maybe Onex acquires them, uses their newer planes to expand the WestJet network, uses some of their older planes to go towards their Swoop unit to compete against Air Canada Rouge’s 767 fleet.
What does it mean for the average Canadian?
(WestJet Media Relations)
Joining SkyTeam - Joining an alliance will be a priority for the company, as it will increase the value of the company and allow them to expand their transborder unit by offering more connecting flights. Already a partner of Delta, KLM, and Air France, I believe that they could join SkyTeam. This would be awesome for Canadians, as it would allow them to earn miles on a wide variety of flights, leverage their WestJet status worldwide, and easily book tickets worldwide.
WestJet Dollars - No worries here, the valuable partnership with RBC was just recently re-signed long-term and I believe this won’t change. Furthermore, the WestJet Rewards program is easy to use, which is a key differentiator to the more complicated (although EXTREMELY lucrative) Aeroplan rewards system. Just like their extension of the program (Platinum earning of 8% once you reach $8,000 in spending on WestJet), I believe they will continue to reward their most loyal customers.
Cheaper Fares - At least to start, when the new management takes control, they will look for easy wins to gain market share - I think this could mean a bit of a price war in certain markets. On the downside, this would be a short term occurrence, as the current duopoly in the market will not drive down domestic fares long term.
New Routes - I believe there will be some new routes, especially to the underserved Montreal airport.
Note: This article solely reflects my own opinion.
