Westjet Airlines was created based on the idea of low cost model that was already practiced by Southwest Airlines. During its startup, the company identified how attractive the opportunities in the air travel industry were. One of the attractive opportunities was the need for cheap air travel options. After a thorough research, the company realized that it could offer low cost air travel services, with a mission of providing extra-ordinary environment for flying. In this industry, the company’s critical success factors are the employees, the customers, and the logistics. Described hereunder is the industry analysis with specific consideration of Social and Demographic Forces, Political and Legal Considerations, International Environment, Technological Trends, and Economic Trends and Cycles.
Social and Demographic Forces
The demography of North America constantly changes as the multiculturalism increases. The airline industry is mostly affected by these changes. With the aging and retirement of the baby-boomer generation, the demand for flights is most likely to decrease. This is mostly associated with the decrease in disposable income and the health complications that are most likely to arise. To avoid the loss of customers, the company must promote its products and services to the aging baby-boomer generation. For the continuation of business, Westjet should strive at finding new customers, as embedded in its vision.
Political and Legal Considerations
As an international Airline company, Westjet must adhere to the rules and regulations stipulated by various governments. It must plan its routes in a manner that complies with the regulations of these governments. Canadian Aviation Regulations stipulates policies and locations regarding restricted and prohibited airspace. The company must therefore plan its flight paths in order to conform to the regulations and enhance safety. This may however lead to greater distances thus more fuel consumed. Policies like Temporary Flight Restriction also affect the company.
Airline industry is one of the most affected industries by the green movement. The industry has no option but to use more environmentally friendly products. As an initiative to comply with this requirement, Westjet invests in fuel efficient aircrafts. Besides, it invests in technology and procedures that ensures maximization of operating efficiency and safety. The company has replaced its 737-200 aircrafts with fleet of Boeing Next-Generation 737-series aircraft (Environment, Westjet.com, 2012) which is more environmentally friendly. In order to increase the fuel efficiency, the company added the Blended Winglet Technology.
As the technology rapidly improves, the airline industry quickly adjusts and implements the new technology. Westjet, however, does not enjoy the benefits and luxuries associated with the advancements in the industry. The company does not invest in larger airlines such as Airbus A380 since these products are very expensive and the company’s current scale of operation does not favor them. Its competitors, however, are investing in such products and enjoying the benefits of the products. If the company truly wants to expand and become one of the top international airline companies, it must invest in these new products or risk facing the greatest competition.
Economic Trends and Cycles
The air travel industry is adversely affected by the economic recession. The demand has greatly fallen and ticket prices are on the rise. With the increase in fuel costs, booking fees, and taxes, Westjet’s business is in danger.
Country Specific Advantages and Disadvantages
The company’s domestic environment gives it lots of advantages and is one of its success tools. The company offers high quality services at low costs as compared to its competitors. The company also empowers its employees, from whom it derives the greatest advantage. Through sharing profits with the employees, the company derives and maintains competitiveness. Employees are so much empowered that they can make their own decisions and solve the problems of the customers without necessarily involving the management. Indeed, the employees are part of the Westjet.
The “on job training” and offering of quality services greatly motivate and improve the skills of the employees. The company has a wider range of qualified people where it chooses its employees. Besides, the employees have the right attitude. Through the employee share purchase plan, employees are encouraged to buy the shares of the company and enjoy the profits of the company. This is a great motivation.
The company’s fares are much lower than those of its competitors. Its services are also offered at lower costs, which attract many customers.
The disadvantages however, are that Westjet has well established competitors who have been in the industry for much longer time. Air Canada, the greatest competitor, receives government subsidization.
Competitive Analysis (Porter’s 5 forces)
In the competitive analysis of Westjet Airlines, Porters five forces have been considered in determining the company’s competitive advantage. This analysis considers five key areas: threat of entry, power of the buyers, power of the suppliers, threat of the substitutes, and the competitive rivalry.
Threat of Entry
WestJet Airlines has steadily grown since 1996 and is widely known for its low-cost and high-quality services. Despite the challenges in the airline industry, the company continues to expand its fleet size, scheduled routes, and employee count. Westjet Airlines, young as it may be, has made its way to the top of the airline industry in Canada, and might soon be one of the top international airline companies. The company’s staff is very caring and dedicated and this is what makes the company unique. The company believes that it’s constantly finding ways of enhancing air travel, besides providing friendly, affordable, and safe air travel. Its exemplary services and reduced costs make it difficult for other companies to enter into the market and compete with it directly.
Threat of Substitutes
Westjet’s major competitors are Air Canada, which has been operating since 1964, and American Airlines which was founded in 1934. Despite being the youngest among its competitors, Westjet has built a strong brand name associated with its low-cost and high-quality services. The company’s competitors offer their services at more expensive costs thus making it difficult to substitute Westjet’s products and services. In a nutshell, the company’s low-cost and high-quality services cannot be easily substituted.
Power of the buyers
Westjet has established strong customer base due to its market strategies. By offering travel options at less than $100, most customers are able to afford this and remain glued to these services. In addition, the company’s services are equally of high quality as compared to those of the competitors. An individual would therefore prefer to enjoy the services of Westjet instead of paying more for the same services elsewhere. The company’s low cost strategy gives it an advantage as most people can afford it.
Power of suppliers
Westjet has only one supplier of aircrafts, the Boeing. Boeing is one of the world’s top aircraft manufactures. With such a supply, Westjet enjoys bulk discounts and reduced costs in its purchases.
Westjet is the youngest company when compared to its competitors. It’s small considering its destinations, its fleet of aircrafts, and the capacity of the aircrafts. The competitors are well established and invest heavily in larger airplanes that come with added advantages.
The company has the greatest opportunity of expanding (both domestically and internationally). The destinations of the international flights can be expanded to include both trans-Pacific and trans-Atlantic flights. The company can also diversify with the Boeing through investing in research and development of green Airplanes (more environmental friendly and energy efficient airplanes). This would increase the company’s buying power and reduce the fuel cost. Research and Development is also important in advancing the company’s procedures and services within the industry. In addition, the company has the greatest opportunity of increasing its customer retention through integrating with the large corporate clientele in establishing frequent flyer programs. Through vertical integration with the vacation suppliers, the company can establish and focus on smaller number of main vacation destinations for the Canadians, giving room for greater bargaining power with the resort suppliers. The rapidly advancing technology is an opportunity for the company to employ new technologies in making the travel experience enticing.
The increase in fuel costs poses the major threat for the company. Fuel expenses are high, increasing the company’s operating costs and lowering the profit. The economic recession has also resulted in decrease in air travel, thus decrease in customers. With Boeing as the only supplier of aircrafts, the company stands greater supply chain risks. Besides, it is barred from enjoying the services of other producers. Westjet also has greater threats of labor risks due to unionization. Currency risk is another threat facing the company. The company makes large expenses in USD which is subject to change due to fluctuations in foreign exchange. Finally, the company’s main domestic competitor, Air Canada, receives government subsidization.
Westjet Airlines has strategically positioned itself by offering better services at lower costs as compared to its competitors. The company’s growth and success is majorly due to this strategy. In 1996, Westjet conducted a market analysis of its main competitors (Air Canada,) and realized that there was a market segment that the companies ware not serving adequately. The segment identified was families who travel long distances with their children via road. The segment could not pay more than $200 per person to travel by air thus reducing travel time. However, with an option of traveling by air at less than $100, the segment would prefer flying to driving long distances. On the other side, reducing prices would reduce the company’s profit or even make it run at losses; however, the company’s financial analysis showed that with controlled costs, it would still make profit at reduced prices.
The company has also position itself strategically through offering superior customer services as compared to its competitors. It noticed that its competitors did not offer great customer services and decided to capitalize on this weakness thereby improving on it.
In a nutshell, Westjet’s competitive positioning strategy is “reducing the rates and increasing the customer satisfaction.” The company continues to grow and has now captured the market due to its lowered prices and excellent customer service.
Westjet Airlines Ltd. (2012). About WestJet. Retrieved 16 Mar. 2012 from http://www.westjet.com/guest/en/about/index.shtml
Westjet Airlines Ltd. (2012). Environment. Retrieved 17 Mar. 2012 from http://www.westjet.com/guest/en/about/environment/index.shtml