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WestJet: Too Much Headwinds

Sherif Samy profile picture
Sherif Samy


  • Aircraft fuel costs and salary expenses have grown from the prior quarter.
  • WestJet is starting to upscale itself and focus on expanding its international network.
  • A potential recession can derail its turnaround plans.

WestJet (OTC:WJAFF) (OTC:WJAVF) (TSX:WJA) has been facing some significant headwinds in recent months. A recent article explains how it wants to return to a healthy profitability position in 4 years. Some investors may think this may be a signal that the company may turn itself around.

My feeling is there are still too much headwinds in this company to warrant an investment at this point in time. Investors should take a wait-and-see approach on this company.

Fuel Costs and Salaries Continue to Grow

The two biggest cost items: salaries and aircraft fuel costs continue to grow, and have been growing for the past couple quarters:

(Source: WestJet Financials)

Aircraft fuel costs and salaries make up more than 50% of the total costs for Q3 2018:

(Source: WestJet Financials)

Aircraft fuel costs are dictated by the markets, so there really is no way to minimize costs here. WestJet can offset some of the fuel costs by transferring it to the consumer, but this could also cause consumers to choose other airlines. The only way WestJet can mitigate against rising fuel costs is to fly fuel-efficient planes.

The second biggest cost item is salaries. WestJet is now home to 3 unions:

  • Cabin Crew Members represented by Canadian Union of Public Employees
  • WestJet Flight Dispatchers represented by Airline Dispatchers Association
  • WestJet pilots are represented by Air Line Pilots Association

Collectively, these unions also represent a cost disadvantage for the airline as labor costs are generally higher with unions. Also, a threat of a strike can derail a company's operations and erode its bottom line.

Overall, these two items make it difficult for WestJet to compete on cost.

Domestic Airline Market Is Becoming Commoditized

With new emerging ultra-low-cost carriers (ULCCs) in the domestic airspace, flying in Canada is becoming increasingly commoditized. New and cheaper airlines are driving

This article was written by

Sherif Samy profile picture
I studied Economics and Accounting at Wilfrid Laurier University, and I have earned designations in Certified Management Accounting (CMA CPA) and Certified Alternative Investment Analysts (CAIA).  I typically look for companies with above average dividend yields, under valued companies, or struggling companies with turn around potential.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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