CALGARY - WestJet Airlines Ltd.’s (TSX:WJA) ambitions to expand further into U.S. markets were dealt a setback Monday, after Texas-based discount carrier Southwest Airlines put off implementing a code-share agreement inked last year with the Canadian company.
The arrangement, which would allow the two airlines to sell tickets on one-another’s aircraft and make transferring between the two networks easier for travellers, was to have come into effect in late 2009.
"In response to the current economic environment, Southwest is focusing its immediate attention on several critical objectives, including increasing our revenues," said Southwest executive vice-president Bob Jordan.
"While I am very excited about working to deliver new incremental revenue opportunities for 2009, it will have an impact on our timing for code-share delivery. We remain absolutely committed to our partnership with WestJet, and to code-sharing in general, and will do all we can to minimize the impact on our previously stated code-share plans."
A statement from WestJet and Southwest Monday did not specify when the deal is expected to move forward.
WestJet executive vice-president Hugh Dunleavy said his company understands Southwest’s decision.
"Our continued U.S. expansion is a key strategy for our airline, but code-sharing is only one element of this. Both airlines remain committed to minimizing delays and are focused on generating revenue as quickly as possible," Dunleavy stated.
"We are looking forward to code-sharing with Southwest. We remain committed to our interline and code-sharing initiatives both in the US and globally."
Dunleavy said WestJet has already implemented a distribution agreement and is close to starting a cargo program with Southwest.
WestJet’s tie-in to the Sabre reservation system, which is required for code-sharing, is still on track for the fourth quarter of this year.
As well, similar agreements with European carriers Air France and KLM are still a-go for 2010.
The code-share deal would been a boon for WestJet, which has a similar business model and corporate culture to Southwest, said Rick Erickson, a Calgary-based airline industry analyst.
"It was almost like a match made in heaven. It looked to me all around like a pretty good deal and particularly with WestJet," he said.
"WestJet has suffered for quite a few years precisely with this lack of code-sharing capability.... I think they recognize as the airline has grown all the low-hanging fruit has been picked long, long ago in Canada and for them to really grow their revenue base and particularly to grow it quickly, you have to enter into these kinds of agreements."
But Erickson said there are still plenty of growth opportunities for WestJet elsewhere.
"By no means is this some kind of a stake through the heart of WestJet," he said.
"It’s a setback. It has to be viewed as such. And the timing is not terrific. But WestJet has got a bunch of fairly clever, nimble people and it’s quite likely that they’ll find some other alternatives."
Code-sharing involves selling seats on each other’s planes and sharing the revenues with one airline putting its name or code on a flight operated by the other.
It is considered a low-risk way for airlines to expand their networks without the added cost of more planes and employees. It figures to be a particularly important strategy for Southwest, which is alone among the major U.S. carriers in not belonging to one of three big global alliances or teams of airlines.
WestJet shares closed down 37 cents or three per cent to $12.11 on the Toronto Stock Exchange Monday. On the New York Stock Exchange, Southwest shares fell six cents to US$6.70.