Canada's WestJet, Eyeing International Expansion, Lures United Executive
WestJet Boeing 737NG

Brian Znotins became known in the airline industry as the architect who helped to build San Francisco into the world's premier Pacific hub for United Airlines (UAL) .

Last month, Znotins stepped into a new job, in which he expects to help build a nascent international presence for Calgary-based WestJet (WJAFF) , a primarily domestic Canadian airline and the country's No. 2 carrier.

"Coming to WestJet and being able to grow a long-haul international network from scratch, that was one of the most compelling things for me -- to take a long-haul international network and grow it," he said. "We are right at the dawn of that."

Znotins, 43, had been vice president of network for United, in charge of a range of planning functions that included scheduling, picking new routes and overseeing a San Francisco buildup.

He left to become WestJet's vice president of network, alliances and corporate development. "A broader portfolio than I had at United," he said.

Importantly, he will do it in Calgary, where he grew up, attended the University of Calgary as an undergrad and MBA candidate, met his wife, and entered the airline business in 1998, going to work for Canadian Airlines as a network planner for Asia and the Pacific.

"I'm back home," Znotins said. "And I'm coming into an airline that is the scrappy underdog in a lot of ways, especially internationally."

Founded in 1996, WestJet operates a fleet of 117 aircraft, including 113 Boeing 737s and four Boeing 767s, all acquired in 2015. Aircraft age in the young fleet averages just seven years. WestJet can easily be compared with a youthful Southwest, with its all-Boeing fleet and an emphasis on domestic markets, low fares and strong esprit de corps.

"WestJet started off with a Southwest (LUV) model -- a leisure focus, pulling traffic off busses, flying point to point," Znotins said. "As it grew, it started to appeal to a broader base, more into the business market and connecting more traffic."

The culture remains key. Znotins recounts that on a recent flight, when the plane arrived at the gate, everybody -- including the pilots, the flight attendants, and Znotins himself, went to work to "groom" the airplane. "Grooming is Canadian for cleaning the airplane," he said. "The grooming piece puts everybody on a level playing field."

In the past, "I underappreciated how much culture matters," Znotins said. "Coming here, hearing from the people at WestJet, I really appreciate what a strong culture can do.
Everyone is pulling on the same rope; 84% of WestJetters own shares." WestJet, so far, has no labor unions. In August, 55% of the carrier's 1,247 pilots voted against forming a union.

In the third quarter, cost per available seat mile excluding fuel was about 7 U.S. cents per mile, lower than 7.5 cents at JetBlue but higher than 5.5 cents for Spirit.

Besides Southwest, Alaska Airlines and Continental, which Znotins joined in 1999, provide cultural comparisons. "The optimism for the future feels like it did at Continental" when Gordon Bethune was CEO, Znotins said. Continental merged with United in 2010.

WestJet entered the trans-Atlantic market in 2014, flying 737s from St. John's to Dublin.   Subsequently, it acquired its four used 767s and began service to London Gatwick. Now WestJet offers year-round Gatwick service from Calgary and Toronto, with seasonal service from six cities. In the winter, it uses the aircraft on Hawaii routes.

In just 10 years, WestJet, which has 110 daily departures from Toronto and 108 daily departures from Calgary, has become the primary competitor to Air Canada. WestJet has 18% of the total Canadian market, compared to Air Canada's 44%.

"Canada is a bit of a different market" from the U.S., Znotins said. "The population is concentrated in eight major centers that most people tend to live in, {with} a lot of service between them."

WestJet has 37% of the Canadian domestic market, compared with Air Canada's 55%, but just 4% of the international market, compared with Air Canada's 37%. (International carriers hold 59%). The numbers make it clear that WestJet has international opportunities.

Before it began a trans-Atlantic buildup in Philadelphia in the 1990s, US Airways similarly cited its lack of international traffic despite a large share of U.S. East Coast traffic.

Is China in WestJet's future?

"My DNA does have a lot of China enthusiasm, and Vancouver has a base of {travelers} who go to China," Znotins said. "So the opportunities are there. We are looking at trans-Pacific and trans-Atlantic, we are at the very beginning stages of that."

WestJet shares closed Friday at $15.74, up 7.5% year to- date. The carrier has been hurt by a weak energy economy in Alberta, where it has about 40% of its capacity, but in the third quarter it reported its second-highest profit ever.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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