WestJet, Delta sign preliminary deal to deepen cross-border partnership

WestJet and Delta Air Lines plan to form a joint venture that will enhance transborder service and deepen the relationship between the two companies.

They said in a statement that the joint venture, which has yet to be approved, would increase travel choices between Canada and the United States along with enhanced frequent flyer benefits.

Calgary-based WestJet Airlines Ltd. (TSX:WJA) and Delta said their preliminary agreement anticipates co-ordinated schedules for new destinations and expanded codesharing, which allows each partner to book seats on the other's flights.

The airlines said the planned joint venture is subject to board and regulatory approvals in both the U.S. and Canada.

"This agreement will bring heightened competition and an enriched product offering to the transborder segment," said WestJet executive vice-president Ed Sims.

"This is an important step in WestJet's mission to become a global airline."

The deal with Atlanta-based Delta was announced as WestJet unveiled financial targets through 2020 that analyst Doug Taylor of Canaccord Genuity said "echo well-received guidance provided by Air Canada several months ago."

"We believe this guidance should be seen positively on the margin as it confirms that WestJet's multiple expansion programs are not going to come at the expense of near-term profitability and balance sheet," Taylor wrote in a report.

Steve Sear, Delta's international president, called WestJet a "perfect partner" for the American airline.

"We look forward to applying Delta's experience building successful joint venture partnerships to this important segment of transborder travel, the second largest international segment for U.S. travel," Sear said.

The deal marks the Delta's eighth partnership since 1993 with leading carriers spanning Europe, Latin America, Asia, Australia and Canada.

WestJet has 45 airline partners providing access to more than 175 destinations in over 20 countries.

There was no mention about WestJet joining Skyteam, an alliance of 20 airlines including Aeroflot, Air France, China Airlines and KLM that operates more than 16,000 daily flights to 1,052 destinations.

"We could see this as a logical outcome given recent announcements with Air France/KLM and the recent end of the American Airlines code-share agreement," Chris Murray of AltaCorp Capital wrote in a report.

WestJet said it expects annual revenues will increase by between $300 million and $500 million through 2022 from ancillary fees, an enhanced revenue management system and broadened fare products.

It has also identified annual cost savings opportunities of $140 million to $200 million over the five years from fleet reconfigurations, airport operations cost savings, optimized maintenance plans, digital self service, and sales and distribution channel efficiencies.

"We continue to invest in strategic initiatives that will support our transition from a low-cost point-to-point model into a high value-based network airline with a global footprint," WestJet CEO Gregg Saretsky said in a separate news release.

He said the airline is laying the foundation to grow its leisure business and also to attract premium travellers.

The airline, which operates the Encore regional service and is set to launch its Swoop discount carrier next summer, is targeting annual operating margins of between 10 and 12 per cent in 2018 to 2020.

The number of unencumbered aircraft is expected to nearly double to 96 in 2020 as it adds Boeing 787 Dreamliners for international service beginning in 2019.

While the guidance fits with his estimates, Murray said he remains concerned about WestJet's ability to deliver with so many initiatives underway at the same time while it faces labour unease that has spawned union drives.