WestJet's Curious Airport Play
Dec 20th 2013 9:13PM
Updated Dec 20th 2013 9:14PM
Even as the potential changes to Toronto's Billy Bishop Airport have been known for months, WestJet Airlines continues to take an unusual approach in stating its position. Now the Toronto Port Authority has responded to the WestJet rumors and it's time to see what it means for WestJet and other air carriers.
Valuable real estate
Despite being the lesser-used airport for Toronto, the Billy Bishop Airport has some of the most valuable airport real estate in Canada. Unlike the larger Toronto Pearson International Airport, Billy Bishop is located on the Toronto Islands, allowing passengers to walk into downtown and dramatically reduce travel time.
The value of slots at centrally located airports has been seen in full force at the Washington National Airport, a smaller airport with close proximity to the core of Washington, D.C. The slots at Washington National played a central role in the merger that created American Airlines Group as the Department of Justice argued the airline would have too much control over the popular airport. The eventual settlement forced American Airlines to divest some slots to low-cost airlines sending JetBlue Airways soaring on the prospect of acquiring centrally located slots.
With the high value placed on slots at centrally located airports such as Washington National, it's no surprise that Canada's airlines are fighting for a piece of the Billy Bishop Airport. Currently, the airport is dominated by Porter Airlines, a privately held airline that controls the vast majority of slots at the airport (172 out of 202). Air Canada also operates a limited number of flights although it is greatly outnumbered by Porter.
Growth at Billy Bishop has been partially restricted by the ban on jet aircraft at the airport. However, Porter has been lobbying to overturn the ban and expand the runway to accommodate jet aircraft. The airline currently has 30 Bombardier C Series aircraft on order conditional on the approval of the airport expansion plan.
Air Canada has, in the past, unsuccessfully challenged the slot allocation at Billy Bishop so it's quite likely the airline would want to expand its presence if the ban on jets is overturned. Due to the lower noise produced by the Bombardier C Series, Air Canada may add more of the aircraft to its fleet to serve Billy Bishop.
WestJet does not hold any slots at Billy Bishop and is taking an unusual approach to getting a piece of the airport if it expands. WestJet CEO Gregg Saretsky told Bloomberg, "We would like to have the opportunity to fly jets ourselves from that airport. The 737 is capable of operating off the runway at Billy Bishop."
Although it may seem obvious that WestJet is trying to grab as big a share of Billy Bishop Airport as possible, the statement from the Toronto Port Authority makes WestJet's intentions seem far less clear. In a recent statement responding to the WestJet rumors, the Port Authority said:
We are delighted WestJet is interested in offering service from the popular Billy Bishop Airport, but find their approach through the media curious. When WestJet had the opportunity to secure BBTCA slots in 2009, they declined, even though the airline now uses Q400 aircraft which comply with our airport's strict noise restrictions.
So despite the advantages of operating from the airport, the Port Authority says that WestJet declined to secure slots even though they could have operated their Q400 turboprops out of the airport. The Port Authority goes on to say:
Although the TPA continues to hear rumours about WestJet's alleged interest in utilizing Billy Bishop at some point in the future, they've never actually contacted the airport's operator -- the TPA.
If we assume the Port Authority isn't leaving anything out, then it looks like WestJet's push for slots runs a lot stronger in the public press than the airline is actually trying to do with the slot-allocating authority.
WestJet is certainly taking an unusual approach to slots at Billy Bishop. If the airline determined the slots should be a core part of its business strategy, it would likely be pushing a lot harder and holding talks with the Port Authority.
For now, it's anyone's guess what the internal strategy is at WestJet, but we do know a few things: The slots at Billy Bishop are highly valued and provide an ideal location for business travel, the airport could see significant expansion in the next few years, and Canada's airlines are already staking out their claims.
Time will tell what WestJet eventually gets at the airport but until the airline takes additional action with the Port Authority, it's tough to see how WestJet will become a major player at Billy Bishop. With the expansion likely to occur in the next few years if approved by the city, airline investors should keep an eye on whether WestJet ramps up its efforts to acquire slots at this downtown airport.
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The article WestJet's Curious Airport Play originally appeared on Fool.com.Alexander MacLennan owns shares of Air Canada and American Airlines Group. He also has to following options: long January 2015 $17 calls on American Airlines Group. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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