Harvard Case - WestJet: The Pearson Decision
"WestJet: The Pearson Decision" Harvard business case study is written by Roderick E. White, Derek Lehmberg. It deals with the challenges in the field of Strategy. The case study is 25 page(s) long and it was first published on : Nov 23, 2005
At Fern Fort University, we recommend WestJet proceed with the Pearson Airport hub strategy, but with a nuanced approach that prioritizes strategic alliances, digital transformation, and sustainable growth. This strategy leverages WestJet's existing core competencies in low-cost operations and customer service while navigating the complexities of the Canadian aviation market.
2. Background
WestJet, a Canadian low-cost carrier, faced a critical decision in 2008: whether to establish a hub at Toronto Pearson International Airport (YYZ). This move would allow WestJet to compete directly with Air Canada, the dominant carrier in the Canadian market, and expand its reach into lucrative international routes. However, it also presented significant challenges, including increased competition, operational complexities, and potential brand dilution.
The main protagonists in this case are Clive Beddoe, WestJet's founder and CEO, and the company's leadership team, who must weigh the potential benefits of the Pearson hub against the risks and challenges.
3. Analysis of the Case Study
Strategic Analysis:
- Porter's Five Forces: The Canadian aviation industry is characterized by high barriers to entry (regulation, capital intensity), moderate supplier power (aircraft manufacturers), moderate buyer power (price-sensitive consumers), and intense rivalry (Air Canada, Porter Airlines).
- SWOT Analysis:
- Strengths: Strong brand image, efficient operations, loyal customer base, low-cost model.
- Weaknesses: Limited international network, lack of hub infrastructure, potential for brand dilution.
- Opportunities: Growing demand for air travel, expansion into international markets, partnerships with other airlines.
- Threats: Competition from Air Canada, economic downturn, fuel price volatility.
- Competitive Advantage: WestJet's competitive advantage lies in its low-cost model, customer service focus, and strong brand image. However, this advantage is challenged by Air Canada's larger network and established hub operations.
- Value Chain: WestJet's value chain includes activities like aircraft acquisition, maintenance, flight operations, customer service, and marketing. The Pearson hub would require significant investments in infrastructure and technology to optimize the value chain.
Financial Analysis:
- The Pearson hub would require significant capital investment for infrastructure, equipment, and personnel.
- The financial viability of the hub depends on achieving economies of scale through increased passenger volume and revenue.
- Key financial metrics to consider include ROI, payback period, and break-even analysis.
Marketing Analysis:
- Market Segmentation: The Pearson hub would allow WestJet to target a broader range of customers, including business travelers and international tourists.
- Product Differentiation: WestJet could differentiate itself through its low-cost model, customer service, and unique product offerings.
- Marketing Strategy: A multi-channel marketing approach would be necessary to reach different customer segments.
Operational Analysis:
- Operations Strategy: The Pearson hub would require efficient operations to manage increased passenger volume and aircraft movements.
- Technology and Analytics: Investment in technology and data analytics would be crucial for optimizing operations, managing costs, and improving customer experience.
- Supply Chain Management: The hub would require a robust supply chain to ensure timely delivery of aircraft parts, fuel, and other essential resources.
Organizational Analysis:
- Organizational Culture: WestJet's strong organizational culture, focused on customer service and employee empowerment, would need to be adapted to the challenges of a larger, more complex operation.
- Leadership Development: Strong leadership is essential for managing the transition to a hub operation and driving strategic execution.
- Change Management: A well-defined change management plan would be necessary to ensure smooth implementation of the hub strategy.
4. Recommendations
- Strategic Alliances: WestJet should pursue strategic alliances with other airlines, particularly in international markets. This would allow WestJet to expand its network quickly and efficiently without the need for significant capital investment.
- Digital Transformation: WestJet should invest in digital transformation initiatives to improve customer experience, optimize operations, and enhance data analytics capabilities. This includes online booking, mobile check-in, and personalized services.
- Sustainable Growth: WestJet should prioritize sustainable growth by focusing on environmental sustainability, corporate social responsibility, and responsible business practices. This would enhance brand image and attract environmentally conscious customers.
- Nuanced Approach: WestJet should implement the Pearson hub strategy in a phased approach, starting with smaller operations and gradually expanding as demand grows. This would allow WestJet to manage risks and optimize resources.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: The recommendations leverage WestJet's existing core competencies in low-cost operations, customer service, and brand image.
- External Customers: The recommendations prioritize customer experience and cater to the needs of both domestic and international travelers.
- Competitors: The recommendations address the competitive landscape by leveraging strategic alliances and focusing on digital transformation.
- Attractiveness: The recommendations are financially viable, with potential for high ROI and positive impact on WestJet's long-term growth.
6. Conclusion
By adopting a strategic approach that combines strategic alliances, digital transformation, and sustainable growth, WestJet can successfully navigate the challenges of the Pearson hub and achieve its strategic goals. This approach will allow WestJet to maintain its competitive advantage, expand its reach into new markets, and solidify its position as a leading Canadian airline.
7. Discussion
Alternatives:
- Organic Growth: WestJet could focus on organic growth by expanding its existing network through incremental route additions and aircraft acquisitions. This approach would be slower and less risky but could limit WestJet's ability to compete effectively with Air Canada.
- Acquisition: WestJet could acquire another airline to gain access to a larger network and established infrastructure. However, this would be a costly and complex undertaking, with potential for integration challenges.
Risks:
- Competition: Increased competition from Air Canada and other airlines could erode WestJet's market share and profitability.
- Economic Downturn: A global economic downturn could reduce demand for air travel, impacting WestJet's revenue and profitability.
- Operational Challenges: The Pearson hub could create operational challenges, including delays, congestion, and increased costs.
Key Assumptions:
- The Canadian aviation industry will continue to grow, creating opportunities for expansion.
- WestJet can successfully implement its strategic alliances and digital transformation initiatives.
- The global economy will remain stable, supporting demand for air travel.
8. Next Steps
- Strategic Alliance Negotiations: Initiate negotiations with potential airline partners for strategic alliances.
- Digital Transformation Implementation: Develop and implement a digital transformation roadmap, including online booking, mobile check-in, and personalized services.
- Sustainable Growth Initiatives: Develop and implement sustainability initiatives, including fuel efficiency programs and carbon offsetting.
- Pearson Hub Planning: Develop a detailed plan for the phased implementation of the Pearson hub, including infrastructure investments, operational procedures, and staffing requirements.
- Performance Monitoring: Regularly monitor key performance indicators (KPIs) to track progress and make adjustments as needed.
By taking these steps, WestJet can successfully navigate the challenges of the Pearson hub and achieve its strategic goals, ensuring its continued success in the competitive Canadian aviation market.
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Case Description
In early 2003, WestJet's management was reviewing its plans for growth, specifically considering whether WestJet should move its eastern Canada base of operations from Hamilton's Munro Airport to Toronto Pearson Airport. WestJet had grown rapidly since its launch in 1996 and was now the second largest airline in Canada. WestJet had originally focused on western Canada, but had entered eastern Canada in March 2000, with an eastern base of operations in Hamilton, a secondary airport in the greater Toronto area. Pearson was Canada's largest domestic and international airport, the primary commercial airport for the greater Toronto area and a hub of WestJet's largest competitor, Air Canada. Compared with Pearson, Hamilton was less congested and charged much lower fees. WestJet's operations had been closely modeled on Southwest Airlines'. The use of a secondary airport such as Hamilton as a base of operations was consistent with Southwest's low-cost, high-utilization features. With higher costs and longer turnaround times due to congestion, a base at Pearson was arguably not consistent with the Southwest business model; however, it was hard for WestJet to ignore the growth potential.
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