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Financial Comparisons across Different Business Models in the Canadian Airline IndustryThis paper examines the accounting and stock price performance of two Canadian airlines, WestJet and Air Canada, over a five year period, taking into account the aftermath of the systemic shock to the airline industry produced by the September 11, 2001 (9-11), terrorist attacks and subsequent events such as the 2002 SARS outbreak, the wars in Afghanistan and Iraq, and the accompanying rise in jet fuel prices. Our study focuses on the viability of low-cost versus conventional-cost business models in Canada under the current business environment and the ability of airlines to withstand and effectively respond to catastrophic industry events. Furthermore, we link the effectiveness of the airlines responses to these events to specific elements of their respective business models. We test our hypothesis through a case study. We focus on WestJet as a typical low-cost airline and compare its accounting and stock performance to Air Canada, a legacy carrier and rival in several business sectors. We find WestJet to be much less affected by catastrophic industry events. By decomposing each airline s return volatility, we observe that WestJet s systematic and unsystematic risk increased only slightly during the industry's post-9-11 turmoil when compared to Air Canada. In addition, we find that both WestJet s accounting and stock performance have been highly superior to those of Air Canada. We argue that WestJet s business model provides the firm with significantly more financial and operational flexibility than its legacy rival, Air Canada. WestJet's lower operating costs, high consumer trust, product offering, corporate structure, workforce and work practices, as well as operational procedures are all factors that appear to contribute to its relative success.
Document ID
20070038362
Acquisition Source
Goddard Space Flight Center
Document Type
Reprint (Version printed in journal)
Authors
Flouris, Triant (San Jose State Univ. San Jose, CA, United States)
Walker, Thomas (Concordia Univ. Montreal, Quebec, Canada)
Date Acquired
August 24, 2013
Publication Date
January 1, 2007
Publication Information
Publication: Journal of Air Transportation, Volume 12, No. 1
Subject Category
Air Transportation And Safety
Distribution Limits
Public
Copyright
Public Use Permitted.

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IDRelationTitle20070038361Collected WorksJournal of Air Transportation, Volume 12, No. 1
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