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Dividend Policy Essay

2893 words - 12 pages

Airline Industry
The airline industry consists of scheduled and charters flights that transport passengers by planes.  Cargo and freight is not included.  The Canadian airline industry has fluctuated growth in the past few years, and it’s expected to grow moderately and stably in the next 5 years.  The industry generated $17.25 billion of revenue in 2013, which is about a growth of 6.2% compared to 2012.  60.1% of passengers are travelling domestically and the rest travels internationally.  It will increase in the next five years by 20.4%, according to the forecast, and reaching a value of $20.7 billion (Airlines in Canada).
Here is the conclusion of Porter’s 5 forces industry analysis, ...view middle of the document...

 The other division offers services such as transporting non-containerized products, bilateral transborder and international cargo shipments, as well as cargo management. WestJet is maintaining its operating strategy of providing low-cost travel all the time. With the vision to become one of the five largest airlines in the world by 2016, WestJet started to increase its market share by increasing its fleets and number of destinations.  
There are two main competitors of WestJet as it expanded its business across Canadian market and U.S. market. The most significant competitor of WestJet is Air Canada. As Canada’s longest-running airline, Air Canada has three operating divisions: guest, cargo and others.  The company changed its operating strategy to cost reduction and profitability improvement after suffering a huge loss in 2008. In order to expand operation and increase its business in new low-cost carrier segment, Air Canada launched Rouge in July 2013. Rouge’s appearance will definitely attract existing customers of WestJet and has a negative influence on WestJet’s market share.
The second competitor of WestJet is Air Transat, which is a subsidiary of Transat A.T. Inc. Transat A.T. Inc. is a leading integrated tourism Canadian company in the world. It’s vertically integrated and is composed of five business units (outgoing tour operators, incoming tour operators and destination services, retail distribution, air transportation, and hotels). Among those business units, Air Transat offers more than 60 destinations in over 30 countries. Transat’s current business strategy is to reduce cost and improve margin through more acquisition of more travel companies or tour operator across the world. Although it is different from WestJet’s strategy of offering lower-cost travel, Transat is trying to offer more flight destinations and holiday packages, which also increases competition in the market.
Off balance sheet assets such as leases of aircrafts and engines supports the operation of WestJet.  Buying engines and aircrafts can be very expensive for airlines.  In the case of leasing, WestJet is able to use the aircrafts and engine without breaking the required covenants; the leasing cost is also tax deductible.   Air Canada and Transat uses off balance sheet to fulfill its covenants.
On balance sheet assets such as derivative financial assets is used to hedge the risk of foreign exchange on aircraft leases, fuels and interest rate risk.  Both WestJet, similar to Transat and Air Canada, list its derivative assets on its balance sheets.    Deposit under assets also supports the company’s operation.  Certain deposits are paid to engine and aircraft lessors when leasing contract is generated, primary use as a collateral, and will be returned when the contract expired.  Other deposits includes fuel and airport operation deposits. WestJet, similar to Air Canada and Transat, has listed deposits under their assets.  These deposits and agreements to the...

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