Go Back  PPRuNe Forums > PPRuNe Worldwide > Canada
Reload this Page >

As Air Canada soars, WestJet takes a predictable nosedive

Canada The great white north. A BIG country with few people and LOTS of aviation.

As Air Canada soars, WestJet takes a predictable nosedive

Old 3rd Sep 2018, 01:00
  #1 (permalink)  
Thread Starter
 
Join Date: May 2010
Location: Canada
Age: 73
Posts: 457
Received 6 Likes on 3 Posts
As Air Canada soars, WestJet takes a predictable nosedive

Good Evening All:
The following was taken from the Toronto Star reporting on the difference between Team Red and Team Teal.

https://www.thestar.com/business/2018/09/01/as-air-canada-soars-westjet-takes-a-predictable-nosedive.html

As Air Canada soars, WestJet takes a predictable nosedive

One of today’s most compelling business sagas is the reversal of fortunes at WestJet Airlines Ltd.For most of its 22-year existence, the Calgary-based company has been one of the world’s few consistently successful major airlines.[img]https://images.thestar.com/CcHe8L6AyDWpLRm52uWl5AJnqUs=/1086x648/smart/filters:cb(1535843395338)/https:/www.thestar.com/content/dam/thestar/business/2018/09/01/as-air-canada-soars-westjet-takes-a-predictable-nosedive/westjet.jpg

WestJet’s fractious labour relations haven’t helped its bottom line. (DARRYL DYCK / THE CANADIAN PRESS file photo)
But today’s WestJet appears to be on a flight path to mediocrity, or worse. In its most recent quarter, WestJet reported its first loss in 13 years.Should WestJet investors, employees and customers be worried? In a word, yes.WestJet described its abysmal second-quarter performance as the result of a perfect storm of higher fuel costs, cancelled bookings due to a threatened pilots’ strike and weather disturbances.But WestJet’s worsening financial performance pre-dates those conditions.WestJet’s profits have dropped 22.8 per cent over the past three years. In its zeal for growth, the airline has committed the basic business failing of allowing growth in costs during that time (up 17.1 per cent) to outpace growth in revenues (12.5 per cent).And about that perfect storm: WestJet would not have suffered the loss of tens of millions of dollars’ worth of bookings this year due to a threatened pilots’ strike if its labour relations, once a model of harmony for the industry, were not so fractious.And the fuel bill has been more punishing than need be due to WestJet’s rapid expansion of its aircraft fleet without sufficient additional revenues to offset a coincident recovery in the world oil price.
Working with the same industry conditions, WestJet’s archrival, Air Canada, is in the midst of a turnaround for the ages.Air Canada now outperforms all of its North American major-airline peers on the key metric of revenue per employee, at $688,000 to WestJet’s $392,000.AC has gone from barely breaking even three years ago to posting a robust $2-billion profit in 2017. Over the past five years, shares in Air Canada have soared in value by about 800 per cent.WestJet stock has gone in the other direction. The stock-market value of WestJet has plunged by about 45 per cent since its 2014 peak.WestJet has strayed from an original business model that made it both financially successful and Canada’s favourite, most passenger-friendly major airline.Recall that the old WestJet, like the Texas-based Southwest Airlines Co. it was modelled on, was a non-union carrier whose employee profit-sharing and folksy management kept unions at bay.The old WestJet flew just one aircraft type, the industry workhorse Boeing 737. That saved enormous sums of money on training, maintenance and aircraft downtime.The old WestJet was a strictly domestic carrier, save for a few vacation-package flights to relatively nearby sunspots in North America and the Caribbean. It offered just one product: Discount-fare, medium-haul flights on routes carefully selected for their profitability.And the old WestJet was distinctive. Proudly Western Canadian, it was determined to match its nationally beloved Alberta peer, Wardair, in exemplary treatment of employees and passengers, an airline where senior management helped clean the aircraft cabins.In recent years, however, WestJet has been made over into an impersonal, multi-functional airline like Air Canada, but without AC’s immense financial resources and entrenched market position.At today’s WestJet, many pilots are unionized. And union drives are underway with unhappy flight attendants and ground crews. During the eight-year tenure of CEO Gregg Saretsky, a period marked by rapid growth and diversification at WestJet, the airline lost touch with its employees.Saretsky abruptly departed in March. But in May, WestJet was revealed to have asked selected passengers to spy not only on WestJet’s in-flight employees, but those of competing airlines. WestJet apologized “unreservedly” for the unseemly incident.Today, industry experts say, what keeps flyers loyal to both AC and WestJet is their loyalty rewards programs, not their customer satisfaction levels. The latter are now indistinguishable. And the two airlines’ pricing regimes are effectively identical. WestJet, no longer a committed discounter, has raised its fares five times this year.If passenger TLC is no longer a WestJet hallmark, discontented employees help explain why. Both WestJet and Air Canada face formal allegations of maltreatment of flight attendants — yet another indication the two carriers have become same-as airlines.The new WestJet flies several aircraft types, including the Boeing 767, the Q400 turboprop and the Saab 340B. And WestJet will soon take delivery of the first of 20 Boeing 787-9 “Dreamliners” it has ordered.Operating a Dreamliner, one of today’s most expensive commercial aircraft, is a statement that an airline has “arrived.” WestJet now wishes to be known as “a global airline.” Few global airlines have avoided a spell in bankruptcy protection, including Air Canada. Other troubled carriers have been merged out of existence. They include a Wardair that was a victim of the same over-expansion with which WestJet is now flirting.Finally, the WestJet brand has been diluted by the company’s confusing new variety of products.The new WestJet operates short-haul, medium-haul, vacation-package, trans-ocean, premium-priced and deep-discount flights (its new Swoop airline). A WestJet that once vowed not to fly east of Manitoba now flies to Europe. With its Dreamliners, WestJet hopes to serve Pacific and South American destinations, as well.WestJet has not gained mastery of its new size and complexity. Last year, the company’s total operating costs surged past the $4-billion threshold, on a revenue base of just $3.9 billion.WestJet began life as a repudiation of the hulking, passenger-insensitive Air Canada. WestJet is now set on matching its archrival in revenues and product diversity.But Air Canada, one of the world’s dozen biggest airlines, with 2017 revenues of $13.3 billion, has the resources to defend its markets and finance expansion. WestJet’s profits of $284 million last year were just 14.2 per cent of Air Canada’s. And in revenue terms, a comparatively diminutive WestJet is essentially an overgrown regional carrier whose reach appears to exceed its grasp.WestJet now operates about 170 aircraft, more than half the size of AC’s fleet of 300. But WestJet generates only 29 per cent of AC’s revenues – a warning signal Bay Street has so far ignored.WestJet finally acknowledged last month that it is over-stretched, announcing a campaign to cut an annual $200 million from the firm’s costs.Distracted by its pell-mell growth ambitions, WestJet lost focus on its existing business — on controlling costs, on cosseting its passengers, on respecting its employees and offering a product that was something special in the skies.In a nutshell, today’s WestJet appears to be running on hubris, not wise management.The shame of it is that, while Canadian travellers still mourn the demise of Wardair, they would not miss the new WestJet. It has, after all, become an airline like the others. David Olive is a business columnist based in Toronto. Follow him on Twitter: @TheGrtRecession
a330pilotcanada is offline  
Old 4th Sep 2018, 05:02
  #2 (permalink)  
 
Join Date: Mar 2003
Location: The Dirty South
Posts: 449
Received 21 Likes on 6 Posts
A poorly researched article;

- The author has apparently missed the fact that Southwest is one of the most heavily unionized carriers in North America. Why would any well educated investor, or industry insider consider the premise of the article valid given the obvious lack of research ?

- The author relies on a metric that focuses on revenue per employee. Not a valid metric within the industry; unless the authors purpose is to drive down employee wages. RASK vs CASK are the industry standard. However inconvenient that may be.

Perhaps WestJets management have become desperate enough to use the media to negotiate in public ? I can understand their fear given the obvious schism in leadership direction and focus.
JPJP is offline  
Old 7th Sep 2018, 22:07
  #3 (permalink)  
 
Join Date: Jun 2000
Location: Canada
Posts: 819
Likes: 0
Received 0 Likes on 0 Posts
RASK vs CASK?
I have seen the past and it looks very similar to Westjet’s future. Costly expansion well beyond the “Southwest” or “Ryanair” business models they were modelled after.
Does anyone else see Westjet’s demise beside me?
Willie Everlearn is offline  
Old 12th Sep 2018, 23:12
  #4 (permalink)  
 
Join Date: Oct 2007
Location: Wherever I go, there I am
Age: 43
Posts: 799
Likes: 0
Received 0 Likes on 0 Posts
This is still an apples to oranges comparison. While I would not suggest WJ's future is 100% rosy, I do not think they're knocking on the door to join the line behind Ward Air, Canadian, Canada 3000, et. al. Not yet at least.

There are many things that AC does that WJ is seemingly only just starting to do, so of course their revenue stream per employee/tail is higher.

AC has a much larger cargo business than WJ. AC has a first and business class while WJ has Plus (for what, $40 more than economy?). AC has established contracts with its employees, WJ is just getting going on that front. AC did not publically lose a CEO like WJ did, for whom I assume a very nice golden parachute was paid out and accounted to "pilot strike."

There are rocky days ahead for WJ, but if AC is any indicator, you can successfully turn a ship around in a unionized environment.

I look forward to the Q3 and Q4 results. If they come in the same or worse than the Q2 results, I might be tempted to join Mr. Olive on his bandwaggon.

Oh, and....

The shame of it is that, while Canadian travellers still mourn the demise of Wardair, they would not miss the new WestJet
Perhaps Mr. Olive needs to travel west of Ontario. I mean, I know Toronto is the centre of the universe and all, but imagine what would happen in the political climate as it is now if Ottawa permitted another Alberta industry employing thousands to fail. First a pipeline, then an airline? Notley might just decide to stop paying all taxes to Ottawa!
+TSRA is offline  

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Thread Tools
Search this Thread

Contact Us - Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service

Copyright © 2024 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.