The top of the parabola?


Recommended Posts

Guest rattler
Heard on the weekend that WS will be cutting back flying.

Have we seen the last quarter of continuous growth in ASMs?

It had to happen sometime.

Hope you are wrong but if so then perhaps we will learn more on Wed.

WestJet to Present at Merrill Lynch Global Transportation Conference on June 18, 2008

CALGARY, ALBERTA, Jun 11, 2008 (MARKET WIRE via COMTEX) ----WestJet (TSX: WJA) President and CEO Sean Durfy, and Executive Vice-President, Finance and CFO Vito Culmone will be presenting at the Merrill Lynch Global Transportation Conference on Wednesday, June 18, 2008 in New York. Sean will speak to WestJet's 2007 performance and will provide plans and perspective for 2008.

Link to post
Share on other sites

Dream on.

cool26.gif

Can't say I wouldn't be very pleased, el beano, but my post was nothing more than some information that I got from people in the industry.

Basically the same as your many predictions about various carriers.

Whether it pans out remains to be seen, but I would like it to be true, if for no more purpose than to give you one in the ribs. blink.gif

Link to post
Share on other sites
The current aviation crisis is more of a cost issue than a demand issue so I can't see how capacity cuts will help anyone right now....

Fares have to go up to cover the higher costs. When they do, fewer people travel. Hence the capacity reductions.

Link to post
Share on other sites
Can't say I wouldn't be very pleased, el beano, but my post was nothing more than some information that I got from people in the industry.

Basically the same as your many predictions about various carriers.

Whether it pans out remains to be seen, but I would like it to be true, if for no more purpose than to give you one in the ribs. blink.gif

It would be a foolish wager to bet that the lowest cost operator, with far and away, the highest operating margins, the highest cash reserves per asm flown together with one of the strongest balance sheets in North America announce any contraction or negative growth anytime soon.

It certainly won't happen in advance of airlines at the opposite end of the spectrum in these metrics who are currently haemoraging cash. That's where the cuts are going to come.

Even with fuel at todays prices, WJ shouldn't have any problem producing operating margins around 12%. That is still 50% higher than the industry weighted average operating margin in 2Q 2007.

Indeed, I think people will look back on this era as the one where WJ made huge gains in the marketplace as others were forced to severely reduce marginal flying due to their cost structure and the yield environment.

For example:

James May, president and chief executive of the leading trade group for commercial airlines, the Air Transport Association, will tell Senate lawmakers at a hearing called to investigate complaints about speculators that 2008 could be the worst year ever financially for airlines.

"If Congress does not act soon, this country will not have a viable airline industry," May said in a statement provided to Reuters ahead of the hearing.

Most carriers are churning through cash reserves to help pay for fuel, which is their highest expense, and some experts predict possible bankruptcies next year involving the biggest airlines if prices do not retreat.

Mann also said a reliance on smaller planes in recent years at major airports and over-scheduling have generated less revenue and worsened congestion and delays, which wastes enormous amounts of fuel.

The RJ Panacea. Predicted in 2005. Comes to roost in 2008.

Wal Mart never suffers in an economic slowdown, but Neiman Marcus sure does.

Business travel is the number 1 discretionary cost in Corporate America. Those airlines that relied on $1 a mile yields to cross subsidize the $179 trans con fares are in for a very, very tuff year.

Those that were making double digit margins at $179 fares are going to come out of the tunnel just fine.

cool26.gif

Link to post
Share on other sites

I would expect that the contractions in the US (and potentially in Canada?) would open up opportunities for WJ. What sort of opportunities would WJ jump at? Rumors have us re-launching YVR-LAX this winter and a direct to PHX and more Hawaii flying in YVR would make sense. There'll be a lot of Carribean flying too. I wonder how fast we're going to start flying into "business" destinations like Dallas or Chicago....

Indeed, I think people will look back on this era as the one where WJ made huge gains in the marketplace as others were forced to severely reduce marginal flying due to their cost structure and the yield environment.

Nevermind WJ, we're going to see more bankruptcies, mergers, contractions, and layoffs. Just who comes out and at what cost will be very interesting to follow.

Link to post
Share on other sites
.... the lowest cost operator, with far and away, the highest operating margins, the highest cash reserves per asm flown together with one of the strongest balance sheets in North America .....

This tag line is starting to bore me, beano.

I predict, at some point, the auditors are going to say "Hey, what about these costs over here".

If that happens, it won't be the first corporation to be hiding numbers.

When something is too good to be true ...

Link to post
Share on other sites
This tag line is starting to bore me, beano.

I predict, at some point, the auditors are going to say "Hey, what about these costs over here".

If that happens, it won't be the first corporation to be hiding numbers.

When something is too good to be true ...

What numbers do you think are being hidden?

Link to post
Share on other sites
This tag line is starting to bore me, beano.

I predict, at some point, the auditors are going to say "Hey, what about these costs over here".

If that happens, it won't be the first corporation to be hiding numbers.

When something is too good to be true ...

Airlines are imploding in North America and you find KPMG audited metrics starting to bore you?

If you want to start understanding what's happening to the industry around you and why some airlines continue to more or less sail through these events, I suggest you start paying much, much closer attention to the metrics.

I've been preaching the cost side of the equation for well over a decade. WJ is fundamentally built on a low cost / high efficiency model.

Guess which airlines are consistently suffering the least these days?

The ones with the lowest costs, thereby allowing them to offer the lowest fares, whilst still earning returns higher than the cost of capital. Add to that a strong balance sheet, ie that isn't laden with debt, lots of enuncumbered assets, a fuel efficient, homogeneous fleet and a reputation for stellar customer service.

Think Ryanair, Southwest, WestJet......

If you want to believe that after 12+ years of ops that entire cost categories aren't being accounted for, and that the casm / asl relation is immaterial in your world, be my guest.

The phrase "whistling past the grave yard" doesn't quite cover your situation. Nor does burying your head in the sand like an ostrich.....

It's just math. It's universal. You can't hide from it.

cool26.gif

Link to post
Share on other sites

Bean

After 12 yrs......

Where are the LCC savings in the WJ operation? IOW's, do the savings come from the hide of the employee; i.e., the lack of a DB pension plan etc?

As an employee, I'll answer that.

Not my hide, we are the best compensated engineers in Canada by far.

We don't have a DB pension but we are given enough through the ESP that we damn well better be able to do as well as any pension.

The pilots get stock options as well, sometimes it works out sometimes not.

See if you can get a WJ'er to bitch about their compensation. wink.gif

Link to post
Share on other sites

As another employee maybe I can shed a little light on the subject.

Some of the saving's come from work rules. We have no reserve system for the Pilot Group. That is a huge cost savings.

We fly a greater number of hours in a month compared to other Airlines, that increases efficiency.

Our utilization of the aircraft is greater than other operators of similar sized aircraft, that spreads costs over more hours lowering the cost per hour. Our turns typically are shorter than our competitors so we can get back in the air and earn revenue.

We have no "night premium" or other added pay for so called "specialized" flying...

We do not have a Defined Benefit Pension Plan, hence no administration or overhead costs to manage and maintain such a system. We participate as we wish in a share purchase programme that we alone can administer as we see fit with no cost to the Company beyond the provision of the shares.

And yes, we groom our own aircraft on the short turns. That saves millions in and of itself.

martini.gif

Link to post
Share on other sites

Thanks Maverick, and to Bean; "Where are the LCC savings in the WJ operation?"

Start with a homogenous fleet, mostly owned....running 12+ hours a day.

If you can't see the huge unit cost savings in that equation, there's not much point talking about the myriad of other savings that were built in from the get go.

We all know what happens when you build a business on the backs of your employees.

You won't have happy employees, and in a service business, (guess what an airline is.....) without happy employees, you will not have happy customers, and without happy customers, what you have, and 50 cents, will ultimately get you a hot steaming cup of Jack Squat.

cool26.gif

Link to post
Share on other sites

The difference between an LCC airline and a full Legacy airline?

Throw away all of the rhetoric about a happy employee group, lower pay, better utilization, one fleet type etc, etc, etc.

A comparison of costs shows that the difference is in the overhead and back office. Overhead costs that matter have been referred to by other posters above:

Work rules that mean no reserve bid lines (count that as two crews per airplane)

No DB pension plan (it doesn't have to be stock options or stock purchase plan, although free stock does help the corporate profit).

Less Advertising and PR expense.

More purchased services such as ramp and maintenance.

Less hangars, shops and associated equipment.

Fewer head office functions and related buildings and space.

etc etc

Now a comparison with a reborn airline like Air Canada shows that when the costs associated with attracting higher yielding fares are stripped out you end up with a structure that compares with an LCC. AC still has a ways to go like completing the severance of a few divisions like ACTS and Cargo. However, I doubt that we will ever see a day at AC where work rules change to see no crew reserves required.

Link to post
Share on other sites
without happy employees, you will not have happy customers, and without happy customers, what you have, and 50 cents, will ultimately get you a hot steaming cup of Jack Squat.

cool26.gif

Those words need framing.

Link to post
Share on other sites
something else to add to the equation is to compare how many employees/airplane are employed at each outfit. I don't know what the current numbers are, but a few years back I heard numbers like 75 vs 40. I'm sure that ratio isn't all that far off these days either.

But you can't compare with different aircraft... I can remember days with 47's where 30 people can be lost all over the ship and you're still working all alone...

if you could do a comparison of employees per seat it might come out more accurate?

I dunno, but you guys have plenty above... you don't need any more to answer DEFCON. wink.gif

Link to post
Share on other sites

Throw away all of the rhetoric about a happy employee group, lower pay, better utilization, one fleet type etc, etc, etc.

A comparison of costs shows that the difference is in the overhead and back office. Overhead costs that matter have been referred to by other posters above:

Work rules that mean no reserve bid lines (count that as two crews per airplane)

No DB pension plan (it doesn't have to be stock options or stock purchase plan, although free stock does help the corporate profit).

Less Advertising and PR expense.

More purchased services such as ramp and maintenance.

Less hangars, shops and associated equipment.

Fewer head office functions and related buildings and space.

The fact that you start off by saying throw away shows how wrong you are.

Happy employee group = more productive employee group.

Better utilization = spreading costs out a lot better.

One fleet type = huge savings on training, mtce, etc. Not exactly a throw away.

I would love to see where you are getting your "comparison of costs"

The stock is not "free" Stock that is given to employees is bought on the open market, WS does not just issue new stock to match.

Link to post
Share on other sites
Guest rattler

WestJet says no cuts, sticks with expansion plans

Tue Jun 17, 2008 5:29pm BST  CALGARY, Alberta, June 17 (Reuters) - WestJet Airlines Ltd (WJA.TO: Quote, Profile, Research) will not follow Air Canada (ACa.TO: Quote, Profile, Research) with capacity and staff cuts to deal with surging fuel costs, an executive with the No. 2 Canadian carrier said on Tuesday.

"Absolutely not," WestJet Vice-President Richard Bartrem said. "It's business as usual for us -- no plans for capacity cutbacks, no plans for layoffs."

The airline shifts its capacity between domestic and international routes twice a year based on travel patterns, which has kept traffic numbers strong. It has predicted a 16 percent capacity increase this year. (Reporting by Jeffrey Jones; editing by Rob Wilson)

Link to post
Share on other sites

There is no printing press in the basement. dry.gif

The shares are offered on the open market and purchased at market rates on behalf of WestJet by CIBC Mellon for the needs of the employee share purchase, and option programmes.

I hope they are doing a lot of buying at the current low price to cover the plans future obligations... rolleyes.gif

Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.