The top of the parabola?

[Lakelad]

There is no printing press in the basement.

'The Corporation has the option to acquire common shares on behalf of employees through open market purchases or from treasury at the current market price. For the period January to April 2003, shares under the ESPP were issued from treasury at the current market price. Included in Share Capital is $3,063,000 of common shares representing the Corporation’s matching contribution from treasury for employee contributions, for which no cash was exchanged. Subsequent to this period, the Corporation elected to purchase these shares through the open market and will continue to review this option in the future.'

WestJet 2003 Annual Report

The Corporation has the option to acquire common voting shares on behalf of employees through open market purchases or to issue new shares from treasury at the current market price. For the period January to October 2005, shares under the ESPP were issued from treasury at the current market price. Subsequent to this period, the Corporation elected to purchase these shares through the open market and will continue to review this option in the future. For the year ended December 31, 2005, $17,705,000 (2004 – $NIL) of common shares were issued from treasury, representing the Corporation’s matching contribution from treasury for employee contributions, for which no cash was exchanged.

WestJet 2005 Annual Report

Sometimes it does, sometimes it doesn't.

[Steam Driven]

"...shares under the ESPP were issued from treasury at the current market price."

Where do you suppose the shares in the "Treasury" came from?

"Treasury Shares" are shares that the company previously issued and then repurchased on the open market and held for resale, retirement or to use to satisfy stock options.

As I said, there is no printing press in the basement where WestJet just pumps out shares willy-nilly. That would incur a cost through share dilution which would be opposite of the goal of wealth creation...

The stock is not "Free"...

[Lakelad]

As I said, there is no printing press in the basement where WestJet just pumps out shares willy-nilly. That would incur a cost through share dilution which would be opposite of the goal of wealth creation...

The stock is not "Free"...

These are additional new shares as clearly stated in the note 'or to issue new shares from treasury'. The 'treasury option' for ESPP is definitely dilutive compared to open market purchase. The dilutive impact of the 'treasury option' vs 'open market' can be seen in the YoY charts (pge 48 in 2003/pge 52 in 2005) where 'open market' option was used in the respective preceding year.

[Fido]

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.

High aircraft utilization can be achieved by any airline. Calling yourself an LCC does not allow an airline to schedule higher flying hours.

An employee can be as happy as a clam but if work rules infringe on productivity.....

One fleet type is a red herring if the individual fleets have 35 or 40 aircraft in each. Each one makes a small airline on its own. If an airline sends one of each of six fleet types to a small station then that infringes utilization. Its all in how you use the assets.

I get the comparison from years of work in this side of the industry.

[Spinnaker]

These are additional new shares as clearly stated in the note 'or to issue new shares from treasury'. The 'treasury option' for ESPP is definitely dilutive compared to open market purchase. The dilutive impact of the 'treasury option' vs 'open market' can be seen in the YoY charts (pge 48 in 2003/pge 52 in 2005) where 'open market' option was used in the respective preceding year.

Dilution is offset by the two stock buy backs in the past 15 months. WestJet has been buying a lot of their own stock lately while its been cheap.

[chockalicious]

High aircraft utilization can be achieved by any airline. Calling yourself an LCC does not allow an airline to schedule higher flying hours.

An employee can be as happy as a clam but if work rules infringe on productivity.....

One fleet type is a red herring if the individual fleets have 35 or 40 aircraft in each. Each one makes a small airline on its own. If an airline sends one of each of six fleet types to a small station then that infringes utilization. Its all in how you use the assets.

I get the comparison from years of work in this side of the industry.

I don't think you've said anything here.

Calling yourself a LCC does not create more utilization. High utilization is a trait of a LCC. I disagree with your premise that higher utilization can be acheived by any airline.

You still don't get it about a happy = productive employee.

Your comment about fleet types makes no sense. making a small airline of it's own? Doesn't that mean the associated costs of all these small airlines?

Your comparison comes from working in the industry? I am not sure which side you work on but it appears to me that you do not grasp some pretty basic concepts.

[Thebean]

High aircraft utilization can be achieved by any airline.  Calling yourself an LCC does not allow an airline to schedule higher flying hours.

An employee can be as happy as a clam but if work rules infringe on productivity.....

One fleet type is a red herring if the individual fleets have 35 or 40 aircraft in each.  Each one makes a small airline on its own.  If an airline sends one of each of six fleet types to a small station then that infringes utilization.  Its all in how you use the assets.

I get the comparison from years of work in this side of the industry.

Your argument is so weak, it borders on ridiculous.

I suggest you continue to bury your head in the sand and continue to believe that there is no meaningful cost difference between WJ and anyone else operating in Canada.

I'll leave you to explain why WJ, with yields about 22% lower than the other major carrier and virtually the same load factor had operating margins infinitely higher than the only other publicly traded airline in the country in 1Q. It's infinite because one had negative margins. Any multiple of that negative margin remains negative.

Nahhhhh.. It couldn't be the costs. According to you, they are all the same.

I sincerely hope you are not a union negotiator, because if you are, I wouldn't want to be your opposite at the company. It'd be like talking to a paper weight.

I may be sounding a bit like Dagger, (where is Dagger?), but I gotta tell ya, you better get in the game, and fast.

The changes to the industry are coming fast and furious. Get your head out of the sand. You don't want to be left in the dust.

[Guest rattler]

There was an interview with a Westjet Spokesperson on the local radio yesterday and he said, talking about how Westjet could continue to prosper and AC couldn't, that one of the major reasons was that they were not unionized.

One point in that regard, recently there was a post that said the Westjet AMEs were among the top paid in Canada but then more recently there was an announcement by Westjet that their major overhaul work was being contracted out to a firm in YXX. This raises the question re how many inhouse AMEs does Westjet have and do they only do line maintence rather than any major checks? I guess what I am saying is that you can afford to pay good salaries if the majority of that type of work is contracted out rather than done in house. Of course Westjet is not unique in that, just look at AC and the spinoff of work from ACM to ACTS but perhaps Westjet gets a better deal from their Contractor than AC does from theirs even though Cascade is unionized (CAW). They do have an impressive list of customers.

Quality Customers Make a Quality Company

The quality of a company's customers represents the quality of the company itself. Cascade Aerospace is proud to serve leading North American airlines and aircraft owners from around the world, including:

Alaska Airlines

Alcoa-SIE Cargo Conversions

Aloha Airlines

Boeing Capital Corporation

Boullioun Aviation Services

China Southern

Airlines

Continental Airlines

Copa Airlines

Direction de la Défense et de la Sécurité Civile

Eos Airlines

First Air

First Choice Airways

GE Capital Aviation Services

Harmony Airways

Icelandair

International Lease Finance Corporation

LiveTV

Omni Air International

Pacific Sky

Skyservice

Southwest Airlines

TAT Industries

Tombo Aviation

WestJet Airlines

[Thebean]

There was an interview with a Westjet Spokesperson on the local radio yesterday and he said, talking about how Westjet could continue to prosper and AC couldn't, that one of the major reasons was that they were not unionized.

One point in that regard, recently there was a post that said the Westjet AMEs were among the top paid in Canada but then more recently there was an announcement by Westjet that their major overhaul work was being contracted out to a firm in YXX. This raises the question re how many inhouse AMEs does Westjet have and do they only do line maintence rather than any major checks? I guess what I am saying is that you can afford to pay good salaries if the majority of that type of work is contracted out rather than done in house. Of course Westjet is not unique in that, just look at AC and the spinoff of work from ACM to ACTS but perhaps Westjet gets a better deal from their Contractor than AC does from theirs even though Cascade is unionized (CAW). They do have an impressive list of customers.

Cascade has being doing WJ work for years. Move on. Nothing to see here.

[Fido]

Bean:

You are the one with your head buried in the sand. You refuse to see anything but what your selective numbers tell only you.

Choc:

There are many carriers who have aircraft utilizations that are at or even above what so called LCC's produce. The long-haul charter airlines beat everyone on aircraft utilization.

The discrete selection of numbers produces the reults that say (wrongly) that the difference between an LCC and say AC is because of ...blah...blah..blah.

When comparing WS numbers which are made only from a single class product and flying a within a short circle of North America you make a mistake. Try stripping the costs from the AC numbers that are associated with the supply of a multiple class product, an international product. There are only a few people at AC that have access to these numbers but just imagine what those numbers might be like.

The cost for AC to produce an economy seat within Canada are probably within a hair of WS costs for producing the same seat. System wide CASM does not tell much about the costs of production at the route level. Even WS probably has a significant CASM difference on YYC-YXX versus YYC-YVR.

Now ask yourself where AC is making money and where is AC losing money? You can bet that domestic operations are making a mitt full and the International operations are where they are hurting. This is not just because of costs but if AC ran a seperate unit of all economy aircraft within Canada, you can bet that their costs would be close to WS CASM.

[Canus Chinookus]

Sorry Fido, I don't buy it.

[Thebean]

Bean:

You are the one with your head buried in the sand.  You refuse to see anything but what your selective numbers tell only you.

Choc:

There are many carriers who have aircraft utilizations that are at or even above what so called LCC's produce.  The long-haul charter airlines beat everyone on aircraft utilization.

The discrete selection of numbers produces the reults that say (wrongly) that the difference between an LCC and say AC is because of ...blah...blah..blah. 

When comparing WS numbers which are made only from a single class product and flying a within a short circle of North America you make a mistake.  Try stripping the costs from the AC numbers that are associated with the supply of a multiple class product, an international product.  There are only a few people at AC that have access to these numbers but just imagine what those numbers might be like.

The cost for AC to produce an economy seat within Canada are probably within a hair of WS costs for producing the same seat.  System wide CASM does not tell much about the costs of production at the route level.  Even WS probably has a significant CASM difference on YYC-YXX versus YYC-YVR.

Now ask yourself where AC is making money and where is AC losing money?  You can bet that domestic operations are making a mitt full and the International operations are where they are hurting.  This is not just because of costs but if AC ran a seperate unit of all economy aircraft within Canada, you can bet that their costs would be close to WS CASM.

Fido, Fido, Fido....

We've had this discussion before. You're going to have to get in the game on this one.

You can't take the bits and pieces that you like from an organization and ignore the bits you don't like to conjure up the metrics that make things look tickety-boo.

If you want to strip out entire cost categories, you better make sure you strip out all the revenue associated with it too. That bit usually gets forgotten.

For example, sure, 90+ seat RJ's operated by numerous legacy airlines have 20% lower trip costs compared to 120 seat aircraft, but they also have 25% fewer seats, meaning lower revenue per trip. Remember how I said that revenues tend to fall faster than costs in the airline business?

Mentioning one metric without the other is like me telling you the score of last nights NBA game was Lakers 92. Without Boston's score, the numbers don't mean Richard.

My V8 SUV gets the same mileage as a Smart car, but only when it goes down hill. The problem is, I don't get to drive it down hill 100% of the time. It's the same with legacy airlines. The costs are the costs are the costs. You can't ignore the cost of the parts that are intrinsic to the entire operation.

That's why all the "airlines within an airline", like Ted, Shuttle, Metrojet, Cal Lite, Song etc all disappeared. Management convinced themselves that by tinkering with cost allocations, the ventures would have the same cost structure as jetBlue and especially Southwest. To make things look better, they were pretty liberal in how they allocated revenues.

They played the game for a while, until auditors got in and started allocating costs appropropriately. Lo and behold, no more "airlines within airlines". They were heamoraging cash.

Seriously. If you believe there is no meaningful cost differential between LCC's and legacy carriers, you are living in La La land. If you are going to get laid off, at least try to understand why.

[dagger]

Fido, Fido, Fido....

We've had this discussion before.  You're going to have to get in the game on this one.

You can't take the bits and pieces that you like from an organization and ignore the bits you don't like to conjure up the metrics that make things look tickety-boo.

If you want to strip out entire cost categories, you better make sure you strip out all the revenue associated with it too.  That bit usually gets forgotten. 

For example, sure, 90+ seat RJ's operated by numerous legacy airlines have 20% lower trip costs compared to 120 seat aircraft, but they also have 25% fewer seats, meaning lower revenue per trip. Remember how I said that revenues tend to fall faster than costs in the airline business?

Mentioning one metric without the other is like me telling you the score of last nights NBA game was Lakers 92.  Without Boston's score, the numbers don't mean Richard.

My V8 SUV gets the same mileage as a Smart car, but only when it goes down hill.  The problem is, I don't get to drive it down hill 100% of the time. It's the same with legacy airlines.  The costs are the costs are the costs.  You can't ignore the cost of the parts that are intrinsic to the entire operation.

That's why all the "airlines within an airline", like Ted, Shuttle, Metrojet, Cal Lite, Song etc all disappeared.  Management convinced themselves that by tinkering with cost allocations, the ventures would have the same cost structure as jetBlue and especially Southwest.  To make things look better, they were pretty liberal in how they allocated revenues.

They played the game for a while, until auditors got in and started allocating costs appropropriately. Lo and behold, no more "airlines within airlines". They were heamoraging cash.

Seriously.  If you believe there is no meaningful cost differential between LCC's and legacy carriers, you are living in La La land.  If you are going to get laid off, at least try to understand why.

Costs are absolute. Revenue is not. I flew from Deer Lake to Halifax yesterday on a full 38-seat Dash-100. The fuel and the labor cost of the one FA and two pilots were predictable. So were the landing fees and ground handling costs. But revenue varies. I was on an Aeroplan ticket. The guys in suits might have been on corporate fares or passes. That's why a route profile is more important to me than any metric. One packed 38-seat flight might make money, another might lose money. Can we not agree on that much? And routes can vary in terms of aircraft utilization. In the time it took WS to go through a surprisingly leisurely boarding process for its YDF-YYZ flight, that Dash 8 came in from YHZ, was unloaded, refuelled, cleaned, loaded and boarded. We got to the runway just as the WS 737-700 (I'd say it had about 120 passengers judging from the rough count I made in the boarding hall) pulled back from the gate. The ground staff at YDF did an exemplary job of turning that Dash 8 around. And they were largely contract - the same people handling all the carriers at YDF. I agree that RASM and CASM are two sides of the same profitability coin. This must be quite a revelation to you, Bean, as you have argued CASM in isolation of all other factors since time began.

[Fido]

Bean:

You are being selective with your metrics also. You just don't see anything but the one pathway that you 'invented' (just like Al Gore and the Internet). Try seeing the true picture of airline costs and what makes the difference between an LCC and a network carrier.

I can't get laid off because I don't work for AC.

I am currently working on a project to straighten out an airline that was given the advice by a majot international set of consultants to, 'convert to an LCC' without explaining what that meant. Nor how to do it. Nor what it meant to revenue depreciation. Nor how to get their costs inline.

[conehead]

I am currently working on a project to straighten out an airline that was given the advice by a majot international set of consultants to, 'convert to an LCC' without explaining what that meant. Nor how to do it. Nor what it meant to revenue depreciation. Nor how to get their costs inline.

That sounds like fun! Can we offer suggestions?

[dagger]

Also Bean, while L/F is a misleading metric for the reasons I outlined above - it doesn't assure financial health - I'd say that as more of a flight's total costs shift to the fuel surcharge, I'd rather be a high load factor carrier and not the guy who adds too much capacity and lets his L/F slippage keep slipping. If you can get 85% of seats filled with surcharge paying customers, you're going to be doing reasonably well in a turbulent environment.

[Thebean]

Bean:

You are being selective with your metrics also.  You just don't see anything but the one pathway that you 'invented' (just like Al Gore and the Internet).  Try seeing the true picture of airline costs and what makes the difference between an LCC and a network carrier.

I can't get laid off because I don't work for AC.

I am currently working on a project to straighten out an airline that was given the advice by a majot international set of consultants to, 'convert to an LCC' without explaining what that meant. Nor how to do it. Nor what it meant to revenue depreciation.  Nor how to get their costs inline.

Remind me not to invest in what ever airline you are working on....

It's clear as the skies in Las Vegas today that you have no conception about the fundamentals of low cost carriers.

That makes my life so much easier.

Then again, other than Porter and Roots, I can't recall reading a businessplan who's authors didn't proclaim to completely understand the LCC concept. They almost never do. They are easy to spot. They sit in swank corporate digs with $10,000 executive office furniture and pay themselves huge salaries from shareholders equity together with allowances for just about anything you could dream up. Cars, golf club memberships and so on......

They'll take me out for $500 dinners to convince me that they completely understand the low cost, low fare concept. It's hilarious. They don't get it.

In my experience, the ones that have been successful were the ones who's executives started out with cheap second hand furniture in Class C office space with tight expense accounts.

If it's not low cost at that level, I'll guarantee the rest of the operation won't be anywhere close to the cost structure it needs to be. Fish generally stink from the head down.

Wander by some time and I'll show you the bottom up modeling for 3 very successful North American low cost carriers over the past 12 years. It's down to the cost per plastic cup. Or who uses jetways and who doesn't where they are optional, and what that costs per year. Little items like that. You might learn something. It takes pennies to make dollars.

Then, for laughs, we can overlay the scheds of pretty much any airline you like, change about 5 key parameters that are all a matter of public record, starting with fleet types, fuel burn, capacity, crewing, etc etc and you'll see how the costs explode at legacy carriers. There really is very little an established airline can do to change the direction of the ship.

BTW, last I checked, the 3 airlines collectively had about 200 aircraft and in 2 cases, have made their shareholders and employees exceedingly wealthy because they have produced industry leading operating margins and growth throughout their histories. The third remains privately held, by folks with as deep pockets as you could imagine.

[Thebean]

Also Bean, while L/F is a misleading metric for the reasons I outlined above - it doesn't assure financial health - I'd say that as more of a flight's total costs shift to the fuel surcharge, I'd rather be a high load factor carrier and not the guy who adds too much capacity and lets his L/F slippage keep slipping. If you can get 85% of seats filled with surcharge paying customers, you're going to be doing reasonably well in a turbulent environment.

Fair enough.

There are going to be some very interesting yoy yield per rpm increases announced in 6 weeks.

Regardless, in this environment, I don't think you'll find too many execs who would be bragging that their costs are 30-40% higher than anyone elses these days.

In this, and pretty much any environment, I'll take the guy with the lowest costs, the lowest belf and the best financials, including cash, every time.

[dagger]

Fair enough.

There are going to be some very interesting yoy yield per rpm increases announced in 6 weeks.

Regardless, in this environment, I don't think you'll find too many execs who would be bragging that their costs are 30-40% higher than anyone elses these days.

In this, and pretty much any environment, I'll take the guy with the lowest costs, the lowest belf and the best financials, including cash, every time.

Yes, low cost is the best starting point, but as fuel becomes the overwhelmingly largest part of cost, total costs for all will rise and the CASM advantage WS holds vis a vis others it compares itself will shrink significantly. There is almost no way WS can become more fuel efficient, whereas AC - to pull a name out of thin air - has a lot of fleet renewal left to go and hence a lot of ability to capture savings.

The latest news is that AC may drop the A330-300s early, add a few more 767-300s, and then accelerate the replacement of its entire 767 fleet post 2012 when its 787s become available. And I'd be surprised if BBD doesn't come up with a further CSeries stretch to 150 seats that would entice AC into an Airbus narrowbody replacement program.

As things stand, AC might be down to two international widebody families and two North American narrowbody families within a year, all with standardized interiors. When you consider all the fleet types going - 343, 345, 767-200 and maybe the 330 - I think a carrier than can shift a significant portion of its CASM to a simplified fleet, downsized if necessary, using the vehicle of fuel surcharges to the hilt can stay in the game even in the era of $200 oil that may lie ahead.

[Guest rattler]

Cascade has being doing WJ work for years.  Move on. Nothing to see here.

Didn't say it was new, it was the remark that Westjet could keep cost down because they were non union that I found interesting.

"It's business as usual," said Richard Bartrem, WestJet's vice-president, culture and communications.

Bartrem cited WestJet's low-cost business model -- including technology and a non-union workforce -- as helping to keep costs lean.

Their Maintenance supplier does afterall have a union.

CAW Local 114 members ratified a new three-year collective agreement with Cascade Aerospace in Abbotsford, British Columbia. The new contract includes wage and benefit gains for members, union recognition provisions, as well as improved safety language. Members at Cascade were able to negotiate a cost of living allowance (COLA) clause with the employer, the first of its kind for the unit.

CAW Local 114 members gathered outside the Cascade facility just prior to the strike deadline on April 20. Members ratified the agreement by 75 per cent.

“Our negotiating committee did a tremendous job to ensure that members at Cascade received an increase in respect, recognition and rates from the company,” said CAW National Representative Gavin McGarrigle.

The 470 member unit located near the Abbotsford International airport includes aircraft maintenance engineers, interior technicians, painters and sheet metal mechanics.

[Guest rattler]

Seems that Foreign travel into Canada is up but Canadian travel to the US is down.

Foreign tourists flock to Canada in near-record numbers

Drew Hasselback, Financial Post 

Published: Wednesday, June 18, 2008

The seven-month slide in same-day visits to Canada by Americans has finally screeched to a halt.

According to Statistics Canada, Americans made an estimated 743,000 same-day car trips to Canada in April, an amount that is roughly equal to the level set in March.

The monthly tally for single-day car trips by Americans visiting Canada had been dropping sharply since last August, 2007, falling some 21.5% since that month.

The slowdown in travel appears to be limited to same-day trips. Overnight visits by Americans to Canada actually rose 2.3% in April to 637,000 trips. Overnight visits have fallen since last August, but only by 3.7%.

Foreigners, meanwhile, have clearly taken a shine to Canada. Trips to Canada from nations other than the United States climbed by 4.6% in April to 407,000 - the second highest level ever, StatsCan reported.

As for Canadians travelling aboard, the buying power of the loonie is not sparking a massive southward migration. Same-day car travel to the United States slipped by 0.8% in April to 2.1 million trips, while Canadians made 954,000 overnight trips to the United States, down 2.6% from March.

Just under 670,000 Canadians took trips overseas in April, down slightly from the record high set in March.

http://www.financialpost.com/story.html?id=596982

[Thebean]

Yes, low cost is the best starting point, but as fuel becomes the overwhelmingly largest part of cost, total costs for all will rise and the CASM advantage WS holds vis a vis others it compares itself will shrink significantly. There is almost no way WS can become more fuel efficient, whereas AC - to pull a name out of thin air - has a lot of fleet renewal left to go and hence a lot of ability to capture savings.

The latest news is that AC may drop the A330-300s early, add a few more 767-300s, and then accelerate the replacement of its entire 767 fleet post 2012 when its 787s become available. And I'd be surprised if BBD doesn't come up with a further CSeries stretch to 150 seats that would entice AC into an Airbus narrowbody replacement program.

As things stand, AC might be down to two international widebody families and two North American narrowbody families within a year, all with standardized interiors. When you consider all the fleet types going - 343, 345, 767-200 and maybe the 330 - I think a carrier than can shift a significant portion of its CASM to a simplified fleet, downsized if necessary, using the vehicle of fuel surcharges to the hilt can stay in the game even in the era of $200 oil that may lie ahead.

It will be interesting to see what Boeing comes up with vis a vis the 120-170 seat market as WJ starts to think about fleet renewal in the next 10 years.

The C series is intriguing, but I'd wait to see what Boeing comes up with. I am not impressed with the economic life or the durability of BBD products.

The tide pretty much rises up and down equally for most airlines vis a vis fuel costs.

WJA's non fuel cost differential was fundamentally set 12 years ago at launch. It hasn't changed much since then. The delta between cdn low cost carriers and legacy carriers remains pretty much the same.

I am not a great fan of the 90 seaters as they don't have anywhere near the casm of 120-140 seaters. I still believe a great many of JBLU's current problems fundamentally stem from this decision. I mean, if WJ can find market after market for the 116-160 seat NG's in tiny Canada, surely jetBlue, could have done the same out of NYC.......

I don't see any advantage throwing them on low yield leisure routes. Let's face it. The legacy's in the US have figured this out and are taking a hatchet to capacity on these sorts of low yield markets like LAS, MCO and all things Hawaii.

Sure, trip costs are 20% lower, but due to fewer seats, trip revenue is proportionately lower too. Look at US Airways. 99 seats on a 190 vs 126 on a 319. That's a 21% reduction in seats, and therefore a 21% reduction in trip revenue. There's no real gain here.

I firmly believe that the airlines that act decisively today will be around to play when better times arrive. Those that play wishy washy games are going to be in big trouble.