WestJet CEO plots bigger (or smaller?) fleet

[props2you]

AC does not own Jazz/Chorus - it's a commercial agreement. Why do you think you should have the same travel benefits as the AC employees?

Uh, lets see: "we're going to entrust you with our brand reputation (such as it is), with planes in near-identical livery and cabin crew in virtually identical uniforms, but don't mind if we treat you like second class citizens". Wait, strike that, four C4's/yr is more like third class.

And as much as I enjoyed WS's discomfiture in the OGG thread, the fact that their team voted 91% in favour of furthering the company by creating a regional while ACPA is still bleating in the media about "flying reserved for them" speaks volumes.

[mrlupin]

That is what most WestJetters do. Most like being in charge of the own future future.

Morning Chock,

Which part do they do? Invest all they have in Westjet for retirement or flip the stock after it vests and diversify in more stable investments?

Look at the five year performance of Westjet stock. It might be a stable companie but it isn't much of a growth stock at the moment. It pays out a dividend but it appears to be merely symbolic.

[sjsa]

I think most of us flip the stock and use it for more stable investments. As much as I bleed teal, it is still an airline stock, subject to influence far beyond the airline's control. On the positive side, no one (the company) can dip their hands in like at Air Canada.

[13820]

I think most of us flip the stock and use it for more stable investments. As much as I bleed teal, it is still an airline stock, subject to influence far beyond the airline's control.

I love this quote.

The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers.

Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.

— Warren Buffett, annual letter to Berkshire Hathaway shareholders, February 2008.

[CanadaEH]

Look at the five year performance of Westjet stock. It might be a stable companie but it isn't much of a growth stock at the moment. It pays out a dividend but it appears to be merely symbolic.

I've resigned myself to the fact that it doesn't grow much. What benefits me is having the Company match 100% of my contribution which effectively means I'm buying shares at half price.

[Maverick]

I've resigned myself to the fact that it doesn't grow much. What benefits me is having the Company match 100% of my contribution which effectively means I'm buying shares at half price.

Yup, no employee has ever lost a penny in WJ's ESOP plan. They may not have the 100% gain that a flat stock gives but loss? Not even close.

[IFG]

Yup, no employee has ever lost a penny in WJ's ESOP plan. They may not have the 100% gain that a flat stock gives but loss? Not even close.

Hi, Mav' - Nobody suggested that folks ever "lost" in your ESOP. The point under discussion was the question of whether "contributing 10% of salary to WS stock which the company then matches ends up netting out a better return over the years than contributing to a DB pension?". I won't advocate one way or the other, but that sort of stuff simply confuses the choice.

Even if you could control for all the variables involved, since a DB plan has a decent, fair retirement for ALL members ( and usually their spouses as well), in good times and bad, as one of its objectives, (thereby ensuring "winners" and "losers" within DB plans, if one must measure individually), it will be bound to "lose" to DC-ers who are LUCKY enough to retire at a fortuitous time, and generally "win" against those who are not (generally, because times may be bad enough that almost everybody "loses").

WRT the specific comparative asset, the crux of the issue is where you are on retirement day and thereafter, when the acquisition phase (the easy straightforward part) is complete. With the mostly up-down-sideways performance and modest yields of WJA in the last few years, there would be a fair amount of hope involved (justified, one further hopes) in relying on that to provide retirement income for the next 20-30 years, which is what you'd be contemplating if you retire with a big sack of it, unless you're starting with a big enough chunk to just keep on whittling it down.

BTW, it's particularly pernicious when these retirement-planning options get framed in phony-macho terms of "control" and "discipline" and "responsibility" etc., the implication always that the other view is for spineless wimps. What sounds so strong and self-reliant is all-too-often not founded on a solid consideration of the economics, and other ramifications of retirement.

Of course, DB plans do have huge problems right now, which may be insurmountable without some adjustments. But that's a whole other discussion. In this little corner, those problems are well-known (if little understood. )

Cheers, IFG

[thor]

IFG.

The WestJet ESP plan is very generous. After 11 years of contributing to the non-RRSP plan my dollar cost is just below the current stock price. Through the plan the stock has been purchased consistently at an average price for the month ( although I don't know how CIBC Mellon obtains their purchase price, smokey mirrors to me and I'm not always sure I agree with it). I now have a substantial amount ( more than the value of my house) of money tax paid in my CIBC account barring the capital gains that I will have to pay when I decide to cash out. The longer the stock price is low the lower my dollar cost is. As we all know, airline stock is very volatile and the stock that I purchased in the $18-22 range has been averaged out with a stock price in the $10-12 range. With the effects of 911, and lately with the price of oil I welcome the low stock price. When I retire I will still get CPP and OAS. WestJet has a proven track record of making a profit with the exception of the 2quarters during the Jetsgo mess.

I wouldn't want the uncertainties of the Air Canada DB plan.

[DEFCON]

Not to say AC's pension model is the way to go, but your plan is full of uncertainties as well?

For instance; there could very well be a substantial increase in the capital gains tax rate before you retire?

“As we all know, airline stock is very volatile and the stock that I purchased in the $18-22 range has been averaged out with a stock price in the $10-12 range.”

Doesn’t this boil down to mean plan growth is stalled?

“When I retire I will still get CPP and OAS”

Another assumption that’s fraught with uncertainty?

“WestJet has a proven track record of making a profit with the exception of the 2quarters during the Jetsgo mess”

Who knows, but it’s almost certain there’ll be other ‘messes’ before you retire; i.e., more uncertainty?

• 
  

[Spinnaker]

I only hold the year or so worth of stock at a time, which is about 50K. I was a little heavy waiting for one of the predictable spikes and just cashed out last week. I find that I've grown my 'egg' enough outside of airline stock that I don't really have to worry about losing 50K if the place shuts its doors tomorrow. I've previously held two other pensions from two other carriers and I am much happier with this system. Its a 12 month relationship and after that it is my money to lose.

On another observation, a neighbour who is a Cathay pilot moved 'on shore' a few years ago and as they looked around they 'briefly' started to push for a pension similar to AC. After researching current laws it did not take Cathay Pilots long before they quickly retreated and said they were 'just fine' with the Cathay Provident fund which is 15% cash and do what you like.

Ironically pensions, meant to be stable guaranteed investment vehicles, have now proven to be the constant source of stress to employees in North America. Personally, I'll take the money and do as I please. It keeps me engaged and aligned with how my company operates while forcing me to pay attention to my retirement. At WestJet our deal is done every 12 months and everyone is happy.

Maybe John S can elaborate but I think Air BC had a nice little pension set up where the company paid them every month for the pensions and the Pilots had the cash invested for them. I always thought that was one of the better systems if I were to have a traditional pension. No underfunding.

[Kip Powick]

G'Day Spinny....

On another observation, a neighbour who is a Cathay pilot moved 'on shore' a few years ago and as they looked around they 'briefly' started to push for a pension similar to AC. After researching current laws it did not take Cathay Pilots long before they quickly retreated and said they were 'just fine' with the Cathay Provident fund which is 15% cash and do what you like

I don't know who your "guy" is but one of my very good friends lives in BC, is an A340 Captain with Cathay and he was responsible for setting up a pension plan for all, the Canucks, (ones that wanted to join) that are working for Cathay, living in Canada, and he has devised a plan that is better than anything AC has and probably WJ. His guys are doing exceedingly well and all should retire with substantial pensions from his plan.

[IFG]

The WestJet ESP plan is very generous. After 11 years of contributing to the non-RRSP plan my dollar cost is just below the current stock price .... I wouldn't want the uncertainties of the Air Canada DB plan.

.... I've previously held two other pensions from two other carriers and I am much happier with this system. Its a 12 month relationship and after that it is my money to lose ....

Hi Thor & Spinny - You don't need to convince me that you folks at WJ have a good thing going. There are few things more comforting in stressful economic times than a large and growing nest-egg. I'm just trying to point out that the saving/acquisition phase that you're in right now is not a complete plan for retirement, and there seem to be some aspects that many here just don't appreciate.

The main reason that WJ folks can feel so secure is the sheer generosity of the WJ ESOP. I suspect that AC's pension woes would be eliminated quickly if the company was prepared to put up to 20% of wages into it annually. Anybody at WJ that even participates at 1/2 the max would exceed the 18% maximum CRA pension deductions. I know of no DC/RSP which is funded to anywhere near that half level.

I envy your good fortune, but that good fortune has little to do with anybody's "own control", much more to do with the $$$$$ that WJ pumps into it. I cringe when you seem to make a direct structural comparison between your ESOP and a DB plan without correcting for the funding levels.

And once again, re: "my money to lose", the DB pension plans are not in trouble because they are losing money. They are in trouble because they must meet an accounting requirement that prices their obligations. If people "managing their own destiny" actually accomplished the same accounting, they'd find exactly the same trouble. In a world of almost zero returns, the arithmetic of retirement is very simple: The lower the projected returns, the more money you need under the mattress when you retire. It's as true for WJ's ESOP-ers as it is for AC's pension funds.

Cheers, IFG

[UpperDeck]

It's interesting reading the comments of people such as IFG who are obviously informed. Try as I might, I've never been able to actually focus the required energy on investing "wisely". I may even fall within the ranks of those whose retirement planning consists of lottery ticket purchases.

I have maxed out my RSP contributions each and every year of my "working" life starting when the maximum allowed for self-employed "stiffs" was something like $3500. shortly after increased to $7500. (I don't swear to amounts). Despite the best efforts (Hah!) of RBC and the like, that capital never seemed to grow much beyond the accumulated value of my contributions.

It is said that one should look for 70% of pre-retirement earnings as an amount that will permit of a similar lifestyle. Assuming for discussion that you retired at age 60 at an annual income of $170,000. you therefore want a retirement income of $120,000. If you began contributions at age 30, how much must you contribute to your "plan" to have that income level available to age 80?

By my calculations, if one assumes 0% inflation against equal returns-----inflation is 3% and you generate a return on investment of 3%----you must accumulate $2,400,000. over the course of that 30 years or $80,000. per year. How can you possibly do that? You can't, plain and simple. And---your home should not be included in that accumulation. Even if you say; "No worries. We'll get by on $60,000. per yr.", you still need $1,200,000. in that RSP and a contribution level of $40,000. per year. If on a DC the employer contributes 10% (very generous), $23,000. comes out of your pocket. And that's to generate an annual retirement income of $60,000.

Forget OAS---the income level reducer eliminates that and CPP generates some $10,000. per yr.

I just can't see how a "wage-earner" can realistically achieve the retirement vision painted in the multiplicity of television ads. And with a vineyard no less!!

No wonder that the only employers that can "afford" DB pensions are governments.

[conehead]

I just can't see how a "wage-earner" can realistically achieve the retirement vision painted in the multiplicity of television ads. And with a vineyard no less!!

Neo did it! Remember him?

[Boney]

Follow the rabbit...lol

[Guest rozar s'macco]

Upper Deck, it is completely possible to save 60,000 a year if you earn 170,000. The problem is, societally the norm is to spend everything. A savings rate of a couple hundred bucks a month is commonplace on a monthly net income of 9,000 if the financial facelift articles in the papers are accurate. To say it is unrealistic, I think not. It would however be exceptionally rare, were somebody earning that wage to live like a person earning a third that amount but who spends everything.

It never ceases to amaze me the real estate, toys, cars, clothing, gadgets, trips, boats and things that people, earning the exact same amount as I do, manage to accumulate. And I own my house! I just can't seem to grasp where the money comes from. I bought $100 jeans last week and I feel like a king, let alone (as in the papers) people with a vacation home, rental condo, private schools...minor point, they always seem to score 2/5 for readiness, and somehow manage to spend only $50 a month on gifts.

Point is, we need a major shift in thinking. Saving 10% of earnings is much too low. 18% at a minimum, more if you have no pension. Mortgage accordingly.

[Miles]

quite the thread derailment, boys and girls...

[rudder]

The aircraft will be factory new fully warrantied Q400 NextGen made in Canada

I would predict first delivery either December 2012 or January 2013 with a rate of about 1 - 1.5 per month to start, possibly increasing later. BBD will find reserved slots for WJ or pick up the speed on the Q400 production line. WJ could end up being the largest Q400 operator in the world and BBD will bend over backwards to facilitate that.

[conehead]

I would predict first delivery either December 2012 or January 2013 with a rate of about 1 - 1.5 per month to start, possibly increasing later. BBD will find reserved slots for WJ or pick up the speed on the Q400 production line. WJ could end up being the largest Q400 operator in the world and BBD will bend over backwards to facilitate that.

Wow! That's a very specific prediction!

[Super 80]

I would predict first delivery either December 2012 or January 2013 with a rate of about 1 - 1.5 per month to start, possibly increasing later. BBD will find reserved slots for WJ or pick up the speed on the Q400 production line. WJ could end up being the largest Q400 operator in the world and BBD will bend over backwards to facilitate that.

I can think of about 11 deliveries among the current Q400 backlog that could probably be shaken loose if the need arose. Bombardier also has about half a dozen off-lease (2001-2002) Q400's they could make available on short-term lease until new deliveries are available. They have done that for Horizon.

[Thebean]

I can think of about 11 deliveries among the current Q400 backlog that could probably be shaken loose if the need arose. Bombardier also has about half a dozen off-lease (2001-2002) Q400's they could make available on short-term lease until new deliveries are available. They have done that for Horizon.

I have personally seen a number of instances where airframers manage to find all kinds of production slots for buyers with strong financial covenants. A 40 aircraft order from one of the only perenially profitable airlines on the planet, be it direct or via leasing companies, will result in all kinds of discussions about delivery timing with respect to other, supposedly firm orders.

I'd look towards to a late first quarter, early 2nd quarter 2013 launch.

[boestar]

Bombardier "maintains" a backlog on purpose. This keeps the line moving although at a slower pace and keeps people employed. The rate of production can be ramped up significantly should the order book grow. the line capacity could actually double if the demand is there for the product.

[props2you]

An article from yesretrday's FP, poiting out the stark contrast between WS employees giving the go ahead for a regional carrier and AC's continuing labour woes:

Westjet Employees Amped for Change

[Super 80]

Bombardier "maintains" a backlog on purpose. This keeps the line moving although at a slower pace and keeps people employed. The rate of production can be ramped up significantly should the order book grow. the line capacity could actually double if the demand is there for the product.

Yes, but ramping it up has tremendous lead time, it isn't just a matter or ordering more plastic resin pellets and adding another shift.

[boestar]

Actually you would be surprised how fast you can see a production increase. The CRJ line in Dorval used to increase ans decrease production all the time. The issue is getting suppliers to ramp up delivery schedules. The Q400 has the advantage as most of the major assemblies are made in house.