Westjet Sees Cost Edge Over Ac Shrinking, Will Emphasize Cost Control In '13

[dagger]

http://business.fina...canada-shrinks/

“How much do we think that cushion has shrunk? It may have shrunk to 10% or 15%,” he said in an interview on the sidelines of WestJet’s investor day in Toronto on Thursday.

Mr. Saretsky acknowledged that the erosion is also the result of WestJet’s own costs creeping up as employees get paid more and its fleet gets older.

“As we’ve matured, our labour costs have gone up by 50%,” he said. “Part of it is maturity as flight attendants and pilots move to the very highest step of the pay scale.”

While WestJet still has a substantial cost advantage over Air Canada, Mr. Saretsky said the airline would be taking a renewed look at controlling its spending in 2013.

“Obviously, cost containment is super important in this business,” he said. “If we could make that 15%, closer to 20% or 25%, that would be great.”

In order to drive down costs, Mr. Saretsky said the airline will try to sweat its assets more and increase the number of hours its planes fly each day.

Edited December 6, 2012 by dagger

[DEFCON]

"In order to drive down costs, Mr. Saretsky said the airline will try to sweat its assets more and increase the number of hours its planes fly each day."

When doing all that stuff produces nothing of measurable value, WJ will be doing that which pretty much everyone else has or will; take the costs out of the employees hide.

[CanadaEH]

Our costs have risen and I'm concerned about it as well. Some of our groups are overpaid (i.e. making more than 100% of the market median) - that's been stated a few times. Unlike you, I trust that our Company will do things the right way and not the AC way.

[FA@AC]

I expect unit costs other than for labour to rise at AC over the near term too. International expansion and the arrival of two 77Ws this summer notwithstanding, AC mainline is about to see a significant downsizing. Within 8 months or so 19 aircraft will have left the fleet, while 2 will have joined. Unless there are corresponding reductions to management size and other overheads, and unless I'm missing something (entirely possible, of course), CASM would seem poised to increase. Separate management and administrative functions for the LCC are likely to increase costs further.

[DEFCON]

"Unlike you, I trust that our Company will do things the right way and not the AC way"

There's no fault in not wanting to follow AC's path, which is actually the product of their 'following' the LCC's lead, but I digress; so what is the 'right way'?

[Seeker]

Unlike you, I trust that our Company will do things the right way and not the AC way.

There it is, one of your famous back-handed comments that starts a huge flaming war - haven't you learnt anything after all these years?

[xxx]

If airplanes are to be flown more , then there will be a boat load of overtime to be had and more hiring.

Along with a new regional start up, good opportunities for pilots.

Remember WJ pilots, it is only money. Try not to burn out.

This is what AC is promising as a raise for the low cost.

Work as much as you can. Yippee!

[CanadaEH]

"Unlike you, I trust that our Company will do things the right way and not the AC way"

There's no fault in not wanting to follow AC's path, which is actually the product of their 'following' the LCC's lead, but I digress; so what is the 'right way'?

The right way would be to engage the workforce for ideas and suggestions and to work with specific groups to find efficiencies to reduce controllable costs.

It's an interesting challenge that we're facing and will continue to face as we mature and get older. We've always paid 100% of the market median (or 95% up until about 5 years ago). As our competition goes out of business (i.e Skyservice) or as comparable jobs have their salaries and benefits reduced, that has a negative impact on our salary review as we become the "overpaid". Is there an easy answer? No, there isn't. Given that we have a compensation package that isn't all about base pay, I think we can find some unique solutions to address the issue in other ways.

[Joe Halldorson]

Just was in YEG and as the WS was heading out the door the captain (lower case) announced to the entourage "Don't answer your phones until we are at the hotel". Paradigms shift.

[Specs]

Had to wince when I read this

"....Mr. Saretsky said he estimates Encore will have a 50% cost advantage over Air Canada’s main regional partner, Chorus Aviation Inc.

But it will also allow WestJet to convert some existing bases, like Quebec City, into regional bases and pay the employees there the lower Encore wages and benefits...."

So if I'm working for Westjet today at a certain wage, tomorrow I'll be getting Encore wage?

Edited December 8, 2012 by Specs

[DEFCON]

I'm willing to bet the class distinction issues quickly become a maturation nightmare for WJ.

I don't know if anyone 'over there' has ever taken the time to notice the industry wide two plus decades old class warfare that's still underway between the big and the small under the same corporate umbrella or the war's consequent cost / loss to those corporations so afflicted?

[Guest rozar s'macco]

this time it's different?

did anyone say game changer yet? that might work.

[Specs]

The quote made me think as an employee how honest the respect is that we so often hear management espouse. Generic phrases like our "our employees make the difference" are meaningless when we so often see that with the snap of finger those same employees can be chucked off to the lower tier. Don't for a second think there aren't Westjet employees at other bases thinking those exact same thoughts and the more often they hear it, the more condescending it becomes..

[deicer]

Nice to see that after having made the company successful, and put in your time, you reach the top level of compensation to hear your boss say you aren't worth it.

Welcome to the Big Leagues.

Next thing you know, unions will be involved and maybe even you'll get to dance with Lisa Raitt.

Heck, losing your rights isn't that bad, is it?

[thor]

I think that Saretsky knows the fine line that he walks regarding the favor of the pilots and upsetting the apple cart could be difficult mess. Probably the top 120 pilots are at the max pay scale and any F/O with more than a 5 year tenure at their top pay.

There are lots of inefficient areas in WestJet that need to be addressed but I don't think talking to some reporter about our laundry is the best way to go.

[moeman]

He said WestJet also wants to revisit the benefits received by the mainline employees.

“We have found ourselves because of where the industry has gone — mostly backwards — that we’re well above market in a lot of those,” he said. “We’re going to revisit that.”

What sort of benefits do you think he plans to roll back to cut costs? Shares, medical, passes???

[Guest rozar s'macco]

Look at every single thing you have that maybe even one single other airline doesn't have, and that is a target. Allegiant doesn't have per diem? Per diem is a target. AC charges employees for passes? Passes are a target. Emirates flies 95-hr block months? That's a target. ESOP plan is 10x richer than any other airline, DESPITE the fact that that is already in lieu of a pension? ESOP is a target.

I'm sure management will approach it in the most positive way possible, but at the end of the day when the message is we need you to work more for less, that is almost impossible. And then they reward themselves for making "tough choices." It will not be fun.

[spreadsheet]

I think we all know you need to take what your read in the newspaper with a grain of salt. I worked on a project this summer looking at all the costs of the organization and each group was tasked with coming up with cost saving initiatives. Since a very large proportion of the increased costs are due to the workforce maturing through the bands many of the initiatives were aimed at employees. I can tell you I was disappointed in the results as Gregg specifically did not want to take on the ideas that would lower employee compensation, he wanted to find other areas for savings as well as focus on employee efficiency. I can tell you there are areas where the sick time is at ridiculous levels, that’s the kind of things Gregg is interested in fixing.

I find the low cost culture from when I started has been slowly replaced by an entitlement culture and it scares me. It’s natural as the young workforce has aged and gone through life events like marriage and kids to want more compensation and benefits, but nothing will kill this company faster than replacing ‘how can we succeed’ with ‘what’s in it for me’. I think the pilot agreement coming up will be very telling of how this company is going to move into the future, and if it continues to go down the path of what’s in it for me, I may have to ask myself the same question as a lot of my coworkers will. If I’m going to work for a ‘what’s in it for me’ company I might as well go work in oil for a lot more money. I literally took a 39% pay cut from big oil to come work for WestJet, and most of my coworkers took significant pay cuts as well because we were excited to be part of this company, I sure hope that doesn’t change.

[Boney]

It's not. I'm not drinking teal coolade, but have my eyes open. We will get through this as we always do. Yes, it will be interesting but we will be talking and listening to each other, not shouting with our ears covered.

Hmmmmmm

[CanadaEH]

I think we all know you need to take what your read in the newspaper with a grain of salt. I worked on a project this summer looking at all the costs of the organization and each group was tasked with coming up with cost saving initiatives. Since a very large proportion of the increased costs are due to the workforce maturing through the bands many of the initiatives were aimed at employees. I can tell you I was disappointed in the results as Gregg specifically did not want to take on the ideas that would lower employee compensation, he wanted to find other areas for savings as well as focus on employee efficiency. I can tell you there are areas where the sick time is at ridiculous levels, that’s the kind of things Gregg is interested in fixing.

I find the low cost culture from when I started has been slowly replaced by an entitlement culture and it scares me. It’s natural as the young workforce has aged and gone through life events like marriage and kids to want more compensation and benefits, but nothing will kill this company faster than replacing ‘how can we succeed’ with ‘what’s in it for me’. I think the pilot agreement coming up will be very telling of how this company is going to move into the future, and if it continues to go down the path of what’s in it for me, I may have to ask myself the same question as a lot of my coworkers will. If I’m going to work for a ‘what’s in it for me’ company I might as well go work in oil for a lot more money. I literally took a 39% pay cut from big oil to come work for WestJet, and most of my coworkers took significant pay cuts as well because we were excited to be part of this company, I sure hope that doesn’t change.

As an example, fare bundling, online/mobile change/cancellations, etc. will reduce CSA/SSC requirement. Any surplus - if there is - can be absorbed through internal transfers (we're adding planes so we require FA's = hire from within). Having SSC agents work from home frees up Campus space so we can use our existing facility instead of expand into something else (rent/buy).

[moeman]

Interesting stuff. It might prove difficult to change the "what's in it for me" factor if the threats of working more/harder for the same money or less, and the lessening of benefits come true. The threat of having your Westjet job become an Encore job at lower pay and benefits must be giving a lot of people fits right now.

[CanadaEH]

There have been countless examples over the years where WestJet has closed bases or eliminated positions. In both cases, the affected employees are given many options, including a) transfer to different department, transfer to different city, c) movement to new job at old pay for 1 year, d) move to new job at new rate, etc.

I'm not going to say people aren't worried because they are. I am going to say that WestJet tends to take care of its people, so whatever happens I am confident that trend continues and the affected employees are given options that make sense for each of them.

[moeman]

Sure, but it sounds to me like these options will be far less popular due to the more mature work group that you now have, especially if some of the benefits are sliced too. As we age, marry and/or settle down, we tend not to view these moves and pay cuts with a shrug of the shoulders like we did when we were twenty.

I'd be more concerned that as time passes and these saving aren't being generated quickly enough from Westjet itself, or the savings aren't ever enough for the Head Shed as newer and more nimble competitors raise their heads, more and more work is transferred over to Encore and so on and so on, all in the name of taking one for the team. Eventually, does there even need to be a Westjet anymore if these jobs can simply be transferred over to Encore?