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Clive is becoming a liability


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I continue to be amazed by the incompetence shown by Clive Beddoe during this "espionage" episode. And I can't believe that WJA's institutional shareholders (Fidelity and Teachers) can be very happy with him either.

This situation could have probably gone away very quietly with an apology and a token payment. Instead, Clive has wiped out over $1.5 billion of WJA's equity. Nobody ever talks about this.

And from talking to a few WJA employees at the airport (and one of my neighbours), it seems that some are starting to question his handling of this situation. If the BOD at WJA was either strong and/or independent enough, they would force Beddoe to take a different approach to resolving this before it starts to seriously imperil the lives of his employees and continues to shed shareholder equity.

To continually take public shots at AC may satisfy his narcissistic or egotisitic needs; however, it does not do much for my neighbour's well being and profit-sharing. How far behind will the unions be if this does not get resolved shortly.

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I continue to be amazed by the incompetence shown by Clive Beddoe during this "espionage" episode. And I can't believe that WJA's institutional shareholders (Fidelity and Teachers) can be very happy with him either.

This situation could have probably gone away very quietly with an apology and a token payment. Instead, Clive has wiped out over $1.5 billion of WJA's equity. Nobody ever talks about this.

And from talking to a few WJA employees at the airport (and one of my neighbours), it seems that some are starting to question his handling of this situation. If the BOD at WJA was either strong and/or independent enough, they would force Beddoe to take a different approach to resolving this before it starts to seriously imperil the lives of his employees and continues to shed shareholder equity.

To continually take public shots at AC may satisfy his narcissistic or egotisitic needs; however, it does not do much for my neighbour's well being and profit-sharing. How far behind will the unions be if this does not get resolved shortly.

I'm a not a big believer that this lawsuit has done as much damage to WJ's share price as high fuel prices, overly aggressive expansion and bad yield management. I suspect WJA is heading for two losing quarters, or a break-even and a losing quarter. Where Clive may be a liability - and I don't know enough about the internal workings of the airline - is that he has presided over a bad yield management strategy. In both the second and third quarter results releases, the company pointed to failed yield raising strategies. Now, it turns out that after Lamberton left, Clive was the defacto VP of marketing and sales. So he personally had a stamp on this failure - and it also indicates how involved he would have been with Mark Hill's strategic info. Now, WJ has a new EVP sales and marketing, brought in from the outside because everyone inside the company has a hand in the failed yield management strategies. You have to give the new guy the winter to get his teeth into the job, but he better pan out of this one will definitely be hung on Clive. Indeed, if WJ is running out of quality markets and routes in which to put all the new growth aircraft that are coming next year - that's over and above those used to replace -200s - Clive will likely answer for that with his job. If I were WJ, I'd watch this new EVP; he may have been brought in to be groomed as Clive's successor, because there really isn't any one else in the company who is cut out for the job. Clive hasn't exactly worked on a succession plan - until now. And I wonder, given the failures of the recent past, whether this isn't being forced upon him.

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I have been wondering that as well.

All that emanates from WJ H.Q. these days is the fact that AC has done this to themselves and is a direct result from mismanagent, and selling seats below cost.

It is tired already, if that is the best he can offer . . . . .

Apparantly he sold a whole schwack of shares back in the spring as well.

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That is a possible scenario. I'm guessing with the recent 'restructuring' of the upper levels that we just had they are starting to look for new faces and ideas in management. Possibly with an eye toward getting back to the model that got them this far. Just a guess on my part though.

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That is a possible scenario. I'm guessing with the recent 'restructuring' of the upper levels that we just had they are starting to look for new faces and ideas in management. Possibly with an eye toward getting back to the model that got them this far. Just a guess on my part though.

I thought that is why Steve Smith was brought in ??

Now before everybody jumps down my throat for stirring up the pot, I know for a FACT that not everybody at WJ had it out for Steve.

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That is a possible scenario. I'm guessing with the recent 'restructuring' of the upper levels that we just had they are starting to look for new faces and ideas in management. Possibly with an eye toward getting back to the model that got them this far. Just a guess on my part though.

Guys like Clive and Mark Hill earned their due. They built the original model (as adapted from Southwest and Morris), implemented it well, developed a good employee relations style, a good customer focus, and a very simple approach to the marketplace. Inevitably, however, as WJ grew, life became more complicated. WJ moved into markets further from Calgary, moved from a successful Hamilton base into Lou Tourpen's expensive little playpen, kept growing and growing and growing perhaps faster than it should. By definition, the low hanging fruit has been picked, and things are happening that weren't part of the plan. Nobody expected Canjet and Jetsgo to have lasted this long. (And if fuel gets a little cheaper, they can last almost forever). Westjet identified a need to become something other than the lowest cost, lowest fare carrier. That's a huge deviation. They've let Jetsgo and Canjet undercut them on price, forcing WJ to restrain the growth of its yields. Yet trying to be some kind of premium discounter is a dubious strategy if you can't capitalize on it. And then AC not only didn't disappear, it comes back with a lower cost structure and with discounts for premium travellers with its bulk buying concepts that eat into Westjet's ability to attract higher yielding customers. After all, why pay for a middle seat in economy on WJ if you can get a J-class upgrade and bonus Aeroplan mileage for the same fare?

That was the meat-in-the-baloney-sandwich concept I floated back in May, and every passing week is proving me right. WJ is caught twixt and between. This doesn't mean it becomes unprofitable, just that the profit growth - or even the rates of profitability - employees had grown used to is unlikely to continue in the short to medium turn.

So conceptually, I have my argument with Clive. He has deviated a great deal from the plan, and the question is whether his moves are going to pan out. If they do, the hero worship will continue, but if, as I suspect, next year is even more difficult for the airline, then it will be time to give him a grand farewell party, express great thanks for what he has done, and give the presidency to someone less married to strategies that have worked once in their pure form, but in adulterated form may be counterproductive to WJ's long-term success.

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Guest rattler

Have to agree. Westjet started out as lowcost etc. and their market was to be those folks who could not afford to travel by air. Seems that this market is now saturated, so the only growth Westjet can have in the future is by taking existing passengers away from other airlines. Their current load factor vs ACs does not indicate that this is working. Throwing more capacity into the mix is def. not the answer. For my part, I hope they continue to operate as the market needs a balance.

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. And then AC not only didn't disappear, it comes back with a lower cost structure and with discounts for premium travellers with its bulk buying concepts that eat into Westjet's ability to attract higher yielding customers. After all, why pay for a middle seat in economy on WJ if you can get a J-class upgrade and bonus Aeroplan mileage for the same fare?

.

You are correct, their cost is lower, but still not as low as WJ. They can only match fares for so long, then they start losing money, again. This time much faster. With fuel at current prices it will not be too long before they burn through their current cash.

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You are correct, their cost is lower, but still not as low as WJ. They can only match fares for so long, then they start losing money, again. This time much faster. With fuel at current prices it will not be too long before they burn through their current cash.

I think an important factor here is the fact that AC does not HAVE to have as low a cost as WJ in the domestic market.

AC generates revenue from many sources, many more than WJ, which in turn completes the whole picture does it not ??

AC needed to slash costs in its ENTIRE operation not just domestically to ensure survival.

So I think it is a bit of a misnomer that AC's costs need to be as low as WJ's.

I suspect that if WJ wants to play that waiting game, AC will not shy away. Why would they ??

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Guest curtiss jenny

Ok hold the phone

I gotta step up to the plate. The amount of retoric and biased spin that I have seen

in the post titles over the last couple of months has forced me to pay the fifteen bucks for a 6 month membership. I hesitated, believing that the majority of the posters are AC and therefore discussion would be somewhat limited to your own self interest. Which is probally still true but I must defend anyway as its what any

good patriot should do. Oh ya my livelyhood is at stake as well...still. Again after 16 years in civil aviation.

Rattler"For my part, I hope they continue to operate as the market needs a balance."

Me too, Isnt this a little smug? Do you fear that AC will only survive where it is the big guy, bulling around 3 or 4 smaller airlines?

No worry about the Bottom falling out of her now that the Feds are backstopping

your CRJ orders with a 1.5 bilion fund.

No, fear not , in spite of the ramblings here, the Gov. is fully prepared to

prop up AC as long as the base is in YUL and the AACPA is maintained. Which shouldnt be a big deal since you were handed the airline on a silver platter and you got to keep the name Air Canada. Pretty big plus Id say!

Dagger, First of all I don't really understand why you and many others have a such a dislike for Clive Beddoe. You insult my boss you insult me! He's a great leader and very much a people person, however he calls a spade a spade and I suppose he says things that people dont want to hear, but the truth hurts sometimes to all of us.

Certainly if it wasnt for Clive the airline wouldnt be what it is today or where its going tomorrow. So as far as a "grand farewell" goes, I think that would be wishfull thinking on your part. But if he does give up he will have tired of the battle and will go the way of Max Ward. Then some form of the cycle starts again.

Dagger I whole heartly disagree that share price drop has little to do with the lawsuit. Look at the price trend of other airlines since the oil spike. The employee and shareholderes have paided dearly for this so, it has almost accomplished exactly what you wanted, however employee moral remains mostly upbeat in spite of your wishes and thats what will carry this airline though...plus a few sharp pencils and a top notch operation. Otherwise I,m outta here and you can continue to pay your high taxes and charge the few who can still afford to pay, unreasonable prices to fly. That is until the country is collaspes due to the hollowing out of our economy from foreign investment and buy outs that suck the profit and life out of what we know is Canada...But thats more of a Don Hudson topic.

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Guest rattler
Rattler"For my part, I hope they continue to operate as the market needs a balance."

Me too, Isnt this a little smug? Do you fear that AC will only survive where it is the big guy, bulling around 3 or 4 smaller airlines?

No worry about the Bottom falling out of her now that the Feds are backstopping

your CRJ orders with a 1.5 bilion fund.

No, fear not , in spite of the ramblings here, the Gov. is fully prepared to

prop up AC as long as the base is in YUL and the AACPA is maintained. Which shouldnt be a big deal since you were handed the airline on a silver platter and you got to keep the name Air Canada. Pretty big plus Id say!

Before you fire off replies, you may want to check out the background of those who you criticize. I am retired and never was an employee of AC. Came from CPAir etc. So I am puzzled why you would think my remarks are being smug. Regarding your 16 years, by the by, I had over 35 years experience in Aviation before I retired. But you know something, that does not count for squat!

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You are correct, their cost is lower, but still not as low as WJ. They can only match fares for so long, then they start losing money, again. This time much faster. With fuel at current prices it will not be too long before they burn through their current cash.
AC's cost on domestic are very close to WJ

and

Maybe the Inernatinal traffic is all gravy now, but what if WJ does hook up with a Cathay Pacifci? Will that not take away from AC and their other way's to make money? Maybe if too may sources dry up for AC they could be right back into it.
Most Canadians will support the CANADIAN carrier over Cathay (or other foreign carrier).

Mr. Beaverboy - you wish! Better lower that WJ flag just a little - its starting to get in your face and block your view.

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WJ still has alot of avenues to grow. AC has had 65 plus years to develop them and still managed CCAA. WJ is only 8 yrs old and lots of cash. Revenues will continue to grow. This has always been AC's plan to stop the growth at WJ. let's see if it works. I agree that WJ should hunt down the JGo ers and CJers first though.

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Maybe the Inernatinal traffic is all gravy now, but what if WJ does hook up with a Cathay Pacifci?  Will that not take away from AC and their other way's to make money? Maybe if too may sources dry up for AC they could be right back into it.

Listen, AC's revenue premium is built on many factors. Some, like business class, international flying, higher yielding economy fares in North America, are part of the passenger yield premium. That's one reason why comparing WJ's costs to AC's costs is a bit like comparing Apples to Oranges, although Clive does it all the time. AC spends money in some areas to make money. It costs money to offer a Business Class, lounges, etc. But it generates even more revenue. AC also has businesses like Aeroplan and Cargo that aren't part of the passenger yield, but are part of the overall operating profitability picture. To do a fair cost and revenue comparison, you would have to strip away that portion of AC's costs that goes into generating cargo revenues, Aeroplan revenues, business class revenues, third party maintenance revenues, etc. Clive never does this, but I think that the analysts are beginning to understand that pure cost comparisons between AC and WJ don't tell the whole story by a long shot.

As for your suggestion, competitors are constantly making changes in their product to try to eat into AC's market, just as AC is trying to do the same. US carriers made a nice business out of Canada-Latin America as the built up big Latin American networks over DWF, MIA, IAH and ATL. Now, AC is clawing back some of that and then some by offering nonstops to Lima, Buenos Aires, Santiago and Sao Paulo at a time when a lot of Canadians and Latin Americans will pay extra to avoid US connections. You can find many of these examples of yin and yang affecting AC at any given time. One alliance change here or there is in and of itself, very small potatoes.

While a WJ/CX tieup might bleed some revenues on the HKG route, assuming CX even has that many empty seats to sell, AC is currently bleeding revs off CX by offering a nonstop service from YYZ to HKG. And if AC were to launch new Vancouver-Asia services (Taipei, Manila, Bangkok, Singapore, etc) then it will take traffic away from CX in particular since HKG is a hub for Southeast Asia.

Moreover, each and every part of AC is being prodded to grow revenues. Cargo has launched a freighter service, Aeroplan is morphing into a broader loyalty management program (with new partners like ESSO and Bell and many more to come) and Technical Services is hunting down profitable third party maintenance contracts.

You also have to remember that AC is about to start acquiring almost 100 jets in the 75-95 seat class. Some of these planes will be used to start or upgrade transborder routes, and others will be used domestically to offer unique services WJ cannot contemplate with a 125-130 seat aircraft. These unique services - be it more frequent service on a route, or an entirely new route - will endeavor to peel off traffic from WJ by offering travellers and in particular the high yield traveller something beyond price and inseat entertainment. And that's only the obvious enhancements. AC is working on a lot more that will impact all of its competitors, domestically and internationally, but they don't tell me details - they want to spring them on you at the right time.

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Guest curtiss jenny

Rattler

Sorry that my comments were fired in your direction you were just standing up at the wrong time so it wasnt a personal attack on you so much as a general comment as to the anti westjet trends that Ive seen posted on this board since becoming an "elite" site.

My 16 years in aviation pales Im sure to the many experieced people here. However Ive had to start over from the bottom 3 times since 1998 and frankly sir Im gettin a little tired of the big guy stepping on the little guy routine.

Cheers

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Curtis Jenny, you old boxkite you... Those dirtballs you're throwing at this site are unwarranted... There's at least an equal number of WJ salesmen here as there are from AC... but in truth, most, from either airline are smarter than that. You're hearing a few posts only from a few of the loudest loyalist protectors...

Please don't judge the whole joint from what you first see hanging from a few tacks.

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No worry about the Bottom falling out of her now that the Feds are backstopping

your CRJ orders with a 1.5 bilion fund. No, fear not , in spite of the ramblings here, the Gov. is fully prepared to prop up AC as long as the base is in YUL and the AACPA is maintained. Which shouldnt be a big deal since you were handed the airline on a silver platter and you got to keep the name Air Canada. Pretty big plus Id say!

Actually, this reference only shows your ignorance. Every airline in the world avails itself of export financing from the country manufacturing aircraft. Where this is a problem is that export financing from Country A isn't available to Country A's own airlines. So all countries exporting aircraft also look for back doors to assure that their own airlines can afford to buy jets made in that country. In this case, Canada has done what the US does for US buyers of Boeing products. In the US case, certain tax structures, like socalled equipment certificates, have been widely used by US carriers to buy Boeing products. You might be surprised, but Westjet's Boeing order includes US government export backing, so I guess, by your criteria, Westjet's fleet is also tax-payer subsidized.

Furthermore, the feds backstopping this deal may help Bombardier, and it may help lower the price of the deal to AC (which it is supposed to do), but the credit guarantee only kicks in if AC defaults, so it doesn't help AC or prevent it from defaulting, it only protects Bombardier's lenders in the event of a default.

As for Clive, it goes like this. Clive earned all of his success up to a point, and he earned the adulation of employees, but his arrogance and his underhanded tactics - like publicly slagging Jetsgo's safety and cleanliness at an aviation forum in Florida this past winter was beyond unacceptable. He is fast with negative comments about his competitors, when he, in fact, benefitted from the ability to start a new airline with a clean balance sheet and no unions. It can be rather easy to point fingers, but a lot hard to behave at all times like a gentleman - in other words, to act with class. Class and Clive are too things which don't go together in my book. If I have insulted you, well, tough.

You assume that the share price fall is connected to the lawsuit. I do not. WJ was a company with an awesome speculatively high EPS multiple. Keeping the share price at its peak level of the past 12 months would have required continuing increases in profit. Pretty well all North American carriers - even JetBlue - as a result of high oil prices. I hear tell from posters on this board that WJ blew a chance to hedge crude in the mid-$20 range. If so, that was a catastrophic blunder, one of a series of blunders influencing the share price, the others being unwise expansion, a likely loss of profitability operating out of Toronto and yield management errors addressed in other posts. At most, the lawsuit has been a colossal distraction and a waste of good management time. But it is not the reason somebody chooses to fly Jetsgo instead of Westjet.

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Boy, you sure do get defensive when anyone talks about an airline, other than AC, looking into changing the way they do things. You bring up many points. From a WJ/Cathay being nothing more than chicken feed (remember, that is how WJ started) to AC buying smaller aircraft. What do you think the -600 is for. Do you also think that WJ is just sitting around the office doing nothing? I would think, and know, that there are many, many new ideas being worked on while we speak. Any way get to go to soccer now. No more playing for a little while.

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curtiss jenny:

I'm afraid your loyalty may be clouding your judgement. There's nothing wrong with being loyal to the company, but you accuse others of not being willing to hear what Clive has to say when he calls a spade a spade. Then you turn a blind eye to some very reasonable arguments as to why the WJ star isn't shining so brightly of late.

WJ started as a low cost no frills airline, but with the food offerings and live tv, they have moved away from that model. WJ operated out of YHM to maintain their low cost structure, and was successful. It's no small coincidence that their fortunes have turned with the move to YYZ and the growth in the YYZ - YOW - YUL triangle. Yes, I understand it was somewhat of a gamble, with an eye to being ready to pounce should AC have failed, but that was just a little bit arrogant, IMHO.

WJ wasn't supposed to be a charter carrier, yet this winter, charter will make up a significant part of your revenue, at a time when there's too much capacity in that market, and the average charter ticket is selling for $35 dollars less than last winter. This is coupled with fuel costs that are significantly higher than last winter. Also, the main source of your charter pax is in for some interesting times in the near future, thanks to some hungry lawyers.

There are many tough days ahead for our industry, and the smart companies are managing their growth very carefully. WJ is still doing a lot of gambling into some tough markets where the competition is well entrenched, and much better equipped to compete than 2 yrs ago.

I am not saying that WJ is destined to fail, I'm just saying that anyone who views their situation with rose coloured glasses can end up with a big surprise when the poop hits the rotary oscillator. If you've had to restart your career more than once as you say, your view of the situation should be a little more pragmatic, IMHO.

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Guest curtiss jenny

Dagger, Ok so Im ignorant and ill informed, but Im still suspicious of the CrJ deal hightent by the comments from one of your PR people stating that "AC had nothing to to with the deal". Only time will tell on this one.

And I Agree to disagree on the Lawsuit/shareprice issue

I will stand behind my boss because he signs my paycheck so to speak and I am treated extremely well at work , so until that changes I'll Ra Ra all day just like woulda been up dancing with Celine if I was an AC employee.

Mitch, Good advice, I should change the oil before I fire her up.

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Boy, you sure do get defensive when anyone talks about an airline, other than AC, looking into changing the way they do things. You bring up many points. From a WJ/Cathay being nothing more than chicken feed (remember, that is how WJ started) to AC buying smaller aircraft. What do you think the -600 is for. Do you also think that WJ is just sitting around the office doing nothing? I would think, and know, that there are many, many new ideas being worked on while we speak. Any way get to go to soccer now. No more playing for a little while.

Ok the rhetoric aside ...... Leaving CJ rant alone.

What sort of costs are involved in interlining baggage ??

Is there not also some sort of regulatory process and licensing so to speak to go through with IATA ??? If there is I cannot imagine that is free either.

A WJ/CX tieup while nice to think about, is it realistic ?? How many people (sans Guests) would WJ expect to move on behalf of CX ?? I would guess the a great many of CX passengers would be either CYVR or CYYZ as final destinations.

CX has what 2 or 3 flights a day to Canada ???

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Boy, you sure do get defensive when anyone talks about an airline, other than AC, looking into changing the way they do things. You bring up many points. From a WJ/Cathay being nothing more than chicken feed (remember, that is how WJ started) to AC buying smaller aircraft. What do you think the -600 is for.

The -600 is a 120-seat aircraft being brought in to replace another 120 seat aircraft. The per trip economics (not the per-seat economics) of a 75-seat Embraer are a lot lower than the per-trip economics of a -600. If a 50-passenger load is all that is available between Point A and Point B on Monday morning, that's a 66% load factor on a 75-seater, a 42% load factor on the 120 seater and a 36% load factor on a 136-seater. The operating empty weight of an EMB-175 is only 58% of the operating empty weight of a 737-600, so with an equal 50 passenger load, who do you think makes more money? The EMB has a smaller fuel bill and ownership cost. It may have a lower labor cost, too, even with AC vs WJ wages. If you substitute a JAZZ CRJ705 for the EMB-175, you certain get all of the same efficiencies plus the Jazz pay scale. So who do you think is more likely to make a go of a route with 50 passengers? WJ certainly loses on that route. AC probably makes money on that route.

Do you also think that WJ is just sitting around the office doing nothing? I would think, and know, that there are many, many new ideas being worked on while we speak.

It is time somebody wrote some new jokes for the flight attendants.

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