Turbulent times for WJ ahead?

[flyingvinnie]

Couple of quotes from a very recent news article, where Saretsky was being interviewed:


"We have an agreement with Boeing to defer three deliveries. We are going to return three leased aircraft in 2016 and all six in 2017.
We have 24 Bombardier Q400s, with nine more coming this year, and three more in 2017. We have engaged Bombardier about potentially deferring some of those deliveries, but we are contractually committed. It would cause more hardship on them than us. "

So, they are giving up leases on 9 737's, and possibly defer some Q400 deliveries. This is the first time in WJ history that they have returned leased airplanes to the leasing company, rather than renew the lease. Also, they are delaying some new deliveries of the 737.

Sounds like some rough times ahead at WJ. Better mix the Kool-Aid a little stronger!

http://www.pressreader.com/canada/the-g ... 1/TextView

[mbav8r]

There's this too, what will the fleet look like this year? .
http://www.theglobeandmail.com/report-o ... e28682130/
“It’s kind of the size we’re getting rid of,” he said, pointing to WestJet’s Boeing 737-700 models, 10 of which the airline just sold to Southwest Airlines Co.
Are they looking for volunteers to take leaves or possibly go hang at Encore? Considering WJ is shrinking and Encore is still growing, do you think that Saretsky will abide by the original agreement made when WJ pilots "allowed" Encore? I believe it was to guarantee block hours or fleet or however many pilots that were there at the time was to be the minimum, can't remember exactly.

[Realitychex]

Anyone who thinks WJ, who generated 11% margins last quarter, is the only airline in Canada feeling the effects of the domestic malaise is pretty naive.

It's easy to point fingers at the airline that has already released its most recent numbers when the much higher cost competitor, facing many of the same issues, and many others (Asia, Brazil, Edmonton TATL to name a few, with a gorilla in the room come May), still hasn't released theirs and won't for another week, almost a full month after Delta released their numbers.

We'll see what the 4Q numbers say, and what actions are planned to combat the problems in their world over the next 6 months and perhaps longer.

Publicly traded companies confident of their future results don't change their quarterly release dates for the upcoming two quarters to Fridays, the day universally picked to bury news one would rather not have over analyzed by the media and others.

Conversely, it's always good to release your strongest results on a Monday to get maximum news coverage through the week.

Guess what day of the week they issue 3Q 2016 numbers?

[mbav8r]

Yes, however this is a thread dedicated to WJ and I'm curious on how Saretsky will deal with the pilots given the recent push for ALPA or some form of union, will he honour the spirit of the agreement or go against it and risk another push, likely successful this time.

[aerobod]

So this is what the adjustment in deliveries and lease returns means in 2016:

Fleet as of 1 Jan 2016:

24 Q400 (78 seats)
13 737-600 (113 seats)
59 737-700 (130 seats)
42 737-800 (168 seats)
2 767-300ER (262 seats)

Total seat capacity = 18,591, fleet size = 140

Fleet at 31 Dec, unlikely to not take all 9 Q400s due to contractual obligation:

33 Q400
13 737-600
56 737-700 (3 lease returns, 5 end of lease aircraft retained)
46 737-800 (4 737-700 orders converted to -800, 3 deferred)
4 767-300ER

Total seat capacity = 20,099, fleet size = 152

Seat growth in 2016 = 8.1%, fleet growth = 8.6%. Without the lease returns and deferred orders, seat growth would have been 12.9% and fleet growth 12.8%.

http://www.westjet.com/pdf/ourFleet/fleetpdf_en.pdf

[Realitychex]

Yes, however this is a thread dedicated to WJ and I'm curious on how Saretsky will deal with the pilots given the recent push for ALPA or some form of union, will he honour the spirit of the agreement or go against it and risk another push, likely successful this time.

It's not a particularly good time to be contemplating a move that would raise unit costs, especially when the competition will attempting to do the opposite in earnest sooner than most people think, and sooner yet, should oil begin to sneak up in price.

When that happens, it's guaranteed that costs will increase far faster than yields, for all airlines. There will be many unhappy CFO's in the industry when that inevitably occurs in a few years, perhaps less.

As has always been the case, the current battle will be decided by who has the lowest unit costs.

Many may recall how WJ ducked and dived around the 1998 oil price meltdown, together with the Glen Clark induced BC recession, when they had far higher exposure to both Alberta and BC than they do today. I would think at least 90% of WJ flying back then touched Alberta, probably double the rate today. The only route that didn't touch Alberta back then was YLW-YYJ, with one r/t a day. There may have been one or two more routes, but I can't recall what they might have been. Now THAT's exposure to Alberta.

Back in '98, WJ had 12.6 cent casm over a 378 mile asl and generated an 9.5% operating margin after paying the banks off, with a 71.6% l/f. Their margin in the last reported quarter was 10.4%.

In '98, AC had a 15.8 cent casm over a 955 mile asl. AC produced a margin of -1.4% back then, with a load of 70.9%.

Fuel was about 26.3 cents a liter at the time.

It was widely understood by analysts then that the longer the asl, the lower the casm, and vice versa. When adjusted to a standardized stage length, ie "what did it cost Air Canada to operate a 378 mile sector", the casm differential was significantly more than what appeared at face value.

Today, WJ has a casm of 13.0 cent casm over an 877 mile asl. AC's latest costs will be around 17 cents a mile over a 1,475 mile asl. Fuel is currently about 57 cents a liter.

What does it cost AC to operate an 877 mile flight? It's a lot more than 17 cents a mile. The last time Chorus provided enough data to figure out their numbers, their costs were about 24 cents a mile over their 499 mile asl.

What does it cost WJ to operate a 1,475 mile flight? It's a lot less than 13 cents a mile. Probably more like 11.5 cents a mile.

Graph the data with the typical curve used in the industry, (the curve steepens significantly on short haul and flattens out as stage lengths increase), and the real differential becomes apparent.

The concept of stage length adjusted casm has been quietly been glossed over by people who know better over the past decade. Silly people. The economics behind the concept haven't changed a bit. Occasionally, some bright spark suggests that long haul flying is actually more expensive than short haul flying. If that is the case, it would not make a great deal of sense to be charging 11 cents a mile for a last minute, 7,810 mile sector between YYZ and HKG.

How much has the cost gap really narrowed over the years? Not nearly as much as most people would guess, or have been told. All airlines have been cutting costs, not just the ones that went banco prior to jumping on the low(er) cost bandwagon.

That casm differential continues to be the secret sauce that will likely allow WJ to maneuver through these times with far less brain damage than its much higher cost competitors.

Doing anything that allows that cost gap to be unilaterally narrowed at this time would not be a particularly useful move.

WJ is in the cross hairs now because they released their most recent numbers a week ago. That scenario will balance out next Weds when everyone gets to take a good close look underneath the other kimono. Perhaps the grass won't be as green on the the other side as many thought?

Time will tell.

[brooks]

I am sure AC will find some way to dress it up. Mind you their stock has taken a sh!t kicking down almost 40% in the last 3 months.

[ahramin]

I don't see what the big deal is about not renewing the leases. It was always in the plan to return the leases when new aircraft deliveries outstripped growth demands. It's not like the total number of aircraft is going to shrink, those leases will be replaced with new aircraft. It's just that they can no longer keep increasing the size of the 737 fleet. It's not like anyone expected them to continue adding 10 737s a year for the next 100 years.

[complexintentions]

When the best thing you can say about your own company's admittedly negative news is that the competitor's may be worse, well...

Westjet may have less exposure to Alberta than it used to, but it's still their base and bread n' butter. The mainline is a mature, plateauing company with the headaches that entails (wages, size) and it's just not conceivable that they have the same advantages as in the past no matter how hard realitychex spins it.

The fallout will continue.

[DaveP]

For me I'm still optimistic in that I believe the widebody trial will continue with growth and at the end of the day growth isn't dictated solely by new airplanes.

Utilization of the remaining fleet has a big part to play in this too. For example, sending back a couple tails but increasing utilization by even .2 hrs across the fleet of 100 plus airplanes likely leaves you with a crew shortage thus hiring has to continue. It's a huge factor that most never consider.

It's definitely an interesting time in Alberta, probably even worse than 2009. I still recall making an offer to about 8 pilots for a ground school back then and suddenly it abruptly was cancelled - literally the next day. It took us about six months to start seeing things slowly turning around. We even carried a fair number of extra pilots that year but never laid anyone off.

I think most of us here have seen this trend in Canadian aviation unfortunately. Even complexintentions! I do agree with Mark too - cost is king to make it through these tougher times.

As for hiring - Encore is continuing to interview for monthly ground schools and we here at WJ have yet to see a solid plan for the 2016/17 fall/winter. Our next course is planned for May (April has been deferred to the fall) as this will cover the migration of 737 pilots to the next 767 - that is when the next 67 is scheduled to show up.

I think all in the Canadian pilot scene hope we, along with our competitors continue to grow. Otherwise the whole industry will slow yet again. Time will tell but guaranteed we aren't the only ones feeling it.

Interesting times as usual!

(Actually on holidays typing this in the back of the 767 at 380 - wifi...who wudda thunk ten years ago - cool stuff)

[NickyNick]

For me I'm still optimistic in that I believe the widebody trial will continue with growth and at the end of the day growth isn't dictated solely by new airplanes.

Utilization of the remaining fleet has a big part to play in this too. For example, sending back a couple tails but increasing utilization by even .2 hrs across the fleet of 100 plus airplanes likely leaves you with a crew shortage thus hiring has to continue. It's a huge factor that most never consider.

It's definitely an interesting time in Alberta, probably even worse than 2009. I still recall making an offer to about 8 pilots for a ground school back then and suddenly it abruptly was cancelled - literally the next day. It took us about six months to start seeing things slowly turning around. We even carried a fair number of extra pilots that year but never laid anyone off.

I think most of us here have seen this trend in Canadian aviation unfortunately. Even complexintentions! I do agree with Mark too - cost is king to make it through these tougher times.

As for hiring - Encore is continuing to interview for monthly ground schools and we here at WJ have yet to see a solid plan for the 2016/17 fall/winter. Our next course is planned for May (April has been deferred to the fall) as this will cover the migration of 737 pilots to the next 767 - that is when the next 67 is scheduled to show up.

I think all in the Canadian pilot scene hope we, along with our competitors continue to grow. Otherwise the whole industry will slow yet again. Time will tell but guaranteed we aren't the only ones feeling it.

Interesting times as usual!

(Actually on holidays typing this in the back of the 767 at 380 - wifi...who wudda thunk ten years ago - cool stuff)

Appears hiring has slowed and minimum flight times skyrocketed, I'm still waiting for a call for Encore with 4000+ hrs and 3000+ MPIC BE20.

[ActionAxson]

Appears hiring has slowed and minimum flight times skyrocketed, I'm still waiting for a call for Encore with 4000+ hrs and 3000+ MPIC BE20.

NickyNick strikes again. This guys turning into a legend.

[Realitychex]

When the best thing you can say about your own company's admittedly negative news is that the competitor's may be worse, well...

Westjet may have less exposure to Alberta than it used to, but it's still their base and bread n' butter. The mainline is a mature, plateauing company with the headaches that entails (wages, size) and it's just not conceivable that they have the same advantages as in the past no matter how hard realitychex spins it.

The fallout will continue.

A reality check for those preparing WJ's obituary:

WJ 4Q Operating Margins and BELF's

2015: 10.4% / 70%
2014: 12.6% / 69.6%
2013: 9.7% / 72.5%
2012: 9.3% / 74.3%
2011: 9.3% / 71.2%

AC 4Q Operating Margins and BELF's

2015: Feb 17th
2014: .7% / 80.4%
2013: -.7% / 80.9%
2012: -.8% / 81.8%
2011: .15% /78.7%

WJ can easily absorb a decline in margin and remain profitable, even during the winter months.

It's all because of those low operating costs.

The other guys? Not so much.

We'll see who the camera focuses on next week.

[flyingvinnie]

When the best thing you can say about your own company's admittedly negative news is that the competitor's may be worse, well...

Westjet may have less exposure to Alberta than it used to, but it's still their base and bread n' butter. The mainline is a mature, plateauing company with the headaches that entails (wages, size) and it's just not conceivable that they have the same advantages as in the past no matter how hard realitychex spins it.

The fallout will continue.

A reality check for those preparing WJ's obituary:

WJ 4Q Operating Margins and BELF's

2015: 10.4% / 70%
2014: 12.6% / 69.6%
2013: 9.7% / 72.5%
2012: 9.3% / 74.3%
2011: 9.3% / 71.2%

AC 4Q Operating Margins and BELF's

2015: Feb 17th
2014: .7% / 80.4%
2013: -.7% / 80.9%
2012: -.8% / 81.8%
2011: .15% /78.7%

WJ can easily absorb a decline in margin and remain profitable, even during the winter months.

It's all because of those low operating costs.

The other guys? Not so much.



We'll see who the camera focuses on next week.

Yup, low operating costs. They already have pilots picking up garbage on turn-arounds, what else can they force the pilots to do, to keep operating costs low??

[aerobod]

When the best thing you can say about your own company's admittedly negative news is that the competitor's may be worse, well...

Westjet may have less exposure to Alberta than it used to, but it's still their base and bread n' butter. The mainline is a mature, plateauing company with the headaches that entails (wages, size) and it's just not conceivable that they have the same advantages as in the past no matter how hard realitychex spins it.

The fallout will continue.

A reality check for those preparing WJ's obituary:

WJ 4Q Operating Margins and BELF's

2015: 10.4% / 70%
2014: 12.6% / 69.6%
2013: 9.7% / 72.5%
2012: 9.3% / 74.3%
2011: 9.3% / 71.2%

AC 4Q Operating Margins and BELF's

2015: Feb 17th
2014: .7% / 80.4%
2013: -.7% / 80.9%
2012: -.8% / 81.8%
2011: .15% /78.7%

WJ can easily absorb a decline in margin and remain profitable, even during the winter months.

It's all because of those low operating costs.

The other guys? Not so much.



We'll see who the camera focuses on next week.

Yup, low operating costs. They already have pilots picking up garbage on turn-arounds, what else can they force the pilots to do, to keep operating costs low??

As the current cost of grooming the fleet would be approximately $20m per year to bring in a contract cleaning crew, profit share for all employees would be reduced by about 3% of salary if it went to grooming crews instead. For the 5 mins or so per non-terminating flight spent picking up the garbage, that would be worth $4,500 on a $150,000 annual base salary. Every employee understands the value of them helping to groom the aircraft (including everyone up to Gregg), once they see how it will reduce their income if they don't.

[blue thunder]

[/quote]

Yup, low operating costs. They already have pilots picking up garbage on turn-arounds, what else can they force the pilots to do, to keep operating costs low??[/quote]

Comments like this get me. Not sure if Realitychex was being sarcastic, and I'm not picking on you specifically. The reality is that everyone out there, no matter what occupation you are in, should think outside the box a little bit. Sorry to rant, and I'm not aviation employed, but I do own a business. On top of that I have my own Bell 407-not bragging, just saying I'm not some dumb sh*t out there that just likes to hear myself talk. I've never been a big fan of putting our employees "role" on their business card. My view was 'everything to keep the ship sailing is your job'. I've done everything out there that I expect my employees to do. I supply the tools to have it done safely. Where I'm going with this is we've got some rough years ahead of us all. I tell my guys they should be running to offer help at any task in our organization. Cocky pilots (and especially ones who have a Union behind them to protect their incompetent ass-in most cases) need a reality check. As an owner, I am more likely to keep an employee who serves many roles over any employee who preaches "it's not my job". I think many out there (for self preservation's sake) better grasp it soon. It won't be just Westjet experiencing tough times ahead, it will be many companies and they aren't all aviation oriented. I do expect some backlash over this, but let 'er rip. By the way, It's a construction business I own and I'm in Alberta. It's maybe not as glamorous as flying a big bus in the sky, but for most of my employees who 'get it', it's more lucrative.



"As the current cost of grooming the fleet would be approximately $20m per year to bring in a contract cleaning crew, profit share for all employees would be reduced by about 3% of salary if it went to grooming crews instead. For the 5 mins or so per non-terminating flight spent picking up the garbage, that would be worth $4,500 on a $150,000 annual base salary. Every employee understands the value of them helping to groom the aircraft (including everyone up to Gregg), once they see how it will reduce their income if they don't. "

Aerobod, thank you. You get it!

[altiplano]

Will the 767 crews be grooming after an all night crossing? Or maybe they'll send the RP back to do the clean up? Or if they aren't going to groom how do the rest of the crews feel about that? Will they forego 3% in their profit share?

[ahramin]

Altiplano you have no idea what you are talking about. Only non-terminating legs do not have groomers.

I'm sure the $20M they are saving on groomers is great, but the biggest reason to have crew groom an aircraft is to get faster turnarounds, increasing utilization. That's where the real money is.

[aerobod]

Altiplano you have no idea what you are talking about. Only non-terminating legs do not have groomers.

I'm sure the $20M they are saving on groomers is great, but the biggest reason to have crew groom an aircraft is to get faster turnarounds, increasing utilization. That's where the real money is.

Operationally that is definitely one of the major benefits, typically 5 mins per turn are saved by not bringing a cleaning crew on. Another positive benefit is the interaction with other WestJetters who are also grooming (an employment requirement for every employee who doesn't have a tight connection, everyone receives training during their initial employment orientation). I very much take the time to interact with crew members while grooming to get their opinions on company matters and it is just the time to briefly socialize and build team spirit with other departments.

[whiteguy]

Will the 767 crews be grooming after an all night crossing? Or maybe they'll send the RP back to do the clean up? Or if they aren't going to groom how do the rest of the crews feel about that? Will they forego 3% in their profit share?

No, no RP, don't seem to care, and more aspects to profit sharing than just grooming.....