Q&A with CEO Clive Beddoe
Pulling WestJet out of its dive
KATHERINE MACKLEM
In 1996, Clive Beddoe and three other Calgary entrepreneurs launched WestJet -- a no-frills, cheap-seats, bus-in-the-sky airline. With three airplanes and 220 employees, it flew to five western Canadian cities. Today, it has 57 planes and 5,000 employees, and flies to 34 locations. It has survived the post-9/11 industry meltdown and intense competition, but now it's faced with a plunging stock price, rising fuel costs and suggestions that it may be getting away from its low-cost roots. Beddoe, still WestJet's CEO, spoke last week with Maclean's National Correspondent Katherine Macklem.
Q-We've noticed some changes, including fares going up, twice this summer.
They did and they didn't. The published fares increased. But the marketplace ended up with multiple seat sales. Our biggest single challenge is that we have been dragged into seat-sale mode repeatedly while the price of fuel has been climbing.
Q-Who is dragging you into seat sale mode?
[laughs] Shall I call them just a competitor or the protagonist? Air Canada is now so fixated with load factor, they want to perpetuate the story of their so-called success without having a focus on the bottom line.
Q-That sounds like a flip of roles. You're the low-cost carrier.
Absolutely. But we also have a greater sense of responsibility toward our shareholders. I mean, if you bankrupt a monopoly, how can you be showing responsibility toward your shareholders?
Q-Talking about shareholders, WestJet stock has dropped to below $11 from above $17 last spring.
Because of the price of oil and the sector being so out of favour.
Q-Almost every other week there's a new air carrier in bankruptcy protection in North America. Is that a good or bad thing for WestJet?
Fundamental economics should see the successful prosper and the weak fail. But our system regrettably tends to reward those that are unsuccessful. The bankruptcy system does that. The principle is fundamentally flawed when you think about it. The U.S. carriers get to preserve their dominant positions in the hubs that they fly to even though they have not paid their bills. How does that make sense? Air Canada walked away from owing the airports millions and millions of dollars. It still gets the same gates and preferential treatment, while we pay our bills and don't.
Q-You have made other changes: leather seats, TVs for each passenger.
Leather seats are actually very low cost. They cost a little bit more but they last a lot longer, and the public loves it. They feel much more luxurious than fabric. Overall, they are actually a savings to us. TV is very much a win for the consumer. Travelling is a very boring process. Being squeezed into a cigar tube at 40,000 feet, flying at 500 miles an hour, isn't everybody's idea of a way to spend an afternoon. So, if we can make that more pleasurable and let the time pass a little faster, then absolutely we will do it. If it brings us more guests, as we call them, then it's obviously a win for us. We are going to bring movies on board as well.
Q-Is WestJet moving away from its origins as the no-frills, low-cost airline?
Those are terms that have been coined by the media. We are certainly low-cost and high-efficiency. Having TVs on board, in a perverse sense, actually is a benefit from an economic point of view. If it allows us to be more profitable without having higher fares, then the public benefits.
Q-Part of your plans include going after business travellers. Will we see a business-class section with free drinks?
No, no , no. No. Our whole airplane is first class! As we become more appealing, we become a much more viable alternative to Air Canada. As such, we can then promote ourselves more to the business community.
Q-How do you make sure you don't turn into your competition?
That is a cultural phenomenon. It's a matter of training the right people, bringing the right people into the company and ensuring the wrong people don't stay with you. We have a team of people who are passionately committed to the company.
Q-You also have staff who are now looking for a raise and a return to profit-sharing.
They have always looked for raises.
Q-It sounds like there is some discontent.
That's a good rumour. There is no question that a certain number are going to have a certain degree of discontent. Profit-sharing is down, affected by Jetsgo's destruction of the yield environment and the price of fuel. The bigger problem with fuel prices is not so much the absolute price but the volatility, and the difficulty we have in pricing our product when you sell a seat based on $50 oil and fly it some weeks, or a month later, at $65.
Q-Air Canada emerged from bankruptcy protection in one piece. Do you think it will survive?
It will always survive. Will it be prosperous or not becomes a completely different issue. If you artificially suppress your costs by beating up on your lessors, that is only short-lived. Sooner or later, you have to pay the piper. We've already got a huge cost advantage over Air Canada. I have got to tell you that, just like gravity, economics ultimately does prevail.
Q-How do you see the established carriers evolving?
I foresee a day when the legacy carriers wake up to recognize that what they do well is long-haul international flying. The reason they lose buckets of money flying in the domestic market is because they have this vision that they can prosper if they dominate and control the feed into their network. So you force people into your system not because you do a good job but because they haven't any alternative. You don't have to worry about overselling airplanes or being on time or losing bags. And that is exactly what all these major carriers have developed. Now they are facing a horrendous, horrendous problem in that there is an emerging new sector in the industry, classically called low-cost carriers. But I don't really like the term.
Q-I take it you don't like "no-frills" either?
I like high-efficiency carriers -- we are not low anything.
Q-The logical conclusion to your thoughts is that WestJet will be Canada's dominant carrier. Am I right?
We will see. Dominant -- I don't like the term. You succeed in life and business because you provide a good quality service for a good price. If that leads to us ultimately being the dominant carrier, then it is simply because the public has dictated it, not because that's what we've driven toward. If that's the success we ultimately achieve, well, so be it. We are in a quasi-commodity business. He who has the lowest cost, ultimately wins. On a sustainable basis, as long as we have a long-term, low-cost, high-quality service and others aren't able to do better, then we may well become the larger carrier in Canada.
Q-We're disappointed that we're not hearing jokes on board. What happened?
Oh, you do hear jokes. It is just that we now have 1,200 flight attendants and not everyone is comfortable doing it. And, there are different types of flights. Flights going to Las Vegas where everyone is pumped up and happy and probably had a few drinks have a whole different environment on board than a 7 a.m. flight between Toronto and Ottawa. There is nothing worse than trying to get people to laugh when they are not interested. At 7 in the morning, very few people are.
