Legacy costs creeping up

[Kosiw]

This article is a bit ominus...

http://business.financialpost.com/2012/ ... a-shrinks/

WestJet looking to cut costs as ‘cushion’ over Air Canada shrinks

WestJet Airlines Ltd. estimates that up to two-thirds of the historical cost advantage its had enjoyed over Air Canada has been wiped out by the newfound flexibility its larger rival has been granted in an arbitrated labour agreement with pilots and a gradual increase in the Calgary carrier’s own costs.

WestJet has long boasted a 30% or better cost advantage over Air Canada, leveraging its single fleet of Boeing 737s and its lower cost structure to grow aggressively and turn a profit.

But Gregg Saretsky, WestJet’s chief executive, said that cost advantage has shrunk considerably due to fleet flexibility Air Canada gained in the pilots agreement, including the transfer of its smaller Embraer jets to regional partner Sky Regional and a reduction in pension obligations.

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“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.

How much do we think that cushion has shrunk? It may have shrunk to 10% or 15%
Historically, WestJet flew its planes about 12.5 hours a day, or more, he said. But they are currently flown only about 11.7 hours a day, Mr. Saretsky said.

Mr. Saretsky said WestJet won’t be able to increase that number to its previous peaks due to the age of the fleet. But he said he would like to see it reach 12 to 12.2 hours a day.

Perhaps the most obvious effort to reduce costs will be the launch of its new low-cost regional carrier, Encore, in June 2013, using a fleet of fuel-efficient Bombardier Q400s.

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.

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.”

Technically, he said, those changes could be made to the company’s currently non-unionized workforce without negotiations, “but that would be the best way to get a union, by doing things that way.”

New technology will also help WestJet continue to grow without hiring at the same rate, he said. Those measures include new self-service mechanisms such as kiosks and mobile check-in on smartphones that will allow the airline to drastically reduce its physical footprint at airports and the cost of rent it is charged at airports. For example, he said, those technologies would allow WestJet to halve the 150 feet of counter space it currently rents at Toronto’s Pearson International Airport.

It also intends to have roughly 450 of its 750 call centre employees start working from home next year, reducing the office space required to house them, he said.

“I think we could shrink that [remaining] 300 even smaller at some point,” he added.

[Squid]

Not ominous
More a reality of todays competition. Cost is king. Unfortunately with the the new fatigue rules coming that will erode efficiency even more (for all) wj/ac etc. and again the gov won't adjust user fees or police the authorities.

[flyer 1492]

Well here we go again...Our COSTS are TOO high, lets start a lowcost airline and transfer the high priced workforce and reduce our overall costs. Way to go to the west jet employees that voted to start the slide ONE MORE TIME.

[YYZSaabGuy]

Well here we go again...Our COSTS are TOO high, lets start a lowcost airline and transfer the high priced workforce and reduce our overall costs. Way to go to the west jet employees that voted to start the slide ONE MORE TIME.

I doubt many (if any) WJA personnel will be transferring from mainline to Encore: support functions (finance, marketing, IT)
will be provided by existing Corporate personnel, while Encore will handle its own operations including flight crew, maintenance
and regional airport operations, all of which are where the lower-wage positions will be and which I understand will be
mostly new hires. I suspect there'll be no shortage of folks interested in getting in on the ground floor of a new regional
owned by a highly successful parent.

There is no onus on anybody in this industry to throw themselves under the bus to preserve some mythical "solidarity" on WAWCON.
You're a free agent: act like one. If you don't like what's on offer at Encore, don't apply.

[flyer 1492]

YYZ
What about the quote that some westjet bases in the east will be converted to encore (lower wages, benefits, shares...) Do those employees deserve it. If it starts in the east it will slowly travel right across the country when the company sees how much money it will save. Seen it before and we will probally see it again in the not too distant future.

[mbav8r]

http://business.financialpost.com/2012/ ... a-shrinks/

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.

That's a little tidbit from your CEO, you know the one who created Horizon, then snowed you WJetters into creating your own worst enemy. Your very own whipsaw, congrats!!!

[YYZSaabGuy]

Again, employees at those bases are also free agents and aren't obligated to stay if they don't like the terms on offer. Does it suck? Absolutely. Is it a better alternative than closing uneconomic bases, cutting routes, selling off aircraft, and firing people because the economics of the industry continue to be terrible and there's a need to keep the company as a whole healthy? Sure it is.

And for those who think (not necessarily referring here to you, 1492) that this is all attributable to the usual villains people on AvCanada like to spout off about (corporate greed, evil management, a Harper conspiracy, yadda yadda)......buy the damn stock. It's up 93% in the last year. A great way to get even!

[flyer 1492]

There's another word for it: TIER 2 wages and working conditions.

[DaveP]

It is an interesting predicament for sure and one that has been known to come someday. Like I have said before, we have to remain lean all the way around for longevity. If casm creeps above 10 cents - we are just like every other legacy.

FWIW, We are making good progress on the WAW conditions on the regional front. They will be known soon.

Cheers

[YYZSaabGuy]

Does labelling it solve the problem?

Interesting article in today's Financial Times about IAG challenges with its Iberia acquisition, including some eye-opening salary comparisons between Iberia's captains ("...the average salary of an Iberia captain on a short-haul aircraft is €197,000, flying 629 hours) and Ryanair's ("The average salary of a Ryanair captain is €148,000, and they fly 850 hours each year.").

For 10 points: which airline is proposing to abandon unprofitable routes, cut 4,500 jobs out of a workforce of 20,000, get rid of 25 aircraft of a fleet of 110, and reduce pay and benefits to cut labour costs by 35%, all to address a 9-month loss of around €262 million? Hint: it isn't Ryanair.

The Iberia pilots union, by the way, has labelled the plan "unacceptable" although they're being shockingly coy about coming up with workable alternatives.

I guess at least in some parts of this industry, labelling is an acceptable alternative for original thought.

Edited 1X by YYZSaabGuy.

[flyer 1492]

YYZ

I like how you call the soon to be affected employees "Free Agents", nothing like throwing them under the bus. I guess as long as it doesn't effect you, you could care less.

[YYZSaabGuy]

I hadn't intended the term to be derogatory, 1492. It's actually kind of liberating.
We're all free agents - we just haven't all realized it yet.
BTW, I don't work at WJA (or Iberia, for that matter), so I'm not actually throwing anybody under the bus....

[scopiton]

well, he said he'd try to increase hours flown per aircraft, as well as encouraging telecommuting for call-center employees. he also said that forcing new lower WAWCON on employees would be the best way to bring unions in, and he doesn't want to.
so all in all, if you read all the article carefully, and if he does approximately what he says -don't call me naive- well, it doesn't look that bad. just wait and see, as usual...

[Legacy]

I just have to say that WJ has got to be one of the best airlines to work for. I absolutely love working here. That being said I sometimes can see some writing on the wall and it gets a bit unnerving. I hope Greg doesn't have in his mind of coming after us for cuts cuts and more cuts. We have got to be one of the most efficient pilot groups on the market. We aren't greedy, we don't make outrageous demands when it comes to agreement times and generally are a very happy group. How many airlines don't have reserve (a cost) and how many flight crews groom their own aircraft? The savings of that alone was well over 10 million last I heard. I just hope the people upstairs remember how much we DO save the company on the little things. I have a high level of faith in what Greg does but there are many other ways to lower our costs rather than coming after the employees. In fact, there have been some great ideas that have come up in the past to slashing costs. Heck someone up there knows how much one can of coke costs to haul around the country. So let's keep up that thinking rather than upsetting employee's lifestyles. In my opinion we are paid fair for what we do. No more, no less. I have confidence that our future will be bright without building a wall between management and employees.

[complexintentions]

What's interesting is this phenomenon was being predicted ages ago, the "New Airline Advantage". Southwest will also be experiencing real pain going forward, as most legacy carriers have gone through their Chapter 11's and have lower cost bases than the "low costs".

It isn't rocket science, when your company matures, people move up the pay scales and your costs increase. Air Canada has massive retirements ahead and lowered wages at the entry level. WestJet has a younger overall pilot workforce with more moving into the max pay rates and no retirement soon. Interesting demographic problem that would actually seem to favour AC going forward. IF they can get their support staff labour costs under control.

Personally I think as much as WestJet likes to think their company is unique - and it is - people are still people and will look out for Number 1. It's easy be magnanimous when times are good, but the times are changing. At least now there could be a little less of "I cleared XXX$$$ on my T4 last year" as the pilot group tries to keep a lower profile from the cost-cutters.

[7thirtyseven]

Personally I think as much as WestJet likes to think their company is unique - and it is - people are still people and will look out for Number 1. It's easy be magnanimous when times are good, but the times are changing. At least now there could be a little less of "I cleared XXX$$$ on my T4 last year" as the pilot group tries to keep a lower profile from the cost-cutters.

How dumb do you think the "cost-cutters" at WestJet Are????

[altiplano]

How dumb do you think the "cost-cutters" at WestJet Are????

Are you implying that WS pilots are immune to cost cutting?

[7thirtyseven]

How dumb do you think the "cost-cutters" at WestJet Are????

Are you implying that WS pilots are immune to cost cutting?

Ahhh no. Suggesting it would be aweful tough to hide ones earnings.

[complexintentions]

Actually I wasn't implying that the it was the costcutters who were dumb, more like the ones bragging about their not-so-"aweful" pay. Might be time to lower the expectations a little.

It's not so much as hiding it, as not flaunting it. The other "owners" that work outside of the flight deck might not be so pleased when the company comes looking to reduce costs.

[CAL]

http://www.airlinepilotcentral.com/airl ... hwest.html

everything is relative....

[anonymity]

Sure CAL, it's all relative...
http://operationorange.org/SWAletter.pdf

Letter to Southwest Airlines Pilots
What is important to take from this is that the old “enemy” is no longer. If
Southwest is to continue its trajectory, where is this new enemy? Kelly tells
us.
Now, the enemy is our own cost creep, our own legacy-like
productivity, and our own inefficiencies. Fighting this cost enemy is
an imperative to remain the Maverick. We will fight, and we will
remain the Maverick.

[crazy_aviator]

Relative to most all other employees in an airline , Pilots are OVERPAID,,,but they still bitch and complain

[CAL]

I was pointing out that as a group you should not accept anything less....ever....regardless of how well paid you think you are.

[bmc]

http://business.financialpost.com/2012/ ... a-shrinks/

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.

That's a little tidbit from your CEO, you know the one who created Horizon, then snowed you WJetters into creating your own worst enemy. Your very own whipsaw, congrats!!!

What a laugh. Horizon was around years before Gregg moved to Seattle. Sorry to spoil you whine.

[Anthropomorphized]

I find it puzzling that air travel has become a service that the general public and media seem to think should be offered for free. Everyone wants to ride on comfortable new 50 or 100 Million dollar aircraft but no one is willing to pay for the service, and then have no problem complaining when there is a delay or problem. Here's an outside the box idea: if costs cannot be reduced by focusing on inefficiencies and waste then it might be time to increase the charge for the service offered. This could also result in offering a better product that in the end could be beneficial to both the company and the customer. Been to a restaurant, bar, doctor, lawyer, skating rink, gym, mechanic, or had a house built lately? A few examples of where prices go up to offset inflation and costs. I think the bottom line is that people will not choose to walk or drive across the country if prices go up because they will realize the actual value of air travel in time savings.

A ticket on an airline should not cost less than the cab ride to the airport....