Be Ready

[aerobod]

Issues with the economic analysis presented here:

Information is dated. 3, and now pushing 4, years out of date.

Assumptions based on growing uncertainty in the absence of real time data.

Changes in corporate structure and costs since you left/covid. IE: There are a lot less office staff, no ground handlers, etc.

The assets "sold" by the company remain within control of the Onex operation. So, those lease payments from one division go to another division but remain within the organization... great tax avoidance potential and income stream.

Forward ticket sales used by Onex to fund other operations and investments... again, the great accounting shell game of money flowing around the same organization but remaining within the overarching corporate structure.

The eventual return of the company to Public status, a company that will be beholden to Onex for Leases, Services and Financing for decades after the company goes Public once again.

WJ is a cash machine for Onex. One that would be difficult to shut down because they have a flow of income combined with a tax write-off.

All valid points, but what is the data you would use to put forward an alternative interpretation and outcome and what is that alternative? Don’t overestimate the effect of WS on Onex in general it is only about 8% of their portfolio holding at it’s pre-Covid valuation, probably about 4% now and one that isn’t generating any of their profits by the looks of it at the moment.

BTW, the video is interesting, but the frequent flyer program at WS is not strong enough or broad enough to have the sort of impact that it has at legacy carriers, one of the impacts of having a quite limited business offering overall.

[aerobod]

Ok, fair, like I said sometimes words can mean something other than. I would’ve said, “they” are still in mutual posturing but maybe that’s because I’ve never been part of the WJ group.
I do hope WJ survives this as I can’t stand the thought of Flair being the new WJ, that’ll set us back a decade or so.

I agree with you there, although I do wish success on all airlines in general, as it is a close industry and the competition always contains many friends, too. I think from my time at WS and contracting to AC, I now know people in over 100 airlines around the world.

[GeoffPilot]

Aerobod

It is true that Southwest have had some recent bumps in the road but compared to the toxic legacy of employee carnage we have seen over the last 10 years at the legacy carriers, they still have an enviable record.

In any case this thread is about the potential of Westjet going Union. I stand by my contention this does not automatically constitute a retrograde step for Westjet

I don't think introducing an intermediary such as a union necessarily provides any benefits, either. In Southwests' case there may need to be many concessions in any future TA for the company to remain viable compared with the much more aggressive competition they now face, this will have to happen regardlous of the union.

Aerobod,

You wrote this in 2015

How does Southwest remain in business when their pilots make litetally multiple factors more than WJ pilots?

Southwest's management incompetence cost the company $800 million during their Christmas holiday travel disaster.

Do their pilots now need to take concessions for the airline to survive?

[aerobod]

Aerobod

It is true that Southwest have had some recent bumps in the road but compared to the toxic legacy of employee carnage we have seen over the last 10 years at the legacy carriers, they still have an enviable record.

In any case this thread is about the potential of Westjet going Union. I stand by my contention this does not automatically constitute a retrograde step for Westjet

I don't think introducing an intermediary such as a union necessarily provides any benefits, either. In Southwests' case there may need to be many concessions in any future TA for the company to remain viable compared with the much more aggressive competition they now face, this will have to happen regardlous of the union.

Aerobod,

You wrote this in 2015

How does Southwest remain in business when their pilots make litetally multiple factors more than WJ pilots?

Southwest's management incompetence cost the company $800 million during their Christmas holiday travel disaster.

Do their pilots now need to take concessions for the airline to survive?

No idea, they have had a looming IT disaster for many years now and building competitive pressures from a number of areas. I don’t have enough insight into their internal ops to know what they need to do or who needs to do it to fix what seem to be significant structural problems. The funny thing about IT and ops at SWA was that it used to be a joke between people of other airlines that “2 bags fly for free” was touted as a differentiator, whereas before Amadeus it was a limitation that they had no way of integrating bag charges into their PSS.

SWA also is in a completely different market than WS, so their employee compensation and other costs are quite different. Comparing airlines in a given country is valid, between countries is much more problematic. You may as well ask why airlines have to pay so much for airport services in Canada compared with the US, too - different factors and cost models across the board. In IT I have the same variance, I can pay 5 times as much for the same resource with the same level of skill depending on which country is their home base.

BTW my opinion is that airline growth and evolution generally requires a union to be in place at somepoint, once growth has reached the point of more than one degree of separation between the employees and leaders. I don’t see it being a problem at WS.

[Alkasultzer]

Aerobod,

You didn't answer the question

You clearly stated in 2015 that Southwest pilots need to take concessions for the airline to survive

The pilots did not. In fact, their contract is eons ahead of anything in Canada with more gains on the horizon

Their company lost nearly a billion dollars in a holiday season.

How is this company able to survive all this with losses and a vastly superior pilot contract?

Or is it that you just drivel the same old management excuses of why they can't properly compensate an airline's most important asset: their pilots

[aerobod]

Aerobod,

You didn't answer the question

You clearly stated in 2015 that Southwest pilots need to take concessions for the airline to survive

The pilots did not. In fact, their contract is eons ahead of anything in Canada with more gains on the horizon

Their company lost nearly a billion dollars in a holiday season.

How is this company able to survive all this with losses and a vastly superior pilot contract?

Or is it that you just drivel the same old management excuses of why they can't properly compensate an airline's most important asset: their pilots

Yes I did state “there MAY need to be many concessions….” I didn’t say “need to take concessions…” some difference in certainty there.

They obviously have skimped on investing in key operational systems and have had a number of maintenance compliance issues over the years, so obviously some choices that were a bit short sighted that are now causing some financial pain and likely won’t be easy to solve. Also going back to closer to that time (in 2018), I did some analysis just after I left WS comparing airline revenues from the published annual reports, all adjusted to USD RPM, bear in mind the stage length is similar for the LCC line, but the legacy airline line has a different and significantly higher stage length, but it is similar between those legacy airlines:
_____________________
2018 revenue per passenger mile (including ancillaries) for comparable stage lengths and comparable product offerings, $0.75 USD to CAD exchange rate:

Southwest $0.165; JetBlue $0.151; Alaska Air $0.151; WestJet $0.129.

American $0.176; Delta $0.176; United $0.164; Air Canada $0.132.

The Canadian airlines have lower ticket charges before government taxes and fees per mile flown.
______________________

I was surprised SWA was bringing in so much higher revenue than WS, bearing in mind a similar stage length at that time, but operating in an environment with lower fixed charges than we have in Canada. This is probably the main reason why the competition hasn’t hammered them on costs. In a way the market is big enough in the US that there is really a bit of an LCC/ULCC cartel where SWA takes the mid-South, Spirit the South East, JetBlue the North East and Frontier the mid-North. They overlap a bit, but generally have hub/focus airports and operating areas where they are much bigger than the competition and can drive higher revenues and good profitability. Back in 2015 I expected the ULCCs to expand a lot more rapidly than they did, putting pressure on SWA, but that hasn’t happened to any degree so far.

If you can find a way to get the public to pay 28% more for tickets (based on USD$0.165 RPM for SWA vs USD$0.129 for WS when I did the comparison), I’m sure there would be a lot more slack in what the company can pay. SWA also operates in a lot of airports in very low minimum wage states when it comes to cost of service workers, further allowing cost flexibility in where they spend money and what they pay certain workers.

[Fanblade]

Aerobod,

You didn't answer the question

You clearly stated in 2015 that Southwest pilots need to take concessions for the airline to survive

The pilots did not. In fact, their contract is eons ahead of anything in Canada with more gains on the horizon

Their company lost nearly a billion dollars in a holiday season.

How is this company able to survive all this with losses and a vastly superior pilot contract?

Or is it that you just drivel the same old management excuses of why they can't properly compensate an airline's most important asset: their pilots

Yes I did state “there MAY need to be many concessions….” I didn’t say “need to take concessions…” some difference in certainty there.

In Southwests' case there may need to be many concessions in any future TA for the company to remain viable compared with the much more aggressive competition they now face, this will have to happen regardlous of the union.

I underlined for you the part I think other posters are getting at. It does appear you were stating SW pilots will have to take concessions in the future.

By the way SWAPA, even though they are an independent union, have an incredible Financial Data and Analysis department. Quite remarkable considering their size. That department has been putting out data well prior to 2015 showing SW could afford to pay more.

The union FD&A department appears to have been correct.

This is modern day negotiations with a union. FD&A departments costing proposals on the fly. Gone is the day of posting metrics and declaring death is around the corner. Leaving the union to have no idea if it is true or a manipulation. In today’s environment that kind of ploy can be costed and rebutted within a very short period.

When it comes to negotiations modern day unions are on an equal footing to corporations when it comes to financial analysis. It’s actually a relatively new challenge for companies to deal with. In the past the union was almost always at a disadvantage in this area.

This is a good news bad news situation for Airlines. The good news is the union is unlikely to push beyond a red line. The bad news is the unions confidence in their financial analysis allows them to push further than they have in the past.

[aerobod]

Aerobod,

You didn't answer the question

You clearly stated in 2015 that Southwest pilots need to take concessions for the airline to survive

The pilots did not. In fact, their contract is eons ahead of anything in Canada with more gains on the horizon

Their company lost nearly a billion dollars in a holiday season.

How is this company able to survive all this with losses and a vastly superior pilot contract?

Or is it that you just drivel the same old management excuses of why they can't properly compensate an airline's most important asset: their pilots

Yes I did state “there MAY need to be many concessions….” I didn’t say “need to take concessions…” some difference in certainty there.

In Southwests' case there may need to be many concessions in any future TA for the company to remain viable compared with the much more aggressive competition they now face, this will have to happen regardlous of the union.

I underlined for you the part I think other posters are getting at. It does appear you were stating SW pilots will have to take concessions in the future.

By the way SWAPA, even though they are an independent union, have an incredible Financial Data and Analysis department. Quite remarkable considering their size. That department has been putting out data well prior to 2015 showing SW could afford to pay more.

The union FD&A department appears to have been correct.

As I mentioned in the next post, the ULCC pressure on SWA revenues had not arrived in 2018 (as I thought would have happened from the initial expansion rates in 2015, that later dropped off a lot). SWA likely still has a major revenue advantage per RPM than WS.

Bearing in mind similar fuel costs (although still a cost advantage to US airlines] and similar aircraft leasing cost (although a bit cheaper if owned and SWA can drive a bigger discount), of a ticket at the moment we can take about 50% of that for the fuel and aircraft lease cost. In the case of SWA with a 28% revenue advantage over WS (still based on 2018 data, but pre-Covid is still probably best for like-to-like comparison), then SWA has 56% additional money for other costs than WS, out of ticket revenue,

This is also a similar pattern for AC to US Legacy carriers, too. In Canada we have very significant revenue challenges that put pressure on cost flexibility. If I have some time over the next week or so I will try and do another up-to-date RPM analysis to compare AC with it’s US peers, especially as the 2022 AC results are published on Fri. Anything for WS is conjecture now with no published data, but I don’t think the metrics have become any better than when Onex acquired them, or that they have changed their metrics relative to AC (i.e. their differences remain essentially the same) since then.

[averageatbest]

[aerobod]

[Aspiredtofly]

What was this thread about? What happened?

[Mostly Harmless]

All valid points, but what is the data you would use to put forward an alternative interpretation and outcome and what is that alternative? Don’t overestimate the effect of WS on Onex in general it is only about 8% of their portfolio holding at it’s pre-Covid valuation, probably about 4% now and one that isn’t generating any of their profits by the looks of it at the moment.

BTW, the video is interesting, but the frequent flyer program at WS is not strong enough or broad enough to have the sort of impact that it has at legacy carriers, one of the impacts of having a quite limited business offering overall.

Since Onex took WJ private I, like you, have no access to the actual numbers. Only the company and the union have those numbers and they are neck deep in NDA's. So, were I privy to the data, I could not openly discuss it on a public forum or anywhere else for that matter. The point I am making is that you are taking a 'best guess' approach and unless you have current numbers your best guess could be wildly inaccurate. It is questionable behaviour to announce the impending death of the company based on 4 year old numbers and assumptions, unless you have access to more current information.

The video was merely an example of one of the multitude of ways companies extract profit from apparently unprofitable enterprises. This has a direct effect on the compensation of the employees you care so much about as profit sharing is worth roughly 10% of the wages of those employees. The company can easily shift money and assets around to never show a profit giving the employees a defacto pay reduction without having to negotiate that pay reduction.

Shutting down an entire multi-billion dollar business to show those pilots who is in charge, while not beyond the realm of the possible, would be one of the dumbest decisions in the history of Canadian business. I prefer to think that the emotional maturity of those in charge exceed that of the average 4 year old in the height of a temper tantrum at not getting their way. Using your own assumptions, if you were in charge of the company, would you take a $2.2 billion charge on your books and close the company just to make sure no one ever got a raise? Remember, we are operating on what is effectively an 8 year old pay structure at this point. Would you take that loss and a 3 month strike to prove you are "the boss"? Or would it make more sense to offer a fair deal at a fraction of that cost? What would a reasonable person do?

I think I shall just depart with a quote from one of the greatest business minds of the last 100 years. Warren Buffett, "Beware of geeks bearing formulas."

[aerobod]

All valid points, but what is the data you would use to put forward an alternative interpretation and outcome and what is that alternative? Don’t overestimate the effect of WS on Onex in general it is only about 8% of their portfolio holding at it’s pre-Covid valuation, probably about 4% now and one that isn’t generating any of their profits by the looks of it at the moment.

BTW, the video is interesting, but the frequent flyer program at WS is not strong enough or broad enough to have the sort of impact that it has at legacy carriers, one of the impacts of having a quite limited business offering overall.

Since Onex took WJ private I, like you, have no access to the actual numbers. Only the company and the union have those numbers and they are neck deep in NDA's. So, were I privy to the data, I could not openly discuss it on a public forum or anywhere else for that matter. The point I am making is that you are taking a 'best guess' approach and unless you have current numbers your best guess could be wildly inaccurate. It is questionable behaviour to announce the impending death of the company based on 4 year old numbers and assumptions, unless you have access to more current information.

The video was merely an example of one of the multitude of ways companies extract profit from apparently unprofitable enterprises. This has a direct effect on the compensation of the employees you care so much about as profit sharing is worth roughly 10% of the wages of those employees. The company can easily shift money and assets around to never show a profit giving the employees a defacto pay reduction without having to negotiate that pay reduction.

Shutting down an entire multi-billion dollar business to show those pilots who is in charge, while not beyond the realm of the possible, would be one of the dumbest decisions in the history of Canadian business. I prefer to think that the emotional maturity of those in charge exceed that of the average 4 year old in the height of a temper tantrum at not getting their way. Using your own assumptions, if you were in charge of the company, would you take a $2.2 billion charge on your books and close the company just to make sure no one ever got a raise? Remember, we are operating on what is effectively an 8 year old pay structure at this point. Would you take that loss and a 3 month strike to prove you are "the boss"? Or would it make more sense to offer a fair deal at a fraction of that cost? What would a reasonable person do?

I think I shall just depart with a quote from one of the greatest business minds of the last 100 years. Warren Buffett, "Beware of geeks bearing formulas."

Just to be clear, going back to some of my original points:

- I only state I think company windup would be a 50/50 probability after a prolonged strike (3 months or more), mainly due to the difficulty of retaining key staff after full layoffs and loss of employees in difficult to fill positions in a currently tight market for many positions.

- I believe the company would probably go to about 35% over 4 years. Who knows whether it would require a strike to get to this or if a higher number is possible.

- I think a settlement will be reached without a prolonged strike, so windup is not a high probability overall.

Warren has always been (in terms of airline investments) a bit schizophrenic and has had poor luck/judgement with airlines, with his famous quote “If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright…..”. His timing has been off again in his latest invest and sell move during Covid: https://ca.news.yahoo.com/how-warren-bu ... djP84IraDf

Hopefully everything works out for all people involved. I actually showed confidence that will be the case last night, by booking a couple of WS flights in Aug between YYC/DUB and LHR/YYC.

[Mac08]

This argument you’re making Aerobod is garbage.

Asking employees to “stay in your pay bracket” when management is making millions plus and trying to imply a raise would bankrupt the company is stupid. Management doesn’t need the pilots help destroying it, they are doing it themselves.

[Bede]

I actually tend to Aerobod, but I think his opinion overestimates the percentage of CASM that pilots cost. (At WJ it's around 7%, so pilot wages won't make/break the company, but they will influence the outcome.)

Don't get me wrong- the supply/demand curve has shifted and the price of pilots has drastically increased. No different than the price of fuel, aircraft leases, etc. However, a rational corporation will always seek to maximize it's return on investment. If Onex can make more money selling/leasing the aircraft to another airline than they can running their own airline, that's what they'll do.

[averageatbest]

I actually tend to Aerobod, but I think his opinion overestimates the percentage of CASM that pilots cost. (At WJ it's around 7%, so pilot wages won't make/break the company, but they will influence the outcome.)

Don't get me wrong- the supply/demand curve has shifted and the price of pilots has drastically increased. No different than the price of fuel, aircraft leases, etc. However, a rational corporation will always seek to maximize it's return on investment. If Onex can make more money selling/leasing the aircraft to another airline than they can running their own airline, that's what they'll do.

I did the napkin math of pilot costs vs a total of pilot cost and fuel per hour. Those numbers range from 4-9%. If we factor in all of the costs, I would assume that pilot salaries at WJ make up closer to the 4-5% range.

[sstaurus]

Shutting down an entire multi-billion dollar business to show those pilots who is in charge, while not beyond the realm of the possible, would be one of the dumbest decisions in the history of Canadian business. I prefer to think that the emotional maturity of those in charge exceed that of the average 4 year old in the height of a temper tantrum at not getting their way. Using your own assumptions, if you were in charge of the company, would you take a $2.2 billion charge on your books and close the company just to make sure no one ever got a raise? Remember, we are operating on what is effectively an 8 year old pay structure at this point. Would you take that loss and a 3 month strike to prove you are "the boss"? Or would it make more sense to offer a fair deal at a fraction of that cost? What would a reasonable person do?

Good thing CB isn’t in charge anymore wait.. didn’t we see a pic of him and AVH looking chummy…

[Chateau]

There WILL always be someone somewhere who will argue why pilots should make less:

- economic crisis
- an expansion opportunity
- threat from the competition
- the government
- airport fees
- CASM
- borders
- gremlins
- the tooth fairey

The onslaught of BS all has the common theme to manipulate & distort reality

The best way to counter this is to value yourself, your profession and follow the basic union principles to get what all pilots in this country deserve. Respect

[Canadaflyer46]

Here's another idea for WJ and AC. If taxes and fees are so much higher here than the US how about collaborating and working towards getting them lowered for airlines in Canada. I guess it's just a lot easier to stagnate salaries to make savings though. Like a high school bully they don't want to pick a fight with anyone bigger than them. If WJ management put as much energy and passion into fighting the airport authorities/government bodies, as they do their own employees, they'd perhaps make some savings on that front and be able to keep ticket prices the same.

[aerobod]

Here's another idea for WJ and AC. If taxes and fees are so much higher here than the US how about collaborating and working towards getting them lowered for airlines in Canada. I guess it's just a lot easier to stagnate salaries to make savings though. Like a high school bully they don't want to pick a fight with anyone bigger than them. If WJ management put as much energy and passion into fighting the airport authorities/government bodies, as they do their own employees, they'd perhaps make some savings on that front and be able to keep ticket prices the same.

WS has a dedicated VP for dealing with and trying to influence the Government. I knew the previous person in that position who moved to Ottawa to try and be close to the key players. Unfortunately this and previous governments have been resistant to reason in this area and now seem to have turned more hostile on the APPR front, too. AC, Jazz, WS and Transat through the National Airline Council of Canada have been a single regulatory policy lobby group on this, but their lobbying seems to be continually shunned, unfortunately.