'We've just grown too big, too fast:' CEO Ed Sims taps the brakes at WestJet
Amanda Stephenson, Calgary Herald
That’s the word WestJet CEO Ed Sims uses to describe 2018, a year that saw the Calgary-based airline grapple with a threatened pilots’ strike, the unionization of its flight attendants, skyrocketing fuel costs and competitive pressure from all corners.
But of all the bumps, twists and turns that WestJet encountered this year, there was one in particular that convinced Sims it was time to pause the ride. In July, WestJet posted its first quarterly loss in 13 years — an outcome that Sims said proved beyond a doubt that the company, which had gone through several years of rapid expansion, was no longer living within its means.
“The underlying long-term factor (for the Q2 results) has been a difficult one for WestJetters to come to terms with,” said Sims, in a year-end interview at the airline’s headquarters. “And that has been that we’ve just grown too big, too fast.”
That admission — made by the man who took the controls at WestJet in March, after the abrupt retirement of former chief executive Gregg Saretsky — is an about-face for the company, which saw its share price plummet more than 25 per cent in 2018.
For some time, analysts had been warning that WestJet may have bitten off more than it can chew by launching a new ultra-low-cost carrier, Swoop, while simultaneously planning for a major international expansion using new Boeing 787 Dreamliner aircraft. However, the company itself consistently defended its plans.
That all changed when the quarterly loss was posted. Sims immediately began working on a plan to turn around the company’s flagging fortunes — slashing non-profitable routes, cutting costs and releasing revised financial targets.
“It’s easy to say in hindsight that we started living beyond our means probably two years ago, when we started seeing a deterioration in earnings per share. But while we were still delivering consecutive quarters of profitability, it was hard to put that handbrake on,” Sims said.
“I’m not saying I welcomed the reality that my first quarter as CEO was the first loss-making quarter in 52 … but in many ways, I think the decisions were easier for me because it became blindingly obvious. When you make a loss, it’s absolutely clear-cut.”
One of the decisions Sims made was to err on the side of caution when WestJet announced in October the first three destinations it will serve with its new $280-million Dreamliner aircraft. While Sims’s predecessor had often talked of the upcoming international expansion in a sky’s-the-limit tone — hinting that exotic locales like Asia, South America and Latin America were in WestJet’s sights — the airline ultimately named London-Gatwick, Paris and Dublin (all cities WestJet already flies to with smaller aircraft) as the first destinations for the new service.
“I’m a pretty prudent, cautious character and for me, flying a brand-new half-billion-dollar investment to places we had no track record, no engineering support, no history of operating … to me would have been almost reckless,” Sims said.
The new international routes will be launched out of Calgary this spring, but WestJet will take possession of a total of 10 Dreamliner aircraft by 2021, with an option to buy 10 more. Sims said more adventurous destinations are definitely still on the table in the near future.
“By the time that we come to fly to places like Asia, like Latin America, we’ll have had a year’s operating track record of that aircraft and we’ll be 100 per cent confident that we understand it,” he said.
WestJet could have chosen to launch its Dreamliner service out of Toronto first, or some other hub, but instead it chose to begin the new routes out of its home city of Calgary. Sims said he firmly believes the Calgary market is under-served internationally. However, the move will also help WestJet increase the proportion of its Calgary traffic that is transiting through the city from some other location — and that, in turn, will help WestJet hedge against the economic ups and downs it is exposed to in the Alberta market.
While Calgary’s continued high unemployment and downtown vacancy rates are undoubtedly a concern for WestJet, Sims said the company’s decision to launch its Dreamliner service here demonstrates its commitment to the city as well as its faith in Alberta’s ability to weather the current downturn. The international scheduled service between Calgary and London-Gatwick, Paris and Dublin will support 650 full-time jobs and $100 million in total economic output, according to WestJet, and bring up to 185,000 visitors to Calgary annually.
“By putting three aircraft here, we’ve just sunk half a billion dollars into our belief in the economy,” Sims said. “I actually think WestJet has a role to play in kickstarting the economy.”
To compete in the international market, WestJet will introduce business class cabins with lie-flat seats on its new Dreamliner jets in 2019. The airline also plans to retrofit its entire domestic fleet over the next 18 months to introduce a new “premium” cabin for business travellers.
Having separate fare classes is a big change for an airline that built its reputation around the idea of one cabin and one fare type. But Sims said WestJet believes it can significantly grow its revenue by combining a high-quality business class product with WestJet’s famous friendly service.
“I think WestJetters are now getting comfortable with the fact that we continue to treat every guest with the same respect, but some guests are more loyal than others,” he said. “And if you have a guest who travels with us 10 or 20 times a year, they are entitled to feel that they are treated differently than the guest who only travels with us twice a year.”
Once famously non-union, WestJet has gone from having zero employees collectivized to having 42 per cent of its employees card-carrying union members in the span of 18 months. After the threatened pilots’ strike in May, which cost the airline “tens of millions” of dollars in lost and rescheduled bookings, WestJet and the Air Line Pilots Association went into arbitration to seek a first contract. Negotiations with the Canadian Union of Public Employees, which has represented WestJet flight attendants since August, are expected to begin in the spring.