The little airline that could
The Hamilton Spectator
WestJet has soared by giving its employees a share in the business, by letting them solve customers' problems without a bunch of rules getting in the way and by choosing Hamilton as its eastern hub of operations
Discount is de rigueur these days, in case you didn't notice. The evidence is everywhere. Stocks are cheap, interest rates are rock bottom and the cost of financing a car is, well, zero.
The pleasure of locking in on a bargain has never been out of style, but the way we brag about the deal is going through a bit of a fashion change.
Simply put, the thrill of paying less for something worth much more is giving way to the thrill of paying much closer to what something is actually worth.
This theory makes it easier to understand the puzzling success of down-market retailer Liquidation World. The Calgary-based company's stores, including one in the basement of the old Eaton's in downtown Hamilton, are designed with an eye to recreating the cluttered charm of a garage sale, right down to prices taped to items in church-bazaar-style.
But this month Liquidation World's 90 stores passed $1 billion in sales -- a threshold reached by providing cut-rate mattresses, match sticks and literally any merchandise it can pick up from bankrupt merchants to pass savings on to an enthusiastic public.
The notion that bargain behaviour is growing among us is a point eternally lost on those who lust for luxury or those who elect to live with less.
But when the realization comes to the rest of us, it is sheer rhapsody.
Clive Beddoe recalls his moment with perfect clarity. One day in the early 1990s, a straight-faced Air Canada clerk was asking $700 for a walk-on, no-reservation ticket from Calgary to Vancouver. Beddoe was outraged.
That day the British-born real estate developer who knew nothing about running an airline set out -- with Mark Hill, Tim Morgan and Don Bell -- to create a cheaper alternative .
And so WestJet was born.
Today Calgary-based WestJet Airlines is worth about $1 billion, almost triple the value of Air Canada. Its no-frills, no-food, no-film flights link 17 cities with a fleet of 26 planes.
It expanded its mainly western company to the East in March, 2000, choosing Hamilton as the eastern hub of operations.
Each week, John C. Munro International Airport and the cornfields that surround it see about 100 WestJet flights arrive from and depart to Saskatoon, Moncton, Thunder Bay and other similarly smaller airports.
The dowager image of Hamilton's airport seems to be no deterrent to discounters who flock here.
Inside the terminal, decor relics from the 70s and 80s duel for attention. In a cafeteria decked out in a scheme that screams "institutional hospital," an empty coatrack sports hangers from Spotless Cleaners.
But the terminal isn't -- spotless, that is. A crumpled piece of paper scotch-taped (a few times) to a shuttered wicket reads: "Knock if you require customs service."
A few inches away someone has taken the trouble to tear off the bottom of a fundraising flyer pasted up in 1989.
The glue used to fasten letters of a long-gone car rental sign still spells out, in ghostly form, the word "Thrifty."
The interior designers of Liquidation World would feel right at home.
To some, Hamilton airport's unadorned atmosphere is an asset, an accidental oasis.
"It's easy to get around, non-threatening," says Jane Werniuk who recently took a $100 cab ride here from Toronto to catch a WestJet flight to Winnipeg that cost her half what Air Canada wanted to charge.
"I'd rather spend an hour getting here than an hour lining up for security in Toronto," she says.
So how did WestJet do it? Others, many others, have had similar dreams to build airlines: Canadian Airlines, Canjet, Roots, Greyhound, Canada 3000. Gone, all of them.
WestJet did it differently. It issues no tickets. Fares are simple and priced all one way. Movies, music and business-class don't exist. In-flight food is scarce. Try pretzels.
Employees are non-union and, as a result, pilots pitch in cleaning and inspecting planes. The planes are all Boeing 737s, making it easier to streamline training and maintenance.
It's a recipe straight out of a cookbook written by a certain Texas airline that has done well specializing in down-home discount fares.
Southwest Airlines of Dallas began in 1971 and as the fifth largest U.S. airline serves 57 cities. Many of them, like Lubbock, Tex. and Islip, N.Y., are off the beaten track.
That WestJet has settled on under-served airfields in Hamilton, Abbotsford and elsewhere to compete with the congested airports and gridlocked highways of Vancouver and Toronto is just the sort of thing that Southwest might have done in Canada.
"We endeavoured to emulate everything at Southwest," says Beddoe. That includes a share purchase plan for employees who are paid 95 per cent of the wage of competing airlines. The plan lets them buy shares in their airline and has the company match the stock purchase one-for-one.
As a result, about 87 per cent of WestJet's employees are shareholders. The company went public in 1999 at $10 a share. In mid-December, shares were trading at about $22.
"We've got employees who own the company, whose interests are directly aligned with the interests of the company. They're watching everything from safety matters to quality service and on-time performance matters," says WestJet chief financial officer Sandy Campbell.
"It's very powerful to have more than 2,000 people rowing in the same direction."
The company is predicting upcoming results will produce the 20th consecutive quarterly profit. "Profit is an honoured word in this company," CEO Beddoe says.
"But we didn't make a profit because of me or because of the management group. We made a profit because 2,400 people decide to work collectively, successfully together. And if they did so, they deserve to share in that profit."
The stock purchase plan "brings ownership and pride and a sense of achievement to people who normally have a pretty mundane, repetitive job. If we can get that sense of involvement, commitment and achievement, then there'll be no stopping us," Beddoe says.
For pilots, a good part of whose compensation is based on stock options, the ride has been particularly lucrative.
A block of, let's say, 50,000 options exercised by one pilot at current prices would have produced a windfall of $1 million for that person and made millionaires out of 25 more.
"They took a big leap of faith and a big pay cut to join here. And as a result, they're looking at being in the money big time," Campbell said of the pilots who joined prior to the company being publicly traded when shares and options were valued in the $2 to $3 range.
The million-dollar mood may explain why 70,000 people recently applied for 700 jobs. That and the fact that WestJet is hiring, bucking the trend of the Great Airline Depression of 2001 in the aftermath of Sept. 11.
Or could it be simple geographic differences? That Western thing. Texas and Alberta culture.
"It's a different style of treating people. There's a more hierarchical thinking that exists in older societies," Beddoe says of Eastern Canada. "We're a younger society. We don't think traditionally and I think people respond very favourably to that, wherever we go."
Through a management technique he calls MBWA -- management by walking around -- and other means, Beddoe hopes to expand WestJet's youthful culture well beyond its 2,400 employees.
Southwest kept its culture intact as it grew to its current 30,000 employees, Beddoe points out. For the past four years, Southwest has ranked in the top four companies to work for in the U.S.
At WestJet, the customer is not always right. "If we gave people what they wanted, we wouldn't be a profitable airline," says WestJet sales manager Judy Goodman. Instead, WestJet puts its money on its people with the belief that "if our people are happy, they will pass it on to the customer."
Goodman was effervescent in a presentation to the Stoney Creek Chamber of Commerce last month. She is part of a team Beddoe created that he says is "not about finger pointing and back biting and bitching and complaining about each other, but rather about finding solutions and pushing each other to achieve."
The phrase "empowered employees" is a bit hackneyed these days, but WestJet appears ahead of the pack in looking for new ways to put it into practice.
Staff are given the right to do whatever it takes to fix a problem and the airline purposely avoids talk of policies.
"We don't believe in policies. We have guidelines," Beddoe says.
"We empower our people to do whatever it takes to satisfy a customer in their best judgment. Whatever they think is appropriate, they are free to do. It doesn't matter if it's a flight attendant, a pilot, a customer service agent or a sales agent."
The same goes for problems among staff. If someone gets frustrated by their immediate manager, they can take their complaints to the top and be heard.
In such a free-wheeling environment, it's not uncommon to find staff on board dressed up for special occasions like Halloween, which WestJet celebrated in its own folksy way by offering a free flight to anyone with the last name Black or Jack or who was born on Halloween.
One new ticket agent in Hamilton felt suitably empowered a couple of days after Sept. 11.
As a long line of nervous and grumpy passengers made its way slowly through new security measures, he stood up on the counter and led the crowd in a hooting and cheering "wave." It turned a mundane wait into sports-stadium glee for a moment.
Again, it's a page torn from Southwest, whose first decade was dominated by a "Love Southwest Style" of low fares and highjinks. Southwest founder Herb Kelleher liked to describe the style as the "Wal-Martization of the airline business."
In the 1980s, Southwest's reputation among passengers was clear, winning citations for best on-time record, best baggage handling and fewest customer complaints. In the past 10 years, it has been ranked as the No. 1 U.S. airline with fewest customer complaints.
"If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline," goes the Southwest mantra.
In success, Southwest doesn't take itself too seriously. Some of its planes are painted like Shamu, the killer whale. It offers special discounts, called Thrilling Thursdays, every week to Las Vegas and other locations. And Southwest president Colleen Barrett regularly writes a homespun column that mixes motherly advice with updates.
To further its own folksy image, WestJet posts some of its favourite jokes on its Web site (Why did the bald guy paint little rabbits on his head? From a distance they look like hares, is the hardy-har-har answer.)
It will take more than light-hearted humour for WestJet to fully emulate its mentor. It will have to maintain its already favourable customer-complaint record.
It had two complaints per million guests in the 12 months ended March 2001, compared with the 1,105 complaints per million guests that was average for the Canadian airline industry over the same period.
And it must be equally vigilant with its on-time record. A key strategy for Southwest and WestJet is the choice of smaller airports that let airlines reduce the time planes take to "turn" and takeoff for a new destination.
"We make money by keeping planes in the air, not by keeping them on the ground," Beddoe says. "If we can turn an airline in 25 minutes, it's ideal. You can do it a lot more easily in a place like Abbotsford and Hamilton than in Toronto and Vancouver."
But does this culture that allows employees freedom to make mistakes and break down traditions run counter to running an airline, which by any measure operates on razor-thin profit margins. Beddoe doesn't think so.
"What airline do you know that has grown 50 per cent a year by any measure and makes money doing it?" he asks.
It's a good question. But what about competition?
With Canada 3000 deep sixed and Air Canada coming under intensive pressure to give up a greater share of its 80 per cent market share in Canada, WestJet's status as the discount darling of the aviation industry appears unchallenged for the moment, particularly with WestJet operating at about 45 per cent of Air Canada's costs.
Boxed into a corner by discount competition and by a federal government intent on reducing Air Canada's dominance, Air Canada CEO Robert Milton came out swinging.
Air Canada this fall launched a discount airline called Tango that offers "optional" in-flight services and cheap flights that compete not only with WestJet but also with the fares of its own parent.
And a mysterious new Air Canada offshoot, codenamed LowCostCo and headed by former WestJet executive Steve Smith, is thought to be coming to Hamilton to compete with WestJet on its home turf.
Milton is also fighting to open up Canadian domestic routes to U.S. airlines. In exchange, Air Canada would love to fly between U.S. cities. But Ottawa says Air Canada is dreaming -- American airlines are unwilling to alter the status quo to allow foreign airlines to fly between U.S. cities.
Code-sharing arrangements among international airlines already provide passengers the options to travel within a network of carriers across U.S. and other international borders and to amass continuingly popular reward points for doing so.
But these code-sharing agreements and their frequent flier point programs are on the outs, Beddoe brazenly predicts. "They subsidize higher fares." He says it's cheaper to get from point A to B to C with various discounters.
And Beddoe is betting on the Internet as the means through which travellers and agents will book flights in future.
Still, WestJet isn't abandoning any time soon its call centre for taking phone orders for flights.
As for code-sharing, it had to play catch up this past summer and sign on to the Sabre reservation system. Previously, the Hamilton YHM code did not appear as an option to Toronto (YYZ) on travel agents' reservation screens.
So what does the near future hold for WestJet? Though its share price is plumped up, Beddoe says he is not interested in buying anything. Growth for the sake of growth is what killed Canada 3000, he says.
"We like to generate a return every where we fly, every time we fly," CFO Campbell says, cautioning against expanding too quickly.
As for new routes, a Saturday Hamilton-Abbotsford flight begins in a few weeks. Halifax and St. John's will quickly follow. By the end of 2002, WestJet will be flying out of Pearson, but Beddoe says it won't stunt Munro's growth. "Toronto may be the spoke, but Hamilton will remain the hub."
And flights south may not be too far off, Beddoe says. What will help him enter the U.S. in a way that combines corny with cut-rate? Beddoe is looking to Southwest for the answer.
WESTJET BUSINESS GUIDELINES
* No frills, no food, no films
* Low fares and highjinks
* Looks aren't everything
* Don't take yourself too seriously
* MBWA -- Management by
* Empower employees to do what-
ever it takes to solve customers'
* The customer isn't always right
* Corny and cut-rate rule the day
I think this is great also note the woman from Toronto
also go to show the people in here that don't think people will go to Hamilton for cheaper flights I know you are out their.
Way to go Westjet