WestJet Airlines Ltd. is bracing for a prolonged downturn in the Alberta economy with actions that could include job reductions, chief executive officer Gregg Saretsky says.
“We are having to look at some voluntary programs to shrink the size of the business,” Mr. Saretsky told The Globe and Mail’s editorial board on Tuesday.
The collapse in the price of oil that has battered the Alberta economy has taken a bite out of WestJet’s revenue, has caused a major shift in capacity out of that province to other markets and led the airline to ask plane makers Boeing Co. and Bombardier Inc. to defer deliveries of new planes.
The province’s economy is a long way from hitting the trough, he said. Traffic has fallen by high double digits, but not as much as the 50-per-cent decline in chartered flights from the Fort McMurray airport.
“We’re planning for it to go quite a bit deeper and quite a bit longer. I was in Alberta in the mid-1980s, this feels like then.
“How long was that trough, seven years?”
The Calgary-based airline is examining all aspects of its business to reduce costs. In previous downturns, staff reductions were done through voluntary programs, Mr. Saretsky noted.
“We’ve never had a layoff in our 20-year history.”
The potential staff-reduction plan includes determining how many layers of management exist between Mr. Saretsky and the pilots, flight attendants, agents and mechanics who are the front-line employees to see if one layer can be removed, he said.
While he expects the decline in the Alberta economy to deepen, he described WestJet’s moves as “tapping the brakes. We’re not jamming them on; tapping the brakes lightly to slow things down.”
But that tapping of the brakes includes something WestJet has never done, which is to return leased airplanes to aircraft-leasing companies instead of renewing the leases.
It has renewed leases on five of eight aircraft this year and sent the remaining three back to the leasing companies and will return all six airplanes whose leases end in 2017.
Boeing has agreed to delay until late-2017 deliveries of two 737NG airplanes that WestJet was scheduled to receive this December and another that was slated for delivery in May, 2017.
The Boeing 737 MAX planes that WestJet has ordered will be delivered on schedule.
Mr. Saretsky said Bombardier has denied WestJet’s request to defer deliveries of Q400 turboprop planes.
“They’ve said, ‘no, you’re committed to the dates,’ so we’ll take [the planes],” he said.
The airline reported last week that full-year profit rose 29 per cent to $367.5-million or $2.92 a share compared with $284-million or $2.20 a year earlier.
But the impact of the Alberta downturn showed up in fourth-quarter results, which fell 30 per cent from year-earlier levels.
Mr. Saretsky noted, however, that the effect on WestJet should be taken in perspective.
Analysts are forecasting share profit in the range of $2.50 to $2.60 a share, which would be among the five best financial results in the airline’s history.
“We’ve built our airline and achieved investment grade credit rating by being focused on the long term, not the next quarter,” he said.
For that reason, he remains optimistic, noting that WestJet has a good cost structure, a strong brand and numerous opportunities to find new sources of revenue.
Those include expanding its frequent flyer program, its alliances with international airlines and WestJet’s Plus product, which is aimed at the business travel market now dominated by Air Canada.Report Typo/Error