WestJet Airlines Ltd. is seeking to expand operations under a two-tier structure, gambling on maintaining labour harmony by giving its non-union pilots veto power over the carrier's bold plans to launch a regional service that will pay reduced wages.
Management and the WestJet Pilots Association signed a memorandum of agreement this week that establishes pay and work rules at a wholly owned subsidiary that has an operating certificate for flying 40 turboprops – an ambitious breakaway from its business model of flying Boeing 737 jets since 1996.
Calgary-based WestJet will conduct a vote among its 8,500 non-union employees from Jan. 23 to Feb. 3 on the idea of starting a new regional carrier, but the focus will be on the 1,050 pilots casting their ballots. "If the pilots vote No to the [memorandum of agreement] we will not move forward with the regional airline initiative," management warned in an internal memo.
The creation of a regional carrier poses a challenge to the airline's reputation for an egalitarian corporate culture, but WestJet is staking its future on winning support for its proposal to expand into short-haul flights, the better to battle Air Canada and its regional affiliates, notably Jazz Aviation LP.
The pay scale for pilots at the new unit will be less than market rates for regional carriers, the memo said. As well, pilots at the subsidiary would be allowed to contribute up to 10 per cent of their wages toward a stock purchase plan, half of what WestJet's existing employees are allowed to contribute. And WestJet regional pilots face paying 50 per cent of premiums for health and dental benefits, a cost-sharing arrangement that's sharply higher than peers at the mainline.
Some WestJet pilots say the subsidiary's wage scale will amount to 80 per cent of the regional industry median. But management dismissed suggestions that salaries and benefits at the new operation will degrade the airline's corporate culture. "The total compensation package uses a similar pay mix to current WestJet employees, with a reduction in the actual dollar values that makes it competitive with other regional carriers," the five-page memo said. "Ultimately, the regional airline is about continued growth, which will optimize our network and feed our 737 flying, so the 737 can continue to grow."
WestJet said the regional carrier will preserve the corporate culture, resulting in "no second-class citizens," while "realizing that we do need best-in-class costs to be successful in the regional space."
The company's efforts to sway its staff come eight months after unionized members of the Air Canada Pilots Association rejected a tentative labour pact that would have cleared the way for the country's largest airline to forge ahead with a discount leisure carrier. ACPA is holding bargaining talks this month, with the aid of a federally appointed conciliator.
A non-union WestJet Regional Pilots Association will be formed to represent the interests of pilots at the subsidiary, according to a separate 28-page presentation by management marked "restricted and confidential."
WestJet views the proposed regional service as an apprenticeship program for its mainline, which currently has 97 Boeing 737 jets. Management is touting job advancement opportunities, saying that for every four pilots hired externally to fly Boeing 737s, one regional pilot will graduate to the mainline.
The Canadian-built Bombardier Q400, with a maximum cruising speed of 667 kilometres an hour, is on WestJet's shortlist of turboprops, as is the French-Italian ATR 72-600 series of planes. The Q400 could be fitted to seat 74 passengers while the ATR 72-600 seats 68 people.
WestJet chief executive officer Gregg Saretsky and other executives are asking employees to vote in favour of the regional airline, to be launched in 2013. "Help us write WestJet's next chapter," they wrote in the presentation. "Our request of you today – your buy-in, commitment and desire to bring your passion to our next chapter; your support of a low-cost regional airline as a wholly owned subsidiary of WestJet."
Mr. Saretsky argues that WestJet's domestic market share is stagnating at 36 per cent, compared with Air Canada's 56-per-cent share, so it's crucial that employees support the purchase of turboprops to expand into smaller Canadian destinations and also use the new planes during non-peak times on major routes. He said Air Canada still has the edge over WestJet in load factor (the proportion of seats filled by paying customers) and yield (average ticket prices collected to fly one passenger one mile).
Air Canada and its partners serve 76 key domestic destinations, compared with WestJet's 30 cities. To narrow the gap, WestJet asserts that it needs the regional arm to improve profit and career opportunities, as well as increase the number of destinations.
Management's presentation urged employees to align their goals with the creation of the subsidiary by striving for "growth, engaged culture, long-term WestJet viability, improved profitability."
WestJet vs. Air Canada
To battle Air Canada, WestJet plans to order 40 turboprops for regional service, primarily geared toward smaller Canadian cities. The new planes could also be deployed during non-peak times on major routes.
Air Canada is a member of the Star Alliance of global carriers. WestJet doesn't belong to an alliance, but has several partnerships, including a code-sharing pact that it jointly announced Tuesday with Atlanta-based Delta Air Lines Inc. WestJet wants to start its regional service in 2013, hoping to feed domestic traffic from smaller cities to major hubs, which in turn would boost connecting traffic to Delta and other partners.
WestJet lags Air Canada on flight frequencies on key routes. For instance, on the Calgary-to-Edmonton run, Air Canada offered 16 one-way trips a day on weekdays last summer, compared with seven for WestJet.
Fares are more consumer-friendly on routes where there is competition. On the Calgary-Edmonton route, one-way fares last summer ranged from $94 to $449 on Air Canada, while WestJet offered $94 to $229. On the one-way trip from Edmonton to Kelowna, B.C., Air Canada charged from $124 to $479, while WestJet's range was $124 to $320.
Air Canada fares
On routes WestJet does not fly, Air Canada has higher ticket prices, according to WestJet. For the one-way trip from Calgary to Lethbridge, Alta., on an Air Canada affiliate, it cost from $202 to $588 one-way last summer. For a flight from Victoria to Prince George, B.C., it cost from $238 to $798 aboard Jazz-run planes through the Air Canada Express brand. WestJet hopes to lure customers with cheaper fares.