Network Carrier Vs Lcc

[BoeingBoy]

The latest issue of Unisys R2A Transportation Management Consulting's "Scorecard" series. This one deals primarily with Air Canada vs WestJet, but draws parallels with the network carrier vs LCC battle in the US. If you're bored, or just want to see how the battle is shaping up North of the Border, this is a pretty good read. We are even mentioned in a few places.

This document is in Adobe Acrobat format, so Acrobat Reader (free) is required.

Scorecard 16

Jim

 

[BoeingBoy]

Two sections of the above report sorta jumped out at me:

4. In Canada, as in the United States, the not-so-easily quantified difference is the culture. Like many new-generation airlines, starting with Southwest and including
PeoplExpress, America West at its founding, and jetBlue,WestJet has created financial
plans to align the employees’ interests with those of the company.

The plans include a profit sharing program, skewed towards encouraging/rewarding high corporate performance. The employees receive, annually, 10% of net profits before tax when the return is 10% or less and an increasing percentage of total
profits, 11% if the return is 11%, 12% on 12%, and so on. The percentage is capped at 20% but is applied to total profits no matter how large (e.g., 20% of a 28% return).
The payouts, made quarterly, have been substantial, as shown in Figure 10.

The best year, 2000, produced payouts averaging nearly C$12,000 per employee, exceeding one-third of the average wage. But in the worst year so far, 1998, the payouts were far from shabby, C$2,900, 9.4% of annual wages.

And in the post 9-11 world, while employees of legacy carriers have seen their wages cut and, in many cases, their jobs terminated,WestJet has laid off no one,2 continued annual pay increases, and continued to write substantial profit-sharing checks. For 2003 the company paid nearly C$16 million in profit sharing; cumulative payouts to date are nearly C$65 million.

There is also a stock purchase plan pursuant to which the company will match, dollar for dollar, stock purchases up to 20% of annual wages of any employee. Purchases are made at market prices, from the company or the market; 87% of the employees participate in the voluntary plan. Given the performance of WestJet’s stock, not a few employees have built substantial nest eggs and some have become millionaires and multi-millionaires.


But why are WestJet’s costs so effortlessly low when so many other startup airlines cannot come close? Our visit to WestJet made clear to us that it, too, is not your normal company.Wherever we went we found a different attitude of good humor, friendliness, and informality.

And we found a management team that is loved, not feared; a uniform enthusiasm
for the company; a clear sense of mission; and, most encouraging, a lack of class
boundaries among the employees, observed in the interaction of cockpit and cabin crews in their pre-flight lounge, in the whimsical signs marking off “executive rowâ€, and the lack of executive perks such as designated parking.We also found a consensual, collaborative management style in which employees are empowered to solve problems and guided by promises—promises to the employees, promises to the customers—not controlled by policies.

We have visited many airline headquarters over the years; we have almost
always found rigid hierarchies (even in very young companies), “we†vs. “themâ€
attitudes, and, usually, fear. Seldom have we encountered joy; but at WestJet, as at
Southwest, joy and pride are palpable.


Jim