Canada’s Most Respected Cheaters
by Jim Stanford, CAW economist
Earlier this year, KPMG released its annual ranking of Canada’s “most respected corporations.†Surprisingly, the silver medal went to WestJet. “Today, corporate reputation matters more than ever,†said KPMG partner Bill Dillabough in announcing the results.
As a union economist, I never understood WestJet’s success in this ranking. The airline’s CEO was worth something like $100 million at fiscal year-end, while its workers get sub-average wages and have no pension plan. What’s to respect about a company which models its income distribution practices on the Industrial Revolution?
After reading the KPMG fine print, however, it all became clear. The ranking is based on a poll of CEOs, not a poll of Canadians. “Aha,†I thought. Extracting committed labour effort from workers while paying them poorly and offering no pensions: now there’s a neat trick that other CEOs (most of whom are not worth $100 million) will indeed respect, and probably emulate. Whether it deserves respect from the rest of the human race, however, is another matter.
Alas, if the poll were conducted this week the results would be rather different. WestJet’s reputation has been dragged through the mud again, with revelations (not proven in court) it snooped confidential information on Jetsgo (its low-cost competitor), in addition to hacking similar data from Air Canada. Dillabough’s words may prove prophetic, if not in the way WestJet’s spin-doctors had hoped.
Actually, the worst news for WestJet lately has not been revelation of corporate espionage, it’s been lousy financial results. First-half profits were down by half, and the profit margin (as a share of revenue) fell to its lowest ever. Load factor (the proportion of seats filled by paying passengers) is the fundamental measure of airline efficiency, and on this score Air Canada is now creaming WestJet – by eight percentage points over the first six months. WestJet’s traffic is lagging its rapid capacity expansion, so its own efficiency is falling.
WestJet is squeezed on one side by a reinvigorated Air Canada (which still dominates high-revenue premium and international routes), and on the other by discounters copying WestJet’s business model (just as WestJet itself copied Southwest Airlines). WestJet responds by moving upscale (with new planes, high-tech TVs, and other amenities), but this boosts costs – up by a third this year, while Air Canada’s fall dramatically.
Canada’s airline industry has been a financial killing field since deregulation in 1987: not a single airline has demonstrated sustained profitability, and dozens have gone bankrupt. Some argued WestJet was the exception; I was always doubtful. This company is now foundering on the same rocks of reckless overexpansion and ruthless competition that destroyed those before it.
And as WestJet starts looking less like a winner, its business plan will start falling apart like an old jetliner. Consider its low-wage employment strategy. One way WestJet kept its people happy while paying them little was through discretionary profit-sharing payouts. But these have been cut by 60 percent – a loss of $600 income per employee over the first six months of this year.
Among other contract changes, CAW members took a temporary 2.5 percent wage cut, lasting two years, as part of the final restructuring deal at Air Canada. That will also cut their income by about $600 every six months (and their wages were higher to start with). How ironic that CAW members at a near-bankrupt airline protected more of their income than workers at a supposed model of free-enterprise success. Meanwhile, thanks to good union strategizing and a sympathetic judge, Air Canada workers didn’t lose a dollar of pensions – while WestJet workers still have none at all.
What about WestJet’s vaunted employee share ownership plan, under which 87 percent of WestJet workers spend an average 13 percent of their hard-earned, below-average wages purchasing WestJet shares? Sadly, their investment losses on WestJet shares (which are down 40 percent this year) have only added to their effective wage cut. So don’t be surprised if those little ditties they sing on WestJet flights start sounding a tad less cheerful in coming months. And don’t be surprised if WestJet workers start demanding something a bit more reliable in the way of future compensation.
Exploiting, spying and cheating may not hurt WestJet’s reputation with the CEOs who get to vote in the KPMG poll (after all, lots of CEOs do those things). But lousy profits will. Either way, today’s WestJet just don’t get no respect.
Jim Stanford is a big Rodney Dangerfield fan; a version of this column appeared in the Globe and Mail.
by Jim Stanford, CAW economist
Earlier this year, KPMG released its annual ranking of Canada’s “most respected corporations.†Surprisingly, the silver medal went to WestJet. “Today, corporate reputation matters more than ever,†said KPMG partner Bill Dillabough in announcing the results.
As a union economist, I never understood WestJet’s success in this ranking. The airline’s CEO was worth something like $100 million at fiscal year-end, while its workers get sub-average wages and have no pension plan. What’s to respect about a company which models its income distribution practices on the Industrial Revolution?
After reading the KPMG fine print, however, it all became clear. The ranking is based on a poll of CEOs, not a poll of Canadians. “Aha,†I thought. Extracting committed labour effort from workers while paying them poorly and offering no pensions: now there’s a neat trick that other CEOs (most of whom are not worth $100 million) will indeed respect, and probably emulate. Whether it deserves respect from the rest of the human race, however, is another matter.
Alas, if the poll were conducted this week the results would be rather different. WestJet’s reputation has been dragged through the mud again, with revelations (not proven in court) it snooped confidential information on Jetsgo (its low-cost competitor), in addition to hacking similar data from Air Canada. Dillabough’s words may prove prophetic, if not in the way WestJet’s spin-doctors had hoped.
Actually, the worst news for WestJet lately has not been revelation of corporate espionage, it’s been lousy financial results. First-half profits were down by half, and the profit margin (as a share of revenue) fell to its lowest ever. Load factor (the proportion of seats filled by paying passengers) is the fundamental measure of airline efficiency, and on this score Air Canada is now creaming WestJet – by eight percentage points over the first six months. WestJet’s traffic is lagging its rapid capacity expansion, so its own efficiency is falling.
WestJet is squeezed on one side by a reinvigorated Air Canada (which still dominates high-revenue premium and international routes), and on the other by discounters copying WestJet’s business model (just as WestJet itself copied Southwest Airlines). WestJet responds by moving upscale (with new planes, high-tech TVs, and other amenities), but this boosts costs – up by a third this year, while Air Canada’s fall dramatically.
Canada’s airline industry has been a financial killing field since deregulation in 1987: not a single airline has demonstrated sustained profitability, and dozens have gone bankrupt. Some argued WestJet was the exception; I was always doubtful. This company is now foundering on the same rocks of reckless overexpansion and ruthless competition that destroyed those before it.
And as WestJet starts looking less like a winner, its business plan will start falling apart like an old jetliner. Consider its low-wage employment strategy. One way WestJet kept its people happy while paying them little was through discretionary profit-sharing payouts. But these have been cut by 60 percent – a loss of $600 income per employee over the first six months of this year.
Among other contract changes, CAW members took a temporary 2.5 percent wage cut, lasting two years, as part of the final restructuring deal at Air Canada. That will also cut their income by about $600 every six months (and their wages were higher to start with). How ironic that CAW members at a near-bankrupt airline protected more of their income than workers at a supposed model of free-enterprise success. Meanwhile, thanks to good union strategizing and a sympathetic judge, Air Canada workers didn’t lose a dollar of pensions – while WestJet workers still have none at all.
What about WestJet’s vaunted employee share ownership plan, under which 87 percent of WestJet workers spend an average 13 percent of their hard-earned, below-average wages purchasing WestJet shares? Sadly, their investment losses on WestJet shares (which are down 40 percent this year) have only added to their effective wage cut. So don’t be surprised if those little ditties they sing on WestJet flights start sounding a tad less cheerful in coming months. And don’t be surprised if WestJet workers start demanding something a bit more reliable in the way of future compensation.
Exploiting, spying and cheating may not hurt WestJet’s reputation with the CEOs who get to vote in the KPMG poll (after all, lots of CEOs do those things). But lousy profits will. Either way, today’s WestJet just don’t get no respect.
Jim Stanford is a big Rodney Dangerfield fan; a version of this column appeared in the Globe and Mail.
