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Up in the Air: WestJet

WestJet has built a brand around how it gets along with its employees. So what happens when that changes?

Sep 1, 2014

by Jessica Wynne Lockhart

001_upinair_story01
Illustration Steve McPhee
V250 Rank: 27
Chief Executive Officer: Gregg Saretsky
2013 Revenue: $3.7 billion
Number of Employees: 8,000

It became one of WestJet’s most liked and most-shared Facebook posts, but it wasn’t a seat sale or one of its famous viral marketing videos. It was a simple announcement, accompanied by a grainy photo of a plane: “We’ve landed at Dublin Airport! Our first ever flight to Europe is now complete.” It was WestJet’s first transcontinental flight – and, if the company has its way, the first of many.

It’s been having its way for a while now. In June 2013 WestJet launched Encore, a short-haul carrier that operates 100 daily departures to 18 destinations. For the most recent fiscal year, the parent company generated a record $268.7 million in profits on $3.7 billion in revenue, while it delivered its 36th consecutive profitable quarter in the first three months of 2014. And to accommodate this growth, it moved to a multi-base system, opening operations in Vancouver and Toronto. It has become, in almost every way that matters, a truly national airline.

Much of that success is a product of its relationship with its 8,000-plus employees, who have a direct financial stake in the company’s success. WestJet’s share-purchase program allows employees to purchase up to 20 per cent of their gross salary in WestJet shares, which the company then matches dollar for dollar. Given that those shares have more than doubled since the beginning of 2012, it’s safe to assume that the program is popular among the 86 per cent of employees who use it.

One result of this success is that WestJet has been able to ward off unionization drives, which date back to the company’s inception in the late 1990s. CUPE’s first effort failed then, as did subsequent attempts in 2003 and 2006. The message was clear: unions were not part of the corporate culture. But that has changed this year. In June 2013, CUPE finally got some traction at the airline with an effort aimed at the company’s 3,000 flight attendants. Two other groups – the WestJet Professional Flight Attendants Association (WPFAA) and the WestJet Professional Pilots Association (WPPA) – also popped up, offering a middle ground option between CUPE and WestJet’s two non-union employee associations, PACT (representing most non-management employees) and WJPA (representing pilots). What once seemed unthinkable, the organization of WestJet’s employees into independent labour groups, now seems almost inevitable. The only question left, it seems, is whether it will be bad for business.

WestJet CEO Gregg Saretsky has speculated that the company’s decision to open new operational bases was largely to blame for the growing discontent amongst his employees. “We needed people in Toronto and so there were more spots open in Toronto than people who wanted them,” Saretsky told the Financial Post in December 2013. “So through that process, people have been forced to move to a Toronto base.”

But the WPFAA claims that its efforts are largely proactive, rather than reactive, and that the multi-base model had little to do with them. “Our reason for being is that the representation model currently in place simply doesn’t cut it anymore,” a representative from the WPFAA explains. “We believe that obtaining a collective bargaining agreement is one of the many signs of maturity. It’s kind of like getting your driver’s licence when you turn 16. We look at our department and we’re 18 years old now. It’s time to get a licence.”

The pilots have expressed similar concerns. “Sadly, I believe our company has evolved to a point where the existing PACT/WJPA structure is unworkable,” Captain Clive Scott wrote in the WPPA’s February 2014 newsletter. “This is not because our management is evil or greedy, or that our existing WJPA Executive does not care about the pilots. It is simply a function of how the corporate world in general has evolved and the fundamental flaws in our existing structure.”

George Smith, a labour relations expert at Queen’s University and the former senior director of employee relations at Air Canada, says that this shift was inevitable.

“Maintaining a non-union status in a highly unionized industry is a challenge,” he says. “At some point, the business just gets too big and too busy to have that family approach.” But it’s that family approach that has allowed WestJet to become one of Canada’s “most-loved brands.” As the company grows, WestJet’s success relies on the changing nature of its relationship with its employees – and unionization poses a threat to the WestJet model as it was originally conceived.

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Air Canada’s disastrous relationship with its employees has often been cited as one of the primary reasons for the company’s struggles. Then there’s Delta, which has the lowest union penetration of the legacy carriers in the U.S. and is currently performing the best financially. Darin Lee, an airline analyst and vice-president at consultancy firm Compass Lexecon, credits this to their ability to respond quickly to changes in the market, an ability that is reduced by collective bargaining agreements. “The industry is notoriously dynamic
in terms of the competition, and you want to be nimble,” Lee says. “Once you have a collective bargaining agreement, there’s some degree of loss in how to respond to competitive changes.”

That said, there’s no iron-clad relationship between unionization in the airline industry and financial and operational performance. “It really depends on the relationship between management and labour,” Lee says. He cites the example of Southwest Airlines, the carrier that Clive Beddoe and his partners looked to for inspiration in the mid-90s ’when forming WestJet. Beddoe’s team modelled its culture after the American airline, which tied employee interests with those of the company through its own profit-sharing program. As a result, Southwest has been the most profitable airlines in the U.S. over the last decade. That said, it also happens to be one of the most heavily unionized.

“Traditionally they have had very good labour relations that allowed them to get very high productivity out of their unionized work groups,” Lee says. Southwest’s flight attendants, for example, are amongst the highest paid in the industry – a cost that Lee says is worth paying given that they’re also among the most productive. “At the end of the day, it’s not necessarily how much you’re paying employees, but how much production you’re getting out of an employee,” he says.

Whether or not the WPPA and the WPFAA decide to certify as full unions or not, the company will have to find a way to satisfy their demands if it wants to continue on the ambitious path its executives have laid out. Dublin, for example, is just the first long-haul route for the carrier. With plans to increase its wide-body operations, WestJet has its eye on four or five key European markets. Within five years, it hopes to be positioned as a true competitor to Air Canada for international flights. And despite a bit of a bumpy launch for Encore, the company believes that by the end of 2014 it should be close to reaching its cruising altitude. By the end of 2015, WestJet plans to have 25 aircraft in the Encore fleet serving destinations across Canada and the U.S.

But with or without unionization, WestJet’s approach to how it does business has already changed. “It’s getting more complicated; more bases, more routes to other countries. It’s looking more like Air Canada,” says Andrew Von Nordenflycht, an associate professor at Simon Fraser University’s Beedie School of Business and the author of a 2004 paper on unionization and airline performance. “That is going to put significant stress on the culture at WestJet, where you’re starting to create more divisions and less of a feeling of, ‘We’re this plucky upstart from Alberta.’ ”

Nordenflycht’s paper, which studied 10 U.S. airlines, suggests that WestJet might not need to fear what lies ahead. “We found a positive correlation between unions and the level of productivity of the airlines,” he says.

The study also found that it wasn’t necessarily the formal structure of the labour-management relationship that affected profits and productivity. Rather, it was the quality of the relationship. And as WestJet moves to compete both with international carriers and Air Canada’s Rouge service, its success will continue to depend largely on that relationship. Saretsky, for one, believes that “it’ll quiet down” once employees become comfortable with the changes. “Ultimately, it’s the employees who will decide how well they’re being taken care of. But our people are very well compensated,” he said in an interview with the Financial Post.

But for the WPFAA, it’s never been about the money. “WestJet has – and continues to – treat us like gold. But we’re looking to the future. As the company gets bigger, the mom-and-pop mentality really transitions to a very corporate mentality,” says a WPFAA representative. “It’s too big to run with a handshake and a wink and a nod. We need defined rules.” Queen’s University’s Smith agrees, noting that the formalization of work agreements through a union is a natural step. “The conclusion should not be that a union will be bad for business,” he says. “If the troops are marshalled and the union is on board with the company’s mission, that can be a formidable team.”

And make no mistake: neither the pilots nor the flight attendants want to hurt the company’s bottom line. “If we do anything that causes any kind of disparagement to the company, we’re shooting ourselves in the foot,” says the WPFAA. “We want WestJet to continue being the airline that guests want to fly with, that employees want to work for and that investors want to invest in.” Indeed, they think the proposed in-house collective bargaining groups are a WestJet-esque idea, given that they represent values at the core of the company’s identity. “If you have a high level of employee satisfaction, then the business will take care of itself,” says the WPFAA. “If we didn’t think it was in the best interests of the growing company, we wouldn’t do it. We love WestJet dearly.”

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