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Stage 2: WestJet vs. Air Canada Report Clint Peter (1172439), Nicholas Williams (1212079), Colin Brenneis (1204852), Kaitlyn Kastelic (1174375) Company Synopses.................................................................................................. Page 1 SWOT Analyses........................................................................................................ Page 2 Issues facing WestJet and Air Canada a) Public Perception and Customer Satisfaction................................................. Page 4 b) Corporate Culture and Employee Relations................................................... Page 5 b) Growth Strategy............................................................................................ Page 6 c) Technological Advancement.......................................................................... Page 7 Investment Recommendation……………………………………………………………………………….. Page 8 Team Assessment…………………………………………………………………………………………………. Page 10 1 Company Synopses WestJet Airlines Ltd. is a Canadian airline company that currently provides air travel between 69 destinations throughout Canada, the USA, Mexico, and the Caribbean 1. Founded in 19962, WestJet prides itself in offering a travel experience with high quality guest relations. The organization offers scheduled services for personal, business, and group travel, as well as operating charter and cargo services. WestJet employs 7,641 people as of December 31, 2009, with $2.28 billion in revenue and a fleet of 86 airplanes3. Their mission is “to enrich the lives of everyone in WestJet's world by providing safe, friendly and affordable air travel”, with the vision that “by 2016, WestJet will be one of the five most successful international airlines in the world providing [their] guests with a friendly and caring experience that will change air travel forever.” 4 Air Canada is also a Canadian-based airline that provides an average of 1331 scheduled flights daily to 167 destinations on five continents.5 The company was founded in 1936, and has grown to $9.739 billion of sales in 2009.6 Air Canada offers flights for personal, business, charter and cargo services, and boasts 22,500 full-time or equivalent employees.7 Under the leadership of President and CEO, Calin Rovinescu, Air Canada’s mission is to “connect Canada and the world” with a vision of “building loyalty through passion and innovation”. 8 The organization’s main values are to provide safety 100% of the time, value every customer, work together, act with integrity in every situation, and to relentlessly strive for excellence.9 1 WestJet Airlines Ltd., “Annual Information Form”: Mar 23, 2010. 2 http://www.WestJet.com/guest/en/aboutUs/corporateProfile/corporateProfile.shtml 3 WestJet Airlines Ltd., “Annual Information Form.” 4 http://www.WestJet.com/guest/en/aboutUs/corporateProfile/WestJetCulture.shtml 5 Air Canada Ltd. “Management Discussion and Analysis and Financial Conditions”: Mar 27, 2010. 6 Ibid. 7 Ibid. 8 http://www.aircanada.com/en/about/career/about_mission.html 9 Ibid. 2 SWOT (Strengths, Weaknesses, Opportunities, Threats) Analyses a) WestJet Strengths Corporate culture: ranked in Canada’s 10 most admired corporate cultures four times, being one of only five companies to do so10 Able to provide less expensive fares by keeping costs low New airplanes, equipment Strong safety record11 Strong employee relations: #6 on Canada’s Best 50 Employers 201012 Weaknesses Only one type of aircraft: Boeing 73713 No business class Small international presence Dependency on Boeing as their sole supplier of many parts Opportunities Could expand market with different plane sizes, or offer business class seating Could offer more routes and flights, including increased international service Expand market share in Canada (try to reach #1) vs. struggling Air Canada14 New loyalty program, if implemented properly, can bring in more business 15 Threats Fuel price volatility16 Intense airline competition in domestic and foreign markets Resignation of President and CEO Sean Durfy, effective April 1, 201017 10 http://www.waterstonehc.com/cmac/hall-fame 11 http://www.tc.gc.ca/eng/mediaroom/releases-nat-1996-96_h154e-3403.htm 12 http://was2.hewitt.com/bestemployers/canada/pages/the_list_2010.htm 13 http://www.thestar.com/business/article/784895--to-go-big-westjet-may-have-to-shrink 14 Air Canada Ltd., “Financial Statements”: Feb 10, 2010. 15 http://www.thestar.com/travel/article/777272--westjet-loyalty-plan-takes-off 16 WestJet Ltd., “Management Discussion and Analysis”: Feb 17, 2010. 17 http://www.canadianbusiness.com/markets/headline_news/article.jsp?content=b153329225 3 b) Air Canada Strengths Technology development: created Smartphone applications, and was awarded “Best Mobile Application” at the 2009 Canadian New Media Awards18 Able to renew agreement with all of its Canadian-based unions19 Member of the Star Alliance, which expanded in 200920 Large market share; served over 32 million customers last year21 Strong on-time flight performance22 Availability of in-flight entertainment centers Strong reviews for business class travel23 Weaknesses Poor customer service reviews from the economy class24 Negative public perception $316 million operating loss in 200925 Poor liquidity Opportunities International expansion, Air Canada already has a strong international presence Build an entrepreneurial and international culture Upgrade the frequent flyer program Improve in-flight services such as meals and complementary newspapers Threats Increasing fuel prices 18 Air Canada Ltd., “Management Discussion and Analysis”: Feb 10, 2010. 19 Ibid. 20 Ibid. 21 http://www.aircanada.com/en/about/index.html 22 http://www.aircanada.com/en/about/otp/index.html 23 http://www.airlinequality.com/Airlines/AC.htm 24 Ibid. 25 Air Canada Ltd., “Management Discussion and Analysis”: Feb 10, 2010. 4 Sensitive to foreign exchange rate between the US and Canada: A one-cent change in the exchange rate translates to a swing in operating income by $23 million26 Increase in interest rates, as Air Canada is heavily financed by debt Increase in domestic and cross-border competitors Issues facing WestJet and Air Canada a) Public Perception and Customer Satisfaction One critical issue that influences the success of an airline is the public perception of the company and customer satisfaction. WestJet is a smaller company and thus is commonly viewed as more personal than “Canada’s Airline”, Air Canada. Though the two companies are not excessively different in terms of online reviews, the public’s opinion is slightly lower of Air Canada’s service. In terms of demonstrating social responsibility, the airlines match in effort. The first measure we used to compare these two companies in terms of public perception and customer satisfaction, was their ratings provided by Skytrax, a company that reviews over 620 airlines each year.27 On this site, Air Canada was given 4 out of 5 stars for its business class, and an overall rating of 3 stars.28 Skytrax did not recognize any particular category as an extreme weakness of Air Canada, though all of its reviews were average. As for WestJet, it was also awarded 3 out of 5 stars overall, though it was noted as a “low-cost” airline.29 The majority of the complaints about WestJet were in regards to their international flights. Complaints suggested that the company may be trying too hard to cut costs and as a result, WestJet does not feel like a luxury airline. Business class is not offered on WestJet flights, so this rating could not be compared. We assessed the customer reviews of the airlines through rateitall.com, which is a homepage for customer reviews of many different types of products. Though WestJet was awarded a score of 3.22 out of 5,30 there were only nine reviews of which one was very low, 26 Air Canada Ltd., “Management Discussion and Analysis”: Feb 10, 2010. 27 http://www.airlinequality.com/ 28 http://www.airlinequality.com/Airlines/AC.htm 29 http://www.airlinequality.com/Airlines/WestJet.htm 30 http://www.rateitall.com/i-29580-WestJet.aspx 5 which may have negatively swayed the overall score. Air Canada only received 2.95 out of 5 from a total of 56 reviews31, mainly due to stories of rude employees and experiences with hidden costs for service. The management teams of both companies have taken initiatives to embrace social responsibility as they recognize that a positive public perception is essential to their success. Air Canada and WestJet have both taken strides to reduce their environmental impact, and each also has a children’s program. Additionally, the two companies have assisted with the airlift and transport of supplies and workers for the Haiti earthquake relief program. b) Corporate Culture and Employee Relations Another essential factor for the success of a company is the corporate culture and its employee relations. Both WestJet and Air Canada are reputable when it comes to maintaining this invaluable aspect of their organizations. WestJet is rated sixth on Canada’s Best 50 Employers list for 2010 and has been selected as one of Canada’s 10 most admired corporate cultures four times. The award-winning culture can be greatly attributed to the idea that employees “own” the company. Employees have a vested interest and are motivated to put forth their best effort because they are given shares in the company. This motivational technique used by management appears to be very successful. It provides an extrinsic motivation in the form of a profit if company share value increases but also a powerful intrinsic motivation that the employees feeling from “owning” an admired company and maintaining that image. WestJet personnel can also feel safe, as the company has an extremely strong safety record, as reported by Transport Canada. Although there is some ambiguity surrounding the resignation of CEO Sean Durfy, effective April 1 st, 2010, there is reason to believe that the corporate culture will not be adversely affected. Despite this award-winning culture, WestJet has seen high turnover each year, which is common in the industry. Air Canada promotes an entrepreneurial culture among their employees by simplifying processes and encouraging employee empowerment, which is an attempt by management to meet higher-level needs of their employees such as Maslow’s esteem and self-actualization. Air 31 http://www.rateitall.com/i-7470-air-canada.aspx 6 Canada also has a “Sharing our Success” profit-sharing program which rewards and motivates employees to exert their best efforts when on the job. A negative factor in Air Canada’s culture includes a high turnover rate. Along with this, there is increasing conflict between management and the employees of Jazz Airlines, a subsidiary of Air Canada. There is speculation that there may be a lock out in the near future which would impact the organization as a whole. We have concluded that WestJet has a more favourable corporate culture as well as better employee relations, especially considering the potential lock out facing Air Canada. The corporate culture of WestJet gives the company a competitive advantage, which is necessary when operating in an industry with much larger competitors. c) Growth Strategy Management teams of WestJet and Air Canada are constantly faced by the issue of how to plan and implement growth strategies. Air Canada has adopted a strategy based on reducing per unit costs of flights, increasing international operations, and promoting premium flight service32. WestJet continues to emphasize itself as a discount airline, and maintaining their excellent cost-consciousness. WestJet’s future growth strategy is predominantly based on increasing service in the domestic market, but also aims to identify and develop new markets in near-by international destinations33. WestJet’s strategy is practical; management recognizes that aggressively pursuing international growth is risky due to the intensely competitive nature of the airline industry and the current unstable economy. WestJet holds 38% of the domestic market compared to Air Canada’s 56%34. With Air Canada focused on international expansion, there is room for WestJet to strengthen their domestic position. New CEO Greg Saretsky has a goal of achieving a 50% domestic market share, but realizes it will be more difficult than their growth in the past. They now fly to the major Canadian centers, and flying to smaller centers economically will require an investment in smaller aircraft that WestJet does not possess. WestJet’s current financial obligations may hinder them from making this investment in the near future necessary to reach more markets, but top management is considering all possibilities. 32 Air Canada Ltd., “Management Discussion and Analysis”: Feb 10, 2010. 33 WestJet Airlines Ltd., “Management’s Discussion and Analysis of Financial Results”: Feb 17 2010. 34 <http://nbbusinessjournal.canadaeast.com/front/article/995100> 7 Air Canada’s strategy to cut costs is a necessity. Their recent operating losses have been large and they need get out of the red. However, cost cutting may seem contradictory to their strategy of promoting premium air travel. They have new investment on seats for their planes with screens, outlets, and personal entertainment features, which do not seem like cost cutting measures. They are also focusing their efforts internationally in a very competitive market. This may be difficult considering airlines based out of countries that have been less affected by the economic recession are in a stronger financial position than Air Canada is. Air Canada’s management doesn’t appear to have a strong plan for growth. This could be part of the reason that The Globe and Mail’s online investor analyst ratings for Air Canada have its’ stock rated as hold or underperforming for the last year35 while WestJet has been rated as a buy or strong buy stock over the same time period36. d) Technological Advancement Ever-evolving information technology (IT) places competitive pressure on organizations to constantly adapt. Both WestJet and Air Canada have taken various initiatives to keep up with technology in 2009: WestJet adopted a new reservation system while Air Canada launched smartphone applications. These examples are two distinct areas of IT, but affirm that both of the airline giants have management teams that are concerned with taking action to develop and adopt new technology and recognize that failing to do so could be extremely harmful. WestJet invoked a new reservation system, SabreSonic, in October of 2009 37. The advanced system will improve WestJet’s ability to partner with other airlines, providing new revenue opportunities. However, the shock associated with implementation of the new technology led to operational issues that threatened WestJet’s reputation of impeccable guest service. Due to technical problems and the widespread need to learn about the new system, WestJet’s call centre experienced traffic that surpassed its expectations. As a result, ancillary revenues decreased by 4.2% from 2008 to 200938 (because of waived cancellation and change fees), and the fourth quarter saw a slight decline in on time performance39. This initiative 35 http://www.theglobeandmail.com/globe-investor/markets/stocks/summary/?q=AC.A-T 36 http://www.theglobeandmail.com/globe-investor/markets/stocks/summary/?q=WJA-T 37 WestJet Airlines Ltd., “Management’s Discussion and Analysis of Financial Results”: Feb 17, 2010. 38 Ibid. 39 Ibid. 8 tarnished WestJet’s impeccable service record and created speculation that the associated turbulence contributed to Sean Durfy’s resignation as CEO on April 1 st, 201040. However despite the initial setbacks, WestJet expects a full recovery and that SabreSonic will support their evolving business model and lead to opportunities for growth41. In 2009, Air Canada acknowledged the growing popularity of smartphones, and developed applications for both iPhone and Blackberry42. The applications allow self-service rebooking, which has facilitated and improved the communication between Air Canada and its customers. Thus far, the smartphone applications received excellent reviews and have proved to be a valuable technological addition for the company. Although the smartphone application was adopted with fewer speed bumps than WestJet’s SabreSonic, both Air Canada and WestJet have recognized the growing impact of technology and demonstrated a contingency approach to management in implementing new tech projects in 2009. Investment Recommendation After completing analysis on WestJet and Air Canada and reviewing their management styles, we have come to the conclusion that investing in WestJet would be the best decision. From the financial statements of last year, WestJet appears to be in a better situation, as they were able to record a positive operating income while Air Canada operated at a substantial loss. We believe that this drastic difference is largely due to the dissimilarity of the two company’s managerial practices and their ability to adapt with their environment. Both companies have taken strides in making technological changes to the way they operate, and both should benefit as a result. The contrast in the companies is evident in the enviable corporate culture and employee relations that WestJet has been able to uphold throughout its existence and will continue to maintain into the future, while Air Canada had done little to establish a positive corporate culture.. The overall environments of these companies are contrasting in that WestJet is growing while it appears Air Canada is comfortable 40 http://www.theglobeandmail.com/report-on-business/shakeup-at-WestJet-as-ceo-sean-durfy- quits/article1501575/ 41 WestJet Airlines Ltd., “Management’s Discussion and Analysis of Financial Results”: Feb 17, 2010. 42 Air Canada Ltd., “Annual Report 2009”: Mar 30, 2010. 9 with maintaining the status quo and possibly downsizing. Although Air Canada does not have a negative public perception, the view of WestJet is extremely favourable, which will allow them to possibly gain market share over Air Canada. The resignation of CEO Sean Durfy is a bit of a concern for anyone looking to invest in WestJet. However, his replacement Gregg Saretsky is extremely qualified and has experience in the airline industry. Lauren Krugel sees the transition as a seamless one and still recommends WestJet stock; predicting that it will be “business as usual” for the company and noting the stability and strength of the company through the recent turbulent economic times43. In conclusion, we think that WestJet is a stronger investment choice over Air Canada. WestJet is neutral to or has an advantage over Air Canada in all of our areas of research. The WestJet management appears to be adept at reading the environment they operate in and can also match their business practices to that environment. If they can continue to do so, and we think that they will, they will be an excellent investment choice. 43 http://ca.news.finance.yahoo.com/s/16032010/2/biz-finance-analyst-says-saretsky-good-choice-westjet-ceo- doubts.html 10 Team Assessment When our team first gathered to work on this project, it was evident that we would function as a small, self-directed team. Rather than electing a member to supervise, we decided to share leadership and to hold everyone accountable for the outcome of the project. Fortunately, all of our group members already knew each other going into the project, which created a comfortable work setting, and strong team cohesion evolved from the mutual goal of achieving a very high grade. We maintained high productivity throughout the project because of the strong work ethic of our members, both individually and when interacting at group meetings. However, the pre-existing familiarity among members led to the potential risk of groupthink. To counter-act this risk in order to produce the best project possible, we encouraged one another to speak one’s mind. In case someone was not comfortable in sharing their uninhibited views, we had an anonymous suggestion box so that members could feel free to disagree with the group consensus. Though we did not often require the suggestion box, we found it to be a very useful tool when utilized. The majority of the issues that our team encountered were commitment conflicts. All of our team members have other commitments and full course loads, many of which involve group projects for multiple classes. This led to frequent switching between the storming and norming stages, but we were still able to perform at a high level. Using a collaboration conflict resolution style, we were able to avoid most of our conflicts. All of our team members are very assertive, but also very cooperative, which allowed us to negotiate deadlines with one another and find time to accomplish our tasks. Our team members also performed dual roles of both high social behaviour and high task behaviour. The key attribute to our success in dual roles was by setting super-ordinate goals. Our main super-ordinate goal was to have the written document completed by Monday April 5th, so that we would have ample time to edit before turning in the assignment. We divided the work at the beginning of the project, which allowed members to work at their own pace and on their own schedules. This greatly reduced the stress associated with this product, resulting in a much better end result. 11 Another mediation strategy that we used was to use Skype, a video-conferencing software, to have some of our group meetings. This allowed us to open up our communication channels, while also working remotely. By using video, it is less likely that members will misinterpret or misunderstand other members, as you can observe tone and facial expressions which are two things that are difficult to pick up from written communications. None of our group members live on campus, so using Skype also relieved tension, as we were able to meet from the comforts of our homes and avoid any travel time. Finally, the use of our online wiki ended up being a great asset to our team. Not only did it facilitate our communication with one another and allow us to edit one another’s work, but it also allowed us to avoid re-writing work that had already been completed. Using the track- changes feature of Microsoft Word also allowed us to view four different ways that we could write the project; we did not have to agree on just one person’s perspective or writing style. We strongly believe that our use of technology allowed us to avoid many potential conflicts and produce work of the highest quality possible. Signatures Colin Brenneis Kaitlyn Kastelic Clint Peter Nick Williams
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