Westjet Case Analysis free essay sample

Table of Contents Executive Summaryi Table of Contents1 About WestJet1 Market Share2 Domestic2 International3 Market Position and SWOT Analysis5 WestJet Key Financial Ratios7 Accounting, Finance, Legal and Environmental Issues8 Shareholders and Company Ownership8 Accounting Policy and Internal Control9 Legal9 Environmental 11 Investor Recommendations12 Bibliography13 THE COMPANY AND ITS POSITION IN THE MARKET Competitive Landscape Markets where WestJet competes: †¢Airlines †¢Consumer Services †¢Travel Agencies Services †¢Transportation Services †¢Air Cargo Services Direct competitors †¢Air Canada †¢Air Transat †¢Porter Air Central Mountain Air Key Financial Data 201020092008 Profit margin5. 24%9. 23%11. 48% Return on Equity8. 59%15. 16%27. 21% Debt/Total Assets0. 580. 600. 67 Book value$ 10. 54$ 10. 01$ 8. 28 About WestJet WestJet is a Canadian low-cost airline, publicly traded on the Toronto Stock Exchange – (TSX: WJA). Founded in 1996 , it currently is the second largest carrier in Canada, next to Air Canada. WestJet operates in 70 cities across North America, Mexico and the Caribbean and employs over 8000 employees and is non-unionized. The WestJet head office and main hub is located in Calgary, the other main hub being Toronto Pearson Airport. We will write a custom essay sample on Westjet Case Analysis or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The airline operates an average of 420 flights and carries 40000 passengers per day. WestJets fleet consists exclusively of Boeing 737s, following the single operating type model pioneered by Southwest Airlines. In 2010 the carrier’s fleet consisted of 91 aircraft. WestJet has maintained a constant focus on customer service, providing low fares, and always-on-time service, allowing them to take a leading position in the Canadian airline industry. Market Share Domestic FIGURE 1 SOURCE: DATA FROM BRENT JANG, WESTJET CLOSING THE GAP WITH AIR CANADA, THE GLOBE AND MAIL REPORT ON BUSINESS, FEBRUARY 18,2010, HTTP://WWW. THEGLOBEANDMAIL. COM/REPORT-ON-BUSINESS/WESTJET-CLOSING-GAP-WITH-AIR-CANADA/ARTICLE1472230/ WestJet’s 2009 domestic market share is 38% which they plan to increase to 45% by 2014. Their current strategy is to increase market share each year steadily by 1%-2%, to which they have been very successful – from 2000 to 2010 WestJet’s market share grew from 7% to 38%. International FIGURE 2 SOURCE: DATA FROM BRENT JANG, WESTJET CLOSING THE GAP WITH AIR CANADA, THE GLOBE AND MAIL REPORT ON BUSINESS, HTTP://WWW. THEGLOBEANDMAIL. COM/REPORT-ON-BUSINESS/WESTJET-CLOSING-GAP-WITH-AIR-CANADA/ARTICLE1472230/ As of December 2010, WestJet had a 15% market share in the Mexico/ Caribbean market and 13% in the trans-border market. International cont’d FIGURE 3 SOURCE: DATA FROM BRENT JANG, WESTJET CLOSING THE GAP WITH AIR CANADA, THE GLOBE AND MAIL REPORT ON BUSINESS, HTTP://WWW. THEGLOBEANDMAIL. COM/REPORT-ON-BUSINESS/WESTJET-CLOSING-GAP-WITH-AIR-CANADA/ARTICLE1472230/ ? Market Position and SWOT Analysis WestJet has positioned itself as no frills airline company offering which offers lower rates and better service than its competitors. When WestJet started operations their plan was to target families who travelled by car. Once WestJet had established its target market, it worked on enhancing customer service to these customers without increasing fares. WestJet markets itself as being different than its competitors. Using its unique slogans such as â€Å"Owners Care† and â€Å"I Care-Antee it†, Westjet enhances the positive image of its corporate culture. WestJet actively markets its staff as â€Å"WestJetters†, with 84% of the WestJet’s eligible employees owning shares in the company . WestJet has also been the awarded the title â€Å"Canada’s Most Admired Corporate Culture† by Waterstone Human Capital for four years . WestJet Vacations, started in 2004, is now a leader in the vacation package industry. It is #1 hotel room provider in Las Vegas, and is continuously growing in the US, Mexico and Caribbean marketplace. [SOURCE ] Recently, Westjet has been expanding the reach of their market by entering into strategic code-sharing agreements with international carriers, such as Cathay Pacific , and American Airlines ? StrengthsWeaknesses †¢Current strategic plan built on four pillars oPeople and Culture oGuest Experience oRevenue and Growth oCosts †¢Canadian based airline, support of Canadians †¢Newer, more comfortable airplanes Numerous code-sharing partnerships †¢Vertical integration with WestJet Vacations†¢Aggressive expansion in extremely competitive international market †¢Canadian based airline may find it hard to find strong support from US and International customers †¢Limited number of markets, many markets are seasonal †¢Customers loyalty may be limited to fares and seat sales OpportunitiesThreats †¢Continual expansion in local market share †¢Continual expansion of code-sharing agreements †¢Expansion of WestJet Vacations to preferred vacation destinations †¢Code-sharing opportunities with Asian carriers and other International carriers New entrants with a similar business model †¢Volatile fuel costs and changes in interest and exchange rates †¢Weather conditions †¢Acts of terrorism †¢Changes in airline legislation and labor laws TABLE 2 SOURCE: ? WestJet Key Financial Ratios 5-year Financial Ratios 2010 2009 200820072006 Profit Margin 5%9%11%14%9% Return on equity 9%15%27%4. 85%4. 89% Debt/Total Assets 0. 580. 600. 670. 200. 17 Interest coverage 3. 272. 023. 353. 152. 34 Price earnings ratio 15. 1916. 749. 44 8. 0515. 49 Book value $10. 55$10. 01$8. 28$3. 42$2. 79 Price to book ratio 1. 351. 241. 583. 514. 89 Table source: Westjet Annual Financial Reports WestJet shows strong overall strength in their financial performance. â€Å"WestJet announced the initiation of a quarterly dividend program in November 2010. The first payment of $0. 05 per common voting share and variable voting share is payable on January 21, 2011 to shareholders on record on December 15, 2010. † WestJet Traffic Statistics YearLoad FactorASM (billions)RPM (billions) 201079. 90%19. 53515. 613 200978. 70%17. 58813. 835 200880. 10%17. 1413. 731 ? Accounting, Finance, Legal and Environmental Issues Shareholders and Company Ownership WestJet shares are comprised of 75% common shares and 25% variable shares. Under the provisions of the Canada Transportation Act, WestJet must be controlled by Canadians. To ensure this the common shares must be owned by Canadians. The variable shares may be owned by non-Canadians. The Company was founded in 1996 by Clive Beddoe and a team of fellow entrepreneurs. In July 1999 the airline went public offering 1. 5million shares @ $10 starting notice. Clive continues to lead WestJet as founding Shareholder and chairman of the board of directors. The President and CEO is Gregg Saretsky, recently taking over the role from Sean Durfy who stepped down for personal reasons in 2009. Gregg was appointed as CEO in April 2010 and had previously been VP of WestJet vacations with over 30 years of aviation experience. The other members of the executive are: †¢Vito Clone, Executive VP, Finance, CFO †¢Bob Cummings, Executive VP, Marketing and Sales †¢Hugh Dunleavy, Executive VP, Strategy and Planning †¢Ferio Pugiese, Executive VP, People and Culture WestJet prides itself in being over 80% employee owned and offers several employee profit sharing and share plans. The risk of this type of ownership position is that should company profits fall, the employees may pursue union representation. Part of the uniqueness of the company is that it is non-union and this move away from the employees as owner could impact the company significantly. Accounting Policy and Internal Control During the latter half of 2010, WestJet implemented a new Human Resource Information System (HRIS). This new platform software combines the majority of human resource and payroll into two new components in their current ERP software. In October of 2009, WestJet also took on a major upgrade to their outdated reservation system, to a new system called SabreSonic. Almost immediately, WestJet encountered major problems. This in turn resulted in increasingly high call center volumes, upset customers, and a significant amount of resources to resolve this issue. WestJet had to also push back several important planned frequent flyer programs and code-sharing plans. â€Å"On February 13, 2008, the Accounting Standards Board (AcSB) confirmed that the changeover to IFRS (International Financial Reporting Standards) from Canadian GAAP will be required for publicly accountable enterprises from interim and annual financial statements, effective for fiscal years beginning on or after January 1, 2011† Legal There have been two lawsuits of note against WestJet in the last decade . The litigants were competitors Air Canada and Jetsgo. The more famous of the two is a corporate espionage lawsuit that was filed against WestJet back in April of 2004. WestJet was accused of hacking into Air Canada`s employee website to retrieve confidential information. The result of this $200 million law suit was WestJet settled and agreed pay a $5. 5 million settlement and donated $10 million to children`s charities in both of the airlines names. WestJet also announced a public apology to Air Canada and accepted all wrong doing. ? Environmental Since 2001, WestJet has spent over $2 billion in upgrading their fleet to the more fuel efficient Next-Generation Boeing 737-series aircrafts. The airline was the first to adopt Required Navigation Performance (RNP) to land their aircraft. RNP shortens airtime and reduces fuel burn and emissions. They have constructed a new Calgary Campus which was designed in accordance with the Leadership in Energy and Environment Design (LEED) Green Building System. Though the airline industry in as a whole has promised to reduce carbon emissions over the next 20 years, the Aviation Environment Summit (A) found that aviation emissions have accounted for 2 percent of the overall global fossil fuel CO2 emissions in 2005, this number has also been predicted to increase to 3 percent by 2050. The aviation industry faces a larger more propionate problem, as each commercial aircraft fly’s in the upper atmosphere their water vapour contrails from their engines could produce climate variance at a rate that is disproportionate to the overall greenhouse-gas contribution. To simplify this theory, water vapour contrails can increase cirrus-cloud coverage on days that are clear by as much as 30%. Investor Recommendations Our review of WestJet is a company that has no doubt survived one of the largest recessions in our lifetime, rising fuel prices, and corporate espionage case with its largest competitor. Yet, in its resiliency, under new leadership from Gregg Saretsky, the company foreseeable future is that of success. A simple business model based on strong corporate culture, exceptional guest service, and keeping costs low while offering high value . We see promise in WestJet’s management direction to increase airline partnership and to expand their global reach. It is also important that we recognize, WestJet management acknowledging and taking full responsibility for their reservation system blunder in 2009. We trust that senior management will provide full transparency to its guests, employees, and shareholders for any future milestones or changes. With an industry that has significant external controlling factors, we see a major success and accomplishment in WestJet’s 15 years of operation with producing 55 out of 7 profitable quarters. More importantly, we would like to highlight the company’s Return on Equity which is 9% compared to its closest competitor Air Canada at 9%. It is also very impressive with the amount of capital expenditures and operating expenses that WestJet is able to keep a profit margin of 5% compared to Air Canada’s 1%. Value for WestJet is justified by assessing the companyâ €™s strong corporate culture, high brand equity, simple low cost business model, and proven success. It is our recommendation that WestJet be considered a strong candidate for investment. Bibliography Jang Brent, WestJet Closing the Gap with Air Canada, The Globe and Mail report on business, February,18,2010, http://www. theglobeandmail. com/report-on-business/westjet-closing-gap-with-air-canada/article1472230/ Kjelgaard Chris, â€Å"Flying Friendly: Aviation’s Environmental Challenge,† SPACE. com, August 23,2007,http://www. space. com/4160-flying-friendly-aviation-environmental-challenge. html Waterstone Human Capital, †About Canada’s 10† Waterstone HC Website, http://www. waterstonehc. com/cmac/about-canadas-10/10-most-admired-corporate-cultures-2005-2010 WestJet Airlines Ltd. , †Investor Media-Backgrounder,† WestJet Airlines Company Website, http://www. westjet. com/pdf/investorMedia/westjetBackgrounder. pdf Source:[WestJet Competition-Industries where WestJet Airlines Ltd. Competes],via Hoover,Inc. http://www. hoovers. com/company/WestJet_Airlines_Ltd/rffxrci-1-1njea3. html WestJet Airlines Ltd. , †Investor Fact Sheet,† WestJet Airlines Company Website, http://www. westjet. com/pdf/investorMedia/investorFactSheet. pdf WestJet Airlines Ltd. , †Media and Investors Relations-Stock Information†,