The purpose of this report is to analyse the case study “Westjet in 2009: The Fleet expansion decision”. The specific objective was to provide a diagnosis of the company’s challenges, propose a suitable change management programme.
Research was done in the general area of change management and the models available. Recommendations are based on the comparative analysis of the same
1.0 Introduction
This report was commissioned by Dr Lee Mathias to analyse the Wesjet case study and provide a diagnosis of the company’s challenges and develop a suitable change model. Also, recommendations have been made to manage resistance and ensure that the change is sustained.
2.0 Westjet
2.1 Introduction
Westjet, a Canadian airline, which was founded in 1996 by group of Calgary businessmen, operates as a low cost player in aviation industry. The airline has 36% domestic market share in Canada only second to Air Canada, which has 57%. Since its inception the Airline is operating with single fleet model using Boeing 737s with capacity of 119 to 166 passengers. Using single fleet has helped Westjet to significantly reduce its operating and maintenance cost. With the 2008-09 economic crisis, the airline was facing flight occupancy issue in its most of the domestic routes. Lower occupancy has forced Westjet to pull out of Sudburys and Sault Ste market (two of the destinations in Ontario market). With this prospective in mind the airline is looking to add smaller Bombardier or Embraer airplanes with approximately 100 seats to its fleet. Including this type of aircraft will abandon the airlines more than a decade long success strategy of operating with single fleet and implementing this new strategy will be a big challenge for management.
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2.2 Change:
The airline industry exists in a hypercompetitive environment where organisations are required to change constantly in order to survive and maintain their position in the market (Biedenbach & Söderholm, 2008). Change in an organisation requires addressing the strategy (what is it that you want to change), skills (what skills, knowledge and abilities are required by the change recipients) and structures (short term and long term organisational tools essential to support the change) (Carter, 2008). Strategies are a means of striving to achieve an organisation’s mission and vision (Gill, 2003). Increasing the likelihood of success of Westjet’s strategy for a second fleet would involve answering questions such as “What is the change they want to bring about? Is the change appropriate for the organisation? Can this change be implemented successfully?” (Bruch, Gerber, & Maier, 2005).
3.0 SWOT Analysis
Prior to implementing the strategy, Westjet needs to assess the feasibility of the change with the help of an analysis tool such as SWOT. It helps determine whether the organisation will be able to sustain the change or not by analysing its strengths, weaknesses, opportunities and threats.
3.1 Strengths
Strong financial standing: At the end of financial year 2008, the airline had a cash reserve of $820 million, which is 80% of its total debt. In addition to this, the airline’s debt equity ratio is at 1.09, which is significantly low when compared to industry standards.
Customer satisfaction: The airline has gained a significant customer satisfaction because of its ability to provide nonstop domestic flights, which helps its customer make a hassle free journey. For such domestic routes where the flights have occupancy level of 60-65% for 150 seater Boeing 737s aircrafts, smaller Bombardier or Embraer aircrafts can be included in this routes. This will help in improving the load to 90 to 95% and will reduce the cost without compromising on customer satisfaction.
Better seat utilisation: The smaller aircrafts with 100 seats will have higher occupancy level as compared 737s Boeing aircrafts with 140 to 160 seats.
3.2 Weakness
With inclusion of 2nd type of fleet the airline needs to train its existing work force, which can take care of maintenance of new fleets. The technology of the new fleet will be different compared to Boeing 737s, which may force Westjet to keep to two sets of staffs for maintenance. Moreover they will have to pay more airport charges because of inclusion of new aircrafts. These reasons coupled together will increase the cost for the airline and that will led to a significant impact on the profitability of it. Cost cutting and diversion of funds towards the new project may also result in unhappy staff.
3.3 Opportunity
The main competitor of Westjet airlines, Air Canada (with 57% market share) is struggling to fight bankruptcy; it is difficult for Air Canada to achieve cost efficiency in such scenario. In such situation it will be comparatively easier for Westjet to tap international customers of Air Canada and adding new fleets will help them in do so.
Westjet has recently made a tie up with European airlines like Air France. By the adopting 2nd fleet in Canadian domestic market, it can use Boeing 737s to fly for its international operations in Europe, which will help faster penetration in new market. If Westjet penetrates to European market then it will help WVI also to expand to Europe and generate revenue for Westjet group from its European business
3.4 Threats
As stated in the case study there is only 3.6% increment of passenger’s year on year. At a time when existing fleets are operating with significant number of empty seats with low increment in number of passengers, in such scenario inclusion of 2nd fleet exposes Westjet to considerable risk.
4.0 Change Model for Westjet
The airline industry is very dynamic is affected by global events such as 9/11, the SARS outbreak and the most recent swine flu outbreak – all of which resulted in a dramatic decrease in the number of travellers. To survive in today’s complex every changing world Westjet needs to change its familiar way of operating and become capable of adapting to changes efficiently and effectively. There are a number of theoretical models available to assist Westjet’s strategic decision to expand. While some of these models are more suited for transformational change others are more suited for transactional changes. Lewin’s model for example which describes change in 3 stages – unfreezing, moving and refreezing (Lewin,1952) would be suitable for a stable environment and not a dynamic environment like Westjet.
Given below is an analysis of some of the models available:
(http://pdfserve.informaworld.com.ezproxy.aut.ac.nz/14790_751313697_793488144.pdf)
In case of Westjet the change is planned however it will affect the entire organisation. Looking at the above models, it would be suitable for Westjet to adopt a combination of theoretical models available:
Ø Understanding change characteristics: Westjet needs to first understand the need for this change. This change will help the airline in its expansion; it will help increase the load factor and revenue for it. With this change, employees of the airline will be impacted as they need to know about the mechanism of new fleet. Under this change program airline would be looking to use smaller aircrafts for domestic non stop flights and where as Boeing 737s aircrafts would mostly be used for international flights. Inclusion of new fleet will require upgradation of its scheduling and reservation application.
Ø Risk Assessment: Under the change management program Westjet needs to understand the possible risks which could arise due to it. As the number of fleets will go up the, scheduling of same for domestic travel in such a way that aircrafts are rested at airport for a short period, would be a challenge. Improper handling of this issue could lead to operational risk, where the charges to be paid to airport authority will go up. To handle this issue, Westjet needs to make sure that its scheduling application is efficient enough to take this challenge. In addition to this there are certain risks which may arise if the new fleet fails to get acceptance from Westjet passengers. In worst case if it happens, the Westjet should lease these aircrafts to Asian airlines, which operates with leased aircrafts. On similar line there could be some more risk associated with this strategy, which Westjet needs to analyze and find the mitigation of the same before implementing of new fleets into its operation.
Ø Funding: Westjet has a cash reserve of $820 million, which would be sufficient for the initial phase of this change. At later stage if the airline needs to buy some more aircraft, where it needs external funds then it would be going for long term debts. Taking loan term loan will not be a major financial concern for airline as debt to equity ratio is at 1.09:1 compared standard value of 2:1.
Ø Communication Plan: Westjet should communicate this new strategy to its employees, shareholders and suppliers. Share holders will be communicated with the need and benefit of new strategy through mailers. Suppliers and channel partners should also be communicated through mailers. For employees the communication should be by top management in an interactive session, where top management would answer to all the apprehensions that employees have along with possible benefits of new strategy.
Ø Training: Westjet will have to implement new training programs for its crew member and maintenance engineers, so that they can learn the mechanism of operation of new fleet. For new employees the training program will include training for Boeing 737s as well as smaller Bombardier or Embraer airplanes. This will ensure that maintenance work for either fleet can be done by any maintenance staff. As a result efficiency will come with some additional training cost for the airline but it will help airline to continue to enjoy its process driven operation rather than having people driven operation.
Ø Resource planning: At present the airline has 77 Boeing 737s aircrafts. With inclusion of Bombardier or Embraer airplanes, Westjet may need to hire additional staffs that have experience of working on Bombardier or Embraer airplanes.
Ø Resistance management plan: The major resistance could come from employees of the airlines, due to their apprehension about success of new business model coupled with need for them to learn new technology. As the employees of Westjet have a significant share in operating profit of airlines, the top management should provide the estimated financial benefits of new strategy to employees along with assurance of complete training on new fleet. This will help in managing resistance from employees. The resistance from shareholders can be handled by highlighting the business needs and financial benefit of this change.
Ø Change implementation: The airline would start operating with new fleet, once it completes process of communication of this change to its various stakeholders, training to employees, upgradation of softwares and addition of resources. Once the success of new fleet is proved, Westjet can add more Bombardier or Embraer airplanes into its operation.
Ø Reinforcement planning: The airline will adopt the strategy of positive reinforcement on regular interval. This will be achieved through showing growth in revenue, with increased profit share amount for employees.
5.0 Sustaining Change
Maintaining momentum and sustaining change is a crucial stage of the change process. If steps are not taken to sustain change the new state achieved may be short lived (Hayes, 2007)
Once the 2nd fleet is introduced at Westjet, it is recommended take the following steps to sustain the change and allow support further growth:
Ø Improve the learning curve for employees for maintenance of smaller Bombardier or Embraer airplanes through appropriate training.
Ø Focus on greater profitability through leaner processes. The airline should look to adopt six sigma into its process, this will drive the innovation in its operation.
Ø Introducing smaller Bombardier or Embraer airplanes for Carrabin Island and USA cities which are nearer to Canada and depending on the demand the airline can increase the number of fleets in this route. This will help in achieving higher occupancy for Westjet flights to Carrabin Island and USA
Ø Empowerment of employees to act and take decision according to the situation
Ø Continuous quality improvements in all processes and continuous focus on innovation
Ø Westjet needs to continue with its flat organization structure and at the same time it should be flexible to facilitate resource requirements at the top management without any hassle
Ø Westjet should try to achieve an organization wide belief that quality is everyone’s job through Vision-driven leadership
Ø Inculcating values that include high moral standards, ethics, teamwork, involvement and risk taking
Ø Measure the effectiveness of change through various change management tools
Ø With inclusion of 2nd fleet, Westjet will have the opportunity for business expansion in international airline segment. To get optimum benefit out of its international operation, it should make partnership with other airlines, which will help it acquire those customers who do not fly to Westjet destinations. In addition to this it can make tie up with European airlines for promoting WVI. By taking these two strategic steps Westject can generate additional revenue for itself.
Ø For future expansion through 2nd fleet Westjet needs to address language barriers which could arise due to its expansion into international market
6.0 Conclusion
Westjet Airline’s ultimate goal is to become top 5 most successful airlines of the world by 2016 and it is extremely difficult to achieve the same with single fleet model. The best airline in the world, US Airways is using more than 85 smaller Bombardier or Embraer airplanes. Moreover Westjet business model is on the similar to that of southwest airlines and since southwest has already acquired such airplanes, it makes sense for Westjet to adopt this new fleet. Inclusion of new fleet will help Westjet to gain more market share along with higher profitability & greater efficiency. It will also help Westjet to build its 1st pillar of its goal i.e. to generate 10% additional revenue growth in available seat miles through fleet expansion.
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