WestJet CEO's exit creates unexpected turbulence for airline
From labour unrest to ambitious expansion plans, WestJet Airlines is suddenly facing major challenges without the man who led the company for the past eight years.
Calgary-based WestJet CEO Gregg Saretsky's sudden exit – a retirement, according to the company – caught investors, analysts and union officials off guard Thursday.
Its stock retreated on the revelation, sliding more than 4.5 per cent to $24.15 on the Toronto Stock Exchange, perhaps underscoring investors' disappointment.
The airline offered no deeper explanation as to why the 58-year-old Saretsky had chosen Thursday to bid farewell, leading analysts to speculate as to the underlying reason. WestJet named Ed Sims as his replacement.
"We wonder if the relationship with the employee group could be a cause for the retirement of Mr. Saretsky," analysts at equity research firm Alta Corp. wrote in a note.
It's a fair question, given the sour state of talks between the airline and its pilots, who are currently locked in negotiations for a first contract. The union recently characterized those talks as "going poorly."
WestJet also ran into issues ahead of the launch of its ultra-low-cost-carrier Swoop after the Air Line Pilots Association (ALPA) said the company was trying to bypass the union by luring its own pilots to fly for Swoop under different working conditions.
Certainly, union officials didn't sound disappointed that the airline's boss was moving on.
"I think we're just looking forward to working with the new CEO, Ed Sims," ALPA's Robert McFadyen told CBC.
"As far as Greg Saretsky, we'd like to wish him the best in his retirement."
But if labour relations had anything to do with Saretsky's departure, it's most likely just one factor and not the sole reason, experts said.
"Not at this sensitive point in negotiations," said George Smith, a labour relations consultant and fellow at the School of Public Policy at Queen's University.
"The reality of labour negotiations is that neither side gets to choose who is representing or leading the other side."
If the union was hoping a fresh face might bring better results, it might be wishful thinking.
"There's a bargaining team in place and I am assuming none of those people have been changed out and they have a mandate that they got from management and the board," Smith said.
"In my world, you know, nothing really changes unless the new CEO says we want to revise the mandate. And that's an internal company process and probably not one that would see the light of day."
Saretsky joined the company in 2009 as vice-president of WesJet Vacations, and later that year became executive vice president of operations. He was named president and CEO in 2010 and lead the company through huge changes.
With Saretsky at the helm, WestJet's fleet doubled in size, WestJet Encore was launched and the first code-share partnerships were introduced. Saretsky also introduced European service and the WestJet Rewards program.
Investors saw WestJet's stock rise 64 per cent during his time as chief executive.
Fred Lazar, who follows airlines at York University's Schulich School of Business, said despite the issues with the pilots union, Saretsky remained well respected. Lazar, like others, was surprised by his departure.
"Despite the pilots, he's still well liked by the majority of the employees and definitely by the management," Lazar said.
"He's highly regarded in the financial community and he's done a reasonably good job. Not that I necessarily agreed with every strategic move, but so far it's worked out well and I've been proven wrong."
Lazar said the market reaction suggests that investors think there's been a falling out between Saretsky and the board.
"The market is not happy that Saretsky has been pushed out because they basically have been happy with his leadership and they don't think the labour issue is a big deal," Lazar said.
The airline now faces some major challenges without Saretsky, raising concern among analysts.
Instead, the company will be led by Sims, who has three decades in the tourism and aviation industries, including New Zealand Air. He is now tasked with managing the start of ultra-low-cost carrier Swoop, which the company said this week it is committed to launching in June despite its union issues.
WestJet is also aiming to expand its long-haul service next year.
"While we believe Mr. Sims is a strong and capable leader that can step into Mr. Saretsky's role, we believe any change will be interpreted negatively by investors, in particular, at a time of significant strategic implementation," TD Securities said in a research note.
Analysts at CIBC also noted that Saretsky's departure follows other major management changes ahead of Swoop's launch and before taking delivery of its first Boeing Dreamliner 787s next year.
"So with WestJet on the verge of migrating from a [low cost carrier] to a network carrier, these management changes at this time add to the heightened execution risk in the WestJet story," said the research note.
Indeed, it seems there's no time to put WestJet on auto-pilot.