700 pages of emails outline struggles in WestJet’s first year at Myrtle Beach International Airport
02/01/2014 12:00 PM
08/04/2014 6:38 AM
The courtship between WestJet and Horry County began in 2012 with smiles, hand shakes and “little concern” that the county was putting forth $1 million to cover any unmet profit expectations.
Even the Myrtle Beach Area Chamber of Commerce upped its ante in the Canadian market from $288,000 to more than $1 million trying to lure Canadians to the Grand Strand with WestJet’s new flights between Myrtle Beach and Toronto that started in May.
By the end of the first year of that service in 2013, three key people who helped ink the deal – two from WestJet and former Horry County Director of Airports Mike LaPier – were no longer in the positions they were at the start of the relationship and Horry County was reaching into its future accommodations tax collections to pay for the turbulent year that county and chamber officials still call a success.
Turnover of key personnel, a temporary reporting glitch on WestJet’s end and lower-than-promised airfare all happened during WestJet’s inaugural year in Myrtle Beach last year.
Seven hundred pages of emails between Canadian airline company WestJet and Horry County officials outlining warning signs and reactions to the carrier’s slow inaugural yeargive a behind-the-scenes look at what factors played into Horry County’s exposure for loss. The county has had to pay WestJet $551,000 because of shortfalls in WestJet’s expected revenue in Myrtle Beach, as outlined in a revenue agreement signed before the first flight.
The emails detailing the preparation of WestJet’s arrival, the challenges it faced throughout its inaugural summer in 2013 and the aftermath as projected passenger numbers didn’t meet expectations were obtained by The Sun News through a Freedom of Information Act request. LaPier was fired shortly after the inaugural year WestJet began flying passengers during what was usually off season for Canadian visitors to Myrtle Beach.
In October 2012, Kirk Lovell, marketing director for Myrtle Beach International Airport, sent an email to WestJet executives, Brad Dean, president of the Myrtle Beach Area Chamber of Commerce, Scott Schult, executive vice president of marketing for the chamber, and Bill Golden, president of Myrtle Beach Golf Holiday, that said chamber, golf holiday and airport officials met with the Horry County Council at its Oct. 16, 2012 meeting in closed session to talk about the deal with WestJet.
The “risk-sharing proposal”, as Lovell called it in the email, or revenue guarantee, stated if WestJet did not make at least a 15 percent profit in its operating margin, the county would reimburse the airline up to $1 million. It was the first time Horry County had provided a revenue guarantee to an airline, which was a push to get more tourists from Canada to fly to the beach during summer months and not just their typical trek during the area’s off season.
“Without debate, and little concern the Horry County Council agreed to establish a $1,000,000 escrow account, pending approval of the final agreement by and between the county and WestJet,” Lovell wrote.
Both the county and WestJet agreed to terms and the relationship to bring potentially new Canadian visitors to the Grand Strand began. After all, for more than 50 years, the Grand Strand has celebrated its visitors from Canada through Can-Am Days in March, so it’s not like Canadians and the Grand Strand have not had a history.
Horry County was issued a letter of credit for $1 million from Wells Fargo Bank just days before WestJet’s first flight to Myrtle Beach, which helped ensure the county was good on its revenue guarantee.
The two learned quickly that kinks needed to be worked out if they were going to be able to take their partnership to the next level. As early as the second flight by WestJet into Myrtle Beach International Airport, there were problems. On May 5, 2013, the flight from Myrtle Beach to Toronto Pearson International Airport arrived 17 minutes late due to delays at Myrtle Beach, which sent up a red flag for Lovell.
“If delays become a problem, it will cost WS (the airline abbreviation for WestJet) money, hence hurting revenue performance,” Lovell wrote to LaPier, Charles Bree, airport operations specialist and Pat Apone, now current interim director of airports. “[Bree] and I spoke about the issue and the importance of making WS happy and their operations as efficient as possible thus maximizing efficiency of the flight... I hate to put kid gloves on for an airline, but as you know these first six months are critical.”
Marketing and missing the mark
Before the first WestJet plane landed, LaPier caught wind that WestJet's fares weren’t as affordably priced to attract consumers as the company initially pitched to county officials, according to an email sent to Lovell.
“Please take the temp of the folks at WestJet regarding advance sales...,” LaPier wrote. “I have already been asked about fares on WestJet. The representation from the person that made the comment was that WestJet is NOT affordably priced and the sample fares they used in the agreement are not what the product is being sold for in reality. Obvious concern that the county is going to have some financial issues because the pricing structure is not what was envisioned.”
Later, county officials would learn that WestJet eventually reduced its fares so much that it impacted the revenue agreement and put Horry County more at risk to pay WestJet.
As flights on WestJet between Toronto and Myrtle Beach got off to a slow start, chamber officials wanted to use price points in its advertising to show potential flyers the cost of flying. But, the county learned via email from Jennifer Martin, an adviser in marketing for WestJet, that beginning in early 2013, Transport Canada announced that all-inclusive airfare advertising was mandated, forcing companies with flights to and from Canada to display the total price of a ticket, including taxes, fees and charges. It allowed WestJet to only provide price points for newspaper ads and it could only have a shelf life of one week, Martin wrote. She said WestJet was “not in a position to include price points in any online mediums such as banners, e-blasts etc. as we are still working out the logistics for these mediums.”
Meanwhile in Myrtle Beach, the chamber continued to pump more than $1 million in television and digital advertising dollars in the Canadian market, well over the $288,000 it spent on the market in 2012. Lovell said in an email dated April 11 that a trend showed when the chamber would have a big push in advertising in Canada, flyers would book their flights for about 90 days out. It was also at that time that Lovell indicated WestJet’s “directional ticket prices are priced at (and below) what was agreed.”
In mid summer, two executives with WestJet who were key in the initial talks with Horry County resigned their positions to take other jobs. It was unknown whether the resignations of Arik De, former manager of network planning, and Peter Tong, director of network planning and scheduling, impacted the flow of the first-year project or not.
As preliminary June and July passenger numbers slowly trickled in, LaPier received an email Aug. 6 that showed 571 passengers on WestJet came to the Strand in June and 740 came in July.
“Not good,” was the two-word response from LaPier.
Lovell said in a phone interview that getting actual figures on time was a concern, considering it was part of the agreement. But, he said, it didn’t get to a point where attorneys were called in.
“We actually told them that they weren’t following the terms of the agreement and we gave them a term period. In that time, they were giving us estimates of the actual performance,” Lovell said. “They just weren’t able to close the month-end reporting like the agreement stated. From an accounting stand point, we actually gave them an ultimatum to resolve it, and start reporting per the terms of the agreement or the agreement will be null and void.
“They never got to that point. I don’t know the exact language of the contract, if it was a breach of contract or anything in the agreement that said if they didn’t report, we would terminate. I don’t believe that was even in there... I think we were pretty far off from bringing attorneys in and saying you’re in default, we’re terminating the agreement. I think we were pretty far away from that.”
“WestJet was operating its proposed flights per the terms of the agreement with great on-time performance and an exceptional level of customer service,” Eldridge said last week.
Lovell said he doesn’t think seeing the numbers earlier would have changed the outcome of the first year of the agreement.
“Typically in the aviation industry, when the markets start, they always start soft and they have to mature. Very seldom do you see a market start from day 1 and go gang busters,” Lovell said. “I don’t think by seeing a report earlier that things would have been different than the estimates that they were providing.”
Though Dean of the chamber said prompt reporting usually leads to a more successful project.
“Timely information is essential to any successful business operation, but based on the final figures, the shortfall on this route is primarily due to lower-than-anticipated fares,” Dean said.
He said as it turned out, the load factor, or occupancy percentage of planes heading in to Myrtle Beach, were targeted at 66 percent and that number was exceeded.
“Based upon the airport data, we exceeded the 66% load factor, i.e. more people flew here than were originally targeted,” Dean said in an email. “If that’s the case, then the average fares must have been below the targeted levels.”
In steps Eldridge
The heat turned up locally in August as LaPier and Dean exchanged emails Aug. 12 trying to figure out why there was such a low conversion rate of web traffic to WestJet’s site and actual flyers.
“Obviously we’re not the only source of traffic to WestJet,” Dean wrote to LaPier, which also included Schult and Lovell. “Their site should be a top source of traffic. But the data does beg the question ‘why they are booking so few tickets’? If we have delivered nearly 16,000 referrals to their website and our web traffic normally converts at 50-60 percent, that should be 8,000 tickets purchased thus far from our site alone. Might be advisable to ask them what factors, other than price, might be negatively impacting the conversion rate.”
LaPier wrote to the group: “I agree that we need to explore why the conversion rate is not up to previous performance. I think, however, we need to seriously look at what we can do differently to put butts in seats. I know everyone is working hard to make this work... I just know we only have a short time to make this experiment work so we can look forward to WestJet returning for year 2 and a longer term relationship.”
Dean said in an emailed reply that it was time to press WestJet.
“That’s why we need to press them a bit,” Dean wrote. “If we are delivering interested consumers to their site and no transaction occurs, there’s a problem somewhere. For comparison purposes, our conversion rate with Vision Airlines was around 80 percent. Without knowing why consumers are ‘looking but not booking’, I’m at a loss to suggest new ideas. With their customer service, they should be able to ferret out what’s happening.”
Dean said in a recent interview said the conversion rate ended up much higher than originally thought.
“The conversion rate from our site to their booking engine actually ended up being much higher than was originally reported,” Dean said. “Their tracking mechanism did not originally capture all of the traffic we drove to their site. Initially, this prompted some questions but turned out to be a non-issue.”
Shortly thereafter, County Administrator Chris Eldridge stepped in and emailed LaPier on Aug. 22.
“You said last week that things aren’t looking real good with WestJet,” Eldridge wrote to LaPier. “Have we been receiving monthly statements from them as required under the agreement?”
The revenue agreement required WestJet to provide the county a statement during the immediate preceding month that showed total revenue, an estimated profit margin for the month, and load factors, which is the average occupancy on its flights.
LaPier responded minutes later.
“We are not receiving the information formally because of a problem they are having with their system,” LaPier wrote. “We are receiving briefings from them during our regular telephone calls but the only formal report we have received to date is May. We are and have been working with them to get the information they are required to provide and will share that as soon as we get it...”
One day later, on Aug. 23, WestJet had rectified its reporting problem.
“As you can imagine, a significant amount of cross-functional work has taken place to rectify this issue and I am pleased to report that with the distribution of both June and July performance today (and previously May), we are back on track with regard to regularly scheduled reporting,” said Chris Hugel, manager of airport operations finance for WestJet.
It was time for LaPier, Lovell and Dean to take a trip to Calgary to meet with WestJet officials to assess the company’s marketing efforts, managing expectations, market performance for August, September and October, and the 2014 season. The group planned the trip for Sept. 6. It would also be the first time Myrtle Beach officials would meet John Weatherill, WestJet’s new director of network planning and scheduling.
On Sept. 3, Eldridge sent an email to Dean and Anne Wright, the county’s finance director, that contained articles of failed and successful revenue guarantees for airlines. Less than three hours later, Eldridge sent an email to LaPier announcing he would be joining them on the Sept. 6 trip. Eldridge charged the nearly $2,000 flight, which flew out of Charleston on Jet Express, to the airport’s travel expense account.
Lisa Bourcier, spokeswoman for Horry County, said that was the only flight Eldridge could get in such short notice and that he went on the trip to secure WestJet for another season.
“Chris wanted to encourage WestJet to return to MYR in 2014 and suggested that they come several months earlier than they did in 2013,” she said. “He also explained that a revenue guarantee would not be offered or accepted in 2014.”
LaPier was fired seven days after the meeting.
In October, Horry County Councilman Marion Foxworth tied LaPier’s firing to the WestJet deal, saying LaPier’s failure to coordinate an initial meeting between WestJet, the chamber and Golf Holiday until just before his firing may have led to the poor first year of passengers and could have been the “straw that broke the camel’s back.”
“I think we dug the hole for ourselves by not having the proper information from the agreement up front and not having proper oversight from staff after the agreement was consummated,” Foxworth said in October.
Eldridge has not said publicly why he fired LaPier.
LaPier said recently that he is not able to discuss the break up.
“A separation agreement I have with the county doesn’t allow me to talk much,” LaPier said, adding that staff at the airport and the county “did everything we could” with the obstacles it faced during the first year. LaPier is now a vice president with The Boyd Group in Colorado, an aviation consulting firm that has worked with the Myrtle Beach airport.
WestJet ended up carrying 4,636 passengers into Myrtle Beach during its six months of service in 2013, which ended in October, according to airport statistics. The relationship between the airline and the airport did sprout first-time visitors. About 60 percent of those who flew from Toronto to Myrtle Beach on WestJet were first-time visitors. About 63 percent of those first-time visitors stayed in the Grand Strand for more than seven days, and more than half of them reported having a household income of more than $100,000, according to figures provided by Myrtle Beach International Airport.
The largest figure on the report is the estimated $6.64 million impact the first-time visitors had on the Horry County economy.
WestJet will be coming back this spring. This time, flights will start in March, two months earlier than 2013.
WestJet opted not to answer questions provided by The Sun News and instead offered this prepared statement: “WestJet is looking forward when it comes to Myrtle Beach,” wrote Brie Ogle, media relations adviser for WestJet. “We are happy that we were able to once again offer service in to the market and, in fact, we are beginning earlier this year. We are optimistic that the market will continue to progress.”
As for the $551,000 the county owes WestJet, the chamber fronted WestJet the money on behalf of the county by using part of the county’s accommodations taxes that the chamber sets aside for out-of-market promotions. The county had more than $220,000 saved in the fund at the chamber and the chamber will take future “set aside” money for the next five years to pay for the remaining estimated $320,000.
Dean said the chamber expects to spend another $1 million on marketing, the same amount it spent last year, to lure Canadians to the beach.
“We invest marketing funds in Canada every year and we increased our investment a few years ago when Porter Air began flying to MYR,” Dean said. “We anticipate our marketing investment in Canada in 2014 will be comparable to the 2013 levels.”
Eldridge is hoping that WestJet’s earlier start will mean more passengers.
“As a result of WestJet starting service in March 2014, about two months earlier than 2013, we estimate the airline will fly a total of 6,300 passenger into market during the 2014 season,” he said.
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