WestJet is shutting down its budget airline, Swoop.

The company made the announcement in a news release Friday, noting that the ratification of its recent deal with its pilots allows it to integrate all of its staff at various airlines into a single banner.

“As negotiated in the collective agreement, the WestJet Group will now begin integration efforts of its ultra-low-cost airline, Swoop,” the airline said.

“Through an expedited process, the airline anticipates a full integration into its mainline operations by the end of October. To avoid traveller impact, Swoop will operate its existing network through to the end of its published schedule on October 28. Swoop employees will move to WestJet.”

The move comes as the Air Line Pilots Association (ALPA) announced its members had ratified their recent pact with the airline, one that brings in 24 per cent raises over four years, and puts Swoop pilots on a similar footing as WestJet’s in terms of seniority and compensation issues.

The union said 87 per cent voted in favour of the deal, “which goes a long way to recognizing the value and expertise the pilots bring to their airline and will help solve many of WestJet’s pilot attraction and retention issues.” 

Swoop was launched nearly five years ago, in June 2018. It offered heavily discounted rates with few frills to cost-conscious travellers. A handful of other so-called ultra low-cost carriers have taken to Canada’s skies in recent years, including Flair, Lynx and Canada Jetlines.

While Swoop’s demise will remove a major player in Canada’s discount travel space, WestJet CEO Alexis von Hoensbroech says the airline will continue to offer affordable options.

“This integration will enhance our ability to serve a broader spectrum of guests,” he said. “Instead of only 16 aircraft serving the ultra-low-cost market, each aircraft, in our 180-strong fleet, will offer ultra-affordable travel options through to a premium inflight experience.”

But ultimately the news is a bad development for consumers, according to John Gradek, a lecturer at McGill University who studies the airline industry.

“It has implications in terms of the choices that Canadians will have in terms of an alternative ultra-low-cost carrier,” he told CBC News.

Although it started in 1996 as a regionally focused airline with generally cheaper prices, WestJet is no longer a discount airline, Gradek says. “The loss of Swoop basically eliminates a carrier that was specializing in low cost and it’s going to be a loss to Canadian travellers.”

More moves to come?

Gradek says it is not surprising to see WestJet make the move, as one of the main advantages of Swoop in the first place was its lower cost base. 

“One of the conditions for creating Swoop was to have a different salary scale,” he said. “With the ALPA agreement that differential that allows you to have some competitive advantage price wise disappears.”

Gradek says he would not be surprised to see WestJet do something similar with another discount airline it recently bought, Sunwing.

“WestJet has choices — they’re now looking at Sunwing and that’s the next shoe that’s going to fall,” he said. “how far do you take this integration that started with Swoop — do you do the same thing with Sunwing?”

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This week’s surprise interest rate hike by the Bank of Canada was another blow to the country’s over leveraged borrowers, but it was a double-blessing for the smaller sliver of the population that actually saves money.

The first benefit is obvious. After a 15-month period that took the benchmark rate from near zero to 4.75 per cent, yields on fixed income have skyrocketed. A basic one-year guaranteed investment certificate (GIC) – the most secure short-term savings vehicle available to the average investor – has topped five per cent. Savers were lucky to get one per cent before the rate hikes began.

The yield on the benchmark Government of Canada five-year bond is currently 3.75 per cent (from under 0.5 per cent), but is expected to rise further along with investment grade corporate bonds.

MACKLEM ON A MISSION

The second blessing is the Bank of Canada’s aggressive and unwavering commitment to prevent their savings from being gobbled up by inflation. This week’s interest rate increase came with the stipulation that it will raise rates further in the coming months if cost of living increases don’t fall closer to its two per cent target rate.

Despite being late to react, policymakers led by Governor Tiff Macklem have taken a global leadership role in doing whatever it takes to ensure all Canadians don’t get crushed by runaway inflation; even if it requires some bloodletting.

We’re not out of the woods yet but the latest reading puts inflation at 4.3 per cent compared with last year when it topped eight per cent.

STRANGE NEW WORLD OF INVESTING

The Bank of Canada rate has not been this high since 2001. It’s a strange new world for a generation of investors who have never had the advantage of significant risk-free returns.

Strategically, having a significant portion of retirement savings in fixed income is essential to balance overall portfolio risk against the volatility of equities. Any rate of return is welcome if stock markets tank when retirees need a reliable cash supply for living expenses.

In addition to hedging risk, fixed-income investments can also generate tax savings in registered accounts such as a registered retirement savings plan (RRSP), tax-free savings account (TFSA), registered education savings plan (RESP) and the just-introduced first home savings account (FHSA). In comparison, fixed-income investments are fully taxed outside a registered account.

There are strategies for retirement investors to maximize fixed income returns by staggering maturities within a portfolio to take advantage of the best going yields as often as possible. The most common strategy, known as laddering, ladders maturities over a fixed period of time.

Most fixed income experts are currently recommending short durations on expectations persistent inflation will force rates even higher.

Prices on bonds fluctuate before maturity based on future interest rate speculation but that’s a problem only bond traders have. Retirement investors will generally hold fixed income to maturity, so they know exactly what to expect when that day comes.

There is no single set of rules when it comes to managing a fixed income portfolio for individuals. The portion of fixed income in the overall portfolio, the total duration of a ladder, and the types of fixed-income investments depend on when and how the investor wants to retire.

A qualified advisor should be able to help.

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