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WestJet investigated for predatory pricing

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Competition watchdog launches predatory pricing probe of WestJet

Tue Dec 11, 2018 - Globe and Mail
Eric Atkins - Transportation Reporter

Canada’s Competition Commissioner has launched a predatory pricing investigation of WestJet Airlines Ltd., after receiving a complaint the Calgary-based carrier and its Swoop division are undercutting competitors with below-cost fares in violation of the Competition Act.

The commissioner filed a motion in the Federal Court of Canada outlining its investigation as it sought a court order that a WestJet vice-president be required to appear before the commissioner to explain the airline’s pricing, planning and scheduling and other information relevant to the inquiry.

The competition watchdog launched its inquiry in November after meeting with representatives of Kelowna-based Flair Airlines Ltd. which alleged WestJet and its newly launched Swoop brand were offering seats on some routes at prices designed to force competitors out of the market.

Flair alleged Swoop’s “anti-competitive conduct” made it stop flying its Edmonton-to-Hamilton route, and could force it out of the Canadian market entirely.

“WestJet and Swoop are presently compiling information in answer to the bureau’s inquiry and will not be providing further comment at this time,” WestJet spokeswoman Lauren Stewart said.

The watchdog’s request for a court order complaint was first reported by Ottawa publication Blacklock’s Reporter.

According to the application made by the Department of Justice to Federal Court, Swoop allegedly priced its Edmonton-to-Abbotsford route at as little as $39, which equals 2 cents after taxes, fees and travellers security charges.

Swoop offered one-way fares to Hamilton from Edmonton for $69, including taxes and other fees, for an effective fare of $28.59. Flair said its lowest all-inclusive price for the same route in 2017 was $149. Flair left that route, and Swoop is the only airline flying it at this time, the court document says.

“Based on the commissioner’s inquiry to date, the commissioner has reason to believe that the parties have engaged in conduct that constitutes an abuse of dominant position,” the watchdog said in the court document.

On Tuesday, the Chief Justice of the Federal Court granted the commissioner’s motion and ordered WestJet vice-president John Weatherill to testify at a later date before the competition inquiry. The justice also ordered the airlines to provide all documents requested by the Competition Commissioner.

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and not so long ago.  Guess it is time to update the cartoon. 😀

Predator.jpg.b8f3b07d6cc952acd5379b18e72d71c1.jpg

 https://www.theglobeandmail.com/report-on-business/rival-tried-to-destroy-westjet-suit-says/article18280058/

 
Published December 16, 2004

The nasty fight in Canada's aviation sector heated up yesterday as WestJet Airlines Ltd. launched a $30-million lawsuit against Air Canada, including chairman Robert Milton, alleging that he and two other executives conspired to win market share by predatory means for personal gain.

Other defendants named by WestJet are Stephen Smith, Air Canada's senior vice-president of customer experience, and Calin Rovinescu, who resigned as Air Canada's chief restructuring officer in April.

The two carriers are already locked in a bitter eight-month legal battle over WestJet's alleged spying in the airline industry.

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The investigation goes beyond flights only within Canada.

Competition Bureau checks WestJet's discount airline Swoop for predatory pricing

Canada's competition watchdog is looking into whether or not WestJet's discount carrier Swoop has been offering airline tickets at below cost to push rivals out of those routes.

Federal watchdog examines whether flights were priced to drive out competition

CBC News · Posted: Dec 12, 2018 12:26 PM ET | Last Updated: an hour ago
 
westjet-swoop.jpg
Swoop flies between a dozen or so destinations across Canada, the U.S., Mexico and the Caribbean. (Canadian Press/WestJet)
 

Canada's competition watchdog is looking into whether or not WestJet's discount carrier Swoop has been offering airline tickets at below cost just to push rivals out of those routes.

As first reported by Ottawa-based political publication Blacklock's Reporter, the Competition Bureau of Canada has begun an investigation into whether or not Swoop has engaged in what the bureau calls "predatory pricing" — selling tickets for less than it costs to run the flight, in the hopes to drive other competitors on that route out of business.

Swoop was launched with much fanfare earlier this year, featuring rock-bottom prices between Canadian cities including Halifax, Edmonton, Winnipeg, Hamilton, and Abbotsford, B.C., along with a handful of sunny destinations in the U.S., Mexico and the Caribbean.

Some of those routes were already being served by other small Canadian carriers, including Flair Air, when Swoop began an aggressive price war that saw one-way ticket prices drop below $40 in some cases.

Flair subsequently cancelled some of their routes, because they couldn't make any money on them, but took exception to Swoop's tactics and complained to the bureau.

"We are pleased that the Competition Bureau has taken our concerns seriously and launched an investigation into the pricing practices of one of our key competitors," Flair Airlines chief executive Jim Scott said.

"Our efforts to bring sustainable low fares to Canada have been hindered by these anti-competitive pricing practices," adding that the airline is willing to participate fully in the bureau's investigation.

Swoop is owned by WestJet. Responding to a request for comment from CBC News, WestJet spokesperson Lauren Stewart said: "WestJet and Swoop are presently compiling information in answer to the Bureau's inquiry and will not be providing further comment at this time."

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swoopisaultralowcostcarrierthatshowtheypriceflightsultralowandmakeenoughtopaysalaries and fuel.

 

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FA@AC: thanks, I am glad however I didn't start this topic as Maverick would have been all over my arse.  😀  But I guess that the investigation does reflect a change in WestJet towards becoming an entrenched traditional airline who protects their turf. 

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I'm sure there are a lot of people creaming in their pants at this. 

How do you call out anti-competitive behaviour accusing below cost base fares not accounting for ancillary revenue - bag fees, seat selection, etc.? There's a difference between this and the previous claims of WJ vs. AC. Not even close. 

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32 minutes ago, CanadaEH said:

I'm sure there are a lot of people creaming in their pants at this. 

How do you call out anti-competitive behaviour accusing below cost base fares not accounting for ancillary revenue - bag fees, seat selection, etc.? There's a difference between this and the previous claims of WJ vs. AC. Not even close. 

yea sure.…..  but we are talking about base fares vs base fares exclusive of extras when we are comparing WestJet/Scoop to Flair etc.  All who charge extras on top of their "base" fares.

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35 minutes ago, CanadaEH said:

There's a difference between this and the previous claims of WJ vs. AC. Not even close. 

I don't see any difference, although I have no idea whether Flair's claims have merit.  As Malcolm has already pointed out the comparison here is ULCC (if Swoop really is one) to ULCC.  Both Swoop and Flair charge bag fees and fees for seat selection if I'm not mistaken.

I'm not sure if WestJet's whining to the competition authorities back in the day took AC's ancillary revenue into account either.  Even then AC had fees for itinerary changes, cancellations, fees for some baggage and for certain on-board amenities.

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42 minutes ago, Malcolm said:

yea sure.…..  but we are talking about base fares vs base fares exclusive of extras when we are comparing WestJet/Scoop to Flair etc.  All who charge extras on top of their "base" fares.

Who is talking about base fare vs base fare? Have you not seen the landscape change? It's not about base fare. If you think it is you're missing the point. 

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31 minutes ago, FA@AC said:

I don't see any difference, although I have no idea whether Flair's claims have merit.  As Malcolm has already pointed out the comparison here is ULCC (if Swoop really is one) to ULCC.  Both Swoop and Flair charge bag fees and fees for seat selection if I'm not mistaken.

I'm not sure if WestJet's whining to the competition authorities back in the day took AC's ancillary revenue into account either.  Even then AC had fees for itinerary changes, cancellations, fees for some baggage and for certain on-board amenities.

Airline vs. Airline. Whether it's ULCC LCC or Legacy - doesn't matter. Different streams of revenue. Given the snapshot of now, with the airlines mentioned - Swoop vs. Flair - you need to look at the structure of pricing. This isn't WestJet vs. Air Canada circa 2003 or whatever. Completely different time. 

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Then show the numbers over time.  What is the average TOTAL fare paid per passenger, per airline for the same route.  What is the COST to operate that flight per airline.  Which airline is selling the seats (plus ancillaries) for less than the actual cost of the flight?

 

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6 hours ago, CanadaEH said:

 This isn't WestJet vs. Air Canada circa 2003 or whatever. Completely different time. 

I’m clearly “missing the point” too. I Departed the industry in 2002 after a brief foray and remember quite well the prevailing attitude(s) at the time as it was actually one of the things I didn’t like about it.

As an outside observer, with zero first hand knowledge and no axe to grind, I have watched as WJ has slowly become everything they said they didn’t like, done everything they said they would never do and slowly morphed into what I consider to be, the new Canadian.

Granted, the climate and terrain are different now than they were in 2002 but that is the nature of warfare…. in fact, the only true certainty in 2002 was that moving forward, the industry climate, terrain and opposing forces would change and that those changes were a given, although the nature of the changes could only be guessed at. Some, on this very forum, suggested to WJ types that they would adapt to the conditions as the conditions changed. In short, they predicted they would become what they have become and do what they are doing. Turns out they were right and not withstanding the howls of protest (at the time) there is simply no disputing the fact that these conversations took place on this very forum… right?

WJ folks could simply say “yup you were right, the world changed and we changed with it and we are doing very well as a result, thank you very much.” A simple statement I could completely agree with and one I sincerely hope continues for a long time to come.

 

 

 

 

 

Edited by Wolfhunter
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just to round out the numbers.  Lets say we have aircraft from both airlines that have 200 seats.  If you sell those seats taxes included for $39 you bring in $7800 including taxes which arent yours to keep. so we knock off just the HST (ontario) and wind up with $6876.

How much do you think it costs to operate a flight from Edmonton to Abbotsford or YVR to YHM.  even throwing in a $5 snack wont make you a profit on that .

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44 minutes ago, boestar said:

is that the all up operating cost?

 

from the link provided by Kasey:

2 examples

An average flight on a Delta Air Lines 737-800 costs $5625 per hour. The plane burns 850 gallons per hour. Fuel costs $4,156 based on Jet-A fuel costing $4.89 a gallon. Two-cockpit crew and five flight attendants cost around $500 an hour. Direct maintenance on the airframe is around $220, engines are around $130, and maintenance burden is around $150, for a total of $500. In addition to this cost is depreciation of $373 and aircraft rental of $96.

An average flight on an American Airlines 737-800 costs $5308 per hour. The plane burns 850 gallons per hour. Fuel costs $4,156 based on Jet-A fuel costing $4.89 a gallon. A cockpit crew of two along with five flight attendants costs around $465 an hour. Direct maintenance on the airframe is around $200, engines are around $110, and maintenance burden is around $135, for a total of $315. Also added to this cost is depreciation of $259 and aircraft rental of $113.

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I believe it’s $.06 CASM. Aircraft are new, (warranty) and owned, crews are paid below legacy carriers. Ancillary revenue probably close to $100 per pax.

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On 12/13/2018 at 5:13 AM, Wolfhunter said:

I’m clearly “missing the point” too. I Departed the industry in 2002 after a brief foray and remember quite well the prevailing attitude(s) at the time as it was actually one of the things I didn’t like about it.

As an outside observer, with zero first hand knowledge and no axe to grind, I have watched as WJ has slowly become everything they said they didn’t like, done everything they said they would never do and slowly morphed into what I consider to be, the new Canadian.

Granted, the climate and terrain are different now than they were in 2002 but that is the nature of warfare…. in fact, the only true certainty in 2002 was that moving forward, the industry climate, terrain and opposing forces would change and that those changes were a given, although the nature of the changes could only be guessed at. Some, on this very forum, suggested to WJ types that they would adapt to the conditions as the conditions changed. In short, they predicted they would become what they have become and do what they are doing. Turns out they were right and not withstanding the howls of protest (at the time) there is simply no disputing the fact that these conversations took place on this very forum… right?

WJ folks could simply say “yup you were right, the world changed and we changed with it and we are doing very well as a result, thank you very much.” A simple statement I could completely agree with and one I sincerely hope continues for a long time to come.

You're right WestJet has changed. Some people made suggestions and guesses - some were wrong, some were right. WestJet today/tomorrow isn't the WestJet of yesterday. Not sure what point you're trying to make? 

On the surface it's easy to suggest there are similarities of WS vs. AC circa 2002 or whatever and Flair vs. Swoop/WestJet. I say there isn't. Back then AC's costs were around 40% higher than WJ. Back then AC was losing billions of dollars a year. Back then AC launched Tango and Zip - really, just repainting some planes and not doing much else to lower costs (I stand to be corrected, I don't recall any initiatives that drove lower costs for either). Back then pricing was more or less all-in - none of the ancillary fees you see today.

The environment today is very much stripped down. In the ULCC space - a space that hasn't been touched since Flair started operating - you pay for a seat and that's it. What's it worth? I don't know the answer. But everything else costs money - a drink, your bag, a boarding pass, a change fee, preferred seat, etc. Swoops costs are significantly lower than WJ's and in-line with Flairs. I watched back in 2004-2005 when Jetsgo decimated the Canadian industry. People criticized WJ for taking too long to react to the competition (Jetsgo). The launch of Flair and others (Jetlines? Whatever the Enerjet is attempting to launch as) forced WJ to react. WestJet couldn't compete with Flair - it's costs are too high (there's a similarity for you!). Launching Swoop was a competitive move to be competitive and open up a new market.

I'll be the first person to admit I am wrong if Flair succeeds in its suit. I just don't see it happening. 

Edited by CanadaEH
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RE everything costs money over and above the fare but that is only if you take the extras ….. so the comparison should be and should remain base fare to base fare.  In your world you would also add in a extra bag or two, some snacks on board, a couple of drinks etc.  that would only end up comparing apples to oranges. 

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15 minutes ago, Malcolm said:

RE everything costs money over and above the fare but that is only if you take the extras ….. so the comparison should be and should remain base fare to base fare.  In your world you would also add in a extra bag or two, some snacks on board, a couple of drinks etc.  that would only end up comparing apples to oranges. 

No, Malcolm. That's not how it works. The fares are almost always loss leaders. It's the ancillary revenue that's everything. Allegiant has been probably the most profitable airline in the US for years and they did it flying gas-guzzling MD-80's. I know lots of people that flew BLI-LAS for less than $20 each way. Of course they got their AC or WJ buddy's that were flying standby to take their bags but that's another story. They gamed the system and that's fine. My old physiotherapist is Irish and she always talked about taking Ryanair from Dublin to Faro for pocket change with her friends and buying underwear and soap when they got there.

I'd like to think you're just trolling but I see you really haven't grasped how the landscape has changed and that's okay. You're retired and it's to be expected I suppose. 

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29 minutes ago, Malcolm said:

RE everything costs money over and above the fare but that is only if you take the extras ….. so the comparison should be and should remain base fare to base fare.  In your world you would also add in a extra bag or two, some snacks on board, a couple of drinks etc.  that would only end up comparing apples to oranges. 

The comparison cannot be base fare to base fare - it's not how airlines price their service. 

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14 hours ago, CanadaEH said:

The comparison cannot be base fare to base fare - it's not how airlines price their service. 

I don't see how you can guarantee your return  relying on base fares plus additional, discretionary optional charges. But perhaps that is why WestJet showed a loss recently.  Normal pricing would have the base fare on a single fare low cost being a break even number , of course for a multi fare traditional airline then the total revenue per flight from the fares would form the base and the rest would be gravy or if you prefer the profit margin.  In other words the total fares charged for a flight must be equal or greater than the cost of operation. Ancillary revenues then, if purchased by the passengers, generate a profit.

 

Maverick not trolling, simply stating my POV and regarding trolling, I guess I can accuse you of the same. I guess though you might be in Marketing, yield management  or a yield analyst so maybe I must defer to your superior knowledge but  Things do change but the basics do not.  So it seems to me base fares (all tickets   sold on the flight) must be no less than the break even (cover all costs) level.  Ancillary revenue can not be guaranteed.

 

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