CANADA: WestJet Airlines And Scoop Accused Of Predatory Pricing

The Federal Court of Canada has ordered a second senior employee at WestJet Airlines Ltd. to testify under oath in a predatory pricing investigation into WestJet and its budget subsidiary, Swoop, by Canada's competition watchdog.

The inquiry, launched by the Competition Bureau in the fall, concerns allegations the two airlines used anti-competitive practices to crowd out B.C.-based upstart Flair Airlines from at least three routes last year.

Federal Court Chief Justice Paul Crampton has ordered WestJet corporate planning manager Michael Claeren to be examined by Canada's commissioner of competition, citing Claeren's former role as a senior leader of revenue and pricing at Swoop.

He is set to appear next month alongside WestJet vice-president John Weatherill, who the Federal Court previously ordered to come before a presiding officer to explain the airline's tactics.

The commissioner launched the inquiry to investigate allegations the parties have abused their dominant position in the provision of air transportation services by engaging in predatory pricing practices on certain routes in Canada, according to a March 27 affidavit from Xavier Mercier, a senior officer at the Competition Bureau.

Flair alleges predatory pricing cost airline $10 million.

Predatory pricing is when a company offers services below break even costs to hobble a competitor, along with an expectation to recoup losses through future price hikes, according to Competition Bureau guidelines.

In this case the accusation applies to routes between Edmonton and the cities of Abbotsford, B.C., Hamilton, Ont., and Winnipeg. On the Hamilton route, Swoop advertised all-inclusive fares for as low as $69 starting last June, court filings state.

Flair Airlines chief executive Jim Scott has said the strategy cost his ultra-low-cost carrier about $10 million between mid-June and mid-October, placing it in jeopardy.

WestJet has said it is compiling information in response to the probe, which has seen piles of court ordered documents and data from the two Calgary based airlines handed over to the Competition Bureau.

Air Canada and WestJet control about 90 per cent of the domestic market and 70 per cent of the transborder market, says David Tyerman, an industry consultant who works with Enerjet, a charter airline aiming to launch as a budget carrier this year.

WestJet's attempts to retain control over ultra low cost flights amount to a pretty aggressive attempt to protect market share and keep new entrants out of the market, Tyerman said in an interview.

The accusation applies to routes between Edmonton and the cities of Abbotsford, B.C., Hamilton, Ont., and Winnipeg. On the Hamilton route, Swoop advertised all-inclusive fares for as low as $69 starting last June, court filings state.

The business models of Canada's two largest airlines make ultra-low pricing on certain routes without incurring a loss tough to fathom, he said, pointing to the cost of premium seating and lounges.

Both Air Canada and WestJet have limited their budget products to certain markets to avoid cannibalizing most of their full-price markets.

It seems unlikely that Swoop and Rouge can achieve truly lowest costs, given labour costs at the incumbents and other potential cost differentials, Tyerman said in an email.

He also noted the Competition Bureau does not have a mandated time frame for the WestJet investigation and called for prompt enforcement of anti-competitive rules.


Tourism Observer

CANADA: NewLeaf Offers Cheap Canadian Flights Through 7 Cities

A new airline set to take flight today is offering ultra-low fares between seven Canadian cities for as little as $89 for a one-way flight.

NewLeaf revealed its flight plans at joint events in Kelowna, B.C., Winnipeg and Hamilton that started at 11 a.m. ET on Wednesday.

As of Feb. 12, flights are available from seven Canadian airports:

Abbotsford, B.C.
Halifax
Hamilton, Ont.
Kelowna, B.C.
Regina
Saskatoon
Winnipeg

CEO Jim Young says the company is focusing on second-tier airports in part because "lower landing fees mean we have savings we can pass on to you."

Young said the airline is looking at adding U.S. sun destinations later in 2016.

The airline will partner with B.C.-based charter airline Flair Airlines for planes, crew and maintenance work. All of the planes will be Boeing 737-400s, with 156 seats in a three-and-three configuration with an aisle up the middle.

The lowest fee of $89 includes all applicable taxes, and even the highest priced route and seat will cap out at $149, one way, for a no-frills ticket.

But the airline does charge a fee for other services including $25 for carry-on bags, the same price as a checked bag.

"So leave the heavy lifting to us," Young said.

NewLeaf said it can save money in part because it won't offer its seats on any third-party travel websites, which charge airlines a fee to post and make sales there. "That's one of the things that lets us keep costs low," Young said.

Personal items that fit under the seat in front will be free, but the airline will charge for snacks and refreshments. And NewLeaf offers priority boarding to those who want it, for a fee.

"By unbundling the entire service you get to choose what you want," Young said, noting his airline is taking the same business model of other successful airline businesses in other countries. "Ultra low-cost carriers are some of the most financially successful airlines in the world today," he said.

The air travel industry in Canada is dominated by WestJet and Air Canada, but is also served by many regional and charter companies that cater to small segments of the market.

Darcy Morgan, chief commercial officer of Calgary-based charter airline Enerjet, says Canada is more than able to handle competition in the industry.

"Canada is not well-served by airlines today, and as much as there's a duopoly of Air Canada and WestJet, Canada lacks the low-cost point to point service pretty much every nation has available," he said in an interview.

"If there's an opening in the market, we believe that's it."

Barry Prentice, a professor at the Asper School of Business in Winnipeg, agrees with that assessment, and thinks starting service out of second-tier airports is a smart plan.

"I think it could fly," he said in an interview. "Typically lower cost stimulates demand. I think we'll see more people travel that haven't travelled before."