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