Predatory Pricing. From Westjet?

Blastor · Post by **Blastor** » Thu Feb 17, 2005 9:40 am

Jetsgo expanding service from Halifax

By Brent Jang
Thursday, February 17, 2005 - Page B15

Discount carrier Jetsgo Corp. will be expanding its service this spring from Halifax, boosting seat capacity in the competitive domestic market.

Jetsgo said yesterday that year-round flights from Halifax will be added in April to Ottawa, Montreal and St. John's. "Jetsgo already has a loyal following in each of these destinations," Jetsgo president Michel Leblanc said in a statement. Montreal-based Jetsgo also added that it will no longer be releasing monthly statistics on its load factor, saying it doesn't see any benefit to continuing disclosing such numbers as a private firm.

Load factor is the proportion of available seats filled. RBC Dominion Securities Inc. analyst Nick Morton said the fight for market share is intensifying, and rival WestJet Airlines Ltd. is "in an all-out war with Jetsgo, with the intention of driving it out of the market."

Blastor · Post by **Blastor** » Thu Feb 17, 2005 9:47 am

WestJet willing to sacrifice sales to save market share
Calgary-based discount airline reports its first quarterly loss in eight years

By BRENT JANG
TRANSPORTATION REPORTER
Wednesday, February 16, 2005 - Page B3

WestJet Airlines Ltd.'s brash chairman, Clive Beddoe, is shifting the discount carrier's strategy in the cutthroat industry, saying he's prepared to sacrifice revenue to protect market share by expanding its offering of cheap air fares.

"The public at large will tend to see more seats available at our lower fares," Mr. Beddoe said in an interview yesterday after WestJet announced its first quarterly loss in eight years. "It will have a significant impact on the competitive environment."

He said WestJet wants to avoid further cuts to already discounted ticket prices, but it needs to defend its business by boosting its inventory of seats on the lowest-fare side -- a counterattack against aggressive pricing by Jetsgo Corp.

WestJet announced yesterday that it lost $46.3-million or 37 cents a share in the fourth quarter, compared with a $12.8-million profit or 10 cents in the same period in 2003. Revenue rose to $274-million from $230-million.

It marked the first quarterly loss at WestJet since the final quarter of 1996. Launched as a private firm in February, 1996, the Calgary-based carrier's shares began trading on the Toronto Stock Exchange in mid-1999.

Yesterday, WestJet shares fell 49 cents, or 4 per cent, to $12.16 on the TSX.

Mr. Beddoe, who in the past has singled out Air Canada for criticism over brutal fare wars, turned his attention yesterday to rival discount carrier Jetsgo.

"Air Canada has actually been much more rational and disciplined, but you can see some desperation in some of Jetsgo's pricing. The most desperate carrier creates the most grief in the industry," he said, referring to Montreal-based Jetsgo's cut-rate fares.

Previously, WestJet emphasized the importance of yield, a key industry indicator that measures revenue per passenger mile. But Mr. Beddoe said his company is increasingly focusing on load factor, or the proportion of available seats filled.

Air Canada and its regional Jazz subsidiary captured 62 per cent of the domestic air market last year, while WestJet grabbed 28 per cent, Jetsgo had 8 per cent and CanJet Airlines held 2 per cent.

A new $2.7-million computer reservation system will guide WestJet in making the most of its seat capacity in 2005, Mr. Beddoe said.

Jetsgo spokesman Brad Cicero said Mr. Beddoe's complaints about the dogfight in the skies show that he is worried about Jetsgo, which started operations in mid-2002.

"I'm sure that he wishes that Jetsgo wasn't here, but we are, so we keep offering low fares, and consumers like it," Mr. Cicero said.

Rick Erickson, an independent aviation consultant based in Calgary, said WestJet has been forced to shift its strategy to guarding market share because its growth curve is flattening after years of rapid expansion.

And Douglas Reid, a professor at Queen's University's School of Business, said WestJet may be sensing that Jetsgo is vulnerable, "but you don't want to rely on a competitor failing."

WestJet took a $46.7-million writedown in the fourth quarter after deciding to phase out its fleet of aging Boeing 737-200s ahead of schedule. It originally planned to retire three of the planes this year, but has now opted to take all 18 aircraft out of service within a year. Sixteen new Boeing 737s -- billed as 30-per-cent more fuel efficient -- will replace those aircraft, leaving WestJet with a fleet of 54 planes by next February.

Problems with WestJet's computer system linked to reservations reduced its on-line bookings by up to $20-million in October and November. Fierce fare wars and rising operating costs, including high fuel prices, also crimped the carrier.

"We tend to think of it as being something like the perfect storm, but the perfect storm does pass," Mr. Beddoe said during a conference call.

In the interview, Mr. Beddoe said he's doing what's best for WestJet in the long term, even if that means scaling back expansion plans.

"I can't manage the business for the sake of the analysts or the short-term investor," he said.

Michael Linenberg, an analyst with New York-based Merrill Lynch & Co. Inc., lowered his WestJet rating yesterday to "neutral" from "buy," noting that fourth-quarter results fell short of expectations.

With its revamped fleet next year, WestJet expects cost savings of $30-million annually from lower fuel expenses and cheaper maintenance.

For the full 12 months of 2004, the discount airline lost $17.2-million or 14 cents a share, compared with a $60.5-million profit or 52 cents in 2003. Revenue climbed to $1.06-billion from $864-million.

WestJet reiterated that potential losses arising from lawsuits filed by Air Canada and Jetsgo "cannot be reasonably estimated."

Swamp Donkey · Post by **Swamp Donkey** » Thu Feb 17, 2005 10:28 am

gotta love the highlighting....

wallypilot · Post by **wallypilot** » Thu Feb 17, 2005 10:31 am

things are so screwed. with jetsgo's predatory pricing like those $1 flights, or the $20.05 flights, how are they allowed to get away with that? wouldn't that be considered predatory pricing? I don't really understand why nobody has said anything about this. Am i missing something? I mean, there is no way that Jetsgo could justify charging this price, other than to undercut competitors in a predatory nature.

Blastor, any comments?

Go Guns · Post by **Go Guns** » Thu Feb 17, 2005 10:42 am

W0X0F · Post by **W0X0F** » Thu Feb 17, 2005 5:24 pm

Seems to me that Westjet has been one of the more responsible carriers in terms of pricing. Where the market did not support a profitable sevice, WJ pulled out. Example, Gander. This is not indicative of a predatory pricing player. On the other hand Mitchel D'White has made it his business plan to be a thorn in the side long enough to be bought out to eliminate him.

AvCanada Joe,
A forum suggestion. Westjet bashing. Blastor would be the perennial favourite.

Blastor,
A little balance please.

W0X0F · Post by **W0X0F** » Thu Feb 17, 2005 5:25 pm

Seems to me that Westjet has been one of the more responsible carriers in terms of pricing. Where the market did not support a profitable sevice, WJ pulled out. Example, Gander. This is not indicative of a predatory pricing player. On the other hand Mitchel D'White has made it his business plan to be a thorn in the side long enough to be bought out to eliminate him.

AvCanada Joe,
A forum suggestion. Westjet bashing. Blastor would be the perennial favourite.

Blastor,
A little balance please.

Typhoon pilot · Post by **Typhoon pilot** » Thu Feb 17, 2005 5:45 pm

For Blastors sake!

The news just came in. WestJet is closing the doors all aircraft, parts and personel are to be auctioned off on EBAY starting immediatley. Managment decided this was the best route to take as they have realised your family life is suffering due to your hatered of WJ and the amount of time you spend combing the net looking for negative reports on said airline.

Okay seriously isn't it time we all got along did our jobs in a proffesional manner and let the head honcho's fight it out. After all we are trying to make a living. Doesn't matter who you work for it's just a f%^&$#g job.

peeelot · Post by **peeelot** » Thu Feb 17, 2005 6:31 pm

What Jetsgo is doing is a thing called loss leader. By advertising a product at a price below cost they are bringing people on to there web site. So that person will buy a ticket from Toronto to Calgary for $1 and they only get that deal if they fly return. So they jack up the price on the return leg to 306. for the flight home so it come out to about 478.00 these arent real numbers so just go with it. And they have someone who thinks they got a great deal. But did they? Go on westjets site and they have a sale as well 154.00 each way and after all the taxes it only comes out to being a 1.15 savings. So what has happened here is poeple hear about the deal and they only go to one site and buy their ticket. Really Jetsgo isn't cheaper they are just using the oldest trick in the book. Just like sport check did the same thing and now they are out a lot of money because they got slaped by the government. THe sad thing about the Jetsgo situation is they are from Queerbec so the government will never punish them.

wallypilot · Post by **wallypilot** » Thu Feb 17, 2005 8:04 pm

yeah, i understand the idea of a loss leader, but i did not realise they were jacking up the price that much on the return. i thought that the return was similar to WJ, and the out was just a buck (plus taxes). or vice versa. personally, i think that those people on the CTC and the Competition Bureau don't have the balls to go after offending companies becaue they don't want canada to be seen as anti-business. whatever....i could really get on a rant, but I won't.

-wp

FamilyGuy · Post by **FamilyGuy** » Thu Feb 17, 2005 9:39 pm

WestJets new "strategy" is like deja frigin vue all over again.

Almost the exact same shit happened between then Canadian and ACA with ACA doing whatever it took to protect "market share". Didn't work then won't work now. A wheel just fell off the WJA turnip truck IMHO. What will be next I wonder?

Mark my words - when the employees start to feel the pain of this strategy - and they will - wheels number 2 + 3 will fall off very quickly thereafter.

Clive Clive Clive

WTFRUT

peeelot · Post by **peeelot** » Thu Feb 17, 2005 9:49 pm

Well first of all Westjet employees are different then Air canada's first there is no union to tell them what to think. Second they don't work for a french company so they aren't out to screw Canadian business

Hun IN the SUN · Post by **Hun IN the SUN** » Fri Feb 18, 2005 12:05 am

Westjet = Weakest Link

CanadaEH · Post by **CanadaEH** » Fri Feb 18, 2005 12:32 am

You people are really stupid. This is a copied post from another forum by a NON-WJ employee (Fido, AEF), and is probably the best explaination of WJ's "more seats at the lowest cost" strategy:

The change in focus for Westjet is that they are tailoring their prices to fit with the market demands better. Previously there was a broad brush approach taken where; as one of the flights on a city pair filled at the lowest fare then all of the flights that day (or even week) were closed off from that cheap price and all of the prices raised. The customer then quit buying from WS as they were finding cheaper prices on other carriers.

What they are doing now is working a little harder at the problem by closing off the lowest prices on the most popular flights and opening up the cheapest buckets wide open on the least popular departure times. Thus they can still offer flights at the cheapest fares, sometime during the day and get more money from the people that will pay a premium to go at a more popular time.

WestJet is not going to give away the farm.

Look at YYC-YYZ this coming Monday. The fares range: $149, $280, $310, $346 for six flights there are four different fare levels.

The problem since last Spring is that their revenue management system was too simple to handle this without a lot of work. The new system AirMax will make it much easier by automating the task.

Keep up the pathetic posts, boys and girls.

Rebel · Post by **Rebel** » Fri Feb 18, 2005 3:58 am

CanadaEH

Your quote “You people are really stupid” I guess the extent of your argument is down to name calling. You Jetsetters are under some illusion that you have invented everything in aviation. Well maybe the corporate espionage stuff. Sorry to burst your bubble but your new strategy has been tried before and failed.

What do you think that JG is going to do? Hmm doesn't JG have the lowest cost per seat mile in Canada. I hope AC has enough sense to stay away from this blood bath..

Jaques Strappe · Post by **Jaques Strappe** » Fri Feb 18, 2005 2:39 pm

Predatory pricing only applies to Air Canada. Just ask Clive.

... · Post by **...** » Fri Feb 18, 2005 3:22 pm

peeelot wrote: THe sad thing about the Jetsgo situation is they are from Queerbec so the government will never punish them.

.....getting warmer

EI-EIO · Post by **EI-EIO** » Sat Feb 19, 2005 5:38 pm

As to Jetsgo not releasing LF - does TC keep stats on airports like CAA does in the UK? LF can be calculated from those if you know the aircraft used.

CAL · Post by **CAL** » Sat Feb 19, 2005 5:47 pm

you guys give the management types way!! too much f---ing credit for all of this bull---t pricing strategies....its all crap....

Blastor · Post by **Blastor** » Sun Feb 20, 2005 10:58 am

WestJet's new baggage, No longer an upstart,
carrier feels growing pains

Chris Sorensen

Financial Post, Saturday, February 19, 2005

WestJet Airlines Ltd.'s decision to battle rivals with more aggressive pricing is worrying analysts -- not because it is an abrupt shift in strategy, but because it suggests deeper problems for the company and the industry as a whole.

After posting its first-ever quarterly loss of $46-million, WestJet chief executive Clive Beddoe said this week the airline plans to offer more lower-fare seats to maintain market share and protect key routes from advancing competitors.

With this move, WestJet is shifting from its strategy of improving profit margins by adding such extras as leather seats and live television to its planes, allowing it to charge more for tickets.

Among the fears is that WestJet's decision to offer more low fares, although good news for consumers, will further depress industry yields, or the amount of money airlines earn on each seat sold.

"When the one player who has been, more or less, the most disciplined operator decides to chase price, it's not very good for the industry in general," said Nadi Tadros, an analyst at Desjardins Securities.

"That means lower pricing for everybody. And in that case, nobody really wins."

WestJet, however, is gambling that its lower cost-structure -- which should be reduced further with management's decision to speed up the replacement of its ageing Boeing 737's with more fuel-efficient models -- will allow it to run its smaller rivals into the ground.

In addition to a rejuvenated Air Canada, Calgary-based WestJet now faces stiff competition from Jetsgo Corp. and CanJet Airlines on several key routes. "We cannot let any carrier gain a foothold in any sector of our market," Mr. Beddoe said during a conference call.

But heightened competition is only one of many problems faced by WestJet -- and it's far from clear whether a strategy of filling more planes with cheaper fares will help matters.

Like other carriers, the airline is grappling with dramatically higher fuel costs, airport fees and navigational charges. In addition, the company has been forced to absorb legal costs associated with a $220-million Air Canada lawsuit that alleges WestJet stole confidential route information.

Mr. Tadros, who this week downgraded WestJet's shares to "sell," calculated a 16% year-over-year increase in costs for WestJet flights of comparable lengths.

Meantime, WestJet's load factor, or percentage of seats filled on its planes, dropped to 67.5% in the most recent quarter, compared with 70.3% during the same period the previous year.

The company blamed part of the decrease in loads on problems with its computerized booking system, which has since been fixed.

However, at least one analyst suggested WestJet's weakened third- and fourth-quarter results may also be attributed in part to WestJet's lack of access to Air Canada's booking information -- currently the subject of the carrier's lawsuit against WestJet.

"We believe the information ... was potentially very valuable and could have allowed the company to better manage its seat inventory," wrote Claude Proulx, an analyst at BMO Nesbitt Burns, in a research note.

WestJet has denied Air Canada's allegations and launched a countersuit.
But what is clear, according to several analysts, is there are too many airlines chasing too few passengers. That's why some have suggested WestJet's focus on pricing may be a thinly veiled move to hasten the collapse of one of its key competitors.

"Maybe they're trying to push Jetgso to the wall," said Karl Moore, a business professor at McGill University. "That would certainly help calm the competitive environment."

Several have speculated privately held Jetsgo is the most vulnerable player in an industry suffering from overcapacity and may be the brink of collapse. But BMO's Mr. Proulx predicted Jetsgo is not about to disappear in the short term. "We are receiving information that Jetsgo is not about to run out of liquidity," he said in a research note.

Jetsgo has flatly denied it is in financial trouble. If that's the case, then WestJet could find itself in a prolonged battle with its rivals that will further hurt its margins, share price, and even reputation -- depending on the outcome of Air Canada's espionage suit.

"They thought they had the magic formula," said Douglas Reid, a business strategy professor at Queen's University in Kingston. "But WestJet has just discovered that they're a normal corporation like every other.

"And now they have to get out there and grunt it out like everybody else."

© National Post 2005

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