So let me get this straight. You ARE able to throw out serious allegations about Air Canada engaging in "predatory pricing", but you ARE NOT able to explain how you reached that conclusion. Hmm.... I guess that shows us how much your opinion is worth.
get this straight. I didn't say there is definite
predatory pricing going on. I meant to say that there is probable
predatory pricing going on. Clear?
I've seen a few competitors, not just WS
get driven out. Smaller markets are especially prone to this. One case in point was HawkAir, the YVR
-based third-tier carrier. Last year, it had to axe service to Smithers, a town of OVER 5,000 in northern BC
. I know AC
Jazz also serves that place, too. And WestJet? Thompson, MB
, Sudbury and Sault Ste. Maries lost the WS
service. As for Thompson, it was most likely the small market, as this city has only about 14,000 people. As for those two cities in ON
, something tells me some interesting things were probably going on. AC
Jazz must've undercut WS
's fares by quite a bit to quickly keep too many customers from flocking to WS
. I'd bet thet after WS
pulled out, AC
Jazz jacked its fares back up again because of the new lack of competition! That's only one way to drive out a competitor. There are other ways, of course.
Now, let me deal with INCREMENTAL and AVOIDABLE costs here. It can be argued both cost tests can be used, IMO. For incremental costs, this generally means costs that cannot be avoided even if you are adding the investment. An example is AC
adding capacity on routes where it competes with WestJet on. Say, YYZ
. (BTW, this is where WestJet was trying to make a case of when it came to alleged abusive competitive practices by AC
) All AC
has to do is find a few A320, A321s, and even more 767s and start using using them to add seats on flights to and from YHZ
. The result is that along with lower prices set by AC
to entice customers awat from WS
's loads begin to suffer. In short, AC
's flooded the YYZ
market with capacity. Easily so, since WS
has only 737s - and not all that many planes compared to AC
's mainline fleet, either. I do know that there's a break-even point in load factors for any airline in order to make a route as profitable as possible, but I don't know what it really is for WS
. I'm sure they don't give that kind of info out to the public for competitive reasons. The end result is that WS
ends up losing more $$ than it believes it should. So does AC
, but it used that strategy to try to weaken WS
's financial reserves to the point of pulling out of YYZ
at least. This explains why I have seen quite a few A321s and 767-200 and even-300s on the YYZ
route in addition to the increased frequency on AC
's part, according to AC
However.....avoidable costs are different. Avoidable costs are costs that could be avoided if the additional investment has not been made, like non-overhead costs, for example. In other words, cutting costs by getting rid of non-overhead costs, like service frills, for instance. Once again, let's have a look at YYZ
is the full-service airline, while WS
is not. (today, that distinction is slowly blurring between these two) AC
begins to cut frills and lowers prices as a result. But the resulting fares go even lower - lower than what WestJet can handle, since it is a low-cost carrier unlike AC
. Once again, WestJet's loads - and profits - are shrinking faster than the Incredible Shrinking Man.
claims this is unfair, not only because the lower fares are way below what it can take back. AC
would be better able to do this simply because it's taking in a larger revenue, being a much larger airline. How? By jacking prices back up on YYZ
of course. With AC
's cost structure being so high compared to WestJet's, AC
has to be able to recoup its losses faster than WS
's. That's a major reason prices will go back up once the competitor has been driven out, maybe even higher than before the competitor came in. This is where the public interest comes in, for losing a competitor means not only losing an alternative to AC
, but also taking a bigger bite out of your wallet. But also do not forget that AC
, being a much larger carrier and having international routes, can subsidize its own money-losing routes better than WS
It's interesting to note that the Competition Bureau in Canada has been using the idea of avoidable costs much more often than incremental costs in order to determine predatory pricing within the Canadian airline industry. As a matter of fact, this is probably more accurate in determining price predation, since it has to reflect the massive changes that the airline industry has gone through, particularly here in Canada. And of course, the changes that AC
has gone through. AC
has been accused of selling seats below cost as a measure to drive WS
out of certain markets.
Now, how much is THIS opinion of mine worth now!?
I may not be an expert on such matters, but
it's amazing how fast you can learn when you have to. Cool, huh?
There's a LOT more to costs than the above two kinds of tests to take into account, of course, but I won't go into that further.