Originally Posted by
Changeup2000
This would not be too suspicious per se, but given what happened in the last 12 months, there indeed seems to be some conscious or unconscious division of territories going on.
Businesses do it all the time, not just in aviation. A company will make a decision whether or not a bridgehead in a certain area is worth sustaining, or if the overall organization is better off retreating to a region where it is more successful. For example, Mitsubishi Motors has withdrawn from passenger vehicle sales in Britain, for example, while still maintaining its business in Japan and North America. Its market share in the UK (0.46%) was extremely low and the company decided that they could not/would not be able to invest sufficient resources to attempt to change that number. And both Target and Nordstrom (retail) withdrew from Canada because their operations here were money-losing and they were unwilling to invest the cash and resources to turn their Canadian affiliates around. They made the decision to focus on their core United States business.
WestJet withdrew from domestic flying in much of Eastern Canada because it was well behind AC in terms of consumer preferences--I would argue in large part due to its lousy FFP and poor relationships with other international airlines. Also WestJet's transatlantic operation in Toronto was always rather silly as it was competing against carriers far better at transatlantic operations than it--not just AC but also Air France, KLM, British Airways and others. AC has its most important hub at YYZ and was never going to be dislodged. AC also has multiple advantages over WS--a FFP that is miles ahead, extensive code-share relationships, a network of lounges, reciprocal privileges for its best customers when traveling abroad (Star Alliance Gold), and more.
WestJet decided that it was never going to make inroads into AC's market share in the East. Or that it potentially could have but this would have required both a massive infusion of resources as well as a complete change in the way WS operates--such as joining SkyTeam, setting up a proper FFP, expanding business class across its fleet, and opening a wide network of lounges.
Originally Posted by
Adam Smith
About the same could be said of just about any case of collusion/price-fixing/other anti-competitive behaviour. "[Airline X] would never do anything to help or benefit [Airlines Y or Z], which are its most important competitors in the [region] air cargo market" . "[DRAM Chipmaker A] would never do anything to help or benefit [DRAM Chipmaker B], the latter is [DRAM Chipmaker A]'s largest and most important competitor". "Those bakeries would ever do anything to help each other, because they're each other's biggest and most important domestic competitors". And yet all have happened.
As a market grows more and more concentrated, the task of dividing the market requires the involvement of fewer and fewer people. It's very difficult to communicate effectively while keeping illegal practices hidden if you have, say,
a couple dozen airlines around the world rigging air cargo prices. But the more oligopolistic a market gets, the simpler anti-competitive behaviour becomes. Businesses may stay out of each other's territories without ever overtly colluding to do so,
simply because it's clearly rational for both to do so.
The challenge for air travel in Canada is that it is massively concentrated, with AC and WS forming, for a number of years, close to a duopoly. The presence of firms like TS and WG kept some competition at the margins, and while AC and WS each had their geographic focuses, any attempt by one to significantly increase prices in one area would likely lead the other to deploy some capacity in the same area to earn some of the excess profits, keeping prices somewhat in check but allowing for reasonable profitability. But now we have a shortage of two of the key inputs to commercial flying, pilots and aircraft. There isn't really excess capacity among the two big players, so the profit-maximizing move is to focus on the core, which allows for more efficient deployment of your scarce resources and minimization of your own costs. So, even if WS and AC haven't colluded, their individual incentives may be driving them to make decisions that are anti-competitive and poor for Canadian consumers.
Making a business decision not to invade a large and powerful competitor's territory (or abandoning a relatively unsuccessful effort to do so, as in the case of WestJet in Eastern Canada) is neither illegal nor evidence of collusion. Was it illegal collusion between Walmart and Target that led the latter to abandon its rollout of stores in Canada in 2015 after only two years? No, Target made a series of key errors that led to its Canadian affiliate racking up massive losses in a short time. The operation possibly could have been turned around with patience and resources, but at the time Target was also experiencing difficulties in its core U.S. market and the decision was made to focus there and cut loose any distractions. Again, this doesn't mean that Target agreed to hand the Canadian discount department store market to Walmart, or that there was even any discussion between the two players about Target's potential withdrawal or the benefits it would have for Walmart Canada.
You mention the bread price fixing scandal. It's worth noting that without Weston/Loblaw's confession in 2015 in return for a shield from criminal penalties, the Competition Bureau would likely have not ever brought any charges, since there would have been little to no actual evidence of any wrongdoing. Even so, EIGHT YEARS after Loblaw made its admission and supposedly provided evidence of the alleged involvement of Metro, Sobeys, Walmart Canada and others, no other retailer has even been charged, let alone tried and convicted.
It's interesting that the same complaints made about Canada's aviation market are often made about other sectors, including food retailing, banking and telecommunications. The Canadian grocery/financial/cell phone/etc. market is supposedly an ogliopoly, the companies involved are supposedly all colluding with one another to drive up prices and keep others out, and the goal is to gouge consumers. Of course, the real explanation is the fact that Canada is a relatively unattractive market--the geography is huge, the population comparatively small, the investment required to challenge existing players enormous, and the costs involved (for example, labour laws, language laws, etc.) significant.
Many people like to see conspiracies where none exist--or at least, none can be proven to any rational degree, let alone to the satisfaction of the judicial or regulatory system. Again, I point to the bread "scandal"--eight years on, no charges against the majority of the players allegedly involved. Where's the evidence?