case study on spicejet

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WestJet Spies on Air Canada

Stephen Smith is the type of boss who keeps his door open. As president of Zip, a short-

lived Air Canada subsidiary, he was known as easygoing and approachable, regularly

walking around the Calgary office to check in with people. He also happens to be the

former CEO of WestJet Airlines, Air Canada’s archrival. All of which may be why he was

the one to receive a phone call last December from a man identifying himself only as a

WestJet employee. “I’m all for tough competition,” said the voice on the phone, “but I

have to draw the line at dishonest conduct.”

Then the caller dropped the bomb: WestJet was dipping into private Air Canada files

online and passing the information around the executive suite. The tipster reported

that he had seen a multicoloured page filled with Air Canada’s flight load (industry

jargon for the number of passengers flying on a specific flight) on a senior executive’s

computer. Smith suddenly feared West Jet brass might have access to a private site

used by Air Canada employees to book their own travel, from which the snoopers would

gauge which routes make money and which don’t – invaluable information in a business

built on tight margins. If he was right, this could explain why WestJet seemed to be

making all the right decisions of late such as flipping its Montreal-Vancouver flight from

evening to morning.

Smith was not alone in his office when the call came. A colleague, Michael Rodyniuk,

was there as well, according to an affidavit Smith filed later. Unbeknownst to the

WestJet snitch, Smith’s phone displayed his name and number. As Smith was jotting

notes from the conversation, he pulled out an extra sheet of paper and says he

indicated to Rodyniuk to write down the information.

That phone call, which could not have lasted for more than five minutes, eventually

triggered a massive civil lawsuit for corporate espionage, one that provides a rare

glimpse of the dirty tricks rivals resort to in the name of competition. Although none of

the parties would go on the record for this story, affidavits, transcripts and background

interviews reveal just how ruthless the airline industry has become in this country,

where Air Canada is battling a posse of up and comers, most notably the feisty WestJet,

as it emerges from bankruptcy protection. Even in its early stages the case has

uncovered fresh incriminating material, but it will be months, possibly years, before the

various players get their days in court. It may never get that far- many observers expect

an out-of-court settlement. Still, the critical battle is playing out in the court of public

opinion, where the two airlines’ pilot personas so far seemed reversed: Air Canada, long

thought to be a corporate bully, appears to be the victim, while WestJet, for years the

darling of investors and the flying public, has been cast as the bad guy.

In its statement of claim, which accuses WestJet of “high-handed and malicious”

conduct, Air Canada says the company surreptitiously tapped into its employee website

and set up a “screen scrapper,” a program designed to automatically lift data off one

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site and dump it into another. WestJet boosted its own profits using that information,

says Air Canada, claiming a whopping $220 million in damages. In reply, WestJet

dismissed the suit as an attempt to embarrass a rival and in a countersuit accuses the

national carrier of stealing its confidential information. It says Air Canada sent

investigators to pilfer one of its executive’s garbage-and has pictures to prove it.

What pushes this story into the realm of the absurd is that neither airline denies the

accusations – what is disputed is whether doing so was wrong. WestJet admits a senior

executive, Mark Hill, entered Air Canada’s website; Clive Beddoe, the company’s CEO,

even apologized to shareholders for Hill’s actions while discussing WestJet’s tumbling

profits this summer. For its part, Air Canada readily admits it took the garbage – in fact,

it uses the reconstituted pages for its defence for its case. But almost in mirror fashion,

they both scoff at the recriminations. WestJet says its s-called crime coughed up data

that was neither confidential and/or important. Air Canada’s investigators deny they

trespassed on private property. If there were not investors’ money and jobs at stake,

and possibly even the fragile health of the national airline industry, these suits and

countersuits could be likened to a spat between siblings that is getting out of control.

And now Jetsgo Corporation, the young Montreal-based discounter, has entered the

fray. Among the documents Air Canada had pasted back together; it discovered a

summary of Jetsgo load factors. Last week, Jetsgo CEO, Michael LeBlanc asked Air

Canada for a copy of that document. All of which poses an intriguing question: Just

hopw widespread was WestJet’s espionage?

While the audacity of the tactics may be shocking, there is nothing new in companies

spying on each other, says Norman Inkster, who led the RCMP from 1987 to 1994 and

now runs a private investigation firm. But in the old days it usually meant breaking into

rivals’ offices. Today, it is about hacking into websites and electronic files – tactics that

Inkster says can be difficult to detect and hugely damaging. If Smith had not been

tipped off, chances are Air Canada would never have discovered WestJet’s scheme.

As much as five months before the mole’s disturbing call, Rodyniuk, the executive who

Smith says was in his office that day, had mentioned that a WestJet co-founder, Mark

Hill, seemed to have oddly accurate data on Air Canada’s flight loads. Rodyniuk, Zip’s

director of marketing and sales, had known Hill for more than a decade. The two

bantered back and forth regularly by email. Occasionally, Hill, known as the industry

genius for industry numbers, would taunt Rodyniuk about Air Canada’s woes.

“Winnipeg-London at 27 percent is not doing much of your bottom line,” he wrote on

January 15, 2004. “I’d be willing to bet my next profit-share cheque that YWG-YXU [the

airports’ call letters] has the lowest load factor of any domestic route operated by AC

today. C’mon. Fess up.”

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Hill’s name also came up in Smith’s conversation with the informant, who said Hill was

the source of the sensitive data. Smith immediately made toe calls: one to Air Canada’s

CEO Robert Milton, and the other to security. An investigation was launched.

First stop: the employee website. A standard airline perk allows employees to travel

almost for free on flights with open seats. Workers receive a personal code so they can

check which flights are available. Air Canada’s manager of online services, Gerald Gunn,

found that someone – or something – had used a single access code to enter the site an

astounding 243,630 times between May 15, 2003, and March 19, 2004, for an average

of 768 hits a day. In one extraordinary day, the site was tapped 4,973 times.

It did not tale long to determine that the code belonged to Jeffery LaFond, a former

Canadian Airlines employee who had accepted a buyout as Canadian Airlines was being

taken over by Air Canada. Part of his package included two Air Canada tickets a year for

five years.

Last winter, as Air Canada secretly tried to piece together what WestJet knew and how,

Rodyniuk continued his email relationship with Hill. In February, he broached a new

subject: He wondered if WestJet might have a job for him.

Here the storyline gets contentious. Air Canada claims Rodyniuk and Hill met for dinner

on Macrh 18. The following morning, Air Canada’s website was entered using Lafond’s

access code for the last time. On March 24, Rodnyiuk quit his job at Zip. The next day,

he showed up at WestJet as director of revenue. Air Canada believes Rodyniuk tipped

Hill off to its investigation.

In his affidavit, Rodyniuk disputes Smith’s account of the tipster phone call. He says he

only learned about the call when Smith asked for help checking out a former Canadian

Airline employee. Rodyniuk admits he wrote the name and number on the slip of paper,

but that information did not come from Smith’s phone display; it came from directory

assistance.

Meanwhile, as Gunn was combing through Air Canada’s website looking for signs of

infiltration, the company’s law firm, Lerners, decided to engage in some espionage of its

own. It hired a private detective agency, IPSA International, to do some sleuthing of a

grittier nature than WestJet’s high-tech screen scraping. Hill often worked from home

in his Victoria’s exclusive Oak Bay suburb. IPSA’s job was to get Hill’s trash: It might

reveal how WestJet was using the data it took from Air Canada’s site. Tiped off by a

neighbour, who had seen a suspicious white truck, Hill caught the IPSA workers last

April. “Do you work for Air Canada?” he shouted at them, snapping photos of the men

and their truck as they loaded his trash and recycling bins into their pickup. The pictures

were printed in newspapers, and the incident gave Hill and WestJet something to be

indignant about. The garbage was on private property, says Hill, whose countersuit

accuses the private dicks and Air Canada of trespassing.

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Hill’s recycling material included shredded papers. After sorting the trash, the IPSA men

sent the strips to a company in Houston that specializes in reconstituting shredded

papers. The turned out to be reports comparing Air Canada’s and WestJet’s flight loads,

according to Air Canada affidavits.

The day after Hill snapped the photos, and two weeks after Rodyniuk jumped to

WestJet, Air Canada filed a lawsuit against WestJet, Mark Hill and Jeffery Lafond. And

that’s when things got interesting.

Some of the best drama in the case – and some of Air Canada’s best evidence – came in

pre-trial cross-examinations, which took place in a vast glass-walled conference room at

the company’s law firm. Earl Cherniak, Air Canada’s lawyer, is like a sharpshooter –

quiet, precise and dangerous. In late June, he questioned Lafond. The session was well

attended: at least eight lawyers, a couple of airline executives, and Hill, who was to be

examined immediately after. Lafond admitted providing his employee and personal ID

numbers for Air Canada’s website to Hill, but said he didn’t think the load factor

information was relevant. The transcript of the two and half hour cross-examination

reads like a school principal greeting a cheating principal. Had Lafond asked Hill how the

information would be used? Did he know it would be used 243,000 times? Did he know

it was used on an automated basis? No, no and no, answered Lafond.

“Mr. Hill never told you that?”

“No.”

“So, you had no idea, when you were giving Mr. Hill this access that he would use it in

that way?”

“That’s correct.”

“Yes. But if you had known that, you wouldn’t have given it to him, would you?”

“Again, I don’t think the load factor information is very relevant,” said Lafond. (He

nonetheless asked Hill for – and got, on the same day he handed over the codes – an

indemnity saying WestJet would take care of him “for any reason.”)

At the beginning of Lafond’s grilling, Hill kept busy doing a crossword puzzle. By the

time it was his turn in the hot seat, however, Hill was no longer nonchalant. At one

point during the questioning, he was shaking, says one person who was in the room.

Hill told Chernaik that when he first got Lafond’s access code he spent 90 minutes each

evening going into the Air Canada website and analyzing its data. Later, he asked a

WestJet computer expert to create a program that would retrieve the data

automatically. But, said Hill over and over, the laod factor information was available

from other sources. Airlines hire people to stand at airport gates and count passengers

as the board or exit fights, he pointed out. And, over and over, Cherniak told Hill that he

was volunteering information for which he hadn’t been asked. (Hill resigned from

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WestJet this summer, saying it was in his and WestJet’s best interests that they part

company.)

In its defence, WestJet does not deny accessing Air Canada’s website, but it points the

finger at Hill as the one who did the dirty work. Besides, says WestJet, its rivals troubles

are not the result of Hill’s actions, and the flight load information Hill obtained was of

little value.

Much of the case will ultimately revolve around this point. As one lawyer put it, if you

are hit by a car running a red light, the case against the driver will be much tougher than

if you were left brain-damaged than if you are bruised lightly. The next step in this case

may well determine whether Air Canada was bruised or bashed by its rivals’ actions. In

July, WestJet was ordered to turn over its executives’ hard drives for an independent

review, which should help answer some outstanding questions. Who at WestJet knew?

Who used the data? And how useful was it? Claude Proulx, and airline analyst, noted in

a July report that WestJet’s load factors “deteriorated significantly” after it stopped

scraping Air Canada’s data. Meanwhile, Air Canada’s traffic figures have improved

substantially.

In the end, both airlines may be harshly judged. With few controls on its employee

website, Air Canada left itself wide open to snoops. WestJet’s Hill took advantage of his

competitor’s lax security. But most importantly, both – whether as a tactic to divert

attention from falling profits or a ploy to appear less of a bully – have blown things way

out of proportion.

Discussion Questions

1. Did WestJet employees engage in unethical behaviour in this series of events? Did Air Canada employees?

2. Who are the relevant stakeholders in this case?

3. Does Air Canada’s apparently weak security in this matter reduce any blame to be accorded to WestJet?

4. Do arguments that the local data was useless or that it was available from other sources reduce the seriousness of the online snooping?

5. Who gained and lost power in this case?

6. Om May 29, 2006, a settlement was announced. WestJet agreed to pay Air Canada $% million in costs and to donate $10 million to children’s charities in the

name of the two airlines. It also apologized and described its conflict as

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unethical. Is this a fair outcome? Does it change your views about your answers

to the previous questions?