WestJet, Air Canada Spy on Each Other

WestJet, Air Canada Spy on Each Other

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 Ltd., 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 a 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 data - industry jargon for the number of passengers flying on a specific flight - on a senior executive's computer. Smith suddenly feared WestJet brass might have access to a private site used by Air Canada employees to book their own travel, from which the snoopers could 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 strategic decisions of late, such as flipping its Montreal-Vancouver flight from evening to morning.

Smith wasn't alone in his office when the call came. A colleague, Michael Rodyniuk, was also there, 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 couldn't have lasted more than five minutes, eventually triggered a massive civil lawsuit over 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 business 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' public personas so far seem 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 scraper," a program designed to automatically lift data off one 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 dismisses 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's 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 as evidence for its case. But almost in mirror fashion, they both scoff at the recriminations. WestJet says its so-called crime coughed up data that was neither confidential nor important. Air Canada's investigators deny they trespassed on private property. If there weren't jobs and investors' money 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's getting out of control.

And now Jetsgo Corp., 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 Michel Leblanc asked Air Canada for a copy of that document. All of which poses an intriguing question: just how 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's about hacking into websites and electronic files - tactics that Inkster says can be difficult to detect, and hugely damaging. If Smith hadn't 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 regularly bantered back and forth by email. Occasionally Hill, known as a genius for industry numbers, would taunt Rodyniuk about Air Canada's woes. "Winnipeg-London at 27% isn't doing much for your bottom line," he wrote on Jan. 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."

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 two 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 786 hits a day. In one extraordinary day, the site was tapped 4,973 times.

It didn't take long to determine the code used over and over belonged to Jeffrey Lafond, a former Canadian Airlines International employee who had accepted a buyout as Canadian 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 March 18. The following morning, Air Canada's employee website was entered using Lafond's code for the last time. On March 24, Rodyniuk 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 Airlines employee. Rodyniuk admits he wrote down the name and number on the slip of paper, but that information didn't 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 his home in 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. Tipped off by a neighbour who'd 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.

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. They 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 Jeffrey 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 2 ½ hour cross-examination reads like a school principal grilling a cheating student. 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, Lafond answered.

"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 questioning, he was shaking, says one person who was in the room. Hill told Cherniak 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 load factor information was available from other sources. Airlines hire people to stand at airport gates and count passengers as they board or exit flights, 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 WestJet this summer, saying it was in his and WestJet's best interests they part company.)

In its defence, WestJet doesn't 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 rival's troubles aren't 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 if you were left brain-damaged than if you're lightly bruised. The next step in this case may well determine whether Air Canada was bruised or bashed by its rival's 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, an 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 competition'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.

Maclean's September 20, 2004