Backgrounder – Air licensing requirements for resellers

ISSUES

  1. Whether resellers operate air services and should therefore be required to hold an air licence.
  2. Whether NewLeaf Travel Company Inc. (NewLeaf), based on its proposed business model, will operate an air service and should therefore be required to hold an air licence.

Background

The Canada Transportation Act (CTA) requires that persons hold the appropriate licence before they can operate an air service. Licensees are subject to a number of passenger and industry protection provisions, including with respect to tariffs, financial requirements, and Canadian ownership.

When the National Transportation Act, 1987 (subsequently consolidated and revised by the CTA) was introduced, it ushered in the deregulation of the aviation industry, eliminating restrictions on market entry, routes that could be operated, pricing, and the distinction between non-scheduled and scheduled domestic air services. Deregulation resulted in a greater reliance on market forces to achieve more competitive prices and a wider range of services. Industry developed new approaches to the provision of air services, some of which did not always fit squarely into the CTA's licensing parameters. One such approach is the reseller model, whereby the reseller has commercial control over an air service and makes decisions on matters such as routes, scheduling, pricing, and aircraft to be used, while air carriers operate the aircraft on the reseller's behalf.

In light of its experiences administering the air licensing provisions and the continued development by industry of new business models, in 2014, the Canadian Transportation Agency initiated an internal review of whether resellers are operating an air service and, therefore, required to hold a licence. The Agency subsequently became aware of NewLeaf's plan to market and sell air services, while not operating aircraft, and in August 2015, initiated an inquiry, pursuant to section 81 of the CTA, into whether NewLeaf would be operating an air service and therefore required to hold a licence. The Agency decided to complete its review of whether resellers are required to hold a licence as part of this inquiry, and also decided to hold public consultations on the matter in December 2015, with submissions accepted until January 22, 2016. The Agency received submissions from 26 interested parties.

Last December, the Agency advised NewLeaf and other resellers that while the Agency's review was ongoing, they would not be required to seek a licence, so long as they meet the following conditions:

  • they did not operate any aircraft;
  • they chartered the aircraft's entire capacity, for the purpose of resale to the public; and
  • the air carrier held the appropriate Agency licence to operate the air service.

On January 6, 2016, NewLeaf Travel Company made an announcement offering flights from Kelowna, Hamilton, and Winnipeg. NewLeaf also announced that flights would begin on February 12th, with Flair Airlines as the actual carrier.

On January 18, 2016, NewLeaf announced that it was suspending sales temporarily and issuing refunds to those who have already purchased tickets.

After the consultation period ended on January 22, the Agency reviewed the 26 submissions and took them into account in arriving at its determination.

The Agency's determination reflects the most reasonable interpretation of the statutory requirements related to air licensing, based on a plain reading of the law, its evolution and purpose.

The determination on whether resellers operate air services has broad applicability and will provide industry, air travellers, and other interested parties with clarity and predictability and, in so doing, facilitate compliance with statutory requirements.

Tariff and consumer protection

Consumers' air travel will continue to be subject to the terms and conditions of the actual air carrier's tariff applicable to the transportation of passengers and goods.

Tariffs must include terms and conditions related to a number of matters, including the carriage of persons with disabilities, acceptance of children, compensation for denied boarding, failure to operate the service or failure to operate on schedule, limitations of liability for passengers and baggage.

By law, all carriers operating air services to, from or within Canada are required to have a tariff and to make their tariffs available to the public at their business offices upon request. The rights and obligations of air passengers and airlines are set out in these tariffs.

What the Agency decided

For the reasons set out in the determination the Agency found that:

  1. For the reasons set out above, the Agency finds that resellers do not operate air services and are not required to hold a licence as long as they do not hold themselves out to the public to be air carriers operating an air service.
  2. The Agency also finds that NewLeaf will not be considered to operate an air service and required to hold a licence, as long as it operates in a manner consistent with the business proposal summarized in the determination and does not hold itself out to the public to be an air carrier operating an air service.

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