Decision No. 100-A-2016

March 29, 2016

DETERMINATION by the Canadian Transportation Agency as to whether resellers operate air services and should therefore be required to hold an air licence and whether NewLeaf Travel Company Inc. operates an air service and should therefore be required to hold an air licence.

Case number: 
15-03590

ISSUES

[1] The issues to be addressed in this Determination are whether:

  1. resellers operate air services and should therefore be required to hold an air licence; and
  2. 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.

SUMMARY OF CONCLUSIONS

[2] For the reasons set out below, the Canadian Transportation Agency (Agency) finds that:

  1. Resellers do not operate air services and are not required to hold an air licence, as long as they do not hold themselves out to the public as an air carrier operating an air service.
  2. NewLeaf, should it proceed with its proposed business model, would not operate an air service and would not be required to hold an air licence.

[3] These determinations reflect the most reasonable interpretation of the statutory requirements related to air licensing, based on a plain reading of their language, their entire statutory context, their statutory history, and an understanding of their underlying purposes.

[4] The determination on the first issue has broad applicability and will provide industry, air travellers, and other interested parties with clarity and predictability and, in so doing, will facilitate compliance with statutory requirements.

TERMINOLOGY

[5] Within the context of this Determination, the following terminology has been adopted:

“air carrier” means any person who operates aircraft on a domestic or international air service;

“charterer” means any person who charters an air carrier to operate non-resalable or resalable flights on its behalf and includes a tour operator that provides the charter as part of an inclusive tour package; and,

“reseller” means a person who does not operate aircraft and who purchases the seating capacity of an air carrier and subsequently resells those seats, in its own right, to the public.

THE LAW

[6] Paragraph 57(a) of the Canada Transportation Act, S.C., 1996, as amended (CTA) provides that no person shall “operate” an “air service” unless, in respect of that service, the person holds a licence issued under Part II of the CTA.

[7] Subsection 55(1) of the CTA defines “air service” as a service, provided by means of an aircraft, that is publicly available for the transportation of passengers or goods, or both.

[8] The word “operate” in paragraph 57(a) is not defined within the CTA.

BACKGROUND

[9] The Agency regulates the licensing of air transportation pursuant to the CTA and the Air Transportation Regulations, SOR/88-58, as amended (ATR). Part II of the CTA addresses air transportation matters and details the licensing requirements administered by the Agency, which apply to any person who operates an air service in Canada.

[10] The 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.

[11] 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.

[12] In 1996, the CTA’s licensing parameters were tested when Greyhound Lines of Canada Ltd. (Greyhound) proposed to market and sell air services, on its own behalf, while entering into a contract with Kelowna Flightcraft Air Charter Ltd. (Kelowna Flightcraft) to operate the aircraft. The Agency, in 232-A-1996">Decision No. 232-A-1996 and 292-A-1996">Decision No. 292-A-1996, determined that Greyhound would operate the air service and, therefore, require a licence. The Agency arrived at its determination on the basis that the person that had commercial control over the sale of the air service was required to hold the licence, irrespective of whether they operated aircraft.

[13] Greyhound and Kelowna Flightcraft petitioned the Governor in Council (GIC) to reverse the Agency’s decisions. The GIC, on the recommendation of the Minister of Transport, determined that Greyhound Canada Transportation Corp., a successor corporation to Greyhound, would not be operating the air service (Order-in-Council No. P.C. 1996-849). The GIC, however, placed a number of conditions on its decision, including that Greyhound Canada Transportation Corp. inform all prospective purchasers of the air services that Kelowna Flightcraft would be providing the air service.

[14] In 2009, the GIC again reversed an Agency determination, Confidential Decision of the Agency dated June 29, 2009, that a reseller, in that case American Medical Response of Canada Inc., would operate an air service (Order-in-Council No. P.C. 2010-1143).

[15] In 2013, the Agency issued 390-A-2013">Decision No. 390-A-2013 to inform the air industry of the criteria that it will apply in interpreting what constitutes an “air service” and, more specifically, when an air service is considered to be “publicly available.” The Agency determined that an air service is one that is (i) offered and made available to the public; (ii) provided pursuant to a contract or arrangement for the transportation of passengers or goods; (iii) offered for consideration; and (iv) provided by means of an aircraft. 390-A-2013">Decision No. 390-A-2013 did not specifically address resellers.

[16] For international air services, the ATR require the air carrier, and not the reseller, to hold the licence. For this reason, the Agency only applied the approach developed in the Greyhound case to domestic air services, resulting in resellers having to hold a licence for the sale of domestic, but not international, air services. There are currently 14 resellers that hold licences for domestic air services.

[17] The Agency’s enforcement activities have revealed, however, that there is a lack of clarity among resellers as to whether they are required to hold a licence, given that they do not operate any aircraft.

[18] In light of its experiences administering the air licensing provisions and the continued development by industry of new business models, in 2014, the Agency initiated an internal review of whether resellers are operating air services and are 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 would be 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.

CONSULTATIONS

[19] On December 21, 2015, the Agency released a consultation paper and invited information and feedback on whether resellers should be considered to operate air services pursuant to section 57 of the CTA. The paper included a description of a possible approach. The Agency received submissions from 26 interested parties and has considered all of them in arriving at its determination. The parties’ comments are summarized below.

[20] Some parties commented that resellers should be required to hold a licence to ensure that the licensing requirement does not favour one business model over another; i.e., to provide a level playing field. They submitted that competing businesses holding themselves out to the public as providing the same service should be subject to the same regulatory requirements. In addition, they argued that not requiring resellers to hold a licence would create a competitive disadvantage for licensed air carriers by subjecting them to the additional regulatory requirements and limiting access to foreign capital, given that licensees must be owned and controlled by Canadians. It was also suggested that not obligating resellers to hold a licence could enable persons to structure their businesses in ways that effectively circumvent the licensing requirements.

[21] Parties also commented that resellers should be required to hold a licence when they enter into a contract of carriage with the public to ensure that equal protection is afforded to passengers, regardless of the chosen business model. One party submitted that absent the requirement for the reseller to hold a licence, the lack of a contractual relationship between the air carrier and the passenger would (i) provide no recourse to the passenger against the air carrier should the air carrier not provide the contracted service; (ii) limit the air carrier’s liability to the passenger to tort law (i.e., negligence), thereby negating the applicability of the air carrier’s insurance to claims by passengers against the reseller; and (iii) limit any available protection for the passenger from the tariff system.

[22] Conversely, other parties commented that resellers should not be required to hold a licence, provided they have contractual arrangements with licensed air carriers. Those parties commented that adequate measures already exist to protect passengers, through existing federal and provincial legislation, including the requirement for air carriers to hold a tariff that applies to passengers.

[23] Additionally, some parties commented that the intent of deregulation was to reduce government control over or intervention in how domestic air services are delivered. It was argued that by requiring the licensee to hold a Canadian aviation document (CAD), Parliament’s intention was for the CTA to only apply to air carriers (i.e., not resellers) and that Parliament deliberately chose not to exert its authority to license resellers. It was further suggested that not requiring resellers to hold a licence would eliminate the different licensing treatment between domestic and international operations and result in increased competition and lower airfares, with the market deciding the success of any proposed air service.

[24] On the matter of what criteria should be used to determine whether a reseller is holding itself out as an air carrier, the following criteria were proposed: commercial control, acceptance of financial risk for the sale of seats, non-disclosure of the aircraft operator, promoting oneself as an air carrier (i.e., images of aircraft with their livery), the use of business name(s) and words/phrases (such as “airlines”, “aviation”, or similar words) that create the impression that they are an air carrier or airline, and not clearly conveying their role as a reseller of the air carrier’s capacity.

ANALYSIS AND DETERMINATIONS

Issue 1: Whether resellers operate air services and should therefore be required to hold an air licence

[25] Paragraph 57(a) of the CTA states that “no person shall operate an air service unless, in respect of that service, the person holds a licence issued under this Part.” In interpreting the expression “operate an air service,” the words are to be read in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme of the legislation, the object of the legislation, and the intention of Parliament (Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 SCR 27 at para. 21).

[26] Having carefully considered the wording of the CTA and the ATR, the CTA’s underlying public policy purposes, and the submissions received during the consultation period, the Agency finds that the most reasonable interpretation of what it means to operate an air service does not capture resellers, as long as they do not hold themselves out to the public as an air carrier operating an air service.

[27] Factors that the Agency took into account in arriving at this interpretation include the plain meaning, context, and history of the statutory language; the national transportation policy, the CTA’s passenger protection and Canadian ownership goals; and the manner in which resellers hold themselves out to the public.

The plain meaning, entire context, and history of the statutory language

[28] When considering what would be the most reasonable interpretation of the domestic licensing requirements in respect of resellers, a key starting point was the simple fact that Parliament both refrained from explicitly requiring entities that do not operate aircraft to hold a licence while also developing a licensing regime where the chartered air carrier is required to hold a licence for international services.

[29] The operation of an air service, pursuant to section 57 of the CTA, is the sole criterion that dictates whether a person is required to hold a licence. The interpretation of the expression “operate an air service” should be expected to produce consistent results in establishing whether or not a person is required to hold a licence, irrespective of whether the air service is domestic or international.

[30] Section 59 of the CTA prohibits persons from selling an air service unless a person holds a licence in respect of that air service. While the language in section 57 of the CTA requires a person operating an air service to hold a licence, the language in section 59 does not require the person selling the air service to be a licensee; it only requires that a licence be held in respect of that air service. When read together, these two sections lead to the conclusion that selling an air service to the public does not equate to operating an air service.

[31] Prior to deregulation, air carriers were required to hold either a scheduled or a non-scheduled domestic or international licence to operate air services. Air carriers operating pursuant to a non-scheduled licence were limited to selling their capacity to charterers, who could then resell that capacity on a unit toll or price per seat basis to the public. Resellers were not required to hold a licence. Deregulation removed the distinction between scheduled and non-scheduled for domestic air services, thereby allowing air carriers to distribute their capacity, as they see fit, with a single domestic licence. No new legislative provisions were introduced to require resellers to hold a licence.

[32] For non-scheduled international air services, the ATR’s provisions require licensed air carriers to hold the appropriate charter permit to operate charter flights on behalf of charterers who can resell that aircraft capacity directly to the public without the charterer having to hold a licence. Indeed, pursuant to Parts III and IV of the ATR, the air carrier is prohibited from selling its aircraft capacity on a price per seat basis directly to the public as well as from promoting, in any manner, the resalable charter to the public. The resalable charter can only be operated according to the conditions of a contract entered into between air carriers and charterers that require the charterers to charter the entire passenger seating capacity of an aircraft for resale by them to the public, at a price per seat. In the non-scheduled international context, the air carrier, and not the charterer, is required to hold the licence.

[33] In summary, a plain reading of the statutory provisions, informed by their history and the benefits of consistent interpretation of phrases used for both domestic and international licensing purposes, strongly suggests that Parliament did not intend for domestic licensing requirements to apply to entities that purchase air carriers’ aircraft capacity for resale by them to the public, but do not themselves operate aircraft.

National transportation policy

[34] The national transportation policy, as articulated in section 5 of the CTA, provides the overall policy framework for the CTA. The policy instruments, which include legislation, regulations, programs, and actions that flow from the policy, should reflect and reinforce its intent.

[35] The policy declares the CTA’s objective to be a competitive, economic and efficient national transportation system that meets the highest practicable safety and security standards. The policy provides for regulation and strategic public intervention to be targeted to situations where desired outcomes cannot be achieved satisfactorily by competition and market forces.

[36] Allowing resellers to offer their products to consumers without having to hold a licence when their partner air carrier already holds one is consistent with section 5, inasmuch as it limits regulatory intervention and administrative burdens and is more likely than not to foster competition and choice in the market.

Passenger protection

[37] The requirement to hold a licence subjects the licensee to a number of passenger protection provisions, as identified in Agency 390-A-2013">Decision No. 390-A-2013. Principal among these is the requirement for a licensed air carrier to:

  1. have, display, and apply a clear tariff that addresses certain prescribed matters and that is reasonable and not unduly discriminatory;
  2. meet the prescribed financial requirements, where applicable, before a licence can be issued, which is intended to reduce the risk that underfunded applicants enter the marketplace; and
  3. hold the prescribed minimum passenger and third party liability insurance coverage.

[38] In weighing the relevance of the licensing provisions’ consumer protection purposes to the question of whether those provisions should be interpreted as covering resellers, it is important to note that when passengers buy tickets through a reseller that is not required to hold an air licence, they will still be covered by the terms and conditions of the tariff issued by the chartered air carrier operating the aircraft on which those passengers travel. Further, the licensed air carrier will be required to hold prescribed passenger and third party liability insurance pursuant to section 7 of the ATR and to comply with applicable financial requirements pursuant to section 8.1 of the ATR. On the other hand, resellers who do not have to obtain a licence from the Agency will continue to be subject to any provincial travel protection or consumer rights legislation.

[39] Thus, not requiring resellers to obtain a licence does not equate to leaving consumers without protections. The Agency’s role is to administer and enforce the CTA as promulgated by Parliament, and its interpretation of the legislation must be reasonable, even if some alternate approach might provide additional protections.

Canadian ownership requirement

[40] The CTA’s ownership provisions ensure that only Canadian-owned and controlled enterprises can operate domestic air services, thereby restricting foreign access to the domestic marketplace.

[41] These provisions can still be given full effect in a context where resellers are not required to obtain a licence. Should a non-Canadian reseller enter into an arrangement whereby it owns or control in fact the licensed air carrier, that air carrier would cease to be Canadian and would no longer be eligible to hold a licence. It is also worth noting that non-Canadian charterers have legally operated in Canada for many decades, reselling licensed air carriers’ aircraft capacity to the public without any government intervention.

Holding out as an air carrier operating an air service

[42] While the Agency finds that, on balance, the most reasonable interpretation of the statutory licensing provisions and their underlying objectives is that resellers are not operating air services and therefore, are not required to hold a licence, this will only be the case as long as those resellers do not hold themselves out to the public as an air carrier operating an air service. The Agency finds that if they choose to do so, resellers would be operating an air service and would be required to hold a licence, thereby ensuring that the consumer protection purposes of the legislation are not undermined.

[43] In determining whether a person is holding themselves out as an air carrier operating an air service, the Agency will consider whether the person promotes themselves as an air carrier, including providing images of aircraft with their livery and using business name(s) and words/phrases that create the impression that they are an air carrier.

[44] Lack of clear disclosure on its Web site, marketing material, and on tickets it issues of the identity of the operating air carrier would be indicative of the reseller holding itself out as an air carrier operating the air service. Web sites and marketing materials that use business names (e.g., “air”, “air lines”, “airlines” “airways”, “aviation”, “fly”, “jet”, or “sky”) or phrases and words (e.g., “our fleet of aircraft”, “our crew”, “we fly”) that convey that the reseller is an air carrier operating the air service would also be indicative of holding oneself out as operating an air service. In contrast, clearly identifying the air carrier that will operate the air service, that the reseller’s role is limited to reselling the air carrier’s capacity, and that the air carrier’s tariff's terms and conditions apply to the flight would not be indicative of a person holding themselves out as an air carrier operating an air service.

[45] The Agency notes that a passive approach by the reseller that neither clarifies nor refutes any impression by the public that the reseller is an air carrier operating an air service could also be indicative of the reseller holding itself out as an air carrier operating an air service. The public should be clearly informed about whether they are contracting and dealing with the operator of the air service so that they can assess any risk and make informed decisions.

[46] Where, in the opinion of the Agency, based on all of the relevant facts, the public is led to believe that the reseller is the air carrier operating the air service, the Agency will require the reseller to hold a licence and to respect all of its requirements. The Agency, in making a determination as to whether a reseller is holding itself out to the public as an air carrier operating an air service, will apply the considerations listed above, as well as any other relevant considerations it might identify from time to time, according to the facts of each case, and will weigh all facts together to make a determination.

Issue 2 – Whether NewLeaf will operate an air service and therefore be required to hold an air licence

[47] Having determined 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 as an air carrier operating an air service, the Agency now turns to the question of whether NewLeaf - based on the determination above and the information before the Agency about its proposed business model - will operate an air service and would therefore be required to obtain a licence.

[48] On August 21, 2015, the Agency initiated an inquiry to determine whether NewLeaf’s business proposal would constitute an air service for which a licence is required, and an Inquiry Officer was appointed to conduct that inquiry. The Inquiry Officer, in turn, sought information concerning the roles and responsibilities of NewLeaf and Flair Airlines Ltd. (Flair) in their business proposal.

[49] NewLeaf’s response to the Inquiry Officer stated that it would initially operate as a “charterer” or a “tour operator” as defined in the ATR. NewLeaf indicated that it would market and sell air services to the public, on its own behalf, and enter into a charter arrangement with Flair, a licensed air carrier, to operate the flights. NewLeaf further indicated that it might sell the air services as part of a packaged or bundled tour product. NewLeaf would be responsible from the check-in counter to the jet bridge door and would operate baggage handling services or contract them to a third party operating at each airport. NewLeaf would not acquire, lease, or operate any aircraft or other related airport infrastructure.

[50] NewLeaf stated that it would make it evident to the consumer that NewLeaf would be responsible for ticket sales and customer service, and that Flair would operate the air services. It was possible, however, that Flair’s aircraft or other infrastructure would include some NewLeaf livery features to highlight the collaboration between the two parties.

[51] In January 2016, Canada Jetlines Ltd. and 1263343 Alberta Inc. carrying on business as EnerJet made unsolicited representations to the Agency with respect to NewLeaf. In summary, they submitted that NewLeaf had commercial control over the air service and was, therefore, operating an air service without a licence. They also argued that Newleaf was representing itself as an air carrier to the public, the media, and their customers without holding a licence. The Agency accepted the representations as part of its inquiry into whether NewLeaf would operate an air service and provided NewLeaf with an opportunity to respond by March 11, 2016. NewLeaf did not provide a response.

[52] The Agency has reviewed all available information and finds that if the proposed business model is followed, NewLeaf would be a reseller that does not operate an air service and therefore does not need to obtain a licence. The Agency notes, however, that if NewLeaf were to hold itself out to the public as an air carrier operating an air service, it would be required to hold a licence.

[53] It is noted that during the brief period in January 2016 when NewLeaf actively promoted its services through its Web site, it included images of aircraft painted in its livery. While NewLeaf is no longer promoting its services and has since removed these images from its Web site, the use of similar images in the future would suggest that NewLeaf would be holding itself out as an air carrier operating an air service.

[54] It is also noted that while NewLeaf has referred to itself as a travel company, there is public perception that NewLeaf is an air carrier. This was evident in repeated press and news articles about NewLeaf that referred to it as an air carrier. The consumer protection purposes of the CTA make it important that the public understand whether they are dealing with a reseller or an air carrier and, where there is confusion, the reseller should take appropriate actions to correct any misperceptions.

[55] Finally, the Agency notes that Flair, as a licensee operating the air service to be resold by NewLeaf, must comply with the licensing regime, including having a tariff that respects legislative and regulatory requirements related to consumer protection.

CONCLUSION

[56] 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 as air carriers operating an air service.

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 this Determination and does not hold itself out to the public as an air carrier operating an air service.

Member(s)

P. Paul Fitzgerald
Sam Barone
Scott Streiner
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