Decision No. 316-P-A-2011

August 19, 2011

COMPLAINT by Steve Newhouse respecting fares applied by Central Mountain Air for travel between Vancouver, British Columbia and Fort St. John, British Columbia.

File No.: 
M 4120-3/11-00131

Introduction

[1] On January 7, 2011, Steve Newhouse filed complaints with the Canadian Transportation Agency (Agency) alleging that the fares applied by Central Mountain Air (Central Mountain) and Jazz Aviation LP, as represented by its general partner, Aviation General Partner Inc. carrying on business as Air Canada Jazz, Jazz, Jazz Air, Thomas Cook Canada (Air Canada Jazz) for transportation between Vancouver and Fort St. John are unreasonably high, and that the carriers are offering an inadequate range of fares.

[2] Mr. Newhouse’s complaint regarding the fares applied by Air Canada Jazz is being addressed separately by the Agency.

[3] In its Decision No. LET-P-A-35-2011 dated March 18, 2011, the Agency expressed the preliminary opinion that on January 7, 2011, both Central Mountain and Air Canada Jazz offered domestic services between Vancouver and Fort St. John. The Agency also expressed the preliminary opinion that based on certain information, the aforementioned domestic service offered by Air Canada Jazz provided travellers with a reasonable alternative to that offered by Central Mountain, taking into consideration, as required pursuant to subsection 66(4) of the Canada Transportation Act, S.C. 1996, c. 10, as amended (CTA), factors such as the frequency of service, the number of seats offered, and the total travel time. The Agency therefore determined, on a preliminary basis, that because there was a reasonable alternative domestic service to that of Central Mountain for carriage between Vancouver and Fort St. John within the meaning of section 66 of the CTA, the complaint against Central Mountain does not fall within the Agency’s jurisdiction, and should be dismissed. The Agency requested Air Canada Jazz to show cause why the Agency’s preliminary analysis should not be applied, and provided the opportunity to both Mr. Newhouse and Central Mountain to file submissions regarding Air Canada’s response to Decision No. LET-P-A-35-2011.

Preliminary Matter

[4] Air Canada responded to Decision No. LET-P-A-35-2011 on behalf of Air Canada Jazz, explaining that Air Canada and Air Canada Jazz are parties to an Amended and Restated Capacity Purchase Agreement (CPA) under which Air Canada currently purchases the greater part of Air Canada Jazz’s fleet capacity. Air Canada submits that, under the CPA, it determines, among other matters, the fares relating to flights operated by Air Canada Jazz for Air Canada pursuant to the CPA, and that these flights are conducted under Air Canada’s licence. Therefore, the complaint should be directed to Air Canada.

Issue

[5] The issue to be addressed is whether Air Canada has shown cause why the Agency’s preliminary analysis that Air Canada Jazz was the only person providing a domestic service between Vancouver and Fort St. John, within the meaning of subsection 66(4) of the CTA on January 7, 2011, should not be applied.

The Law

[6] Section 66 of the CTA sets out the Agency’s jurisdiction over complaints concerning fares applied by air carriers for domestic services. Subsections 66(1) and (2) of the CTA provide that:

66(1) If, on complaint in writing to the Agency by any person, the Agency finds that a licensee, including affiliated licensees, is the only person providing a domestic service between two points and that a fare, cargo rate or increase in a fare or cargo rate published or offered in respect of the service is unreasonable, the Agency may, by order,

(a) disallow the fare, rate or increase;

(b) direct the licensee to amend its tariff by reducing the fare, rate or increase by the amounts and for the periods that the Agency considers reasonable in the circumstances; or

(c) direct the licensee, if practicable, to refund amounts specified by the Agency, with interest calculated in the prescribed manner, to persons determined by the Agency to have been overcharged by the licensee.

66(2) If, on complaint in writing to the Agency by any person, the Agency finds that a licensee, including affiliated licensees, is the only person providing a domestic service between two points and that it is offering an inadequate range of fares or cargo rates in respect of that service, the Agency may, by order, direct the licensee, for a period that the Agency considers reasonable in the circumstances, to publish and apply in respect of that service one or more additional fares or cargo rates that the Agency considers reasonable in the circumstances.

[7] Pursuant to subsection 66(4) of the CTA, the Agency’s jurisdiction over complaints concerning fares may be extended to domestic routes served by more than one licensee if the Agency is of the opinion that none of the other air services between those two points provides a reasonable alternative “taking into consideration the number of stops, the number of seats offered, the frequency of service, the flight connections and the total travel time.”

Positions of the Parties

Mr. Newhouse

[8] Mr. Newhouse submits that he works in Fort St. John and takes flights in the area, including from Fort St. John to Vancouver. He maintains that the cost of these flights is often comparable to the cost to travel to Paris from Vancouver, and that this is a result of “no incentive for other airlines to compete with Air Canada [Jazz] (...) that has a choke hold on many communities.” He claims that “(...) there is NO incentive to offer better rates unlike [the city of] Grande Prairie”, and that Air Canada Jazz does not have much competition on the Vancouver – Fort St. John route as “[t]he only competitor to Air Canada is an airline bailed out of receivership by them, Central Mountain Air.” Mr. Newhouse concludes that the benefit of having at least two choices for air service on the route would lead to better access, lower fares, as well as access to treatment for medical reasons.

[9] Mr. Newhouse argues that the carriers are not offering an adequate range of fares because of lack of true competition, as Central Mountain does not constitute reasonable competition to the services offered by Air Canada Jazz. Mr. Newhouse alleges that there are better prices and ranges of fares, for example, on the Grande Prairie - Vancouver route. He submits that even though Grande Prairie is a larger municipal center than Fort St. John, most residents from the communities in the Fort St. John vicinity (Peace River area), such as Chetwynd, Tumbler Ridge, Hudson’s Hope, Pouce Coupe and Fort Nelson depend on Fort St. John air services. Mr. Newhouse asserts that “(...) the average lowest prices/rates to use Air Canada [Jazz] to fly out of Fort St. John to Vancouver are almost double the rates/prices to use Westjet AND Air Canada to fly out Grande Prairie going to the same destination (Vancouver).”

Air Canada

[10] Air Canada submits that in making a decision as to whether to assert jurisdiction over a complaint concerning a domestic route for which two licensees offer services, the Agency should consider the ordinary meaning of “unreasonable”, the scheme and object of the CTA, and Parliament’s intentions in conferring jurisdiction on the Agency. Air Canada maintains that the Agency should only accept complaints pursuant to its powers under section 66 of the CTA in situations where a carrier’s pricing is unrestrained by competition, which is not the case for the Vancouver – Fort St. John route, as the carrier asserts that the purpose of the section was “to prevent an abuse of Air Canada’s perceived monopoly.” Air Canada submits that the Agency’s approach to its mandate under section 66 of the CTA should take into account Canada’s national transportation policy, as set out in section 5 of the CTA, which recognizes that fair competition is the key to developing an optimal transportation network in Canada.

[11] Air Canada argues that Central Mountain’s Vancouver – Fort St. John service represents a reasonable alternative to that offered by Air Canada Jazz. Air Canada submits that while Central Mountain’s travel time is obviously longer than that experienced on Air Canada’s non-stop route, it is not unreasonably longer. Air Canada maintains that it is well-established in the industry that leisure travellers, and increasingly, business travellers, are prepared to consider alternative routings, often trading off lower fares for longer travel time.

[12] With regard to the requirement under subsection 66(4) of the CTA that the Agency take into consideration the number of seats offered when determining whether reasonable alternative domestic services exist, Air Canada submits that such consideration is not a “mechanical exercise”, but rather is a direction to the Agency to consider whether there are a sufficient number of seats available on an alternative domestic service to ensure that consumers have a choice. Air Canada asserts that the fact that it has substantially more seats on the Vancouver – Fort St. John route than those available on Central Mountain is not significant, given that Mr. Newhouse has presented no evidence to suggest that Central Mountain’s flights are full. Air Canada maintains that it is only in such circumstances that consumers would not have the ability to choose between the services offered by Central Mountain and Air Canada.

[13] Air Canada submits that Central Mountain’s ability to offer a competing service, six days a week with multiple departing and pricing options, should be considered prima facie evidence that it is a reasonable alternative service. It maintains that Central Mountain’s capacity clearly demonstrates that it is able to attract a significant number of passengers, despite the benefits of Air Canada’s direct services and greater frequency.

Central Mountain

[14] Central Mountain did not respond to Air Canada’s submissions.

Mr. Newhouse’s reply

[15] Mr. Newhouse submits that Central Mountain is not a “true competitor” of Air Canada because of a code-share arrangement between the two carriers, and that Central Mountain does not represent a reasonable alternative service between Vancouver and Fort St. John. Mr. Newhouse indicates that Air Canada has three times the number of flights between Vancouver and Fort St. John. He also submits that the lack of evidence that Central Mountain’s flights are actually full has nothing to do with the essence of his complaint. Mr. Newhouse states that the onus is not on him to prove that capacity is being used in terms of competitive ability as seating capacity is already how all pricing is determined for all air carriers.

Analysis and Findings

[16] Air Canada maintains that its pricing is not unrestrained in the Vancouver - Fort St. John market because of the competition posed by Central Mountain. Air Canada submits that Central Mountain represents a reasonable alternative domestic service given the difference in travel time between the two carriers is not significant, the apparent availability of seats on Central Mountain Vancouver – Fort St. John flights provides a choice of carriers, and the frequency of flights and the pricing options offered by Central Mountain.

[17] With regard to Air Canada’s submission respecting its pricing, there is no evidence currently before the Agency to substantiate the claim that the carrier’s pricing is restrained by Central Mountain’s presence in the Vancouver – Fort St. John market. The fact that another carrier operates in a market does not mean, by definition, that that carrier represents competition for any given service.

[18] With respect to Air Canada’s submission that Central Mountain’s service constitutes a reasonable alternative to that offered by Air Canada, subsection 66(4) of the CTA provides that:

[t]he Agency may find that a licensee is the only person providing a domestic service between two points if every alternative domestic service between those points is, in the Agency’ s opinion, unreasonable, taking into consideration the number of stops, the number of seats offered, the frequency of service, the flight connections and the total travel time [...]

[19] As detailed in Decision No. LET-P-A-35-2011, a comparison of the services offered by Air Canada and Central Mountain in the Vancouver – Fort St. John market, applying the criteria set out in subsection 66(4) of the CTA, indicates that Central Mountain’s service does not represent a reasonable alternative to that offered by Air Canada:

  • all flights offered by Central Mountain were with connections; Air Canada has non-stop flights;
  • the duration of Central Mountain’s flights ranged from 4 hours 13 minutes to 8 hours 45 minutes, which is at least three times longer than the flights offered by Air Canada;
  • Central Mountain offered only 13.5 percent of the total capacity of seats on the route per week compared to Air Canada (498 seats per week compared to Air Canada’s 2,849 seats).

[20] There is no evidence before the Agency to support Air Canada’s contention that travel time is insignificant because of the price sensitivity of consumers. Furthermore, Air Canada has not produced any evidence to suggest that its behaviour is modified by the frequency of service or the number of seats offered by Central Mountain for Vancouver – Fort St. John carriage.

[21] Air Canada has raised arguments that are irrelevant to the issue at hand. It argues that Central Mountain is not operating at capacity. This is irrelevant because the criteria to be considered are delineated by subsection 66(4) of the CTA. Therefore, Central Mountain does not have to lack seats on offer in order to fail to represent a reasonable alternative service. Whether or not Central Mountain is operating at capacity is also not determinative in economic terms.

[22] Air Canada argues that, at a corporate level, its finances have been at times precarious and that it “did not collect monopoly profits.” This ignores the fact that the activity in question and the remedies provided by Parliament relate entirely to “domestic service between two points” – that is, they are examined and applied at the route level.

[23] Furthermore, Air Canada indicates that the Agency must take into account section 5 of the CTA when deciding whether it has jurisdiction. However, Parliament clearly prescribed the conditions in which the Agency should take jurisdiction at section 66 of the CTA. The facts for the present matter fit within the situation that Parliament envisioned when it created subsection 66(4) of the CTA. The purpose of section 5 of the CTA is to provide context for the legislative provisions which follow, not to nullify them.

[24] Subsection 66(4) of the CTA addresses the situation where although two or more air carriers operate services in a particular market, there is a reasonable possibility that some level of monopoly power may be exercised by one of the carriers because the other carriers’ services are insufficient to create true competition for the service in question.

Conclusion

[25] In light of the foregoing, the Agency concludes that Air Canada has failed to show cause why the Agency should not find that, within the meaning of subsection 66(4) of the CTA, Air Canada Jazz was the only person providing a domestic service between Vancouver and Fort St. John on January 7, 2011. Therefore, the complaint against Central Mountain is dismissed.

Member(s)

Raymon J. Kaduck
Jean-Denis Pelletier, P.Eng.
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