Decision No. 353-P-A-2001

June 27, 2001

June 27, 2001

IN THE MATTER OF a complaint filed by Don Pickle on behalf of the Municipality of Qikiqtarjuaq, Nunavut, against Bradley Air Services Limited carrying on business as First Air and/or Ptarmigan Airways and/or Northwest Territorial Airways and/or NWT Air (hereinafter First Air) and Kenn Borek Air Ltd. on the Broughton Island-Iqaluit route.

File No. M4370/F151/00-2


COMPLAINT

On August 31, 2000, Don Pickle on behalf of the Municipality of Qikiqtarjuaq (hereinafter the complainant) filed with the Canadian Transportation Agency (hereinafter the Agency) the complaint set out in the title.

By letter dated October 12, 2000, the complainant, First Air and Kenn Borek Air Ltd. (hereinafter Kenn Borek) were advised that section 66 of the Canada Transportation Act, S.C., 1996, c. 10 (hereinafter the CTA) sets out the jurisdiction of the Agency over complaints concerning fares and rates applied by air carriers for domestic services. More particularly, the parties were advised that, pursuant to subsection 66(1) of the CTA, the Agency may take certain remedial action following receipt of a complaint. At the same time, First Air and Kenn Borek were requested to provide the Agency and the complainant with their answers to the complaint.

First Air and Kenn Borek filed their answers to the complaint on November 10, 2000 and November 13, 2000, respectively. On November 27, 2000, the complainant filed his reply, indicating that he would like to withdraw his complaint against Kenn Borek. Further, the complainant raised a number of issues concerning First Air's pricing practices on the Broughton Island-Iqaluit route and requested that the Agency conduct a review of First Air's fares and rates prior to the entrance of Kenn Borek in the Broughton Island-Iqaluit market in order to determine whether First Air was "abusing the monopoly they held".

By Decision No. LET-P-A-412-2000 dated December 27, 2000, the complainant was advised that, in accordance with the provisions of section 66 of the CTA, the Agency is required to consider all air services provided by air carriers on the route and, as Kenn Borek is a carrier operating a service on the route, its service would be considered by the Agency. On the same date, by Decision No. LET-P-A-411-2000, the Agency requested that First Air respond to the issues raised in the complainant's November 27, 2000 reply. On January 3, 2001, First Air filed its comments and provided information on several of the points raised by the complainant.

By facsimile dated February 1, 2001, the complainant clarified the time periods to which his complaint concerning the fares and rates applied by First Air relate.

On February 13, 2001, First Air was advised of the complainant's clarification of his complaint.

On February 21, 2001, First Air sought clarification from the Agency of its process in review of this complaint.

By Decision No. LET-P-A-111-2001 dated March 6, 2001, the parties were advised that, although the complainant's reply dated November 27, 2000 was filed outside the time frame prescribed by the National Transportation Agency General Rules, SOR/88-23 (hereinafter the General Rules), the Agency determined that it would accept the reply in accordance with section 8 of the General Rules. At the same time, the parties were advised that the complainant clarified that his complaint concerns the fares and rates applied by First Air on its Broughton Island-Iqaluit route on April 17, 1998, August 17, 1998 and August 17, 2000 and that the complaint would be dealt with in accordance with the provisions of section 66 of the CTA which were in force on each of those dates. The parties were further advised that, pursuant to section 66 of the CTA in force on April 17, 1998 and August 17, 1998, the Agency may take certain remedial action following receipt of a complaint where the Agency "finds that a licensee who is the only person providing a domestic service has imposed an unreasonable basic fare or increase in the basic fare in respect of the service". The Agency further advised the parties that, as the definition of "basic fare" in section 55 of the CTA does not include the rates applied by a carrier for the carriage of cargo, the Agency is required to restrict its review to the passenger fares applied by First Air to the domestic service between Broughton Island and Iqaluit on the specified dates in 1998. At the same time, First Air was requested to provide the Agency and the complainant with its comments with respect to the 1998 fare-related issues raised in the complaint.

With respect to the matter of the fares and rates offered by air carriers on the Broughton Island-Iqaluit route on August 17, 2000, the parties to the complaint were advised that it would be dealt with under the post-July 5, 2000 provisions of section 66 of the CTA and that the Agency would not be seeking further information from the parties.

On March 9, 2001, First Air requested an extension of time to file its answer in respect of the 1998 fare-related issues raised in the complaint and, by Decision No. LET-P-A-121-2001 dated March 13, 2001, the Agency granted First Air an extension until April 23, 2001. First Air filed its answer to this aspect of the complaint on March 23, 2001. The complainant did not reply.

On May 11, 2001, Kenn Borek advised that it commenced operating scheduled flight services to Broughton Island on August 5, 1998.

Pursuant to subsection 29(1) of the CTA, the Agency is required to make its decision no later than 120 days after the application is received unless the parties agree to an extension. In this case, the parties have agreed to an extension of the deadline until June 27, 2001.

ISSUES

The issues to be addressed are:

  1. whether First Air was the only person providing a domestic service between Broughton Island and Iqaluit within the meaning of section 66 of the CTA in force on April 17, 1998 and on August 17, 1998; and, if so,

    whether the fare which is the subject of the complaint is the basic fare, as defined in section 55 of the CTA, imposed by First Air in respect of its service between Broughton Island and Iqaluit on April 17, 1998 and on August 17, 1998; and if so

    whether that fare was unreasonable.

  2. whether either First Air, including its affiliated licensees, or Kenn Borek, including its affiliated licensees, was the only person providing a domestic service between Broughton Island and Iqaluit within the meaning of section 66 of the CTA on August 17, 2000; and, if so

    whether the fares or cargo rates offered or published by either First Air or Kenn Borek in respect of their service between Broughton Island and Iqaluit, which is the subject of the complaint, were unreasonable.

POSITIONS OF THE PARTIES

The complainant submits that the fares offered by First Air for travel on its domestic service between Broughton Island and Iqaluit are double that offered by Kenn Borek and have various restrictions even though the two carriers offer "identical service frequency" and "identical model aircraft". He assumes that when carriers are operating the same aircraft on the same schedule over the same route, their operating costs would be the same. He further submits that it was only after Kenn Borek initiated its service to Qikiqtarjuaq (Broughton Island) that First Air introduced its lower "M" class fare and as such questions whether First Air was abusing the monopoly it held in Broughton Island by over-charging its customers.

With respect to cargo rates for shipments to Broughton Island, the complainant submits that they are extremely high due to the monopoly First Air has in the Broughton Island-Iqaluit market. The complainant suggests that one would assume that economies of scale would allow First Air to offer cargo rates that are lower than those of Kenn Borek.

In answer to the first issue raised in the complaint, First Air refers to Agency Decision No. 437-A-1998 dated September 2, 1998 in which the Agency found that First Air had not imposed an unreasonable increase in the basic fare since October 1995 in respect of the domestic service it operates to/from Iqaluit on which it was the sole licensee. First Air suggests that in that Decision, the period of investigation contemplated the fares applied on April 17, 1998 in respect of its Broughton Island-Iqaluit service. As such, First Air further submits that the fares published in April 1998 were already subject to review and that they were not found to be unreasonable. In addition, First Air submits that Kenn Borek initiated a competitive air service between Broughton Island and Iqaluit sometime in August 1998 and that as a result, "the conditions precedent to investigation of the fares published in August 1998 are not satisfied and not subject to review".

In its answer to the second issue raised in the complaint, First Air submits that as Kenn Borek also provided a domestic service on the route on August 17, 2000 which was similar to that provided by First Air, "the complaint filed is not eligible for review as the conditions precedent required under Section 66(1) and 66(4) of the CTA are not satisfied". Of note, First Air identified that both competing carriers offer identical service frequency operated with identical model aircraft (Beechcraft B-99) on three of the six weekly flights. First Air noted that although it uses Hawker Siddley HS-748 aircraft on three of its weekly flights and Ken Borek uses Beechcraft B-99 for all flights, the total weekly seating capacity between the respective competing air carriers is relatively equal. First Air suggests that this results from the fact that its Hawker Siddley HS-748 aircraft are generally operated in combi configuration with reduced seating levels from the maximum approved under the type certificate. Notwithstanding the above, First Air filed historical comparisons of full economy fare data applicable to itself and to similar routes operated by Calm Air and argues that the fares published by First Air are substantially lower on a rate-per-mile basis over similar routings of another carrier. First Air also provided a list of the selection of passenger fares published by both carriers for travel on the route and suggests that First Air provides a wide range of fare types to cater to the various market demands.

In answer to the second issue raised in the complaint, Kenn Borek submits that the community of Broughton Island is currently served on a scheduled basis by both itself and First Air. Information submitted by Kenn Borek confirms First Air's submission that both carriers offer identical service frequency on the Broughton Island-Iqaluit route. Kenn Borek indicates that it uses Beech 99 aircraft with a capacity of 12 seats on its scheduled flights and if passenger or freight loads warrant, it can also use its DHC-6/300 Twin Otter with a passenger capacity of up to 16 seats. In addition to providing a comparison of the scheduled flight services of both carriers, Kenn Borek also filed comparisons of selected passenger fares and cargo rates published by both carriers. Kenn Borek also advises that it commenced operating scheduled flight services to Broughton Island on August 5, 1998.

First Air states that varying rate levels and associated restrictions for passenger or cargo transportation are offered simply to meet specific market demands and are what its customers have asked for and come to expect. First Air submits that its fare structure is common within the airline industry globally and is not unusual for this specific market. First Air further submits that a wide range of pricing is made available to stimulate as much travel as possible and to make such travel affordable for all categories of travel needs (e.g., business, vacation, students, etc.).

First Air adds that while it operates aircraft similar to those of its competitor on certain days, larger aircraft are also used. However, First Air is of the opinion that the first issue does not relate in this case to aircraft, but rather to the type of service offered. First Air submits that it operates as a full service airline, providing its customers with access to frequent flyer programs, global computerized reservation systems, on-line services and many other benefits which are not available from the alternate carrier on the route. First Air further submits that the additional cost of these products and services are also reflected in the cost of a ticket, just as a full service airline would compared to a discount carrier.

First Air states that it has never maintained a monopoly on this market, identifying that there have been no legislative barriers to entry into this market by any carrier wishing to compete with First Air. It submits that it has provided a reliable, efficient service year round to Broughton Island for over 20 years and has been a loyal supporter of this and most other Northern communities.

Finally, with respect to cargo products, First Air submits that it is the only airline flying to much of Nunavut that offers a value-added cargo product. First Air further submits that it offers a full service operation and its rates reflect the reliable and efficient service provided, and that there are no comparisons to be drawn with First Air with any carrier in this market.

ANALYSIS AND FINDINGS

The Agency's jurisdiction over complaints concerning fares applied by air carriers for domestic services is set out in section 66 of the CTA. As part of the recent restructuring of the Canadian air transportation industry, section 66 of the CTA was amended on July 5, 2000. Although the complaint was filed with the Agency on August 31, 2000, the fares which are the subject of the complaint were those that were applied on April 17, 1998, August 17, 1998 and August 17, 2000. Consequently, the complaint will be dealt with in accordance with the provisions of section 66 of the CTA which were in force on each of those dates.

Pursuant to the provisions of section 66 of the CTA in force on April 17, 1998 and August 17, 1998, the Agency may take certain remedial action following receipt of a complaint where the Agency finds that,

  • the licensee against whom the complaint is made is the only person providing a domestic service;
  • the fare which is the subject of the complaint is the "basic fare", as defined in section 55 of the CTA, imposed by that licensee in respect of its service; and
  • the basic fare or increase thereto imposed by that licensee in respect of its service is unreasonable.

Section 55 of the CTA defines a "basic fare" as:

(a) the fare in the tariff of the holder of a domestic licence that has no restrictions and represents the lowest amount to be paid for one-way air transportation of an adult with reasonable baggage between two points in Canada, or

(b) where the licensee has more than one such fare between two points in Canada and the amount of any of those fares is dependent on the time of day or day of the week of travel, or both, the highest of those fares.

Pursuant to the provisions of subsection 66(1) of the CTA in force on August 17, 2000, the Agency may take certain remedial action following receipt of a complaint where the Agency finds that:

  • the air carrier who published or offered the fare or cargo rate which is the subject of the complaint is a licensee who, including affiliated licensees, is "the only person providing a domestic service between two points" and
  • a fare, cargo rate or increase in a fare or cargo rate published or offered in respect of the service is unreasonable.

Pursuant to subsection 66(4) of the CTA, the Agency's jurisdiction over complaints concerning fares or cargo rates may be extended to domestic routes served by more than one licensee where the Agency is of the opinion that none of the other 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".

In making its findings, the Agency has carefully reviewed and considered previous decisions, the complaint, all of the pleadings, as well as information available both publicly and within the Agency concerning air services provided between Broughton Island and Iqaluit and the fares published or offered by air carriers in respect of air services between these two points, including the Official Airline Guide, the Internet and published flight schedules.

Fares and rates applied by First Air on April 17, 1998 and on August 17, 1998

Based on the information on file, the Agency has determined that on April 17, 1998, the only person providing a domestic service between Broughton Island and Iqaluit was First Air.

Section 66 of the CTA establishes the authority for the Agency to deal with complaints concerning the fares applied by air carriers for domestic services. Under the provisions of the CTA in force in 1998, this authority was not extended to the investigation of cargo rates. Accordingly, the Agency restricted its review in this complaint to passenger fares.

With respect to the issue of the reasonableness of First Air's basic fares or increases in its basic fares applied on April 17, 1998, the Agency is of the opinion that its Decision No. 437-A-1998 dated September 2, 1998 considered the fares applied by First Air on the Broughton Island-Iqaluit route from January 1, 1995 to May 1, 1998. Accordingly, the fares applied on April 17, 1998 were contemplated in the Agency's finding that "First Air has not imposed an unreasonable basic fare or unreasonable increase in the basic fare since October 1995 in respect of the domestic services it operates to/from Iqaluit and for which it is the sole licensee providing such services". As such, the Agency has already addressed the issue of the fares applied by First Air on April 17, 1998.

Based on the information on file as well as First Air's and Kenn Borek's statements that it was not the only person providing a domestic service between Broughton Island and Iqaluit, the Agency has also determined that on August 17, 1998, in addition to being served by First Air, the Broughton Island-Iqaluit route was served by Kenn Borek. Accordingly, this aspect of the complaint does not fall within the Agency's jurisdiction under the provisions of section 66 of the CTA which were in force on August 17, 1998.

Fares and Rates applied by First Air and Kenn Borek on August 17, 2000

Based on the information on file as well as First Air's and Kenn Borek's statements that they were not the only person providing a domestic service between Broughton Island and Iqaluit, the Agency is of the opinion that, on August 17, 2000, in addition to being served by First Air, the Broughton Island-Iqaluit route was served by Kenn Borek. From the information available to the Agency, First Air's service between Broughton Island and Iqaluit, during the week of August 17, 2000, consisted of:

  • a scheduled passenger and cargo service of approximately 6 direct flights per week: 4 of which were non-stop and 2 of which had an intermediate stop at Pangnirtung
  • service every day of the week, excluding Sunday
  • a total weekly capacity of approximately 156 seats
  • small aircraft, as defined in the Air Transportation Regulations, used on flights operated on 3 days of the week, and medium aircraft, as defined in the Air Transportation Regulations, generally operated in combi configuration, used on the remainder of the total flights operated each week;
  • a total travel time from Broughton Island to Iqaluit of between 1 hour and 20 minutes and 2 hours and 5 minutes.

Available information also indicates that Kenn Borek's service between Broughton Island and Iqaluit during the week of August 17, 2000 consisted of:

  • a scheduled passenger and cargo service of approximately 6 direct, non-stop flights per week
  • service every day of the week excluding Saturday
  • a total weekly capacity of approximately 72 seats
  • a variety of small aircraft, as defined by the Air Transportation Regulations, used on all flights depending on the passenger and freight loads
  • a total travel time from Broughton Island to Iqaluit of approximately 1 hour and 55 minutes

The Agency has carefully examined and analysed the services provided by both First Air and Kenn Borek between Broughton Island and Iqaluit during the week of August 17, 2000, and, on the basis of the factors set out in subsection 66(4) of the CTA, both individually and collectively, is of the opinion that, Kenn Borek's service was not as comprehensive as First Air's service. However, each carrier's service provided travellers and shippers with an alternative to the other carrier's service which was not unreasonable.

The Agency, therefore, has determined that neither First Air nor Kenn Borek was the only person providing a domestic service between Broughton Island and Iqaluit within the meaning of section 66 of the CTA on August 17, 2000.

Accordingly, the complaint does not fall within the jurisdiction of section 66 of the CTA.

CONCLUSION

Based on the above findings, the Agency hereby dismisses the complaint.

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