# Decision No. 38-C-A-2002

January 23, 2002

January 23, 2002

IN THE MATTER OF a complaint filed by Patricia Morgan against Air Canada concerning the penalty fee assessed for changes in reservations applicable to domestic transportation.

File No. M4370/A74/01-732

## COMPLAINT

On April 25, 2001, Patricia Morgan filed with the Canadian Transportation Agency (hereinafter the Agency) the complaint set out in the title.

On June 18, 2001, Agency staff requested that Air Canada address the complaint within the context of subsection 67.2(1) of the Canada Transportation Act, S.C., 1996, c. 10 (hereinafter the CTA).

By letter dated July 26, 2001, Air Canada requested an extension until August 25, 2001 to file its answer to the complaint and, by Decision No. LET-C-A-353-2001, the Agency granted Air Canada an extension until August 10, 2001. On August 10, 2001, Air Canada filed its answer and on September 5, 2001, Ms. Morgan filed her reply to Air Canada's answer.

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 indefinite extension of the deadline.

## PRELIMINARY MATTERS

Although Ms. Morgan filed her reply after the prescribed deadline, the Agency, pursuant to section 6 of the National Transportation Agency General Rules, SOR/88-23, accepts this submission as being relevant and necessary to its consideration of this matter.

In its answer to the complaint, Air Canada requested particulars of Ms. Morgan's complaint. The Agency has carefully considered Air Canada's request and is of the opinion that the facts at issue are clearly set out in the complaint. Accordingly, the Agency hereby denies Air Canada's request for particulars of Ms. Morgan's complaint.

## ISSUES

The issues to be addressed are:

1. whether Air Canada applied a term or condition of carriage applicable to its domestic service that is unreasonable or unduly discriminatory within the meaning of subsection 67.2(1) of the CTA; and, if so,
2. whether the Agency should suspend or disallow that term or condition and substitute another term or condition in its place.

## POSITIONS OF THE PARTIES

Ms. Morgan purchased a ticket for intended travel from Vancouver to Toronto on April 19, 2001 and return to Vancouver on April 22, 2001. She submits that, when she advised Air Canada that she was unable to travel on these dates, the carrier instructed her that she would have to pay a CAD$145 fee to change the ticket. Ms. Morgan states that this fee has continued to rise and is now "totally unreasonable". She maintains she would agree with a minor administrative charge, but not an \outrageous\ amount like this. In its answer to the complaint, Air Canada explains that penalty fees are an effective fence or restriction, a standard ticketing provision, and a key component in the airline industry practice of differential pricing, which segregates customers into different market segments, including those comprised of customers willing to pay higher fares for more flexibility, and consumers who will sacrifice flexibility for lower fares. Air Canada contends that, without the penalty fee, its differential pricing system would be undermined, and the carrier could be unable to recover its fixed costs, and that, if consumers paying lower fares were granted the same flexibility as consumers paying higher fares, ultimately no one would pay the premium for an unrestricted fare. As the penalty fee is an effective fence in maintaining the integrity of its differential pricing system, Air Canada argues that raising this fee is a viable alternative to withdrawing its lower, less flexible restricted fare, or to not permitting changes to this fare. Further, Air Canada submits that the fee is of key importance in supporting its yield management and revenue management systems, and that these systems not only allow the carrier to accurately forecast demand and increase the accuracy of fleet management, such as schedule and capacity planning, but also facilitate the monitoring of sales and bookings, thereby reducing no-show and denied boarding situations. Finally, Air Canada argues that the penalty fee is not unreasonable by reason that market forces have resulted in setting the change fee at CAD$145, as U.S. carriers have similarly increased their fee. Air Canada adds that if Ms. Morgan did not wish to accept the conditions imposed on restricted fares, she should have purchased a higher priced and more flexible, unrestricted fare or acquired cancellation insurance.

In her reply, Ms. Morgan states that Air Canada's arguments do not explain why it charges the fee, let alone whether the fee is reasonable. She acknowledges Air Canada's right to differentially price, but questions Air Canada's contention that the penalty fee is differential pricing's key component, stating that this is clearly not correct as based on prices and terms and conditions of travel quoted to her by Air Canada, the same CAD$145 fee is applied by the carrier to all its restricted fare types. Ms. Morgan submits that these data clearly confirm that the fee is not a key part of the differential pricing structure. Ms. Morgan further submits that Air Canada has not substantiated its claim that the penalty fee is important in allowing the carrier to accurately forecast demand, increase the accuracy of fleet management and monitor its sales and bookings, and she maintains that it is not obvious that there is any direct connection between these corporate activities and the penalty fee. Finally, Ms. Morgan states that she fails to see the relevance of American market forces and data to Canadian market conditions, especially since the U.S. carriers referred to in Air Canada's justification do not even provide service between Vancouver and Toronto. ## ANALYSIS AND FINDINGS In making its findings, the Agency has considered all of the evidence submitted by the parties during the pleadings. The Agency has also examined Air Canada's tariff provisions on the penalty fee assessed in Ms. Morgan's case, as set out in category 16, Rule 4274, of the Canadian Domestic Rules (CDR) Tariff, published by the Airline Tariff Publishing Company, which states in part that: Ticket is non-refundable. Changes Before departure Charge CAD 145.00 for reissue/revalidation. Note - 1. Voluntary rerouting is permitted provided the new itinerary meets all provisions of the new fare . . . 1. The new itinerary is of equal or higher value . . . 2. The new itinerary is of lower value. No refund will apply. The Agency's jurisdiction over complaints concerning domestic tariffs is set out in sections 67, 67.1 and 67.2 of the CTA. Pursuant to subsection 67.2(1) of the CTA, the Agency may take certain remedial action following receipt of a complaint where the Agency finds that the holder of a domestic licence has applied terms or conditions of carriage applicable to the domestic service it offers that are unreasonable or unduly discriminatory. More particularly, subsection 67.2(1) states that: If, on complaint in writing to the Agency by any person, the Agency finds that the holder of a domestic licence has applied terms or conditions of carriage applicable to the domestic service it offers that are unreasonable or unduly discriminatory, the Agency may suspend or disallow those terms or conditions and substitute other terms or conditions in their place. As a preliminary matter, the Agency finds that, by imposing a fee of CAD$145, Air Canada applied its tariff provision with respect to penalty fees for changes in reservations.

### Is Air Canada's penalty fee for changes in reservations applicable to transportation between points in Canada "unreasonable" within the meaning of subsection 67.2(1) of the CTA?

According to the principles of statutory interpretation, words of a statute are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme and object of the statute as well as the intention of Parliament. As stated by M. Justice Rouleau of the Federal Court Trial Division in ECG Canada Inc. v. M.N.R., [1987] 2 F.C. 415:

There is no question that the literal approach is a well established one in statutory interpretation. Nevertheless, it is always open to the Court to look to the object or purpose of a statute, not for the purpose of changing what was said by Parliament, but in order to understand and determine what was said. The object of a statute and its factual setting are always relevant considerations and are not to be taken into account only in cases of doubt.

The term "unreasonable" is not defined in either the CTA or the Air Transportation Regulations, SOR/88-58, as amended (hereinafter the ATR). The Canadian Oxford Dictionary defines the word "unreasonable" as "going beyond the limits of what is reasonable or equitable; not guided by or listening to reason". Black's Law Dictionary defines "unreasonable" as meaning "irrational; foolish; unwise; absurd; silly; preposterous; senseless; stupid".

Although the scope of the word "unreasonable" as it relates to terms and conditions of carriage has not been judicially considered in Canada, the meaning of the word has repeatedly been examined by the courts in contexts such as judicial review (C.U.P.E. v. New Brunswick Liquor Corporation, [1979] 2 R.C.S. 227) or the review of a discretionary decision based on irrelevant consideration, improper purpose or bad faith (Associated Provincial Picture Houses v. Wednesbury Corporation, [1948] 1 K.B. 233; City of Montréal v. Beauvais, (1909) 42 S.C.R. 211; Canadian Transportation Agency Decision No. 445-R-2000 dated June 30, 2000). While it is difficult to extrapolate distinct principles on the meaning of the word "unreasonable" from these cases, the courts have consistently held that:

1. The meaning of the word cannot be determined by recourse to a dictionary;
2. A contextual meaning must be given to the word; and
3. In general terms, the word means "without a rational basis".

Subsection 67.2(1) of the CTA appears under the heading entitled "Licence for Domestic Service" found in Part II of the CTA, "Air Transportation". This heading encompasses 10 statutory provisions which provide specific statutory remedies to the travelling public, while imposing obligations on domestic licensees as part of an effort to redress instances where a fare, rate, charge or term or condition of carriage unilaterally established by an air carrier is found to be unreasonable, unduly discriminatory or not applied by the carrier. In the Agency's opinion, the specific wording of subsection 67.2(1) of the CTA reflects a recognition by Parliament that regulation was needed in order to attain the stated objective of the national transportation policy found in section 5 of the CTA which provides, in part, that:

... each carrier or mode of transportation, as far as is practical, carries traffic to or from any point in Canada under fares, rates and conditions that do not constitute

(i) an unfair disadvantage in respect of any such traffic beyond the disadvantage inherent in the location or volume of the traffic, the scale of operation connected with the traffic or the type of traffic or service involved,

This position is also in harmony with section 12 of the Interpretation Act, R.S.C., 1985, c. I-21 which provides that:

Every enactment is deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.

In determining whether a term or condition of carriage applied by a carrier is "unreasonable" within the meaning of subsection 67.2(1) of the CTA, the Agency must, therefore, ensure that it does not interpret the provision in such a way that impairs or jeopardizes the ability of the travelling public to efficiently use the recourse put in place by Parliament to protect it against the unilateral setting of terms and conditions of carriage by air carriers.

Conversely, the Agency must also take into account:

1. the operational and commercial obligations of the particular air carrier which is the subject of the complaint;
2. the other consumer protection provisions found under Part II of the CTA which compel air carriers to publish, display or make available for public inspection tariffs that contain the information required by the ATR and only apply the terms and conditions of carriage set out in those tariffs; and
3. the fact that air carriers are required to establish and apply terms and conditions of carriage designed to apply collectively to all passengers as opposed to one particular passenger.

The Agency is, therefore, of the opinion that, in order to determine whether a term or condition of carriage applied by a domestic carrier is "unreasonable" within the meaning of subsection 67.2(1) of the CTA, a balance must be struck between the rights of the passengers to be subject to reasonable terms and conditions of carriage, and the particular air carrier's statutory, commercial and operational obligations.

The Agency's investigation into Ms. Morgan's complaint has revealed that Air Canada's penalty fee for changes in reservations is applied to discounted fares only, is proportionate with the objective of dissuading travellers from changing their travel dates, and is not excessive because changes remain practically possible. Further, the Agency is of the opinion that a change fee, which is commonly applied by air carriers in respect of discounted fares, assists airlines to differentially price into various market segments, and administer yield and revenue management systems, allowing carriers to predict, with a certain degree of reliability, the level of occupancy of their flights, thereby maximizing yield. Also, the Agency is cognizant that, in some instances, deeply discounted fares offered by air carriers have more restrictive conditions of carriage than those applied by Air Canada to Ms. Morgan's fare, including a condition that does not permit any changes to be made to tickets.

### Is Air Canada's penalty fee for changes in reservations applicable to transportation between points in Canada "unduly discriminatory" within the meaning of subsection 67.2(1) of the CTA?

As with the word "unreasonable", the phrase "unduly discriminatory" is not defined in the CTA or the ATR.

With respect to the meaning of the word "discriminatory", the Supreme Court of Canada, in Andrews v. Law Society (British Columbia), [1989] 1 S.C.R. 143, held that "discrimination may be described as a distinction, whether intentional or not but based on grounds relating to personal characteristics of the individual or group, which has the effect of imposing burden, obligation, or disadvantages on such individual or group not imposed on others, or which withholds or limits access to opportunities, benefits, and advantages, available to other members of society".

Further, in O'Connell v. Canadian Broadcasting Corp. (1988), 88 C.L.L.C. 17, 017, the Canadian Human Rights Tribunal held that: "a practice or rule may be found to be discriminatory, whether it involves ... "direct discrimination" (a practice or rule which is on the face of it discrimination) or "adverse impact" (a practice or rule which is on the face of it neutral, applying equally to all employees, but which has a discriminatory effect upon a discriminatory ground on an individual employee or group of employees).".

The above judicial interpretations of the word "discrimination" are well recognized in Canada and have been used by various courts and tribunals (Brooks v. Canada Safeway Ltd., [1989] 4 W.W.R. 193; Canada (Attorney General) v. George, [1991] 1 F.C. 344; Headley v. Canada (Public Service Commission), [1987] 2 F.C. 235.). The Agency notes, however, that, contrary to the human rights and labour relations contexts in which those decisions were rendered, where the overriding principle is that no discrimination is tolerated, the CTA provides that "discriminatory" terms or conditions of carriage may be tolerated provided that they are not "unduly discriminatory" [Emphasis added].

The determination of whether a term or condition of carriage applied by a carrier on a domestic route is "unduly discriminatory" is, therefore, a two step process. In the first place, the Agency must determine whether the term or condition of carriage applied is "discriminatory". In the absence of discrimination, the Agency need not pursue its investigation. If, however, the Agency finds that the term or condition of carriage applied by the domestic carrier is "discriminatory", the Agency must then determine whether such discrimination is "undue".

The meaning of the word "undue" was the subject of a detailed analysis by the Federal Court of Appeal in Via Rail Canada Inc. v. National Transportation Agency and Jean Lemonde, [2001] 2 F.C. 25. In that case, the Court stated that:

While "undue" is a word of common usage which does not have a precise technical meaning the Supreme Court has variously defined "undue" to mean "improper, inordinate, excessive or oppressive" or to express "a notion of seriousness or significance". To this list of synonyms, the Concise Oxford Dictionary adds "disproportionate".

What is clear from all of these terms is that undue-ness is a relative concept. I agree with the position expressed by Cartwright J., as he then was:

"Undue" and "unduly" are not absolute terms whose meaning is self-evident. Their use presupposes the existence of a rule or standard defining what is "due". Their interpretation does not appear to me to be assisted by substituting the adjectives "improper", "quot;, ", "quot;inordinate", excessive", "quot;, ", "quot;oppressive" or "wrong", or the corresponding adverbs, in the absence of a statement as to what, in this connection, is proper, ordinate, permissible or right.

The proper approach to determine if something is "undue", then, is a contextual one. Undue-ness must be defined in light of the aim of the relevant enactment. It can be useful to assess the consequences or effect if the undue thing is allowed to remain in place.

The Supreme Court has also recognized that the term implies a requirement to balance the interests of the various parties. In a case dealing with whether an employer had accommodated an employee's right to exercise his religion beliefs up to the point of undue hardship, Wilson J., writing for the majority, found it helpful to list some of the factors relevant to such an appraisal. She concluded by stating: "This list is not intended to be exhaustive and the result which will obtain from a balancing of these factors against the right of the employee to be free of discrimination will necessarily vary from case to case".

The Agency is, therefore, of the opinion that, in determining whether a term or condition of carriage applied by a domestic carrier is "unduly discriminatory" within the meaning of subsection 67.2(1) of the CTA, it must adopt a contextual approach which balances the rights of the travelling public not to be subject to terms and conditions of carriage that are discriminatory, with the statutory, operational and commercial obligations of air carriers operating in Canada. This position is also in harmony with the national transportation policy found in section 5 of the CTA.

The first question for the Agency to consider, then, in determining whether a term or condition of carriage applied by an air carrier is "unduly discriminatory" within the meaning of subsection 67.2(1) of the CTA, is whether the term or condition of carriage is discriminatory.

The Agency finds that there is no evidence before it in this complaint to suggest that Air Canada's penalty fee for changes in reservations in and of itself is discriminatory or that the fee has been applied in a discriminatory manner.

Given that Air Canada's penalty fee is not "discriminatory" within the meaning of subsection 67.2(1) of the CTA, the Agency need not examine the question of whether the fee is "unduly" discriminatory.

In view of the foregoing, the Agency is of the opinion that Air Canada's penalty fee assessed for changes in reservations is neither unreasonable nor unduly discriminatory.

## CONCLUSION

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

## Members

• Marian L. Robson
• Keith Penner
• George Proud

Geoffrey C. Hare