Decision No. 387-P-A-2002

July 17, 2002

July 17, 2002

IN THE MATTER OF a complaint by Gail Henry concerning the $620.60 fare offered by Air Canada on March 8, 2001 for round-trip travel between Sandspit and Vancouver, British Columbia.

File No. M4370/A74/01-422


COMPLAINT

On March 8, 2001, Gail Henry filed with the Canadian Transportation Agency (hereinafter the Agency) the complaint set out in the title.

By letter dated March 27, 2001, both Mrs. Henry and Air Canada were advised that section 66 of the Canada Transportation Act, S.C., 1996, c. 10 (hereinafter the CTA) sets out the Agency's jurisdiction over complaints concerning fares applied by air carriers in respect of domestic services. More particularly, both 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, Air Canada was requested to provide the Agency and Mrs. Henry with its answer to the complaint, including the information outlined in subsection 66(3) of the CTA. On April 26, 2001, Air Canada filed its answer to the issues raised by the complaint and, with respect to a portion of the information included in its filing, made a claim for confidentiality. On May 7, 2001, Mrs. Henry filed her reply to Air Canada's answer.

On May 19, 2001, Air Canada filed a correction to certain data which was included in its answer dated April 26, 2001 and made an additional claim for confidentiality in respect of that data.

By Decision No. LET-P-A-325-2001 dated July 10, 2001, the Agency agreed to keep the information referred to in Air Canada's April 26 and May 19, 2001 claims for confidentiality in a confidential file.

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.

ISSUES

The issues to be addressed are:

  1. whether Air Canada, including affiliated licensees (hereinafter Air Canada), was the only person providing a domestic service between Sandspit and Vancouver on or about March 8, 2001 within the meaning of section 66 of the CTA; and, if so,
  2. whether the fare published or offered by Air Canada in respect of its service between Sandspit and Vancouver on or about March 8, 2001, which is the subject of the complaint, was unreasonable.

POSITIONS OF THE PARTIES

Mrs. Henry submits that the Sandspit-Vancouver flight is the same or very similar to the Prince Rupert-Vancouver flight and that on March 8, 2001, the Prince Rupert-Vancouver round-trip fare was $593.85 compared to $620.60 for the Sandspit-Vancouver route. She submits that the $620.60 round-trip fare for travel between Sandspit and Vancouver is twice what it should be based on the Agency's March 7, 2001 ruling concerning the fares offered by Air Canada in respect of its service between Prince Rupert and Vancouver wherein the Agency ordered Air Canada to lower its fare by half. She further submits that if this fare is inflated, then it follows that the regular fares must also be inflated. In addition, Mrs. Henry states that she was quoted this fare by Air Canada while conducting research on its Internet site, and that her research was for the fares offered for travel one and two weeks in advance of her proposed departure date and ensuring a Saturday night stay.

In its answer to the preliminary issue raised by the complaint, Air Canada submits that it was not the only carrier providing a domestic service between Sandspit and Vancouver. The carrier submits that a combination of the services provided by Harbour Air Ltd. operating as Harbour Air Seaplanes (hereinafter Harbour Air) or the British Columbia Ferry Corporation (hereinafter BC Ferries) between Sandspit and Prince Rupert and the services provided by Hawkair Aviation Services Limited (hereinafter Hawkair) or Air Canada between Prince Rupert and Vancouver are reasonable alternatives to its domestic service between Sandspit and Vancouver, taking into account the factors listed in subsection 66(4) of the CTA.

In its answer to the fare-related issue raised by the complaint, Air Canada submits that the thrust of the complaint relates to the lowest fare offered when booked two weeks in advance of departure and when the minimum Saturday night stay requirement is met. Therefore, Air Canada submits that the complaint is moot as a result of its introduction, on March 30, 2001, of a lower priced year-round excursion fare (the $462.00 V14SNR fare) for round-trip travel between Sandspit and Vancouver. Furthermore, Air Canada submits that section 66 of the CTA does not permit a complainant to make an allegation that a fare is unreasonable based solely on comparison with a proposed direction made by the Agency, especially when the direction was not issued when the complaint was filed.

Air Canada also submits that economic theory justifies fare differentials from route to route, and submits a statement prepared by Professor William J. Baumol, "a pre-eminent economist from New York University with extensive experience relating to the economics of the airline industry" in support of its position. Professor Baumol maintains that differential pricing is widespread and is not to be interpreted as a manifestation of monopoly power exercised as a means to obtain excessive profits, and that it is not unreasonable for an air carrier to publish a fare on one route but not on another.

Air Canada further submits that the fare which is the subject of the complaint, the H7SNR round-trip fare of $565.00, excluding applicable taxes and charges, is not unreasonable when considering historical data, the population size and origin-destination passenger volume. Specifically, the carrier indicates that, from March 1999 to March 2000, when Canadian Airlines International Ltd. carrying on business under the firm name and style of Canadian Airlines International or Canadi*n Airlines or Canadi*n and its affiliates (hereinafter Canadi*n) provided service on the route, Canadi*n increased its H7SNR fare from $478.00 to $533.00, excluding applicable taxes and charges. Air Canada adds that in April 2001, it offered its H7SNR fare for round-trip travel between Sandspit and Vancouver at $564.00. The carrier further adds that, as part of a continuing process of "fine tuning" all domestic routes, it introduced the V14SNR year-round excursion fare for round-trip travel between Sandspit and Vancouver at $462.00 and maintained its H7SNR round-trip fare at $564.00. Therefore, Air Canada states that, with the introduction of the V14SNR fare on the Sandspit-Vancouver route, the lowest priced year-round fare has decreased since Canadi*n operated the route prior to being acquired by Air Canada.

Air Canada provided statistics which illustrated that the origin-destination passenger volume on the Prince Rupert-Vancouver route, the route which was the subject of the Agency's March 7, 2001 Decision, is almost 500 percent larger than on the Sandspit-Vancouver route and that the community of Sandspit is approximately 25 times smaller in population than Prince Rupert. Air Canada submits that the "substantially" smaller population and traffic volume is a reasonable explanation for the difference in the fares offered on the two routes.

In her reply to Air Canada's answer to the preliminary issue, Mrs. Henry submits that Air Canada is the "ONLY carrier" that provides a domestic service between Sandspit and Vancouver. She identifies that Harbour Air does not operate from the Sandspit Airport but rather from Alliford Bay. She states that upon arrival at Prince Rupert after travelling on Harbour Air's service, you must take a taxi to the check-in point for the bus to the ferry to the island on which the Prince Rupert Airport is located and that even with these arrangements, you still have a one and a half hour flight to Vancouver.

With respect to Air Canada's suggestion that travellers take a ferry to Prince Rupert to access flights, Mrs. Henry states that the ferry is available three times a week during the winter months and five times a week during the summer months. She also states that the ferry check-in is one hour before departure, the ride is six hours long and that it takes one half to three quarters of an hour to unload in Prince Rupert. Mrs. Henry adds that one then has to take a taxi to the check-in for the bus to the ferry to the island on which the Prince Rupert Airport is located. She states that the alternatives proposed by the carrier are "like comparing apples to oranges". Mrs. Henry maintains that the cost and time associated with the proposed alternatives are unreasonable.

In reply to Air Canada's answer to the fare-related issue raised by the complaint, Mrs. Henry submits that the matter is not moot. She submits that Air Canada is now offering lower fares on the Sandspit-Vancouver route due to a large and concentrated effort by its passengers to complain. She states that, although the new fare is still high, it is better than the fare Air Canada had offered.

With respect to the population statistics used by Air Canada to justify fare differentials, Mrs. Henry submits that the Sandspit Airport serves all of the Queen Charlotte Islands and, therefore, a population in excess of 5,000. She also submits that the current population of Prince Rupert is approximately 10,000 people. Further, she maintains that, since the last census, the population of Prince Rupert has declined substantially and that, even with a decrease in population, Air Canada still operates two flights a day between Prince Rupert and Vancouver. Mrs. Henry also submits that, in addition to Air Canada, there is now another carrier providing a service between Prince Rupert and Vancouver.

ANALYSIS AND FINDINGS

In making its findings in respect of the preliminary and fare-related issues raised by the complaint, the Agency has considered all of the evidence submitted by the parties during the pleadings, as well as information available both publicly and within the Agency concerning air services provided between Sandspit and Vancouver and the fares published or offered by Air Canada in respect of its service between these two points, including the Internet, the Official Airline Guide (hereinafter the OAG), published flight schedules and airline tariffs published by the Airline Tariff Publishing Company.

Section 66 of the CTA sets out the Agency's jurisdiction over complaints concerning fares applied by air carriers in respect of domestic services. Pursuant to subsection 66(1) of the CTA, the Agency may take certain remedial action following receipt of a complaint where the Agency finds that :

  1. the air carrier who published or offered the fare 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
  2. the fare published or offered by the licensee in respect of the service is unreasonable.

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 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.

Further, pursuant to subsection 66(3) of the CTA, when determining whether a fare published or offered in respect of a domestic service between two points is unreasonable, the Agency shall consider the following factors:

  1. historical data respecting fares applicable to domestic services between the two points;
  2. fares applicable to similar domestic services offered by the licensee and one or more other licensees using similar aircraft including terms and conditions of carriage and the number of seats available at those fares; and
  3. any other information that may be provided by the licensee, including information that the licensee provides under section 83 of the CTA.

Preliminary issue

Whether Air Canada was the only person providing a domestic service between Sandspit and Vancouver on or about March 8, 2001 within the meaning of section 66 of the CTA.

The Agency has reviewed the information available to it with respect to the domestic service offered between Sandspit and Vancouver and has also considered Air Canada's position that a combination of the services provided by Harbour Air between Sandspit and Prince Rupert, or by BC Ferries to Prince Rupert, and by Hawkair between Prince Rupert and Vancouver constitutes a reasonable alternative domestic service to that provided by Air Canada between Sandspit and Vancouver, taking into consideration the factors listed in subsection 66(4) of the CTA.

The Agency is of the opinion that two distinct domestic air services would constitute a reasonable alternative to the domestic service provided by Air Canada only if they offered a joint fare and interline service to the traveller, that is, if a traveller could: make arrangements with one carrier for domestic travel from origin through to destination; make changes to the travel itinerary with the carrier with whom the original travel arrangements had been made, regardless of which carrier is operating the flight on a particular leg of the trip; reasonably expect to have baggage transferred between carriers by the carriers themselves; and, in the event of the cancellation or delay of a flight prior to the last leg of a trip, rely upon the cooperation of the carrier who cancelled or caused the delay to assist in re-booking the next flight at no cost to the traveller.

The Agency's research has revealed that, on or about March 8, 2001, Harbour Air and Hawkair each offered separate domestic services and did not have a joint-fare arrangement with one another. In such circumstances, a traveller would have to make travel arrangements with, and purchase a ticket from, each carrier separately. Any changes to travel arrangements would have to be made with the appropriate carrier, and the traveller, rather than one of the carriers, would have to transfer the baggage from one carrier to the other. In the event of a flight cancellation or delay prior to the last leg of a trip, the traveller would not have been protected with respect to the remainder of the trip, as would have been the case on an intraline flight. The entire onus for re-booking travel arrangements for the remainder of the trip would rest with the traveller who could potentially lose the cost of the fare for the missed portion of the journey if the ticket for that portion were non-refundable, or incur a fee for making changes to flight arrangements. Also, in the event of a cancellation or delay of a flight, a traveller would have to be concerned with the availability of a continuing flight which would depend on the frequency of the service offered by the carrier to be used on the next leg of the trip. As such, it is the Agency's opinion that a combination of the services provided by Harbour Air between Sandspit and Prince Rupert and by Hawkair between Prince Rupert and Vancouver cannot be considered as an alternative to the service provided by Air Canada between Sandspit and Vancouver, within the meaning of subsection 66(4) of the CTA, as suggested by Air Canada.

Air Canada also proposed, as an alternative to its domestic service between Sandspit and Vancouver, a combination of the services provided by BC Ferries from the Skidegate Landing terminal on Moresby Island of the Queen Charlotte Islands to Prince Rupert with that provided by Hawkair between Prince Rupert and Vancouver. Pursuant to section 66 of the CTA, the Agency may inquire into a complaint concerning fares published or offered in respect of a "domestic service" provided between two points.

Subsection 55(1) of the CTA defines "domestic service" as:

an air service between two points in Canada, from and to the same point in Canada or between Canada and a point outside Canada that is not in the territory of another country;

An "air service" is defined in subsection 55(1) of the CTA as:

a service, provided by means of an aircraft, that is publicly available for transportation of passengers or goods, or both;

Information available to the Agency indicates that BC Ferries provides its services by means of a ferry and not by an aircraft. As such, the service provided by BC Ferries does not constitute a "domestic service" within the meaning of subsection 55(1) of the CTA. Accordingly, the Agency is of the opinion that a combination of the services provided by BC Ferries and Hawkair is not an alternative to the service provided by Air Canada within the meaning of subsection 66(4) of the CTA.

Therefore, on the basis of the foregoing, the Agency has determined that, on or about March 8, 2001, Air Canada was the only person providing a domestic service between Sandspit and Vancouver within the meaning of section 66 of the CTA. Accordingly, the complaint falls within the purview of section 66 of the CTA.

Fare-related issue

Whether the $620.60 fare offered by Air Canada in respect of its service between Sandspit and Vancouver on or about March 8, 2001 was unreasonable.

In addition to the material and information described above, the Agency, as required by subsection 66(3) of the CTA, has also considered the historical data respecting fares applicable to domestic services offered between Sandspit and Vancouver as well as the fares applicable to similar domestic services offered by Air Canada and one or more other licensees, using similar aircraft, including terms and conditions of carriage.

Similar domestic services offered by Air Canada and one or more other licensees

The Agency is of the opinion that the intent of section 66 of the CTA is to ensure that travellers on routes on which there is no, or very limited, competition are offered fares which are broadly comparable in level and range to those offered to travellers on competitive routes. Accordingly, in determining whether a particular service between two points is similar to the service which is the subject of a section 66 complaint within the meaning of paragraph 66(3)(b) of the CTA, the Agency will consider the following factors:

  1. whether there are other licensees offering a domestic service between the two points;
  2. the type of aircraft used by the licensee which is the subject of the section 66 complaint to operate its service between the two points;
  3. the air mileage between the two points; and
  4. the origin-destination passenger volume between the two points.

With respect to the service which is the subject of the section 66 complaint, the Agency has determined that:

  1. on March 8, 2001, Air Canada operated its domestic service between Sandspit and Vancouver using medium aircraft, as defined in the Air Transportation Regulations, SOR/88-58, as amended (hereinafter the ATR);
  2. according to the OAG, the distance between Sandspit and Vancouver is approximately 466 air miles; and
  3. the origin-destination passenger volume between Sandspit and Vancouver was approximately 19,680 passengers in 1999 (the last complete year for which such information is available).

The Agency conducted the same analysis in respect of nearly 170 domestic services to identify the services which have characteristics similar to those of the service between Sandspit and Vancouver. Based on its consideration of the factors outlined above, the Agency has determined that the service which was most similar to that offered by Air Canada between Sandspit and Vancouver within the meaning of paragraph 66(3)(b) of the CTA on March 8, 2001 was Air Canada's service between Goose Bay and St. John's for the following reasons:

  1. Labrador Airways Limited carrying on business as Air Labrador and Provincial Airlines Limited also carrying on business as Interprovincial Airlines operated domestic services between Goose Bay and St. John's in addition to the service operated by Air Canada;
  2. Air Canada operated its service between Goose Bay and St. John's using medium aircraft, as defined in the ATR;
  3. according to the OAG, the distance between Goose Bay and St. John's is approximately 517 air miles; and
  4. the origin-destination passenger volume between Goose Bay and St. John's was approximately 25,040 passengers in 1999.

Data respecting fares applicable to domestic services between Sandspit and Vancouver and between Goose Bay and St. John's

The Agency's research has identified that the $620.60 fare, which is the subject of the complaint, is the sum of Air Canada's H7SNR round-trip fare of $565.00, the NAVCAN round-trip charge of $15.00 and GST of $40.60. Of these components, the Agency will conduct its analysis and make its determination with respect to the H7SNR fare, which will be analyzed below.

The Agency's research has identified that since 2000, Air Canada has been operating its domestic service between Sandspit and Vancouver through a code share arrangement with Canadian Regional Airlines (1998) Ltd. carrying on business as Canadian Regional (hereinafter Canadian Regional). On March 8, 1999, a year prior to the date on which Mrs. Henry undertook her fare research, Canadi*n, through a code share arrangement with Canadian Regional, operated the same domestic service between Sandspit and Vancouver. As such, the Agency will analyze the fares offered by air carriers in respect of the domestic services operated between Sandspit and Vancouver on March 8, 1999, 2000 and 2001, that is, from a point in time when Canadi*n operated the domestic service on the route to the date of the complaint. The Agency has also reviewed the fares offered by Air Canada on the Goose Bay-St. John's route for those same dates.

In conducting its analysis, the Agency considered Air Canada's H7SNR fare in relation to the other fares offered by Air Canada on the Sandspit-Vancouver route and to the fares it offered on the Goose Bay-St. John's route, as well as the discounts off the full economy Y1 round-trip fare which the fares represented, the year-over-year increases in the fares, and the terms and conditions of carriage applicable to the fares on each of the routes.

1. General overview

An overview of the fares published by air carriers in respect of domestic services between Sandspit and Vancouver and between Goose Bay and St. John's on March 8, 1999, 2000 and 2001 shows that a selection of fares were offered by Air Canada with respect to the services operated on each route. All fares offered by Air Canada on both routes were economy-type fares with the exception of the carrier's offering of a premium, business (i.e. J-class) fare on both routes. Most of these economy-type fares were non-refundable, round-trip fares which required an advance purchase and were discounted off the full economy Y1 round-trip fare by varying percentages. On these routes, as is often the case, the Y1 one-way fare is the economy fare which allows passengers the most flexibility to book or cancel reservations or make changes in the itinerary; however, it is the most expensive economy-type fare. Air Canada's Y1 fare serves as the basis for determining the price levels of other fares offered on the route.

On the dates under review, the Y1 fare offered on the Sandspit-Vancouver route was 10-15 percent lower than the Y1 fare offered by Air Canada on the Goose Bay-St. John's route. This difference is attributable in part to the fact that the Sandspit-Vancouver route is 10 percent shorter in length than the Goose Bay-St. John's route.

There were fewer discounted fares offered on the Sandspit-Vancouver route than on the Goose Bay-St. John's route on the dates under review. The fares which were available on both routes were lower on the Sandspit-Vancouver route than on the Goose Bay-St. John's route.

2. H7SNR fare

The Agency's research shows that the H7SNR fare was available on the Sandspit-Vancouver route and the Goose Bay-St. John's route on the dates under review. The terms and conditions of carriage applicable to the H7SNR fare on March 8 in 1999, 2000 and 2001 were identical on both routes.

The Agency's analysis shows that the H7SNR fare was discounted off the full economy Y1 round-trip fare at a similar percentage on both routes on the dates under review. The H7SNR fare was discounted off the full economy Y1 round-trip fare at 45 percent on the Sandspit-Vancouver route on March 8, 2000 and 2001 and at 46 percent on March 8, 1999, and at 46 percent on the Goose Bay-St. John's route on all three dates under review.

The Agency's research shows that between March 8, 1999 and March 8, 2000, the H7SNR fare offered on the Sandspit-Vancouver route increased 11.5 percent from $478.00 to $533.00 compared to the 3 percent increase imposed on the same fare offered on the Goose Bay-St. John's route. Information available to the Agency indicates that the increase in the H7SNR fare offered on the Sandspit-Vancouver route during this period was fully attributable to the series of fare increases applied by Canadi*n between April 1999 and December 1999. When Air Canada took over the operation of the service on the Sandspit-Vancouver route in 2000, it offered the H7SNR fare at $533.00, the same price Canadi*n had been offering the fare when it last operated the service.

From March 8, 2000 to March 8, 2001, Air Canada's H7SNR fare increased by 6 percent on both the Sandspit-Vancouver and Goose Bay-St. John's routes, reflecting Air Canada's system-wide fare increases at the beginning of 2001.

Historically, the H7SNR fare offered on the Sandspit-Vancouver route was lower than the one offered on the Goose Bay-St. John's route. When the service between Sandspit and Vancouver was operated by Canadi*n on March 8, 1999, the carrier offered its H7SNR fare at a price that was 8.3 percent lower than the one Air Canada offered on the Goose Bay-St. John's route. After Air Canada took over the operation of the service on the Sandspit-Vancouver route from Canadi*n, the H7SNR fare offered by Air Canada on the Sandspit-Vancouver route on the date under review in 2000 and 2001 was 7.8 percent lower than the one it offered on the Goose Bay-St. John's route.

The Agency has carefully examined and analyzed the H7SNR fare offered by Air Canada in respect of its domestic services between Sandspit and Vancouver and between Goose Bay and St. John's on March 8, 1999, 2000 and 2001. On the basis of the foregoing analysis and based on the factors set out in subsection 66(3) of the CTA, the Agency is of the opinion that, on the dates under review, the H7SNR fare was lower on the Sandspit-Vancouver route, reflecting, among other things, the difference in the length of the route. The Agency also notes that, when Air Canada operated the services between Sandspit and Vancouver and between Goose Bay and St. John's, the H7SNR fares offered on both routes were treated similarly with respect to the levels of discount and year-over-year changes.

3. Agency findings

In light of the foregoing, the Agency finds that the $565.00 H7SNR round-trip fare published or offered by Air Canada in respect of its domestic service between Sandspit and Vancouver on or about March 8, 2001 was not unreasonable.

CONCLUSION

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

Date modified: