Decision No. 437-A-1998

September 2, 1998

September 2, 1998

APPLICATION by the Iqaluit Chamber of Commerce pursuant to section 66 of the Canada Transportation Act, S.C., 1996, c. 10 for a review of the fares and rates applied by Bradley Air Services carrying on business as First Air and/or Ptarmigan Airways.

File No. M4110/F19-6


APPLICATION

On March 27, 1998, the Iqaluit Chamber of Commerce (hereinafter the Chamber of Commerce) filed an application with the Canadian Transportation Agency (hereinafter the Agency) for a review of the passenger fares and cargo rates applied by Bradley Air Services carrying on business as First Air and/or Ptarmigan Airways (hereinafter First Air), and particularly the increases introduced by First Air since Canadian North discontinued service in the Iqaluit - Ottawa/Montréal markets in October 1995.

By Decision No. LET-A-119-1998 dated April 20, 1998, the Agency served a copy of the request on First Air and established deadlines for pleadings in the application. The Agency also advised both the Chamber of Commerce and First Air that, pursuant to section 66 of the Canada Transportation Act, S.C., 1996, c. 10 (hereinafter the CTA), the Agency may deal with complaints concerning fares applied by air carriers for domestic services, and may take certain remedial action following receipt of a complaint, provided 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 Chamber of Commerce and First Air 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 or charter rates or charges, the Agency is required to restrict its review to the passenger fares applicable to First Air involving domestic routes to/from Iqaluit over which First Air is the only licensee providing an air service. These routes include Broughton Island, Clyde River, Coral Harbour, Hall Beach, Igloolik, Lake Harbour, Kuujjuaq, Montréal, Nanisivik, Ottawa, Pond Inlet, and Resolute.

On May 20, 1998, First Air filed its answer to the Chamber of Commerce's complaint. On May 22, 1998, the Chamber of Commerce requested that the Agency obtain additional information from First Air, for the Chamber of Commerce's review, in order to permit the Chamber of Commerce to prepare its reply. By Decision No. LET-A-146-1998 dated May 27, 1998, the Agency provided First Air with a copy of the Chamber of Commerce's letter and asked First Air to comment on the request. By letter dated May 29, 1998, First Air advised that much of the information requested by the Chamber of Commerce was either confidential or fell outside the scope of the Agency's review, but that it would make an effort to address the concerns expressed by the Chamber of Commerce. By letter dated June 1, 1998, the Chamber of Commerce requested that the information sought in its letter of May 22, 1998 be released only to the Agency. On June 4, 1998, First Air provided certain additional information to the Chamber of Commerce. By Decision No. LET-A-171-1998 dated June 29, 1998, the Agency determined that further information was required in order for it to properly consider the Chamber of Commerce's complaint. Accordingly, the Agency requested First Air to file certain financial and costing information and advised the carrier that such information would be treated as confidential. By letter of July 17, 1998, First Air filed significant financial and costing data on a confidential basis. The Chamber of Commerce filed its reply to First Air's answer the same day.

Deadlines for filing various pleadings in the application were extended on several occasions at the request of the Chamber of Commerce or First Air. Consequently, both parties agreed to extend the 120-day statutory deadline for the Agency to render a decision on the application.

ISSUE

The issue to be addressed is whether or not First Air has imposed an unreasonable basic fare or unreasonable increase in the basic fare in respect of the domestic services it operates to/from Iqaluit and for which it is the sole licensee providing such services.

POSITIONS OF THE PARTIES

The Chamber of Commerce has complained to the Agency about First Air's pricing, particularly the increases introduced by the carrier since Canadian North discontinued service between Iqaluit and Ottawa/Montréal in October 1995.

In answer to the complaint, First Air filed detailed comparisons of fare data applicable to itself and other carriers operating equivalent domestic services, including data setting out revenue per mile, and argued that its fare levels and increases since 1995 compare favourably to the fare levels and increases of such other carriers.

First Air also provided a comparison of percentage increases in its yields in selected markets as compared to increases in basic fares applicable to First Air and certain other carriers. First Air suggests that this comparison reveals that its yields have not increased in proportion to its fare increases. With respect to the Chamber of Commerce's request for specific data relating to seat mix by class and costs associated with the acquisition of NWT Air and Ptarmigan Airways, First Air indicates that comprehensive data pertaining to seat mix are not available, and that the acquisition costs are not directly related to the issue of whether First Air has imposed an unreasonable basic fare or unreasonable increase in the basic fare.

In its reply, the Chamber of Commerce reiterates its concern with the fare increases applied by First Air since Canadian North discontinued service in October 1995. The Chamber of Commerce expresses the view that First Air's passenger fares cannot be examined without also considering the cargo rates applied by the carrier. The Chamber of Commerce also indicates that arguments stating that increases in fuel costs justified higher prices are invalid because, when fuel costs escalated, fuel surcharges on cargo rates were introduced to offset such costs.

ANALYSIS AND FINDINGS

The Agency has carefully reviewed and considered all of the pleadings in the application as well as all of the additional financial and costing information provided by First Air. The Agency also reviewed and analyzed certain internal data in order to properly consider the complaint.

Pursuant to section 66 of the CTA, the Agency may only deal with complaints with respect to fares applicable to domestic services if two specific criteria are met. Firstly, the licensee against whom the complaint is made must be the only person providing the domestic service. Secondly, the Agency must be satisfied that the licensee has imposed an unreasonable basic fare or unreasonable increase in the basic fare in respect of the domestic service. In Decision No. LET-A-119-1998, the Agency determined that First Air is the only licensee providing an air service over the following domestic routes to/from Iqaluit: Broughton Island, Clyde River, Coral Harbour, Hall Beach, Igloolik, Lake Harbour, Kuujjuaq, Montréal, Nanisivik, Ottawa, Pond Inlet, and Resolute. Further, as stated in Decision No. LET-A-119-1998, the Agency does not have jurisdiction to review cargo rates. Accordingly, the Agency restricted its review in this application to passenger fares.

With respect to the issue of the reasonableness of First Air's basic fares or increases in its basic fares, the Agency is of the opinion that the fare data filed by First Air reveal that the levels of the basic fares and the increases to such fares applied by First Air since October 1995 in the markets under review do not differ markedly from basic fare levels and increases applied by other carriers in comparable markets. This is confirmed by data compiled by the Agency, involving comparisons of fare levels, revenue per mile, and increases applicable to First Air and other carriers in markets in which more than one licensee provides services. In some instances, the data indicate that, in certain markets in which First Air and other carriers compete, the increase in basic fares exceeds that applied by First Air in comparable markets to/from Iqaluit presently under review by the Agency. The fare data available to the Agency do not suggest that, relative to other carriers and markets, First Air has applied unreasonable basic fares or unreasonable increases in basic fares on the routes and for the period under consideration.

The Agency is also of the view that the financial and costing information that has been provided also indicates that First Air has not imposed unreasonable basic fares or increases in basic fares in respect of the services under review and that basic fare increases have generally been consistent and compatible with cost increases during the period under review.

CONCLUSION

Accordingly, the Agency finds 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.

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