Decision No. 587-C-A-2002

October 30, 2002

October 30, 2002

IN THE MATTER OF a complaint filed by Tom Sherlock against Air Canada concerning the $542 fare applicable to transportation between Canada and Hawaii offered by Air Canada only on its Internet site.

File No. M4370/A74/02-165


COMPLAINT

On February 8, 2002, Tom Sherlock filed with the Canadian Transportation Agency (hereinafter the Agency) the complaint set out in the title.

On February 12, 2002, Agency staff requested that Air Canada address the complaint within the context of sections 111 and 113 of the Air Transportation Regulations, SOR/88-58, as amended (hereinafter the ATR).

On March 15, 2002, Air Canada filed its answer, and on the same day, Mr. Sherlock filed his reply.

Pursuant to subsection 29(1) of the Canada Transportation Act, S.C., 1996, c. 10 (hereinafter 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.

ISSUE

The issue to be addressed is whether the Agency, pursuant to sections 111 and 113 of the ATR, should intervene, by virtue of Article 5 of the Air Transport Agreement between the Government of Canada and the Government of the United States of America (hereinafter the Agreement), in the matter of the $542 fare applicable to transportation between Canada and Hawaii offered by Air Canada only on its Internet site, which Air Canada subsequently identified as LHAWAIIW in a letter dated March 14, 2002.

POSITIONS OF THE PARTIES

Mr. Sherlock submits that the $542 fare applicable to transportation between Canada and Hawaii, offered by Air Canada on its Internet site (www.aircanada.ca), is much lower than the fares Air Canada offered for transportation between Canada and Hawaii through other distribution channels, such as the Air Canada Reservations Centre and travel agents. More particularly, Mr. Sherlock compared the fares for two Air Canada flights between Vancouver and Maui, Hawaii, one departing on April 6, 2002 and returning on April 27, 2002, and the other departing on March 20, 2002 and returning on March 28, 2002.

Mr. Sherlock contends that these pricing data show a 40 to 43.5 percent variance between the lowest applicable Internet fare of CAD $542 (hereinafter the disputed fare), and the lowest fare available through Air Canada's Reservations Centre and travel agents. Mr. Sherlock acknowledges that most air carriers offer discounted Internet fares, and submits that such fares are normally only nominally discounted to reflect savings in costs associated with processing of bookings.

In its answer to the complaint, Air Canada maintains that, as the disputed fare is a price under the terms of the Agreement, the Agency can intervene, by virtue of Article 5 of the Agreement, only if it determines that the fare is unreasonably discriminatory, unreasonably high or restrictive, or artificially low. Further, Air Canada submits that the Agency must obtain the agreement of the aeronautical authority of the United States of America prior to disallowing the fare.

Air Canada contends that a carrier's success largely depends on its ability to use distribution systems, including innovative systems such as the Internet, to reach consumers and increase choices. To this end, Air Canada submits that it uses its Internet site, as well as computer and airline reservation systems, as effectively as possible.

Air Canada maintains that the types of fares it offers on its Internet site include "Websaver" last minute travel fares, offered weekly to select destinations, and "specials" and promotional fares, obtained when booking on-line. The disputed fare was a promotional fare with a limited sale period.

Air Canada stresses that its Internet fares are offered to respond to market forces in highly competitive markets. Air Canada maintains that significant discounts are also offered over the Internet by its American competitors in the Canada-Hawaii market.

With respect to Mr. Sherlock's contention that cheaper Internet fares are not accessible to all consumers in this market, such as seniors, Air Canada submits that the fare is not "unreasonably discriminatory", as its distribution is not restricted to certain individuals or groups; a person not having access to the Internet can ask a friend or a travel agent to make a booking on his/her behalf.

Finally, Air Canada notes that the Agency has no jurisdiction to require Air Canada to use certain distribution channels for its fares or to control such channels.

In his reply, Mr. Sherlock submits that, given Air Canada's monopoly position on non-stop flights between Canada and Hawaii, the carrier is acting in an unreasonable manner, by only offering these lower fares via one distribution channel.

Mr. Sherlock maintains that he does not object to Air Canada's use of the Internet as a distribution medium for last minute discounts, but rather is concerned that by restricting the sale of deeply discounted fares to its Internet site, Air Canada is excluding a significant portion of the travelling public, such as consumers who do not have direct access to the fares or may be unaware of them as they are not advertised.

With respect to the disputed fare, Mr. Sherlock submits that this fare was not a "Websaver" last minute discount, nor was it advertised as being of a limited sale duration. Mr. Sherlock also submits that Air Canada was not following market forces by offering the fare, as American carriers discount fares over their Internet sites by 40 percent only for last minute specials.

Finally, Mr. Sherlock maintains that Air Canada misleads consumers when quoting fares, as it does not advise consumers that fares may be lower through its other distribution systems, such as its Internet site.

ANALYSIS AND FINDINGS

In making its findings, the Agency has considered all of the evidence submitted by the parties during the pleadings, as well as the Agreement.

With respect to Air Canada's comments regarding the Agency's jurisdiction relating to fare distribution channels, the Agency is of the opinion that it has jurisdiction over international fares, subject to the terms of the applicable bilateral air transport agreement, irrespective of the manner in which those fares are distributed.

The Agency's jurisdiction over complaints concerning fares, and terms and conditions of carriage applicable to transportation to and from Canada is set out in sections 111 and 113 of the ATR. Subsections 111(1) and (2) of the ATR provide that:

(1) All tolls and terms and conditions of carriage, including free and reduced rate transportation, that are established by an air carrier shall be just and reasonable and shall, under substantially similar circumstances and conditions and with respect to all traffic of the same description, be applied equally to all that traffic.

(2) No air carrier shall, in respect of tolls or the terms and conditions of carriage,

a) make any unjust discrimination against any person or other air carrier;

b) give any undue or unreasonable preference or advantage to or in favour of any person or other air carrier in any respect whatever, or

c) subject any person or other air carrier or any description of traffic to any undue or unreasonable prejudice or disadvantage in any respect whatever.

Further, if the Agency finds that the air carrier has contravened section 111 of the ATR, the Agency may, pursuant to section 113 of the ATR:

  1. suspend any tariff or portion of a tariff that appears not to conform with subsections 110(3) to (5) or section 111 or 112, or disallow any tariff or portion of a tariff that does not conform with any of those provisions; and
  2. establish and substitute another tariff or portion thereof for any tariff or portion thereof disallowed under paragraph (a).

Pursuant to section 78 of the CTA, the Agency's finding in this respect must be made in accordance with the terms of any international agreement relating to civil aviation to which Canada is a party - in the case at hand, the Agreement.

Paragraph (1), Article 5, Pricing, of the Agreement provides that:

The Parties acknowledge that market forces shall be the primary consideration in the establishment of prices for air transportation. Intervention by the aeronautical authorities shall be limited to:

a) prevention of unreasonably discriminatory prices or practices;

b) protection of consumers from prices that are unreasonably high or restrictive because of the abuse of a dominant position;

c) protection of airlines from prices to the extent that they are artificially low because of direct or indirect governmental subsidy or support; and

d) protection of airlines from prices that are artificially low, where evidence exists as to an intent of eliminating competition.

Further, Article 23, Definitions, of the Agreement states that:

"Price" means any fare, rate or charge (including discounts, frequent flyer plans or other benefits affecting the cost of air transportation) for the carriage of passengers (and their baggage) and/or cargo (excluding mail), or the charter of aircraft charged by airlines, including their agents, and the conditions governing the availability of such fare, rate or charge but excluding general terms and conditions of carriage which are broadly applicable to all air transportation and are not directly related to the fare, rate or charge.

The Agency finds that the disputed fare is a "price" pursuant to Article 23, Definitions, of the Agreement, as it is a fare applied for the carriage of passengers and their baggage, and contains conditions governing the fare's availability.

In light of the foregoing, and pursuant to paragraph (1), Article 5, Pricing, of the Agreement, the Agency can intervene in the matter only if the Agency determines that the disputed fare is unreasonably discriminatory, high or restrictive. Mr. Sherlock's complaint does not allege that the disputed fare is unreasonably high or restrictive, but that it is unreasonably discriminatory in that it effectively excludes a substantial portion of the travelling public who do not have access to the Internet, such as seniors.

The determination of whether a fare is "unreasonably discriminatory" is a two-step process. Firstly, the Agency must determine whether the fare is "discriminatory". In the absence of discrimination, the Agency need not pursue its investigation. If, however, the Agency finds that the fare is "discriminatory", it must then determine whether such discrimination is "unreasonable". The Agency is of the opinion that in order to determine that a particular fare is "discriminatory", it must be satisfied that a burden, obligation or disadvantage has been imposed on one person or group that is not imposed on others.

The Agency notes that Air Canada's Internet fares are available to all consumers who meet the conditions associated with the fare. The Agency also notes that Internet access is now much more widely available. For example, consumers can access the Internet in their homes, at work, in schools, libraries, public places like restaurants and cafes, shopping malls and at many travel agencies. For a fee, many travel agents will book an Internet-only fare.

While it could be argued that restricting the availability of the disputed fare to the Internet discriminates against passengers who have no Internet access, or that lack of easy access to the Internet may result in uneven availability of the fare, there is no evidence before the Agency in this complaint to suggest that Air Canada did not apply the fare equally to all passengers having access to the carrier's Internet site, that Air Canada prevented any passengers from obtaining access to the fare, or that Air Canada imposed a burden, obligation or disadvantage on one person or group that it did not impose on others in offering the disputed fare only on the Internet. The Agency is, therefore, of the opinion that the disputed fare is not unreasonably discriminatory.

CONCLUSION

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

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