Decision No. 608-P-A-2001

November 20, 2001

November 20, 2001

IN THE MATTER OF a complaint by the Hamlet of Clyde River concerning the passenger fares and cargo rates offered by Bradley Air Services Limited also carrying on business as First Air and/or Ptarmigan Airways and/or Northwest Territorial Airways and/or NWT Air, in respect of its service between Iqaluit and Clyde River.

File No. M4370/F151/00-3


COMPLAINT

On September 26, 2000, Scott Carle, on behalf of the Hamlet of Clyde River (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, both the complainant and Bradley Air Services Limited also carrying on business as First Air and/or Ptarmigan Airways and/or Northwest Territorial Airways and/or NWT Air (hereinafter First Air) 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 cargo rates applied by air carriers for 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. Additionally, First Air was requested to provide the Agency and the complainant with its answer to the complaint.

On November 10, 2000, First Air filed its answer to the complaint. The complainant did not reply to First Air's answer.

By Decision No. LET-P-A-232-2001 dated May 11, 2001, the Agency advised First Air and the complainant of the results of its preliminary analysis of the complaint and asked the carrier to confirm some information and provide additional information. On May 18, 2001, First Air requested an extension until May 31, 2001 to file its comments and, by Decision No. LET-P-A-256-2001 dated May 29, 2001, the Agency granted First Air the requested extension. On May 31, 2001, First Air filed its comments on the Agency's preliminary analysis.

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 November 20, 2001.

ISSUES

The issues to be addressed are:

  1. whether First Air, including affiliated licensees (hereinafter First Air), was the only person providing a domestic service between Iqaluit and Clyde River, within the meaning of section 66 of the CTA, on or about September 26, 2000; and, if so,
  2. whether the passenger fare offered or published by First Air in respect of its service between Iqaluit and Clyde River, which is the subject of the complaint, was unreasonable; and
  3. whether the cargo rate offered or published by First Air in respect of its service between Iqaluit and Clyde River, which is the subject of the complaint, was unreasonable.

POSITIONS OF THE PARTIES

The complainant submits that First Air is the only air carrier serving the community of Clyde River and that the fares and cargo rates it offers in respect of its service between Iqaluit and Clyde River are too high. The complainant further submits that this is an ongoing complaint and that it is an old local/regional issue. The complainant requests that another air carrier be allowed to provide service on the route or that there be an investigation of the present situation.

In its answer to the complaint, First Air did not provide comments as to whether it was the only person providing a domestic service between Iqaluit and Clyde River; however, in its comments concerning the results of the Agency's preliminary analysis of the complaint, First Air states that, to the best of its knowledge, it was the only air carrier "providing a scheduled domestic service between Iqaluit and Clyde River at the time of the complaint."

With respect to the passenger fare-related issue raised by the complainant, First Air filed detailed comparisons of fare data applicable to the subject route to other routes in Nunavut served by First Air which are of similar distance and to other northern routes of similar distance on which Calm Air International Ltd. carrying on business as Calm Air (operating under Canadian Regional Airlines' carrier code designator) operates similar aircraft. First Air submits that it made these comparisons of passenger fares on a revenue per mile basis in order to provide a common factor to review the different routes and corresponding stage lengths.

Although First Air provided a comparison of the fares it offers on the Iqaluit-Clyde River route to the fares offered by Calm Air on the Churchill-Baker Lake and Thompson-Whale Cove routes, it advises that one should be cautious when drawing comparisons between Canadian air carriers given the "extremely limited pool of air carriers" from which to sample. First Air notes that realistic comparisons were difficult to make due to the wide variance in operating environments and types of markets. First Air submits that the absence, in most cases, of any comparable market and corresponding air carrier operation makes the comparison of northern air carriers all the more difficult. Despite the cautions, First Air submits that its comparisons show that the fares it offers for travel on its Iqaluit-Clyde River service are competitive when compared to those offered by Calm Air on routes of similar distance.

First Air also submits that its historical fare increases in Y-category fares offered on the Iqaluit-Clyde River route were less than those of Calm Air from August 1994 to February 2000. First Air notes that its Y-category fares have increased at a faster rate than those of Calm Air since October 2000, and is of the opinion that, had Calm Air remained an independent corporate entity and not been associated with Air Canada through its acquisition of Canadian Airlines, the trend of Calm Air exceeding First Air's fares would have continued. However, according to First Air, Air Canada elected not to increase its domestic fares and those of Calm Air for various corporate reasons.

First Air further submits that, while passenger fares have increased, much of the increase is attributable to the higher costs associated with the government's transfer of airports and the privatization of the air navigation system.

First Air also indicates that the fact that the revenue per mile on its Iqaluit-Clyde River route is "virtually identical" to that on its Iqaluit-Qikiqtarjuaq route demonstrates that First Air's pricing principles are consistent between communities. First Air notes that the revenue per mile on the Iqaluit-Hall Beach route is slightly lower due to the longer stage length and historical pricing issues at this particular location.

First Air also reminds the Agency of its Decision No. 437-A-1998 dated September 2, 1998, in which the Agency concluded that First Air had not imposed unreasonable basic fares or increases in basic fares since October 1995 in respect of the domestic services it operates to/from Iqaluit, including its Iqaluit-Clyde River service, and for which it was the sole licensee. First Air notes that while the scope of the Agency's investigations has been expanded through changes introduced under Bill C-26, the most significant elements remain, for the most part, unchanged.

With respect to the cargo rate-related issues raised in the complaint, First Air filed current and past published cargo rates as well as historical changes in the 45 Kg cargo rate from August 1994 to October 2000 in respect of its Iqaluit-Clyde River service. First Air observes that the cargo market to and from Nunavut is unique and, therefore, no realistic comparative model or corresponding air carrier could be identified. As a result, First Air did not provide any comparative data.

First Air submits that:

  • the lack of industry in Nunavut results in full cargo capacity on the northbound legs and empty capacity on return flights so that the unidirectional nature of the cargo business requires that cargo rates reflect the absence of back-haul traffic;
  • all northern residents have open access to the Northern Air Stage Program, under which Indian and Northern Affairs Canada makes payments to Canada Post in order to reduce the cost of mail/cargo delivery of selected goods for northern residents;
  • northern residents receive a vast majority of goods by air transportation and the creation of Nav Canada user fees has contributed significantly to the increase in cargo rates throughout the north; and
  • First Air's cargo rate increases have generally been consistent with those applied over the long term to First Air's passengers fares.

First Air maintains that with the Northern Air Stage Program, various charter service opportunities provided by competitors and First Air's own service, the Iqaluit-Clyde River market has competitive choices for moving cargo shipments.

ANALYSIS AND FINDINGS

In making its findings in respect of the preliminary and fare-related issues as well as the cargo-related issues raised in the complaint, the Agency has carefully reviewed and 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 Iqaluit and Clyde River and the fares and rates published or offered by First Air 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 and cargo rates 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 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
  2. the fare or cargo rate offered or published 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 and 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.

Further, pursuant to subsection 66(3) of the CTA, when determining whether a fare or cargo rate 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 and cargo rates applicable to domestic services between the two points;
  2. fares and cargo rates 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;
  3. when making a finding with respect to cargo rates, the competition from other modes of transportation; and
  4. 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 First Air was the only person providing a domestic service between Iqaluit and Clyde River within the meaning of section 66 of the CTA on or about September 26, 2000

On the basis of above information, as well as First Air's statement that it was the only person providing a scheduled domestic service between Iqaluit and Clyde River at the time of the complaint, the Agency has determined that First Air was the only person providing a domestic service between Iqaluit and Clyde River within the meaning of section 66 of the CTA on or about September 26, 2000.

Passenger fare and cargo rate-related issues

Whether the passenger fare and the cargo rate offered by First Air in respect of its service between Iqaluit and Clyde River on or about September 26, 2000, which are the subject of the complaint, were unreasonable.

In addition to the material and information described above, the Agency, as required by subsection 66(3) of the CTA, has also considered historical data respecting fares and cargo rates applicable to domestic services offered between Iqaluit and Clyde River; fares and rates applicable to similar domestic services offered by First Air and one or more other licensees, using similar aircraft, including terms and conditions of carriage; and, in respect of cargo rates, the competition from other modes of transportation. First Air was given the opportunity to identify passenger fares and cargo rates applicable to similar domestic services offered by First Air and one or more other licensees. The Agency notes that First Air provided the Agency with such information in which it references the Y fare and the 45 Kg cargo rate as representative fares and rates.

The Agency further notes that the complainant has not complained about one specific passenger fare or cargo rate offered by First Air in respect of its domestic service between Iqaluit and Clyde River. Information before the Agency concerning the fares offered by First Air in respect of its domestic service between Iqaluit and Clyde River at the time of the complaint indicates that the Y fare was the only economy fare which had no restrictions in First Air's tariff and that the Y fare forms the basis for the calculation of all of First Air's discounted fares. Accordingly, the Agency is of the opinion that its analysis of the passenger fare-related issues raised in the complaint should focus upon the representative Y fare.

With respect to the cargo rate-related issues raised in the complaint, the Agency notes that First Air has based its cargo rate comparison on the 45 Kg weight rate as representative of all other cargo rates offered by First Air in respect of its domestic service between Iqaluit and Clyde River. Accordingly, the Agency is of the opinion that its analysis of the cargo rate-related issues raised in the complaint should focus upon the representative 45 Kg cargo rate.

Similar domestic services offered by First Air 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 and shippers on routes on which there is no, or limited, competition are offered fares and rates which are broadly comparable in level and range to those offered to travellers and shippers on competitive routes. Because it could be argued that each domestic service offered by a carrier is essentially unique and, therefore, that there are no truly comparable services, the Agency is of the opinion that a liberal approach should be taken in identifying similar domestic services for the purposes of paragraph 66(3)(b) of the CTA. 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 September 26, 2000, First Air operated its domestic service between Iqaluit and Clyde River 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 Iqaluit and Clyde River is approximately 465 air miles; and
  3. the origin-destination passenger volume between Iqaluit and Clyde River is unavailable as it is below the threshold published by Statistics Canada and therefore will not be considered in the Agency's analysis.

In its answer to the complaint, First Air compared the fares it offered on the Iqaluit-Clyde River route to those offered by Calm Air on the Churchill-Baker Lake route and on the Thompson-Whale Cove route. First Air also compared its fares on the Iqaluit-Clyde River route to the fares it offered on the Iqaluit-Hall Beach route and the Iqaluit-Qikiqtarjuaq route.

The Agency analyzed each of the services used by First Air in its submission to determine which, if any, of the services was similar to the service which is the subject of the complaint within the meaning of paragraph 66(3)(b) of the CTA. As a result of its analysis, the Agency has determined that, at the time of the complaint:

  1. while Calm Air was operating a domestic service between Churchill and Baker Lake and between Thompson and Whale Cove, First Air was not operating a domestic service on either of these routes as required under the provisions of paragraph 66(3)(b) of the CTA;
  2. First Air was the only licensee offering a domestic service between Iqaluit and Hall Beach. No other licensee operated a domestic service on this route as required under the provisions of paragraph 66(3)(b) of the CTA; and
  3. First Air and Kenn Borek Air Ltd. (hereinafter Kenn Borek) both operated a domestic service between Iqaluit and Qikiqtarjuaq.

The Agency is of the opinion that none of the services suggested by First Air, with the exception of the service between Iqaluit and Qikiqtarjuaq, are similar to the service which is the subject of the complaint within the meaning of paragraph 66(3)(b) of the CTA. As a result, the Agency analyzed First Air's service between Iqaluit and Qikiqtarjuaq at the time of the complaint, and based on its consideration of the factors set out above, the Agency has determined that, at the time of the complaint:

  1. Kenn Borek operated a domestic service between Iqaluit and Qikiqtarjuaq in addition to the service operated by First Air;
  2. First Air operated its service between Iqaluit and Qikiqtarjuaq using small and medium aircraft, as defined in the ATR;
  3. according to the OAG, the distance between Iqaluit and Qikiqtarjuaq is approximately 292 air miles; and
  4. the origin-destination passenger volume between Qikiqtarjuaq and Iqaluit is unavailable as it is below the threshold published by Statistics Canada and therefore will not be considered in the Agency's analysis.

The Agency has determined that, based on its consideration of the factors outlined above, the service which was most similar to that offered by First Air between Iqaluit and Clyde River, within the meaning of paragraph 66(3)(b) of the CTA at the time of the complaint, was First Air's service between Iqaluit and Qikiqtarjuaq.

The Agency notes that by Decision No. LET-P-A-232-2001, dated May 11, 2001, it advised First Air that its preliminary analysis of First Air's domestic service between Iqaluit and Clyde River indicated that "the service which appears to have been most similar to that offered by First Air between Clyde River and Iqaluit within the meaning of paragraph 66(3)(b) of the CTA at the time of the complaint was First Air's service between Qikiqtarjuaq and Iqaluit". In response to the Agency's request for comments with respect to the results of its preliminary analysis in this regard, First Air advised that it was unable to reach a "definitive conclusion" that this was indeed the case or to recommend an alternative similar domestic service. It maintained that all of its services are subject to constantly changing variables, and that each market is unique. First Air added that while some similarities exist, there is usually an equal number of dissimilar aspects.

Data respecting the Y fare applicable to domestic services between Iqaluit and Clyde River and between Iqaluit and Qikiqtarjuaq

The Agency has reviewed the fares offered by air carriers in respect of the domestic services operated between Iqaluit and Clyde River on September 26, 1998, 1999 and 2000. The Agency has also reviewed the fares offered by First Air on the Iqaluit-Qikiqtarjuaq route for those dates.

In conducting its analysis of First Air's $624.00 one-way Y fare, the Agency considered the Y fare in relation to the Y fare that it offered on the Iqaluit-Qikiqtarjuaq route, the year-over-year increases in this fare and the terms and conditions of carriage applicable to it.

1. General overview

Throughout the period under review, First Air offered the same number of fares on both routes, with the exception that on September 26, 2000, it offered one additional fare on the Iqaluit-Qikiqtarjuaq route which it did not offer on the Iqaluit-Clyde River route. Those fares which First Air offered on both routes were consistently 45-46 percent higher on the Iqaluit-Clyde River route than on the Iqaluit-Qikiqtarjuaq route for each year, reflecting the fact that the Iqaluit-Clyde River route is 59 percent longer than the Iqaluit-Qikiqtarjuaq route.

For example, the one-way Y fare on the Iqaluit-Clyde River route was $514.00 in 1998, $572.00 in 1999 and $624.00 in 2000. The one-way Y fare on the Iqaluit-Qikiqtarjuaq route was $354.00, $393.00 and $429.00 for the same years. When the Y fare is compared on these two routes, the difference in the fares amounts to 45.2 percent in 1998, 45.5 percent in 1999 and 45.5 percent in 2000.

2. The Y fare

On a historical basis, the Y fare offered by First Air was 45-46 percent higher on the Iqaluit-Clyde River route in 1998 and 1999 than the Y fare it offered on the Iqaluit-Qikiqtarjuaq route. During that period, First Air increased the Y fare by the same rate - 11 percent - on both routes. Thus, historically, First Air treated the routes similarly with respect to year-over-year increases in the Y fare, and consistently with respect to the fare differential between the two routes.

First Air continued this practice into 2000, and on September 26, the Y fare was again approximately 46 percent higher on the Iqaluit-Clyde River route than it was on the Iqaluit-Qikiqtarjuaq route. Further, First Air had increased the level of the Y fare by approximately 9 percent on both routes since September 1999.

The terms and conditions of carriage applicable to the Y fare were identical on both routes.

By Decision No. LET-P-A-232-2001 dated May 11, 2001, the Agency requested First Air to advise the Agency whether there were factors other than distance which contributed to the 45-46 percent difference in the Y fares on these two routes. In its response, First Air submitted that, although distance is the primary factor in the cost difference, others factors, such as aircraft routing, passenger demand, type of aircraft and Nav Canada user fees also had an impact on the fare differences.

3. Summary

The Agency has carefully examined and analyzed the Y fares offered by First Air in respect of its domestic services between Iqaluit and Clyde River and between Iqaluit and Qikiqtarjuaq on September 26, 1998, 1999 and 2000. Based on the factors set out in subsection 66(3) of the CTA, the Agency is of the opinion that the routes were treated similarly with respect to year-over-year changes and that the percentage differential between the Y fare on the two routes was consistent throughout the period under review. In addition, no differences exist in the terms and conditions of carriage. The Agency is therefore of the opinion that the 45 percent difference in the amount of the Y fare between Iqaluit and Clyde River and between Iqaluit and Qikiqtarjuaq at the time of the complaint is primarily attributable to the difference in distance between the two routes.

4. Agency findings

In light of the foregoing, the Agency finds that the $624.00 one-way Y fare published or offered by First Air in respect of its service between Iqaluit and Clyde River on or about September 26, 2000 was not unreasonable.

Data respecting the 45 Kg cargo rate applicable to domestic services between Iqaluit and Clyde River and between Iqaluit and Qikiqtarjuaq

The Agency has reviewed the 45 Kg cargo rate offered by First Air for the movement of goods by air between Iqaluit and Clyde River on September 26, 1998, 1999 and 2000. The Agency has also reviewed the 45 Kg cargo rate offered by First Air on the Iqaluit-Qikiqtarjuaq route for those dates, the year-over-year increases in this cargo rate, the cargo rate per mile, and the competition from other modes of transportation between Iqaluit and Clyde River during this period.

1. General overview

With respect to the movement of cargo by air, First Air was the only air carrier providing a year-round service on the Iqaluit-Clyde River route at the time of the complaint.

Marine transportation is provided to northern communities by Crosby Shipping, Nunavut Eastern Arctic Shipping and by the Northern Transportation Company Limited through its wholly-owned subsidiary NorTran Inc. These companies can provide marine transportation up to three times a year, during the period from May to October. However, they will contract to move cargo for clients only if it is economically viable for them to do so. This is illustrated by the fact that Crosby Shipping reports that it has not moved cargo in the area for the past 3 to 4 years. The Agency is of the opinion that competition provided by Crosby Shipping, Nunavut Eastern Arctic Shipping, and NorTran Inc. is not a reasonable alternative to the service provided by First Air between Iqaluit and Clyde River as it is only a seasonal service whereas the one provided by First Air is a year-round service.

2. The 45 Kg cargo rate

The Agency conducted an analysis of the 45 Kg cargo rate offered by First Air on September 26, 1998, 1999 and 2000 on both its Iqaluit-Clyde River route and its Iqaluit-Qikiqtarjuaq route.

The analysis shows that, in 1998 and 1999, the rate offered by First Air was 62-63 percent higher on the Iqaluit-Clyde River route than on the Iqaluit-Qikiqtarjuaq route. From 1998 to 1999, First Air increased the rate by 7 percent on both routes. Thus, on a historical basis, First Air has treated both routes in a similar manner with respect to year-over-year increases in the 45 Kg cargo rate, and in a consistent manner with respect to the rate differential between the two routes.

This practice did not change in 2000. On September 26, the 45 Kg cargo rate was 63 percent higher on the Iqaluit-Clyde River route than on the Iqaluit-Qikiqtarjuaq route, and as such, the differential was essentially unchanged from previous years' levels. Further, on both routes, First Air had increased the rate by 12 percent from the levels it offered one year earlier.

The Agency included in its consideration the rate per mile which derives from the 45 Kg cargo rate offered by First Air for the movement of cargo by air between Iqaluit and Clyde River and between Iqaluit and Qikiqtarjuaq and notes that, on September 26 of each year under review, the rate per mile was essentially the same on both routes - that is, approximately 1.3 cents in 1998, 1.3-1.4 cents in 1999, and 1.5 cents in 2000.

3. Summary

The Agency has carefully examined and analyzed the rates offered by First Air in respect of its domestic services between Iqaluit and Clyde River and between Iqaluit and Qikiqtarjuaq on September 26, 1998, 1999 and 2000.

Based on the factors set out in subsection 66(3) of the CTA, the Agency is of the opinion that the routes were treated similarly with respect to year-over-year changes and that the percentage differential between the 45 Kg rate on the two routes was consistent throughout the period under review.

4. Agency findings

In light of the foregoing, the Agency finds that the $7.18 45 Kg rate published or offered by First Air in respect of its service between Iqaluit and Clyde River on or about September 26, 2000 was not unreasonable.

CONCLUSION

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

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