Decision No. 614-P-A-2002

November 13, 2002

November 13, 2002

IN THE MATTER OF a complaint by Peter Drummond concerning the $591.10 fare offered by Air Canada on March 12, 2001 for round-trip travel between Gander, Newfoundland and Halifax, Nova Scotia departing Gander on March 27, 2001, and returning from Halifax on April 1, 2001.

File No. M4370/A74/01-449


COMPLAINT

On March 12, 2001, Peter Drummond filed with the Canadian Transportation Agency (hereinafter the Agency) the complaint set out in the title.

By letter dated March 23, 2001, both Mr. Drummond 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, under certain circumstances, take certain remedial action following receipt of a complaint. In that same letter, Air Canada was requested to provide the Agency and Mr. Drummond with its answer to the complaint, including the information outlined in subsection 66(3) of the CTA. On April 23, 2001, Air Canada filed its answer to the complaint. On May 4, 2001, Mr. Drummond indicated that he would not be filing a reply to Air Canada's answer.

On June 4, 2001, Air Canada filed with the Agency an additional submission regarding the complaint. By Decision No. LET-P-A-319-2001 dated July 9, 2001, both parties to the complaint were advised that in order to assist in its review of this matter, the Agency accepted the filing of the additional comments submitted by Air Canada. On July 25, 2001, Mr. Drummond indicated that he would not be filing a reply to Air Canada's additional submission.

On June 27, 2001, Air Canada made a claim for confidentiality with respect to a portion of the information found in its April 23, 2001 answer to the complaint which the Agency accepted by Decision No. LET-P-A-318-2001 dated July 9, 2001.

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 its affiliated licensees (hereinafter Air Canada), was, on or about March 12, 2001, the only person providing a domestic service between Gander and Halifax 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 Gander and Halifax on March 12, 2001, which is the subject of the complaint, was unreasonable.

POSITIONS OF THE PARTIES

Mr. Drummond submits that the best available fare quoted by Air Canada's on-line reservation system on March 12, 2001 for round-trip travel on the carrier's service between Gander and Halifax, departing Gander on March 27, 2001 and returning from Halifax on April 1, 2001 was $591.10, including applicable charges and taxes. He adds that the best available fare quoted by Air Canada's on-line reservation system for round-trip travel between St. John's and Halifax for the same travel dates was $279.45, including applicable charges and taxes. According to Mr. Drummond, the fact that the fare from Gander is two times greater than the fare from St. John's illustrates the impracticality of deregulating any form of transportation in Canada. Mr. Drummond states that Canada's geography and scattered communities necessitate regulation.

In its answer to the complaint, Air Canada notes that the Agency is without jurisdiction to investigate this complaint. According to the carrier, Mr. Drummond neither alleges that the fare is unreasonable nor uses such language in his complaint. In Air Canada's view, it is a matter of interpretation as to what exactly was the substance of Mr. Drummond's complaint - a plea for reregulation of the airline industry or a complaint under subsection 66(1) of the CTA or otherwise. Air Canada states that "the Agency crystallized the complaint for Mr. Drummond by interpreting that he alleged that the fare was unreasonable under the provisions of the Act, and thus activated the Agency's jurisdiction over this matter". The carrier adds that under the provisions of the CTA and the National Transportation Agency General Rules, SOR/88-23, it is Mr. Drummond who must properly formulate the terms of his complaint. In Air Canada's view, Mr. Drummond's complaint was not one that invokes section 66 of the CTA and therefore, the Agency is without jurisdiction on this matter.

In its answer to the preliminary issue raised by the complaint, Air Canada maintains that, to the best of its knowledge, it "was not the only person providing a domestic service between Gander and Halifax, at the time of the complaint". Air Canada submits that the option of driving or using some other mode of transportation from Gander to St. John's to reach a number of air transportation options to Halifax is not unreasonable, taking into account the factors listed in subsection 66(4) of the CTA. The carrier adds that such alternative services are not unlike the services which the Agency considered to be reasonable under the former provisions of section 66 which also applied to non-competitive routes and concerned the unreasonableness of basic fares.

In its supplemental submission filed with the Agency on June 4, 2001, Air Canada filed further evidence in support of its argument that Air Canada is not the only person providing a domestic service between Gander and Halifax. In this submission, Air Canada states that the alternative service provided by Provincial Airlines Limited also carrying on business as Interprovincial Airlines (hereinafter Interprovincial) between Gander and St. John's and by Canada 3000 Airlines Ltd. (hereinafter Canada 3000) between St. John's and Halifax is not unreasonable, 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 maintains that the fare which is the subject of the complaint, the QCANADA round-trip fare of $489, excluding applicable taxes and charges, is not unreasonable when considering historical data, the population size of Gander, St. John's, and Halifax and origin-destination passenger volume. Specifically, the carrier indicates that in December 1999 when Inter-Canadian (1991) Inc. (hereinafter Inter-Canadian) last provided service on the Gander-Halifax route in competition with Air Canada and its affiliates, the lowest, year-round fare that Air Canada offered for round-trip travel on the route was the QCANADA fare at $458, excluding applicable charges and taxes. The carrier further states that in March 2001, more than a year later, it offered the same round-trip fare at $489, excluding applicable charges and taxes. Air Canada adds that the 6 percent increase in the fare between December 1999 and March 2001 was part of a system-wide fare increase introduced to offset increased fuel costs. Air Canada notes that other year-round fares it offered on the Gander-Halifax route had similar fare increases in order to offset higher fuel costs.

Air Canada notes that Mr. Drummond compares the fare on the Gander-Halifax route to that on the St. John's-Halifax route and notes the difference in price. Air Canada submits that there are a number of valid reasons why fares differ from route to route. The carrier maintains 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 airline to publish and apply a fare on one route (e.g., a competitive route), but not to apply the same fare on another route (e.g., non-competitive route).

Air Canada provided statistics with respect to population size and origin-destination passenger volume to explain why fares differ between the two routes. The demographic statistics provided by the carrier illustrate that the community of Gander is approximately one-tenth the population of St. John's, and, that the origin-destination passenger volume on the St. John's-Halifax route is approximately 800 percent larger than the Gander-Halifax route. The carrier submits that the "substantially" smaller population and traffic volume of Gander is a reasonable explanation for higher fares on the Gander-Halifax route than on the St. John's-Halifax route.

ANALYSIS AND FINDINGS

With respect to Air Canada's argument that the Agency is without jurisdiction to investigate the complaint, the Agency disagrees with Air Canada's interpretation of the substance of the complaint. Accordingly, the Agency is of the opinion that it has the jurisdiction to investigate the complaint under subsection 66(1) of the CTA.

In making its findings in respect of the preliminary and fare-related issues raised in 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 Gander and Halifax 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, on or about March 12, 2001, the only person providing a domestic service between Gander and Halifax 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 Gander and Halifax and has also considered Air Canada's position that the option of driving or using some other mode of transportation from Gander to St. John's to reach a number of air transportation options to Halifax is not unreasonable, taking into account the factors listed in subsection 66(4) of the CTA.

Pursuant to section 66 of the CTA, the Agency may inquire into a complaint concerning the 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;

Accordingly, in order for a transportation service to be considered as an alternative domestic service between two points within the meaning of subsection 66(4) of the CTA, the service must be provided by means of an aircraft. The Agency is therefore of the opinion that the types of services which Air Canada suggests as alternatives to its domestic service between Gander and Halifax which involve driving or the use of some mode other than air between Gander and St. John's are not alternative domestic services within the meaning of subsection 66(4) of the CTA.

Air Canada also proposed, as an alternative to its domestic service between Gander and Halifax, a combination of the services provided by Interprovincial between Gander and St. John's and that provided by Canada 3000 between St. John's and Halifax.

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 co-operation of the carrier who cancelled or caused the delay to assist in rebooking the next flight at no cost to the traveller.

The Agency's research has revealed that, on or about March 12, 2001, Interprovincial and Canada 3000 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 be protected with respect to the remainder of the trip, as would be the case on an interline flight where a joint fare was used. The entire onus for rebooking 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, the Agency is of the opinion that a combination of the services provided by Interprovincial and Canada 3000 cannot, as suggested by Air Canada, be considered as an alternative to the service provided by Air Canada between Gander and Halifax, 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 12, 2001, Air Canada was the only person providing a domestic service between Gander and Halifax within the meaning of section 66 of the CTA. Accordingly, the complaint falls within the purview of section 66 of the CTA.

Fare-related issues

Whether the $591.10 fare published or offered by Air Canada in respect of its service between Gander and Halifax on March 12, 2001 was unreasonable

In addition to the material and information described above, the Agency, as required by subsection 66(3) of the CTA, has considered historical data respecting fares applicable to domestic services offered between Gander and Halifax and the fares applicable to similar domestic services offered by Air Canada and one or more other licensees, using similar aircraft, including the terms and conditions of carriage. The Agency notes that although Air Canada was given the opportunity to identify fares applicable to similar domestic services offered by Air Canada and one or more other licensees as well as the number of seats available at those fares, the carrier did not provide the Agency with such information.

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 that are broadly comparable in level and range to those offered to travellers on competitive routes. In determining whether a particular service between two points is similar to the service that 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 12, 2001, Air Canada operated its domestic service between Gander and Halifax using large aircraft, as defined in the Air Transportation Regulations, SOR/88-58 (hereinafter the ATR);
  2. according to the OAG, the distance between Gander and Halifax is approximately 506 air miles; and
  3. the origin-destination passenger volume between Gander and Halifax was approximately 13,800 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 offered by Air Canada to identify the domestic services which have characteristics similar to those of the service Air Canada provided between Gander and Halifax. Based on its consideration of the factors outlined above, the Agency has determined that when the type of aircraft used by Air Canada to operate its service between Gander and Halifax is taken into consideration, none of Air Canada's services had characteristics that were similar to those of the service it provided between Gander and Halifax. However, when only the air mileage and the origin-destination passenger volume between the two points are taken into consideration, the Agency found that, of nearly 170 domestic services reviewed, Air Canada's service between Goose Bay and St. John's was most similar to that offered by Air Canada between Gander and Halifax for the following reasons:

  1. Labrador Airways Limited, carrying on business as Air Labrador and Interprovincial operated domestic services between Goose Bay and St. John's in addition to the service operated by Air Canada;
  2. according to the OAG, the distance between Goose Bay and St. John's is approximately 517 air miles; and
  3. 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 Gander and Halifax and between Goose Bay and St. John's

The Agency's research has identified that the $591.10 fare, which is the subject of the complaint, is the sum of Air Canada's $489.00 QCANADA base fare, the $15.00 round trip surcharge Air Canada applied to the base fare to cover the fees that it pays for the operation of Canada's air navigation system, the $10.00 airport improvement fee collected by Air Canada at the time of ticketing on behalf of the Halifax International Airport Authority for departures from the Halifax International Airport, and the Harmonized Sales Tax of $77.10. Of these components, the Agency will conduct its analysis and make its determination with respect to the QCANADA base fare, which will be analyzed below.

The Agency has reviewed the fares offered by air carriers in respect of the domestic services operated between Gander and Halifax on March 12, 1999, that is, from a point in time when this route was served by both Air Canada and Inter-Canadian, including their affiliates, 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 dates.

In conducting its analysis, the Agency considered Air Canada's QCANADA fare in relation to the other fares offered by Air Canada on the Gander-Halifax 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 Canada in respect of its domestic services between Gander and Halifax and between Goose Bay and St. John's on March 12, 1999, 2000, and 2001 shows that Air Canada offered a selection of fares for sale on each route. With the exception of the full premium business (i.e., J-class) fare, all the fares offered for sale by Air Canada on both routes were economy-type fares. Most of the 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, 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.

The Agency notes that on the dates under review, the Y1 fare offered on the Gander-Halifax route was 13-16 percent higher than the Y1 fare offered by Air Canada on the Goose Bay-St. John's route.

On the date under review in 1999 and 2000, Air Canada offered as many as two more discounted fares on the Gander-Halifax route than on the Goose Bay-St. John's route. On the same date in 2001, Air Canada offered one less discounted fare on the Gander-Halifax route than on the Goose Bay-St. John's route. Despite these differences, the ranges of the discounts off the Y1 round-trip fare were virtually the same on the two routes on each of the three dates under review.

2. The QCANADA fare

The Agency's research shows that the QCANADA fare offered by Air Canada was a discounted, round-trip, non-refundable fare which required: a 14-day advance purchase, ticketing to be completed within 7 days of purchase, a minimum Saturday night stay and a maximum stay at destination of sixty days. A QCANADA fare was available for sale on the Gander-Halifax route on each of the dates under review and was consistently discounted at 63 percent off the full economy Y1 round-trip fare.

Air Canada did not, however, offer a QCANADA fare or a fare in the same Q class with similar terms and conditions of carriage for sale on the Goose Bay-St. John's route until 2001. The only discounted, round-trip Q-class fares that Air Canada offered on March 12, 1999 and 2000 on the Goose Bay-St. John's route were the QAC802 and Q3WKND fares, respectively. The QAC802 fare offered in 1999 was an instant purchase round-trip fare which was fully refundable and changeable without an additional charge. It was applicable to a specific flight for departures from Goose Bay and did not have a minimum or a maximum stay requirement. This fare was discounted at 62 percent off the full economy Y1 round-trip fare. The Q3WKND fare that was offered in 2000 was non-refundable and non-changeable without an additional charge, required a 1-day advance purchase, ticketing to be completed that same day, a minimum one night stay and a maximum stay at destination of three days. This fare was also discounted at 62 percent off the full economy Y1 round-trip fare.

In 2001, Air Canada offered a Q-class fare on the Goose Bay-St. John's route with most of the same terms and conditions of carriage as the QCANADA fare offered on the Gander-Halifax route. The Q14NR fare offered on the Goose Bay-St. John's route required that ticketing be completed within one day after purchase, compared to within 7 days for the QCANADA fare offered on the Gander-Halifax route. The Q14NR fare was discounted at 60 percent off the full economy Y1 round-trip fare.

As the Q14NR fare is comparable with respect to terms and conditions of carriage to the QCANADA fare, the Agency's comparative analysis will be limited to the Q14NR fare of $411 offered by Air Canada on the Goose Bay-St. John's route on March 12, 2001.

The Agency's analysis shows that on March 12, 2001, the QCANADA fare offered on the Gander-Halifax route was $30 (7 percent) higher than the Q14NR fare offered on the Goose Bay-St. John's route. The QCANADA fare offered on the Gander-Halifax route was discounted by 63 percent off the full economy Y1 round-trip fare whereas the Q14NR fare was discounted by 60 percent off the full economy Y1 round-trip fare offered on the Goose Bay-St. John's route.

The Agency's research shows that between March 12, 1999 and March 12, 2001, the QCANADA fare offered by Air Canada on the Gander-Halifax route increased by 13 percent from $432 to $489. Information available to the Agency confirms Air Canada's claim that the $26 (6 percent) increase in the QCANADA fare offered on the Gander-Halifax route from March 12, 1999 to March 12, 2000 was applied in December 1999 when Inter-Canadian last operated a service on the route. Information available to the Agency also indicates that the $31 (7 percent) increase in the QCANADA fare offered on the Gander-Halifax route from March 12, 2000 to 2001 was mostly attributable to the 6 percent system-wide fare increase which Air Canada announced in December 2000 would be implemented on tickets issued on or after January 1, 2001 in order to offset increased fuel costs.

3. Review of the fares offered by other carriers on the Gander-Halifax route

Agency investigations into fare-related complaints include the examination of fares offered by other carriers who provided a service on the route which is the subject of the complaint. On March 12, 1999, Inter-Canadian also offered fares for travel between Gander and Halifax.

On March 12, 1999, Air Canada offered fares at the same level and offered the same selection of fares with the same terms and conditions of carriage and levels of discounts on the Gander-Halifax route as did Inter-Canadian.

4. Summary

The Agency has carefully examined and analyzed the QCANADA fare offered by Air Canada in respect of its domestic service between Gander and Halifax on March 12 of 1999, 2000 and 2001 as well as the Q14NR fare offered in respect of its domestic service between Goose Bay and St. John's on March 12, 2001. Although the QCANADA fare offered by Air Canada on the Gander-Halifax route on March 12, 2001 was 7 percent higher than the Q14NR fare which was the most similar Q-class fare offered on the Goose Bay-St. John's route, the $30 difference in the two fares is not significant.

The Agency also notes that on March 12, 2001, the QCANADA fare offered on the Gander-Halifax route was treated more favourably with respect to the level of discount and terms and conditions of carriage than the Q14NR fare the carrier offered on the Goose Bay-St. John's route. The Agency also notes that in terms of year-over-year changes, the QCANADA fare offered by Air Canada on its Gander-Halifax route was treated in a similar manner as most of the fares it offered on the route between March 12, 1999 and 2001.

5. Agency findings

In light of the foregoing, the Agency finds that the $489 QCANADA fare published or offered by Air Canada in respect of its domestic service between Gander and Halifax on March 12, 2001 was not unreasonable.

CONCLUSION

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

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