Decision No. 647-P-A-2001

December 12, 2001

December 12, 2001

IN THE MATTER OF a complaint by Christian Riegel concerning the $651.50 fare and the range of fares offered by Air Canada on August 17, 2000 for round-trip travel between Regina, Saskatchewan and Toronto, Ontario departing from Regina on September 29, 2000 and returning from Toronto on October 2, 2000.

File No. M4370/A74/00-343


COMPLAINT

On August 17, 2000, Christian Riegel (hereinafter the complainant) filed with the Canadian Transportation Agency (hereinafter the Agency) the complaint set out in the title.

By Decision No. LET-P-A-284-2000 dated September 21, 2000, both the complainant and Air Canada 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 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.

In that same Decision, Air Canada was requested to provide the Agency and the complainant with its answer concerning the preliminary issue raised in the complaint, that is, whether Air Canada was the only person providing a domestic service between Regina and Toronto, within the meaning of section 66 of the CTA on or about August 17, 2000. Air Canada filed its answer to this aspect of the complaint on September 29, 2000. The complainant did not reply to Air Canada's answer.

On October 20, 2000, Air Canada was requested to provide the Agency and the complainant with its answer concerning the fare-related issues raised in the complaint, including the information outlined in subsection 66(3) of the CTA. On November 20, 2000, Air Canada requested an extension until December 20, 2000 to file its answer to this aspect of the complaint, and, in a letter dated December 18, 2000, Air Canada requested a further extension until January 12, 2001. By Decision No. LET-P-A-402-2000 dated December 22, 2000, the Agency granted Air Canada the requested extension, and on January 12, 2001, Air Canada filed its answer to the fare-related issues raised in the complaint. On January 18, 2001, the complainant advised that he had received Air Canada's answer, but did not file a reply.

By Decision No. LET-P-A-235-2001 dated May 14, 2001, the Agency advised both parties to the complaint of the results ensuing from the completion of its preliminary analysis of the complaint, and invited the carrier to comment upon, and provide an explanation concerning, its preliminary findings. Later on that same day, and again on June 11, 2001, Air Canada filed with the Agency requests for extensions of time to file its representations in respect of the Agency's preliminary findings. By Decision No. LET-P-A-243-2001 dated May 18, 2001, and by Decision No. LET-P-A-281-2001 dated June 14, 2001, the Agency granted Air Canada's requested extensions. On June 25, 2001, Air Canada filed its comments and, with respect to a portion of the information included in its filing, made a claim for confidentiality which the Agency accepted by Decision No. LET-P-A-351-2001 dated July 27, 2001.

In Decision No. LET-P-A-354-2001 dated August 1, 2001, the Agency noted that Air Canada's June 25, 2001 submission addressed the issues raised in the Agency's letter of May 14, 2001 only in the context of subsection 66(1) of the CTA. The Agency provided clarification to Air Canada that it was investigating the complaint pursuant to both subsection 66(1) and subsection 66(2) of the CTA, and was therefore inviting Air Canada to file with the Agency a supplemental answer addressing the issues in the context of subsection 66(2).

On August 17, 2001, Air Canada requested an extension until August 24, 2001 to file its response. By Decision No. LET-P-A-379-2001 dated August 22, 2001, the Agency granted the requested extension, and on August 23, 2001, Air Canada filed its supplemental answer.

Pursuant to subsection 29(1) of the CTA, the Agency is required to make its decision no later than 120 days after an application is received unless the parties agree to an extension. In this case, the parties have agreed to an extension of the deadline until December 14, 2001 in order to provide the Agency with sufficient time to conduct a thorough investigation into the complaint.

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 Regina and Toronto within the meaning of section 66 of the CTA on or about August 17, 2000; and, if so,
  2. whether the fare published or offered by Air Canada in respect of its service between Regina and Toronto, which is the subject of the complaint, was unreasonable; and
  3. whether the range of fares offered by Air Canada in respect of its service between Regina and Toronto, which is the subject of the complaint, was inadequate.

POSITIONS OF THE PARTIES

The complaint concerns the $651.50 round-trip fare as well as the range of fares offered by Air Canada in respect of its domestic service between Regina and Toronto on or about August 17, 2000 for travel departing Regina on September 29, 2000 and returning from Toronto on October 2, 2000. The complainant submits that the best buy fare of $651.50 quoted by Air Canada while he was conducting research on its Internet site six weeks in advance of his planned departure is out of proportion of the distance travelled. The complainant further submits that in June 2000, he was quoted a best buy fare in the $1,100-$1,200 range for round-trip travel between Regina and Halifax whereas in previous years, he purchased fares in the $400-$500 range for round trip travel between Alberta and eastern Canada.

The complainant also submits that Air Canada has effectively reduced capacity on the Regina-Toronto route "by routing one of its daily flights, coming and going, through Saskatoon. The net effect is the loss of one direct flight daily as well, of course, the loss of the number of actual seats that serve this market (with a corollary that the loss of capacity results in higher fares)."

In its answer to the preliminary issue raised by the complaint, Air Canada submits that it "... was the only person providing a domestic service between Regina and Toronto, within the meaning of Section 66 of the Canada Transportation Act, at the time of Mr. Riegel's complaint". However, Air Canada, in its answer to the fare-related issues raised in the complaint

, now advises that "To the best of its knowledge, Air Canada was not the only person providing a domestic service between Regina and Toronto at the time of the complaint". Air Canada submits that the service provided by WestJet Airlines Ltd. (hereinafter WestJet) for travel between Regina and Hamilton was not an unreasonable alternative to that offered by Air Canada from Regina to Toronto, taking into account the factors listed in subsection 66(4) of the CTA.

In its answer to the first fare-related issue raised in the complaint, Air Canada submits that the $651.50 fare it offered in respect of its domestic service between Regina and Toronto was not unreasonable. The carrier states that, while the specific fare was not found in its records for sales on or about August 17, 2000, the closest fare was the QHCANADA fare of $599.00, excluding applicable taxes and charges, for round-trip travel between Regina and Toronto. It adds that the fare required a 14-day advance purchase and a minimum Saturday night stay, and that the ticket was non-refundable with a $100 change fee.

Air Canada submits that a year earlier when it competed with Canadian Airlines International Ltd. (hereinafter Canadi*n) on the route, Air Canada offered the QHCANADA fare for $579.00, and that the nominal 3.5 percent increase from August 17, 1999 to August 17, 2000 was part of a general fare increase to primarily offset higher fuel costs.

With respect to the second fare-related issue - the range of fares - raised in the complaint, Air Canada submits that the Agency cannot make a finding that Air Canada is offering an inadequate range of fares because it offers the range of fare classes that is typical for a route like Regina-Toronto (i.e., such fares, among others, in Y, H, V, Q and L class). It also submits that historical data reveals that Air Canada is not offering an inadequate range of fares between Regina and Toronto because it offered one more fare class in its range of fare classes on its Regina-Toronto route at the date of the complaint than it had when Air Canada competed with Canadi*n.

ANALYSIS AND FINDINGS

In making its findings in respect of the preliminary and fare-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 Regina and Toronto 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 subsections 66(1) and 66(2) 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 offered or published by the licensee in respect of the service is unreasonable; and/or
  3. the licensee is offering an inadequate range of fares in respect of that service.

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 or that a licensee is offering an inadequate range of fares in respect of a domestic service between two points, 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 Regina and Toronto within the meaning of section 66 of the CTA on or about August 17, 2000

The Agency has reviewed the information available to it with respect to the domestic service offered between Regina and Toronto and has also considered Air Canada's position set out in its representations concerning the fare-related issues raised in the complaint that WestJet's service between Regina and Hamilton constitutes a reasonable alternative domestic service to that provided by Air Canada between Regina and Toronto, that is, that the Hamilton and Toronto airports essentially are in the same catchment area.

Pursuant to section 66 of the CTA, the Agency may inquire into complaints concerning passenger fares and cargo rates published or offered in respect of certain domestic services provided "between two points". The word "point" is not defined in the CTA. However, the Canadian Oxford Dictionary defines "point" as "a specific place or position" and, in its mathematical sense, as "that which is conceived as having a position, but no extent, magnitude, or dimension". The denotation of the word "point", therefore, is very specific and is much more narrow than "catchment area". The Agency has considered whether interpreting the word "point" in section 66 of the CTA as "catchment area" would be consistent with the spirit and intent of the CTA as a whole and notes that the word "point" is used frequently in the CTA. The Agency also notes that the Canadian Oxford Dictionary defines "catchment area" as "the area served by a school, hospital, etc." Accordingly, the parameters of a "catchment area" are not very well defined and may be quite subjective. The Agency is therefore of the opinion that interpreting the word "point" in section 66 of the CTA as "catchment area" could lead to inconsistency and ambiguity.

Accordingly, the Agency is of the opinion that the word "point", as it is used in section 66 of the CTA, refers to an individual origin or destination city rather than a catchment area. Where more than one airport serves a city, the Agency is also of the opinion that a "point" shall be considered to be an individual airport and, therefore, finds that, for the purposes of section 66 of the CTA, a "point" shall be considered to be any location at which a landing or takeoff is made.

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.

The Agency is of the opinion that, on August 17, 2000, in addition to being served by Air Canada, the Regina-Toronto route was served by Royal Aviation Inc. carrying on business as Royal and/or Conifair (hereinafter Royal).

From the information available to the Agency, Air Canada's service between Regina and Toronto during the week of August 17, 2000, consisted of:

  • approximately 28 direct, non-stop flights per week and 14 one-stop flights per week;
  • service every day of the week;
  • a total weekly capacity of approximately 5,400 seats;
  • large aircraft, as defined in the Air Transportation Regulations, SOR/88-58, as amended (hereinafter the ATR), used on all flights; and
  • a total travel time between Regina and Toronto of between two hours and fifty minutes and four and one half hours.

Available information also indicates that Royal's service between Regina and Toronto during the week of August 17, 2000, consisted of:

  • approximately 2 direct, one-stop flights per week;
  • service was provided on Wednesday;
  • a total weekly capacity of approximately 444 seats;
  • large aircraft, as defined in the ATR, used on all flights; and
  • a total travel time between Regina and Toronto of approximately three hours and ten minutes and four hours and thirty-five minutes.

The Agency has carefully examined and analyzed the services provided by both carriers between Regina and Toronto during the week of August 17, 2000 and, on the basis of the factors set out in subsection 66(4) of the CTA, is of the opinion that the service offered by Royal between Regina and Toronto did not provide travellers with a reasonable alternative service to that offered by Air Canada.

Air Canada also proposed as an alternative to its service between Regina and Toronto a combination of the services provided by Westjet between Regina and Winnipeg and then by Canada 3000 Limited (hereinafter Canada 3000) or Royal between Winnipeg and Toronto. 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 August 17, 2000, WestJet, Canada 3000 and Royal offered separate domestic services and did not have a joint-fare arrangement. 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 a through flight. 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.

In light of the foregoing, the Agency has determined that Air Canada was the only person providing a domestic service between Regina and Toronto within the meaning of section 66 of the CTA on or about August 17, 2000. Accordingly, the complaint falls within the purview of section 66 of the CTA.

Fare-related Issues

Whether the $651.50 fare offered by Air Canada was unreasonable and whether the range of fares offered by Air Canada was inadequate in respect of its service between Regina and Toronto on or about August 17, 2000

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 applicable to domestic services offered between Regina and Toronto and 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. 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 which are broadly comparable in level and range to those offered to travellers 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 August 17, 2000, Air Canada operated its domestic service between Regina and Toronto using large aircraft, as defined in the ATR;
  2. according to the OAG, the distance between Regina and Toronto is approximately 1,271 air miles; and
  3. the origin-destination passenger volume between Regina and Toronto was approximately 88,920 passengers in 1999 (the last complete year for which such information is available).

The Agency conducted the same analysis in respect of several domestic services offered by Air Canada which have characteristics similar to those of the Regina-Toronto service. 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 Regina and Toronto within the meaning of paragraph 66(3)(b) of the CTA on August 17, 2000 was Air Canada's service between Montréal and Winnipeg for the following reasons:

  1. Canada 3000 and Royal operated domestic services between Montréal and Winnipeg, in addition to the service operated by Air Canada;
  2. Air Canada operated its service between Montréal and Winnipeg using large aircraft, as defined in the ATR;
  3. according to the OAG, the distance between Montréal and Winnipeg is approximately 1,135 air miles; and
  4. the origin-destination passenger volume between Montréal and Winnipeg was approximately 81,190 passengers in 1999.

The Agency, in relating to Air Canada the results of its preliminary analysis, asked the carrier to comment upon the Agency's choice of Montréal-Winnipeg as a similar domestic service. Air Canada submitted that the factors to be considered in choosing a similar domestic service are dependent on the circumstances of each case, and that the Agency "usually may have regard" to such factors as the population bases, the total number of flights per day operated out of the airports in question, the passenger mix (i.e., premium/high/low split), the network contribution and a comparison of the trend of fares on the two routes. Otherwise, Air Canada did not comment upon the Agency's choice of Air Canada's Montréal-Winnipeg service as one that is similar to its Regina-Toronto service nor did it propose a service which it considered to be more appropriate for comparison purposes.

Data respecting fares applicable to domestic services between Regina and Toronto and between Montréal and Winnipeg

The Agency's research has identified that the $651.50 fare which is the subject of the complaint, rounded to the nearest half dollar, comprises half of the QHCANADA fare (.5 x $599.00=$299.50), half of the LH7NITE fare (.5 x $569.00=$284.50), the $10.00 airport improvement fee applicable to domestic departures from the Regina Airport, the $15.00 Nav Canada surcharge for round-trip travel and $42.63 in GST. The QHCANADA and LH7NITE fares will be analyzed separately below. The Agency also analyzed the range of fares offered by Air Canada in respect of its service between Regina and Toronto.

In conducting its analysis, the Agency considered Air Canada's QHCANADA and LH7NITE fares in relation to the other fares offered by Air Canada on the Regina-Toronto route and to the fares it offered on the Montréal-Winnipeg route, as well as the discounts off the 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 each fare. The range of fares Air Canada offered on its Regina-Toronto route was compared to the range it offered on its Montréal-Winnipeg route with respect to the selection of fares, the levels of discount, the levels of the fares themselves, the year-over-year changes, and the terms and conditions of carriage associated with each fare.

The Agency has reviewed the fares offered by air carriers in respect of the domestic services operated between Regina and Toronto on August 17, 1998, 1999 and 2000, that is, from a point in time when this route was served by both Air Canada and Canadi*n, including their affiliates, to the date of the complaint. The Agency has also reviewed the fares offered by Air Canada on the Montréal-Winnipeg route for those dates.

As mentioned earlier, after completing its preliminary analysis, the Agency advised Air Canada of its preliminary findings and asked the carrier to comment upon them. Air Canada's comments are included in the appropriate sections below. Generally, Air Canada maintained that economic theory justifies fare differentials from route to route, and submitted 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 maintained 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.

1. General overview

An overview of the fares published by Air Canada on its Regina-Toronto and Montréal-Winnipeg routes on August 17 in 1998, 1999 and 2000 shows that Air Canada offered a selection of fares on each route. Most were non-refundable, round-trip fares which required an advance purchase; they were discounted off the full economy Y1 round-trip fare by varying percentages.

Air Canada offered a greater number of discounted fares on the Montréal-Winnipeg route than on the Regina-Toronto route on August 17 in each of the three years. However, whereas it offered three additional fares on the Montréal-Winnipeg route in 1999, it offered only one additional fare on the route in 2000. Fares which were available on both routes were higher on the Regina-Toronto route than on the Montréal-Winnipeg route, but, with the exception of the 'NITE' fares, were discounted off the Y1 round-trip fare by relatively similar percentages.

Canadi*n and Royal offered fares on the Regina-Toronto route in all three years.

2.a) The QHCANADA fare

The Agency's research shows that a QHCANADA fare was available on the Regina-Toronto and Montréal-Winnipeg routes throughout the period under review. The terms and conditions of carriage applicable to the QHCANADA fare were identical on both routes.

As a result of its preliminary investigation, the Agency asked Air Canada to provide comments concerning its findings in respect of the fare-related issues under investigation. Air Canada reiterated its position that the fare in question is a fare of $651.50 and the closest available fare was the QHCANADA fare of $599.00, excluding applicable taxes and charges. The carrier provided a historical analysis of the QHCANADA fare, as well as a historical analysis of its QLCANADA, VHCANADA, VLCANADA and Y1 fares as examples of how fares remained unchanged since Air Canada competed with Canadi*n on the route in 1999. Air Canada's analysis shows an increase of approximately 3 percent in these fares which, it stated, occurred prior to the merger of the two airlines. The carrier thus contended that, because the fares it offered at the time of the complaint had not changed from the time when there was competition on the route, the fare is prima facie reasonable.

The Agency's analysis shows that the QHCANADA fare offered by Air Canada on August 17 in 1998, 1999 and 2000 was higher on the Regina-Toronto route than on the Montréal-Winnipeg route: it was $75 higher in 1998, $81 higher in 1999,and $101 higher in 2000. Despite the higher fares, the levels of discount off the Y1 round-trip fare were only slightly less on the Regina-Toronto route than those offered on the Montréal-Winnipeg route during the period under review, and the rate at which the QHCANADA fare was discounted off the Y1 round-trip fare had increased by only one percent on both routes from August 17, 1998 to August 17, 2000.

In 1998 and 1999, the QHCANADA fare was 16 percent higher on the Regina-Toronto route than it was on the Montréal-Winnipeg route; in 2000, this difference increased to 20 percent. Whereas from 1998 to 1999, the QHCANADA fare had been increased by the same amount on both routes, from 1999 to 2000, Air Canada increased it by $20, or less than 4 percent, on the Regina-Toronto route but did not increase it at the same time on the Montréal-Winnipeg route, causing the differential in the QHCANADA fare offered on the two routes to increase from 16 to 20 percent.

Thus, the Agency has carefully examined and analyzed the QHCANADA fare published by Air Canada in respect of its domestic services between Regina and Toronto and between Montréal and Winnipeg on August 17, 1998, 1999 and 2000. On the basis of the foregoing analysis with respect to levels of discount and to year-over-year changes, and based on the factors set out in subsection 66(3) of the CTA, the Agency is of the opinion that, with respect to the QHCANADA fare, Air Canada did not treat the Regina-Toronto route and the Montréal-Winnipeg route in a significantly dissimilar manner on the dates under review.

2.b) The LH7NITE fare

When asked to provide comments in response to the Agency's preliminary findings, Air Canada stated that the LH7NITE fare is not the subject of the complaint and that, if it were, it should have been so indicated to Air Canada at the time of the complaint and that it is for the complainant to so assert, and not the Agency. Air Canada claimed that, as such, the Agency has no jurisdiction over fare classes other than the QHCANADA fare class. Air Canada did not submit arguments concerning the level of the LH7NITE fare. However, as mentioned earlier, the Agency's research indicates that the $651.50 fare which is the subject of the complaint comprises half of the QHCANADA fare and half of the LH7NITE fare, and applicable fees, surcharges and taxes. Therefore, the Agency is of the opinion that the LH7NITE fare is an integral part of the complaint.

The Agency's research shows that the availability of the LH7NITE fare was restricted to evening and early-morning flights. It was offered by Air Canada only in 2000 on the Regina-Toronto route, and in 1999 and 2000 on the Montréal-Winnipeg route. The terms and conditions of carriage applicable to the LH7NITE fare were identical on both routes.

The Agency's analysis shows that, on August 17, 2000, the $569.00 LH7NITE fare offered by Air Canada was 43 percent, or $170, higher on the Regina-Toronto route than the $399.00 fare it offered on the Montréal-Winnipeg route. The LH7NITE fare was discounted off the Y1 round-trip fare at 70 percent on the Regina-Toronto route but at 77 percent on the Montréal-Winnipeg route.

The Agency has carefully examined and analyzed the LH7NITE fare published by Air Canada in respect of its domestic services between Regina and Toronto and between Montréal and Winnipeg on August 17, 1998, 1999 and 2000. On the basis of the foregoing analysis, the Agency is of the opinion that the 43 percent difference in the LH7NITE fare Air Canada offered on the Regina-Toronto route compared to that on the Montréal-Winnipeg route is too great to account for the fact that the Regina-Toronto route is 12 percent longer than the Montréal-Winnipeg route, particularly in view of the fact that the 1999 Statistics Canada passenger origin-destination data suggests that a larger volume of passengers moved on the Regina-Toronto route, that is, the route which is the subject of the complaint, than on the similar Montréal-Winnipeg route.

3.a) Range of fares

As a result of its preliminary investigation, the Agency asked Air Canada to provide comments concerning certain findings in respect of the Y1 fare and the LH7NITE fares - that is, the fares at the upper and lower ends of the range of fares it offered for travel between Regina and Toronto at the time of the complaint. Air Canada was of the opinion that the Agency did not have jurisdiction in the context of this complaint over fare classes other than the QHCANADA fare which, it maintained, was the subject of the complaint.

Air Canada also argued that the Agency cannot make a finding that Air Canada is offering an inadequate range of fares. It stated that the range it offers is typical for a route like Regina-Toronto.

Air Canada submitted that, in respect of the complaint under investigation, the following factors reveal that the Y1 and the QHCANADA fares are not unreasonable:

  1. the 8 percent difference in the Y1 fare offered for travel on the Regina-Toronto route and that offered on the Montréal-Winnipeg route is mostly related to the greater distance flown on the Regina-Toronto route. Other factors include the high yield traffic demand, the market size and the economic cycles inherent to the communities. Air Canada further explained that one way to compare fares on routes of differing mileage is to examine them on a per-mile basis. It cited the example that, on the Regina-Toronto route, the Y1 fare on a per-mile basis was $0.75 on the Regina-Toronto route, and $0.79 on the shorter Montréal-Winnipeg route, a difference of 4 percent, while the QHCANADA fare was $0.47 on the longer Regina-Toronto route and $0.44 on the Montréal-Winnipeg route, a difference of 6 percent. Air Canada submits that differences of $0.03-$0.04 per mile cannot be unreasonable; and
  2. the population of Regina is smaller than that of Winnipeg and smaller population centres generally have higher fixed costs per passenger.

The Agency's analysis with respect to the range of fares can be summarized as follows:

3.b) Selection of fares

On each of the dates under review, Air Canada offered a slightly greater selection of round-trip fares discounted off its Y1 round-trip fare on the Montréal-Winnipeg route than on the Regina-Toronto route: it offered two more in 1998 and three more in 1999, but by 2000, it offered only one more.

In 1998, Air Canada did not offer deeply-discounted 'NITE' fares on either of the routes. On August 17, 1999, it offered two deeply-discounted 'NITE' fares - the Q-7NITE fare and the L-7NITE fare - on the Montréal-Winnipeg route, but none on the Regina-Toronto route; however, on August 17, 2000, it offered the two 'NITE' fares on both routes, thereby improving the selection of fares on the Regina-Toronto route so that, by the time of the complaint, the selection of fares was quite similar on both routes.

3.c) Levels of discount

A review of the fares available on a year-round basis shows that, in each year, for fare types which were offered on both routes, the levels of discount were quite similar, with the exception of the 'NITE' fares in 2000. The cheapest fares (which were not always the same fare type) available year-round on the two routes were discounted less on the Regina-Toronto route than they were on the Montréal-Winnipeg route. In 1998, the Q-CANADA fare - the cheapest fare available on a year-round basis - was discounted at 68 percent off Air Canada's Y1 round-trip fare on the Regina-Toronto route and at 71 percent on the Montréal-Winnipeg route. By August 17, 1999, Air Canada had introduced deeply-discounted 'NITE' fares on the Montréal-Winnipeg route where discounts reached 77 percent for the cheapest fare. At that time, Air Canada did not offer 'NITE' fares on the Regina-Toronto route where the Q-CANADA remained the cheapest fare; it was discounted at 69 percent. On August 17, 2000, Air Canada offered 'NITE' fares on both routes; however, the L-7NITE fare - the cheapest year-round fare offered on both routes - was discounted at 70 percent on the Toronto-Regina route, but at 77 percent on the Montréal-Winnipeg route.

3.d) Levels of fares

The Agency's examination of the range of fares Air Canada offered for travel on the Regina-Toronto route compared to that it offered on the Montréal-Winnipeg route on August 17 in 1998, 1999 and 2000 shows that the Y1 fares increased by the same percentages on both routes from 1998 to 2000, and, generally, the dollar and percentage differentials which had prevailed historically were maintained. Where year-round fares with the same fare basis codes were offered on both routes in a given year, they were higher on the Regina-Toronto route than on the Montréal-Winnipeg route: they were 8-16 percent higher in 1998 and 1999, and, except for the 'NITE' fares, were 8-20 percent higher in 2000. In 2000, the 'NITE' fares, then available on both routes, were 37-43 percent, or $170, higher on the Regina-Toronto route than on the Montréal-Winnipeg route.

The lowest fare Air Canada offered in 1998 on the Regina-Toronto route was 16 percent, or $75, higher than the lowest fare offered on the Montréal-Winnipeg route; in 1999, the lowest fare was 45 percent, or $180, higher; and, in 2000, after Air Canada had introduced the 'NITE' fares on the Regina-Toronto route, the lowest fare on that route (LH7NITE) was 43 percent, or $170, higher than on the Montréal-Winnipeg route.

Thus, after taking into account differences in the distances flown on the two routes, the fares other than the 'NITE' fares were not dissimilar. However, the 'NITE' fares Air Canada offered for round-trip travel on the Regina-Toronto route were higher than those it offered for travel between Montréal and Winnipeg by a greater amount than would appear to be warranted by the difference in distance.

3.e) Year-over-year changes

Between August 17, 1998 and August 17, 1999, Air Canada raised the fares on both routes by 9-10 percent. By August 17, 2000, Air Canada had increased fares by 1-4 percent on the Regina-Toronto route, while on the Montréal-Winnipeg route changes in fares ranged from a reduction of 3 percent to an increase of 3 percent.

3.f) Summary

With respect to the range of fares offered by Air Canada, the Agency is of the opinion that, in the period under review, the selection of fares on the Regina-Toronto route had improved by August 17, 2000. Further, most historical fare relationships existing between the routes had generally been maintained, and fares available year-round were not treated very differently with respect to year-over-year fare changes on both routes. However, the new 'NITE' fares available on the Regina-Toronto route on August 17, 2000 appear to have been disproportionately high for the reasons set out above.

With respect to Air Canada's stated position that the differences in the fares are related to the differences in the distance flown, the Agency recognizes that the Regina-Toronto route is longer than the Montréal-Winnipeg route, and has taken that fact into account in its consideration of the complaint. It has also considered the difference in the volume of passengers moved on the two routes, as reported by Statistics Canada, rather than the population of the centres involved, as only a portion of the population chooses to travel by air. Information concerning passenger profile and mix, and its interpretation, is internal to Air Canada, and was not volunteered to the Agency in response to its request for comments. The Agency also recognizes that the economic cycles inherent to the communities may impact upon Air Canada's marketing strategy, but the Agency is not in a position to quantify the impact of such a consideration.

4. Services provided by other carriers on the Regina-Toronto route

Agency investigations into fare-related complaints include the examination of fares offered by other carriers who may provide service on the route which is the subject of the complaint. On the dates under review, Canadi*n and Royal also published fares for travel between Regina and Toronto. The Agency's research shows that, generally, Air Canada's fares were equal to those of Canadi*n and higher than those offered by Royal.

In each of 1998, 1999 and 2000, Canadi*n offered a fare identical to Air Canada's QHCANADA fare. In 1998 and 2000, Royal did not offer a fare with terms and conditions of carriage similar to those of the QHCANADA fare offered by Air Canada, but in 1999, it offered a fare with somewhat similar terms and conditions: it was $170 cheaper than Air Canada's QHCANADA fare. In 2000, Canadi*n offered a fare identical to Air Canada's LH7NITE fare on the Regina-Toronto route, but Royal did not offer a fare with terms and conditions of carriage similar to those attached to the LH7NITE fare offered by Air Canada.

With the exception of one fare offered only by Canadi*n in 1998, Air Canada offered the same fares and the same range of fares on the Regina-Toronto route as did Canadi*n. In each year, Air Canada offered a wider range of fares than did Royal. Air Canada's fares were discounted by the same percentage as were those offered by Canadi*n, and were discounted at a much higher percentage off the Y1 round-trip fare than were Royal's.

5. Agency findings

In light of the foregoing, the Agency finds that:

  • the $599.00 QHCANADA fare published or offered by Air Canada in respect of its service between Regina and Toronto on or about August 17, 2000 was not unreasonable;
  • the $569.00 LH7NITE fare published or offered by Air Canada in respect of its service between Regina and Toronto on or about August 17, 2000 was unreasonable;
  • the $651.50 fare which is the subject of the complaint and which comprised half the QHCANADA fare and half the LH7NITE fare on or about August 17, 2000 was unreasonable; and
  • the range of fares which is the subject of the complaint on or about August 17, 2000 was inadequate.

CONCLUSION AND RECOMMENDATION

Based on the above findings, the Agency could have, pursuant to paragraph 66(1)(b) of the CTA, directed Air Canada to amend its tariff by reducing the LH7NITE fare offered in respect of its service between Regina and Toronto. The Agency could also have, pursuant to subsection 66(2) of the CTA, directed Air Canada to publish and apply in respect of its service between Regina and Toronto an additional fare which would have the effect of increasing the range of fares it offers on the route.

Subsection 66(5) of the CTA requires the Agency to consider any representations a carrier may make with respect to what is reasonable in the circumstances. In this case, since the date on which the complaint was filed, Air Canada has altered its selection and levels of fares such that it no longer offers the LH7NITE fare on the Regina-Toronto route, but has increased the number of fares available on a year-round basis. Some of these fares are at the low end of the fare range, and where the new fares are offered on both the Regina-Toronto route and on the Montréal-Winnipeg route, they are discounted off the Y1 round-trip fare by similar percentages. Further, whereas the lowest fare available year-round offered by Air Canada on the Regina-Toronto route had been $170 higher than the lowest fare it offered year-round on the Montréal-Winnipeg route on August 17, 2000, the difference between the lowest fares available year-round on the routes is now $30, or 7 percent.

As a consequence of the revisions Air Canada has made to the fares it offers for travel on its Regina-Toronto route, the Agency will not, at this time, direct Air Canada to amend its tariff as identified above. Further, it will not, at this time, direct Air Canada to publish and apply an additional fare as identified above. However, in accordance with paragraph 66(7)(a) of the CTA, Air Canada is required to keep the Agency informed of all changes or modifications to its existing tariffs in respect of its Regina-Toronto service as they occur for a period up to and including July 4, 2002. Furthermore, Air Canada is reminded that, pursuant to subsection 66(6) of the CTA, the Agency may, in the absence of a specific complaint, monitor and review passenger fares offered in respect of certain domestic services and, if necessary, require corrective action.

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