Decision No. 748-A-2000

November 28, 2000

November 28, 2000

APPLICATION by American Eagle Airlines, Inc. (hereinafter American Eagle), on behalf of itself and Transportes Aéreos Portugueses, S.A. carrying on business as TAP, S.A., TAP-Air Portugal, Air Portugal and TAP (hereinafter TAP-Air Portugal), for an approval, pursuant to section 60 of the Canada Transportation Act, S.C., 1996, c. 10, and section 8.2 of the Air Transportation Regulations, SOR/88-58, as amended, to permit TAP-Air Portugal, while providing its scheduled international service between Portugal and Canada, to sell transportation in its own name on flights operated by American Eagle between New York (JFK International Airport), New York, United States of America and Montréal, Quebec, Canada effective December 1, 2000.

File No. M4835-24-1

Docket No. 000978AG


APPLICATION

On October 2, 2000, American Eagle, on behalf of itself and TAP-Air Portugal, applied to the Canadian Transportation Agency (hereinafter the Agency) for the approval set out in the title.

BACKGROUND

The terms of the Air Transport Agreement between the Government of Canada and the Government of the United States of America signed on February 24, 1995 (hereinafter the Canada-United States Agreement) make specific provision for designated airlines of Canada and the United States of America to enter into cooperative arrangements with air carriers of third countries. However, third country carrier code-sharing is not provided for in the Agreement between the Government of Canada and the Government of Portugal on Air Transport signed on April 10, 1987 (hereinafter the Canada-Portugal Agreement). Accordingly, the application was processed on an extra-bilateral basis. By Decision No. LET-A-313-2000 dated October 26, 2000, interested parties were given notice of this application and were instructed to file comments by November 3, 2000.

Air Canada, Air Transat A.T. Inc. (hereinafter Air Transat), Canada 3000 Airlines Ltd. (hereinafter Canada 3000) and Aéroports de Montréal filed interventions in respect of the application. Because Aéroports de Montréal's comments were filed on November 9, 2000, the Agency, by Decision No. LET-A-339-2000 dated November 16, 2000, requested Aéroports de Montréal to provide justification why the Agency should accept the late filing. On November 22, 2000, Aéroports de Montréal provided written justification for the late filing. By Decision No. LET-A-347-2000 dated November 21, 2000, the Agency advised Aéroports de Montréal that its submission would be considered and TAP-Air Portugal and American Eagle were given until November 24, 2000 to reply to the submission. TAP-Air Portugal replied by letter dated November 22, 2000. American Eagle indicated verbally that it would not file a reply.

ISSUE

The issue to be addressed is whether to permit TAP-Air Portugal, while providing its scheduled international service between Portugal and Canada, to sell transportation in its own name on flights operated by American Eagle between New York (JFK International Airport) and Montréal.

FACTS

Under Licence No. 975126, TAP-Air Portugal is authorized to operate a scheduled international service in accordance with the Canada-Portugal Agreement.

Condition No. 1 of Licence No. 975126 reads as follows:

The Licensee is authorized to operate the route(s) set out in the Agreement.

Condition No. 2 of Licence No. 975126 reads as follows:

The operation of the scheduled international service authorized herein shall be conducted subject to the provisions of the Agreement and to any applicable arrangements as may be agreed to between Canada and Portugal.

Under Licence No. 980072, American Eagle is authorized to operate a scheduled international service between points in the United States of America and points in Canada, in accordance with the Canada-United States Agreement.

POSITIONS OF THE PARTIES

The applicants state that the proposed services will provide enhanced online service, convenience and improved travel options for their customers.

Air Canada submits that it has no objection to the proposed services on the basis that Portugal agrees to a principle of reciprocity whereby it would authorize third country carrier code-sharing for Canadian carriers serving Portugal.

In its intervention, Air Transat submits that it has no objection to the granting of a temporary six-month authority to operate the services requested. Air Transat further states that any extensions or permanent rights should be subject to the negotiation of a new bilateral air agreement with Portugal.

Canada 3000 submits that it has no objection to the granting of a six-month temporary authority for the application provided that, upon application by a Canadian carrier, the aeronautical authorities of Portugal authorize the Canadian carrier to serve two additional points in Portugal other than Lisbon on an extra-bilateral basis pending an amendment to the agreement.

In its intervention, Aéroports de Montréal states that code-share services will diminish direct international services to and from Montréal. Aéroports de Montréal argues that the rerouting of traffic destined to Montréal through American hubs puts its medium-term airport development at risk. Aéroports de Montréal also provides passenger statistics (18,875 passengers/year between Montréal and Portugal) and suggests that the Canada-Portugal market is large enough for TAP-Air Portugal to justify regular direct service. Aéroports de Montréal submits that the services proposed by the applicants will jeopardize all short and medium-term chances of TAP-Air Portugal establishing a direct service to Montréal.

In its reply, TAP-Air Portugal states that, subject to conditions similar to those which the Agency may impose, it has no objection to Air Canada's suggestion that the authority requested be granted subject to reciprocal treatment for Canadian carriers by the Portuguese aeronautical authorities. With respect to submissions made by Air Transat and Canada 3000, TAP-Air Portugal states that a six-month authority is not practical and that the Agency should grant the application for a period of at least twelve (12) months. In respect of Canada 3000's comments on route rights, TAP-Air Portugal maintains that as Canada 3000 is not currently an air carrier designated by Canada to operate a scheduled service between Canada and Portugal, the issue of routes it can operate is irrelevant.

In its reply to Aéroports de Montréal's submission, TAP-Air Portugal states that since it cancelled its scheduled service to Canada in 1995, there has been no direct scheduled service between Canada and Portugal. Furthermore, TAP-Air Portugal states that it is not prepared to resume direct scheduled services between the two countries at this point in time or in the near future. TAP-Air Portugal argues that the proposed code-share operation would offer travellers an additional travel option and that the code-share service which can be offered at a lower cost than a direct service would also stimulate competition, again to the benefit of consumers.

TAP-Air Portugal submits that under its current Agency licence and pursuant to the Canada-Portugal Agreement, designated Portuguese carriers are permitted to serve points in the United States of America on any flight to Montréal. However, points in the United States of America cannot be served on any flight operated between Portugal and Toronto. TAP-Air Portugal argues that this restriction effectively ensures that Montréal will be served. TAP-Air Portugal adds that as Toronto is a larger market than Montréal, if TAP-Air Portugal were to implement a direct service between Canada and Portugal without a stop in the United States of America, the service would probably be operated to Toronto. TAP-Air Portugal finally submits that at least one Canadian carrier has stated its intention to seek the authority to operate scheduled services between Canada and Portugal and that this stated intention should alleviate Aéroports de Montréal's concerns that approving the application will jeopardize short or medium-term chances of a direct service being established.

ANALYSIS AND FINDINGS

The Agency has reviewed and carefully considered the application and the interventions and replies filed in respect thereof.

The Agency notes that although Aéroports de Montréal objects to the proposed services, the Canadian carriers consulted, namely Air Canada, Air Transat and Canada 3000 do not object to the approval of the application on a temporary basis subject to certain conditions.

With respect to Canada 3000's proviso, although Canada 3000 operates charter air services to Portugal, it has not been designated by the Minister of Transport to operate scheduled air services to Portugal. Canada 3000's interests in scheduled air services between Canada and Portugal will be considered by the Canadian government in the preparation for upcoming air transport negotiations with the Portuguese authorities and in the review of Canada's international air transportation policy expected to take place in 2001. Therefore, Canada 3000 is not currently in a position to operate the route rights which it suggests should be made a condition of approval. Accordingly, the Agency does not consider it necessary to condition an approval of the application as per Canada 3000's submission.

Aéroports de Montréal argues that rerouting traffic destined to Montréal through American hubs will jeopardize its medium-term airport development. Under the Canada-Portugal Agreement, TAP-Air Portugal could serve Montréal and Toronto in combination without stopping at a point in the United States. However, it appears that this option is not commercially viable for TAP-Air Portugal and that the only solution is to operate to Canada via the United States. The Canada-Portugal Agreement permits intermediate stops at points in the United States on services between Portugal and Montréal but not on services to Toronto. Therefore, if it is commercially necessary to serve Canada in combination with the United States of America, TAP-Air Portugal has no choice but to serve Montréal. Accordingly, the Agency is of the opinion that denying this application will not guarantee that TAP-Air Portugal will serve Montréal with its own aircraft. In 1995, when it had the largest share of the market, TAP-Air Portugal withdrew from this same market for commercial reasons. Furthermore, it does not make economic sense for TAP-Air Portugal to operate a large aircraft between New York and Montréal. The Agency noted TAP-Air Portugal's assertions that it has no intention of resuming direct service at this time or in the near future. Taking into consideration the statistics submitted by Aéroports de Montréal, that is 18,875 passengers per year between Montréal and Portugal, it appears that even if a scheduled carrier attracted all the traffic, it might be able to offer two flights per week. The proposed scheduled services, albeit on a code-share basis through the United States, are to be offered on a daily basis.

Pursuant to subsection 78(2) of the Canada Transportation Act (hereinafter the CTA), the Agency may grant temporary authority for a service which is not permitted in a bilateral air transport agreement.

The Agency notes that third country carrier code-sharing is not provided for in the Canada-Portugal Agreement. However specific provision is made in the Canada-United States Agreement permitting Canadian and American air carriers to code share with air carriers of third countries. The Canada-United States Agreement also specifies criteria for the approval of such arrangements, namely that the third country authorizes or allows comparable arrangements on services to, from or via that country; that the air carriers involved hold the appropriate authority (licence to serve the points); and that the air carriers meet the regulatory requirements for such arrangements. Thus, unless Portugal were to deny comparable arrangements, Canada has an obligation under the Canada-United States Agreement to approve the subject application.

The Agency finds that the proposed code-share operation will facilitate the establishment of a marketing presence in Montréal which can lead to growth in the market and direct services in the future. Similarly, denial of the requested authority to TAP-Air Portugal could jeopardize the institution of similar services by a Canadian carrier as reciprocity would call for a denial by the Portuguese authorities. The Agency finds that the travelling public benefits from the additional travel options provided through expanded connecting services.

The Agency recognizes that Air Transat and Canada 3000 requested that the authority be granted for a six-month period; however, in order to provide adequate time for the conduct of bilateral air negotiations between Canada and Portugal, the Agency is prepared to grant the authority requested on a temporary basis for a period including the 2001 IATA summer season.

CONCLUSION

Accordingly, the Agency, pursuant to subsection 78(2) of the CTA, hereby varies Condition Nos. 1 and 2 of TAP-Air Portugal's Licence No. 975126 to the extent necessary to authorize the proposed third country carrier code-sharing services, on a temporary basis, effective December 1, 2000 until October 27, 2001, subject to the following condition:

  1. The aeronautical authority of Portugal shall authorize reciprocal extra-bilateral third country carrier code-share rights if requested by Canadian carriers.

In all other respects, the service shall be operated in accordance with the Canada-Portugal Agreement and any applicable arrangements as may be agreed to between Canada and Portugal.

With respect to the request for approval under section 60 of the CTA and section 8.2 of the Air Transportation Regulations, SOR/88-58, as amended (hereinafter the ATR), the Agency is satisfied that the application meets the requirements set out in section 8.2 of the ATR.

Accordingly, the Agency, pursuant to paragraph 60(1)(b) of the CTA and section 8.2 of the ATR, hereby approves the use by TAP-Air Portugal of aircraft and flight crew provided by American Eagle, and the provision by American Eagle of such aircraft and flight crew to TAP-Air Portugal, to permit TAP-Air Portugal, while providing its scheduled international service between Canada and Portugal, to sell transportation in its own name on flights operated by American Eagle between New York (JFK International Airport) and Montréal. This approval is granted from December 1, 2000 to October 27, 2001, subject to the following conditions:

  1. TAP-Air Portugal shall continue to hold the required licence authority.
  2. The air services approved herein shall only be provided as long as the Commercial Agreement between TAP-Air Portugal and American Eagle of May 3, 2000, providing for such services remains in effect.
  3. TAP-Air Portugal shall apply its published tariffs, on file with the Agency and in effect, to the carriage of its traffic. In particular, nothing in any commercial agreement between the air carriers relating to limits of liability shall diminish the rights of passengers as stated in such tariffs.
  4. No local traffic may be carried between New York (JFK International Airport) and Montréal under TAP-Air Portugal's code.

TAP-Air Portugal and American Eagle are reminded to advise the Agency in advance of any changes to the information provided in support of the subject application.

TAP-Air Portugal and American Eagle are also reminded of the continuing requirement to comply with sections 8.2 and 8.5 of the ATR.

It should be noted that the Agency is not bound by its previous decisions and, accordingly, this approval should not be relied upon for justification for similar applications in the future.

Furthermore, the Agency advises that the authority and approval granted herein do not exempt TAP-Air Portugal or American Eagle from the requirements of other legislative acts or regulations, including those of Transport Canada.

This Decision shall form part of Licence No. 975126 and shall remain affixed thereto until October 27, 2001.

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