Facts
Decision
Development: decision trumped
A recently decided pricing complaint(1) illustrates the extent and limit of the Canadian Transportation Agency's ability to regulate the price of domestic air fares in Canada.
The issue arose in a complaint filed by Deryk Jackson who, on December 16 2010, sought to book a return trip from Toronto to Timmins, Ontario over the Christmas holidays, only to find that the fares offered by Air Canada at this late stage were not to his liking. Consequently, he filed a complaint with the agency pursuant to Section 66 of the Canada Transportation Act,(2) alleging that Air Canada was gouging its passengers.
Timmins is a fairly remote community 566 kilometres (km) north of Toronto with approximately 45,000 residents. The Timmins' economy is inextricably tied to the volatile prices of the base metals and gold that are mined just outside of its city centre. At the time of the complaint, Air Canada was the only air carrier offering a non-stop service from Toronto, on a combination of Dash-8-100 (37 seater) and Q-400 (74 seater) turbo-prop aircraft.
The agency's ability to deal with the complaint is framed by Section 66 of the act, which permits it to take remedial action where it finds that:
- an air carrier offering a fare is the only carrier offering a domestic service between two points;
- the fare in question is unreasonable; and/or
- the air carrier is offering an inadequate range of fares in respect of that service.
With regard to the determination of the issues of reasonableness of fares and the adequacy of a range of fares, Section 66(3) of the act requires the agency to consider:
- historical data respecting fares applicable to domestic services between the two points;
- fares applicable to similar domestic services offered by the air carrier in question and one or more of its competitors using similar aircraft, including terms and conditions of transportation and the number of seats available at those fares; and
- any other information that may be provided by the licensee.
As a preliminary matter, the agency dismissed the complaint that Air Canada offered Jackson an unreasonable fare, as he did not identify a particular fare in his complaint. The agency accepted Air Canada's submission on this point that it was impossible to know which fare group Jackson was challenging.
The agency did not view this lack of specificity as an obstacle to proceeding with the complaint that Jackson was presented with an inadequate range of fares. On this point, the agency chose to consider the complaint on the basis that it had sufficient details, and also noting that, according to Jackson, these fares often exceeded those for transatlantic flights and were significantly higher than for other small communities, such as Sudbury and Thunder Bay, for which a monopoly did not exist.
As a result of these preliminary determinations, the only issues to be decided on the complaint were whether Air Canada was the only airline providing a domestic service between Toronto and Timmins and, if so, whether the range of fares offered on that route was inadequate.
Was Air Canada the only provider?
Air Canada acknowledged in its submissions that it was the only air carrier that operated a non-stop service between Toronto and Timmins, but argued that another operator - Bearskin Airlines - offered a reasonable alternative to Timmins from Kitchener-Waterloo, Ontario (82 km southwest of Toronto), connecting in Sudbury and Ottawa. The agency did not accept that the Bearskin Airlines service was comparable to that offered by Air Canada. In doing so, it cited its own Decision 484-P-A-2005, where the agency held that a point is an individual origin or destination city. (In that decision, the agency found that Hamilton, 78 km southwest of Toronto, and Toronto were not the same point.)
Air Canada did not accept the test set out in Decision 484-P-A-2005, but it does not appear that an alternative interpretation of the legislation was argued at any length.
Given Air Canada's admission that it was the only carrier operating the service on a non-stop basis from Toronto to Timmins, and relying on Decision 484-P-A-2005, the agency found that it had jurisdiction to deal with the complaint about the alleged inadequate range of fares.
Was there an adequate range of fares?
In order to assess a range of fares offered by an air carrier on a domestic route for which there is no competition, the legislation requires the agency to compare the route in question to fares offered by the same air carrier on similar competitive routes. In order to identify suitable comparators, the Canada Transportation Act provides that the agency should consider the following factors:
- whether there are other air carriers offering a domestic service between the two points;
- the type of aircraft used by the air carrier to operate its service between the two points;
- the air mileage between the two points; and
- the origin-destination passenger volume between the two points.
After combing the Canadian market for comparable domestic city pairs, the agency found that the following routes, in which Air Canada operated and encountered competition from other air carriers, could serve this function:
- Rouyn-Noranda-Montreal;
- Winnipeg-Thunder Bay;
- Cranbrook-Vancouver; and
- Calgary-Grand Prairie.
Although Air Canada offered no alternative city pairs as possible points of comparison, it made submissions that other factors should also be considered when identifying suitable comparators, such as:
- the size of catchment area;
- the number of daily flights between the airports in question;
- passenger mix;
- network contribution; and
- comparison of the trend of fares on the routes being examined.
The agency rejected this submission, once again citing Decision 484-P-A-2005 - this time as authority for the proposition that the inclusion of additional factors would either severely limit the ability to find comparable routes or perhaps result in a situation where every market was considered unique.
Having identified the comparison routes, the agency then conducted a granular comparison between Air Canada's fares on the Toronto-Timmins city pair and Air Canada's fares on each of the comparison routes over a period of two years.
In summary, the agency's findings (for the two-year period) were as follows:
- The difference in the highest and lowest fares charged on the Toronto-Timmins route was stable and comparable to the span of fares on the comparable routes, although the Toronto-Timmins fares were higher – particularly at the lower end of the fare range.
- The number of different fares offered in the Toronto-Timmins routes was not significantly different from the number of fares offered on the comparison routes.
- For three of the four comparison routes, the most generous discount offered by Air Canada was significantly less on the Toronto-Timmins route (ie, the most discounted fare on the Toronto-Timmins route was 71%, while the most discounted fare, on average, for three of the comparison routes was 85%).
- When considering the lowest fares offered on the Toronto-Timmins route and the comparison routes, the Toronto-Timmins lowest fares were consistently and significantly higher. In this regard, the agency referenced fare differences ranging between 62% and 184%.
- The range of fares on each of the routes was comparable over the two-year period that was considered.
The agency stated that:
"The intent of Parliament was to give the agency jurisdiction over fares on inadequately served routes but not on routes on which there was a reasonable alternative service. This reflects an underlying assumption that appropriate pricing is established through competition. Furthermore, the remedy contained in [the legislation] pertains to market failure relating to monopoly pricing. The agency finds that the capacity Porter has deployed on the route constitutes a reasonable alternative service."
Having made this observation, the agency found that Air Canada's range of fares on the Toronto-Timmins route was, in fact, inadequate.
As a result, on January 13 2012 the agency directed Air Canada to amend its tariff to increase its range of fares on the Toronto-Timmins route by offering one additional fare at the low end of each of its current Latitude, Tango Plus and Tango fare classes, as follows:
- Latitude - at least 16% lower than its rate on the date of the order;
- Tango Plus - at least 37% lower than its rate on the date of the order; and
- Tango - at least 46% lower than its rate on the date of the order.
Development: decision trumped
Ironically, it was Air Canada's competitor, Porter Airlines, that inadvertently came to the rescue.
On January 16 2012, just three days after the agency's ruling, Porter commenced a service from Toronto (via another airport) to Timmins.
The Porter service:
- operated 36 non-stop flights per week to Timmins (compared to 64 for Air Canada);
- also utilised the Q400 aircraft;
- had a weekly capacity of 2,530 seats (compared to Air Canada's 3,401); and
- had virtually identical travel times.
As the Porter service was so similar to the Air Canada service, the agency determined that Porter provided travellers with a reasonable alternative service and, as a result, the agency no longer had jurisdiction under the Canada Transportation Act to make a ruling on the matter as there was competition in the market.
The remedial order was found to be no longer necessary and, as such, was rescinded.
For further information on this topic please contact Carlos P Martins at Bersenas Jacobsen Chouest Thomson Blackburn LLP by telephone (+1 416 982 3800), fax (+1 416 982 3801) or email ([email protected]).
Endnotes
(1) Jackson v Air Canada, Canadian Transportation Agency, Decision 15-P-A-2012 (January 13 2012); and Decision 76-P-A-2012 (March 5 2012).