Discussion Paper on Charter Activities and Advance Payment Protection
The Canadian Transportation Agency (Agency) is seeking to update the regulations that it administers and various guidance material and tools to ensure that they keep pace with changes in business models, user expectations and best practices in the regulatory field. To that effect, an Air Transportation Consultation Discussion Paper has been developed and is available on the Agency's website.
The purpose of this document is to outline in greater detail options that the Agency is considering with respect to the provisions of the Air Transportation Regulations, SOR/88-58, as amended dealing with charter activities and advance payment protection. Interested parties have until September 29, 2017 to submit comments at email@example.com.
The Air Transportation Regulations (ATR) include provisions regarding chartered and scheduled air services.
In general terms, a chartered air service is where an air carrier agrees in advance to sell the capacity of its aircraft to an intermediary (the charterer) who may provide for the transportation of passengers and/or goods to the public from a specified origin to a specified destination, for a particular itinerary. A scheduled air service is sold directly to the public by the air carrier for a scheduled route for the transportation of passengers and/or goods on a scheduled basis.
In Canada, there are three charter regimes:
- transborder; and
In 1996, domestic charter regulations were repealed from the ATR to implement the complete deregulation of domestic air services, thereby enabling Canadian air carriers to capture a larger share of the Canadian origin charter market.
Also in 1996, a simplified regime for transborder charters was established in the ATR following the implementation of the Canada – USA Air Transportation Agreement.
The current regulatory requirements for foreign originating charters were established to create a regime in which the country of origin rules for charter traffic can be routinely accepted, consistent with international agreements and the Agency's jurisdiction.
Correspondingly, the ATR currently segments international charters; non-U.S. (Part III) and transborder charters (Part IV). These parts specify a number of detailed requirements such as defining types of charters for transport of passengers and/or goods, regulatory conditions and constraints, and the powers of the Agency as an economic regulator.
Charter provisions represent a considerable portion of the ATR and have not been significantly updated since 1996 when the Agency introduced a transborder charter category to provide for the implementation of the more liberalized Canada-USA Air Transportation Agreement, 1995. Since this time, government policy and industry practice has continued to evolve, including a notable shift from charters to scheduled services. Part of this shift is due to the adoption of the Blue Sky Policy in 2006 which encouraged the establishment of unrestricted open sky-type air transportation agreements and allowed any number of carriers to operate direct and indirect services between Canada and another country.Footnote 1
The Agency is seeking stakeholder perspectives as to areas which may require updating to better align with the current and future realities and liberalization of the charter service environment, to ensure competitiveness, clarity and transparency.
Number of Canadian originating charter types
Part I the ATR defines eight different types of Canadian originating charters (see Appendix A). Some of these types are no longer used. Others appear to be out of sync with today's modern aviation industry. For example, Common Purpose Charters (for attendance of educational programs or events) have not been used in decades.
Given that the majority of the existing charter types are intended for resale to passengers, a consolidated list of charter categories could be created to better reflect the nature of the service rather than providing definitions based on specific operating models.
Two potential options are identified below, which attempt to group the associated regulations in a way that reflects broad industry practice and passenger and consumer expectations.
Option A: Three categories of Canadian originating charters
This option presents a distinction between charter types based on whether the charter is for resaleable or non-resaleable passenger transportation or goods transportation. Further examination of the applicable charter requirements for each category will be addressed in the next section of this document.
Passenger Resaleable Charters (PRCs) – PRCs would include charter flights that originate in Canada that are destined to a point in another country where the passenger seating capacity of the aircraft is chartered for resale to the public.
Passenger Non-Resaleable Charters (PNCs) – PNCs would be similar to the existing "entity charter" type (see Appendix A) in that it would include charter flights that originate in Canada that are destined to a point in another country and where the capacity of the aircraft is not for resale to the public.
Goods Charters (GCs) – according to the conditions of a charter contract to carry goods, entered into between one or two air carriers and one or more charterers, under which the entire payload capacity of an aircraft is chartered.
Streamlining charter types for passenger transportation would eliminate restrictions which limit options to passengers. For example, if inclusive tour charters were eliminated, passengers would no longer be required to purchase a package tour in addition to the air transportation.
Option B: Two categories of Canadian originating charters
This option proposes to remove the distinction between passenger resaleable and non-resaleable charter types. Currently, the ATR requires that charterers pay the air carrier at least seven days in advance of each resaleable passenger Canadian originating charter flight. In turn, the air carrier must protect those funds with a financial guarantee in a form accepted by the Agency (such as a letter of credit).
The merits of maintaining this requirement is discussed below, however, should the requirement to protect funds paid in advance not be maintained, the list of charter types could be further streamlined as follows:
Passenger Charters (PCs) – a single category of Canadian originating passenger charters, encompassing both resaleable and non-resaleable.
- Goods Charters (GC) – according to the conditions of a charter contract to carry goods, entered into between one or two air carriers and one or more charterers, under which the entire payload capacity of an aircraft is chartered.
- Should the existing eight categories of Canadian originating charter types be replaced by either:
- Option A: Three categories of charters (PRCs, PNCs and GCs); or,
- Option B: Two categories of charters (PCs and GCs)
- Are there other scenarios that should be explored for categorizing Canadian originating charter types?
Canadian originating charters
The application for and use of a charter program permit is contingent on a number of requirements, such as aircraft size, licencing, and conditions relating to the nature of the charter activity.
Charter regulatory requirements
Parts III and IV of the ATR set out the regulatory requirements that apply to each charter type, including the following which apply to Canadian originating charters:
- a prohibition against the carrier selling directly to the public,
- a requirement that 100% of the aircraft capacity be chartered, and;
- a requirement that the air carrier holds the appropriate non-scheduled international licence that authorizes services on a charter basis between Canada and the foreign country to which the flight is destined or from which it originates.
The first two requirements, which describe charter activities, serve to distinguish these operations from international scheduled air services. International scheduled air services are authorized under Canada's international air transportation agreements while charter activities are permitted on the basis of national regulations. Retaining all three of these elements would maintain the integrity and reciprocity of Canada's air transport agreements.
Charter Activity Provisions
Certain types of charter provisions found in the ATR were established in order to strictly regulate competition between international scheduled services provided by Canadian air carriers and charterers. Currently, these provisions include elements such as minimum advance booking, tour packages, maximum number of points served, minimum stay, minimum price per seat and prohibition of one-way travel, and other requirements.
In recent years, the international air transportation industry has evolved to a more liberalized environment providing for a greater variety and number of services in the marketplace. This has led, in recent years, to the Agency issuing several exemptions for specific charters provisions found in the ATR, which were initially intended to manage competition between charters and to scheduled operations.
In light of this gradual industry evolution away from the historic basis of the regulations and to reduce administrative burden, consideration could be given to reducing or eliminating these provisions.
Similar to the alignment with the evolution of charter activities, the regulations could also be updated to remove the restriction for non-resaleable passenger charters that no more than 1 charterer be entitled to charter the aircraft and raise the limit to up to 3 charterers. Doing so would provide greater flexibility for air carriers to market their products, while ensuring that underlying operation remains a charter activity and not a de facto scheduled service.
Similar to passenger charters, a more liberalized regime has evolved for goods charters, whereby freight forwarders and other organizations tend to consolidate cargo shipments from several sources and obtain payment for traffic carried at a toll per unit. Currently, the ATR does not allow for this type of operation and the Agency has issued a number of exemptions regarding this issue to reflect the fact that this has become a standard industry practice, which is serving the needs of consumers.
As per the ATR, an application to the Agency for a charter program permit is mandatory for all air carriers who propose to operate medium to large sized aircraft, with a maximum certified take-off weight (MCTOW) greater than 35,000 pounds (or 15,900 kg). For passenger charters, establishing the threshold based on a set amount of passenger carrying capacity would avoid imposing unnecessary requirements on heavy aircraft with low passenger capacity, which has been the basis of several exemptions that have been issued by the Agency.
- Should the following regulatory requirements be maintained, modified, or revised as they relate to Canadian originating charters:
- the prohibition against the carrier selling directly to the public,
- the requirement that 100% of the aircraft capacity be chartered, and;
- the requirement that the air carrier holds the appropriate non-scheduled international licence that authorizes services on a charter basis between Canada and the foreign country to which the flight is destined or from which it originates.
- Should additional regulatory provisions for Canadian originating charters be retained or eliminated?
Foreign originating charters
The current regulatory requirements for foreign originating charters were established to create a regime in which the country of origin rules for charter traffic can be routinely accepted, consistent with international agreements and the Agency's jurisdiction. This was established to avoid the extra-territorial application of Canadian laws to transportation services arranged and sold in a foreign country.
Currently, the ATR provides two distinct processes for the acceptance of foreign originating charters: transborder and non-US originating charters. Consideration could be given to streamlining these two processes to focus on certain basic requirements common to both, such as, requiring air carriers to have:
- a licence to provide the non-scheduled (charter) service under the charter, specifically to or from the country of origin of the charter traffic;
- that there be a charterer; and,
- that no Canadian origin traffic is transported without also meeting the requirements applicable to Canadian origin charters.
The requirement that the charter be operated in accordance with the rules and regulations of the foreign country of origin and the requirement that the air carrier hold the appropriate non-scheduled international licence would continue to apply. The Agency would continue to ensure that a program of foreign origin charters is not created to circumvent the licensing requirements for a scheduled service.
Other regulatory requirements, such as minimum advance booking before each flight, the obligation for passengers to purchase return transportation, and a minimum period of stay in foreign country prior to return were designed to steer the non-discretionary traveller to use scheduled services. In today's liberalized, open-skies environment, these constraints appear to no longer respond to the needs of the travelling public and impede the efficient operation of charter services without a true benefit for the operators of scheduled services.
- Should the size of the aircraft continue to be a trigger to obtain a charter program permit?
- Should consideration be given to streamlining the processes for the acceptance of foreign originating charters?
- Should other regulatory requirements, such as minimum advance booking before each flight, the obligation for passengers to purchase return transportation, and a minimum period of stay in foreign country prior to return be maintained?
Advanced Payment Protection
The purpose of APP is to ensure that the charterer is refunded by the air carrier if the air carrier fails to provide the service. These refunds enable the charterer to obtain replacement services or provide refunds to passengers. APP also allows some protection, for the charterer and passengers, from bankruptcy proceedings since the funds are not held by the air carrier.
The ATR require air carriers to demonstrate the adequacy of arrangements that they put in place to protect advance payments they have received from the charterer. The Agency is permitted to inspect records related to advance payments.
Over time, the Canadian origin charter industry has changed significantly. Initially the resaleable charter market was strictly regulated to prevent these types of charters from competing directly with the international scheduled services of the Canadian carriers. Charter services were viewed as supplementary and less reliable services. As a result, the APP regime was established to ensure that there would be funds for the charterer to provide alternate transportation should the air carrier be unable to provide the contracted service.
As a result of the implementation of the Canada – USA Open Skies Agreement in 1995, the volume of Canadian origin resaleable charters began to decrease as Canadian and US air carriers were able to operate unlimited scheduled services. It was no longer necessary to enter markets through charter programs when the air carrier could offer their own services directly to the passengers under scheduled licence authorities. This shift continued with the announcement of the Blue Sky Policy in 2006, under which Canada stopped limiting the number of air carriers to be designated for scheduled services. As a result, the number of passengers travelling on resaleable charters was greatly reduced.
Today, the consumer protection value of the APP regime, which only applies to charter services and not scheduled services, has significantly eroded. Less than 1 percent of all Canadian origin international passengers travel on flights protected by APP and that number is decreasing significantly year over year. The highest amount of advance payment that was protected at any given time in 2016-2017 was CAD$2.1 million, 91% of which was protected by two large Canadian air carriers for monies received from their related company tour operators. Only 9% of protected payments were received from independent charterers.
In addition, the number of flights protected by the APP regime has decreased significantly from almost 3 million passengers per year in 2002-2003 to less than 100,000 in 2016-2017. Countries that were exclusively served by charter flights are now primarily served by scheduled air services.
It is also noted that extra protections for passengers are now in place that were not available when the APP regime was established. These include the proliferation of credit card bookings with imbedded protections and travel compensation funds in certain provinces.
Additional protection to the travelling public continues to be achieved with the retention of the requirement that air carriers provide evidence to the Agency of the subsisting licence or registration of charterers where provincial laws require travel agents or wholesalers to be registered or licensed (currently Québec, Ontario and British Columbia) and to comply with certain requirements respecting the protection of funds received from the charterers.
- Should APP, in the current market environment, be maintained?
Permit and notification filings
The ATR requires that Canadian and US air carriers who operate charter flights that originate in the US notify the Agency of flights operated in the previous month. The Agency receives approximately 800 notifications annually. For all other foreign originating charter flights, licenced air carriers would continue to be required to notify the Agency two days before each flight. In order to ensure reciprocity and the integrity of the applicable air transport agreement, Agency approval would still be required for situations where the air carrier's non-scheduled international licence does not authorize the service. In these cases, the requirement that the carrier apply 15 days prior to the first flight would be maintained.
While the above requirements would be retained, the existing requirements for the application and receipt of a charter permit, could be replaced with an advance notification within 48 hours of each flight (except in the case of Canadian origin charter flights for which advance payment protection is presently required). This would retain the flow of information to the Agency for regulatory oversight and monitoring, while reducing the administrative burden of a charter permit issuance process.
- Should the permit application and issuance process be replaced with advance notification?
- If so, is notification 48 hours prior to a flight a realistic timeframe?
Appendix A: Definitions of Canadian originating charter types in the ATR
Disclaimer: The Canadian Transportation Agency (Agency) is the economic regulator of Canada’s federal transportation network. Should there be any discrepancy between the content of the definitions provided below and the Canada Transportation Act and associated regulations, the latter prevail.
- Charter Type
- common purpose charter (CPC)
- A round-trip passenger flight originating in Canada that is operated according to the conditions of a contract entered into between one or two air carriers and one or more charterers that requires the charterer or charterers to charter the entire passenger seating capacity of an aircraft to provide transportation at a price per seat to passengers
- (a) travelling to and from a CPC event, or
- (b) participating in a CPC educational program
- entity charter
- A flight operated according to the conditions of a charter contract under which
- (a) the cost of transportation of passengers or goods is paid by one person, corporation or organization without any contribution, direct or indirect, from any other person, and
- (b) no charge or other financial obligation is imposed on a passenger as a condition of carriage or otherwise in connection with the transportation.
- advance booking charter (ABC)
- A round-trip passenger flight originating in Canada that is operated according to the conditions of a contract entered into between one or two air carriers and one or more charterers that requires the charterer or charterers to charter the entire passenger seating capacity of an aircraft for resale by them to the public, at a price per seat, not later than a specified number of days prior to the date of departure of the flight from its origin in Canada.
- inclusive tour charter (ITC)
- A passenger flight operated according to the conditions of a contract entered into between an air carrier and one or more tour operators that requires the tour operator or tour operators to charter the entire passenger seating capacity of an aircraft for resale by them to the public at an inclusive tour price per seat.
- A passenger charter flight on which both advance booking passengers and inclusive tour participants are carried and that is operated pursuant to Division IV of Part III.
- transborder passenger charter (TPC)
- A one-way or return charter that originates in Canada and that is operated between Canada and the United States according to the conditions of a charter contract to carry passengers, entered into between one or two air carriers and one or more charterers, under which the charterer or charterers charter the entire passenger seating capacity of an aircraft, for resale by the charterer or charterers.
- transborder passenger non-resaleable charter (TPNC)
- A one-way or return charter that originates in Canada and that is operated between Canada and the United States according to the conditions of a charter contract to carry passengers, entered into between one or two air carriers and one or more charterers, under which the charterer or charterers charter the entire passenger seating capacity of an aircraft and do not resell that passenger seating capacity.
- transborder goods charter (TGC)
- A one-way or return charter that originates in Canada and that is operated between Canada and the United States according to the conditions of a charter contract to carry goods, entered into between one or two air carriers and one or more charterers, under which the charterer or charterers charter the entire payload capacity of an aircraft.
In addition to the above 8 definitions, the ATR also defines:
- transborder United States charter (TUSC)
- A charter originating in the United States that is destined for Canada.