Decision No. 118-P-A-2002

March 13, 2002

File No. M4370/A74/00-172

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COMPLAINT

On November 13, 2001, Paul McGrath filed with the Canadian Transportation Agency (hereinafter the Agency) the complaint set out in the title.

By Decision No. LET-P-A-460-2001 dated November 27, 2001, both Mr. McGrath and Air Canada were advised that section 66 of the Canada Transportation Act, S.C., 1996, c. 10 (hereinafter the CTA) sets out the Agency's jurisdiction over complaints concerning fares applied by air carriers in respect of domestic services. More particularly, both parties were advised that, pursuant to subsection 66(1) of the CTA, the Agency may take certain remedial action following receipt of a complaint. Additionally, Air Canada was requested to provide the Agency and Mr. McGrath with its answer to the complaint and to comment upon the Agency's preliminary analysis of Air Canada's domestic service between Toronto and St. John's.

On December 18, 2001, Air Canada filed with the Agency a partial answer to the complaint in which it identified that Air Transat was offering a service between Toronto and St. John's during the period in which Mr. McGrath intended to travel. Air Canada maintained that, as such, there was more than one person providing domestic service between Toronto and St. John's within the meaning of section 66 of the CTA, and, therefore, submitted that the Agency does not have jurisdiction to consider the complaint. Air Canada requested that the Agency consider this information and issue a decision with respect to "this preliminary legal issue".

By Decision No. LET-P-A-498-2001 dated December 28, 2001, the Agency determined that Air Canada was the only person providing a domestic service between Toronto and St. John's within the meaning of section 66 of the CTA on November 9, 2001.

By letter dated January 2, 2002, Air Canada requested an extension until January 25, 2002 to complete its answer to the complaint and, by Decision No. LET-P-A-4-2002 dated January 8, 2002, the Agency granted Air Canada the requested extension. Air Canada filed its submission on January 25, 2002 and made a claim for confidentiality concerning some of the information contained therein. In its Decision No. LET-P-A-37-2002 dated February 4, 2002, the Agency determined that the disclosure of the information would likely cause material financial loss to, or prejudice the competitive position of, Air Canada. Therefore, the Agency, pursuant to paragraph 66(8)(b) of the CTA, placed the information in a confidential file.

Mr. McGrath filed his reply on January 29, 2002 and on January 31, 2002, although pleadings had closed, Air Canada filed comments concerning Mr. McGrath's reply.

PRELIMINARY MATTER

Although Air Canada filed its submission in respect of Mr. McGrath's reply after pleadings had closed, the Agency, pursuant to section 6 of the National Transportation Agency General Rules, SOR/88-23, accepts this submission as being relevant and necessary to its consideration of this matter.

ISSUE

The issue to be addressed is whether the fare offered or published by Air Canada in respect of its service between Toronto and St. John's on November 9, 2001, which is the subject of the complaint, was unreasonable.

POSITIONS OF THE PARTIES

Mr. McGrath states that, on August 15, 2001, he purchased a ticket with Canada 3000 Airlines Limited (hereinafter Canada 3000) at a cost of $490 for round-trip travel departing from Toronto on December 21, 2001 and returning from St. John's on January 2, 2002. He maintains that Canada 3000's $490 fare was approximately $200 cheaper than that offered by Air Canada at the same time. He submits that, when Canada 3000 ceased its operations on November 9, 2001, he promptly contacted Air Canada to make alternate arrangements and was quoted a fare of $2,241 for round-trip travel between Toronto and St. John's during the December 21-January 2 period. He states that he advised the customer service representative that his travel dates were flexible within 2 to 3 days for both departure and return, but was advised that "all of the 'cheap seats' were sold" and "expensive seats" were his only option. He maintains that the price quoted by Air Canada is outrageous for three hours of travel and is "clearly unreasonable". Mr. McGrath did not purchase a ticket at the price of $2,241.

In its answer to the fare-related issue raised by the complaint, Air Canada notes that the bankruptcy of Canada 3000 took the industry by surprise, and states that, while it understands Mr. McGrath's desire to immediately make alternate travel plans, "it is unrealistic to expect the industry to react instantaneously to news of that magnitude". The carrier adds that, in the days following Canada 3000's demise, it reviewed its operations and adjusted its capacity. In addition, Air Canada notes that Air Transat A.T. Inc. carrying on business as Air Transat (hereinafter Air Transat) also began offering flights during the Christmas period, when Mr. McGrath wished to travel.

Air Canada states that Christmas is a period of peak demand and that by November 9, 2001, when Mr. McGrath contacted Air Canada to make his reservation, the only seats available on the Toronto-St. John's route were Y1 fares. Further, Air Canada submits that its Y1 fare on the Toronto-St. John's route was the same on November 9, 2001 as it had been on August 15, 2001. Air Canada adds that, had Mr. McGrath booked with Air Canada on August 15, 2001 instead of reserving with Canada 3000, he would have been offered a fare of $519. The carrier states that this fare required an advance 7-day purchase and a Saturday night stay, and that both of these conditions were met by Mr. McGrath's travel plans.

Air Canada maintains that, in considering the reasonableness of the Y1 fare it offered on the Toronto-St. John's route, the Agency must keep in mind certain principles of economics and competition, and submitted a confidential statement prepared by Professor William J. Baumol in support of its position.

Air Canada concludes that the Y1 fare it offered in respect of its domestic service between Toronto and St. John's is not unreasonable.

In his reply to Air Canada's answer, Mr. McGrath reiterates that he contacted Air Canada on August 15, 2001 to enquire as to fares and was quoted a price over $700, so he chose to book with Canada 3000 which was over $200 cheaper. He states that his complaint was based on the following three issues: Air Canada was slow to respond to the Canada 3000 situation; Air Canada provided poor customer service; and Air Canada was offering unreasonable fares in an environment that lacked competition.

In response to Mr. McGrath's reply, Air Canada submits that the Agency does not have jurisdiction to deal with the first two of Mr. McGrath's three issues, and that it has addressed the third issue in its answer of January 25, 2002.

ANALYSIS AND FINDINGS

In making its findings in respect of this complaint, the Agency has considered all of the evidence submitted by the parties during the pleadings, as well as information available both publicly and within the Agency concerning air services provided between Toronto and St. John's 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 for domestic services. Pursuant to subsection 66(1) of the CTA, the Agency may take certain remedial action following receipt of a complaint where the Agency finds that,

1. the air carrier who published or offered the fare which is the subject of the complaint is a licensee who, including affiliated licensees, is "the only person providing a domestic service between two points"; and
2. the fare offered or published by the licensee in respect of the service is unreasonable.

Pursuant to subsection 66(3) of the CTA, when determining whether a fare published or offered in respect of a domestic service between two points is unreasonable, the Agency shall consider the following factors:

1. historical data respecting fares applicable to domestic services between the two points;
2. fares applicable to similar domestic services offered by the licensee and one or more other licensees using similar aircraft, including terms and conditions of carriage and the number of seats available at those fares;
3. any other information that may be provided by the licensee, including information that the licensee provides under section 83 of the CTA.

The present case

Whether the fare offered by Air Canada in respect of its service between Toronto and St. John's on November 9, 2001 was unreasonable

In addition to the material and information described above, the Agency, as required by subsection 66(3) of the CTA, has considered both current and historical data respecting the fares applicable to domestic services offered between Toronto and St. John's 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 the number of seats available at the fares offered, 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. 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 November 9, 2001, Air Canada operated its domestic service between Toronto and St. John's using large aircraft, as defined in the Air Transportation Regulations, SOR/88-58, as amended (hereinafter the ATR);
2. according to the OAG, the distance between Toronto and St. John's is approximately 1,308 air miles; and
3. the origin-destination passenger volume between Toronto and St. John's was approximately 135,700 passengers in 1999 (the last complete year for which such information is available).

The Agency conducted the same analysis in respect of nearly 170 domestic services to identify those which have characteristics similar to those of the service between Toronto and St. John's. 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 Toronto and St. John's within the meaning of paragraph 66(3)(b) of the CTA on November 9, 2001 was Air Canada's service between Vancouver and Winnipeg for the following reasons:

1. WestJet Airlines Ltd. (hereinafter WestJet) operated domestic services between Vancouver and Winnipeg in addition to the service operated by Air Canada;
2. Air Canada operated its service between Vancouver and Winnipeg using large aircraft, as defined in the ATR;
3. according to the OAG, the distance between Vancouver and Winnipeg is approximately 1,158 air miles; and
4. the origin-destination passenger volume between Vancouver and Winnipeg was approximately 184,210 passengers in 1999.

The Agency, in relating to Air Canada the results of its preliminary analysis of Air Canada's domestic service between Toronto and St. John's, asked the carrier to comment upon the Agency's choice of the service offered between Vancouver and Winnipeg as a similar domestic service. Air Canada submitted that the usual factors used by the Agency to identify a similar domestic service (set out above) are insufficient to determine a similar domestic service. The carrier recommended that the Agency consider population bases, total number of flights per day operating out of the airports in question, passenger mix (i.e., premium/high/low split), network contribution and a comparison of the trend of fares on the routes under review. Air Canada stated that, as the Agency did not provide it with the details of the analysis undertaken to identify a similar domestic service to be used in its investigation of this complaint, it was unable to comment on the results of the Agency's preliminary analysis.

Data respecting fares applicable to domestic services between Toronto and St. John's and between Vancouver and Winnipeg

The Agency's research has identified that the $2,241 fare which is the subject of the complaint is the sum of the Y1 one-way fare of $1,009 for each of the inbound and outbound legs of the trip (for a total of $2,018), the $20 fuel surcharge, the $30 NAV CANADA surcharge, the $6 insurance surcharge, GST of $145.18, the $10.70 airport improvement fee (including GST) for departure from the Lester B. Pearson International Airport and the $11.50 airport improvement fee (including HST) for departure from St. John's International Airport. Of these components, the Agency will conduct its analysis and make its determination with respect to the $1,009 one-way Y1 fare only, which will be analyzed below.

In conducting its analysis, the Agency reviewed the fares offered by air carriers for travel in respect of the domestic services operated between Toronto and St. John's on November 9 in 1999, 2000 and 2001 - that is, from a point in time when the route was served by both Air Canada and Canadian Airlines International Ltd. carrying on business under the firm name and style of Canadian Airlines International or Canadi*n Airlines or Canadi*n (hereinafter Canadi*n), including their affiliates, Canada 3000 and Air Transat, to the date of the complaint. The Agency has also reviewed the fares offered by Air Canada on the Vancouver-Winnipeg route for those dates.

The Agency also considered the Y1 fare offered by Air Canada on its Toronto-St. John's route in relation to the Y1 fare it offered on the Vancouver-Winnipeg route, and the year-over-year increases in the fare.

1. General overview

An overview of the fares published by Air Canada on its Toronto-St. John's and Vancouver-Winnipeg routes on November 9, 1999, 2000 and 2001 shows that Air Canada offered a selection of fares on each route. With the exception of the Y1, J1 and MOW fares, the fares were non-refundable, round-trip fares that required an advance purchase and were discounted off the basic Y1 round-trip fare by varying percentages.

The Agency's analysis shows that, in each of 1999 and 2000, Air Canada offered a greater number of fares, and fares more deeply discounted, on the Vancouver-Winnipeg route than on the Toronto-St. John's route. By November 9, 2001, however, Air Canada offered a greater number of fares on the Toronto-St. John's route: it had increased the selection on the Toronto-St. John's route and reduced it on the Vancouver-Winnipeg route. Discounted fares in general were more deeply discounted on the Vancouver-Winnipeg route than on the Toronto-St. John's route in each of the years.

2. The Y1 fare

Air Canada argues that the Toronto-St. John's route is 13.45 percent longer than the Vancouver-Winnipeg route. It adds that, in 1999 when Air Canada competed with Canadi*n on the Toronto-St. John's route, the price differential in the Y1 fares offered on the two routes was only 10.1 percent. It adds that by 2001, although fares had increased on both routes, the price differential between the Y1 fares offered on the two routes had fallen to 9.9 percent.

The Agency's research shows that, on both routes, the Y1 fare was the full economy, instant purchase, fully refundable fare, with no conditions or restrictions attached.

The Agency's analysis of historical fares indicates that the Y1 fare was consistently 10 percent higher on the Toronto-St. John's route than on the Vancouver-Winnipeg route on the dates under review. However, it was increased by the same percentage over the period under review - that is, 3 percent on both routes from 1999 to 2000 and nearly 8 percent from 2000 to 2001, as assessed on November 9 of each year. The Agency's research shows that the Toronto-St. John's route is 13 percent longer than the Vancouver-Winnipeg route, and has a 28 percent smaller passenger volume.

The Agency has carefully examined and analyzed the fares offered by Air Canada in respect of its domestic services between Toronto and St. John's and between Vancouver and Winnipeg on November 9, 1999, 2000 and 2001. On the basis of the foregoing analysis, and based on the factors set out in subsection 66(3) of the CTA, the Agency is of the opinion that, with respect to fare levels and year-over-year changes in the amount of the Y1 fare and after consideration of the differences in mileage and passenger volume, Air Canada treated the Toronto-St. John's and Vancouver-Winnipeg routes in a similar manner on the dates under review.

3. Services provided by other carriers on the Toronto-St. John's route

Agency's investigations into fare-related complaints include the examination of fares offered by other carriers who provided a service on the route which is the subject of the complaint. At various times, Canadi*n, Canada 3000 and Air Transat published fares for travel between Toronto and St. John's.

Canadi*n published fares on the route on November 9, 1999 and 2000. The Y1 fare it offered on each of those dates was identical to that offered by Air Canada.

Canada 3000 published fares on the route on November 9, 1999, 2000 and 2001. The amounts of Canada 3000's Y1 fares (the codes were different on each date under review) were lower than those offered by Air Canada; however, Canada 3000's Y1 fares were more restrictive in that they required an advance purchase and had both cancellation and change fees attached to them. Air Canada's Y1 fare had no terms or conditions associated with it; it required no advance purchase, was fully refundable, and there was no charge for changes to the ticket.

Air Transat offered fares on the route only in 2000. The terms and conditions of Air Transat's fares are so dissimilar from those of Air Canada's that any comparison would not be meaningful. However, Air Transat did offer a "Y" class of fare on November 9, 2000. On a round-trip basis, the amount of that fare was considerably lower than the Y1 fare offered by Air Canada, but it applied only to direct flights, required an advance booking, was non-refundable and there was a $100 change fee charged for changes to ticketing prior to departure.

4. Agency findings

In light of the foregoing, the Agency finds that the $1,009 one-way Y1 fare published or offered by Air Canada in respect of its service between Toronto and St. John's on November 9, 2001 was not unreasonable.

CONCLUSION

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