Order No. 2008-A-352

September 10, 2008

File No. M4210/A957-1

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APPLICATION AND LEGISLATIVE FRAMEWORK

On August 27, 2008, Air Canada applied to the Canadian Transportation Agency (the Agency) for a reduction in its year-round non-stop scheduled air service between Québec, Quebec and the Magdalen Islands, Quebec (operated by Air Canada Jazz) effective October 26, 2008.

It is important to note that the Canada Transportation Act (the CTA) and the Air Transportation Regulations, SOR/88-58, as amended, do not empower the Agency to reject a notice of discontinuance of service. The Agency may only determine whether to allow a reduction in the period of notice to be given for such a discontinuance.

Under Licence No. 972089, Air Canada is authorized to operate a domestic service, medium aircraft, a domestic service, large aircraft and a domestic service, all-cargo aircraft.

In support of its application, Air Canada submits that continuous increase in the cost of fuel in recent months has impacted all its services and, in particular, the less profitable routes. Further, attempts to increase fares to offset the cost of fuel to customers resulted in a decrease in demand.

Air Canada points out that in mid-June 2008, it announced important cost reduction measures across its network, including an overall reduction in capacity, which will result in the termination of certain domestic, transborder and international routes.

Air Canada submits that in line with these cost cutting measures, it has decided to discontinue service on the Québec - Magdalen Islands route, operated by Air Canada Jazz, for which subsection 64(1.1) of the CTA would apply. That is, the proposed service discontinuance will result in a reduction of at least 50 percent of the weekly passenger-carrying capacity of all licensees operating year-round non-stop scheduled air services between the points.

Subsection 64(2) of the CTA requires, among other things, that a licensee not implement a proposal to discontinue a service referred to in subsection 64(1.1) until the expiry of 120 days, or any shorter notice period that the Agency may specify by order.

The Agency has considered the matter and finds that following the discontinuance of Air Canada's year-round non-stop scheduled air services between Québec and the Magdalen Islands, there will be a reduction, as compared to the week before the proposal is to take effect, of at least 50 percent of the weekly passenger-carrying capacity of all licensees operating year-round non-stop scheduled air services between these points. Therefore, the Agency finds that subsection 64(1.1) of the CTA applies to this application.

Pursuant to subsection 64(3) of the CTA, the Agency, in considering whether to specify a shorter notice period, shall have regard to the adequacy of alternative modes of public transportation available at or in the vicinity of the point in question or between the points concerned; other means by which air service to the point or between the points is or is likely to be provided; whether the licensee has complied with subsection 64(1.2); and the particular circumstances of the licensee.

ANALYSIS AND FINDINGS

The Agency has examined the application and the factors identified in subsection 64(3) of the CTA, as they apply to this particular case.

The Agency has considered other means by which air service between the points is or is likely to be provided between Québec and the Magdalen Islands.

Air Canada offers alternate air services to the Magdalen Islands: seasonal non-stop, daily flights with a Dash 8 aircraft between Montréal and the Magdalen Islands (intended for the peak summer period, e.g.,in 2008, operated between mid-June and early September), and year-round, twice daily flights with a Dash 8 aircraft between Montréal and the Magdalen Islands, with two stops of approximately 30 minutes each, one in Québec and another in Gaspé. In addition, Pascan Aviation Inc. operates year-round flights five times per week using a Jetstream aircraft between St-Hubert and the Magdalen Islands with two stops, one in Québec and another one in Bonaventure.

Air Canada suggests that consumers may also travel by car between Québec and Souris, Prince Edward Island (a distance of 930 kilometres) with a connecting ferry to the Magdalen Islands. Groupe C.T.M.A. operates a year-round ferry service between Souris and the Magdalen Islands. These services are operated at least 6 times per week during the summer, and at least 3 times per week during the winter. The Agency does not give much weight to this alternative, but notes that it is available.

Further, in considering the particular circumstances of Air Canada, the Agency notes that Air Canada has stated that it has suffered considerable financial loss on this route for the past several months, and will continue to do so until the route is terminated, and, as a result has proposed to discontinue these services effective October 26, 2008.

The Agency also notes Air Canada's submission that passengers who made reservations on flights between Québec and the Magdalen Islands that were to be operated after October 26, 2008, will be automatically re-protected on Air Canada's service between Montréal and the Magdalen Islands, which stops in Québec and Gaspé. The passengers will be contacted with the new itinerary. Air Canada states that if such arrangements are not acceptable to the passengers, it will refund all monies paid by them upon request.

The Agency is of the opinion that the notice provisions ensure that communities with limited air service, usually remote communities, are made aware enough in advance of reductions in or discontinuances of air services in their community. Once advised, the elected officials and the general population of the affected communities may choose to seek a replacement carrier. Carriers of the affected area are also made aware of the situation by the notice and can take advantage of an opportunity to enter that market.

In this case, the Agency notes that Air Canada has indicated that it intends to provide an opportunity for the elected officials of the municipal or local government of the community of the points involved in this application to meet and discuss with Air Canada the impact of the proposed discontinuance or reduction.

Therefore, the Agency determines that notice, on or about September 10, 2008, of the proposal by Air Canada to discontinue domestic services between Québec and the Magdalen Islands effective October 26, 2008 is sufficient.

CONCLUSION

Accordingly, the Agency orders Air Canada to not implement its proposal to discontinue its year-round non-stop scheduled air services between Québec and the Magdalen Islands until October 26, 2008, subject to the following conditions:

1. Air Canada is required to provide notice to the following parties of its proposed discontinuance of services and file proof of all notifications with the Agency:
   
   • the federal Minister of Transport;
   • the minister responsible for transportation in the province of Quebec;
   • elected officials of the municipal or local governments of Québec and the Magdalen Islands; and
   • the local communities of Québec and the Magdalen Islands, by publishing, in both official languages, a notice in the newspapers with the largest circulation in each of those communities.
2. Air Canada, as soon as possible, shall provide an opportunity for elected officials of the municipal or local government of the communities of Québec and the Magdalen Islands, to meet and discuss with Air Canada the impact of the proposed discontinuance and provide confirmation to the Agency that this has been done.
3. Air Canada shall ensure that passengers already booked on flights beyond October 26, 2008 are re-protected on other Air Canada services between Montréal and Magdalen Islands or provided refunds.