Decision No. 230-A-2008

April 30, 2008

File Nos. M4212/A949-4
M4820-U7

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Under Licence No. 030049, AeroSvit Airlines (AeroSvit) is authorized to operate a scheduled international service in accordance with the Agreement between the Government of Canada and the Government of Ukraine on Air Transport signed on January 28, 1999 (the Agreement).

Condition No. 2 of Licence No. 030049 states:

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 Ukraine.

Under the terms of the Agreement, designated airlines of Ukraine may operate up to a total of three flights per week at Toronto, but when operating three flights, an intermediate or beyond stop at Chicago is required on at least one flight per week.

Due to the extra-bilateral nature of AeroSvit's requested authority, the Canadian Transportation Agency (the Agency) gave notice of the application to parties that may have an interest, namely Air Canada, Skyservice, WestJet and the Greater Toronto Airports Authority (the GTAA). Each of these parties filed an intervention in respect of the application.

The Agency also received correspondence in support of the application from the Embassy of Ukraine in Canada and the State Aviation Administration of Ukraine.

POSITIONS OF THE PARTIES

AeroSvit argues that due to its current fleet rotation limitations and the limitations on its requisite economic and operational authority from the United States of America, it will not be technically able to operate with an intermediate stop at Chicago.

AeroSvit notes that under the terms of the Agreement, it has the right to carry fifth freedom traffic on two flights per week in each direction between Toronto and Chicago. AeroSvit states that it is "prepared to renounce" this right, and "simply use the third frequency available to it for its bilateral point-to-point transportation." AeroSvit submits that by offering three flights per week to Toronto without service to Chicago, it is underutilizing the authority as envisioned by the Agreement.

AeroSvit argues that its request does not substantially depart from the existing capacity allocations allowable to Ukrainian carriers under the Agreement, and is thus not detrimental to the interests of any Canadian carriers. WestJet is not opposed to AeroSvit's request, but Air Canada and Skyservice both raise concerns with respect to the last round of bilateral negotiations held with Ukraine, and the interests of Canadian carriers in expanding the rights available under the Agreement.

Skyservice notes that during bilateral talks held in March 2006, Ukraine was not favourable to amending the Agreement so as to permit Skyservice to introduce an own-aircraft air service to Lviv, Ukraine. Skyservice indicates that it remains interested in offering an own-aircraft service to Ukraine. Although not opposed in principle to AeroSvit's application, Skyservice requests that Ukraine grant reciprocity to interested Canadian carriers in return for the Agency granting AeroSvit the requested authority. In its response, AeroSvit submits that the issues raised by Skyservice can only be addressed within the intergovernmental bilateral process.

Air Canada also recalls the inconclusive round of talks in March 2006, and notes that although Canada provided statistics to Ukraine at its request, Ukraine has not signalled a desire to revisit the Agreement. Air Canada is concerned that AeroSvit is now seeking to obtain a unilateral and unreciprocated increase in its capacity entitlements, and urges the Agency to deny the application.

Finally, AeroSvit, the GTAA and Air Canada each made submissions with respect to traffic demand for the proposed service. AeroSvit argues that its inability to operate three flights per week between Kyiv and Toronto will disadvantage the travelling public for the peak summer season. AeroSvit and the GTAA both argue that there is sufficient bilateral traffic demand to justify a third flight, while Air Canada contends that the service would only be used to carry traffic between Canada and third countries beyond Ukraine.

ANALYSIS AND FINDINGS

The Agency may grant temporary authority pursuant to subsection 78(2) of the Canada Transportation Act, S.C., 1996, c. 10, as amended (the CTA) for a service which is not permitted in a bilateral air transport agreement. Action by the Agency to permit an air service under subsection 78(2) of the CTA is therefore an exception that goes beyond the rights that countries have negotiated between themselves.

With respect to the comments made concerning the traffic demand for the third flight per week, the Agency finds that AeroSvit already has the right to offer the third frequency, so long as it is in conjunction with service to Chicago as an intermediate or beyond point. Thus, whether there is demand for a third flight on the route Kyiv-Toronto is not the fundamental issue for considering whether to exempt AeroSvit from the requirement that it operate the third flight to Toronto in conjunction with Chicago.

The Agency disagrees with AeroSvit's characterization of its proposed service as an underutilization of its authority. Whether AeroSvit chooses to make use of its fifth freedom rights, which it states it is prepared to "renounce," the Agreement clearly requires service to Chicago on a third weekly flight. While AeroSvit does not want to serve Chicago, the Agency recognizes that this requirement is the product of a negotiated exchange where economic opportunities and benefits for both Parties to the Agreement have been carefully balanced.

As indicated by Skyservice and Air Canada, at intergovernmental air transport negotiations with Ukraine held in March 2006, Canada attempted to enhance the route rights available under the Agreement to accommodate Canadian carrier interests, and was willing to consider Ukraine's interests in exchange. The Agency understands that these talks were inconclusive as Ukraine preferred to study the market before committing to meet again.

While the Agency acknowledges the comments made by AeroSvit and the GTAA with respect to the potential benefits to consumers of a third Kyiv-Toronto flight, the Agency also recognizes the need to ensure that there is a balance of economic opportunities and benefits available to the carriers of both Parties.

The Agency is mindful of the continued interest of Canadian carriers to expand the rights currently available under the Agreement, the concern that the achievement of such expansion has not been possible in the past and the uncertain future prospects of satisfying Canadian interests. Therefore, the Agency considers that this matter is best addressed through intergovernmental consultations. The Agency finds it inappropriate at this time to approve AeroSvit's request for extra-bilateral authority.

CONCLUSION

Accordingly, the Agency denies the application by Aerosvit to operate a third round-trip flight per week on the route Kyiv-Toronto without serving Chicago as an intermediate or beyond point from June 19 to September 4, 2008.

This Decision does not preclude AeroSvit from offering three flights per week on the route Kyiv-Toronto, so long as Chicago is served as an intermediate or beyond point on one flight per week.

Members

• J. Mark MacKeigan
• Raymon J. Kaduck