Decision No. 350-P-A-2010

August 18, 2010

File No. M4120-3/09-01491

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INTRODUCTION

[1] On June 20, 2009, Jim Brown filed a complaint with the Canadian Transportation Agency (Agency) alleging that Canadian North Inc. (Canadian North) was offering unreasonable fares and an inadequate range of fares for carriage between Norman Wells, Northwest Territories and Edmonton, Alberta, and Norman Wells, Northwest Territories and Yellowknife, Northwest Territories. Specifically, Mr. Brown submits that the frequency of seat sales, and the discounts associated with these seat sales, offered by Canadian North for carriage in the aforementioned markets, do not compare favourably to markets in which Canadian North has competition.

[2] The Agency subsequently initiated pleadings respecting Mr. Brown's complaint, and requested and received additional fare data from Canadian North.

ISSUES

[3] The issues before the Agency in this complaint are:

• whether, within the meaning of section 66 of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA), Canadian North was, on or about June 20, 2009, the only person providing a domestic service between Norman Wells and Edmonton, and Norman Wells and Yellowknife, and
• if so, whether Canadian North has contravened section 66 of the CTA by offering unreasonable fares and/or an inadequate range of fares for carriage between Norman Wells and Edmonton, and Norman Wells and Yellowknife.

LEGAL FRAMEWORK

[4] The legislative provisions relevant to the present matter are appended.

POSITIONS OF THE PARTIES

[5] Mr. Brown submits that Canadian North operates the same aircraft over the route Edmonton-Yellowknife-Norman Wells-Inuvik and return, and that the fares for carriage over this route vary dramatically. Mr. Brown adds that Canadian North's fares for a flight from Norman Wells to Yellowknife, a point from which alternate carriers are operating services to travel to Edmonton, are exorbitant. Mr. Brown notes that Canadian North applies fares of approximately: $1500 to travel from Norman Wells to Edmonton, a distance of 980 air miles; $980 to travel from Norman Wells to Yellowknife, a distance of 500 air miles; and $150 - $500 to travel from Yellowknife to Edmonton, a distance of 500 air miles.

[6] Canadian North asserts that there is a variety of regular fare options available to consumers throughout the carrier's network and that seat sales are offered throughout the year in all of the carrier's markets. Canadian North maintains that there has been a disparity between the fares for carriage between Yellowknife and Edmonton and those for travel over the carrier's other routes because of a recent change in the competitive environment. In this regard, Canadian North notes that the Yellowknife market came under extreme pressure in December 2008 with the announcement by WestJet of one daily flight between Edmonton and Yellowknife, commencing in May 2009. Canadian North indicates that "[u]ntil that time there were only three carriers providing service to this market – Canadian North, First Air and Air Canada (Jazz)." Canadian North also advises that with WestJet's introduction of one daily flight between Edmonton and Yellowknife, the total number of seats in that market increased by 952 per week. Canadian North submits that the elevated capacity increased the number of available seats at low-end fares, and significantly lowered the levels of these fares. Canadian North maintains that, in such circumstances, it is normal for the new carrier in a market to offer non-compensatory fares in an effort to stimulate demand and capture market share. Canadian North notes that, in this regard, WestJet led the market in August 2009 when the carrier introduced a one-way fare of $55 for carriage between Edmonton and Yellowknife. Canadian North submits that it had little choice but to match this fare, despite its non-compensatory nature, the result of which is to render fares applied on the Yellowknife - Edmonton market incomparable to fares applied on other markets.

[7] In support of its position that its fares for carriage from Norman Wells to Edmonton, and Norman Wells to Yellowknife are in keeping with fares applicable to other markets, Canadian North provided comparative fare data relating to carriage by itself, First Air, WestJet and Air Canada in the following markets: Yellowknife-Cambridge Bay; Yellowknife-Inuvik; Yellowknife-Norman Wells; Yellowknife-Rankin Inlet; Edmonton-Cambridge Bay; Edmonton- Inuvik; Edmonton-Norman Wells; Edmonton-Rankin Inlet; and Edmonton-Yellowknife.

[8] The carrier also filed historical fare data applied by both itself and First Air on the Kugluktuk-Cambridge Bay and Kugluktuk-Yellowknife markets.

[9] Mr. Brown maintains that attractive seat sale fares are offered by Canadian North for travel to/from Yellowknife and Inuvik, but not to/from Norman Wells. Mr. Brown notes that, in his view, a fare of $1,000 for carriage between Norman Wells and Edmonton does not represent a seat sale. Mr. Brown adds that Canadian North has "disconnected the North from the International Market."

[10] Canadian North submits that its seat sale fares represent a discount of 20 percent from the lowest fare. In response to Mr. Brown's comment that Canadian North has disconnected the North from international markets, Canadian North states that its access to international markets ceased when Canadian Airlines was acquired by Air Canada, and that Canadian North's efforts to make arrangements with Air Canada or WestJet for reasonable throughfares have been fruitless.

[11] Mr. Brown contends that there is no difference between a seat sale fare for travel from Inuvik or Norman Wells to Edmonton, even though the distance from Inuvik to Edmonton is 30 percent greater than from Norman Wells to Edmonton. He reiterates that the frequency of discounted fares for travel to/from Inuvik and Yellowknife was greater than that for carriage to/from Norman Wells, and that the fares featured deeper discounts for Inuvik and Yellowknife as compared to Norman Wells. Mr. Brown acknowledged late in the pleading process that "there appears to be a return to something of a balance in offerings recently although in frequency not in price, perhaps the whole notion of complaint has woke somebody up."

ANALYSIS AND FINDINGS

[12] In making its findings respecting the complaint filed by Mr. Brown, the Agency has considered all of the evidence submitted by the parties, as well as data appearing in the Official Airline Guide (OAG) regarding the carriers operating between certain points, the distance between these points, and the flight schedules.

Preliminary issue

Whether, within the meaning of section 66 of the CTA, Canadian North was, on or about June 20, 2009, the only person providing a domestic service between Norman Wells and Edmonton, and Norman Wells and Yellowknife

[13] On or about June 20, 2009, no air carrier other than Canadian North conducted a domestic service between Norman Wells and Edmonton. With respect to the Norman Wells-Yellowknife market, both North-Wright Airways Ltd. and Canadian North operated a domestic service on or about June 20, 2009 on that market. However, the service by North-Wright Airways Ltd. was conducted with a De Havilland DHC-6 Twin Otter aircraft, which is considered to be a small aircraft, as defined in the Air Transportation Regulations, SOR/88-58, as amended (ATR) and involved two intermediate stops. The Agency is of the opinion that, given the aircraft used, and the intermediate stops, the alternative domestic service offered by North-Wright Airways Ltd. on the Norman Wells-Yellowknife market was not a reasonable alternative to that offered by Canadian North.

[14] On the basis of the evidence before the Agency, as well as the fact that Canadian North did not contest this allegation, the Agency has determined that, on or about June 20, 2009, Canadian North was the only person providing a domestic service between Norman Wells and Edmonton, and Norman Wells and Yellowknife within the meaning of section 66 of the CTA.

Fare-related issue

Whether Canadian North has contravened section 66 of the CTA by offering unreasonable fares and/or an inadequate range of fares for carriage between Norman Wells and Edmonton, and Norman Wells and Yellowknife

[15] In accordance with subsection 66(3) of the CTA, in making a finding in such cases the Agency may take into account any information or factor that it considers relevant. In this case, the Agency has considered historical fare data respecting fares applicable to domestic services offered between Norman Wells and Edmonton, and Norman Wells and Yellowknife, and the fares applicable to similar domestic services offered by Canadian North.

Similar domestic services offered by Canadian North and one or more other licensees

[16] Section 66 of the CTA allows the Agency to use a comparison of the subject carrier's fares offered on routes on which there is no, or only limited, competition, with the fares that the same carrier offered on similar competitive routes. The Agency is of the opinion that the intent of section 66 is to ensure that travellers on routes on which there is limited or no competition are offered fares that are broadly comparable in level and range to those offered to travellers on competitive routes.

[17] 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.

[18] With respect to the services which are the subject of this section 66 complaint, the Agency has determined that:

1. on June 20, 2009, Canadian North operated a domestic service between Norman Wells and Edmonton, and Norman Wells and Yellowknife;
2. this domestic service was performed with large aircraft, as defined in the ATR;
3. according to the OAG, the distance between Norman Wells and Edmonton is 1496 kilometres, and between Norman Wells and Yellowknife, 678 kilometres; and
4. the origin-destination passenger volume between Norman Wells and Edmonton was 5,450 passengers in 1999 (the last complete year for which data are available), and between Norman Wells and Yellowknife, 4,150 passengers.

[19] The Agency conducted the same analysis in respect of 22 services offered by Canadian North and one or more other licensees and which have characteristics similar to those of the services Canadian North provided between Norman Wells and Edmonton, and Norman Wells and Yellowknife.

[20] Based on its consideration of the factors outlined above, the Agency has determined that, on or about June 20, 2009, services between the following points represented similar domestic services to those which are the subject of this complaint:

[21] Similar to the Norman Wells-Edmonton route are the following routes:

Inuvik-Edmonton; and

Inuvik-Yellowknife.

[22] This determination of similarity is based on the following facts:

1. First Air operated domestic services between Inuvik and Edmonton and between Inuvik and Yellowknife;
2. these domestic services were operated using large aircraft, as defined in the ATR;
3. according to the OAG, the distance between Inuvik and Edmonton is 1,207 kilometres, and the distance between Inuvik and Yellowknife is 1,086 kilometres; and
4. in 1999, the origin-destination passenger volume between Inuvik and Edmonton was 5,980 passengers, and 9,150 passengers between Inuvik and Yellowknife.

[23] Similar to the Norman Wells-Yellowknife route are the following routes:

Kugluktuk-Cambridge Bay; and

Kugluktuk-Yellowknife.

[24] This determination of similarity is based on the following facts:

1. First Air operated domestic services between Kugluktuk and Cambridge Bay and between Kugluktuk and Yellowknife;
2. these domestic services were operated using medium aircraft, as defined in the ATR;
3. according to the OAG, the distance between Kugluktuk and Cambridge Bay is 431 kilometres, and the distance between Kugluktuk and Yellowknife is 596 kilometres; and
4. no passenger data were available for services between Kugluktuk and Cambridge Bay, and between Kugluktuk and Yellowknife.

[25] Although the aircraft used on these routes is not of the same category as the aircraft used by First Air on the routes in question, the Agency considers that the combination of the other factors is sufficient to establish the services between Kugluktuk and Cambridge Bay and between Kugluktuk and Yellowknife as similar domestic services.

Data respecting fares applicable to domestic services between Norman Wells and Edmonton and between Norman Wells and Yellowknife and to the selected similar domestic services

[26] An overview of the fares published by Canadian North in respect of its domestic services on the Norman Wells-Edmonton, Norman Wells-Yellowknife, Inuvik-Edmonton, Inuvik-Yellowknife, Kugluktuk-Cambridge Bay, Kugluktuk-Yellowknife routes on September 20, 2008, December 20, 2008, March 20, 2009 and June 20, 2009 shows that Canadian North offered a selection of fares for sale on each route.

[27] The fare data filed by Canadian North indicate that it offered a variety of regular one-way fares, bearing the fare basis code "*NORTH", in all of the markets considered by the Agency in respect of Mr. Brown's complaint. In the Norman Wells-Edmonton market, six types of one-way regular fares were offered. For the similar domestic services between Inuvik and Edmonton and between Inuvik and Yellowknife, the same number of types of one-way regular fares were available. In the Norman Wells-Yellowknife market, six types of regular one-way fares were offered by Canadian North, the same number of types of fares available for the similar domestic services between Kugluktuk and Cambridge Bay and between Kugluktuk and Yellowknife, with the exception of one additional fare type in the Kugluktuk-Yellowknife market on the reported date of September 20, 2008, and one additional fare type in the Kulguktuk-Yellowknife market for the reported date of December 20, 2008. All of these fares had largely the same conditions of travel (i.e., no advance purchase, the fares were available for purchase and travel throughout the year, were largely refundable, and had a no change fee).

[28] Canadian North also offered a number of seat sale fares in all of the markets under consideration. These fares, which bear such fare basis codes as "QFALL08", "quot;, ", "quot;QSPING09", "quot;, ", "quot;QSUMMER" and "QFUN", did not require advance purchase, had restricted sales and travel periods, were non-refundable, and had a change fee. For the Norman Wells-Edmonton market, eight seat sale fares were offered by Canadian North during the period under review by the Agency. The same number of seat sale fares was available for the similar domestic services between Inuvik and Edmonton and between Inuvik and Yellowknife. For the Norman Wells-Yellowknife market, Canadian North offered eight seat sale fares, as compared to seven seat sale fares for the similar domestic service between Kugluktuk and Cambridge Bay, and six seat sale fares for the similar domestic service between Kugluktuk and Yellowknife.

[29] The data also reveal that the regular fares applied by the carrier on Inuvik routes were generally more expensive for the similar domestic services than the regular fares for carriage between Norman Wells and Edmonton, and Norman Wells and Yellowknife. For example, the "YNORTH" fare for carriage from Norman Wells to Edmonton on September 20, 2008 was $1,021, as compared to the "YNORTH" fare of $1,119 and $1,039 for travel on the same date from Inuvik to Edmonton, and from Inuvik to Yellowknife, respectively. Similarly, the "VNORTH" fare for carriage from Norman Wells to Yellowknife on December 20, 2008 was $517, as compared to $669 for carriage on the same date from Kugluktuk to Cambridge Bay, and $647 from Kugluktuk to Yellowknife.

[30] With respect to the seat sale fares, the same range of fare types was generally available for both the similar domestic services and for the markets of Norman Wells and Edmonton, and Norman Wells and Yellowknife.

[31] In this regard, seat sale fares such as the "QFALL08", "quot;, ", "quot;QSALE08", "quot;, ", "quot;QSPING09" and "QFUN" fares were available for travel from Norman Wells to Edmonton, Norman Wells to Yellowknife, Inuvik to Edmonton, Inuvik to Yellowknife, Kulgluktuk to Cambridge Bay, and Kugluktuk to Yellowknife.

[32] The seat sale fares for the similar domestic service between Inuvik and Edmonton were more expensive than the fares for carriage between Norman Wells and Edmonton. For example, the "QSALE08" fare travel from Inuvik to Edmonton, the sale period for which was October 20, 2008 until November 2, 2008, was $460, as compared to $416 for carriage from Norman Wells to Edmonton. However, the Agency notes that the seat sale fares for the other similar domestic service between Inuvik and Yellowknife, with the same travel and sale periods, were less expensive than the seat sale fares for carriage Norman Wells-Edmonton, but only by about 16 percent. For example, the "QSALE08" fare was $348 for carriage from Inuvik to Yellowknife as compared to $416 for carriage from Norman Wells to Edmonton.

[33] With respect to the second route in the complaint, Norman Wells-Yellowknife, the levels of the seat sale fares for the similar domestic services were generally higher than the levels for this market. In this regard, the "QFUN" fare, the sale period for which was July 8, 2009 until July 13, 2009, applying to travel from Norman Wells to Yellowknife, was $294, as compared to $296 for carriage from Kugluktuk to Cambridge Bay, and $319 for carriage from Kugluktuk to Yellowknife.

Summary

[34] The Agency's analysis indicates that on an historical basis the fares offered by Canadian North for carriage between Norman Wells and Edmonton and between Norman Wells and Yellowknife were not demonstrably higher than the fares offered by the carrier for carriage over similar domestic services. Similarly, the range of fares applicable to carriage by Canadian North for carriage from Norman Wells to Edmonton and Norman Wells to Yellowknife was comparable to that for the similar domestic services.

Services provided by other carriers on the Norman Wells - Edmonton, and Norman Wells – Yellowknife routes

[35] Agency investigations into fare-related complaints normally include the examination of fares offered by other carriers that provided services on the route which is the subject of the complaint. In this regard, the Agency notes that on or about March 20, 2009, December 20, 2008 and September 20, 2008, Canadian North was the only person providing a domestic service between Norman Wells and Edmonton, and Norman Wells and Yellowknife within the meaning of section 66 of the CTA.

Agency findings

[36] In light of the foregoing, the Agency finds that the evidence before the Agency does not indicate that Canadian North has contravened section 66 of the CTA by offering unreasonable fares and/or an inadequate range of fares for carriage between Norman Wells and Edmonton, and Norman Wells and Yellowknife.

CONCLUSION

[37] Based on the above findings, the Agency dismisses the complaint.

Members

• Raymon J. Kaduck
• Jean-Denis Pelletier, P. Eng.

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Canada Transportation Act, S.C., 1996, c. 10, as amended

Unreasonable fares or rates

66. (1) If, on complaint in writing to the Agency by any person, the Agency finds that a licensee, including affiliated licensees, is the only person providing a domestic service between two points and that a fare, cargo rate or increase in a fare or cargo rate published or offered in respect of the service is unreasonable, the Agency may, by order,

1. disallow the fare, rate or increase;
2. direct the licensee to amend its tariff by reducing the fare, rate or increase by the amounts and for the periods that the Agency considers reasonable in the circumstances; or
3. direct the licensee, if practicable, to refund amounts specified by the Agency, with interest calculated in the prescribed manner, to persons determined by the Agency to have been overcharged by the licensee.

Complaint of inadequate range of fares or rates

(2) If, on complaint in writing to the Agency by any person, the Agency finds that a licensee, including affiliated licensees, is the only person providing a domestic service between two points and that it is offering an inadequate range of fares or cargo rates in respect of that service, the Agency may, by order, direct the licensee, for a period that the Agency considers reasonable in the circumstances, to publish and apply in respect of that service one or more additional fares or cargo rates that the Agency considers reasonable in the circumstances.

Relevant information

(3) When making a finding under subsection (1) or (2) that a fare, cargo rate or increase in a fare or cargo rate published or offered in respect of a domestic service between two points is unreasonable or that a licensee is offering an inadequate range of fares or cargo rates in respect of a domestic service between two points, the Agency may take into consideration any information or factor that it considers relevant, including

1. historical data respecting fares or cargo rates applicable to domestic services between those two points;
2. fares or cargo rates applicable to similar domestic services offered by the licensee and one or more other licensees, including terms and conditions related to the fares or cargo rates, the number of seats available at those fares and the cargo capacity and cargo container types available at those rates;
   
   1. the competition from other modes of transportation, if the finding is in respect of a cargo rate, an increase in a cargo rate or a range of cargo rates; and
3. any other information provided by the licensee, including information that the licensee is required to provide under section 83.

Alternative domestic services

(4) The Agency may find that a licensee is the only person providing a domestic service between two points if every alternative domestic service between those points is, in the Agency's opinion, unreasonable, taking into consideration the number of stops, the number of seats offered, the frequency of service, the flight connections and the total travel time and, more specifically, in the case of cargo, the cargo capacity and cargo container types available.

Alternative service

(4.1) The Agency shall not make an order under subsection (1) or (2) in respect of a licensee found by the Agency to be the only person providing a domestic service between two points if, in the Agency's opinion, there exists another domestic service that is not between the two points but is a reasonable alternative taking into consideration the convenience of access to the service, the number of stops, the number of seats offered, the frequency of service, the flight connections and the total travel time and, more specifically, in the case of cargo, the cargo capacity and cargo container types available.

Consideration of representations

(5) Before making a direction under paragraph (1)(b) or subsection (2), the Agency shall consider any representations that the licensee has made with respect to what is reasonable in the circumstances.

Confidentiality of information

(8) The Agency may take any measures or make any order that it considers necessary to protect the confidentiality of any of the following information that it is considering in the course of any proceedings under this section:

1. information that constitutes a trade secret;
2. information the disclosure of which would likely cause material financial loss to, or prejudice to the competitive position of, the person providing the information or on whose behalf it is provided; and
3. information the disclosure of which would likely interfere with contractual or other negotiations being conducted by the person providing the information or on whose behalf it is provided.