Decision No. 397-C-A-2001

July 12, 2001

File No. M4370/A74/00

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COMPLAINT

On July 17, 2000, Earl S. Roberts filed with the Air Travel Complaints Commissioner the complaint set out in the title. However, due to the regulatory nature of the complaint, it was referred to the Canadian Transportation Agency (hereinafter the Agency) on November 22, 2000.

On December 18, 2000, Agency staff requested that Air Canada address the complaint within the context of sections 111 and 113 of the Air Transportation Regulations, SOR/88-58, as amended (hereinafter the ATR).

By letter dated January 17, 2001, Air Canada requested an extension until February 2, 2001 to file its answer to the complaint, and by Decision No. LET-A-27-2001 dated January 22, 2001, the Agency granted the requested extension. On February 2, 2001, Air Canada filed its answer, and on February 12, 2001, Mr. Roberts filed his reply to the answer.

Pursuant to subsection 29(1) of the Canada Transportation Act, S.C., 1996, c. 10 (hereinafter the CTA), the Agency is required to make its decision no later than 120 days after the application is received unless the parties agree to an extension. In this case, the parties have agreed to an extension of the deadline until July 31, 2001.

ISSUE

The issue to be addressed is whether the Agency, acting pursuant to sections 111 and 113 of the ATR, should intervene, by virtue of Article 5 of the Air Transport Agreement between the Government of Canada and the Government of the United States of America (hereinafter the Canada - U.S.A. Agreement), in the matter of Air Canada's penalty fee for the cancellation of reservations applicable to transportation between the United States of America and Canada.

POSITIONS OF THE PARTIES

Mr. Roberts submits that the US$75 per ticket penalty fee assessed by Air Canada for the cancellation of reservations for the Roberts' round trip travel between New York City, New York, United States of America, and Montréal, Quebec, Canada, on April 5, 2000, is unreasonable. Mr. Roberts cancelled the trip for medical reasons, and intended to rebook in August 2000 for travel in September 2000. He states that the US$75 fee Air Canada imposes for cancellation is "clearly unreasonable", particularly when such cancellations are due to medical reasons, and that the fee is a "self-serving tariff provision", as a US$75 fee may be "reasonable" when applied to a $1,000 fare, but is "clearly unreasonable" when applied to a US$123.60 fare. Further, Mr. Roberts states that the fee is an "illegal penalty and not a legitimate liquidated damage provision". Mr. Roberts also notes that as he cancelled the trip on March 30, 2000, Air Canada had ample opportunity to resell the seats.

In its answer to Mr. Roberts' request to waive the penalty fee, Air Canada states that although it is sympathetic to the special circumstances surrounding Mr. Roberts' request, it cannot waive the penalty fee as doing so would discriminate against passengers who have paid a higher fare to "avail themselves of the privilege of cancelling or changing their reservations at any time".

In its answer to the complaint, Air Canada notes that at the time the tickets were purchased, Mr. Roberts was advised that they were non-refundable and that a US$75 fee per ticket would be imposed for reservation changes. Air Canada adds that these penalty provisions were clearly indicated on the Roberts' tickets, and that, according to Air Canada's records, Mr. Roberts did not indicate, at the time of ticket purchase, that the penalty fee was unreasonable. Air Canada adds that Mr. Roberts also did not choose to purchase the cancellation insurance, as provided for in the notice highlighted on his ticket itinerary/receipt.

Air Canada maintains that it is just and reasonable to impose cancellation fees, as without such fees, passengers travelling on discounted fares would have the same flexibility as full fare paying passengers, and Air Canada would find it virtually impossible to estimate passenger load factors on flights. Further, Air Canada asserts that the US$75 fee is neither disproportionate, nor an unreasonably large sum. In this regard, Air Canada notes that other carriers now charge higher penalty fees.

In his reply, Mr. Roberts states that Air Canada has not responded to his contention that the Air Canada fee is a penalty and does not constitute a liquidated damage. Mr. Roberts maintains that the fee does not qualify as liquidated damage, as a "reasonable attempt by both parties to approximate actual damages" had not been agreed to in advance. As the fee is a penalty and not a liquidated damage, Air Canada cannot claim that it need not offer him a refund because he was aware of the penalty fee, nor can Air Canada argue that cancellation insurance would have provided coverage on "medical grounds".

Mr. Roberts maintains that the fee is not just and reasonable because it is unrelated to cost or services provided. He feels that Air Canada's premise that the fee is just because other carriers impose higher penalty fees "does not make it legal", nor does Air Canada's argument that, without these fees, predicting passenger load factors would be impossible.

ANALYSIS AND FINDINGS

In making its findings, the Agency has considered all of the evidence submitted by the parties during the pleadings. The Agency has also examined the Canada - U.S.A. Agreement and Air Canada's tariff provision on the penalty fee assessed in Mr. Roberts' case, as set out in category 16, Rule 4275 of the Canadian Passenger Rules (CPR) Tariff, published by the Airline Tariff Publishing Company.

The Agency's jurisdiction over complaints concerning prices, and terms and conditions of carriage applicable to transportation to and from Canada is set out in sections 111 and 113 of the ATR. Pursuant to section 111 of the ATR, the Agency may take certain remedial action where the Agency finds that,

• the air carrier has established prices and terms and conditions of carriage that are unjust and unreasonable;
• the prices and terms and conditions of carriage are unjustly discriminatory; or
• the prices and terms and conditions of carriage give undue or unreasonable preference or advantage to any person, or subject any person to prejudice or disadvantage.

Further, if the Agency finds that the air carrier has contravened section 111 of the ATR, the Agency may, pursuant to section 113 of the ATR:

• suspend or disallow the price and term and condition of carriage; or
• substitute the price and term and condition of carriage.

Pursuant to section 78 of the CTA, the powers conferred on the Agency shall be exercised in accordance with any international agreement to which Canada is a party - in the case at hand, the Canada - U.S.A. Agreement.

Paragraph (1), Article 5, Pricing, of the Canada - U.S.A. Agreement provides that:

The Parties acknowledge that market forces shall be the primary consideration in the establishment of prices for air transportation. Intervention by the aeronautical authorities shall be limited to:

(a) prevention of unreasonably discriminatory prices or practices;

(b) protection of consumers from prices that are unreasonably high or restrictive because of the abuse of a dominant position;

(c) protection of airlines from prices to the extent that they are artificially low because of direct or indirect governmental subsidy or support; and

(d) protection of airlines from prices that are artificially low, where evidence exists as to an intent of eliminating competition.

Further, Article 23, Definitions, of the Canada - U.S.A. Agreement states that:

"Price" means any fare, rate or charge (including discounts, frequent flyer plans or other benefits affecting the cost of air transportation) for the carriage of passengers (and their baggage) and/or cargo (excluding mail), or the charter of aircraft charged by airlines, including their agents, and the conditions governing the availability of such fare, rate or charge but excluding general terms and conditions of carriage which are broadly applicable to all air transportation and are not directly related to the fare, rate or charge.

Air Canada's applicable tariff provision, as set out in category 16, Rule 4275, of the Canadian Passenger Rules (CPR) Tariff, states, in part, that:

Tickets are non-refundable.

Note: Full value of a ticket may apply to future travel providing the following conditions are met:

• carrier compensation fee of CAD$100/US$75 is assessed at the time of reissue
• travel occurs within one year of the original ticket issuance

Changes before departure: charge of CAD$100/US$75 is assessed for reissue/revalidation

Note: Voluntary rerouting/flight changes permitted provided:

• new itinerary meets all conditions of the original fare
• new itinerary is of equal or higher value

The Agency notes that Air Canada applied its tariff provision by imposing the US$75 fee in the case at hand.

The Agency finds that the US$75 fee is a "price" pursuant to Article 23 of the Canada - U.S.A. Agreement. The fee is a condition governing the availability of the fare in question and is directly related to it. This fee is not broadly applicable to all fares, as it is not applied to higher priced full economy, business or first class fares.

In view of the foregoing, and pursuant to paragraph (1), Article 5, Pricing, of the Canada - U.S.A. Agreement, the Agency can intervene in the matter and exercise the powers conferred on the Agency by virtue of sections 111 and 113 of the ATR only if it determines that the fee applied by Air Canada is unreasonably discriminatory, high or restrictive.

On the issue of whether the penalty fee is unreasonably discriminatory, the Agency finds that Air Canada applied the fee equally to all passengers purchasing the fare bought by Mr. Roberts, and to similarly reduced fares offered by the carrier. Therefore, the Agency is of the view that the fee is not unreasonably discriminatory.

On the issue of whether the penalty fee is unreasonably high or restrictive, the Agency finds that Air Canada did not charge an unreasonably high or restrictive fee. The Agency notes that this fee is applied to discounted fares, is proportionate with the objective of dissuading travellers from changing their travel dates, and is not excessive because changes remain practically possible. A change fee, which is commonly applied by air carriers in respect of discounted fares, assists airlines to predict, with a certain degree of reliability, the level of occupancy of their flights. Also, the Agency notes that all carriers publishing fares between New York City and Montréal applied a US$75 change fee to such fares on the date on which Mr. Roberts filed his complaint. Finally, the Agency is cognizant that, in many instances, deeply discounted fares offered by air carriers have more restrictive conditions of carriage than those applied by Air Canada to the fare in question, including a condition that does not permit any changes to be made to tickets.

CONCLUSION

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