Decision No. 46-A-2006

January 30, 2006

File Nos. M4820/C11
M4212/C405-4

Ceske Aerolinie A.S. (Czech Airlines) (hereinafter Czech Airlines) has applied to the Canadian Transportation Agency (hereinafter the Agency) for the authority set out in the title. The application was received on October 18, 2005.

Under Licence No. 961082, Czech Airlines is authorized to operate a scheduled international service in accordance with the Agreement between the Government of Canada and the Government of the Czech Republic on Air Transport signed on March 13, 1996 (hereinafter the Agreement).

Condition No. 2 of Licence No. 961082 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 the Czech Republic.

Under the terms of the Route Schedule of the Agreement, Czech Airlines is entitled to operate up to seven flights per week in each direction between the Czech Republic and Canada, provided that no more than four flights per week in each direction are operated at Toronto.

Pursuant to paragraph 4 of Article XI of the Agreement, capacity in excess of the entitlements set out in the Agreement may be agreed between the designated airlines, subject to the approval of the aeronautical authorities. In the absence of agreement between the designated airlines, the aeronautical authorities may consult and endeavour to reach agreement on capacity.

In its application, Czech Airlines submits that its request is fully justified in the interest of ever-growing business links between Canada and the Czech Republic, as well as growth in the tourism industry between the two countries. Czech Airlines, however, did not provide evidence of concurrence by the airline designated by Canada to serve the Czech Republic, i.e. Air Canada.

Consequently, the Agency requested that Air Canada advise of its concurrence with the application. By letter dated November 16, 2005, Air Canada advises that it has not agreed to the proposed increase in Czech Airlines' services, and that in its view the market size between Canada and the Czech Republic does not warrant service beyond what is currently authorized under the Agreement. Air Canada argues that any additional capacity allowed would only provide further capacity for Czech Airlines to access sixth freedom markets via its hub in Prague. On January 5, 2006, Czech Airlines filed a reply to Air Canada's letter dated November 16, 2005.

On January 10, 2006, the Agency received additional comments from Czech Airlines and Air Canada. However, the Agency found that these supplemental submissions were not necessary for its consideration of the application.

The Agency has reviewed and considered the application. The Agency notes that capacity entitlements specified in an agreement reflect a negotiated exchange of economic benefits and an assessment by governments of the balance between demand for transportation between the countries and the demand for transportation via those countries to other geographic areas. The flexibility provided by the option permitting designated airlines to agree on temporary increases in capacity is a means to allow designated airlines to respond to changes in demand for transportation when increased capacity would be to their mutual benefit. The Agreement does not provide for the aeronautical authorities to unilaterally approve increases in capacity in the absence of agreement between the designated airlines.

While the Agency favours a flexible approach to increases in capacity, the Agency also recognizes the need to ensure that there is a balance of benefits available to the designated airlines of both Parties. The Agency notes that such balance is best achieved through an amendment of the Agreement, which is normally the subject of bilateral air negotiations. In view of the above, the Agency has determined that it would not be appropriate at this time to approve a temporary increase in capacity for the 2006 IATA summer season in the absence of support from the Canadian designated airline.

Accordingly, the Agency hereby denies the application by Czech Airlines for approval to operate two additional weekly flights between Canada and the Czech Republic, in order to operate a total of five flights per week in each direction at Toronto and four flights per week in each direction at Montréal, during the 2006 IATA summer season.

Members

• Baljinder Gill
• George Proud