Undertakings to Enhance Competition in a Restructured Airline Industry - Issue Highlights

Backgrounder

December 21, 1999

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Issue #1
Facilitating Entry and/or Expansion for New or Existing Airlines

Divestiture of Canadian Regional Airlines (CRAL).

Air Canada will use its best efforts to sell CRAL on the following terms:

• Within 10 days following the transaction, Air Canada and the Commissioner each choose an expert evaluator to oversee CRAL's sale. The value shall be determined within the next 30-day period. The offer shall be kept open for a period of 60 days.
• Air Canada will sell CRAL at the highest offer at or above the valuation price.
• During the sale period, and for a further 12 months, Air Canada will provide support services to CRAL at current levels.

The sale of Canadian Regional Airlines will foster more competition on regional routes, including those served by Air Canada.

Surrender of Slots at Toronto.

• Air Canada will surrender up to 28 departure/arrival slots per day during peak hours to other Canadian carriers at Lester B. Pearson International, Canada's busiest airport. Eight slots will be surrendered between 7:00 a.m. and 9:00 a.m.; 20 slots between 3:00 p.m. and 8:00 p.m. - and of these, at least two shall be made available in each hour.
• If CRAL is not sold, the number of slots to be divested rises to 42 per day.

The surrender of slots at Canada's major hub airport will encourage entry or expansion by existing and new Canadian air carriers.

Access to Aeroplan Points for Existing Carriers and New Entrants.

• Air Canada is obliged to make available its frequent flier points to eligible Canadian air carriers on commercially reasonable terms.
• Airlines participating in Air Canada's frequent flyer points may still participate in other reward programs.
• These points shall be redeemable on all flights operated by Air Canada or any of its regional carriers.

Frequent flyer point programs are valuable marketing tools. It will now be easier for a new Canadian airlines to attract business travellers.

Interlining/Joint Fares.

• Air Canada will enter into interline and joint fare agreements with any Canadian carrier, providing the carrier meets reasonable industry standards.
• These combined fares will be well displayed on the computer reservation systems, and travel agents will have better access to these combined services.

By Air Canada combining its fare structure with smaller Canadian air carriers, consumers will save money. Instead of having to pay for two full fares on each segment of a trip (as is presently often the case), they will now have the option to buy one ticket at a lower fare.

Surplus Aircraft Certified for the Canadian Market.

• For a period of three years Air Canada will give Canadian carriers the right of first refusal on surplus aircraft.

By attaching conditions to the sale of surplus aircraft, airplanes which have been certified to fly in Canada will be available to new and existing domestic carriers.

Issue #2
Eastern Canadian Discount Operations

Encouraging Discount Carrier Operations.

• Air Canada will assign, at the option of a new discount carrier, the facilities it recently leased at Hamilton airport to other discount carriers requiring facilities at the airport at a price equal to Air Canada's cost.
• In the event that a Canadian discount carrier begins to serve eastern Canada, Air Canada has agreed to refrain from establishing its own domestic airline discount service until September 30, 2001. Should no new carrier come forward, Air Canada's deadline would change to September 30, 2000.

Given the congestion at Toronto's Pearson International airport, Hamilton has emerged as an ideal alternative to a carrier wishing to gain a foothold in Ontario, and points east.

Issue #3
Conditions Imposed on a Dominant Carrier

Travel Agent Commission Overrides.

• To level the playing field, Air Canada has undertaken to change its travel agent commission override program.
• The program is no longer based on revenue performance or market share for domestic services.

The new program, based on Canada/USA (transborder) and international revenues, will no longer penalize travel agents for booking domestic flights of new entrants. The undertakings do not address the amount or level of commissions received by travel agents.

Surrender of Airport Facilities

• Where the combined number of ticketing/check-in positions of Air Canada and Canadian exceed 60 percent of the airport total, Air Canada shall offer to sell to the relevant airport authority or Transport Canada at least 25 percent of the positions currently held by Canadian Airlines. This undertaking applies to Ottawa and Winnipeg as well as to numerous smaller airports.
• At Montreal Dorval International Airport, Air Canada has agreed to sell to Aéroports de Montréal, for common use, three gates and adjoining loading bridges - as deemed acceptable by the Commissioner of the Competition Bureau.
• At Lester B. Pearson International Airport, Air Canada will offer to sell to the Greater Toronto Airport Authority for common use four gates and adjoining loading bridges at Terminal 3.

Freeing up facilities at major airports will open access for new entrants. As well, it will give existing carriers more opportunities to expand their services in some of Canada's most important markets.

Chicago Formula

• Currently, under the so-called 'Chicago Formula' (which covers costs of airport services, security, de-icing) carriers, regardless of size, share equally the first 20 percent of costs and split the remaining 80 percent measured by passenger volume. Air Canada has agreed to change the formula to one which allocates 100 percent of costs on a per passenger basis at selected airports.

This formula change reduces per passenger costs for these services for smaller carriers.

Majority in Interest Rights

• Currently, Majority in Interest rights allow a dominant carrier to delay proposed capital expansion plans at an airport. Air Canada has agreed, under certain circumstances, not to exercise these rights at selected airports.

This ensures that new construction to add facilities will not be delayed.

News Release

Enforceable Undertakings (PDF; 707 KB; 26 Pages)

The Competition Bureau is an independent law enforcement agency
that is responsible for merger review and the lawful conduct of business in Canada,
as defined by the Competition Act.

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For more information, please call:

Ray Pierce
819-953-4308

Frances Phillips
819-994-4994