Archived — (2)Oct.22/99 - Letter from Konrad von Finckenstein to the Honourable David Collenette

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2. Possible Changes in Government Policy

2.1 Airport access

Access to airports is fundamental to establishing a new airline. Since the privatization of airports, the responsibility for access lies with airport authorities that operate the facilities through long-term leases with Transport Canada. These airports should be operated to maximize access for new entrants and other would-be competitors for the dominant carrier.

In some cases, charter carriers are restricted to certain airports. This warrants particular attention given that charter carriers are a potential source of future competition for existing scheduled airline services.

As airport landlord, Transport Canada should carefully monitor airport access to determine what recourse it might have to open access to facilities under the terms of its leases or in the letters patent with the airports authorities. The federal government could provide incentives (reduced rent, for example) to encourage airport authorities to ensure this access.

As stated in section 1.1, in 1995 the government of Canada allocated 16 slots to Canadian and 8 to Air Canada at O'Hare and LaGuardia, at no cost to these carriers. Transport Canada should reassign, on request, a sufficient number of these slots to new entrant Canadian carriers, as is necessary to provide effective competition to the dominant carrier.

With respect to slots at other international airports, such as Heathrow and Narita, Transport Canada should, when possible, reassign, on request, a sufficient number of slots to new entrant Canadian carriers, as is necessary to provide effective competition to the dominant carrier. When necessary, Transport Canada should also negotiate with foreign governments to effect such reassignments.

A process for awarding slots, tailored to the situations encountered at the foreign airports used for transborder and international flights, will need to be developed.

Recommendations

The Competition Bureau recommends that:

Transport Canada use its rights under ground leases and incentives to encourage airport authorities at Canadian airports to adopt policies ensuring equitable and reasonable access to airport facilities for new entrants.

Transport Canada reassign to new entrant Canadian carriers, on request, a sufficient number of the slots at Chicago's O'Hare and New York's LaGuardia that become available as a result of the restructuring recommendations in section 1.1, as is necessary to provide effective competition to the dominant carrier.

Transport Canada take all necessary steps to reassign to new entrant Canadian carriers, on request, the slots that become available in international airports, such as London's Heathrow and Toyko's Narita, as a result of the restructuring recommendations in section 1.1, as is necessary to provide effective competition to the dominant carrier.

2.2 International scheduled and charter carrier policy

As noted above, the proposed restructuring may have competitive impact on selected international routes, depending which alliance the dominant carrier belongs to. This may also have important repercussions for sustaining competition in domestic markets. Canada's international air policy should be adjusted to mitigate such effects.

Charter carriers, for example, depend primarily on international markets. Their ability to provide effective domestic competition is directly tied to their success internationally. Similarly, new entrants will improve their viability if they can access feed traffic from transborder or other international operations.

In the case of Air Canada and Canadian, for example, more than half of their combined revenue comes from routes that go to destinations outside Canada. International markets offer greater growth prospects and higher profitability than do domestic markets, and would be prized by any new entrant.

Canada is a party to more than 60 bilateral air services agreements with countries around the world. These agreements define in detail what cities carriers may serve, the number of carriers allowed to fly these routes, the frequency of service or capacity on these routes, and the approval of prices. In some cases, these agreements are highly restrictive and competition is tightly regulated. In other cases, they permit a more liberal environment in which more than one carrier from each country may fly routes between the countries (known as multiple designation) and more flexibility exists in terms of cities served and prices. Another example of increased flexibility is double disapproval of fares: a carrier may implement a proposed fare unless both countries disallow it.

Various ministerial policy statements articulate Canada's international air policy. The elements of Canada's international air policy related to competition are as follows:

- Carriers receive designation for international scheduled services by applying to the Minister of Transport.

- The Minister will generally designate a single Canadian carrier to an international route until the route generates more than 300,000 one-way origin-destination passengers each year.

- Route rights are subject to a "use-it-or-lose-it" policy.11 This policy allows designated carriers to initially protect their rights during the lengthy planning period, and subsequently by daily code-sharing service with a foreign carrier.

- If no Canadian carrier wishes to serve a route, a oreign carrier may temporarily operate up to two services per week.

To foster further competition in the Canadian airline industry, it is important to create opportunities for new entrant Canadian carriers by making Canada's international air policy more pro-competitive. The possible restructuring that will result in a dominant carrier both internationally and domestically heightens the urgency to address this issue.

Recommendations

The Competition Bureau recommends that:

The Minister adopt a policy to actively seek more liberal aviation agreements. These agreements should seek to achieve such goals as the unrestricted ability of each country to offer service between any point in Canada and any other point in the foreign country, allow double disapproval of fares (or similar liberal fare restrictions), place - no restrictions on capacity and include multiple designation, country-of-origin charter rules and fifth-freedom rights.12

The Minister should propose a new international charter policy that eliminates the distinction between scheduled and charter services whenever the foreign government partner in an air market allows it.

Recognizing the large market share of the dominant carrier and its U.S. alliance partner (either American Airlines or United Airlines), the Minister should consider renewing negotiations with the United States to complete the open skies process begun in 1995. Specifically, Canada should seek reciprocal fifth-freedom rights and modified sixth-freedom rights.13 Fifth-freedom rights would increase competition in international markets. The modified sixth-freedom right is explained more fully in section 2.3.

The Minister, in light of the likely restructuring, develop a more pro-competitive international air policy that:

  • actively encourages new entry of Canadian carriers by reducing from 300,000 the number of one-way origin-destination passengers a country market requires each year on scheduled air service to receive a second Canadian carrier, or by eliminating the rule altogether.
  • provides for the awarding of second designation when the bilateral right to designate multiple carriers exists, even if such designation is sought only to provide code-sharing services.
  • applies the use-it-or-lose-it policy nine months after designation. Carriers should no longer be able to protect a route right by using code sharing on routes for which only one Canadian carrier is designated.
  • includes more flexibility in the use-it-or-lose-it rule for new entrants on routes for which more than one carrier is designated, taking into account the minimum frequency or seasonality of service and the need for a phase-in period.
  • provides for the Competition Bureau to review all new or renewed international alliance agreements entered into by the dominant carrier to ensure compliance with the Competition Act.

2.3 Modified sixth freedom

Sixth freedom refers to the right of a carrier to carry traffic from one foreign country to another foreign country via that carrier's home country. For example, a Canadian carrier could pick up passengers in Frankfurt and fly them to Detroit via Toronto. A modified form of sixth freedom involves taking a passenger from a foreign country via the home country back to the foreign country. In the Canadian context, this means that under a modified sixth freedom a U.S. carrier could pick passengers up in Montreal and fly them to Vancouver via Chicago. While it is now possible for a U.S. carrier to carry passengers from Montreal to Chicago and Chicago to Vancouver, it is not possible to sell, market or display, on travel agents' computerized reservation systems, such service on a single-ticket basis.

Granting modified sixth-freedom rights would allow U.S. carriers to sell and market a one-stop service such as Toronto–Chicago–Vancouver. This service would be inferior to non-stop Toronto–Vancouver service and may require customs clearance that the pure domestic flight does not. However, it would instill price discipline on the dominant carrier to the benefit of all travellers, especially business travellers on transcontinental flights. Business travellers are vulnerable in the dominant carrier environment, and charter carriers do not generally target the business market. Consequently, the Bureau is of the view that as a result of the restructuring, the Minister should immediately attempt to implement modified sixth-freedom rights with the U.S.

Normally, fifth- and sixth-freedom rights are negotiated on a reciprocal basis so that carriers in both countries benefit. In the dominant carrier scenario, we believe that the competition problems in the domestic market would be so serious as to warrant the unilateral granting of modified sixth-freedom rights for passenger service.

If immediate implementation is not possible, the Minister should allow modified sixth freedom unilaterally within two years unless there is compelling evidence that new entrants are providing effective competition and price discipline to the dominant carrier.

Recommendations

The Competition Bureau recommends that:

The Minister should immediately attempt to implement modified sixth freedom rights with the U.S. for passenger service.

As the alternative, if immediate implementation is not possible, the Minister should allow modified sixth freedom rights unilaterally within two years unless there is compelling evidence new entrants are providing effective competition and price discipline to the dominant carrier.

2.4 Franchising

Franchising has been applied to the airline industry in a number of countries around the world, but not in Canada. The franchisee owns the assets but uses the franchisor's name, marketing, frequent flyer program and operations manual, among other things. For example, a Canadian-controlled carrier could do business as TWA Canada.

Franchising may give the new entrant a marketing advantage it would otherwise lack, and the Competition Bureau is of the view that no impediments to this concept exist in Canada. Nor should the government create any policies to inadvertently discourage franchising given that it could be helpful to new entrants.

Recommendation

The Competition Bureau recommends that:

The Minister acknowledge the marketing advantages of franchising for new entrants, and consequently should avoid any steps that may inadvertently discourage franchising arrangements in the airline industry.

3. Possible regulatory changes

3.1 Airport access

Slot allocation

Further to the recommendation in section 1.1 that the dominant carrier surrender slots at Pearson, the Bureau recommends that the government develop rules to govern the allocation of slots. Currently, there exists only the general International Air Transport Association protocol, which is intended as guidance. It does not adequately address the competition concerns that would emerge in a dominant carrier scenario. The following recommendations set out guiding principles to govern slot re-allocations.

Recommendation

The Competition Bureau recommends that:

Transport Canada establish a regulatory framework governing the allocation of slots at Canadian airports. Pearson is the only airport currently facing slot constraints; however, the regulatory framework would apply to other airports, such as Vancouver or Dorval, should slot constraint issues arise there. The framework should include the following principles:

  • with respect to any slots voluntarily returned by the dominant carrier to the slot co-ordinator as a result of rationalization; these slots would be earmarked for subsequent allocation to new entrant Canadian carriers.
  • with respect to any slots acquired by the dominant carrier as a result of restructuring (and not voluntarily returned due to rationalization); the slot co-ordinator should make a sufficient number of such slots available to new entrant Canadian carriers who commit to, and are able to, use them, as is necessary to provide effective competition to the dominant carrier.
  • with respect to any slots becoming available to Canadian carriers due to improvements in airport infrastructure; the slot co-ordinator should give priority to new entrant Canadian carriers in allocating these slots.
3.2 International charter regulations

International charter services are subject to regulations developed in 1978. The government recently re-examined these regulations, but has not yet announced a new policy.

Recognizing the anti‑competitive effect of distinguishing between charter and scheduled air service, Canada has eliminated this distinction for its domestic market. Whenever possible, Canada should carry such elimination into the international arena as recommended in section 2.2. Canada should also remove the current regulatory restrictions relating to advance booking requirements, minimum stay, purchase of return transportation, points of departure and return, minimum prices and entity charters. In addition, sales below a minimum price should not be prohibited, nor should there be a floor price rule that prohibits foreign carriers from offering charter capacity below the lowest rate charged by a Canadian air carrier in similar markets.

In our view, when a foreign government continues to distinguish between charter and scheduled air service, the only two criteria for setting charter carriers apart should be a) that charters cannot make direct sales to the public and b) that the entire capacity of the aircraft is chartered.

Recommendation

The Competition Bureau recommends that:

All restrictions for distinguishing between international charter service and international scheduled service be revoked, other than a) the prohibition of direct sales to the public and b) the requirement that the entire capacity of the aircraft be chartered.

3.3 Computerized reservation systems

The Computer Reservation Systems (CRS) are a key component of airline ticket distribution. They allow agents to search for suitable travel options and make real-time reservations. In the early days of these systems, airline owners created biased displays favouring their own flights over those of competitors. As a result, the U.S., Canada and Europe have adopted rules that remove or reduce the potential for most anti‑competitive uses of CRS.

However, there is still room for improvement. For example, the display for a new entrant — who would have only small networks or point-to-point service — will show interline connections, which will not receive as high a priority as on-line connections of the dominant carrier, even if the interline connection has a shorter elapsed travel time. This situation could be mitigated through the recommendation for mandatory code sharing discussed in section 1.5.

Multiple displays of the same flight due to code sharing by alliance partners lead to another problem, know as screen padding. For example, a Canadian flight from Thunder Bay to London, England could be displayed as two on-line connections as well as one or more interline connections. These multiple displays will often push competing travel options onto secondary screens.

Requiring that the same flight not be displayed more than twice would help prevent screen padding and the resulting crowding out of competitive alternatives. A similar rule has been imposed in a number of European cases, and could be implemented in Canada by changing the CRS regulations under the Aeronautics Act.

In addition, many travel agents are concerned about the extent to which airlines have access to the booking information provided by CRS vendors. As a result, airlines know the precise number of bookings each travel agent makes for each carrier on each route. The airlines use this information to target commission overrides and other incentives. It also gives all carriers very detailed information about each other's sales. Allowing a dominant carrier access to detailed marketing information on new carriers could increase its ability to injure competitors. In no other industry do players have such information about their competitors. Such access may be required to compete on international and transborder routes, but there is no reason to allow it for domestic routes.

Recommendations

The Competition Bureau recommends that:

The CRS regulation be amended to prohibit the display of the same flight more than twice.

The CRS regulation be amended to prohibit the sale or acquisition of competitors' CRS booking information for domestic flights.

3.4 Access to foreign capital

The airline industry is capital-intensive. One of the major reasons for failure in the airline industry is undercapitalization. New entrants have a critical need for capital from both domestic and foreign sources.

Under the existing ownership rules, foreigners are restricted to a maximum of 25 percent of the voting shares of a Canadian carrier, and control-in-fact must rest with Canadians. The current framework allows the Governor-in-Council to increase the level of foreign ownership by regulation, as long as Canadian control is maintained. Raising the limit on foreign ownership of voting shares to 49 percent would increase access to foreign capital for carriers competing with the dominant carrier.

Importantly, this may also provide a greater incentive for foreign carriers to strike up alliances with a domestic carrier other than the dominant one. It would not affect the issue of foreign control given that the authority of the Canada Transportation Agency to review control issues would not change.

Recommendation

The Competition Bureau recommends that:

The limit on foreign ownership of voting shares of Canadian air carriers be raised by regulation to 49 percent.

4. Possible legislative changes

4.1 Predatory conduct

A dominant carrier in an industry with significant barriers will have both the incentive and ability to engage in various types of anti‑competitive behaviour, including predation. Predatory conduct is intended to eliminate or discipline a competitor or to deter future entry by new competitors and goes beyond a normal competitive response.

In the airline industry, predatory conduct takes a number of different forms, including predatory pricing. This occurs when an airline temporarily sets low fares to inflict losses on one or more rival airlines, or matches fares while adding additional capacity. Once it has eliminated the competitor, the carrier restores higher prices.

Other predatory conduct may include adding flights to directly target a rival's flights or scheduling new flights to bracket a rival's scheduled flights. Predatory conduct may also include increasing frequent flyer points (for example, awarding triple points), targeting commission overrides to travel agents for the new entrants' routes, and restricting access by competitors to airport facilities. These practices can occur separately or in conjunction with other anti‑competitive practices. The pricing and seat availability information available on CRS and the ease with which a dominant carrier can redeploy its aircraft fleet facilitate such conduct in the airline industry.

The United States Department of Transportation recognized the unique characteristics that contribute to the potential for predation in the airline industry in 1998:

  • "Although the Supreme Court has said that predation rarely occurs and is even more rarely successful, our informal investigations suggest that the nature of the air transportation industry can at a minimum allow unfair exclusionary practices to succeed. Compared to firms in other industries, a major air carrier can price-discriminate to a much greater extent, adjust prices much faster, and shift resources between markets much more readily. Through booking and other data generated by computer reservations systems and other sources, air carriers have access to comprehensive, ‘real time' information on their competitors' activities and can thus respond to competitive initiatives more precisely and swiftly than firms in other industries. In addition, a major carrier's ability to shift assets quickly between markets allows it to increase service frequency and capture a disproportionate share of traffic, thereby reaping the competitive advantage of the S-Curve effect. These characteristics of the air transportation industry allow the major carrier to drive a new entrant from a local hub market. Having observed this behaviour, other potential new entrants refrain from entering, leaving the major carrier free to reap greater profits indefinitely."14

A number of industry stakeholders have called for a new approach to predatory conduct in the airline industry. In particular, they have stressed the need for rapid response by regulatory authorities to take remedial action. Given the nature of the airline industry, new entrants can be quickly driven from the market, and in the presence of significant barriers to entry, will not be able to re-enter easily. This leads to a chilling effect on other potential entrants.

Relevant Provisions of the Competition Act

Two provisions of the Competition Act address predatory conduct. Paragraph 50(1)(c) covers predatory pricing, and is a criminal provision that deals with businesses that "engage in a policy of selling products at prices unreasonably low having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have such effect."

The enforcement approach of the Competition Bureau with respect to paragraph 50(1)(c) is set out in the Predatory Pricing Enforcement Guidelines. As described in the Guidelines, the Bureau, in addition to examining the market structure of the industry and the barriers to entry, analyzes a firm's prices and costs to determine if prices are predatory.

Given that average variable costs in the airline industry are near zero when measured over a short period of time, establishing the criminal offence of predatory pricing under paragraph 50(1)(c), for which the case must be proved beyond a reasonable doubt, is all but impossible. Moreover, this provision is not well suited to providing quick relief from the impugned conduct and does not address other forms of predatory conduct.

In addition, the civil provisions of sections 78 and 79 of the Act provide that, when a dominant firm is engaged in any anti‑competitive act likely to prevent or substantially lessen competition in a market, the Competition Tribunal may prohibit such practice or impose other remedies it deems necessary.

To provide guidance to the Competition Tribunal in determining the nature of the anti‑competitive activity that may be subject to a remedial order, section 78 contains an illustrative list of anti‑competitive acts, including selling articles for less than cost to discipline or eliminate a competitor. The list is non-exhaustive so the Tribunal may deal with anti‑competitive conduct other than that specified in this section of the Act.

In light of the lack of jurisprudence and of a definition in section 78 of what constitutes predatory conduct in the airline industry, the Governor-in-Council should have the power to define acts or conduct that could constitute predation.

The civil provisions currently provide for interim relief; however this is only available when the Commissioner of Competition conducts an inquiry and files an application with the Tribunal. Notwithstanding the lower burden of proof under the civil provisions, it takes considerable time for the Bureau to investigate the merits of complaints and prepare a case for litigation before the Tribunal. Given the extraordinary circumstances in the airline industry, the current provisions of the Act are inadequate to secure timely and effective relief. To provide a remedy that stops the predator from killing its prey, it is essential that interim relief can be quickly obtained.

Given that we are dealing with anti‑competitive behaviour in an industry which falls under federal jurisdiction, it is feasible that the power to define airline specific predatory behaviour be set out in the Competition Act.

Recommendations

The Competition Bureau recommends that:

The Competition Act be amended to give the Governor-in-Council the power to specify, by regulation, acts or conduct that shall be deemed to be an "anti‑competitive act" within the meaning of section 78 of the Competition Act when carried out by an air carrier.

The Competition Act be amended to provide the Commissioner of Competition with the power to make temporary cease and desist orders necessary to prevent injury to competition or irreparable harm to an air carrier with respect of activities that in the opinion of the Commissioner would constitute predatory conduct.

Attached for illustrative purposes as annexes B and C are draft amendments for the two recommendations set out above.

4.2 Canada-only carriers

Your terms of reference instructed the Bureau to assume that any restructuring will take place within the current framework for Canadian ownership and control of air carriers, and that the introduction of foreign carriers on domestic routes will not be considered. The Bureau assumes that the expression foreign carriers refers to foreign-owned airlines operating under foreign licences.

As stated in the introduction of this letter, Canada's policy on foreign ownership is one of the largest regulatory barriers to entry, and the consequences of a dominant carrier scenario are compelling enough to reconsider this policy. The government of Canada has stated that safeguarding the interest of Canadian consumers is one of its principal objectives in any airline restructuring.

Canadian control is required to meet Canada's obligations in designating Canadian carriers to fly the routes covered by all international bilateral agreements. The Bureau is of the view that the government should reconsider its policy regarding ownership and control and adopt an Australia-like model for foreign ownership. Under this model, a specific type of carrier would be created. These Canada-only Carriers would be licensed to serve only domestic routes, and could be up to 100 percent foreign-owned. All other Canadian carriers that are licensed to cross national borders would continue to be required to be Canadian-owned and -controlled.

This model would fully comply with international obligations but allow greater access to foreign capital to finance Canadian airline operations. The Canada-only Carrier would use Canadian crews, be required to comply with all Canadian laws and regulations and be subject to the same competitive conditions and input costs as any other Canadian carrier operating in the domestic market. This model would provide a greater opportunity for creating strongly capitalized new entrants aligned with knowledgeable foreign operators who have the expertise to operate as efficient and effective competitors to the benefit of Canadian consumers. In the Bureau's view, the creation of such Canada-only Carriers could potentially be more effective in contributing to domestic competition than all the other recommendations in this letter.

Recommendations

The Competition Bureau recommends that:

The Canada Transportation Act be amended to allow for the licensing of Canada-only Carriers. Such carriers should be free of any Canadian ownership or control restrictions.

Canadian carriers that fly transborder and international routes would remain subject to Canadian ownership and control restrictions.

Conclusion

There is no doubt that the proposed restructuring process will not only raise very serious competition issues in domestic airline markets, but may also raise competition concerns in transborder and other international markets.

As you requested, I have provided my views regarding those aspects of a potential airline industry restructuring that relate to competition issues. With respect to any particular proposal for restructuring, the Competition Bureau would have to conduct a full merger review before evaluating the competitive consequences and being able to devise any appropriate remedies.

My staff and I would be pleased to provide any elaboration you may require on the recommendations outlined in this letter.

Sincerely yours,

Konrad von Finckenstein, Q.C.


Annex A

Minister of Transport / Ministre des Transports
Ottawa, Canada   K1A ON5

30/8/99

Mr. Konrad von Finckenstein
Commissioner of Competition
Industry Canada
Competition Bureau
50 Victoria Street
Phase 1, 21st Floor
Hull, Quebec
KIA OC9

Dear Mr. von Finckenstein:

On August 13, 1999, Industry Minister Manley and I announced on behalf of the government that an Order had been issued pursuant to section 47 of the Canada Transportation Act 1996 creating a special process to permit our two major airlines and other interested parties to discuss and develop any agreement or arrangement that would lead to the orderly restructuring of the airline industry and the strengthening of its ability to serve the public's interests over the long term. The Order also provides that the Governor in Council will have to approve any tentative agreement prior to implementation and this approval may be subject to conditions to protect the public interest.

One of my responsibilities in this process is to ensure that our national transportation policy objectives are met and that we have a healthy and responsive air industry that meets both our domestic and international needs. In this context, I am sensitive to the competition issues which may arise from any restructuring of the industry which affects our two major carriers.

It is for this reason that I am writing to you today to seek your views regarding those aspects of potential industry restructuring which relate to competition issues. While I would like to have your views on the competition issues pertinent to all market segments, I am most concerned about possible impacts on the domestic environment.

There are some fundamental policy guidelines which will have to be kept in mind in identifying issues or problems affecting competition and possible solutions or conditions to alleviate them. Specifically, any restructuring will have to take place within the current framework respecting Canadian ownership and control of air carriers. This will be Canadian-based restructuring so the introduction of foreign carriers on domestic routes, i.e. cabotage, will not be considered. The policy of designating any interested Canadian air carrier under the Canada - U.S. "Open Skies" air agreement will remain in place. Depending on the form that any industry restructuring may take, however, there may be a need to review Canada's policy with respect to air carrier designation in other international markets.

While I am not asking you to review specific proposals or conditional agreements that may come forward, your review should take into account the possibility of greater concentration in the Canadian industry including the possibility of there being a single major carrier offering the bulk of international scheduled services. You will also want to consider the situation where this same carrier could also be the dominant operator of domestic air services.

I have stated publicly that we must be sensitive to the views of the consumer in our review. I understand the concern that Canadians have regarding prices and service levels, notably to smaller communities. We must take into account the need to ensure that independent carriers have the ability to compete freely everywhere in Canada.

I would invite you, within the guidelines set out above, to identify the competition issues as you see them and to indicate any conditions or government action which you feel would mitigate them. While I am not suggesting a target date for your reply, there is an urgency attached to this exercise, as I would like to have the benefit of your advice while I conduct my analysis of any proposals or conditional agreements that I may receive during the course of the 90-day effectiveness period of the Order. Officials of my department will be available to discuss any questions which Bureau officials might have.

As part of this special process I appreciate your assistance in developing the government's views to ensure that.the interests of Canadians are properly served while allowing the private sector the scope needed to develop proposals for a more lasting industry structure.

Yours sincerely,

Hon. David M. Collenette, P.C., M.P.

Annex B

78.1 The Governor-in-Council may from time to time make regulations specifying acts or conduct that shall be deemed to be an "anti‑competitive act" for the purpose of section 78 and section 79 of the Competition Act, when carried out by a person operating an air service.

Annex C

104.1 (1) For the purposes of this section,

"air service" has the same meaning as it does in Part II of the Canada Transportation Act;

(2) Where

  • (a) the Commissioner has commenced an inquiry under subsection 10(l) in regard to whether any person operating an air service has engaged in conduct reviewable under section 79, and
  • (b) the Commissioner considers that in the absence of a temporary order under this section,
     
    • (i) injury to competition that cannot adequately be remedied by the Tribunal is likely to occur, or
    • (ii) any person is likely to suffer irreparable harm,

the Commissioner may make a temporary order

  • (c) prohibiting any person operating an air service from doing any act or thing that could, in the opinion of the Commissioner, constitute an anti‑competitive act, and/or
  • (d) ordering any person to take such steps as the Commissioner considers are necessary to prevent injury to competition or irreparable harm to any person.

(3) An order issued under subsection (2) shall have effect for such period as is specified in it, not exceeding 90 days.

(4) The Commissioner shall not be obliged to give notice to or receive representations from any person prior to making a temporary order under subsection (2).

(5) On making a temporary order under this section, the Commissioner shall promptly give written notice of the temporary order to all persons against whom the temporary order was made.

(6) Any person against whom the Commissioner has made a temporary order may apply to the Tribunal to have the temporary order varied or set aside.

(7) On application made under subsection (6), the Tribunal may, having regard to the principles ordinarily considered by superior courts when granting interlocutory or injunctive relief,

  • (a) set aside the temporary order of the Commissioner,
  • (b) vary the terms of the temporary order of the Commissioner as it considers necessary and sufficient to meet the circumstances, or,
  • (c) confirm the temporary order of the Commissioner.

(8) The Commissioner has standing to appear before the Tribunal on an application under subsection (6) and before the Federal Court of Appeal on any appeal from a decision of the Tribunal made under subsection (7).

(9) Except as provided for by subsections (6) and (7),

(a) a temporary order made by the Commissioner shall not be questioned or reviewed in any court, and

(b) no order shall be made or process entered or proceedings taken in any court, whether by way of injunction, certiorari, mandamus, prohibition, quo warranto, declaratory judgment, or otherwise, to question, review, prohibit or restrain the Commissioner in the exercise of the jurisdiction granted by this section.

(10) The making of a temporary order under this section shall not in any way limit the authority of the Commissioner to carry out his duties or responsibilities under this Act, including the authority of the Commissioner to conduct inquiries and to make applications to the Competition Tribunal in regard to conduct which is the subject of a temporary order under this section.

(11) A temporary order of the Commissioner shall be registered in the Tribunal and is then enforceable in the same manner as an order of the Tribunal.


Notes

1 Reasons and Order of the Competition Tribunal, D.I.R. v. Air Canada (1993), 49 C.P.R. (3d) 7 (C.T.) At first, the Tribunal declined to issue the order variation requested by the Director for other reasons but went on to outline its findings of fact based on the evidence heard. These findings of fact became operative when the Federal Court of Appeal overturned the Tribunal's earlier ruling and the Tribunal issued the requested order on reconsideration of the matter.

2 Ibid., p. 42.

3 Ibid., p. 49–50.

4 Many jurisdictions distinguish these two classes of customers as separate product markets. The Director did not advance this argument in the Gemini case due to data limitations and the fact that it was unnecessary to refine the product market further. This is because it was evident, even using an overly broad product market definition, that a substantial lessening of competition would result. The result of the city-pair market definition is that there are many relevant markets to consider. In Canada, the top 205 domestic city-pair markets accounted for approximately 90 percent of total domestic traffic. The Tribunal indicated that a substantial lessening of competition in one small city-pair market would not have been sufficient to cause it to issue the requested order, but that such a finding for large individual markets or a number of smaller markets comprising an important proportion of domestic passenger air services would be required.

5 Ibid., p. 45.

6 Ibid., p. 45.

7 Ibid., p. 47.

8 Data for summer 1999 (March 28, 1999 to October 30, 1999), Toronto slot co-ordinator.

9 It is our understanding that Canada no longer allows Stage II aircraft to be imported because these older aircraft are significantly noisier than modern aircraft. Due to concerns about noise pollution in urban areas, older aircraft already in Canada must meet stricter noise standards over a phase-in period. To meet the new requirements, Stage II aircraft, such as the B737-200, have to be hush-kitted — retrofitting the engines to make them quieter — a process that can take two months and cost several million dollars. In addition, depending on where the used aircraft are coming from and their previous history, Canadian safety certification can take six months or more.

10 Computer Reservation Systems, The Avmark Aviation Economist, May 1987, p. 21.

11 Designated carriers have up to one year to start services and may protect the route for another year if the service is not underutilized but traffic is less than originally planned. A designation will be deemed to be underutilized if the incumbent carrier is operating direct service less than twice a week year round with its own equipment, or if it is operating under a commercial agreement with a foreign carrier (e.g. a block space or code-sharing agreement) without using its own equipment on a significant portion of the itinerary and if it is not operating at a daily or near daily frequency of service during peak periods.

12 Fifth-freedom rights refer to the right of a carrier to pick up local traffic in one foreign country and carry it to a third country (for example, a Canadian carrier flying Toronto-New York-London and picking up local passengers in New York).

13 Sixth freedom refers to the right of a carrier to carry traffic from one foreign country to a third country via the home country.

14 Statement of Enforcement Policy Regarding Unfair Exclusionary Conduct, Department of Transportation, Office of the Secretary, April 1998, Docket No. OST-98-3713, Notice 98-16, p. 5.

Date modified: