OTTAWA, October 24, 2012 — The Competition Bureau announced today that it has reached a Consent Agreement with Air Canada and United Continental Holdings, Inc. that will protect consumers and preserve competition on 14 key, high-demand air passenger routes between Canada and the United States.
In October 2010, Air Canada and United Continental announced a proposed joint venture that would, in effect, merge all of the airlines' operations on flights between Canada and the United States. In addition to reviewing the proposed joint venture under the merger provisions of the Competition Act, the Bureau also reviewed three existing "coordination agreements" between Air Canada and United Continental under section 90.1 of the Act. Section 90.1 is a new civil provision that came into force on March 12, 2010, allowing the Commissioner to challenge anti-competitive agreements between competitors.
The existing coordination agreements are:
- the Marketing Cooperation Agreement between Air Canada and United Air Lines, Inc.;
- the Alliance Expansion Agreement between Air Canada and United Air Lines, Inc.; and
- the Air Canada/Continental Alliance Agreement between Air Canada and Continental Airlines Inc.
The Consent Agreement prohibits Air Canada and United Continental from coordinating on key aspects of competition, including joint pricing and revenue sharing on 14 transborder routes where such coordination between the airlines would have resulted in harm to consumers. The Consent Agreement will remain in force for as long as any one of the coordination agreements or the joint venture remains in force.
In June 2011, the Commissioner of Competition filed an application with the Competition Tribunal, in which the Bureau identified 19 transborder routes where such coordination would result in a substantial lessening of competition. Following a thorough review of further information and analysis regarding the impact of the joint venture and coordination agreements on the 19 routes, the Bureau determined that competition on five of the routes originally identified is unlikely to be substantially harmed as a result of the airlines' coordination and, as a result, the remedy only applies to the 14 remaining routes.
The 14 routes are listed in Table 1, along with Air Canada and United Continental's combined market shares at the time of the Commissioner's application.
|Route||Post Joint Venture Market Share|
Studies regarding markets with similar route concentration have found that significant price increases can result from similar coordination. For example, the U.S. Department of Justice found that fares paid by nonstop passengers increased by as much as 15% on similar routes when competitors are allowed to coordinate. If not for this Consent Agreement, the Bureau anticipated similar price hikes would have resulted in this case.
Should there be a substantial change to competition on any of the 14 routes, the Consent Agreement provides that specific prohibitions can be suspended or reinstated as appropriate.
The Bureau will appoint an independent monitor to ensure that Air Canada and United Continental comply with the terms of the Consent Agreement.
The hearing of this matter before the Competition Tribunal was scheduled to commence in November 2012.
The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.
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