Repeatedly noted were concerns about the Competition Bureau’s draft Enforcement Guidelines on Abuse of Dominance in the Airline Industry.  Witnesses expressed particular concern about the definitions of “dominant position” and “avoidable costs”.  In the view of one witness, the current legislation precludes an airline from pricing its product below “avoidable cost,” in the absence of any generally acceptable notion of how the term should be defined.  With “big” airlines having one definition and “small” airlines having another, the witness expressed the view that there will never be any middle ground; as a result, the concept of avoidable costs must be “thrown out” and replaced with a focus on universality of fares.  This concept would allow all airlines to charge whatever they feel is appropriate in the domestic marketplace, although dominant carriers would have to ensure that fares are consistently applied throughout their domestic market.  For example, if an airline wishes to offer a $99 one-way fare in a market of 700 miles, or about 14 cents per mile, it must charge approximately 14 cents per mile for all of its markets of similar distance and provide an equal portion of its capacity at this fare.  With such a regime, airlines would be unable to cross-subsidize losses on routes where competition exists with windfall profits where they have a monopoly.

Other witnesses commenting on the term “avoidable costs” suggested that the definition does not leave enough room for “reasonable flexibility,” and that it needs to be pre-defined.  It is expected that the Competition Tribunal will hold hearings and make a decision on the method for calculating avoidable costs.

More generally, some witnesses described the draft Enforcement Guidelines as unworkable and unfair, onerous re-regulation, and vicious and vindictive.  According to one group, their effect will be to preclude Air Canada from matching prices that competitor firms have determined to be viable in a competitive environment, and will both punish Air Canada and inhibit, rather than foster, competition.

Predatory behaviour was a major concern for many witnesses.  Proving anti-competitive activity was identified as time-consuming, and mention was also made of challenges to the Competition Commissioner’s authority to issue temporary cease and desist orders and to subpoena information.  While one witness noted that the Competition Bureau has been vigilant in the exercise of its new responsibilities, another argued that it takes too long to adjudicate predation cases; in its view, the process must be more timely.

An argument was made that we have only limited successful competition in Canada because the Competition Bureau lacks the tools it needs to “reign in” airlines that continuously abuse their position in the marketplace.  From this perspective, the witness argued that, unless the situation changes, it is unlikely that Canada will see any new carriers able to challenge Air Canada’s dominant position.  The bottom line may be that, as stated by one witness, predatory behaviour such as predatory pricing hurts consumers, shippers and all Canadians.

As well, frequent flyer programs and access to financial resources may be viewed as tools of predatory behaviour.  Nevertheless, the Committee was told that the commitments and undertakings made by Air Canada to the federal government and the Competition Bureau have had some positive impact in facilitating entry into the industry.

A variety of opinions were expressed about ownership limits, both foreign and in Air Canada.  While one witness indicated that the current foreign ownership limit is satisfactory, another noted a continued need to increase the limit to 49%.  A witness suggested that any Canadian should be able to hold up to 25% or 30% of shares in Air Canada.

On the key issues of reciprocal cabotage, Canada-only carriers and modified sixth freedom rights, most witnesses overwhelmingly opposed the introduction of these measures to enhance competition, although one witness supported Canada-only carriers and modified sixth freedom rights.  They generally described such measures as “fatal” to the survival of the Canadian domestic airline industry and of questionable long-term benefit to consumers. Moreover, in the view of some, such measures are not needed and should only be used in the event that the current Canadian air policy fails to result in a viable and competitive domestic market.  In their opinion, it may be appropriate to examine these measures during the built-in reviews provided by the government.

In any event, the suggestion was made that “reciprocal” cabotage is not currently of interest to the United States.  As stated by one witness, Canada needs strong carriers to compete in the global marketplace; strength would not be achieved by making it more difficult for them to establish themselves in their domestic market.

Finally, witnesses noted the lack of a long-term policy for Canadian air services and the need for active public oversight and direction, given the importance of air transport to Canada’s economic and social well-being.  One witness described the recent extension of the Canadian Transportation Agency’s fare review and route exit notification provisions as marginal, and suggested that the Competition Commissioner’s enhanced powers were not a positive change, given the Competition Bureau’s very narrow mandate and the Commissioner’s lack of scope or vision to deal with the airline industry in a useful way.  Another witness argued for the establishment of sunset provisions that would withdraw the recently-augmented powers of the Canadian Transportation Agency and the Competition Bureau once the airline industry evolves and is no longer characterized by a dominant carrier.

PROTECTING THE PUBLIC INTEREST

While some of the legislative changes made last year were designed to improve consumer protection, witnesses highlighted a number of ways in which the travelling public is not being well-served at this time.  The Committee was told of complaints about: the quality of service; schedule changes; prices; lost, damaged and delayed luggage; reservations; restrictions on bereavement fares; non-refundability of tickets; and refusal to carry passengers due to their behaviour.  While these complaints are, for the most part, related to Air Canada, this is not surprising given its dominance in the market.

Some witnesses argued that powers must be expanded: the Canadian Transportation Agency should have the power to review prices in situations of carrier dominance in a market rather than merely monopoly; and the Air Travel Complaints Commissioner should have enhanced powers in certain circumstances, since moral suasion may not bring about sustained change in a carrier’s behaviour.  Although one witness described the Commissioner as an effective champion of passenger interests, it was suggested that the authority be given to impose a solution on airlines should mediation be unable to resolve certain types of complaints; the power to issue orders and impose fines should also be contemplated.

A number of witnesses also mentioned a Passenger Bill of Rights, with one witness suggesting its incorporation into the conditions of carriage for airlines licensed to fly in Canada.

Certain personnel issues were also raised by witnesses.  While the difficulty of combining two workforces from two different corporate cultures was mentioned, the merging of pilot seniority lists was the main issue.  One witness indicated that, contrary to commitments to fairness, pilots of the former Canadian Airlines International Limited are being treated as “second class citizens.”  Another, however, informed the Committee that the airline pilots of both carriers – Air Canada and the former Canadian Airlines - agreed to the process, the arbitrator, and the final and binding nature of the process, except for an opportunity to have the Canada Industrial Relations Board review the decision under its reconsideration powers or by way of judicial review by the courts.  Another suggested that the Board has been helpful in developing a constructive labour relations environment and indicated that the recently amended Canada Labour Code seems tailor-made to the circumstances in the industry today.

One witness argued that a review of employee concerns should be made a mandatory step in the government’s process of approval of airline mergers and acquisitions, with adequate protection for employees being made a condition of government approval.  Another suggested that worker protection might be effected through an Air Transport Workers Bill of Rights.

The Committee also heard from travel agents, who expressed concern that the five largest carriers in the United States are launching an online agency call Orbitz for retailing discounted air fares over the Internet.  They fear that the result will be anti-competitive behaviour, with the possibility of price collusion.  As well, they suggested that the Competition Bureau, in its draft Enforcement Guidelines, has taken “too simple-minded” a view of how agency commissions can be used to affect competition.

Finally, witnesses commented on airports in Canada, highlighting the urgent need for an airports policy that is coherent and consistent with the Canada Transportation Act.  While some expressed support for the principle of airport devolution and suggested that this has led to innovations and improved service, there is concern that these large public assets, with their power and influence, are being operated by private management without significant public scrutiny or accountability.  Particular areas where changes are thought to be needed include: the ownership and management structure of the national airport system; airport rents; the funding of smaller airports; and the development of national policy for smaller airports.

Dissenting opinion on the Standing Committee on Transport and Government Operations Airlines Operations Hearings (May 8, 2001)

The Canadian Alliance is concerned with the lack of competition in the Canadian Air industry. During the May 8, 2001 hearings, few of the witnesses provided discussion as to how to bring healthy competition to the air transportation industry in Canada. The Minister of Transport rejected the notion of any outside carrier coming into Canada to provide competition.