Competition Bureau announces Market Study into Competition in the Domestic Passenger Airline Industry

 

On July 29, 2024, the Competition Bureau provided a news release that it is officially launching its market study of competition in domestic air passenger services. Specifically, the Bureau plans to examine three key topics: 

• the state of competition in Canada’s airline industry; 

• the barriers to entry and expansion that exist in the domestic industry; and 

• the impediments to Canadians seeking to make informed choices for air travel. 

The link to the news release is here: https://www.canada.ca/en/competition-bureau/news/2024/05/competition-bureau-to-study-competition-in-canadas-airlines-industry.html. The market study is likely based on the new powers provided by amendments to the Competition Act that took effect in December, 2023, which provides the Commissioner of Competition with the power to seek a court order compelling companies to produce volumes of documents and electronic information in support of market studies, which are intended to include in-depth examinations of a market or industry to identify potential competition issues and improve the Competition Bureau’s understanding of that relevant market. The link to the Competition Act as amended is here: https://laws-lois.justice.gc.ca/eng/acts/c-34/index.html. 

Prior to that amendment, the history of a previous application to the Competition Tribunal pursuant to section 90.1 of the Competition Act must be reviewed in the context of a subsequent statutory amendment that relates to transportation as well as the separate issue of cabotage which involve agreements to prohibit foreign carriers from picking up passengers in the host country and transporting them from point to point within that country. Transport Canada published a policy summary for negotiation of international passenger and cargo service agreements, termed Blue Sky: https://tc.canada.ca/sites/default/files/migrated/bluesky.pdf. It is noteworthy that there will be no consideration for cabotage rights, which may or may not have an effect on competitive air fare prices in Canada. 

Separate from the further amendments to section 90.1 of the Competition Act, where non-competitors can be subject to the provision, the Minister of Transport made an announcement on April 3, 2019 that he has the authority to review and authorize joint ventures between airlines. Previously, only the Competition Bureau reviewed air carrier joint ventures to determine whether a joint venture would substantially lessen or prevent competition, however, it did not consider factors beyond those related to competition, such as impact on employment or other factors. Here is a link to the announcement and authorizing statutes. https://www.canada.ca/en/transport-canada/news/2019/04/new-process-for-review-and-authorization-of-air-carrier-joint-ventures-now-in-place.html 

As a brief summary of the section 90.1 application commenced more than 13 years ago, the Competition Bureau entered a Consent Agreement on October 24, 2012 with Air Canada and United Continental Holdings, Inc. (“United”), to settle outstanding litigation pursuant to section 90.1 regarding a proposed joint venture and certain existing coordination agreements pertaining to transborder passenger airline services between Canada and the United States. In the late 1990’s, Air Canada and United began coordinating many of their respective airline services including code sharing, certain joint fare discounts and incentive programs on a number of Canada-US transborder routes pursuant to bilateral agreements. A new entity, United Continental, based on a merger between United and Continental in 2012, along with Air Canada announced a proposed joint venture that would result in further integration on number of Canada-US transborder routes. The Commissioner of Competition filed an application with the Competition Tribunal in 2011 alleging that the coordination from the existing agreements as well as the proposed joint venture would likely result in a substantial lessening of competition on 19 transborder city pair routes. There was no consideration of greater network effects that may have affected the both the cost and margin of operating flights on specific routes. The Consent Agreement remedy covered 14 transborder city pairs routes where the combined market shares ranged from 70% to 100%. A link to the public version of the Consent Agreement is provided here: https://decisions.ct-tc.gc.ca/ct-tc/cdo/en/item/463302/index.do. 

The Consent Agreement remains in effect as long as the transborder joint venture or any provisions of the coordination agreements relating to the prohibited agreements remain in place. An independent monitor was also appointed at the time to ensure compliance. On July 22, 2022, Air Canada and United announced a further joint venture agreement for the Canada-United States transborder market; customers will be able to connect to 38 codeshare destinations in the US and 8 cities in Canada: https://www.prnewswire.com/news-releases/air-canada-and-united-airlines-expand-relationship-to-make-transborder-travel-easier-with-more-choice-301591571.html. 

The market study announced by the Competition Bureau, with enhanced powers from the recent statutory amendments, will likely take into consideration many market factors that will affect competition in the domestic passenger airline industry including likely network effects from alliances and joint ventures along with the aforementioned barriers to entry and issues concerning informed choice for Canadians. Time will tell what the Commissioner of Competition will advance in terms of enforcement or advocacy upon conclusion of the market study, particular in these challenging economic times. 

The above note reflects the opinion of the author and is not intended to convey legal advice. 

Contact: 

Accendexe Venture Capital Corporation 122-67 Mowat Avenue Toronto, Ontario M6K 3E3 nicholas.cartel@accendexe.com Direct: 416-670-3432 www.accedexe.com