The federal competition commissioner is seeking to block a proposed joint venture between Air Canada and United Continental Holdings Inc., arguing that, if it were allowed to proceed, it would create a monopoly on several key U.S.-Canadian routes.
Air Canada and United Continental have said that the new joint venture would have allowed the airlines to collaborate on sales, prices and scheduling on flights between Canada and the United States. It would have seen them collaborate even further than their existing partnership in the Star Alliance, and reduce excess capacity on shared routes.
“The proposed joint venture would allow Air Canada and United Continental to operate and set prices as one airline,” said Melanie Aitken, the Commissioner of Competition, in a statement. “If allowed to proceed, consumers will face higher prices and even less choice on key, high demand air passenger routes.”
Pending the outcome of the commissioner’s application to bring the matter before the Competition Tribunal, the airlines said they would be suspending the joint venture.
Calin Rovinescu, Air Canada chief executive, has said these sort of joint ventures are as close as Canadian airlines can come to a merger with an international airline without running afoul of foreign ownership limits.
“I believe this form of commercial consolidation or true joint venture will be the way of the future for us. Until, at least, foreign ownership rules in certain countries, including Canada, are relaxed,” he said during a speech at the International Civil Aviation Organization conference last fall.
Air Canada already has a similar joint venture in place with United Continental and Germany’s Lufthansa, its so-called “A++” initiative, which came into effect last year.
A spokeswoman for the Competition Bureau would not comment on whether or not that transatlantic joint venture was under review as well after the commissioner brought forth its challenge of the U.S. crossborder venture.
Both Air Canada and United Continental said they “strongly” disagreed with the bureau’s position, and had been working in good faith to address its concerns since they were raised in the fall.
But United Continental said that such airline cooperation and joint venture agreements have long been recognized by regulatory agencies around the world as providing enhanced service.
“United’s transborder cooperation with Air Canada has provided customers traveling between Canada and the U.S. with more and better service,” the airline said in a statement. “The proposed U.S.-Canada transborder joint venture opposed by the bureau would increase existing customer benefits significantly via lower fares, better coordinated flight schedules and connection times, more route choices, and improved frequent flyer benefits.”
But Ms. Aitken said the United/Air Canada joint venture “is effectively a merger” between the airlines on all their Canadian and U.S. operations, and she filed an application to bring the matter to the Competition Tribunal Monday.
In addition to challenging the joint venture, the commissioner is also challenging three existing “coordination agreements” between Air Canada and United Continental, she said. These agreements allow Air Canada and United Continental to coordinate key aspects of competition including, but not limited to, joint pricing and scheduling, as well as revenue sharing, she said.
Ms. Aitken alleges these agreements allow the companies to charge passengers inflated fares, and if these “anti-competitive provisions” are further implemented, with or without the joint venture, “Canadians will pay even more for less choice and higher fares.”
Air Canada noted that the transborder relationships between the airlines had been reviewed and were granted immunity from U.S. anti-trust laws on the basis that they promote competition and benefit consumers.
“The proposed transborder joint venture and enhanced cooperation between the parties is consistent with the terms of the July 2009 decision of the United States Department of Transportation granting Air Canada, United and Continental, among other parties, antitrust immunity to pursue more integrated commercial cooperation, including joint ventures,” the airline said.
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