Air Canada and United Continental Airlines Holdings Inc. are urging the Competition Bureau to drop its concerns about carriers forging tighter ties, arguing its objections to their joint venture and their existing alliance are unfounded and fly in the face of Ottawa’s efforts to increase competition on flights between Canada and the U.S.
Melanie Aitken, Canada’s competition czar, filed an application to block a proposed joint venture between Air Canada and United, which would see the two collaborate on schedules, marketing and sales on certain crossborder routes, which she said was tantamount to a merger. She also sought to unwind aspects of their 15-year alliance, alleging they were also anti-competitive in nature.
In her submission to the Competition Tribunal, Ms. Aitken said there were 19 transborder routes which would be affected by the joint venture, 10 of which would become a monopoly for the carriers, she said. She argued there was insufficient competition on those routes and sizable barriers to entry, which, amongst other things, would result in higher fares.
Air Canada has since unwound the parts of its agreement with United that were of concern, and shelved its proposed joint venture until the matter is resolved.
But in filings made public Tuesday, the country’s largest carrier argues Ms. Aitken’s position is unfounded and runs counter to Canada’s Open Skies bilateral air agreement with the U.S., and Ottawa’s efforts to further liberalize the airline industry and increase competition on international routes through its so-called “Blue Sky” policy.
“The Commissioner’s application is fundamentally misconceived,” Air Canada said in its response to the bureau’s allegations Tuesday. “The application ignores Canada’s ‘Blue Sky’ international air transportation policy, developments in air transportation in the U.S. and other countries around the world, and relevant facts and circumstances.”
Air Canada and United are not only seeking to have the matter dismissed by the Tribunal, but also financial restitution from the bureau.
Air Canada and United argued in their submissions that, contrary to Ms. Aitken’s concerns, there are a plethora of legacy and low-cost carriers who could compete with them on the routes proposed in their joint venture, including WestJet Airlines Ltd., which they said has “the ability and the financial strength” to do so, if it wanted to.
Low-cost carriers have been making sizable inroads in the U.S.-Canada crossborder market in recent years, they noted. In 2002, non-legacy carrieres accounted for about 1% of the transborder market, but now account for about 18% , Air Canada said in its submission.
“The competition from non-legacy carriers is in addition to competition from existing legacy carriers,” Air Canada said. “All major U.S. network carriers operate services in Canada.”
They also rejected Ms. Aitken’s claims that closer ties between the airlines would lead to “materially higher prices.”
“Actual competition and the threat of entry do, and will continue to, act as a discipline on pricing on overlap routes,” Air Canada said.
Both Air Canada and United have argued that their proposed joint venture would lead to greater efficiencies, allowing them to expand into smaller markets, not currently viable to either of them due to their cost structure, increasing existing frequencies and lowering fares.
Calin Rovinescu, Air Canada chief executive, has argued that such joint ventures are the only way forward for legacy carriers in the face of foreign ownership restrictions that limit consolidation of airlines across borders. The bureau has already recognized the “pro-competitive” nature of these arrangements by approving a similar arrangement in October 2009 across the Atlantic between Air Canada, United, and Germany’s Lufthansa, Air Canada said in its submission.
Similiar agreements have been reached by Air France/KLM and Delta Airlines and between British Airways/Iberia and American Airlines, it noted.
“The airline industry has been battered by constant challenges and ongoing threats to solvency, such that new models, approaches and efforts to develop efficiencies required to compete internationally are crucial to ongoing viability of international legacy carriers,” Air Canada said. “The Commissioner’s position would significantly impede Air Canada’s ability to compete.”
The bureau will consider Air Canada and United’s submissions, and has two weeks to respond, said Alexa Keating, a spokeswoman for the bureau.