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Letter to the Minister of Transport

VIA FAX AND MAIL
613-995-0327

Honourable David Collenette
Minister of Transport
Transport Canada
Place de Ville
Tower C
29th floor
330 Sparks Street
Ottawa, ON
K1A 0N5

Dear Mr. Collenette:

Re: Proposed Airline Merger
Canadian Association of Airline Passengers (CAAP)

As a follow-up to our meeting with you in November 1999, we are writing on behalf on the Canadian Association of Airline Passengers (CAAP) to set out some principal concerns associated with the upcoming introduction of legislative amendments to the Canada Transportation Act. We hope that these comments may be of assistance to you and your officials in preparing such amendments.

First of all, we would commend you for your statement of December 21, 1999 concurrent with the approval of the Air Canada transaction to purchase Canadian Airlines. We are pleased that, despite the apparent attempts by Air Canada to water down the consumer safeguards, Canadian airline customers will have some protection against objectionable monopoly practices under the new regime.

There are some important points, however, that should be considered in the drafting of the legislation. Some of these points have been omitted or obliquely referred to in the report of the House of Commons Standing Committee on Transport. These include the following:

  • Price Regulation Powers

As you have indicated, it is important that the regulator have “a full range of options to ensure it has the power to deal effectively with any price gauging including effective monitoring powers and sanctions as necessary”. We would suggest that the language of the provisions of the Telecommunications Act S.C. 1993 as amended are instructive with respect to the appropriate statutory measures to take to both encourage competition and to mandate consumer protection.

We would recommend that the Canadian Transportation Agency be given the authority to fix ceilings for fares by licensed carriers in much the same fashion as rates are set for carriers under the Telecommunications Act. Such a ceiling should also be based upon the “just and reasonable” standard. In addition, the Agency should have the power to disallow any fare charged by a licensed carrier where the fare charged does not meet the costs of providing the service. Finally, the Agency shall forebear from regulating any fare for services provided by a licensed carrier that are subject to competition sufficient to protect the interests of airline customers.

It should be noted that a “price freeze” is not necessarily the ideal solution to protecting consumers in the airline market. Mr. Schwartz of ONEX believed that joint Canadian Airlines and Air Canada costs could be cut by as much as 20% by operating as a single airline. This “monopoly dividend” will accrue only to Air Canada shareholders in a price freeze situation. Similarly, consumers have a right to expect that the airline industry in Canada will be at least as productive as its foreign counterparts in introducing efficiencies of operation which should result in lower ticket prices. All of these matters should be explored in appropriate proceedings before the Canadian Transportation Agency.

The reasons for empowering the Agency to impose fare ceilings are consistent with the objectives of the Government to prevent price gouging. As well, in order to promote and maintain competitive entry, it is particularly important to prevent the dominant air carrier from charging higher rates for services that are not subject to competition to gain additional revenues to subsidize advertising and price wars in competitive markets. Finally, similar to the jurisdiction exercised by the CRTC in telecommunications, the Agency should be given the power to disallow rates charged by a dominant carrier that are uneconomic. This is a vital measure to swiftly prevent predatory pricing and maintain conditions for market entry and competition.

  • Quality of Service

It makes little sense to provide protection for ticket prices when the value of what is received for a ticket may be subject to diminution or compromised by a reduction in service by the monopoly provider. For example, a monopoly provider that competes in several markets may chose to increase expenditures to attract customers in the competitive market while reducing expenses to serve customers in the monopoly markets. This may mean a lower quality of service for such matters as on-board services and comfort, ticket handling, cleanliness, complaint resolution and possibly safety. In a monopoly market, customers are not free to chose to go elsewhere when service is reduced. The legislation should provide that the Agency may set standards with appropriate incentives or penalties for quality of service issues for services of a licensed carrier whose fares are subject to regulation as per the above.

  • Process

It has been acknowledged that a complaint driven process is not sufficient to provide consumers with the appropriate standards for protection with respect to price and quality of service. The Agency must have the power to initiate effective monitoring and action where required to meet the objects of the Act and consumer protection in monopoly circumstances.

It is crucial that airline consumers and the organizations that represent them have access to the Agency for the purpose of public scrutiny and participation in important policy or rate making decisions of the Agency, in a similar fashion to the access afforded in important utility proceedings for telecommunications, energy etc… As well, the Agency should be directed to exercise its cost authority set out in section 25.1 of the Act to awards costs with a view to encouraging public participation. Telecommunications and energy regulators throughout North America have done so with good effect for several decades.

  • Public Consultation

It should not take a crisis to stimulate productive discussions on the future of the airline industry in Canada. The Air Transport Users Council of Great Britain provides a useful example of what can be done to ensure effective public feedback. The Air Transport Users Council is a consumer watchdog that advises air travellers on issues touching upon consumer welfare and takes up problems with the industry on both a case by case and a generic basis. Their web site www.auc.org.uk provides considerable information on their operations. We would strongly suggest that efforts be made to implement a similar structure in Canada to assist airline passengers.

Finally, we would commend you and your staff for their openness to receive ideas from CAAP. We would be pleased to meet with you or your officials to follow-up on any of the issues in this correspondence that may be necessary.

Thank you.

Yours truly,

Michael Janigan
Executive Director/
General Counsel

cc: David Peippo, Transport Canada – fax only – 991-6445
CAAP Members – fax only

 

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