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Speaking Notes before the Commitee

SPEAKING NOTES BEFORE THE HOUSE OF COMMONS STANDING COMMITTEE ON TRANSPORT

BY: Michael Janigan
Executive Director/General Counsel
of the Public Interest Advocacy Centre (PIAC)
a Member Organization of the Canadian Association of Airline Passengers (CAAP)

We would first like to extend our thanks to the Committee for allowing us to present the views of the Canadian Association of Airline Passengers (CAAP) concerning the future of the Canadian airline industry and the proposed amendments to the Canada Transportation Act. The Canadian Association of Airline Passengers is an ad hoc coalition of public interest and consumer groups and organizations who are concerned with the delivery of this important public transportation service in a manner in keeping with the interests of the ordinary Canadian consumer. The coalition was formed during the summer of 1999, when the various proposals for merger of Canada’s two principal airlines were being floated, and it appeared that the normal process for review of any merger by the Competition Bureau would be circumvented. The names of the coalition members are appended to this document.

CAAP has been heartened by the general thrust of the response of the Minister and the government to the vexing problem of airline restructuring in Canada. The demise of Canadian Airlines as the only effective competition to Air Canada in most domestic markets means that, without effective consumer protection rules, the private monopoly will be disciplined only by the rather uncertain threat of effective competitive market entry. In devising the framework for the brave new world of airline service in Canada, the government has acknowledged that it must be guided by the twin goals of attempting to remove barriers to market entry in order to encourage the development of workable competition, and to institute consumer protection to prevent monopoly pricing or other consumer unfriendly practices. These consumer protection rules should, as much as possible, act as a proxy for workable competition without, unduly hampering the operation of the merged airline.

CAAP supports the efforts associated with the undertakings given to the Competition Commissioner by the merged airline and the proposed amendments to the Competition Act that allow the Commissioner to more swiftly intervene to prevent anti-competitive behaviour by the dominant airline. These measures should help to provide some security for prospective market entrants to compete for market share. In the United States, there is real concern that concentration in the airline industry has led to a diluting of the anticipated competitive affect upon output and prices. We are starting from a much less advantageous position from a consumer standpoint in Canada, with a dominant airline controlling approximately 90% of the domestic market.

Without necessarily abandoning hope for workable competition in at least some air travel markets in Canada, we must turn our attention to how best to proxy the competitive effect for the market served in the monopoly fashion. The Minister has proposed a package of initiatives, some associated with legislative reform as part of the amendments to the Canada Transportation Act (hereinafter “the Act”) contained in Bill C-26 and others to be put in place without the need for amending legislation. We will attempt to address both initiatives.

With respect to Bill C-26, our comments are also twofold; first directed with the need for some “housekeeping” amendments that are designed to carry-out, what we perceive to be the intent of the package, and secondly “remedial amendments” that are designed to promote the overall effectiveness of the government plan.

Housekeeping Amendments

We have noted a number of possible problems with the current amendments in terms of matching the perceived intent of the amendments with the actual wording contained therein. CAAP’s concerns include the following:

  • Conditions of Carriage

The stated intent of the legislation is to restore powers for the CTA to deal with conditions of carriage for domestic service (examples: lost baggage, and bumping). This is done chiefly by the amendment to sub section 67(3) of the Act:

“The holder of a domestic license shall not apply any fare, rate charge or term or condition of carriage applicable to the domestic service it offers unless the fare rate, charge, term or condition is set out in a tariff that has been published or displayed under subsection (1) and is in effect. ”

Section 86 of the Act sets out the powers to make regulations to enable the imposition of the appropriate terms and conditions of carriage. In particular,

Section 86 1 (h), with the proposed amendments, provides for the same but refers only to international service:

” (h) respecting traffic and tariffs, fares, rates, charges and terms and conditions of carriage for international service and

  • providing for the disallowance or suspension by the Agency of any tariff, fare, or charge,
  • providing for the establishment and substitution by the Agency of any tariff, fare, rate or charge disallowed by the Agency, and
  • authorizing the Agency to direct a licensee to take corrective measures that the Agency considers appropriate and to pay compensation for any expense incurred by a person adversely affected by the licensee’s failure to apply the fares, rates, charges or terms or conditions of carriage applicable to the service it offers that were set out in its tariffs;”

While the definition of tariff in section 55 of the Act is inclusive of terms and conditions of carriage, and the Regulations to the Act provide for the composition of the tariff, it seems a difficult fit for the invocation of a power to set conditions of carriage for domestic service, given the way in which the enabling regulatory powers of Section 86 are set up.

Furthermore, returning once again to paragraph 86 (1) (h), the corrective measures associated with misconduct by a licensee can be construed as authorizing the Agency to take action only in the case of terms and conditions of carriage for international service. We would recommend both for clarity and for effect, that the term “domestic and” be inserted before “international service” in the amended paragraph 86 (1) (h).

2. Evidence of Unreasonableness

Section 66 (3) provides a list of the evidence that the Agency shall consider in determining whether a fare or cargo rate is unreasonable.

”(3) When making a finding under subsection (1) or (2) that a fare, cargo rate or increase in a fare or cargo rate published or offered in respect of a domestic service between two points is unreasonable or that a licensee is offering an inadequate range of fares or cargo rates in respect of a domestic service between two points, the Agency shall consider

  1. historical data respecting fares or cargo rates applicable to domestic services between those two points;
  2. fares or cargo rates applicable to similar domestic services offered by the licensee and one or more other licensees using similar aircraft, including terms and conditions of carriage and, in the case of fares, the number of seats available at those fares; and
  3. any other information that may be provided by the licensee, including information that the licensee provides under section 83.”

It is appropriate that the Agency consider matters set out in (a) and (b) of this section which may provide useful benchmarks for the Agency in making their decision. However, sub-section© limits the Agency to “any other information that may be provided by the licensee, including information that the licensee provides under section 83”. CAAP seriously doubts whether the intent of the drafters of this amendment was to limit the Agency to information provided only by the licensee. There could well be studies, measurements, or analyses both of the Canadian airline industry and the international airline industry available from sources other than the licensee. Such materials that might involve the examination of levels of costs, prices, outputs, or cost allocation and rate design that might be extremely relevant in the consideration of reasonableness by the Agency. The current section, as drafted, would prohibit consideration of such relevant information that may be provided by a complainant, Transport Canada, or any other person that would assist in the determination of a complaint. We would submit that this section should incorporate some latitude for the Commission to hear such evidence.

We would accordingly recommend that section 66 (3) (c) read:

“any other information that may be provided by the licensee including information that the licensee provides under section 83, or provided by any other person that may be relevant for the making of finding under subsection (1) or (2).”

We would note it is very unusual to find such a severe limitation on tribunal evidence in the constituting legislation of a tribunal. Ordinarily a tribunal is given some latitude to develop their own rules and determinations with respect to the form and kind of evidence that it may accept upon a given issue.

Consideration of Representations

Section 66 (5) contains a rather unusual provision that:

“Before making a direction under paragraph 1 (b) or subsection 2 the Agency shall consider any representations that the licensee has made with respect to what is reasonable in the circumstances.”

One would ordinarily expect that it would be part of the duty of the Agency making a finding to consider representations from the licensee as to what is reasonable. It is somewhat surprising that the Agency is instructed to do so. But what is more troubling is that, by implication, the Agency is only statutorily required to hear submissions on reasonableness from the licencee. It strikes us that such submissions as to reasonableness should be considered by the Agency whether they come from the licensee, the complainant, Transport Canada or an interested party.

We would accordingly recommend that this section read

(5) Before making a direction under paragraph 1 (b) or subsection (2) the Agency shall consider any representations with respect to what is reasonable in the circumstances.

Remedial Amendments

When a monopoly exists in a important public service, the role of the regulatory agency is to ensure reasonable rates for user of the service. CAAP is uncertain why this role is best exercised in the manner proposed under section 66. While it is useful that a complaint process exists for the Agency to determine complaints from stakeholders, it should not be the main foundation for enforcement. Airline passengers, bereft of a competitive market for purchasing their air travel, want the security of knowing that their fare is reasonable, not simply that they have a right to complain. The Agency should be required to approve fare increases for monopoly services and, where appropriate, hold an oral or written hearing prior to the same. The reasonableness of existing fares may be subject to the complaint procedure or the procedure for redress on motion from the Agency set out in 66 (6).

As well, there should be some minimal procedural requirements associated with the hearing of a complaint. In most cases, a written process should be sufficient, and the complainant should be provided with the opportunity to respond to the submissions of the licensee or any other evidence that is brought before the Agency prior to the determination. Other matters may require a more formal procedure.

We would recommend that section 66 (1), be amended as follows:

“66 (1) If, on complaint in writing to the Agency by any person, the Agency finds that a licensee, including affiliated licensees, is the only person providing a domestic service between two points and that a fare, cargo rate or increase in a fare or cargo rate published or offered in respect of the service is unreasonable, the Agency may, after hearing the complaint, by order,”

In addition, some rather fundamental matters are not addressed. How is the public made aware of matters such as fee increases or the deliberations of the Agency? Currently, the Agency does not publicize fare increases. How is the complaint process made known to airline passengers? How do they effectively present complaints before the Agency? Because this section is the linch pin of consumer protection against monopoly pricing, it is rather important that these issues be addressed either in the Act or in the Regulations. It would be far better to put in place a structure which would enable effective Agency involvement from the start, rather than proceed from complaint to complaint as it were with a patchwork quilt of redress.

In addition, we would note that there has been a great deal of reluctance by the Agency to use the cost award powers given to it under section 25 of the Act to encourage informed and resourced public participation in important issues before the Canadian Transportation Agency. The Agency already has the power to act in a way that is comparable to other utility tribunals and commissions across Canada to ensure that public interests are effectively represented when important decisions are made. We would urge that the Agency take advantage of the cost provisions in the Act to enable a more informed deliberative process to take place.

Ombudsman

CAAP is in strong support of the SCOT recommendation that an independent Ombudsman be appointed that would deal with public complaints regarding airline service in Canada. CAAP sees an Ombudsman as potentially performing an important role in advancing the concerns of passengers to the appropriate company source and seeking and obtaining redress where warranted. The Ombudsman could potentially be an important tool both in protecting the consumer from the possibility of abuse in a monopoly market, but, as well, function as an important and necessary scold to improve standards of service across the airline industry. CAAP sees the Ombudsman function as different than that of the proposed Observer and the appointment of such an Observer does not eliminate the need addressed with the Standing Committee’s recommendation.

Concerns outside Bill C-26

Passenger Bill of Rights

In CAAP’s view, our Airline Passenger Bill of Rights or its equivalent should be put in place as part of the conditions of carriage for all air carriers operating in Canada. We note that CAAP’s concerns are echoed by the Ontario Minister of Consumer and Commercial Relations in his recent report addressing regarding standards for air travel. CAAP believes these concerns are best met by having a set of rules reflecting normal expectations of air passengers for service and applying them to all airlines operating in Canada.

We understand that some of the measurements required to adjudicate compliance to such standards may involve additional expenditures. We believe, however, that in addition to the salutary effect of incorporation of such standards in the conditions of carriage for a carrier, there will be attendant pressures to comply as a result of unfavourable publicity associated with non-compliance. In this way, consumers will be informed and the competitive market will be enhanced.

Observer

CAAP concurs with the addition of the function of the Observer into the continued examination of issues in the airline restructuring process. CAAP however recommends that this function be carried out by the appointment of an Airline Users Council similar to the U.K. Air Transport Users Council.

In Britain, the AUC functions both as a sounding board for complaints and as a source of important policy advice for the Civil Aviation Authority and the government. It is composed of representatives of important user groups appointed by the government. Such a move in Canada would be helpful to making the Observer function both transparent and representative while carrying out the important role of industry review.

We apologize that we may have been unable to address all of the consumer concerns that are inherent in the restructuring process and Bill C-26, but we are prepared to deal with any questions concerning the same that may arise this afternoon.

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