Something to stick in your pipe and smoke for awhile.....................
Competition Bureau Seeks to Block Joint Venture between Air Canada and United Continental
June 27, 2011
The Commissioner of Competition applied today to the Competition Tribunal to prohibit a proposed joint venture between Air Canada and United Continental Holdings Inc. If the joint venture is allowed, it will monopolize ten important Canada/United States routes, and substantially reduce competition on nine additional routes, leading to increased prices and reduced consumer choice on key, high demand transborder routes.
The Bureau became aware of the proposed joint venture after the parties issued a press release in October 2010.
Until they merged on October 1, 2010, United and Continental were separate airlines. United and Continental (along with their operating subsidiaries) continue to operate separately pending receipt of a single operating certificate from the U.S. Federal Aviation Administration. United Continental has publicly stated that it expects to receive the certificate by the end of 2011.
Canadian airlines are unable to formally merge with non-Canadian airlines owing to current foreign ownership restrictions governing regulation of the airline industry. Yet, this joint venture would achieve that very same result for Air Canada and United Continental.
The 19 routes affected by this merger are: Route Post-Merger Marketshare
Calgary/San Francisco 87%
Montreal/New York 65%
Ottawa/New York 100%
Toronto/New York 62%
Toronto/San Francisco 100%
Vancouver/New York 34%
Vancouver/Los Angeles 42%
Vancouver/San Francisco 99%
American studies regarding similar route concentration have demonstrated price increases to consumers of up to 15 per cent; the Bureau anticipates similar price hikes in this case if the Competition Tribunal allows the joint venture to proceed.
In addition to challenging the proposed joint venture under the merger provisions of the Competition Act, the Bureau is seeking to undo three existing "coordination agreements" between the airlines. This is the Bureau's first challenge under section 90.1 of the Act, a new civil provision that came into force on March 12, 2010, allowing the Commissioner to challenge anti-competitive agreements between competitors. Under section 90.1 of the Act, the Commissioner can apply to the Competition Tribunal for an order to alter or block an agreement, as we have done in this case with respect to the three outstanding coordination agreements.
The coordination agreements between the parties currently in force are:
Marketing Cooperation Agreement between Air Canada and United Air Lines, Inc.;
Alliance Expansion Agreement between Air Canada and United Air Lines, Inc.; and
Air Canada/Continental Alliance Agreement between Air Canada and Continental Airlines Inc.
The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.
Que Dubya Jay
WestJet Airlines Ltd. (WJA-T) is asking for intervenor status in the Competition Bureau’s fight with Air Canada (AC.B-T), saying it is directly affected by its rival airline’s plan to join with a U.S. partner.
Montreal-based Air Canada wants to forge a close alliance with Chicago’s United Continental Holdings Inc. (UAL-N), the world’s largest airline, on 19 cross-border routes between Canada and the U.S. The carriers would share data about sales and fares and co-ordinate schedules with the aim of reducing costs.
Competition Commissioner Melanie Aitken filed charges at the Competition Tribunal in June, saying the partnership is tantamount to a merger because the airlines would dominate the international routes. She said it would reduce choice, deter rivals and jack up prices – something WestJet agreed with in its filing on Wednesday.
WestJet competes directly against Air Canada on three of the routes – Calgary to San Francisco, Vancouver to Los Angeles and Vancouver to San Francisco. It says Air Canada’s plan to share competitive information with a U.S. carrier makes it almost impossible for the smaller Canadian rival to compete.
It also provided a list of Canada-U.S. flights it is interested in pursuing, but has so far avoided because it couldn’t make a strong business case. It continues to be interested in the routes – such as Toronto to Washington and Vancouver to New York – but said the Air Canada partnership would make that all but impossible.
“If the proposed merger is implemented, WestJet’s ability to continue to provide effective competition for the provision of transborder air passenger services ... will be significantly and materially constrained and its ability to provide any competition at all on WestJet considered transborder overlap routes is likely to be virtually foreclosed,” wrote Hugh Dunleavy, the airline’s executive vice-president of strategy and planning.
By intervening, WestJet is requesting that it be allowed to speak at any hearings and explain how Air Canada’s deal is affecting its business. In its request, it positions itself as Air Canada’s only real competition in Canada, estimating its share of the national domestic air travel market at the end of last year at 29 per cent, in total seats per week. It also estimated its share of the market for Canadian travellers flying out of the country at around 10 per cent.
Air Canada has defended the partnership, arguing that the Competition Bureau’s criticisms are “wholly inconsistent” with the federal government’s policy to deregulate air travel. It also said it has tried to deal with the bureau’s concerns, but found Ms. Aitken preferred to pursue charges.
Stopping the deal “would significantly impede Air Canada’s ability to compete [and] would have significant adverse effects on Canadian consumers,” the airline said in its 55-page filing.
WestJet defended its own partnerships in its filing, as it, too, has links to U.S. carriers – American Airlines Inc. (AMR-N) and Delta Air Lines Inc. (DAL-N) But it said that its arrangements only ensure that its passengers can transfer to the U.S. carriers for a second leg of their journey without obtaining new boarding passes. It has also pursued code sharing agreements with the airlines. Its deal with American Airlines allows both airlines to book seats on the same flight. It is seeking a similar deal with Delta.
“This type of arrangement does not permit the airlines to share competitively sensitive information, co-ordinate flight offerings, co-ordinate on pricing, inventory and yield management, co-ordinate on route planning, sales, marketing or scheduling access across networks or to share net revenues or costs on the particular routes that are subject to these agreements,” Mr. Dunleavy said.
WestJet said that while its roots are in domestic leisure travel, it is increasingly trying to compete against Air Canada for business travellers, and for that to work it needs to be on a level playing field with its rival.
“The ability of Air Canada, United and Continental to leverage shared information and to co-ordinate on pricing and other activities to a significant extent ... will continue to serve to strengthen the structural barriers that enhance and entrench [their] market dominance with the effect that competitors and potential competitors such as WestJet will be unable to gain sufficient and timely access to the necessary airport infrastructure and services in order to provide effective competition,” Mr. Dunleavy said.
The case is likely to be heard next year, if a settlement isn’t reached sooner. The Competition Tribunal has the ability either to squash the deal, or allow it to proceed with conditions attached.