Star Alliance partners Air Canada and United-Continental have moved closer to launching a transborder joint venture, after they came to an agreement with Canada's competition watchdog which had previously opposed the partnership.
The proposed joint venture, however, will now cover fewer transborder routes than originally envisioned, due to conditions imposed by Canada's Competition Bureau.
The carriers first unveiled its intentions in October 2010 to form a joint venture, which will cover US-Canada transborder flights, to be implemented in early 2011. However, Canada's Commissioner of Competition in June 2011 applied to the Canadian Competition Tribunal to block the proposed joint venture, saying that it will substantially reduce competition on 19 routes, 10 of which were monopolised by the two carriers.
The Competition Bureau says today that after a detailed study, it has determined that competition of five of the routes is unlikely to be harmed. On the remaining 14 routes, the two airlines are prohibited from co-ordinating their prices, the number of seats available at each price, pooling revenue or costs and sharing commercially sensitive information, says the Competition Bureau.
The 14 routes are: Calgary-Chicago, Calgary-Houston, Calgary-San Francisco, Montreal-Chicago, Montreal-Houston, Montreal-Washington DC, Ottawa-Washington DC, Ottawa-New York, Toronto-Cleveland, Toronto-Denver, Toronto-Houston, Toronto-San Francisco, Toronto-Washington DC, and Vancouver-San Francisco. The airlines will have a 100% market share on 10 of the 14 routes after forming their joint venture. They will hold a 87% market share on Calgary-Chicago and Calgary-San Francisco, a 70% market share on Montreal-Chicago and a 99% market share on Vancouver-San Francisco.
The Competition Bureau says that it will appoint an independent monitor to ensure that the airlines comply with the agreement's terms.
In response to the agreement with the Competition Bureau, Air Canada's executive vice president and chief commercial officer Ben Smith says: "Air Canada is pleased this matter has been settled and that an agreement has been reached that preserves our longstanding commercial relationship with our alliance partner, United Airlines, while providing the flexibility to continue building on this relationship for the benefit of both airlines and our customers."
He adds: "This agreement provides the flexibility to implement a Canada-US transborder joint venture, an increasingly common practice in the global aviation industry, and one that is an important competitive consideration as the industry continues to evolve."