Dominant carriers are often challenged over their competitive practices. So far Air Canada appears to have been doing well at surviving these challenges. Recently it won two such battles, but still faces an important third.

The first arose from an agreement between Jazz, Air Canada's regional unit, and the province of Quebec. Jazz had threatened to pull out of several communities. To keep it flying, Quebec's provincial government agreed to buy C$2.5 million ($1.5 million) in additional tickets annually from Jazz for government travel.

Jetsgo, which had been planning its own Quebec launch, cried foul. Jetsgo's president Michel Leblanc called the Jazz deal "an insurmountable barrier to entry" and filed a complaint with the competition bureau. But the bureau has dismissed the complaint, claiming it fails to meet the requirements of the competition act because Jazz lacks exclusive rights on the routes in dispute.

In a second challenge, the association of Canadian travel agents is complaining to Transport Canada that Air Canada's Destina travel website is biased. The agents claim Air Canada portrays its site as neutral and unaffiliated, but it is not.

Sabre and Travelocity have made similar complaints that Destina is a computer reservation system (CRS) biased in Air Canada's favour. But Transport Canada recently dismissed their complaints, reasoning that an airline's own website is not a CRS, so it is not subject to the ban on bias. The travel agents' complaint is still pending, but seems likely to face a similar fate.

The third and most critical challenge involves a complaint by WestJet that Air Canada dumped capacity and dropped fares below cost to keep WestJet out of eastern Canada. The competition bureau found against Air Canada, but the case is now before the competition tribunal for trial. Starting in November, that trial is slated to finish by February.

Clive Beddoe, WestJet's president, sees the case as crucial in resolving the meaning of "avoidable costs" in the context of airlines. Like similar laws elsewhere, Canada's statute prohibits pricing below avoidable costs, but it does not define the term. "It's pretty easy to see what the avoidable costs are for a product manufacturer," says Beddoe. But in a service industry like airlines, "it's a very complicated problem and no one knows how to solve it".

While this uncertainty over the limits remains, Air Canada is pressing ahead with plans to drop western Canada fares 20% or more, raising the prospect of yet another complaint.


Source: Airline Business