Transat fighting joint venture provision
Transat A.T. Inc. is calling on the government to remove a joint venture provision from proposed legislation amending the Transportation Act, saying it is unnecessary and detrimental to competition among airlines in a market dominated by one carrier.
The proposed Bill C- 49, which is being discussed at a committee hearing in Ottawa this week, would allow Marc Garneau, the Minister of Transport, to approve applications for joint ventures between two or more airlines, considering proposals from both a competition and public interest perspective.
Under the current regime, joint ventures, including those between Canadian and global carriers, are reviewed under the Competition Act.
In a brief that is expected to be submitted to the transportation committee Thursday, the Montreal- based operator of Air Transat said the proposed approval process is not necessary as Canada is well served by the Competition Act, and that existing provisions “create a transparent and balanced regime in the assessment of competition policy objectives and broader public interest considerations.”
“The only Canadian airline currently involved in one or more joint ventures and for which these proposed provisions would be of immediate and direct interests is Air Canada,” the travel company said in its submission.
George Petsikas, Transat’s senior director of government and industry affairs, said the joint venture provisions come with implications for Canadian airline competition, as well as for consumers in the long term — specifically that reduced competition will result in higher market concentration and therefore higher fares.
“We want to ensure that nothing impedes the ability for fair competition to continue in Canada and we believe that this is not something, the way it’s proposed in Bill C-49, that will achieve that goal,” Petsikas said.
“We are asking for a rebalancing of the powers between the competition commissioner and the Minister of Transport to approve these sort of ventures which we point out already have very concentrated market shares in and out of Canada.”
According to the proposed legislation, the new approval process would see the minister work in consultation with John Pecman, the Commissioner of Competition.
Air Canada, which is part of a joint venture with United Airlines and Deutsche Lufthansa AG, is pursuing a joint venture with Air China. In its submission filed to the committee this week, Air Canada said joint ventures between global carriers that feature antitrust immunity lead to enhanced travel options, optimized schedules and reduced costs. “The importance and benefits of these JVs cannot be overstated,” the company said.
“They allow airlines to achieve economies of scale on international routes, thereby reducing costs. In turn, they provide consumers with increased access to flights and a greater inventory of seats, more destination, more routings, better connections, enhanced service and more competitive options.”
Air Canada also said because there is no review for potential JVs that includes taking broader public interest into account, Canadian airlines are missing out on key growth opportunities.
However, Petsikas said Transat is concerned the new process would grant Air Canada immunity from competition oversight similar to what occurred in 2011 when the airline tried teaming up with United.
“What you’re proposing here is to essentially kneecap the competition regulator,” Petsikas said.
In 2011, Melanie Aitken, the competition commissioner at the time, filed an application to block a proposed joint venture between Air Canada and United, alleging that 10 of 19 proposed trans- border routes would become a monopoly and result in higher fares. The Competition Bureau eventually gave the venture the green light, provided the airlines exclude certain routes from the arrangement.
United has filed a submission in connection to Bill C- 49 in which it said “the Minister of Transport should be authorized to grant immunity for any proposed or existing arrangement” and that approval should result in “immunity from the entire competition act.” United also said an amendment proposing penalties of $ 10 million and up to five years imprisonment if the arrangement is completed without the minister’s authorization should be removed.
Transat also submitted proposed amendments to the joint venture provisions that the company said would increase transparency by ensuring reports are made public, as well as extend timelines for considering approval.
In a brief filed Wednesday, WestJet said it supports government’s approach to joint ventures in principle, but still has questions regarding the initiative.