Air Canada venture called monopoly

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Competition Bureau Commissioner Melanie Aitken is attempting to thwart Air Canada's joint venture with United Continental on routes between Canada and the United States, warning it creates a monopoly that will raise airfares.

The airlines agreed last fall to form a partnership on transborder flights, sharing information on schedules, sales and pricing. United Continental Holdings Inc. and Air Canada say co-ordinating their routes allows consumers to take advantage of "more travel options and benefits."

But Canada's Competition Bureau says the joint venture is "effectively a merger" of the carriers' Canada-U.S. operations.

The agency and the airlines have met several times to try to reach an agreement, but in the end, Ms. Aitken opted to seek an order blocking the partnership rather than continue to search for alternatives. The bureau filed an application Monday with the Competition Tribunal.

The case is the latest example of the bureau's tougher stance under Ms. Aitken's leadership, and follows other aggressive moves against the Canadian real estate industry, credit card companies, gasoline cartels and cellphone providers - solidifying her reputation as a steadfast protector of consumer interests.

In the case of the airlines, the bureau focuses on 19 routes, including 10 classified as monopoly service under the planned partnership between Canada's largest airline and United Continental.

"It reduces choice, and it is happening on routes with particularly high traffic. There are serious concerns about substantial increases in fares," Ms. Aitken said Monday.

She said similar partnerships in the United States caused fares to spike as much as 15 per cent. High barriers to entry in the airline industry will likely keep any other carriers from flying the routes targeted in the joint venture, she argues.

"There are so many factors," she said. "They have airport access, they have scale, they control the major hubs, which makes it difficult for others to compete. And of course the frequent-flier miles we all love and corporate discounts provide incentives for customers to stick with the dominant carriers - it's just not likely anyone else can come in."

The Competition Bureau listed 10 "monopoly" routes: Calgary-Houston, Montreal-Houston, Montreal-Washington, Ottawa-Washington, Ottawa-New York, Toronto-Cleveland, Toronto-Denver, Toronto-Houston, Toronto-San Francisco and Toronto-Washington.

Ms. Aitken said the bureau has been studying the joint venture under the agency's merger guidelines since it was announced last October. The airlines didn't notify the bureau prior to striking the deal.

In its application to the tribunal, the bureau warned that the joint venture will lead to "increased prices and reduced consumer choice on key transborder routes."

Air Canada said it has been closely co-operating with Ms. Aitken during the review process. "Air Canada strongly disagrees with the commissioner's position. Air Canada and United Continental Holdings believe in the merits and consumer benefits of the proposed transborder joint venture and enhanced co-operation between the parties that builds on the existing relationship between Air Canada and United."

Air Canada emphasizes that its stance on the joint venture "is consistent with the findings of regulatory agencies around the world, and supported by leading international economists, who have recognized and documented the benefits to consumers of such arrangements."

The carriers said Monday that they suspended their proposed joint venture, "pending further developments relating to the outcome of the commissioner's application."

The planned revenue-sharing and cost-sharing partnership follows last October's merger of United Airlines Inc. and Continental Airlines Corp.

The federal agency also opposes other, more informal co-ordination agreements between Air Canada and United Continental. "These agreements allow Air Canada and United Continental to co-ordinate key aspects of competition including, but not limited to, joint pricing and scheduling, as well as revenue sharing," the bureau said. "Through these existing agreements, the companies currently have the power to charge passengers inflated fares."

United Continental emerged from last year's merger of Chicago-based United Airlines and Houston-based Continental Airlines. The combined entity features the United brand name.

"Airline co-operation and joint venture agreements have long been recognized by regulatory agencies around the world as providing enhanced benefits to customers," United Continental said in a release. "The proposed U.S.-Canada transborder joint venture opposed by the bureau would increase existing customer benefits significantly via lower fares, better co-ordinated flight schedules and connection times, more route choices, and improved frequent flier benefits."

Air Canada belongs to the Star Alliance of global carriers, which includes United Continental, Deutsche Lufthansa AG, US Airways Group Inc. and Singapore Airlines Ltd.

In 2009, Air Canada held an estimated 35 per cent of Canada's total scheduled air market with the United States, followed by United Continental's 20-per-cent share (combining United Airlines and Continental Airlines).

Others on Canada-U.S. routes include Calgary-based WestJet Airlines Ltd. at an estimated 13 per cent and American Airlines Inc. at roughly 10 per cent. Delta Air Lines Inc. and US Airways Group Inc. have smaller slices of the market.