Canada's Commissioner of Competition is taking Air Canada to a tribunal over allegations of predatory behaviour against two smaller competitors.
Konrad von Finckenstein said Monday that after a lengthy investigation, he is confident that Air Canada has engaged in anti-competitive behaviour against WestJet Airlines Ltd. and CanJet Airlines, a division of Halifax-based IMP Group Ltd.
The Competition Bureau's case involves seven routes in eastern Canada on which Air Canada has lowered fares or added capacity since the two discount carriers entered the markets.
"We believe that Air Canada's pricing and capacity management will force WestJet and CanJet to abandon those routes," Mr. von Finckenstein said. "With the ongoing restructuring of the airline industry, the bureau is determined to ensure that new entrants have a fair opportunity to compete."
In a recent example, Air Canada introduced special fares last month matching CanJet's one-way prices of $89 to $99 for travel from Halifax to St. John's, Montreal or Ottawa. Air Canada's one-way fares on these routes are usually more than $600.
Air Canada does not deny that it lowered prices in response to competition from WestJet and CanJet. But the Montreal-based airline, which controls about 80 per cent of Canada's domestic market, said it was only providing healthy competition by matching fares.
"We are not aware of any precedent anywhere where an airline has been prevented from matching pricing," said Calin Rovinescu, Air Canada's executive vice-president of corporate development and strategy.
The Competition Bureau expressed its concern about Air Canada's near-monopoly status when the carrier took over Canadian Airlines in late 1999. At the time, Air Canada sought to calm those fears.
"I want to assure consumers and small communities that their interests are protected," Air Canada president and CEO Robert Milton said at the time. "We simply have no interest in alienating our customer base."
By matching the fares offered by its no-frills competitors, Air Canada has provided consumers with more choice at low prices over the short term. But the bureau worries that Air Canada will force the new entrants off the routes and then raise the fares.
Lawyers for the Competition Bureau and Air Canada appeared Monday before the Competition Tribunal to ask for an expedited hearing on the issue.
The bureau's allegations arose from complaints by CanJet and WestJet about Air Canada's behaviour regarding flights between Halifax and Montreal, Halifax and Ottawa, Halifax and St. John's, Toronto and Moncton, Toronto and Saint John, Toronto and Fredericton, and Toronto and Charlottetown.
In October, the Competition Bureau slapped a cease-and-desist order on Air Canada based on CanJet's complaint. Air Canada withdrew another set of low fares last month after the bureau threatened another cease-and-desist order.
Calgary-based WestJet Airlines Ltd. filed a similar complaint with the bureau last May after Air Canada slashed prices and expanded capacity after WestJet announced the establishment of a service between Moncton and Hamilton.
The case will come down to dry economic arguments about the principle of "avoidable cost."
Regulations implemented last year after Air Canada acquired Canadian Airlines International Ltd. stipulate that the dominant airline can match competitors' fares - or add capacity - as long as it doesn't do so on a money-losing basis.
Using a broad definition of "avoidable costs," the Competition Bureau argues that Air Canada has lowered prices and added capacity to the point that its revenues on the seven routes fall below those costs. Air Canada is pushing for a narrower definition of avoidable costs, which would put the carrier on the right side of the law.
Other airlines have also filed complaints with the Competition Bureau, alleging anti-competitive behaviour by Air Canada.
The latest was filed last week by Roots Air, a new full-service airline set for takeoff later this month. Roots Air's complaint alleges that Air Canada isn't co-operating with its attempts to provide Aeroplan frequent-flier points to its customers, executive vice-president Ted Shetzen says.
As a condition of its merger with Canadian Airlines, Air Canada promised the federal government that it would make its frequent-flier points available to small competitors for a fee.