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Air Canada, United reach deal with Competition Bureau

Air Canada planes at Pearson International in Toronto.

MIKE CASSESE/REUTERS

Air Canada and its U.S. partner United Continental Holdings Ltd. have reached an agreement with the Competition Bureau to preserve competition on 14 high-demand routes between Canada and the United States.

The agreement is intended to address concerns over a proposed joint venture between the two airlines that will see them merge their flight operations on Canada-U.S. routes, according to the bureau.

The deal will ensure that passengers aren't hit with higher prices and reduced choice on high-use routes as a result of the proposes joint ventured and coordination agreements, interim Commissioner of Competition John Pecman said in a news release.

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Under terms of the agreement, Air Canada and United Continental won't implement their joint venture or use existing coordination agreements on 14 Canada-U.S. routes.

The airlines are prohibited on those 14 routes from coordinating their prices, coordinating the number of seats available at each price, pooling revenue or costs and sharing "commercially sensitive information," says the Bureau.

The 14 routes and the two airlines' combined market share at the time the Commissioner of Competition filed an application with the Competition Tribunal, in June of 2011:

  •  Calgary-Chicago, 87 per cent
  •  Calgary-Houston, 100 per cent
  •  Calgary-San Francisco, 87 per cent
  •  Montreal-Chicago, 70 per cent
  •  Montreal-Houston, 100 per cent
  •  Montreal-Washington, 100 per cent
  •  Ottawa-Washington, 100 per cent
  •  Ottawa-New York, 100 per cent
  •  Toronto-Cleveland, 100 per cent
  •  Toronto-Denver, 100 per cent
  •  Toronto-Houston, 100 per cent
  •  Toronto-San Francisco, 100 per cent
  •  Toronto-Washington, 100 per cent
  •  Vancouver-San Francisco, 99 per cent.

Last year, the Bureau challenged the proposed closer alliance between the two airlines on antitrust grounds.

"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," Ben Smith, Air Canada's executive vice-president and chief commercial officer, said in a separate news release Wednesday.

"This agreement reconfirms that the long-standing alliance relationship between Air Canada and United which has provided more efficient and convenient service to customers will continue to be conducted in accordance with all applicable laws."

The Competition Bureau says in its news release that studies have found significant price increases can result from co-ordination similar to that of Air Canada and United Continental in markets with similar route concentration.

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The U.S. Department of Justice found that fares for nonstop passengers increased by as much as 15 per cent on similar routes when competitors are permitted to coordinate their operations.

"If not for this consent agreement, the Bureau anticipated similar price hikes would have resulted in this case," says the news release.

The Bureau also said it is appointing an independent monitor to ensure Air Canada and United Continental comply with the terms of the agreement.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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