Canada's commissioner of competition slapped a cease-and-desist order on some of Air Canada's lowest fares Thursday, saying the airline has likely engaged in anti-competitive behaviour.
Air Canada said it will comply with the order, but vowed to fight it on constitutional grounds.
The temporary order relates to complaints filed last month by Halifax-based CanJet Airlines, the country's newest carrier, accusing Air Canada of abusing its dominance with cut-rate fares in order to clip the fledgling carrier's wings.
CanJet claims Air Canada has slashed one-way fares by up to 79 per cent on six routes in Eastern Canada just days before CanJet was to initiate similar service. For example, Air Canada dropped its one-way fare between St. John's and Halifax from $605 to $109 with some new restrictions.
"Reducing prices by these large percentages on those routes just when CanJet is entering into the market certainly gives substance to the allegations that they are engaging in anti-competitive behaviour," commissioner of competition Konrad von Finckenstein said.
However, he said the Competition Bureau is still investigating and has not yet made a final decision.
Mr. von Finckenstein said crucial information needed to make a decision on whether to take Air Canada to the Competition Tribunal won't be available until mid-November, when Air Canada releases data on passenger loads.
Air Canada said it will "vigorously" challenge the order before both the Competition Tribunal and the Quebec Superior Court. The airline plans to argue that Mr. von Finckenstein has no constitutional authority to issue a cease-and-desist order without application to an "impartial and independent adjudicative body."
Mr. Von Finckenstein acknowledged Thursday that the ability to issue a cease-and-desist order is an "extraordinary power." The regulations enabling such an order, which relate only to airlines, were brought in by the federal government this summer to deal with Air Canada's near monopoly.
Air Canada does not deny that it reduced prices in anticipation of CanJet's launch, but it said the actions were part of its normal policy of offering competitive prices in any market it serves.
According to the regulations, the cut-rate prices only constitute anti-competitive behaviour if they result in Air Canada losing money on the flights in question, or if the airline expands capacity on a money-losing basis.
Mr. von Finckenstein said the bureau issued the order because it believed that without it, CanJet was likely to be eliminated as a competitor on some routes.
Halifax businessman Ken Rowe, who owns CanJet through IMP Group Ltd., said Air Canada's actions have cost the new airline passengers, but said the effects are hard to quantify.
"We're pleased that the Competition Bureau agrees with us and that they've used the powers of the Competition Act to stop this harassment," he said.
The cease-and-desist order applies to five routes: Halifax-Ottawa, Halifax-St. John's, Halifax-Montreal, Toronto-Windsor and Ottawa-Windsor. The order expires on Oct. 31, but it can be extended for up to two 30-day periods.
If the Competition Bureau brings CanJet's complaints before the quasi-judicial Competition Tribunal, it can ask for an interim injunction. Rules pertaining to interim injunctions relate to all industries, unlike regulations on cease-and-desist orders, which pertain only to airlines.
CanJet also initially complained about predatory pricing on Air Canada's Halifax-Toronto and Toronto-Winnipeg routes. CanJet subsequently withdrew the Halifax complaint, while the bureau concluded that the Winnipeg complaint had no merit.
Calgary-based WestJet Airlines Ltd. filed a similar complaint with the bureau in May after Air Canada slashed prices and expanded capacity between Moncton and Toronto following WestJet's announcement of a service between Moncton and Hamilton. Mr. von Finckenstein said that complaint remains under investigation.