The Canadian competition czar is aiming to block a proposed joint venture between Air Canada and United Continental Holdings Inc., alleging that if the plan were allowed to proceed it would create a monopoly on several key U.S.-Canadian routes.
Melanie Aitken, the federal commissioner of competition, will also be testing for the first time new powers granted to her office last year to unwind portions of Air Canada’s existing agreements with United Continental. She will argue that, if fully enacted, the deal would be anti-competitive by allowing the carriers to fix fares, collaborate on scheduling, and share revenue.
“We are seeking to prevent a joint venture, which is essentially a merger between Air Canada and United Continental,” Ms. Aitken said in an interview. “It would totally eliminate competition between them.”
Alliances between airlines are not uncommon. Nor are the sort of joint ventures being proposed by Air Canada and United Continental. Air Canada, for instance, has a joint venture in place with United Continental and Germany’s Lufthansa across the Atlantic.
Delta Air Lines, Air France-KLM and Alitalia have a similar arrangement in place.
Air Canada has argued that such joint ventures are needed in countries like Canada, to allow for necessary consolidation without running afoul of foreign ownership restrictions on airlines.
Both Air Canada and United Continental said they “strongly disagree” with the commissioner’s position Monday. They argued that such arrangements are, in fact, a net benefit for consumers by lowering fares, improving scheduling, and by providing greater frequent flyer benefits.
Air Canada also noted that transborder relationships between the airlines had been reviewed and were granted immunity from U.S. anti-trust laws on the basis that “they promote competition and benefit consumers.”
But both airlines have said they would suspend the implementation of the joint venture until the matter was resolved.
Ms. Aitken argues that of there isn’t sufficient competition on the 19 U.S. transborder routes impacted by the Air Canada/United Continental joint venture. In particular, she argues there is a sufficient barrier to entry on ten of those routes, including a lack of availability of landing slots, that would prevent new competitors from entering the market, she said.
Oliver Borgers, McCarthy Tetrault partner in competition law, said the legal community would be watching the process unfold with great interest, in part, because Ms. Aitken will be using new powers afforded to her office for the first time.
The amendment to the Competition Act under which she is challenging the Air Canada/United Continental agreement was enacted in March 2010. It allows her to argue cases of alleged anti-competitive behavior before the Competition Tribunal, by decriminalizing agreements among businesses that possibly lessened competition, but fall well short of “hard-core cartel” activities.
While the decriminalization of these acts has spurred companies to explore partnerships, or joint ventures, they might not have in the past, Mr. Borgers said it has also made it easier for the commissioner to prosecute.
Ms. Aitken must still prove that the existing agreements, and the proposed joint venture, substantially lessens competition. But the burden of proof is less than in a criminal court, Mr. Borgers said.
“The outcome of the amendment is a good balancing act between making it easier to prosecute hard-core cartel activity, and allowing businesses the freedom to enter into agreements without the threat of criminal prosecution,” he added.
Mr. Borgers added that the challenge of the Air Canada joint venture is also indicative of a pattern of behavior the competition commissioner has established that has seen her office put resources behind cases that could have a broad benefit for consumers, including the recent challenge filed against the Toronto Real Estate Board.
Source: National Post
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