Steve Ladurantaye

The Competition Bureau says it felt compelled to move to block Air Canada’s partnership with United Continental because the two carriers have the clout to elbow out new competition on important Canada-U.S. routes.

In its notice of application released Tuesday, the bureau spelled out in further detail why it is attempting to stop the venture. It took aim at United Continental Holdings Inc.’s strength at air terminals such as Chicago O’Hare, Denver International, Houston’s George Bush Intercontinental, Cleveland’s Hopkins International, Los Angeles International and Washington Dulles. Air Canada is the leading airline at domestic airports such as Vancouver, Montreal and Toronto’s Pearson International.

Read the story in the Globe and Mail

The carriers insist their joint venture would lower airfares. The airlines’ schedules are co-ordinated, and consumers have an opportunity to amass frequent-flier points on a greater number of flights. But the Competition Bureau, which on Monday announced its move to quash the partnership, calls it a merger because the airlines would operate as one on some routes, sharing information on pricing and schedules.

In the documents made public Tuesday, the bureau suggested that the Air Canada-United Continental venture will drive up costs for consumers because it will be difficult, if not impossible, for other airlines to compete on those routes.

“Certain airports on the transborder routes have insufficient capacity to allow for sufficient access to take-off and landing slots, and/or may have other constraints based on the capacity of their existing facilities that increase barriers to effective entry or expansion,” the bureau said.

The bureau said the proposed deal is anti-competitive for other reasons, noting that the carriers “have highly developed flight networks that centralize large volumes of passenger traffic into hubs that impede or foreclose a potential competitor’s access to the volume of feeder traffic necessary to effectively compete on a transborder route.”

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.

PI Financial Corp. analyst Chris Murray said Canada’s competition watchdog appears to be overstating the importance of market share and overlooking the harsh economics in the airline industry, especially in an era of high jet fuel costs.

He pointed to Air Canada’s move in May to cancel some of its own flights, including on the Montreal-Washington, Ottawa-Washington, Calgary-Chicago and Calgary-San Francisco routes.

“What really is the barrier to entry? Air Canada has already said those four routes are uneconomic,” Mr. Murray said.

He also said WestJet Airlines Ltd., which competes aggressively at Calgary International Airport against Air Canada, could start certain transborder routes if it chose to, but travel demand has to be strong enough to justify new flights.

United Continental emerged from last year’s merger of Chicago-based United Airlines and Houston-based Continental Airlines.

Last November, Air Canada’s transborder service overlapped with 13 of United’s routes and six of Continental’s, according to regulatory filings.

While the airlines see their loyalty programs as friendly toward consumers, the bureau said frequent-flier plans promote “exclusivity in corporate customer contracts, which create significant switching costs.”

On Monday, the carriers suspended their proposed joint venture, pending the outcome of its fight against the bureau.

Canada’s competition laws have been toughened in recent years as the government aims to crack down on predatory business practices, but the most transformative change for the Competition Bureau might have been the appointment of Melanie Aitken as the country’s top watchdog.

As Competition Commissioner, Ms. Aitken has taken aim at a host of high-profile industries – the Canadian real estate sector, credit card companies, gas cartels and cellphone providers.

Read the story in the Globe and Mail

Monday’s decision to target Air Canada – the country’s biggest airline – is an example of her strategy of pursuing cases that can set legal precedents and act as deterrents to executives in other industries.

“From a consumer perspective, she’s certainly picking all the right cases,” said Steve Szentesi, a competition lawyer at Vancouver’s Hakemi & Co. “She is perceived in the industry as an aggressive, no nonsense commissioner, and it’s fair to say she’s thought of as more capable than others have been in the role.”

Others suggest Ms. Aitken, 44, takes a rather American approach to the job. Former commissioners have kept a low profile, but Ms. Aitken is comfortable having her fights in public. A former litigator, she still pines for the courtroom and its confrontational setting.

Ms. Aitken came to the bureau after being seconded to the Justice Department from law firm Davies Ward Phillips & Vineberg LLP to work on competition files. Within two years, she was heading the bureau’s merger division, which would be thrust into the spotlight after a federal judge slammed the agency for overstepping its boundaries when investigating the Labatt Brewing Co. Ltd. takeover of Lakeport Brewing in 2008.

An independent review cleared Ms. Aitken’s department in 2009, and she was soon appointed commissioner. At the same time, Parliament handed the Bureau sweeping new powers, which allowed for fines up to $25-million for anti-competitive behaviours such as price fixing and gave commissioners the power to delay mergers by up to a year while reviewing them.

“There may be new rules, but the perception remains that her litigator background is what’s really driving the Bureau,” Mr. Szentesi said. “She’s had to choose the type of cases that can test the new rules and establish new precedents, and she’s been more than willing to do that.”

Her blunt approach has caused some of her targets to question her motives.

Bill Johnston, former president of the Toronto Real Estate Board, accused her of “career building” when she levelled fresh charges at his organization earlier this month, suggesting she was intent on grabbing headlines at the expense of his industry.

Others accuse her timing releases to gain maximum exposure – going after credit card companies at Christmas, or airlines the weekend before a busy long weekend of travel.

“We’re not that sophisticated,” she said on Monday. “I’m just a law enforcement official trying to do my job. We spend a lot of time trying to reach consensual agreements, it can take several months to do that work and determine what the outcome might be.”

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.”

Read story with Brent Jang at the Globe and Mail

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.

Canada’s office space vacancy improved in the second quarter, led by a record-setting recovery in Calgary.

CB Richard Ellis said the 8.6 per cent vacancy rate improved from 9.3 per cent in the last quarter, and was at 10.1 per cent a year ago. Tenants leased 3-million square feet of space, compared to 1.2-million square feet a year ago. The report doesn’t track rents.

Read the story at the Globe and Mail

“As a whole, the national trend for the office market is improving fundamentals, however, the performance of Calgary’s office market is absolutely staggering,” CBRE said in a statement. “Since peaking in the second quarter of 2010, Calgary’s vacancy rate has recovered at its fastest pace ever, down 630 basis points year-over-year to 9.4 per cent.”

The company said leasing activity has spurred construction, with new projects expected in Montreal, Toronto, Calgary and Vancouver.

The rate improved in the industrial sector as well, to 7 per cent from 7.3 per cent. Space under construction rose to 7.5 million square feet from 5.1 million square feet compared last year.

From the report:

Vancouver: The Metro office vacancy rate decreased from 10.1 per cent in the second quarter of 2010 to 8.7 per cent in 2011. “Downtown office vacancy is the lowest in the country, at 4.3 per cent, and although a new development cycle is beginning with three new office towers expected to break ground in the downtown market shortly, these towers will take several years to build, therefore the market will continue to tighten with no relief insight until 2014 at earliest. Although suburban office vacancy is 13.4 per cent it is down from 15.1 per cent at this time last year, and the market continues to experience increased activity from both new entrants into the market and existing corporate expansions, which will continue as tenant demand spills over from the downtown market.”

Calgary: Vacancy fell below the 10 per cent mark for the first time since the first quarter of 2009, reaching 9.4 per cent. “Vacancy is down an incredible 630 basis points from its peak of 15.7 per cent one year ago. This is the fastest the Calgary office market vacancy rate has ever rebounded. Although it is comparable to mid 1996 when the market rebounded by 620 basis points in a year, the rapid reduction in vacancy this time around is even more astounding when you compare it to the large amount of new supply that has been added to the market over the past few years. Most of the leasing activity came from expansion and renewed optimism in the oil sector, with spinoff growth in service companies and other industries serving this sector. The Calgary office market “still has to work through a significant amount of new supply, including The Bow. However, we anticipate that equilibrium will return to the market.”

Edmonton: Overall office vacancy rate dropped slightly to 10.3 per cent this quarter, from 10.5 per cent at this time last year and 10.7 per cent in the first quarter of 2011. The downtown vacancy rate decreased from 8.6 per cent in the second quarter of 2010 to 8.4 per cent this quarter, however, this was not before jumping to 8.8 per cent in the first quarter of 2011. “The Edmonton economy, and Alberta as a whole, continue to show extremely positive signs of growth. The industrial market continues to experience strong leasing activity as a result of the energy sector, with over 2.0 million SF of positive absorption over the last three quarters.”

Toronto: Overall office vacancy rate was 8.2 per cent in the second quarter, down significantly from 9.6 per cent at this time last year. The downtown vacancy rate fell an additional 40 basis points this quarter, for a total of 100 basis points year-to-date, and now sits at 5.9 per cent, below 6.0 per cent for the first time since the first quarter of 2009. “There remains a significant amount of available space that has been removed from the market for renovations and retrofit, and this space will return to the market in late 2011 and early 2012. Several new projects are in the pre-leasing stages, looking for anchor tenants before breaking ground, and the fundamentals in the downtown market are looking favourable to kick off new development in the coming year 12 months.”

Ottawa: Although the overall office vacancy rate is up from 5.3 per cent at this time last year to 6.8 per cent in the second quarter, it was virtually unchanged from 6.7 per cent last quarter. “The downtown office vacancy rate surprisingly dropped from 5.0 per cent last quarter to 4.4 per cent, however, there was limited leasing activity in the downtown market. The rise in suburban vacancy, from 8.1 per cent last quarter to 8.7 per cent, was counter intuitive because there has been good leasing velocity, particularly in Kanata. The increase in suburban vacancy is primarily a structural adjustment because many companies were unable to make needed adjustments to their leases during the recession, and as a result the increase in vacancy this quarter is the tail end of this adjustment process.”

Montreal: Office vacancy rate declined from 10.8 per cent in the second quarter of 2010 to 8.9 per cent this quarter. Montreal’s downtown office market continues to perform well, with vacancy down from 9.1 per cent at this time last year to 7.5 per cent this quarter. “The downtown Montreal office market continues to tighten, and there are approximately ten availabilities of Class A space greater than 30,000 SF in the downtown core this quarter. As a result, the first new downtown office tower since 2002 – a ten storey, 230,000 SF building – has commenced construction. However, it will not be completed until early 2014 so the market will continue to tighten until then.”

Halifax: Overall office vacancy rate was 8.4 per cent in the second quarter, down from 9.0 per cent in the same period of 2010. “The Halifax office market continues to experience stable leasing activity, however, it is much stronger in the suburban market than in the Central Business District.”

In a bid to satisfy the Competition Commissioner, the Toronto Real Estate Board has unveiled a new website policy for agents that would give them the power to create personalized listing sites so customers can browse for new homes from their living rooms.

While some of Canada’s 101 real estate boards already allow agents to set up password-protected sites for their customers, the country’s largest board does not.

Read the story in the Globe and Mail

What happens next could set a national precedent for the way home buyers research the biggest purchase of their lives, because other boards are expected to adopt the same policy once it’s instituted.

The Competition Bureau launched a lawsuit against TREB in May, saying it prevents brokers from sharing information online with their customers. It was the latest move in the protracted fight between the bureau and real estate agents, who have come under increasing scrutiny as commission-based payments have grown along with the price of Canadian homes.

The Competition Bureau appears less than thrilled by TREB’s overture, however, saying it would still prefer the real estate association to enter a legally binding consent agreement guaranteeing the sites can operate.

“We continue to believe that a legally binding consent agreement, or Competition Tribunal decision, is necessary to achieve a lasting permanent solution that will prevent TREB from denying consumer choice and the ability of real estate agents to introduce innovative real estate brokerage services though the Internet,” said bureau spokesman Greg Scott.

The Toronto board allows real estate agents to provide information – such as the number of days a house has been on the market and previous selling prices – by hand, telephone or e-mail, they are not allowed to create websites where customers can look up the information on their own.

The new policy – which TREB members have 60 days to comment on – would allow the sites to exist as long as they meet certain requirements. The sites must be password protected; they must be available only to clients; TREB would be able to monitor activity; sellers could opt out of having their home appear on the site; and the seller’s name and contact information must never appear in the listings.

That last rule would keep “for sale by owner” listings off the sites, which could be a concern for the Competition Bureau. The last time the bureau locked horns with the industry, the result was that flat-fee listing companies were able to post ads to the Multiple Listing System on behalf of people selling their own homes. Anything that keeps those listings away from prospective buyers isn’t likely to be acceptable to Competition Commissioner Melanie Aitken.

TREB said it has been working on the proposed new policy since last August. However, the Competition Bureau says TREB hasn’t been willing to go far enough to satisfy the bureau’s concerns. Both sides met several times before the bureau’s complaint was filed.

Incoming TREB president Richard Silver said the policy confirms the board’s “strong belief in open competition and in its members competitive spirit, quite independent of the Competition Commissioner’s claims and approach.”

The bureau said it would rather settle the complaint before an appearance at the Competition Tribunal, which can issue fines and binding rulings.

TREB’s new policy is based on one adopted by the U.S. National Association of Realtors to satisfy the U.S. Department of Justice several years ago.