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.
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.