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Determination By The Canadian Transportation Agency (Agency) Regarding The “basic Fare” Requirements

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Determination By The Canadian Transportation Agency (Agency) Regarding The "basic Fare" Requirements In Paragraph 67(1)(B) Of The Canada Transportation Act, S.c., 1996, C. 10, As Amended (Cta).

ISSUES

[1] The issues to be addressed in this Determination are:

  • What does a carrier have to do to comply with paragraph 67(1)(b) of the CTA?
  • What criteria will be applied by the Agency when considering applications from carriers for exemptions from the requirements of paragraph 67(1)(b)?

[2] The Agency, in making its determinations with respect to these issues, has applied the rule of statutory interpretation, which states that the words of a statute are to be read in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme of the statute, the object of the statute, and the intention of Parliament. The Agency also considered the legislative history of the provisions themselves and the submissions received during consultations on the issues.

BACKGROUND

[3] On January 30, 2019, the Agency issued Determination No. A-2019-14 (the January 30 Determination) in which Swoop Inc. (Swoop) was granted a temporary exemption, in accordance with paragraph 80(1)(c) of the CTA, from compliance with paragraph 67(1)(b) for a period of 180 days. In the January 30 Determination, the Agency indicated that it would undertake public consultations with any interested stakeholders to inform a subsequent determination on whether Swoop's exemption should be extended or made indefinite. Furthermore, the Agency indicated that the consultations would inform the manner in which the Agency would deal with future requests for exemptions from paragraph 67(1)(b).

[4] On February 13, 2019, the Agency opened a 60-day consultation period to allow interested parties to provide information and their views on carriers' obligations vis-à-vis paragraph 67(1)(b).

[5] The consultation period was scheduled to conclude on April 13, 2019, but was extended by the Agency to April 30, 2019. The Agency received input from five parties.

[6] Swoop's exemption period was to expire on July 29, 2019, but was extended by the Agency pending a determination on the Agency's broader approach.

THE LAW

[7] Section 55 of the CTA states:

basic fare means

(a) the fare in the tariff of the holder of a domestic licence that has no restrictions and represents the lowest amount to be paid for one-way air transportation of an adult with reasonable baggage between two points in Canada, or

(b) where the licensee has more than one such fare between two points in Canada and the amount of any of those fares is dependent on the time of day or day of the week of travel, or both, the highest of those fares; (prix de base)

[8] Paragraph 67(1)(b) of the CTA states that the holder of a domestic licence shall:

(b) in its tariffs, specifically identify the basic fare between all points for which a domestic service is offered by the licensee; and

[9] Section 80(1) of the CTA states:

The Agency may, by order, on such terms and conditions as it deems appropriate, exempt a person from the application of any of the provisions of this Part or of a regulation or order made under this Part where the Agency is of the opinion that

(a) the person has substantially complied with the provision;

(b) an action taken by the person is as effective as actual compliance with the provision; or

(c) compliance with the provision by the person is unnecessary, undesirable or impractical.

[10] Paragraphs 107(1)(h), (m), and (o) of the Air Transportation Regulations, SOR/85-58, as amended (ATR) state that every tariff shall contain:

(h) an index of points from, to or between which tolls apply, showing the province or territory in which the points are located;

(m) any special terms and conditions that apply to a particular toll and, where the toll appears on a page, a reference on that page to the page on which those terms and conditions appear;

(o) the tolls, shown in Canadian currency, together with the names of the points from, to or between which the tolls apply, arranged in a simple and systematic manner with, in the case of commodity tolls, goods clearly identified;

SUBMISSIONS

Air Canada

[11] Air Canada submits that exemptions from compliance with paragraph 67(1)(b) should apply to all carriers and not be restricted to carriers that are ultra-low-cost carriers (ULCCs). Air Canada argues that the trend, seen more generally in the consumer aviation industry, is the unbundling of fares; therefore, exempting only ULCCs from the paragraph 67(1)(b) requirement would give those carriers an unfair competitive advantage. Air Canada contends that the basic fare is obsolete, given the growing prevalence of unbundling, and is contrary to the National Transportation Policy set out in section 5 of the CTA.

WestJet

[12] WestJet states that the basic fare requirements "predate the internet," and that consumers use the internet to identify the lowest fares, as well as all associated fees, and to make comparisons based on that information. Enforcing the basic fare requirement for all carriers would, WestJet claims, hinder the ability of ULCCs, like WestJet's subsidiary Swoop, to compete for business. WestJet also states that not all carriers currently comply with the basic fare requirements and, in order to comply, carriers may be identifying an arbitrary basic fare for all their domestic routes. WestJet submits that dynamic pricing is not always translated into the tariff, as tariffs are static documents and changes to tariffs take time. Finally, WestJet indicates that the constant updating, amending, and filing of tariffs to comply with basic fare provisions is unnecessary and creates an administrative burden.

Association of Canadian Travel Agencies (ACTA)

[13] ACTA argues that carriers advertise their services at artificially low levels; that is, they post base fares (not to be confused with the basic fare as referred to in section 55 of the CTA) that do not include all the associated fees. ACTA argues that this type of advertising does not allow for true comparison shopping. ACTA also submits that the requirements of paragraph 67(1)(b) are outdated and the legislation should be reviewed with a view to being aligned with the current air travel business landscape.

Mr. Gabor Lukács

[14] Mr. Lukács submits that the original purpose of paragraph 67(1)(b) was to establish the basic fare as the benchmark for reviewing fare complaints on monopoly routes. Furthermore, he argues that the purpose of the provision was consumer protection; namely, to provide choice to the passenger by fostering competition, including having a fare alternative with no restrictions and a reasonable baggage allowance.

[15] Mr. Lukács argues that some passengers would opt to purchase such a fare, even if it is not discounted, and that the basic fare requirement increases choice and competition and serves a meaningful purpose in allowing travellers to make comparisons. He further submits, in the context of unbundled fares, that the basic fare "may be the only meaningful way for consumers to know how much they ultimately have to pay and to meaningfully compare the prices offered by carriers" for the same advertised services as intended by the air services price advertising requirements.

[16] Mr. Lukács also states that the fact that a carrier chooses to operate in a certain manner does not trump the law, and that carriers should not be able to circumvent the law because compliance would affect profitability. He also argues that exemptions should be based on careful analysis and not on carriers' business choices.

[17] Finally, Mr. Lukács submits that it is not onerous for carriers to comply with paragraph 67(1)(b) of the CTA, as it is not necessary to include the price of the basic fare in the tariff.

MCD Jamieson Consulting

[18] MCD Jamieson Consulting expresses concern about the rising cost of air fares and the existence of fares that cannot be refunded or changed. It contends that carriers are "gouging us and punishing those who may only be able to afford to purchase lower priced fares."

ANALYSIS AND FINDINGS OF FACTS

What does a carrier have to do to comply with paragraph 67(1)(b) of the CTA?

[19] There has been significant evolution in the air industry since the obligation to include a basic fare in the tariff was first introduced, including a trend toward unbundling services, such that the fare offered is only one part of a ticket price and that items such as baggage, seat selection, and itinerary changes entail extra charges. This trend is particularly pronounced in the case of the ULCCs' business model.

[20] To further understand the origin and intent of paragraph 67(1)(b), an explanation of its historical link to section 66 is required. Subsection 66(1) of the CTA empowers the Agency to review fares on domestic monopoly routes and to take certain action when fares are found to be unreasonable. Prior to 2000, the authority to review unreasonable fares under this subsection was limited to the basic fare or increases in the basic fare, where that basic fare was required to be identified in the carrier's tariff by paragraph 67(1)(b). However, since section 66 was amended in 2000, such that the Agency's authority to review unreasonable fare complaints is no longer based on the basic fare, but rather includes the authority to review any fare, cargo rate, or increase in a fare or cargo rate published or offered on monopoly routes. Thus, an examination of the legislative history of section 66 of the CTA shows a recognition by Parliament of the changing industry practices with respect to the basic fare.

[21] Furthermore, subsection 66(3) of the CTA provides a non-exhaustive list of factors and information that the Agency may consider when reviewing a fare complaint on a monopoly route. While the basic fare is not specifically listed as a factor to be considered when reviewing a complaint about an unreasonable fare or fares, in a market in which carriers increasingly unbundle services, the paragraph 67(1)(b) requirement that all domestic licensees identify, for all routes offered, a fare that has consistent features arguably has some residual value by providing consumers and the Agency with a tool for comparative analysis. In any event, the fact that Parliament has chosen to leave the basic fare requirement in the CTA means that it must continue to be applied and respected, unless an exemption from it has been requested by a carrier and granted by the Agency.

[22] Contrary to WestJet's submissions, the obligations under paragraph 67(1)(b) are not particularly onerous as they apply only to domestic services, and domestic tariffs do not need to be filed with the Agency; the CTA is not specific on how the basic fare must be sold, and the CTA does not restrict the carrier from offering any other fares it so chooses. The only requirement is that the basic fare be identified somewhere in a carrier's tariff. Furthermore, the definition of a basic fare found in section 55 of the CTA refers to the transportation of an adult and the offering of fares. Paragraph 67(1)(b) of the CTA, therefore, only applies to carriers who provide transportation services to passengers on a unit per toll basis (fare basis). It does not apply to carriers that, for example, provide only cargo services or entity charter passenger services, as these types of services do not offer any individual fares for sale to the public.

[23] Contrary to Mr. Lukács' assertion that paragraph 67(1)(b) does not require a carrier "to include the price of the basic fare in its tariff, but rather to ensure that such a fare is available to the public," paragraph 67(1)(b) states that a carrier must "in its tariffs, specifically identify the basic fare between all points for which a domestic service is offered by the licensee". Furthermore, paragraphs 107(1)(h), (m), and (o) of the ATR indicate that a domestic tariff must contain an index of points from, to, and between which tolls (fares, rates, and charges) apply; the tolls, shown in Canadian currency, together with the names of the points from, to, or between which the tolls apply arranged in a systematic manner; and any special terms or conditions that apply to a particular toll. As such, and to provide further clarity on how a carrier can meet the requirements of paragraph 67(1)(b), the Agency finds that a carrier must identify in its tariff the lowest price to be paid for one-way travel with no restrictions and with reasonable baggage for each of its domestic routes. The most reasonable interpretation of "price to be paid" is that the fare, in Canadian dollars, must be identified.

[24] In sum, the Agency finds that, in keeping with the definition found in subsection 55(1), the CTA requires that each carrier holding a domestic licence that offers fares to passengers identify, in its tariff, the lowest price to be paid for one-way travel between two points with no restrictions and with reasonable baggage for each of its domestic routes. If the carrier offers more than one basic fare and the amount of any one of those fares is dependent on time of day or week or both, then the carrier must identify only the highest of those fares.

What criteria will be applied by the Agency when considering applications from carriers for exemptions from the requirements of paragraph 67(1)(b)?

[25] Paragraph 80(1)(c) of the CTA empowers the Agency to exempt a carrier from complying with the provisions of the CTA if the Agency determines that compliance is "unnecessary, undesirable or impractical".

[26] In the case of requests for exemptions from the requirements of paragraph 67(1)(b), the possible residual value of inclusion of basic fares in tariffs must be weighed against practicality and necessity considerations, given both the evolution of the industry toward increasingly unbundled and customized fares and the addition, in 2014, of air services price advertising requirements (ASPAR) to the ATR. ASPAR improved transparency and consumers' ability to compare different fares by requiring that carriers disclose the total price of advertised air services and the total price of any advertised optional incidental services.

[27] The Agency agrees with Air Canada that any exemption should be granted on the basis of consistent criteria and be available, in principle, to all carriers, not only to those that describe themselves as, for example, ULCCs.

[28] In light of the foregoing, the Agency establishes the following criteria for the consideration of carrier requests for exemptions from the requirements of paragraph 67(1)(b):

  • the carrier demonstrates that, for the routes for which it requests an exemption, it (or other carriers) has offered a fare with the features of a basic fare for a reasonable period of time and none of these fares were purchased; and
  • the carrier has an explicit business model that does not contemplate offering for sale, now or at any time in the future, any version of a fare with the features of a basic fare.

CONCLUSION

[29] Each carrier holding a domestic licence that offers fares to passengers must identify, in its tariff, a basic fare, as defined in subsection 55(1) of the CTA, for each of its domestic routes, unless it has applied for, and received an exemption, which the Agency may issue based on the criteria listed above.

This press release was sourced from Canadian Transportation Agency on 18-Nov-2019.