28-May-2018 9:25 AM

Canada awards Hong Kong Airlines' four additional services between Hong Kong, Canada

Hong Kong Airlines applied (18-May-2018) to the Canadian Transportation Agency for extra bilateral authority to permit it to operate four additional weekly services between Hong Kong and Canada, beginning on 28-Oct-2018. Details include:

  • Hong Kong Airlines application: In its application, Hong Kong Airlines states that under the terms of the agreement, it is permitted to operate up to ten weekly services and that this capacity is not adequate. Hong Kong Airlines presently operates seven of its ten allotted services by operating a daily service to Vancouver. It states that it requires four additional weekly flights in order to initiate a second daily service to Toronto. Hong Kong Airlines asserts that higher frequencies make a newly launched route more commercially viable by virtue of more flight options offered to passengers. Hong Kong Airlines adds that its route will be beneficial for passengers as it has established "a strong upstream connecting Mainland China and South-East Asia passengers to other destinations". It also submits that it is developing a downstream connection from the Toronto Pearson International Airport via codeshare partnerships;
  • Air Canada/WestJet response: Due to the extra-bilateral nature of Hong Kong Airlines' requested authority, the agency gave notice of the application to air carriers that may have an interest. Air Canada also carrying on business as Air Canada rouge and as Air Canada Cargo (Air Canada) and WestJet both filed an intervention in respect of the application. Air Canada alleges that there are restrictive elements of the agreement that limit commercial opportunities for Canadian carriers that the Government of Canada has been seeking to remove through negotiations. Air Canada states that the Government of Hong Kong has been reticent to address these concerns. Air Canada adds that Hong Kong Airlines is seeking to circumvent the process of bilateral negotiations by requesting that the agency approve an increase in its capacity. It is of the view that it is only through bilateral negotiations that a balanced agreement will be reached, which will satisfy the interests of the parties involved. It is also of the opinion that granting such a request would undermine Canada's negotiating position and reduce the future ability for Canada to negotiate a balanced agreement. Air Canada also claimed that Canadian carriers are unable to deploy the capacity that was negotiated in the Agreement because of the unavailability of slots at the Hong Kong International Airport, which, according to Hong Kong Airport slot coordinators, will not become available for at least five years. WestJet states that it objects to the application on the grounds that this market is already well served and that there is no compelling argument for consumer benefit by allowing a new entrant carrier above and beyond the capacity entitlements set out in the agreement;
  • Hong Kong response to Canadian airlines' response: Hong Kong Airlines responded to the concerns raised by Air Canada and WestJet. It concurs that negotiations between the government of Hong Kong and the government of Canada would be mutually beneficial. It also states that it views its application not as a circumvention but as a means of temporarily increasing the capacity available to them until the respective governments can agree to an expansion via negotiation. Hong Kong Airlines further states that its planned daily service to Toronto would introduce positive competition with existing carriers, which would eventually lead to a higher standard of service and reduced ticket prices. In addition, Hong Kong Airlines is of the view that the availability of slots is a separate issue that should not be tied with traffic rights consideration;
  • CTA ruling: CTA agreed to vary conditions of Hong Kong Airlines' licence to the extent necessary to permit it to operate four additional weekly flights to Toronto, beginning on 28-Oct-2018 to 27-Oct-2019;
  • CTA response: CTA has considered the potential economic benefits to the Canadian travelling public in its analysis. It notes the proposed service could be beneficial for consumers by introducing positive competition with existing carriers, leading to an increased standard of service and a downward pressure on ticket prices. CTA further notes the demand in the Asia Pacific region and the potential benefits for Toronto and Canada as a whole of increased services between this large and growing market and Canada. CTA acknowledged the concerns raised by Air Canada and WestJet stating it is "mindful of the constraints at the Hong Kong Airport and the inability of Canadian carriers to operate additional flights to the Hong Kong Airport regardless of the amount of capacity offered under the Agreement. The Agency is further mindful of the position of Air Canada that, were the Agency to grant this authority, the Government of Canada's negotiating position with Hong Kong would be undermined". It added: "The Agency is of the opinion that the potential consumer benefits of this request, i.e. increased competition, connectivity, and service, outweigh the concerns raised by Air Canada and WestJet". [more - original PR]

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