Transport Committee on May 9th, 2024

[The Chair, Liberal, Peter Schiefke]

I call this meeting to order.

Welcome to meeting number 114 of the House of Commons Standing Committee on Transport, Infrastructure and Communities. Pursuant to Standing Order 108(2) and the motion adopted by the committee on Tuesday, April 16, 2024, the committee is resuming its study on the state of airline competition in Canada.

Before we begin, I'd like to remind all members and other meeting participants in the room of the following important preventative measures.

To prevent disruptive and potentially harmful audio feedback incidents that can cause injuries, all in-person participants are reminded to keep their earpieces away from microphones at all times. As indicated in the communiqué from the Speaker of the House to all members on Monday, April 29, the following measures have been taken to help prevent audio feedback incidents. All earpieces have been replaced by a model that greatly reduces the probability of audio feedback. The new earpieces are black in colour, whereas the former earpieces were grey. Please use only an approved, black earpiece. By default, all unused earpieces will be unplugged at the start of the meeting. When you're not using your earpiece, please place it face down in the middle of the sticker for this purpose that you will find on the table as indicated. Please consult the cards on the table for guidelines to prevent audio feedback incidents. The room layout has been adjusted to increase the distance between microphones and reduce the chance of feedback from an ambient earpiece.

These measures are in place so that we can conduct our business without interruption and to protect the health and safety of all participants, including, of course, our interpreters. Thank you all for your co-operation.

Today's meeting is taking place in a hybrid format. In accordance with the committee's routine motion concerning connection tests for witnesses, I'd like to inform the committee that all witnesses have completed the required connection tests in advance of the meeting.

Colleagues, appearing before us today for the first hour, we have, from the Competition Bureau of Canada, Ms. Melissa Fisher, deputy commissioner, mergers directorate; and Bradley Callaghan, associate deputy commissioner, policy, planning and advocacy directorate. Welcome to you both.

We'll begin with opening remarks, and for that I will turn the floor over to you. You have five minutes, please.

[Melissa Fisher, Deputy Commissioner, Mergers Directorate, Competition Bureau Canada]

Good morning, Mr. Chair and members of the committee. Thank you very much for the invitation to appear before you today. My name is Melissa Fisher. I'm the deputy commissioner of the Competition Bureau's mergers directorate. Joining me today is my colleague Brad Callaghan, who is the associate deputy commissioner of the policy, planning and advocacy directorate.

The bureau is an independent law enforcement agency that protects and promotes competition for the benefit of Canadian consumers and businesses. We administer and enforce Canada's Competition Act, a law of general application that applies to every sector of the economy. We investigate and address abuses of market power, anti-competitive mergers, price fixing and deceptive marketing practices. The bureau also advocates for pro-competitive government rules and regulations.

It’s important to recognize that we are enforcers, not adjudicators. The Competition Act requires us to meet several thresholds and standards, such as proving that there has been a significant harm to competition.

I'll also note that in the case of airline mergers there is a public interest review process that can be triggered by the Minister of Transport. When that happens, our statutory role becomes one of adviser, rather than enforcer. Our role is to identify any competition concerns relating to the merger to the Minister of Transport by way of a public report, and the minister makes the final decision on whether to recommend approval of the proposed transaction.

We've done this in three transactions in recent years—first, the First Air and Canadian North transaction in 2019, then the proposed merger between Air Canada and Air Transat in 2020, and most recently the WestJet-Sunwing merger. We believe it's important to correct the record in light of prior testimony that you have heard. The bureau did not approve these mergers. In fact, our public reports outlined the serious competition concerns that each of them raised.

We also participated in the last major review of the Canada Transportation Act, which was carried out in 2015. Our submission made a number of recommendations to government that we believe would result in lower prices, higher-quality services, and greater innovation in the transportation industry.

In light of recent events that have raised questions about the state of competition in the airline sector, the bureau has been considering the value of a more fulsome study, separate from enforcement matters that review specific transactions or behaviour. With that in mind, we have initiated the process to begin a market study of the industry. This will be our first such study under our new powers, which were granted in December 2023 through Bill C-56. This follows our most recent study of the retail grocery sector.

We intend to study the state of competition in the airline industry and how governments across Canada can improve competition for the benefit of domestic air passengers, as well as the workers and entrepreneurs who enable these services. We will be providing more details on this market study of the airline industry in the coming days when we launch a consultation on its terms of reference.

Before fielding your questions, I would note that the law requires the bureau to conduct investigations in private and keep the information we have confidential. This obligation may prevent us from discussing some past or current investigations.

I would like to thank the committee for the opportunity to appear today. We look forward to your questions.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Ms. Fisher.

We'll begin our line of questioning today with Mr. Williams.

Mr. Williams, the floor is yours. You have six minutes, sir.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you, Mr. Chair, and thank you to the Competition Bureau for being here today as part of this very important study.

This study was kicked off because we lost an airline competitor, Lynx Air, in Canada.

We have done some pretty in-depth study on the state of the industry, and I'm glad to hear that you are going to be conducting your own study into this industry. You did mention three airline mergers approved under this government—First Air and Canadian North, Air Canada and Air Transat, and WestJet and Sunwing. In every case, you found there would be a “substantial lessening of competition” with those mergers, and in every case, the government approved the mergers over the objections of the bureau.

If our airline industry is always one merger away from a substantially uncompetitive environment, that should be setting off alarm bells at the Department of Transport. When we questioned the department on Tuesday, they seemed to think everything was fine.

What do we need to do to ensure that we listen more to what the Competition Bureau is doing and to ensure that we have more competition in the airline industry?

[Melissa Fisher]

I'll start off on the mergers front. Merger reviews are specific to the transaction that's before us; they're not a broader investigation into the industry. They're particular to the overlap between the two parties that are proposing to merge.

As I mentioned in my opening, the way we proceed on a merger review where the Minister of Transport has commenced a public interest review is different; our role changes from one of enforcer to one of adviser. In that sense, our role is limited to providing the Minister of Transport with our views on the competition issues, regardless of the scope of the transaction.

This is a challenge that we have now, or at least a challenge for the bureau. The way the public interest process works, regardless of whether the core competitive issues relate to transportation or not, we're making use of the same process. Recently, we provided a report to the minister with respect to Bunge's acquisition of Viterra. These are two very large global and vertically integrated agricultural businesses—

[Ryan Williams, Conservative, Bay of Quinte, ON]

I'm so sorry, but I only have so much time.

Going back to the issue of the mergers, the Air Canada and Air Transat merger was approved, and then during COVID it was decided it was not a good time to do that.

We have a big competitor in Canada called Porter Airlines; they haven't come to this committee. We did have Flair Airlines come, and they raised some pretty substantial issues and concerns relative to anti-competitive behaviour that is ongoing.

Has the bureau heard any of these concerns raised by the government or by Flair? I know you can't comment on an ongoing investigation, but are there investigations happening in terms of anti-competitive behaviour in the industry right now?

[Bradley Callaghan, Associate Deputy Commissioner, Policy, Planning and Advocacy Directorate, Competition Bureau Canada]

Thank you for the question, Mr. Chair.

Obviously, as you said, we cannot comment on active investigations, but we certainly have investigated allegations.

You mentioned Flair Airlines, and we're aware of their testimony from the other day. We looked at the matter of allegations regarding predatory pricing, and the bureau did a significant in-depth review in this area. The matter was discontinued in 2023, but I can assure you that it was looked at very seriously.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Are there ongoing investigations right now in terms of anti-competitiveness allegations in the airline industry, whether by Flair or anyone at all?

[Bradley Callaghan]

That is not something we would be able to confirm to the committee, owing to the confidential nature of our work. There are some instances where we would let the public know so that we can gather information that is important, but there's nothing that we can identify for the committee at this time.

[Ryan Williams, Conservative, Bay of Quinte, ON]

From testimony the other day, I focused on gate allocations as being something that might be an anti-competitive process or entity in terms of looking at how different airlines compete. We had some smaller airports, like Abbotsford, talk about what they do. We looked at other, big airports. When the bureau completes its study, is it also going to be looking at real estate, gate allocation, and how competitors compete on the ground, as well as in the air?

[Bradley Callaghan]

We really look forward to providing a little bit more detail very shortly in terms of the scope of that study and the terms of reference. When we get through our current phase, which involves consultation with the minister of ISED, we plan to publish our terms of reference, which should explain in a little bit more detail what we would plan to study.

For now, what I would say is that we're looking at the state of competition in these markets in Canada, and it will be obvious from some of the past work we have done that barriers to entry, for example, are an important part of competition.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Part of the powers that were given by Bill C-56 were also to have the minister of ISED—because you are still a part of ISED—direct studies. Has the minister asked at all for reviews or studies on the state of airline competition in Canada, yes or no?

[The Chair, Liberal, Peter Schiefke]

Give a 10-second response, please.

[Bradley Callaghan]

This study has been proposed by the Competition Bureau. I want to be mindful of that process and the consultation that is currently under way with our minister. This one was proposed by the Competition Bureau.

[The Chair, Liberal, Peter Schiefke]

Next, we will go to Mr. Iacono.

Mr. Iacono, the floor is yours. You have six minutes, sir.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Thank you, Mr. Chair.

I'd like to thank the witnesses for being with us this morning.

Ms. Fisher, can you explain to the committee what factors are considered when a company wants to offer its services in the air sector?

[Melissa Fisher]

If you don't mind, I'll respond in English. It's a bit technical.

In each of those three merger reviews that I mentioned in the opening, we looked at barriers to entry. It's an important part of the analysis that we do. However, on the enforcement front, we're looking specifically at barriers that relate to the actual overlaps between the networks of the merging parties. It's a very specific investigation.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

We have noticed that the industry is subject to rules specifically on drip pricing. Does the Competition Bureau have any additional regulations for airlines, and can you explain what they are?

[Bradley Callaghan]

Rules regarding drip pricing are not specific to airlines. This is consistent with the Competition Act in general, although there is a bit of a different approach to mergers for the transport sector. Our rules for drip pricing are of general application. They apply to essentially all companies in the economy. These rules really go to the heart of making sure that consumers understand the products that are being offered to them and making sure that they're not misled. Drip pricing is really about making sure that consumers are being told the full amount of the price they're going to pay for the product, instead of being shown an initial price and then having additional fees added on in the rest of the purchasing process to the point that the final price is something that would have been unattainable compared to what was first advertised.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Thank you.

At what point do you step in to determine whether there is adequate competition in the air sector, and what does that process look like?

[Melissa Fisher]

I guess there are sort of two streams to answering that question. To the extent that there is either a merger or conduct that is potentially contrary to the Competition Act, we can commence an investigation, so that's how we would look at it from the enforcement side.

[Bradley Callaghan]

The other part of our mandate is really about promoting competition, and that is where our market study powers fall. The purpose of doing market studies is really to get a better sense about how competition is working from a holistic perspective as compared to looking at specific conduct that might be alleged or at a specific merger that might be proposed. The outcomes of our market studies tend to be more aimed at governments, and they often include recommendations about how we can try to improve competition in Canada.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Have you ever received any requests from any American airline company? We heard the other day from WestJet that American airlines are not interested in coming to set up shop in Canada because of X, Y and Z. Have you ever received any request on behalf of any American company that wants to come and set up shop in Canada?

[Melissa Fisher]

In the course of a merger investigation, one of the things we look for is potential entrants. In doing our reviews, then, we will talk to anyone who might be identified as a potential entrant.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Then you can't let us know if you've ever received any request or interest from any American airline company.