Madam Chair, my name is Melissa Fisher. I'm the associate deputy commissioner in the mergers directorate at the Competition Bureau. I'm joined today by my colleague, Anthony Durocher, the deputy commissioner of the monopolistic practices directorate at the bureau.
Also present is Mark Schaan, director general of the marketplace framework policy branch at Innovation, Science and Economic Development Canada. He is in charge of competition policy, while the Bureau carries out the independent enforcement function.
I understand that the committee has questions about changes in the bureau's role in relation to the review of arrangements between air carriers, as set out in Bill C-49.
I'll begin by providing some context about the bureau and its mandate. I will then speak to the bureau's experience in reviewing agreements and arrangements between air service providers. Finally, I will address the provisions of Bill C-49 that would impact the bureau's role in examining these types of agreements or arrangements.
The Bureau is an independent law enforcement agency that ensures that Canadian consumers and businesses prosper in a competitive and innovative marketplace that delivers lower prices and more product choice. Headed by the Commissioner of Competition, the Bureau is responsible for the administration and enforcement of the Competition Act and three of Canada's labelling statutes.
The act provides the commissioner with the authority to investigate anti-competitive behaviour. The act contains both civil and criminal provisions and covers conduct such as false and misleading representations, abuse of a dominant market position, mergers, and price-fixing. Civil matters are resolved before the Competition Tribunal, a specialized adjudicative body that comprises Federal Court judges and laypersons with expertise in business, commerce, or economics, whereas criminal matters are resolved before the courts. The act also provides the commissioner with the ability to make representations before regulatory boards, commissions, or other tribunals to promote competition in various sectors. The basic operating assumption of the bureau is that competition is good for both businesses and consumers.
Today I am here to talk about the bureau's role in reviewing arrangements between air carriers and how that role would change if Bill C-49 were passed.
The bureau has a significant amount of experience reviewing arrangements, including mergers and joint ventures, in the air transport sector. From the development of the first broad airline alliances in the late 1990s to the acquisition of Canadian Airlines by Air Canada in 2000 and the entry, and sometimes exit, of a number of carriers since then, the bureau has examined a variety of arrangements between air carriers that could harm businesses and consumers who rely on air services through increased prices and reduced choice.
Notably, in 2011, the bureau challenged before the tribunal a proposed joint venture between Air Canada and United Continental that involved co-operation on certain key aspects of competition, including pricing, capacity setting, frequent flyer programs, and revenue and cost sharing. After conducting an in-depth review, the bureau determined that the proposed joint venture would have resulted in the airlines' jointly monopolizing 10 key Canada-U.S. transporter routes and substantially reducing competition on nine additional routes. In turn, this would have likely led to increased prices and reduced consumer choice. Ultimately, the bureau reached a negotiated resolution with the parties. The consent agreement entered into prohibits Air Canada and United Continental from implementing their joint venture agreement on 14 transborder routes.
The Air Canada-United Continental matter is an example of how the bureau might review an air services arrangement under the Competition Act. The bureau typically examines this type of arrangement in the context of either the merger or the competitor collaboration provisions in the act, depending on how the arrangement is structured. These arrangements can have positive effects, such as increasing efficiency and competitiveness, in turn allowing Canadians to benefit from lower prices and better product choice. However, they can also raise competition concerns. If the commissioner determines that an arrangement is likely to result in a substantial lessening or prevention of competition, which is the statutory threshold, he may, subject to an exception for notifiable transactions under the act, challenge it before the Competition Tribunal, or alternatively, seek a consensual resolution with the parties in the form of a consent agreement.
With respect to the factors considered in reviewing mergers or agreements among competitors, the bureau undertakes an exhaustive, fact-intensive and evidence-based review, including quantitative analysis. In analyzing an airline joint venture, the bureau will focus on routes where there is overlap or potential overlap in the service by the parties.
In particular, the bureau typically considers whether the joint venture partners provide competing air passenger services on specific origin-destination city pairs, such as Toronto to Chicago or Winnipeg to North Bay. The bureau also assesses whether consumers view, for example, non-stop or one-stop service, or business and leisure travel as substitutes for one another. The bureau also considers whether there are competitors serving the parties' overlapping routes, any barriers to entry, and whether existing or potential competitors may constrain the ability of the parties to the arrangement to raise prices.
A joint venture that reduces the number of competitors or potential competitors on an already concentrated route will raise concerns. For any particular overlapping route, the bureau will want to ensure that consumers have access to competitive prices and services, and that a proposed arrangement would not result in any route being captive to one or more airlines with enhanced market power.
To assess the competitive impacts of a proposed joint venture, the bureau can require significant amounts of data and other market information from the parties to the joint venture and other market participants. This information is necessary for an informed and credible review based on sound economic principles. The bureau may seek such information on a voluntary basis from the parties to the arrangement, from third parties with knowledge of the industry, or from consumers. At times, it may also seek the issuance of a court order requiring that certain information be produced.
Bill C-49 establishes a new process for the review and authorization of arrangements involving two or more transportation undertakings providing air services. This process will cover all types of arrangements among air carriers, other than arrangements that would be considered notifiable transactions under the Competition Act. Notifiable transactions are transactions that meet specific financial thresholds regarding the size of the parties and the size of the transaction, and that cannot be completed until the commissioner has had an opportunity to review. Notifiable transactions have been subject to a potential public interest review by the minister of transport since 2000.
Bill C-49 proposes a new process for arrangements involving air services that will enable air carriers to voluntarily seek authorization of a proposed arrangement from the minister of transport. The commissioner will receive a copy of any notice of an arrangement that is provided to the minister, along with any information required by the guidelines.
If the minister determines that the proposed arrangement raises significant considerations with respect to the public interest, then the commissioner is required, within 120 days of receiving the initial notice, to report to the minister and the parties on any concerns regarding the potential prevention or lessening of competition that could occur as a result of the proposed arrangement. A summary of the commissioner's report may be made public. I would note in this respect the bureau's ongoing commitment to transparency within the limits of our confidentiality obligations, and that this commitment would continue under this process as well.
The bureau will carry out its usual competitive analysis, but to the extent that the arrangement raises competition concerns, it will not have the option of settling those concerns with the parties directly through the negotiation of remedies or by applying for a remedial order from the tribunal. The final decision in these matters will rest with the minister of transport, and the minister will consult with the commissioner on any remedial measures relating to competition.
In cases where the parties do not seek an authorization from the minister, or where the minister does not trigger a public interest review, the bureau will assess the arrangements under the Competition Act in the usual manner and without any change from its current process. The bureau will make its staff available to consult with the minister of transport to develop guidelines as required by the bill, and is committed to working with transport, including taking steps to ensure that the guidelines require parties to produce the information that the bureau needs to undertake an informed competition analysis.
While the bureau and the minister will work together to share information, the bureau's review of arrangements will remain separate and independent from the public interest review conducted by the minister.