Canadian COMPETITION LAW

The Competition Bureau announced that would seek to block a proposed joint venture between Air Canada and United Continental which, according to the Bureau, would “monopolize ten important Canada/United States routes, and substantially reduce competition on nine additional routes.”

In making the announcement, the Bureau said:

“The proposed joint venture is effectively a merger between Air Canada and United Continental on all of their Canadian and US operations. It would allow the parties to jointly set prices, capacity and schedules. If allowed to proceed, it will result in:

a monopoly on ten transborder routes;

substantially reduced competition on an additional nine transborder routes; and

significantly higher prices.

In addition to challenging the joint venture, the Commissioner is challenging three existing “coordination agreements” between Air Canada and United Continental. These agreements allow Air Canada and United Continental to coordinate key aspects of competition including, but not limited to, joint pricing and scheduling, as well as revenue sharing. Through these existing agreements, the companies currently have the power to charge passengers inflated fares. Moreover, if these anti-competitive provisions are further implemented, with or without the joint venture, Canadians will pay even more for less choice and higher fares.”

According to the Bureau, it became aware of the proposed Air Canada/United joint venture after the parties issued a press release.

Joint ventures can be reviewed under at least four provisions of the Competition Act: as a criminal conspiracy, under the civil agreements provision, as a merger or under the abuse of dominance provisions, which also contemplates joint dominance.

In this case, the Bureau is challenging the proposed JV under the merger provisions of the Act, which allow the federal Competition Tribunal to issue orders including blocking proposed mergers or ordering the dissolution of assets or shares in the case of a completed merger.

The Bureau is also challenging three existing “coordination agreements” between the parties under the newly enacted civil agreements provision – section 90.1 – which is the Bureau’s first challenge to an allegedly anti-competitive agreement under this provision, which came into force in 2010 as part of sweeping amendments to the Competition Act.

Under the merger provisions of the Act, the Tribunal can issue orders, including blocking proposed mergers (or ordering the dissolution of assets or shares in the case of a completed merger) where a merger is found to prevent or lessen competition substantially.  Under the new civil agreements provisions – section 90.1 – the Tribunal has the power to make “remedial orders” (i.e., for conduct to stop) where an agreement between actual or potential competitors prevents or lessens competition substantially.

It is, however, relatively unusual for a proposed agreement to be independently challenged by the Bureau outside of the context of parties seeking merger clearance or an advisory opinion for proposed business conduct.  Possibly the parties concluded that the proposed JV was not notifiable under the merger provisions of the Act or there was a failure to adequately review whether the proposed JV may have required merger notification.

Another interesting aspect of this case is that the Bureau alleges that the proposed joint venture was intended to circumvent foreign ownership restrictions governing Canadian airlines, by allowing the parties to in essence merge though the joint venture.

With respect to market share and concentration issues, the Bureau’s concerns appear to primarily be based on increased “post-merger” market shares on specific city pair routes of between 34% and 100% (market shares typically being calculated in airline markets based on city pair routes).

Also interesting is the fact that while the Commissioner has the power to apply to the Tribunal for remedial orders, contested merger proceedings are relatively rare in Canada with the majority of issues typically resolved by way of negotiated settlement (i.e., consent agreements for the divestiture of assets and to a lesser extent the adoption of behavioural remedies).

For example, the Bureau’s recent challenge of CCS Corporation’s proposed acquisition of Complete Environmental, owner of the proposed Babkirk Landfill in Northern British Columbia, was the Bureau’s first merger challenge since 2005.

For the complete news release see:

Competition Bureau Seeks to Block Joint Venture between Air Canada and United Continental

For the Bureau’s Backgrounder see:

Competition Bureau Seeks to Block Joint Venture between Air Canada and United Continental – Backgrounder

For the Bureau’s Competition Tribunal Application see:

Competition Tribunal

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