Order Fixing April 3, 2019 as the Day on which Sections 14, 78 and 83 to 88 of the Act Come into Force: SI/2019-16
Canada Gazette, Part II, Volume 153, Number 7
SI/2019-16 April 3, 2019
TRANSPORTATION MODERNIZATION ACT
Order Fixing April 3, 2019 as the Day on which Sections 14, 78 and 83 to 88 of the Act Come into Force
P.C. 2019-221 March 25, 2019
Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, pursuant to subsection 98(1) of the Transportation Modernization Act, chapter 10 of the Statutes of Canada, 2018, fixes April 3, 2019 as the day on which sections 14, 78 and 83 to 88 of that Act come into force.
(This note is not part of the Order.)
This Order in Council (the Order) fixes April 3, 2019, as the day on which sections 14, 78 and 83 to 88 of the Transportation Modernization Act come into force.
The purpose of this Order is to bring into force sections 14, 78 and 83 to 88 of the Transportation Modernization Act (the Act), which introduces an approval framework based on public interest considerations for air carrier joint venture arrangements.
Sections 14, 78 and 83 to 88 of the Act should come into force at the same time as the Regulations Respecting Fees for the Review of Arrangements involving Transportation Undertakings Providing Air Services come into force. If these sections were to come into force prior to the cost recovery regulations, the Minister would be obligated to review joint venture proposals at no cost. This would be contrary to the policy objective which contemplated a cost recovery regime for Transport Canada’s assessment work.
Joint ventures are an increasingly common practice in the global air transport sector. They allow two or more carriers to coordinate functions on specific routes, including scheduling, pricing, revenue management, marketing and sales. Air carrier joint ventures can yield significant long-term private benefits for participating air carriers, including increased profits over time by way of cost reductions through greater traffic density, and the sharing of facilities. Consumers can also benefit by having access to more destinations without having to book separate tickets on different carriers. Joint ventures can also allow air carriers to realize efficiencies, which may keep some less popular routes operating.
Many countries formally recognize that joint ventures can have public benefits to carriers, travellers and the economy that offset any reduction of competition, and thus have processes that examine these arrangements from the perspectives of both competition and the public interest. Australia, the European Union, Korea, Japan, Malaysia, New Zealand, Singapore and the United States (U.S.) are examples. Other jurisdictions look at issues such as impact on consumers, communities, and the air sector; the environmental impacts; safety and security; and social benefits that may be achieved as a result of the joint venture.
In the current context of Canadian air carrier collaborative arrangements, joint ventures are reviewable under section 90.1 of the Competition Act, footnote 1 and are investigated by the Commissioner of Competition (the Commissioner). Current assessments of joint ventures carried out by the Competition Bureau (the Bureau) focus specifically on the impacts on relevant markets, which in the context of air travel are generally defined as city route pairs that may be affected by the joint venture. This analysis is usually done on a route-by-route basis, and does not consider the broader networks and public interest benefits. Furthermore, since air carrier joint ventures are not currently notifiable as mergers under the Competition Act, the Commissioner is not obligated to examine any joint venture arrangements in advance of their implementation. Moreover, joint venture assessments that would currently be carried out by the Bureau are not subject to any specific timelines. This implies that at present, while air carriers may enter into a joint venture, there is a risk that the joint venture could be challenged by the Commissioner at any time throughout the lifetime of the agreement, and such a challenge would be limited in scope to whether or not the joint venture is causing a substantial lessening or prevention of competition in a given market.
Since an arrangement between two or more air carriers that constitutes a joint venture requires a significant financial investment on the part of the parties to the arrangement, the uncertainty of the current process poses a significant disadvantage to Canadian carriers in comparison to their international counterparts.
Transport Canada already examines transportation airline mergers under the Canada Transportation Act for public interest benefits as well as competition, but airline mergers are quite rare because of foreign ownership restrictions in the industry.
Applying a similar framework to joint ventures would not only help travellers reap the benefits of enhanced connectivity, such as expanded route offerings and better scheduling, but also help bring Canada in line with international norms.
Under the contemplated framework, the assessment of potential joint ventures carried out by Transport Canada would focus on operational and network efficiencies, and public interest benefits, and would take into consideration a review submitted by the Commissioner which would analyze any substantial lessening or prevention of competition discovered in any relevant market.
The Bureau would continue to determine the possibility of a substantial lessening or prevention of competition, and may quantify it by forecasting price effects and estimated reductions in consumer welfare for markets at issue. However, an assessment of a potential air carrier joint venture will no longer be limited to these elements.
Elements of the public interest benefits that would be examined by the Minister and which will be described in detail in the joint venture guidelines include the impact on consumers, communities, and the air sector (i.e. improvement in quality service, scheduling synergies and greater choice of connection and stopover options, pricing benefits, benefits to tourism, cost savings); environmental impacts; safety and security; and social benefits that may be achieved as a result of the joint venture.
The framework outlined in the Transportation Modernization Act will provide clarity, predictability and fairness to Canadian air carriers. The framework provides clear timelines for the review of a proposed joint venture. Firstly, the Minister has 45 days to determine whether the proposed joint venture raises significant public interest considerations warranting further review. In the affirmative, the Commissioner has 120 days to submit a report to the Minister outlining the competition concerns, if any, raised by the proposed joint venture, and the Minister has 285 days to authorize or deny a proposed joint venture.
Upon approval by the Minister, certain sections of the Competition Act would not apply to the proposed joint venture for a period of at least two years, which will allow for the implementation of the joint venture without the constant scrutiny of the Commissioner. Following that two-year period, the Minister may review again the joint venture at any time to address any concerns that may have arisen during that period.
Finally, for the lifetime of the joint venture, air carriers will be required to report to the Minister, on a yearly basis, the benefits achieved by the joint venture.
Transport Canada will publish guidelines for the assessment of air carrier joint ventures, thus providing transparency and predictability to air carriers considering joint ventures.
In April 2016, following the release of the Canada Transportation Act Review Report, broad consultations with industry stakeholders were undertaken and there was considerable support for the introduction of a review framework based on public interest considerations for air carrier joint ventures.
Upon coming into force, subsection 53.71(3) of the Act will mandate the Minister to develop guidelines, in consultation with the Competition Bureau, which shall include factors that may be considered by the Minister to determine whether a proposed arrangement raises significant considerations with respect to the public interest.
Draft joint venture guidelines were developed between October 2017 and March 2018 and were done in consultation with the Bureau and Innovation, Science and Economic Development Canada (ISED). Formal consultations with industry stakeholders began on May 28, 2018, following the Act receiving royal assent. A targeted second round of consultations was launched on July 30, 2018. This second round invited those who provided feedback in the first round to review the proposed changes. The Department received few comments in response to the consultations, some of which were wording proposals clarifying certain sections, while others were more substantive in nature.
The overarching concern was the perception that the new Canadian process would be less attractive to international partners, making Canadian carriers less attractive potential partners, due to (1) the lack of predictability resulting from the fact that an authorization could be revoked after two years; and (2) the requirements to provide a significant amount of information to the Minister and the Commissioner.
To assuage the former concern, wording was included in the joint venture guidelines clarifying that a joint venture is authorized for a minimum of two years, and that a reassessment is not automatic after that period. To alleviate concerns regarding the latter, wording was added in the joint venture guidelines to clarify that the filing requirements can be discussed during pre-application meetings and that certain application filing requirements may be waived with the Minister’s and the Commissioner’s consent.
For more information please contact
National Air Services Policy (ACEB)
Air Policy Group
Place de Ville, Tower C
330 Sparks Street