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Competition chief opposes Air Canada-UAL venture

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Canada’s competition commissioner wants to block Air Canada’s (AC.B-T) joint venture with United Continental Holdings Inc. (UAL-N) on transborder routes between Canada and the United States.

“The proposed joint venture would allow Air Canada and United Continental to operate and set prices as one airline,” Melanie Aitken said in a statement. “If allowed to proceed, consumers will face higher prices and even less choice on key, high-demand air passenger routes.”

The Competition Bureau filed an application Monday with the Competition Tribunal, saying it opposes what it views as a “merger” of Canada-U.S. operations. “If the joint venture is allowed, it will monopolize 10 important Canada-United States routes, and substantially reduce competition on nine additional routes, leading to increased prices and reduced consumer choice on key transborder routes,” the bureau said.

Those 10 routes are: Calgary-Houston, Montreal-Houston, Montreal-Washington, Ottawa-Washington, Ottawa-New York, Toronto-Cleveland, Toronto-Denver, Toronto-Houston, Toronto-San Francisco and Toronto-Washington.

Air Canada said it has been closely co-operating with Aitken during the review process: “Air Canada strongly disagrees with the commissioner’s position. Air Canada and United Continental Holdings believe in the merits and consumer benefits of the proposed transborder joint venture and enhanced co-operation between the parties that builds on the existing relationship between Air Canada and United.”

As well, Canada’s largest airline said its relationship with United Continental “has been conducted in accordance with applicable laws and the terms of antitrust immunity granted by U.S. regulatory authorities and in a manner consistent with the advisory opinion issued by the Canadian Competition Bureau in 1996.”

Air Canada emphasizes that its stance on the joint venture “is consistent with the findings of regulatory agencies around the world, and supported by leading international economists, who have recognized and documented the benefits to consumers of such arrangements.”

United Continental and Air Canada have said that co-ordinating scheduling, sales and pricing makes sense for consumers because of “streamlined” trips – “more travel options and benefits while reducing travel times.”

In 2009, Air Canada held an estimated 35 percent of Canada’s transborder air market into the United States, followed by United Continental’s 20-percent share (combining United Airlines Inc. and Continental Airlines Corp.).

Notable rivals on Canada-U.S. routes include Calgary-based WestJet Airlines Ltd. (WJA-T) at an estimated 13 percent and American Airlines Inc. at roughly 10 percent. Delta Air Lines Inc. (DAL-N) and US Airways Group Inc. (LCC-N) have smaller slices of the market.

Over and above the bureau’s challenge to the joint venture under the Competition Act, the federal agency also opposes co-ordination agreements between Montreal-based Air Canada and Chicago-based United Continental.

“These agreements allow Air Canada and United Continental to co-ordinate key aspects of competition including, but not limited to, joint pricing and scheduling, as well as revenue sharing,” the bureau said.

“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.”

Aitken added: “The current agreements between Air Canada and United Continental already allow the companies to set prices above competitive levels on all key 19 transborder routes, which alone violates the Act. Making matters worse, they now want to fully merge their operations.”

United Continental emerged from last year’s merger of Chicago-based United Airlines and Houston-based Continental Airlines. The combined entity features the United brand name.

“Airline co-operation and joint venture agreements have long been recognized by regulatory agencies around the world as providing enhanced benefits to customers,” United Continental said in a release. “The proposed U.S.-Canada transborder joint venture opposed by the bureau would increase existing customer benefits significantly via lower fares, better co-ordinated flight schedules and connection times, more route choices, and improved frequent flier benefits.”

United Continental also said that “the legal action will not have a material impact on United and Continental’s business. The carriers will continue to provide non-stop service between Canada and their U.S. hub cities, as well as connecting service from U.S. and international cities that the carriers currently serve.”

Air Canada belongs to the Star Alliance of global carriers, which includes United Continental, Deutsche Lufthansa AG, US Airways Group Inc. and Singapore Airlines Ltd.
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