MONTREAL — Air Canada and United Continental Airlines are suspending their proposed transborder venture after Canada’s competition watchdog said it will attempt to block the relationship over concerns it would hurt consumers.
The airlines said Monday they took the action “pending further commissioner developments” relating to the outcome of the commissioner’s application with the Competition Tribunal to stop the joint venture.
Air Canada (TSX:AC.B) said its transborder services are unaffected by the decision and its passengers will continue to receive benefits of the airlines’ reciprocal frequent flyer programs, check-in facilities and airport lounges.
The Montreal-based company said it strongly disagrees with the commissioner’s position that the joint venture would be bad for consumers.
It argued customers would benefit from lower fares, better co-ordinated flight schedules and connection times, more route choices, and improved frequent flyer benefits through the joint venture.
“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,” Canada’s largest airline said in a news release.
The airlines said their position is consistent with the findings of regulatory agencies around the world, and supported by leading international economists.
They said it is also consistent with a July 2009 decision of the United States Department of Transportation granting Air Canada, United and Continental, among other parties, antitrust immunity to pursue more integrated commercial co-operation, including joint ventures.
Competition commissioner Melanie Aitken moved to block the alliance over concerns that a monopoly on some cross-border routes would hurt consumers.
She said the agreement between Air Canada and U.S.-based United Continental (NYSE:UAL) would mean higher prices and less choice for consumers on high-demand routes.
“The proposed joint venture would allow Air Canada and United Continental to operate and set prices as one airline,” she said in a statement Monday.
United said co-operation with Air Canada has provided travellers between Canada and the U.S. with more and better service.
“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 flyer benefits,” the airline said in statement.
However, the Competition Bureau said prices could increase by up to 15 per cent, as they did in similar cases reviewed by American studies.
The Competition Bureau filed an application with the Competition Tribunal to stop the joint venture, saying it would monopolize 10 important Canada-U.S.. routes and reduce competition on nine others in violation of the Competition Act.
It said the airlines would have 100 per cent market share on 10 routes from various Canadian cities to Houston, Washington, New York, Cleveland, Denver and San Francisco.
Canadian airlines are unable to formally merge with non-Canadian airlines because of foreign ownership restrictions. But Aitken said the proposed joint venture would achieve that very same result for Air Canada and United Continental.
The Competition Bureau is also seeking to undo three current co-ordination agreements between the two airlines over concerns it gives them power to charge inflated fares.
This is the bureau’s first challenge under a new provision of the Competition Act that came into force in March. Under Section 90.1, the commissioner can apply for the Competition Tribunal to alter or block an existing agreement.
These agreements allow Air Canada and United Continental to co-ordinate key aspects of competition including, pricing, scheduling and revenue sharing.