Tensions Heat Up Between Air Canada, Government

Wed Nov 28, 2001 10:29 pm

From The Globe and Mail on-line edition (

Air Canada says it is being punished by Ottawa


From Wednesday's Globe and Mail

Wednesday, November 28 – Online Edition, Posted at 2:04 AM EST

Ottawa — Air Canada officials say the Liberal government could drive the country's major airline into the ground by making it impossible for it to compete with low-cost carriers.

The Cabinet is set to consider new amendments to the Competition Act that could make an airline such as Air Canada subject to fines of more than $10-million if it were found to have to acted to drive a competitor out of business.

As well, the amendments — which were expected to be approved Tuesday but were delayed — would make it easier for the Commissioner of Competition to issue a cease-and-desist order to prevent what it considers to be predatory behaviour by Air Canada.

Air Canada officials said Tuesday they are being punished for responding to market pressures to lower costs.

At a committee hearing Tuesday, they also complained that they were confronted with a fait accompli, with the government having essentially decided on amendments to the Competition Act without hearing from the Montreal-based airline.

Air Canada vice-president John Baker denied the company acts in an uncompetitive manner, saying it only meets the prices of competitors such as WestJet Airlines Ltd. and the now-defunct Canada 3000 Inc.

"All airlines including Air Canada are facing a markedly changed business and grave financial circumstances," Mr. Baker said.

"To restrict our ability to respond to these changes through interventionist legislation could have profound effects and consequences for us, let alone for the travelling public in Canada."

He said a heavy-handed approach from Ottawa could result in Air Canada becoming "a seriously crippled airline."

However, Air Canada has not been getting a sympathetic hearing from Liberal MPs, who accuse it of abusing its dominant position to eliminate competition.

"People's tempers are getting very thin on the airline file," Liberal MP Stan Keyes told the Air Canada witnesses at the hearing.

"People no longer have a stomach for what is going on at Air Canada."

Transport Minister David Collenette criticized Air Canada's plan to launch another low-cost carrier to take on WestJet, which operates mainly in Western Canada with service into Hamilton.

"The whole issue of the low-cost airline is something that they legally have the right to do. Is it the best thing for the country? No, in terms of air policy," Mr. Collenette said outside the Commons Tuesday.

He added that Air Canada should pay more attention to its bottom line and getting its costs under control, rather than going after competition in the way that it has been going after these other companies.

Air Canada's aggressive campaign to cut ticket prices is one reason why Ottawa is mulling giving the Competition Bureau, its antitrust watchdog, more powers, Mr. Collenette said.

Earlier this month, the Competition Bureau had been prepared to hit Air Canada with a cease-and-desist order on its new low-fare service, Tango. Bureau officials said they suspected Tango of being a fighting brand aimed at squeezing smaller rivals such as Canada 3000 out of the market.

The amendments are mainly the work of Industry Minister Brian Tobin, who is in charge of the Competition Bureau and its quasi-judicial arm, the Competition Tribunal. But he has worked closely with Mr. Collenette.

They were also strongly influenced by comments from WestJet head Clive Beddoe, who has urged Ottawa to stiffen laws on predatory and anti-competitive practices.

Once the cabinet approves the amendments — likely next week — the industry committee will need two days to study the changes before adding them to the competition bill they are already considering. The bill would then go back to the House of Commons for second and third reading.

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