Air Canada and Competition Tribunal

Air Canada provided the following
comment on the Competition Tribunal`s reasons and findings released today with
respect to the preliminary issue of the avoidable cost test relating to an
application commenced by the Commissioner of Competition against Air Canada in
March 2001.
Air Canada and the Commissioner of Competition had jointly requested a
hearing before the Competition Tribunal for clarification regarding the
avoidable cost test for evaluating pricing behaviour in the Canadian airline
industry under the Competition Act. It was Air Canada`s expectation that the
Tribunal`s decision about the avoidable cost test would provide guidance to
Air Canada and other airline industry participants about acceptable pricing
The hearing, considered to be Phase One of the application, was a
technical exercise involving a review of all of Air Canada`s costs over time
periods from April 2000 to March 2001 and a determination of which of those
cost items would be considered avoidable costs. The Tribunal ruled that all of
Air Canada`s overhead costs over the relevant time periods were considered
avoidable costs and concluded that Air Canada had operated below its avoidable
cost on the two sample routes during the two designated
“The Canadian airline industry is highly competitive and all industry
participants will need greater clarity as to what pricing behaviour is
acceptable and what constitutes permissible competitive response,” said John
M. Baker, Senior Vice President and General Counsel for Air Canada. “We will
review the decision more carefully before deciding on our next steps.
“The Tribunal made it repeatedly clear in its reasons and findings that
this decision is in no way a determination that Air Canada breached the
Competition Act and that there are many elements remaining to be addressed in
any future phase of the case,” said Mr. Baker.
Air Canada filed for protection under the Companies` Creditors
Arrangement Act (CCAA) on April 1, 2003. The Tribunal has stayed its decision
in view of the CCAA restructuring process providing for an extension of the
timeframe to appeal the decision and ensuring that no further phases of the
application will be dealt with until after the Company emerges from court
protection or the Court rules otherwise.