CT-88/ l IN THE MATTER OF an appl1cat1on by the Director of Investigation and Research under Section 64(1) of the fom~etition Act, R.S. c. C-23 as amended. AND IN THE MATTER OF a L1m1ted Part"lership formed to combine the operations of the Reservec and Pegasus computer reservation systems. AND IN THE MATTER OF The Ge!llln 'l Gt'OUP Automated Distribution Systems Inc. B E T W E E N: THE DIRECTOR OF INVESTIGATION AND RESEARCH,
- nnd - AIR CANADA Place Air Canada 500 Dorchester Blvd. West Montreal, Quebec H2Z 1X5 - and -AIR CANADA SERVICES INC. c/o A.ir Canada Place Air Canada 500 Dorchester B1vd. West Montreal, Quebec H2Z lXS - and -PWA CORPORATION Suite 2800, 700 - 2nd Street s.w. Calgary, Alberta T2P 2W2 - and -CANAO!AN AIRLINES INTERNATIONAL LTD, Suite 2900, 700 - 2nd Street s.w. Calgary, .i\lberta T2P 2W2 - and -PACIFIC WES't£RN AIRLIN•~:~ LT' c/o Canedian Airlines l~terna~1ona1 Ltd. Suite 2900, 700 - 2nd Street s.w. Calgary, Albert~ T2P 2W2
COMPETlTiml TRIBUNAL TRlll:NAL DE LA CO?~C!iiUUMCE P R F 0 ~ DEC 22 19BB .m8 y D T ---REC . I . S nA · R · -- --lt tc -tSt r 2A : l -~E OTT AW A, ONT. -,":;z 90?
F'. 4 - and -CANADIAN PACIFIC AIR LINES, LIMITED c/o Canadian Airlines International Ltd. Suite 2800, 700 - 2nd Street s.w. Calgary, Alberta T2P 2W2 - and -154793 CANADA LTD. c/o PWA Corporation Suite 2800, 700 - 2nd Street s.w. Calgary, Alberta T2P 2W2 - and -153333 CANADA LIMITED PARTNERSHIP c/o The Gemini Group Automated Distribution Systems Inc. l First Canadian Place P.O. Box 84 5th Floor Toronto, Ontarto MSX 1K4 - and -THE GEMINI GROUP Al'TOMA.'rED DISTRIBU'!'ION SYSTEMS !NC. l First Canad1an Place P.O. Box 84 5th Floor Tcronto, Ontario M5X 1K4
RESPONSE O .. _ F _ T EE RESPONDENTS TO ~--..-.'4""'-•~--·, -AM -EN -DE -D -ST -AT -E --M ·· E --N -T · --O " F '" -G -· R · O -U ·-OF THE D!RECTOR OF INVESTI~~TIO~~ESEARCH
1. This is the Response of the Reepondents to Part II, paragraphs 53 to 69 of the Statement of Grounds and Material Fact& for the Application by the Director of Invest19at ion & Resear~b 0 .mder Section 64 of the compet1tion Act.
2. ln paragraphs 53 to 57 of Part II, the Director makes refer• ence to the proposed Gem1ni-Pars merger transaction as contemplated by a Memorandum of Understanding dated September 13, 1988 entered into by Air Canada, PWA Corporation; TransWorld Airlines Inc. and NWA Inc. However, as indicated in paragraph 59, on December 5, 1988, the Director was advised by the Respondents that such merger transaction would not li~~~Y be proceeded with. At present, no restructured or substitute transaction has been agreed upon, although the parties to the Memorandum of UnderstandJ.ng are continuing to discuss some form of association. At this time, lt appears most likely that any such restructured or substitute transaction entered into between the parties would not constitute a merger within the meaning of Seot ion 63 of the Comp~t it ion A.ct.
3. In paragraphs 60 to 67 of Part II, the Director sets fortri his perception of the impact on competition in CRS in Canada and in the airline industry of the Gemini-Pars merger. Since no such merger is now likely to occur, these alle9ations are irrelevant. To the e~tent alle9ations contained in these paragraphs refer to the Gemini merger, the Respondents reiterate their Re1ponse(s) made to the or191nal Application by the Director.
4. In paragraph 66, the Director infers that AH Canada and Canadian A1rl1nes International Ltd. could obtain aecess :o contl-dent1al data on each other's aales and yu~lds, leading t? the possibility of coordinated pricing between them. The ~.esponden~s deny this al leg at ion. Security codes hav~ been est abl ! shed tc
F' c::. --P -ART II OF THE --NDS A -~ -D -· MATERIA ·-L - -F · A --C -· T'S -..---~ --.......------ .........- - ·--
- .. - c:.-1. . 1-.'. t- 1-. - L" ~• maintain the eonf1dent1ality of da;a for each owner. Gemin- Joes not maintain yield data. This unsubstantiated allegation suggesting the possibility, and even the likelihood, of criminal conduct by Gemini, the airlines or their employees is total:y inappropriate.
S. In paragraph 68, the Director introduces the subject of display in Pars and alleges that the Pars a19or1thm penalizes interline connections as compared to on-line connections. In paragraph 69, the Director com.plains that Air Canada and Canadian Airlines International Ltd. have acquired feed carriers and that the interline penalty in the CRS display creates a barrier to entry to the airline market for Warda1r.
6. Display algorithms are no~ a merger issue and are therefore irrelevant. However, even if they were relevant, on-line preference is a well accepted means of ordering display in CRSs in order to address consumer preference.
7. Display of flights in a CRS requires the establishment of criteria for the purpose of ordering the sequence of flights shown. Although each CRS is different, display algorithms take into account such factors as departure times, elapsed times, whether or not a passenger trip is non-stop, direct {aame plane with stops) or requires connections and whether connections &re on-line or interline. Generally, a preference is given to or.-line connections {altho~9h this doe& not necessarily mean that on-line oonnections will always appear before interline con.nect1ons) in recognition of the advantages consumers usually pere•ive from on-line connections over interline conneet1ons. Some of these advantages are:
(a) Through flight responsn bi 11 t y is assu7!led -oy one car :n. er. This lS especially important for children. the ~andl-capped and sen1or citizens.
F.7 - 3 -(b) Responsibility for baggage is !ssumed by one carr~ar. In the case of lost baggage, there is a greater certainty of recovery in a timely manner.
( c) Baggage is checi<:ed through. I:i the case of some int er-1 ine connections, passengers may be required to claim their baggage at connecting po:nts and recheck it.
(d} Many passengers prefer one carrier on whlch they accumulate frequent flyer points.
( e) Through far es a re oft en lees expensive than the '1F~l1' of local fares. Through fares are available for on-line connections, but are sometimes not available in the case of interline connections.
(f) On-line connections usually result in closer proximity of gates between connecting flights and reduced 11kel1-hood of required terminal or airport changes.
(g) Very often boarding passes for onftline connections may be obtained at the time of checking in for the first flight segment, while this is not possible in the case of interline connections.
(h) In the event of traffic delayst there is a greater likelihood of coordination with connecting on-lir1e than interline flights. This is especially important at connecting points such as Toronto where traffic ~elays are not infrequent.
(1) The lowest dlscount fares are ~sually available for on-l1ne and not interline connections.
- 4 -6. Agreements between trunk and feeder carriers are made :~ recognition of customer convenience and have brought significantly improved commercial air service to many smaller commun1t1es in Canada. The reasons outlined above as to why consumers prefer on-line connections apply to connections between aff il1ated carriers. lt is for reasons such as these that consumers usua:ly prefer on-line connections, including connections between aff il1-ated carriers, and that CRSs respond to this preference by the display algorithm used to establish the sequencing of flights.
9. The Respondents submit that the Relief sought by the Director under Part l! of his Application should be denied.
A.LL OF WHICH rs RESPECTFULLY SUBM1'1'TED this 21st day of December, 1988.
AIKINS, MacAULAY ' THORVALDSON BENNETT JONES