Question Period Note: First Air and Canadian North airlines merger

Concern raised by a Northwest Territories Member of the Legislative Assembly (MLA) that since the merger of first air and Canadian North, passengers, including those travelling south for medical appointments, are being bumped off flights from Inuvik to Yellowknife

• The Government of Canada approved the merger between First Air and Canadian North subject to a series of terms and conditions with respect to pricing, capacity and scheduling, access to northern infrastructure, employment, and accountability and transparency.
• Approving the merger with terms and conditions strikes a balance between public interest considerations and the need to have a more efficient, reliable and financially sustainable northern air carrier.
• The Government is closely monitoring compliance with the terms and conditions. In particular, as part of its monitoring efforts, the Government will ensure that capacity is maintained on all scheduled routes post-merger and even enhanced on routes where demand warrants.

IF PRESSED - ON THE ISSUE OF PASSENGERS BEING BUMPED OFF OF FLIGHTS

• The Department has reviewed the new schedule of the merged entity and did not find anything that would suggest that this condition is not being met.
• Recently implemented passenger rights regulations provide for a means of investigating cases of passengers denied boarding, and standards of treatment and compensation should this be found to be the case.

• On September 28, 2018, Makivik Corporation and the Inuvialuit Corporate Group (collectively the “Parties”) announced that they had reached an agreement that would merge two of their operating companies, Bradley Air Services Ltd. (doing business as First Air), and Canadian North Airlines. The same day, the Parties filed a merger notification with the Commissioner of Competition (Commissioner).
• On October 3, 2018, the Parties also filed a merger notification with the Minister of Transport pursuant to of the Canada Transportation Act (the Act). This notification triggered a 42-day initial review period, during which time the Minister determined that the proposed merger raised public interest considerations and a formal public interest review was started.
• The public interest assessment noted that the proposed transaction would create a more efficient and financially sustainable northern air carrier, which would be able to take advantage of the operating and network efficiencies afforded by the merger.
• However, without the remedial measures, the merger could adversely affect northern travellers and communities in terms of a higher cost of living for northerners and barriers to entry to new competitors.
• Approving the merger with strict terms and conditions would strike a balance between any public interest concerns raised by the merger and the need to have a more efficient and financially sustainable air carrier servicing Canada’s North.
• By Order in Council No. 2019-0805 dated June 16, 2019, the Governor in Council authorized the acquisition and merger of Canadian North by Bradley Air Services Limited, subject to certain terms and conditions that required Bradley Air Services and Canadian North to enter into a confidential agreement (Agreement) with the Minister of Transport (Minister).
• The Agreement, which took effect on June 20, 2019, and is not for public consumption, requires Bradley Air Services to report its performance (including schedule, pricing, etc.) to the Minister through specific metrics defined by the Agreement on a quarterly basis for at least 24-months
• On July 9, 2019, Bradley Air Services formally acquired Canadian North Inc., and the merged entity reached its first milestone on November 1, 2019, through the launch of a unified schedule. Thus, the merger is nascent, and monitoring has just begun.
• A CBC news article of December 11, 2019 reports of a claim made by a Northwest Territories’ Member of the Legislative Assembly (MLA) that passengers, including those travelling south for medical appointments, on the Inuvik-Yellowknife route are being bumped due to overcapacity.
• The MLA asserts that since the merger of the two northern airlines, there is now only one daily flight from Inuvik to Yellowknife and this could help explain the increased demand and issue of passengers being bumped off flights.
• Medical travel, specifically, is awarded by contract by the Territorial Government. These contracts set the price and level of service required. The last such contract was awarded prior to July 9, 2019, i.e. before the merger.
• The Terms and Conditions of the Order in Council and the Agreement require the merged entity to offer service on the same number of days per week than before the merger. For example, if Canadian North and First Air collectively offered service to a destination in particular, say Inuvik, 5 days a week, the merged entity shall offer service on the same number of days.
• The Department has reviewed the new schedule of the merged entity and did not find anything that would suggest that this condition is not being met.
• However, if on certain days, there were two flights (one served by First Air and the other by Canadian North) being offered, the Terms and Conditions would allow the merger entity to eliminate one of those flights to optimize capacity.
• That said, should load factors exceed a certain threshold on any route for a sustained period of time a quarter, the merged entity would be required to add capacity on that route.
• It is too early for the Department to assess load factors on specific routes, but this is something that will be flagged to the Monitor.

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