Air Canada - United Accord Challenged

The Wall street Journal

Canadian regulators unexpectedly moved to block a tighter alliance between Air Canada andUnited Continental Holdings Inc. on antitrust grounds and called for parts of the airlines' existing cooperation deal to be unwound.

The two carriers, both partners in the Star Alliance of airlines, won approval from U.S. regulators for a five-year-old pact to coordinate fares, schedules and marketing on cross-border flights. But they applied last year to take their venture a step further by combining revenues, a strategy the U.S. airline already uses with some partners in Europe and Asia.

Canada's Competition Bureau, an independent law-enforcement agency overseeing business-competition issues, said it was challenging parts of the existing pact, citing concerns about higher fares and reduced consumer choice. For the first time, the bureau is using new provisions of Canada's antitrust laws that took effect last year.

The two airlines, which analysts estimate have a combined 45% share of U.S.-Canada routes, criticized the decision,citing the widespread approval of revenue-sharing deals and other alliances by national competition authorities. But they suspended their effort to expand their existing accord.

Canadian Competition Commissioner Melanie Aitken said closer cooperation between Air Canada and United and Continental of the U.S., which combined last year, would amount to a "merger" of the largest operators of air service between the U.S. and Canada, with a monopoly on 10 routes.

Ms. Aitken is the first national regulator in the Americas to challenge an airline cooperation deal that the U.S. Justice Department already has granted antitrust immunity. Regulators on both sides of the Atlantic have, until now, backed closer ties between members of the three global alliances that dominate the global airline industry.

United, the largest U.S. airline by traffic, said it "strongly" disagreed with the regulator. "The proposed U.S.-Canada transborder joint venture...would increase existing customer benefits significantly via lower fares, better coordinated flight schedules and connection times, more route choices, and improved frequent flyer benefits," it said in a statement.

Since her appointment in August 2009, Ms. Aitken has waged high-profile public fights with powerful elements of corporate Canada. She fought Canadian real-estate agents over how property owners could list their residences for sale, leading to a 2010 settlement that now offers consumers more options for selling their homes. She is now accusing real-estate agents in Toronto, Canada's largest city, of ignoring the new rules.