Tuesday, November 08, 2016

“Virtual Airline” Needs No Licence

On March 29 2016 the Canadian Transportation Agency released its decision (*1) as to whether a reseller, NewLeaf Travel Company Inc. (“NewLeaf”), was operating an air service and  was required to have a license pursuant to section 57(a) of the Canada Transportation Act, S.C. 1996 (“CTA”).

A "reseller" is a person who does not operate aircraft and who purchases the seating capacity of an air carrier and subsequently resells those seats, in its own right, to the public. NewLeaf Travel Company Inc. was selling tickets to the public and using Flair Airlines Ltd. (who holds an air operator’s certificate) aircraft and crew.

Paragraph 57(a) of the CTA states that "no person shall operate an air service unless, in respect of that service, the person holds a licence issued under this Part." The Agency summarized the law on interpretation set out by the Supreme Court of Canada:

In interpreting the expression "operate an air service," the words are to be read in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme of the legislation, the object of the legislation, and the intention of Parliament (Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 SCR 27 at para. 21).(*2)

The Agency found that after having carefully considered the wording of the CTA and the Air Transportation Regulations, SOR/88-58, the CTA's underlying public policy purposes, and the submissions received during the consultation period, the most reasonable interpretation of what it means to operate an air service does not capture resellers, as long as they do not hold themselves out to the public as an air carrier operating an air service.

The Agency arrived at this decision after reviewing a number of prior decisions including two decisions involving Greyhound and after its own internal review.

In 1996, the CTA's licensing parameters were tested when Greyhound Lines of Canada Ltd. (“Greyhound”) proposed to market and sell air services, on its own behalf, while entering into a contract with Kelowna Flightcraft Air Charter Ltd. (“Kelowna Flightcraft”) to operate the aircraft. The Agency, in Decision No. 232-A-1996 and Decision No. 292-A-1996, determined that Greyhound would operate the air service and, therefore, required a licence. The Agency arrived at its determination on the basis that the person that had commercial control over the sale of the air service was required to hold the licence, irrespective of whether they operated aircraft.

Greyhound and Kelowna Flightcraft petitioned the Governor in Council (“GIC”) to reverse the Agency's decisions. The GIC, on the recommendation of the Minister of Transport, determined that Greyhound Canada Transportation Corp., a successor corporation to Greyhound, would not be operating the air service (Order-in-Council No. P.C. 1996-849). The GIC, however, placed a number of conditions on its decision, including that Greyhound Canada Transportation Corp. inform all prospective purchasers of the air services that Kelowna Flightcraft would be providing the air service.

In 2014, the Agency initiated an internal review of whether resellers are “operating air services” and are therefore required to hold a licence. The Agency subsequently became aware of NewLeaf's plan to market and sell air services, while not operating aircraft, and in August 2015, initiated an inquiry, pursuant to section 81 of the CTA, into whether NewLeaf would be operating an air service and therefore would be required to hold a licence. The Agency decided to complete its review of whether resellers were required to hold a licence as part of this inquiry, and also decided to hold public consultations on the matter.

It is interesting to note that after this decision was released on March 29th, 2016 NewLeaf issued a press release the day after, stating:

NewLeaf Travel Company initially launched its website and began selling tickets to seven Canadian destinations on January 6, 2016. The Canadian public’s response to NewLeaf’s launch of low cost airfares for those destinations was overwhelming, and reinforces the fact that Canada needs, and can support, an ultra low cost unbundled travel option that creates competition in air travel.
“We want to thank the thousands of Canadians across the country who have expressed their support, especially those who have gone above and beyond by signing our petition and writing letters to the Minister of Transport. This backing shows that Canadian travellers truly desire an ultra low-cost air service option which NewLeaf, in conjunction with Flair Airlines, will provide. We are energized by the results of the review, and look forward to the bright future that lies ahead for NewLeaf and the Canadian travelling public,” said [Chief Executive Officer] Young.
The Agency warned resellers to not hold themselves out to the public as air carriers, stating (*3):

While the Agency finds that, on balance, the most reasonable interpretation of the statutory licensing provisions and their underlying objectives is that resellers are not operating air services and therefore, are not required to hold a licence, this will only be the case as long as those resellers do not hold themselves out to the public as an air carrier operating an air service. The Agency finds that if they choose to do so, resellers would be operating an air service and would be required to hold a licence, thereby ensuring that the consumer protection purposes of the legislation are not undermined.

In determining whether a person is holding themselves out as an air carrier operating an air service, the Agency will consider whether the person promotes themselves as an air carrier, including providing images of aircraft with their livery and using business name(s) and words/phrases that create the impression that they are an air carrier.

Lack of clear disclosure on its Web site, marketing material, and on tickets it issues of the identity of the operating air carrier would be indicative of the reseller holding itself out as an air carrier operating the air service. Web sites and marketing materials that use business names (e.g., "air", "air lines", "airlines" "airways", "aviation", "fly", "jet", or "sky") or phrases and words (e.g., "our fleet of aircraft", "our crew", "we fly") that convey that the reseller is an air carrier operating the air service would also be indicative of holding oneself out as operating an air service. In contrast, clearly identifying the air carrier that will operate the air service, that the reseller's role is limited to reselling the air carrier's capacity, and that the air carrier's tariff's terms and conditions apply to the flight would not be indicative of a person holding themselves out as an air carrier operating an air service.

The Agency notes that a passive approach by the reseller that neither clarifies nor refutes any impression by the public that the reseller is an air carrier operating an air service could also be indicative of the reseller holding itself out as an air carrier operating an air service. The public should be clearly informed about whether they are contracting and dealing with the operator of the air service so that they can assess any risk and make informed decisions.

As of the time this article was written the NewLeaf service (and website) is up and running. It is interesting to note that the website now states “Flights operated by Flair Airlines Ltd.” Presumably this is to ensure that it meets the Agency requirements set out above.

It is also interesting to note that on June 9th the Federal Court of Appeal issued its decision in Lukacs v. Canadian Transportation Agency and Newleaf Travel Company Inc.  [2016 FCA 174]. Dr. Lukacs is a well known air passenger rights advocate. Dr. Lukacs needed leave of the Federal Court of Appeal to appeal the decision of the CTA. On June 9th the Federal Court of Appeal granted Dr. Lukacs leave. The Court of Appeal noted that Dr. Lukacs participated in the consultation before the Agency undertaken with respect to the change in the interpretation of the licencing requirements applicable to domestic resellers of air service. This was sufficient to afford him standing to launch the appeal. The Court also found that he would possess standing as a public interest litigant. The test for public interest standing involves consideration of three inter-related factors: first, whether there is a justiciable issue, second, whether the individual seeking standing has a genuine interest in the issue, and, third, whether the proposed proceeding is a reasonable and effective way to bring the matter before the courts. The Court ordered the appeal to proceed on an expedited basis. We expect to see a decision within the next six months.

(*1) Decision 100-A-2016.
(*2) Ibid, at para. 25.

(*3) Ibid, at paras. 42-45.


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