Library:
Case Comment: Fuel Surcharges
Published in the October 2009 issue of Transportation Notes - View Article
In the July edition of this newsletter we reported on the decision of the Ontario Court of Appeal in the case of Zsoldos v. Canadian Pacific Railway Company. This significant standard of care case has now reached its final resting place as the Supreme Court of Canada has denied leave to appeal.
For this month’s case which we expect will mark the final word on a transportation related dispute we turn to the Canadian Transportation Agency and its dismissal of a complaint brought by Peter Wyant against Air Canada. The decision, released on October 30, 2009, considered the reasonableness and alleged discriminatory effect of certain fuel surcharges. The decision is a careful and thoughtful review of the considerations which should be taken into account when considering fuel surcharges.
Three issues are considered in the decision: Are the surcharges imposed on transatlantic passengers unreasonable? Ought they to be incorporated into the base fare? Are such surcharges unjustly discriminatory?
With respect to the first issue, the complainant relied heavily on the assertions that the price of crude had recently declined (the claim was commenced in the first half of 2009) and that fuel charges had been eliminated on domestic and transborder flights. These facts, he argued, are indicators of the unreasonableness of maintaining fuel surcharges on international flights. The Agency found these arguments unpersuasive. It noted that the competition on transatlantic routes is very strong and that the vast majority of Air Canada’s competitors on these routes continue to assess surcharges. To require Air Canada to abandon surcharges would severely compromise its competitive position. The Agency also acknowledged the importance of taking into account the factors which influence the cost of fuel to an air carrier. These make it “extremely difficult to immediately reflect in surcharges decreases in fuel prices as they occur”.
Accordingly, it is not unreasonable that a particular decrease in fuel prices is not reflected in surcharges assessed.
The complainant also maintained that Air Canada’s fuel purchasing strategy, including hedging, was itself unreasonable. The Agency dismissed this argument, noting that the complainant did not adduce sufficient evidence to succeed on this basis. Finally, the Agency concluded that Air Canada was entitled to consider fuel price volatility and competitive considerations and to conclude that surcharges were appropriate.
The complainant then argued that surcharges should be abolished and the costs of fuel absorbed into the base fare. He argued, disingenuously, that all that matters to a consumer is the total price. This, of course, completely disregards “how fare distribution channels work”. The Agency took a realistic view of the matter and concluded that incorporating the surcharge into the base fare would result in a competitive disadvantage as carriers generally do not show a fare inclusive of surcharges in initial fare displays. Only once an entire itinerary is settled upon and the consumer prepares to conclude the transaction is he informed of the total cost. To require Air Canada to display that total cost at the outset would clearly be a disadvantage.
The last issue considered was whether the surcharge could be said to be “unjustly discriminatory”. In keeping with its previous decisions, the Agency first considered whether the fare was discriminatory. The complainant argued that the relevant comparison should be between North American fares and transatlantic fares. Because the latter involve fuel surcharges and the former do not, discrimination is established. The Agency did not agree, noting that “comparisons of surcharges for travel to and from certain points is not necessarily a valid means to determine whether unjust discrimination exists”. Here no discrimination was shown and of course it follows there could be no “unjust discrimination”. The complaint was dismissed.
Agency Decision No. 456-C-A-2009,
October 30, 2009