In a decision released on October 17, 2019, the Canadian Competition Tribunal dismissed an application by the Commissioner of Competition alleging that the Vancouver Airport Authority (VAA) had abused a dominant position in the market for galley handling services (i.e., the loading and unloading of catering and related products on commercial aircraft) at Vancouver International Airport. The Commissioner alleged that the VAA, a not-for-profit corporation responsible for the management and operation of the Vancouver airport, had been preventing – without sufficient justification – new in-flight caterers (i.e., providers of galley handling and catering services) from competing at the airport, even though the VAA does not itself compete for the supply of galley handling or catering services.
The Tribunal determined that VAA has a dominant position in the market for galley handling services at the Vancouver airport through its power to grant or deny critical access to the airside (i.e., the runways, taxiways and apron where aircraft are parked), but that VAA's refusal to authorize more than a restricted number of in-flight caterers at the airport was motivated by an overriding purpose (i.e., preservation of at least two full-service in-flight catering providers at the airport) that was not anticompetitive. The Tribunal further determined that the Commissioner had not, in any event, established that the refusal gave rise to an actual or likely substantial lessening or prevention of competition in the relevant market.
The Commissioner's Application
The Commissioner filed an application with the Tribunal in September 2016 seeking an order under the abuse of dominance provisions in section 79 of the Competition Act (Act) in respect of VAA's decisions to allow, over a span of more than 20 years, only two in-flight caterers to operate at the Vancouver International Airport and to refuse to license new providers of in-flight catering services that are willing to meet market terms. In brief, the Commissioner alleged that VAA controlled the downstream market for galley handling services at the airport and that its restrictions on access to in-flight caterers had deprived airlines of the benefits of increased competition for galley handling services that additional providers would bring. Moreover, the Commissioner alleged that VAA had a plausible competitive interest in the galley handling market because, among other things, VAA earned concession fees from in-flight caterers based on the revenues the caterers earned. The Commissioner sought an order requiring VAA to authorize airside access, on non-discriminatory terms, to any in-flight catering firm that meets customary health, safety, security and performance criteria, for the purposes of providing galley handling services.
VAA contested the Commissioner's allegations, emphasizing in particular its statutory mandate to operate the airport in the public interest and claiming that its chief motivation at all times was to preserve and foster competition in galley handling services for the benefit of airlines and the airport itself, which competes with other airports to secure and retain airlines and flight routes. VAA argued that the Act's abuse of dominance provisions do not apply to its impugned conduct given the application of the "regulated conduct defence."
The Tribunal's Decision
In order to succeed in an abuse of dominance application, the Commissioner must establish, on a balance of probabilities, that the respondent is dominant in a relevant market and has engaged in a practice of anticompetitive acts that has had, is having or is likely to have the effect of substantially lessening or preventing competition in a market.
D O M I N A N C E ( S U B STA N T I A L O R C O M P L E T E C O N T R O L O F A M A R K E T )
The Tribunal agreed with the Commissioner that VAA substantially or completely controlled the market for galley handling services at the Vancouver airport through its undisputed control over access to the airside, which the Tribunal found to be a necessary input for providing these services.
P R AC T I C E O F A N T I C O M P E T I T I V E AC T S ( OV E R R I D I N G A N T I C O M P E T I T I V E PURPOSE)
Plausible Competitive Interest
Because VAA does not compete in the relevant market at issue, the Tribunal explained that it must add an additional step to its analysis of whether VAA's impugned conduct amounted to a practice of anticompetitive acts. This step, which the Tribunal described as a "screen" to filter out, at a preliminary stage, conduct that is unlikely to amount to a practice of anticompetitive acts, involves assessing whether VAA had a "plausible competitive interest" in the relevant market. Specifically, the Tribunal will require "some credible, objectively ascertainable basis in fact" (beyond merely a conceptual basis) to believe that a respondent has a competitive interest in the relevant market, although such basis in fact needn't be "compelling." The Tribunal further cautioned that "the mere fact that an impugned practice may appear to be exclusionary on its face does not serve to eliminate the utility of the screen" since other aspects of the factual matrix may demonstrate the absence of a reasonably believable competitive interest in the relevant market.
On the facts of the case before it, the Tribunal's judicial members (but not the lay member, an economist) concluded that VAA had a plausible competitive interest in the galley handling market but commented that the interest "falls very close to the lower limit of what the Tribunal considers a [plausible competitive interest] to be." The finding of a plausible competitive interest flowed from the structure of the concession fees charged by VAA to in-flight caterers, according to which VAA collected a percentage of overall revenues that the caterers earned. This "participation in the upside," together with VAA's ability to exclude additional galley handling suppliers from operating at the airport, created a commercial and economic interest in the downstream market that the Tribunal's judicial members said distinguished VAA from a neutral upstream provider of inputs. The Tribunal's lay member disagreed, finding that the loss of concession fee revenue that might be avoided by preventing entry into the galley handling market was too speculative, too small and too easily offset by other factors to form the basis of a plausible competitive interest.
Legitimate Business Justifications
Having narrowly found that VAA had a plausible competitive interest in the downstream galley handling market, the Tribunal went on to consider the second step of its analysis – namely whether the Commissioner had established that VAA's refusal to authorize additional in-flight catering firms at the airport constituted a practice of anticompetitive acts. Notably, the Tribunal acknowledged that VAA's subjective intention in refusing to authorize additional in-flight caterers, as well as the objectively foreseeable consequences of that refusal, was to exclude competitors from the market; however, the Tribunal went on to find that the "overriding character" of the refusal was nevertheless legitimate rather than anticompetitive.
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