TORONTO (Reuters) - Air Canada and United Continental Holdings suspended a planned joint venture on Monday after Canada's competition watchdog filed an application to have the proposed deal scrapped on antitrust grounds.
If the joint venture between Canada's No. 1 carrier and the world's biggest airline was allowed, it would monopolize 10 key Canada-U.S. routes and substantially cut competition on nine others, forcing prices higher, the Competition Bureau of Canada said in a statement.
The bureau also said it was challenging three existing coordination agreements between Air Canada and United Continental.
"The current agreements between Air Canada and United Continental already allow the companies to set prices above competitive levels on all key 19 transborder routes, which alone violates the (Competition) Act," said Melanie Aitken, commissioner of competition at the bureau.
"Making matters worse, they now want to fully merge their operations."
Both Air Canada and United Continental issued statements saying they strongly disagree with the board's findings, and that they had worked with the commissioner to address her concerns.
They argued that the proposed transborder joint venture would actually increase customer benefits through lower fares, better coordinated flight schedules and connection times, more route choices, and improved frequent flyer benefits.
But in the end, the companies said that pending further developments regarding the outcome of the competition board's application, they have agreed to suspend the joint venture.
The application was filed with the Competition Tribunal, which will eventually rule on its worth. When a case is presented to the tribunal, parties have a right to respond within 45 days, then the Competition Commission must reply within 14 days of having been served with the response, after which a timetable to proceed will be decided upon.
Air Canada announced in October it had agreed to a revenue-sharing joint venture with United Airlines on Canada-U.S. flights, saying it would help both airlines compete more effectively, while supporting substantial service and pricing benefits for passengers.
It said the joint venture would bolster its transborder network of 59 U.S. cities by adding United's presence in 210 U.S. airports. United's network of 16 Canadian cities would add the 59 communities that Air Canada serves.
Shares of Air Canada were down 0.87 percent at C$2.28 in Toronto on Monday afternoon, while United Continental was up 1.30 percent at $23.29 in New York.
Additional reporting by Kyle Peterson in Chicago, editing by Peter Galloway