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Decision No. 232-A-2003

IN THE MATTER OF the refusal by Northwest Airlines, Inc. and KLM Royal Dutch Airlines to honour tickets issued by Travel Way Services Inc.

File No. M4110-36

BACKGROUND

By Decision No. LET-A-362-2002 dated December 19, 2002, the Canadian Transportation Agency (hereinafter the Agency) advised Northwest Airlines, Inc. (hereinafter Northwest) and KLM Royal Dutch Airlines (hereinafter KLM) that it had come to its attention that they both have been refusing to transport persons holding tickets issued by Travel Way Services Inc. (hereinafter Travel Way). The Agency provided Northwest and KLM an opportunity to show cause, by no later than January 2, 2003, why the Agency should not find that, by refusing to transport persons presenting tickets issued by Travel Way, Northwest and KLM failed to apply Rule 100NW and Rule 65 of the carriers' respective transborder and international tariffs, and that KLM failed to apply Rule 65 of the carrier's international tariff, contrary to subsection 110(4) of the Air Transportation Regulations, SOR/88-58, as amended (hereinafter the ATR); and, why the Agency should not, pursuant to section 26 of the Canada Transportation Act, S.C., 1996, c. 10 (hereinafter the CTA), require Northwest and KLM to accept for transportation persons presenting tickets or who have presented tickets issued by Travel Way.

By letter dated December 23, 2002, Northwest and KLM requested an extension until January 21, 2003 to respond to the Agency's letter. By Decision No. LET-A-376-2002 dated December 31, 2002, the Agency granted this extension. On January 21, 2003, Northwest and KLM filed their response.

ISSUES

The issues to be addressed are:

whether Northwest and KLM have shown cause why the Agency should not find that, by refusing to transport persons presenting tickets issued by Travel Way, Northwest and KLM failed to apply certain provisions of their respective tariffs, contrary to subsection 110(4) of the ATR; and if not,

whether Northwest and KLM have shown cause why the Agency should not, pursuant to section 26 of the CTA, require Northwest and KLM to accept for transportation persons presenting tickets, or who have presented tickets, issued by Travel Way.

POSITION OF NORTHWEST AND KLM

Northwest and KLM submit that they applied the applicable provisions of their respective tariffs, and are not required to accept for transportation persons presenting tickets, or who have presented tickets, issued by Travel Way.

Northwest and KLM note that Travel Way became the carriers' agent by general concurrence in accordance with the Sales Agency Rules for Canada of the International Air Transport Association (hereinafter IATA), and that the Passenger Sales Agency Agreement between the carriers and Travel Way was made on October 16, 1995. Northwest and KLM advise that the terms and conditions governing the agency relationships between the carriers and Travel Way require the latter to sell air passenger transportation on the carriers' services in compliance with the carriers' tariffs, conditions of carriage and with their written instructions to Travel Way. Northwest and KLM submit that, at no time, did they provide Travel Way with any written instruction permitting it to deviate from the requirement to sell air passenger transportation on the carriers' services for any fare other than those in fare tariffs filed by Northwest and KLM with the Agency, pursuant to the ATR.

Northwest and KLM indicate that, for the period from October 14 to 19, 2002, Travel Way issued 102 passenger tickets using the Carrier Identification Plates of Northwest, that each of these tickets contain fares calculated in accordance with fare tariffs filed by Northwest and KLM and that Travel Way's IATA Bank Settlement Plan (hereinafter BSP) sales report for the period from October 14 to 20, 2002 reported sales of 102 tickets on Northwest's account totalling CAD $363,999.25. Northwest and KLM note that, on November 4, 2002, BSP notified them, as well as other carriers whose Carrier Identification Plates had been used by Travel Way to issue tickets from October 14 to 20, 2002, that Travel Way had failed to remit CAD $1,488,868.45 for ticket sales reported during the week concluding on October 20, 2002, that Travel Way's weekly reported ticket sales had previously been CAD $2,000 and that a possible "bust out" of the agency was suspected. Northwest and KLM submit that, through information supplied by holders of passenger tickets and BSP, Northwest learned that Travel Way had not charged the applicable tariff fares for the tickets, and that it would accept only cash for the sales, a highly unusual business practice for a travel agent. For example, Northwest and KLM refer to two passengers who received two return tickets to Mumbai (Bombay), India for the cash payment of CAD $3,200 instead of the CAD $6,036.14 the carriers allege that Travel Way should have received for the two tickets.

The carriers further submit that Northwest had never authorized Travel Way to sell discounted tickets and that Travel Way had not done so through BSP prior to October 14, 2002.

Northwest and KLM state that, despite the substantial volume of business at Travel Way's office during the period from October 14 to 19, 2002, the very low fares, and the cash-only requirement, none of Northwest's or KLM's staff, located at either the carriers' Toronto sales office or at Lester B. Pearson International Airport, received any inquiries as to whether tickets being sold by Travel Way were proper and valid.

Northwest and KLM indicate that, during the period that they were unaware or uncertain as to whether passengers had paid the "applicable fares" for tickets issued by Travel Way, they honoured 28 tickets for carriage between October 15 and November 15, 2002. Northwest and KLM advise that these tickets will be accepted for return carriage to Canada. Once KLM and Northwest ascertained that Travel Way had failed to remit money to BSP, the carriers advised persons holding tickets issued by Travel Way that these tickets would not be accepted because Travel Way had not been authorized to issue tickets for the amount it had charged.

To accommodate persons holding tickets issued by Travel Way, Northwest and KLM offered to issue replacement tickets at a discounted net fare, rather than collect the difference between the cash amount paid by a person and the "applicable fare", and retained the confirmed reservation status for all Travel Way tickets in order to permit ticket holders to complete travel plans in accordance with their bookings. Northwest and KLM advise that KLM arranged replacement tickets for 32 ticket holders and that, if any funds or assets are recovered from Travel Way, the carriers will refund a proportionate share to affected persons.

In support of their refusal to honour tickets issued by Travel Way, Northwest and KLM rely on the following documentation:

1. a condition of carriage included in all 102 of the passenger tickets issued by Travel Way using Northwest's Carrier Identification Plates which states that a "carrier may refuse transportation if the applicable fare has not been paid";

2. Rule 100NW, Tickets - General, of Northwest's Canadian General Rules Tariff No. CGR-1, NTA(A) No. 241, which provides, in part, that "a ticket which (...) has been (...) improperly issued shall not be valid";and

3. Rule 65, Tickets, International Passenger Rules and Fares Tariff No. NW-1, NTA(A) No. 292, and Tariff No. KL-2, NTA(A) No. 311, applicable to Northwest and KLM, respectively, which provide, in part, that "the carrier will not be obligated to (...) carry a passenger until such passenger has paid the applicable fare".

Northwest and KLM argue that their refusal to accept tickets issued by Travel Way is consistent with their tariffs for the following reasons:

1. the ticket holders failed to pay Travel Way the "applicable fares" for the tickets; and

2. the tickets were "improperly issued" and, therefore, not valid because Travel Way failed to collect the "applicable fares" for the tickets from the ticket holders.

The term "applicable fare" is used throughout Northwest and KLM's submission to refer to a number of different things: the actual fare published in the carriers' tariffs, the fare which is set out on a passenger's ticket, the amount reported by Travel Way to BSP and the fare at which Travel Way was authorized to sell tickets.

ANALYSIS AND FINDINGS

In making its findings, the Agency has carefully considered all of the information filed by Northwest and KLM as well as the relevant provisions of the ATR, the CTA and the carriers' tariffs on file. Subsection 110(4) of the ATR provides that:

Where a tariff is filed containing the date of publication and the effective date and is consistent with these Regulations and any orders of the Agency, the tolls and terms and conditions of carriage in the tariff shall, unless they are rejected, disallowed or suspended by the Agency or unless they are replaced by a new tariff, take effect on the date stated in the tariff, and the air carrier shall on and after that date charge the tolls and apply the terms and conditions of carriage specified in the tariff.

Section 113.1 of the ATR provides that:

Where a licensee fails to apply the fares, rates, charges, terms or conditions of carriage applicable to the international service it offers that were set out in its tariffs, the Agency may

(a) direct the licensee to take corrective measures that the Agency considers appropriate; and

(b) direct the licensee to pay compensation for any expense incurred by a person adversely affected by the licensee's failure to apply the fares, rates, charges, terms or conditions of carriage applicable to the international service it offers that were set out in its tariffs.

Further, pursuant to section 26 of the CTA, the Agency may require a person to do or refrain from doing any thing that the person is or may be required to do or is prohibited from doing under any Act of Parliament that is administered in whole or in part by the Agency.

Paragraphs A) and F) of Rule 100NW, Tickets - General, of the tariff applicable to Northwest for transportation between Canada and the United States, namely the Canadian General Rules Tariff No. CGR-1, NTA(A) No. 241, Airline Tariff Publishing Company, Agent, provide that:

A) No person shall be entitled to transportation except upon presentation of a valid ticket. Such ticket shall entitle the passenger to transportation only between point of origin and destination and via the routing designated thereon.

F) A ticket which has not been validated or which has been altered, mutilated or improperly issued shall not be valid.

EXCEPTION: Write-your-own type tickets will be honored for transportation without validation, provided the person issuing such tickets has a written agreement with the carrier setting forth accounting, reservation and ticketing procedures.

Subparagraphs (A) (1) and (2) of Rule 65, Tickets, of the tariff applicable to Northwest for carriage between Canada and points other than in the United States, namely the International Passenger Rules and Fares Tariff No. NW-1, NTA(A) No. 292, Airline Tariff Publishing Company, Agent, provide that,

(A) General

(1) The carrier will not be obligated to issue a ticket or carry a passenger until such passenger has paid the applicable fare or has complied with credit arrangements established by the carrier.

(2) No person shall be entitled to transportation except upon presentation of a valid ticket.

Subparagraphs (A) (1) and (2) of Rule 65, Tickets, of the tariff applicable to KLM, namely the International Passenger Rules and Fares Tariff No. KL-2, NTA(A) No. 311, Airline Tariff Publishing Company, Agent, provide that,

(A) General

(1) The carrier will not be obligated to issue a ticket or carry a passenger until such passenger has paid the applicable fare or has complied with credit arrangements established by the carrier.

(2) No person shall be entitled to transportation except upon presentation of a valid ticket.

Have Northwest and KLM shown cause why the Agency should not find that, by refusing to transport persons presenting tickets issued by Travel Way, Northwest and KLM failed to apply certain provisions of their respective tariffs, contrary to subsection 110(4) of the ATR?

Essentially, Northwest and KLM's main argument in support of their refusal to accept tickets issued by Travel Way is that ticket holders failed to pay the "applicable fares" as required by the carriers' tariffs.

The Agency notes that the term "applicable fares" is not defined in either of the carriers' tariffs. However, Northwest and KLM use the term throughout their submission to refer variously to the actual fare published in the carriers' tariffs, the fare which is set out on a passenger's ticket, the amount reported by Travel Way to BSP and the fare at which Travel Way was authorized to sell tickets. The Agency is, therefore, of the opinion that the meaning of the term "applicable fares" as it is used in the carriers' tariffs is somewhat ambiguous. In the absence of an adequate explanation of the meaning of the term, the Agency is not satisfied that the term "applicable fares" refers to anything other than either the amounts charged by Travel Way to issue tickets for transportation on Northwest's and KLM's services or the amounts paid by ticket holders. In either case, the Agency can not determine what those amounts actually are from the evidence on file. The Agency, therefore, is not in a position to determine whether the tickets issued by Travel Way were "improperly issued" within the meaning of the carriers' tariffs. Accordingly, the Agency is of the opinion that the tickets issued by Travel Way are valid.

The Agency notes that at the time that persons purchased the tickets at issue, Travel Way was a travel agency accredited by IATA to sell and issue international airline tickets. The Agency also notes that there is no evidence on file to indicate that the tickets issued by Travel Way were not in the form prescribed by IATA. The Agency also notes that, despite a long-standing business relationship with Travel Way, Northwest and KLM did not realize that a problem existed with Travel Way until November 4, 2002, on which date BSP notified the carriers that the travel agent had failed to remit funds for sales during the period between October 14 and 19, 2002.

The Agency further notes that in their submission, Northwest and KLM imply that persons purchasing tickets from Travel Way should have suspected that there was something irregular about these tickets, given the fares charged by Travel Way, the requirement that tickets be bought with cash only, and the level of activity at Travel Way's office. The Agency is of the opinion that these circumstances did not necessarily indicate that Travel Way was engaged in an illegal activity or that persons purchasing tickets from Travel Way should have recognized that something was amiss. The Agency is also of the opinion that there is no evidence on file to suggest that persons purchasing tickets from Travel Way did not do so in good faith. The Agency is of the opinion that it is not realistic to expect consumers to have more knowledge of the selling activities of Travel Way than either BSP or the carriers.

In light of the foregoing, the Agency has determined that by refusing to transport persons presenting tickets issued by Travel Way, Northwest failed to apply Rule 100NW of its transborder tariff and Rule 65 of its international tariff, and KLM failed to apply Rule 65 of its international tariff, contrary to subsection 110(4) of the ATR.

Have Northwest and KLM shown cause why the Agency should not require Northwest and KLM to accept for transportation persons presenting tickets, or who have presented tickets, issued by Travel Way, pursuant to section 26 of the CTA?

As set out above, the tickets issued by Travel Way are considered to be valid and Northwest and KLM failed to apply the provisions of their tariffs, which state that persons are entitled to transportation upon presentation of valid tickets. The Agency,therefore, finds that the carriers should have honoured the tickets issued by Travel Way.

Accordingly, the Agency is not satisfied that Northwest and KLM have shown cause why the Agency should not, pursuant to section 26 of the CTA, require the carriers to accept for transportation persons presenting tickets, or who have presented tickets, issued by Travel Way.

CONCLUSION

The Agency notes that the travel reservation dates for all of the tickets issued by Travel Way which have not been honoured by Northwest and KLM have passed. Accordingly, an Agency order requiring the carriers to transport holders of those tickets on their original travel reservation dates would not serve any useful purpose. The Agency further notes that, as it has determined that Northwest and KLM failed to apply certain provisions of their tariffs, the Agency may, pursuant to paragraph 113.1(a) of the ATR, direct the carriers to take whatever corrective measures the Agency considers appropriate and, pursuant to paragraph 113.1(b) of the ATR, direct the carriers to pay compensation for any expense incurred by a person adversely affected by the carriers' failure to apply the provisions of their tariffs.

In determining the appropriate corrective measures to order in this case, a balance must be struck between the carriers' statutory, commercial and operational obligations and the rights of ticketholders to rely on the validity of tickets issued by an accredited travel agency. An overriding consideration in this regard is a carrier's obligation to oversee and control the sale of its tickets and to ensure that disputes with its authorized travel agents do not place the carriage of ticket holders in jeopardy.

After careful consideration of the unique circumstances before it in this case, the Agency considers it appropriate, pursuant to paragraph 113.1(a) of the ATR, to direct Northwest and KLM to take the following corrective measures, unless the carriers can clearly demonstrate to the Agency that specific ticketholders knowingly engaged in fraudulent activities relating to the issuance of the Travel Way tickets.

(a) being transported, at no additional charge, to the destinations set out in their original tickets issued by Travel Way within one year of the date of the Agency's decision, upon presentation to Northwest or KLM of the original tickets, or

(b) receiving a reimbursement for the tickets. In the absence of satisfactory evidence to the contrary, such reimbursement should be based on the price shown on the ticket.

Further, the Agency directs Northwest and KLM, pursuant to paragraph 113.1(b) of the ATR, to pay compensation for any expense incurred by a person adversely affected by the failure by Northwest or KLM to apply the specific provisions of their tariffs set out above. Claims for compensation should be filed directly with either KLM or Northwest by affected persons. Northwest and KLM shall provide the Agency with information relating to the persons to whom claims may be submitted.