Regulations Amending the Air Passenger Protection Regulations: SOR/2022-134

Canada Gazette, Part II, Volume 156, Number 13

Registration
SOR/2022-134 June 10, 2022

CANADA TRANSPORTATION ACT

P.C. 2022-653 June 10, 2022

Whereas, under subsection 36(2) of the Canada Transportation Act footnote a, the Canadian Transportation Agency has given the Minister of Transport notice of the annexed Regulations;

Whereas, under subsection 86.11(1)footnote b of that Act, the Canadian Transportation Agency has consulted with that Minister with respect to the annexed Regulations;

And whereas, under subsection 86.11(2)footnote b of that Act, that Minister has given the Direction Respecting Flight Cancellations for Situations Outside of a Carrier’s Control footnote c;

Therefore, the Canadian Transportation Agency makes the annexed Regulations Amending the Air Passenger Protection Regulations under subsections 86.11(1)footnote b and 177(1)footnote d of the Canada Transportation Actfootnote a.

Gatineau, May 9, 2022

France Pégeot
Chairperson and Chief Executive Officer, Canadian Transportation Agency

Elizabeth C. Barker
Vice-Chairperson, Canadian Transportation Agency

Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, under subsection 36(1) of the Canada Transportation Act a, approves the annexed Regulations Amending the Air Passenger Protection Regulations, made by the Canadian Transportation Agency.

Regulations Amending the Air Passenger Protection Regulations

Amendments

1 Subsection 2(3) of the French version of the Air Passenger Protection Regulations footnote 1 is replaced by the following:

Titre de voyage

(3) Le transporteur émetteur d’un titre de voyage à un passager est responsable envers ce dernier des obligations prévues aux articles 5 et 6 ou, si elles prévoient des conditions plus avantageuses pour celui-ci, de celles figurant dans les tarifs applicables et concernant les mêmes sujets.

2 Paragraphs 10(3)(b) and (c) of the Regulations are replaced by the following:

3 (1) Paragraph 12(3)(c) of the French version of the Regulations is replaced by the following:

(2) Paragraph 12(3)(d) of the Regulations is replaced by the following:

4 (1) The portion of subsection 17(1) of the Regulations before paragraph (a) is replaced by the following:

Alternate arrangements — within carrier’s control

17 (1) If paragraph 11(3)(c), (4)(c) or (5)(c) or 12(2)(c), (3)(c) or (4)(c) applies to a carrier, it must provide to the passenger, free of charge, the following alternate travel arrangements to ensure that the passenger completes their itinerary as soon as feasible:

(2) Paragraph 17(2)(a) of the Regulations is replaced by the following:

(3) Subsection 17(4) of the Regulations is repealed.

(4) Subsections 17(6) and (7) of the Regulations are repealed.

5 Subsection 18(1) of the Regulations is replaced by the following:

Delay or cancellation — outside carrier’s control

18 (1) If paragraph 10(3)(b) or (c) applies to a carrier, it must provide to the passenger, free of charge, a confirmed reservation for the next available flight that is operated by the original carrier, or a carrier with which the original carrier has a commercial agreement, is travelling on any reasonable air route from the airport at which the passenger is located to the destination that is indicated on the passenger’s original ticket and departs within 48 hours of the departure time that is indicated on that ticket.

Passenger’s choice

(1.1) If a carrier cannot provide a confirmed reservation in accordance with subsection (1), it must, at the passenger’s choice, refund any unused portion of the ticket or provide the following alternate travel arrangements, free of charge:

Return to point of origin

(1.2) However, if a passenger who chooses to be refunded is no longer at the point of origin that is indicated on the original ticket and the travel no longer serves a purpose because of the delay or cancellation, the carrier must refund the ticket and provide to the passenger, free of charge, a confirmed reservation for a flight to that point of origin that accommodates the passenger’s travel needs.

Refund

(1.3) A passenger who is eligible to be refunded under subsection (1.1) may choose a refund at any time prior to being provided with a confirmed reservation.

Denial of boarding — outside carrier’s control

(1.4) If paragraph 10(3)(d) applies to a carrier, it must provide to the passenger, free of charge, the following alternate travel arrangements to ensure that the passenger completes their itinerary as soon as feasible:

6 The Regulations are amended by adding the following after section 18:

Refund of additional services

18.1 (1) A carrier must refund the cost of any additional services purchased in connection with a passenger’s original ticket if the passenger has been provided with alternate travel arrangements under section 17 or 18 and

Refund for lower class of service

(2) If the alternate travel arrangements provide for a lower class of service than the original ticket, the carrier must refund the difference in the cost of the applicable portion of the ticket.

Method used for refund

18.2 (1) All refunds provided under these Regulations must be paid to the person who purchased the ticket or additional service and must be paid using the method used for the original payment, unless

Refund deadline

(2) Refunds must be provided by a carrier within 30 days after the day on which the carrier becomes obligated to provide the refund.

7 The portion of subsection 19(2) of the Regulations before paragraph (a) is replaced by the following:

Compensation in case of refund

(2) Despite subsection (1), if paragraph 12(2)(d) or (3)(d) applies to a carrier and the passenger’s ticket is refunded in accordance with subsection 17(2), the carrier must provide a minimum compensation of

8 Item 45 of the schedule to the Regulations is repealed.

9 The portion of items 47 to 51 of the schedule to the Regulations in column 1 is replaced by the following:
Item

Column 1

Provision, Requirement or Condition
47 Subsection 18(1)
48 Subsection 18(1.1)
49 Subsection 18(1.2)
50 Paragraph 18(1.4)(a)
51 Paragraph 18(1.4)(b)
10 The schedule to the Regulations is amended by adding the following after item 53:
Item

Column 1

Provision, Requirement or Condition

Column 2

Maximum Amount Payable — Corporation ($)

Column 3

Maximum Amount Payable — Individual ($)
53.1 Paragraph 18.1(1)(a) 25,000 5,000
53.2 Paragraph 18.1(1)(b) 25,000 5,000
53.3 Subsection 18.1(2) 25,000 5,000
53.4 Subsection 18.2(1) 25,000 5,000
53.5 Subsection 18.2(2) 25,000 5,000

Coming into Force

11 These Regulations come into force on the 90th day after the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: Canada’s Air Passenger Protection Regulations (APPR), which set out air carriers’ (carriers) minimum obligations toward passengers, are designed to ensure the clear, consistent, and transparent treatment of air passengers. The COVID-19 pandemic and the subsequent collapse of global air travel have revealed a gap in Canada’s air passenger protection framework: the absence of a refund requirement for flight cancellations and lengthy delays due to situations outside the carrier’s control that prevent it from ensuring that passengers complete their itinerary within a reasonable time. New requirements are needed to close this gap and protect passengers.

Description: The Regulations Amending the Air Passenger Protection Regulations (Regulations) introduce amendments that will require carriers to provide passengers affected by flight cancellations or lengthy delays due to situations outside the carrier’s control with a confirmed reservation on the next available flight that is operated by them or a partner carrier, leaving within 48 hours of the departure time indicated on the passenger’s original ticket. If the carrier cannot provide a confirmed reservation within this 48-hour period, it will be required to provide, at the passenger’s choice, a refund or alternate travel arrangements. In addition to establishing the point in time at which the requirements will apply, the amendments specify the costs to be included in a refund (refund coverage), the means by which carriers will be required to issue the refund (refund method), and the time frame within which carriers will have to provide the refund to the affected passenger (refund deadline). The Regulations are expected to result in a cost to Canadian carriers of $47.06 million present value (PV), and benefits to Canadian passengers and the Canadian Transportation Agency (CTA) of $47.72 million PV for a net present benefit of $0.66 million expressed in 2021 Canadian dollars, over the 10-year study period (2022–2031).

Rationale: On December 18, 2020, in accordance with powers provided under the Canada Transportation Act (Act), the Minister of Transport (Minister) directed the CTA to make a regulation setting carrier obligations to passengers — including a requirement to provide refunds — in certain situations outside their control. To ensure the resulting regulation is robust yet balanced (fair and reasonable to passengers, while considering the financial health of carriers), the CTA considered feedback from stakeholders, as well as refund requirements from other jurisdictions.

Issues

The APPR protect passenger rights and ensure that those rights are clear, consistent, and transparent. The current provisions of the APPR relating to flight disruptions that are outside a carrier’s control (including cancellations and delays) prescribe the carrier’s minimum obligations to communicate key information to passengers, and make sure they complete their itinerary, for example by rebooking them on another flight.

The COVID-19 pandemic has revealed that these minimum obligations are insufficient. Amid the subsequent collapse of global air travel, most passengers could not be rebooked and thousands were left out of pocket for the cost of tickets they could not use. Without regulations requiring carriers to provide refunds when there are flight cancellations and lengthy delays due to situations outside their control that prevent them from ensuring passengers complete their itineraries within a reasonable time, there is a risk that future passengers will also be left out of pocket for the cost of some disrupted flights.

The Minister has the authority under subsection 86.11(2) of the Act to direct the CTA to make regulations respecting additional carrier obligations toward passengers. On December 18, 2020, the Minister issued a Direction Respecting Flight Cancellations in Situations Outside of a Carrier’s Control, SOR/2020-283 (Ministerial Direction), providing the CTA with the authority to develop a regulation on the issue of refunds to passengers. This Ministerial Direction requires the CTA to make a regulation respecting a carrier’s obligations to passengers in the case of flight cancellations due to situations outside their control that prevent them from ensuring that the passenger complete their itinerary within a reasonable time. It specifies that this regulation must require carriers to provide refunds in these situations. The Ministerial Direction also provides the CTA with the authority to apply the refund requirements to lengthy delays.

In keeping with the Minister’s letter accompanying the Ministerial Direction (letter of intention), the CTA has designed the regulations in a manner that is “fair and reasonable to passengers and, to the extent possible [does] not impose an undue financial burden on carriers that could lead to their insolvency.” The CTA has also taken the air passenger protection refund regimes of the European Union (EU) and the United States (U.S.) into consideration, which are described under the “Regulatory cooperation and alignment” section below.

In addition, some minor “housekeeping” amendments to the APPR are needed to clarify certain existing provisions or correct minor errors.

Background

In 2018, amendments to the Act required the CTA to make regulations establishing a new air passenger rights regime. The Act specified the types of obligations that the regulations must set out for flight disruptions, including

In accordance with this requirement in the Act, the CTA made the APPR, which set out minimum passenger entitlements that carriers must include in their tariff (the contract between a carrier and its passengers). The APPR came fully into effect on December 15, 2019, and apply to all flights to, from and within Canada, including connecting flights.

The APPR reflect the legislative framework. For all disruptions, they require the carrier to rebook passengers so they complete their itinerary. For disruptions within carrier control (including for safety purposes), the APPR require the carrier to provide a refund if rebooking does not meet the passenger’s needs. However, consistent with the enabling legislation, the flight disruption provisions of the APPR limit carriers’ minimum obligations for disruptions outside their control to communicating key information and making sure passengers complete their itinerary.

When COVID-19 was declared a pandemic in March of 2020 and countries began restricting travel and closing their borders, the resulting global collapse of air travel was unprecedented in the history of commercial aviation. Carriers curtailed their operations, cancelled thousands of flights and laid off tens of thousands of employees. Passengers were frustrated about not getting refunds for flights that were not only cancelled, but could not be rebooked in the foreseeable future.

The situation these passengers found themselves in highlighted a gap in the passenger protection framework. When it comes to flight cancellations and lengthy delays outside a carrier’s control, simply ensuring that the passenger completes their itinerary is insufficient if there is no way to do so within a reasonable time. While the APPR required rebooking within certain time frames for flight disruptions outside the carrier’s control — large carriers, for example, must rebook passengers on a flight leaving within 48 hours of the end of the event that caused the cancellation — the APPR did not stipulate any minimum requirements if it is impossible to rebook a passenger on a flight within the set time frame, or if it is not clear when the disruptive event will end.

In the absence of clear refund requirements for these situations, refund policies vary from carrier to carrier. Some carriers’ tariffs require refunds for flights cancelled for any reason; others do not. Some carriers offer fully refundable tickets, which are usually more expensive, but do not refund the non-refundable tickets, even in such extreme circumstances as the current pandemic. Some carriers may make goodwill gestures above and beyond their tariff requirements, which typically involve vouchers or other benefits rather than refunds, but these are not necessarily extended to all affected passengers.

This inconsistent treatment of passengers, and the possibility that some could end up entirely out of pocket for disrupted flights, generated considerable public and parliamentary concern, resulting in the Ministerial Direction giving the CTA the necessary authority to make a refund regulation to address the issue in the future.

The parameters for the new requirements are as follows:

As recommended in the Minister’s letter of intention, the CTA considered carrier refund requirements in the EU and the U.S., including the circumstances and timelines within which carriers must provide refunds.

The CTA also held two rounds of consultations with the public, consumer advocates, and the air industry on the proposed refund requirements. The first round of consultations, which sought feedback from stakeholders on the specifics of the new requirements, began on December 21, 2020, and ended on March 1, 2021. In addition, the CTA surveyed a number of carriers and carrier associations about the possible cost implications of the amendments. The survey was distributed on January 6, 2021, and had a deadline for responses of February 4, 2021. The survey results have informed the cost-benefit analysis (CBA) further below. The second round of consultations invited stakeholders and the public to comment on the prepublished regulations and RIAS in Part I of the Canada Gazette (CGI). These consultations began on July 3, 2021, and ended on October 1, 2021. The results of both consultations have informed the Regulations, as noted in the “Regulatory development” section further below.

In addition to establishing refund obligations consistent with the Ministerial Direction, amending the APPR provided an opportunity for the CTA to make clarifications and correct minor errors in the existing provisions.

Objective

The objective of the Regulations is to close a gap in Canada’s air passenger protection framework and establish a clear, consistent, and fair policy with respect to refunds in situations outside a carrier’s control. This means that, after the Regulations are in force, passengers who experience a cancelled flight or lengthy delay in those situations will have the right to a refund — regardless of the type of ticket they purchased — if the carrier cannot complete their itinerary in a reasonable time. In other words, no one in such a situation will be left out of pocket for tickets they cannot use.

The Regulations do not apply retroactively to flight cancellations or lengthy delays caused by the COVID-19 pandemic. Although the current pandemic has revealed the need for this new regulation, its objective is not pandemic-specific. The Regulations protect future air passengers affected by similar events, but also by a broad range of travel disruptions outside a carrier’s control, such as bad weather or a security incident, that cause cancellations or lengthy delays that prevent a passenger from completing their itinerary in a reasonable amount of time.

Consistent with the Minister’s letter of intention, a further objective is to balance the passenger protection the refund would afford against the air industry’s operational and fiscal requirements. This is an important aspect of a fair policy.

By establishing a clear and consistent refund right for passengers, the Regulations also aim to

The government subsequently addressed the retroactive issue of passengers who wished to, but did not, receive refunds for flights cancelled as a result of the pandemic. When financial support was provided to several airlines under the Large Employer Emergency Financing Facility (LEEFF), it was conditional on these airlines providing customer refunds for certain pandemic-related cancellations.

Description

Scope

The new requirements will apply to all flights to, from and within Canada, including connecting flights. This includes certain charter flights on which one or more seats are for resale to the public, namely charter flights within Canada and flights to and from Canada that are a part of a charter that originated in Canada.

The provisions are part of a regime designed to ensure as much consistency as possible, and to limit passenger confusion about redress in situations where flights are operated through commercial agreements between carriers (like code sharing, wet leasing or interlining). Like all other provisions related to flight disruptions, the new requirements will be the responsibility of the carrier operating the affected flight.

The Regulations will apply to future flight cancellations and lengthy delays (those that occur after the Regulations come into force). The Regulations will not apply retroactively. However, the Government of Canada, as promised in its Fall Economic Statement 2020, has provided financial support to Canadian carriers and as part of that process, ensured that Canadians were refunded for cancelled flights. The CTA’s forward-looking regulations that will provide refund requirements for the future are an important complement to the Government’s initiative.

Application of the new requirements, including timing

The Regulations will require carriers to provide, at the passenger’s choice, either a refund or alternate travel arrangements when there is a flight cancellation or lengthy delay caused by situations outside the carrier’s control that prevents it from ensuring that passengers complete their itinerary within a reasonable time.

Prior to the coming into force of the new requirements, the APPR required, for delays of 3 hours or more and cancellations outside a carrier’s control, all carriers to rebook affected passengers on the next available flight operated by them or a partner carrier. In addition, for large carriers (those that have transported at least two million passengers during each of the past two years), the flight in question could not depart later than 48 hours after the event that caused the delay or cancellation. If that was not possible, a large carrier had to rebook affected passengers on a flight of any carrier, including competitors.

Under the new requirements, if there is a flight delay of 3 hours or more or a cancellation, large and small carriers will continue to have to rebook passengers on the next available flight operated by them or a partner carrier. However, if they cannot provide the passenger with a confirmed reservation on a flight leaving within 48 hours of the departure time on the passenger’s original ticket, the carrier will have to, at the passenger’s choice,

At any time prior to being provided a confirmed reservation, passengers will be free to change their decision and choose a refund.

Prior to the coming into force of the new requirements, the APPR required large carriers to rebook the passenger within 48 hours from the end of the event that caused the disruption. The Regulations will adjust that requirement to 48 hours from the original departure time because — as observed in the current pandemic — some disruptive events have no clear end.

Refund coverage

The Regulations will provide that, when an affected passenger chooses a refund, the carrier must refund the unused portion of their ticket. This includes any unused add-on services the passenger paid for (such as preferred seat selection or additional checked luggage).

If the passenger who chooses to be refunded is no longer at their point of origin, and their travel no longer serves a purpose, the carrier must refund the ticket, including any unused additional services, and book the passenger on a flight back to their point of origin, free of charge. This aligns with the existing requirements of the APPR for refunds in situations within carrier control.

Refund method

The Regulations will provide that, for all refunds required under the APPR (those required in both situations within and outside the carrier’s control), the carrier must issue the refund to the person who originally purchased the ticket, using that person’s original payment method, unless the person agrees to receive the refund in an alternative form also offered by the carrier (for example a travel voucher). The carrier is only allowed to provide a refund in an alternative form if

Requiring that refunds be provided to the person who purchased the ticket, using the original payment method, will align with the current requirement for refunds in situations within the carrier’s control. The new provision allowing carriers to offer alternate refund methods will also apply to all refunds under the APPR.

Refund deadline

The Regulations will provide that, for all refunds required under the APPR (those required in both situations within and outside the carrier’s control), the carrier must provide the refund within 30 days.

This timeline will begin as soon as the carrier’s obligation to provide a refund is triggered.

Rebooking requirements

When a carrier rebooks a passenger under the APPR, they must, to the extent possible, provide arrangements that are comparable to those of the original ticket (for example same class of service). For both situations within the carrier’s control and outside the carrier’s control, if these alternate arrangements provide a lower class of service, the carrier must refund the difference in cost. The carrier must refund any additional services that were paid for but the passenger did not receive on their alternate flight (or if those services were charged twice). This provides consistency and equal treatment of passengers.

Administrative monetary penalties

The new requirements under the Regulations will be included in the Schedule of the APPR such that they will be subject to administrative monetary penalties (AMPs) for non-compliance (described in the “Compliance and enforcement” section below).

Housekeeping amendments

The Regulations will also introduce amendments to clarify certain existing provisions or correct minor errors.

Regulatory development

The CTA consulted the public, consumer advocates, and the air industry about its regulatory proposal, and also conducted a survey of carriers and carrier associations concerning the possible costs of the proposal. The consultation highlights are below. Feedback from the survey is discussed in the “Benefits and costs” section.

Consultation

Consultation — December 2020 to March 2021

On December 21, 2020, the CTA launched a consultation with the public and key stakeholders. It provided a consultation paper that invited answers to questions about

At the conclusion of the consultation period, the CTA received a total of 119 submissions, with 100 from members of the public, 11 from carriers and other industry representatives, 4 from consumer organizations and 4 from travel and insurance industry representatives. The input was summarized in a What We Heard report which was published on the CTA’s website on July 2, 2021.

Consumer organizations and members of the public welcomed the new refund requirements. Certain consumer organizations recognized the impacts of the COVID-19 pandemic on carriers, but argued that passengers should not bear the financial burden or be penalized when their flight is disrupted and they are unable to complete their itinerary at no fault of their own. Consumer organizations supported harmonizing with other jurisdictions and suggested that the prompt implementation of the new refund requirement would contribute to consumer confidence in the air industry and help recovery following the COVID-19 pandemic.

Carriers and air industry representatives voiced concerns about the new refund requirements, particularly in the context of the COVID-19 pandemic. Certain industry stakeholders suggested that the current focus should be on supporting recovery within the air industry as the pandemic has resulted in unprecedented losses for carriers, and that new financial requirements would further strain the industry. Industry stakeholders also argued that isolated, extraordinary events, such as the pandemic, should be addressed on a case-by-case basis instead of through regulation. Finally, industry stakeholders recommended against basing the new requirements on the EU regime, suggesting that the EU regime is too restrictive.

Prepublication in Part I of the Canada Gazette (CGI) — July 2021

On July 3, 2021, draft regulations were prepublished in CGI followed by a 90-day comment period to allow interested persons and stakeholders to submit comments. The CTA received 9 comments from individuals and 12 written submissions from stakeholders. The CTA also met with two industry stakeholders following prepublication. Key comments on the CGI proposal are discussed below.

Flexibility depending on severity of event

Many air industry stakeholders indicated that not all uncontrollable events should be treated the same, and they proposed a tiered approach that would have different rebooking and refund deadline requirements based on the severity and size of an uncontrollable event that is outside the carrier’s control. Stakeholders suggested that treating all uncontrollable events the same would be overly burdensome, both operationally and financially, as carriers may not have the necessary staff and funds on hand to provide refunds within the required deadlines in the event of a large-scale disruption like a pandemic.

The CTA considered this feedback, but the Regulations were not adjusted to reflect a tiered approach. Establishing different requirements depending on the severity of a disruption would add complexity to the APPR. Further, the scope of the requirements is in alignment with the Ministerial Direction, which required the CTA to make a regulation that provides for refunds in situations outside of the carrier’s control, including those listed in subsection 10(1) of the APPR. Having the requirements apply to all situations outside the carrier’s control also reflects the objective of ensuring that passengers are not left out of pocket in the event a carrier cannot complete their itinerary in a reasonable time, regardless of the reason. Further, if warranted, measures may be taken by the CTA in the event of exceptional circumstances, such as through the issuance of temporary exemptions.

Rebooking period

Feedback from consumer organizations was split on the proposed requirement to ensure that passengers are rebooked on a flight leaving within 48 hours of the original departure time. Two of the four consumer organizations indicated that they support the requirement, while the other two indicated that the 48-hour rebooking window is too long and would not assist passengers on short trips (for example shorter than 72 hours). These consumer organizations suggested that the rebooking window should align with the requirement to provide alternate travel arrangements or a refund for delays that are three hours or more for situations within the carrier’s control.

Air industry stakeholders suggested that the 48-hour rebooking requirement should only begin at the end of the uncontrollable event, instead of basing it on the departure time indicated on the original ticket. Many industry stakeholders suggested different rebooking timelines depending on the severity of the uncontrollable event, for example

According to these air industry stakeholders, the longer rebooking periods would also give carriers more time to rebook passengers on their own flights before rebooking passengers with other carriers. It was submitted that the requirement to rebook passengers on any carrier’s flights during situations outside the carrier’s control would be punitive and unbalanced.

The CTA considered these comments, but did not adjust the rebooking period. The CTA is of the view that the 48-hour rebooking period provides a reasonable balance between the needs of carriers and passengers. It recognizes that carriers may reasonably need more time to recover their schedules after a disruption that was outside their control. The 48-hour requirement provides carriers with time to rebook affected passengers on their own flights before they are required to rebook them with another carrier. This rebooking window is longer than the one that applies in other jurisdictions, such as in the EU, where passengers have the right to a refund for all cancellations and delays lasting at least five hours. The rebooking window also takes into account the unique realities and concerns of Canadian carriers, particularly those that work in the northern and remote locations where there are infrequent flights and where weather-related disruptions can be lengthier.

Refund deadline

The proposed refund deadlines from CGI included that a carrier must provide a refund within seven days for tickets purchased by a credit card and within 20 days for tickets purchased in any other form (for example cash or cheque).

Two consumer organizations agreed with the proposed refund deadlines. The other two organizations did not comment on the proposed refund deadlines.

Air industry stakeholders proposed that there be different refund deadlines depending on the size of the uncontrollable event. Many stakeholders suggested the following deadlines depending on the scale of the event:

The industry stakeholders suggested that the proposed seven-day deadline would be difficult to meet during normal times of travel, and impossible to meet if another industry-wide event (such as a pandemic) were to occur.

In considering the comments received, the CTA has adjusted the refund deadlines. Under the Regulations, carriers will be required to provide refunds within 30 days, regardless of how the ticket was purchased. The CTA recognizes that this change does not align with the requirements in the EU or the U.S., but considers that it accounts for the realities of Canadian carriers that may be required to provide multiple refunds at once due to weather-related disruptions (for example several flight cancellations due to a snowstorm). The CTA also considers this timeline to be a reasonable balance that provides carriers with sufficient time to provide refunds and ensures a clear timeline for the recipient of the refund.

Refund format

Consumer organizations generally agreed that refunds should be issued using the method of payment that was used to buy the ticket. One consumer organization raised concerns about allowing carriers to offer refunds in the form of vouchers or other services. They argued that these non-monetary forms of refunds are often misleading, and provide inadequate protection and limited options to passengers. However, consumer organizations were supportive of the parameters proposed for the alternate forms of refund. One consumer organization suggested that passengers should have the right to exchange the alternate form for a refund in the original method of payment.

Generally, industry stakeholders were supportive of allowing refunds in alternate forms, but did not support the requirement that the alternate form have a greater monetary value than the original ticket, or that the refund in the alternate form never expire. Many industry stakeholders argued that such conditions would go beyond the requirements of the Convention for the Unification of Certain Rules for International Carriage by Air (Montreal Convention) and could violate Article 29 of the Montreal Convention. Industry stakeholders also suggested that requiring alternate forms of refund to be of greater value would be akin to paying compensation to passengers for a disruption caused by an uncontrollable event.

In considering the comments received, the CTA has removed the requirement that alternate forms of refund be of a greater monetary value than the original ticket or additional service. Carriers may choose to offer vouchers or credits at a greater amount than the monetary value to incentivize these alternatives, but the Regulations will not require that the alternate form of refund be of greater monetary value. The CBA is not impacted by this change as it had assumed refunds of all form would be equal to the value of the original ticket. The CTA has determined that no change to the provision is required for the non-expiration of an alternate form of refund, as expiration could lead to passengers being left out of pocket for flight disruptions outside of the carrier’s control, which goes against the intent of the Regulations. The CTA is of the view that the remaining conditions provide sufficient protection for passengers, and therefore, it has not included a right to exchange the alternate form for a refund in the original method of payment, which could lead to uncertainty for carriers.

Automatic refunds after 48 hours

Industry stakeholders expressed concern that the Regulations would require carriers to automatically issue a refund if they cannot meet the 48-hour rebooking window. In their view, this would terminate the contract of carriage and prevent passengers who wish to continue their travel from being rebooked. Many carriers suggested that passengers should be required to request a refund once 48 hours have passed.

One consumer organization commented that it is not necessary for carriers to be required to automatically provide a refund if they cannot provide a rebooking within 48 hours, only that the Regulations ensure that passengers are entitled to a refund once 48 hours have passed. Another consumer organization suggested that carriers be required to tell passengers when they become entitled to a refund so that passengers can make informed decisions based on their circumstances.

The intent of the Regulations was not for refunds to be issued automatically if the carrier cannot meet the 48-hour rebooking requirement; rather, the intent was for passengers to, at that point in time, be entitled to choose between a refund or alternate travel arrangements. The CTA has therefore clarified in the Regulations that the carrier must, at the passenger’s choice, provide a refund or alternate travel arrangements if it cannot provide a confirmed reservation within 48 hours of the original departure time.

Limiting the refund requirement

Some carriers and industry stakeholders suggested that refunds should only be required for tickets that are sold directly by the carrier, as tickets sold by third parties (for example, travel agents and travel sites) are often purchased in bulk and sold to passengers at different prices. The industry indicated that, depending on where and from whom a ticket was purchased, it would be difficult for carriers to determine how much a passenger might be owed.

The Regulations were not adjusted to address the concerns raised about tickets purchased from third parties. The APPR apply to all flights to, from and within Canada, regardless of how the passenger purchased their ticket. The new requirements align with the existing requirements that apply in situations within the carrier’s control, which do not distinguish tickets purchased directly with the carrier from those purchased from a third party. Once a ticket is purchased, a contract of carriage is established between the carrier and the passenger, regardless of whether the ticket is purchased directly from the carrier or from a third party.

Standards of treatment

One consumer organization suggested that the carrier should be required to provide standards of treatment (for example meals and accommodations) during the 48-hour rebooking window.

The CTA does not have the authority to require carriers to provide meals and accommodation to passengers in situations outside the carrier’s control. As such, the Regulations were not adjusted in response to this suggestion.

Implementation

Some industry stakeholders suggested a one-year implementation period before the Regulations come into force, due to the systems and operational changes required, such as developing IT infrastructure and new policies, procedures, and agreements with other carriers.

After careful consideration, the Regulations have been amended in response to this feedback: they will come into force 90 days after the date on which they are registered for publication in Part II of the Canada Gazette (CGII), to give carriers time to adjust operationally. In making this adjustment, the CTA has taken into consideration the importance of having the new requirements come into effect as soon as possible to address the gap in the existing framework. Given the similarities between the new requirements and existing refund requirements in the APPR, the CTA is of the view that a 90-day implementation window is sufficient and appropriate.

Cost-benefit analysis

One carrier suggested that the cost-benefit analysis (CBA) did not appropriately capture the cost to carriers associated with the Regulations. The specific concerns raised by the carrier included the following:

  1. The CBA does not properly assess the range of potential events that could have a sudden and significant impact on carriers’ networks.
    • While the CBA does not assume any worldwide pandemics or disasters will occur within the next 10 years, it does use average cancellation data from 2018, 2019, and 2020 (utilized in the projection for 2021) to compute projections. This would include major weather events such as category 5 hurricanes [Michael (2018), Dorian (2019), and Lorenzo (2019)], as well as category 4 hurricanes [Florence (2018), Laura (2020), Teddy (2020), Delta (2020), Eta (2020), and Iota (2020)].
    • The carrier suggested that the CTA did not capture weather events in its analysis of costs to affected air carriers. However, these costs were indeed captured. By taking an average cancellation rate of recent years, the CBA inherently captures those weather events that the carrier mentions as well as their associated impacts on the air network and any widespread outages that may result. It is assumed that a COVID-19 level event will not occur during the analytical period (for example over the next 10 years) because, historically, the last pandemic of this magnitude happened more than 100 years ago. The CBA measures the most likely outcome, and the highest probability outcome is that another major pandemic will not occur within the next 10 years. Therefore, no changes were made to the Regulations as a result of this comment.
  2. Requiring carriers to refund tickets in the timelines proposed could result in liquidity pressures.
    • The carrier raised a concern that, should another pandemic-level event occur, the requirement to refund tickets in the timelines proposed may result in liquidity issues for the industry. While it is agreed that another event similar to COVID-19 would create liquidity pressure on some carriers, it is unknown how, or if, the government might intervene to alleviate the pressure. The analysis presented in the CBA does not forecast a prolonged mass cancellation or delay event within the study period, and thus does not consider this potential impact. In considering this comment, and other comments received during consultations, the CTA has adjusted the refund deadlines. Under the Regulations, carriers will be required to provide refunds within 30 days.
  3. The proposed amendments would be practically impossible to implement from a staffing perspective. The carrier estimated that approximately 30% of refund requests would need to be manually processed.
    • The proposed CBA estimates a net total increase of approximately 280 000 refunds over the 10-year period of analysis. This works out to 28 000 net refunds per year of analysis, or 76 net refunds per day. The carrier’s estimate of 30% would equate to approximately 23 net refunds per day that would need to be manually processed by employees. This would equate to approximately 1.05 net refunds per day, per carrier, which is considered in the CBA. The addition of 1.05 refunds per day per carrier is expected to be manageable under current staffing levels. Therefore, no changes were made as a result of this comment.

Modern treaty obligations and Indigenous engagement and consultation

The Regulations do not affect modern treaty obligations or engagement. They do not have the potential to adversely impact potential or established Aboriginal or treaty rights, and therefore, do not trigger the Crown’s duty to consult.

Indigenous peoples were welcome to participate in the CTA’s consultation process for the regulatory proposal. Air North and the Air Transport Association of Canada (ATAC), which represents carriers owned in whole or in part by Indigenous groups such as Air North, Canadian North, Air Inuit and Air Creebec, provided comments to the CTA. Their submissions specifically addressed the unique operating realities in northern and remote areas.

Instrument choice

The Act provides a framework for the APPR and requires the CTA to make regulations on the air passenger protection topics that Parliament set out in the legislation and on any other topics (additional carrier obligations towards passengers) that the Minister may set out in a direction. As the Minister has issued the Ministerial Direction, which requires the CTA to make a new regulation respecting refunds, no other instruments were considered.

Regulatory analysis

Benefits and costs

Summary

The Regulations are expected to result in a cost to Canadian carriers of $47.06 million present value (PV), and benefits to Canadian passengers and the CTA of $47.72 million PV for a net present benefit of $0.66 million expressed in 2021 Canadian dollars, over the 10-year study period (2022–2031). The benefits of the Regulations to Canadians outweigh the cost to Canadian carriers. Canadian passengers will experience the benefit of recovering their money for cancelled flights or lengthy delays outside the carrier’s control that prevent it from completing the itinerary within a reasonable time. In addition, passengers are expected to experience reduced stress and anxiety that comes from dealing with the carrier in trying to obtain a refund.

Changes between CGI and CGII

The following changes were made to the CBA to reflect changes in the Regulations following comments received from CGI:

Analytical framework

The CBA measures the incremental impacts on the affected Canadian stakeholders (governments, consumers, businesses and other organizations) from the Regulations in accordance with the Policy on Cost-Benefit Analysis.

Incremental impacts reflect the difference between two scenarios: what would happen in the absence of these Regulations (baseline scenario); and what is expected to happen with the implementation of the regulations (regulatory scenario). These scenarios are described in the next two sections.

Baseline scenario

The baseline scenario represents what would happen in the absence of the amendments to the APPR.

Canadian carriers’ obligations towards passengers flying to, from, or within Canada are established through

Beyond communication requirements, the only obligation that applies in the baseline scenario when disruptions happen for reasons outside the carrier’s control (such as government advisories against travel or border closures due to a pandemic, or a hurricane, volcanic eruption or security incident) would be to ensure the completion of a passenger’s itinerary — that is, making sure the passenger gets to the destination on their ticket.

For international flights, the rules and regulations of other countries could be applicable to Canadian carriers who fly to or from there. This analysis focuses on the regulations of the EU and the U.S. as they are the biggest international markets for Canadian carriers, and their regulations are clear, making the comparisons to the Regulations straightforward. The EU regulations apply to Canadian carriers if a flight departs from the EU to a non-EU country, but do not apply to flights that arrive in the EU from outside the EU. The U.S. obligation that passengers should be refunded promptly when their scheduled flights are cancelled or significantly delayed applies to all carriers operating at least one aircraft having a seating capacity of 30 or more seats, for flights operating to, within, or from the U.S.

Regulatory scenario

Under the regulatory scenario, carriers operating flights subject to the APPR are required to provide passengers affected by cancellations or lengthy delays due to situations outside the carrier’s control with a confirmed reservation on the next available flight that is operated by them or a partner carrier, leaving within 48 hours of the departure time indicated on the original ticket. If they cannot provide a confirmed reservation within this 48-hour period, the passenger would be entitled to choose a refund or alternate travel arrangements.

Stakeholders
Canadian carriers

Canadian carriers are split into two categories:

  1. carriers that offer, as per their tariff, a voucher or refund for cancellations or lengthy delays outside of their control when it is not possible to complete the passenger’s itinerary in a reasonable time; and
  2. carriers that do not offer vouchers or refunds in these scenarios.

Vouchers are considered a liability against the carrier in the amount of the fare price and are, therefore, considered to be of equal monetary value to cash refunds. However, since the onset of the COVID-19 pandemic, many passengers have expressed a strong preference for receiving a cash refund over vouchers. This is discussed in more detail in the “Benefits” section below (higher utility/satisfaction).

The consideration of vouchers in this analysis is not as straightforward as it is for refunds, as the usage rate (of the voucher) would play a role in the potential cost to carriers. See the section below on Canadian passengers for more details on how this is accounted for in this analysis.

Carriers in category 1 will not be impacted by the Regulations as they already provide a resolution equal to the value of a cash refund. These Regulations will impact 22 Canadian carriers.

Foreign carriers will also be impacted by the Regulations for their flights to or from Canada, however, as per the Cabinet Direction on Regulation, impacts on foreign entities are out of scope in this analysis.

Canadian passengers

Passengers are split into two categories:

  1. Passengers with refundable tickets, travel insurance, or flying with carriers that offer vouchers or refunds as per their tariffs.
    • These passengers, in the baseline scenario, would receive a refund from the carrier when a refundable ticket is purchased, or from their insurance company when travel insurance is purchased. Therefore, there is no incremental benefit to these passengers of the Regulations.
  2. Passengers with non-refundable tickets, no travel insurance, and flying with carriers that do not offer vouchers or refunds as per their tariffs.
    • Passengers with no alternative avenues to a refund have a different baseline scenario than those passengers who do. In this case, an incremental benefit is experienced from receiving the refund from the carrier.

Passengers in category 1 who receive vouchers in the baseline scenario, but do not use them prior to their expiration, are grouped in category 2.

Similar to foreign carriers, impacts on foreign passengers are also out of scope in this analysis. In this context, Canadian passengers are considered to be Canadian citizens, or residents of Canada.

Travel insurance companies

With respect to the passengers purchasing travel insurance, this analysis assumes that the Regulations will not lead to a reduction in the demand for travel insurance for two reasons. First, the main reason passengers purchase travel insurance is to be covered for potential health issues while abroad. Secondly, travel insurance covers more costs than just airfare; it can include costs associated with accommodations, car rental, and other out-of-pocket expenses. The Regulations will only require the carrier to refund the unused portion of the original ticket, leaving potential accommodations, car rental, and other out-of-pocket expenses unrecovered. It is assumed that passengers will continue to purchase travel insurance for these reasons.

Data sources, forecasts, and assumptions
Study period

This analysis examines costs and benefits over a 10-year period (from 2022 to 2031). A real discount rate of 7% is used to establish the net present value of the regulations for non-compensation provisions. Values are expressed in 2021 constant dollars.

Overarching assumptions
Forecast of Canadian passengers receiving refunds by flight cancellations outside the carrier’s control

Under the Regulations, if a carrier cannot rebook a passenger affected by a cancellation outside the carrier’s control within the 48-hour rebooking period and the passenger chooses to be refunded, it will have to refund the unused portion of the ticket. For many one-way flights, passengers may have multiple legs in their journey before reaching their destination. Any part of that journey could be impacted by a cancellation. Therefore, it is more appropriate to forecast passenger legs, rather than the number of passengers, to determine the true impact of the Regulations. All forecasts below are of passenger legs impacted.

The number of passenger legs impacted by the Regulations, throughout the study period, is forecasted based on historical data, and the overarching assumptions described above. The following forecast was made based on data obtained from an industry questionnaire conducted by the CTA, and third-party confidential data purchased by the CTA. The CTA received 11 responses to the industry questionnaire, all from Canadian carriers. Averages of all responses were used in this forecast estimation, and throughout the analysis where these data are applicable.

This analysis equates the number of adjusted cancelled available seats to the number of passengers impacted by a flight cancellation in a given year. The number of cancelled available seats is calculated by multiplying the average rate of flight cancellation, per carrier,footnote 2 by the average number of available seats per flight.footnote 3

Passenger Traffic is assumed to recover to 2019 levels in 2023, as predicted by the International Air Transport Association (IATA) [PowerPoint presentation]. This analysis assumes that available seats will increase proportionally to passenger traffic. Furthermore, this analysis uses the growth forecast in U.S. available seat miles of 1.80% per year, made by the Federal Aviation Administration (FAA) (PDF) as a proxy for the growth in Canadian available seats beyond 2023. The average flight cancellation rate between 2018 and 2019 is applied to the available seats in these years to calculate the cancelled available seats.

Due to the COVID-19 pandemic, air passenger traffic diminished in 2020. In 2019, Canadian carriers carried more than 90.7 million passengers in their scheduled services. This dropped to 26.2 million passengers in 2020.footnote 4This analysis assumes that the air industry will continue to experience residual effects of the COVID-19 pandemic in 2021. A recovery of 32% in the available seats in 2021 (over the 2020 number) is estimated based on the average of two IATA forecasts (PDF); however, the cancellation rate is still expected to be higher than the pre-pandemic years. Assuming that the cancellation rate will fall somewhere within the range experienced in 2018, 2019 and 2020, this analysis uses the average rate from these years to calculate the cancelled available seats in 2021. In 2022, the recovery in available seats is expected to continue, but it is assumed that cancellations will fall back to the rates experienced in 2018 and 2019, as residual effects of the pandemic would be accounted for in carriers’ schedules.

Several adjustments are applied to the amount of cancelled available seats to arrive at the number of passenger legs impacted by the Regulations. First, not all cancelled available seats would have been occupied. Therefore, cancelled available seats are adjusted downwards by the average load factor, which measures the occupancy level of flights, to account for the number of cancelled seats that would have been filled. Secondly, overall seats are adjusted upwards by 23.4% to account for available seats from foreign carriers (to or from Canada) which are not accounted for in the projections. Since the Regulations deal with cancellations outside the carrier’s control, an average adjustment of 66.6% was made to reduce cancelled available seats by the percentage of total cancellations due to circumstances within the carrier’s control.

Additional adjustments are then made with respect to baseline and scope considerations. Passengers who purchased refundable tickets or travel insurance (40%), who are rebooked by the carrier within 48 hours (98%), and non-Canadian passengers (35.09% for international flights, 17.55% for domestic flights) are further removed from the number of forecasted passenger legs impacted by the Regulations. Finally, 21% is removed from the international forecast to account for the Canadian passengers on flights to or from the U.S. on either Canadian or foreign carriers, to or from the EU on EU carriers, and from the EU on Canadian carriers, as they would receive refunds under the baseline scenario from the respective regulations in the U.S. or the EU. The following table shows the forecasted number of impacted passenger legs throughout the study period after all adjustments are made. Tables 1 to 4 show the incremental number of passenger legs for which refunds are paid or received in comparison to the baseline scenario.

Table 1: Number of legs for which Canadian passengers receive refunds for cancellations
Year Domestic flights International Flights
2022 11 643 1 104
2023 15 484 1 465
2024 15 778 1 493
2025 16 078 1 521
2026 16 383 1 550
2027 16 694 1 579
2028 17 011 1 609
2029 17 335 1 640
2030 17 664 1 671
2031 18 000 1 703

The split between domestic and international passengers is based on the responses to the industry questionnaire.

Forecast of passengers paid refunds by Canadian carriers due to flight cancellations outside the carrier’s control

The table above is the forecasted number of legs for which Canadian passengers are expected to receive refunds. The number of passengers paid refunds by Canadian carriers is different because it includes foreign passengers. Although the impact on foreign passengers is out of scope for this analysis, the refunds paid to them by Canadian carriers would account for some of the cost to the carrier, and thus need to be considered in this context. The forecast for passenger legs for which Canadian carriers would pay refunds is calculated in the same way as the number of legs for which Canadian passengers would receive refunds, except, the percentage of non-Canadian passengers is not removed, and the foreign carrier premium is not applied to the projections. The following table shows the forecasted number of passenger legs for which Canadian carriers are expected to pay refunds throughout the study period after all adjustments are made.

Table 2: Number of passenger legs paid refunds by Canadian carriers for cancellations
Year Domestic flights International Flights
2022 14 120 1 072
2023 18 778 1 449
2024 19 135 1 476
2025 19 499 1 504
2026 19 869 1 533
2027 20 247 1 562
2028 20 631 1 592
2029 21 023 1 622
2030 21 423 1 653
2031 21 830 1 684
Forecast of passengers impacted by lengthy flight delays outside the carrier’s control

The forecast of passenger legs impacted by flight delays outside the carrier’s control was estimated by first forecasting the number of available seats of flights experiencing any delay between scheduled departure and actual arrival time, per carrier. This was estimated using third party confidential data. The available seats were forecasted to 2031 using the same growth forecast made by IATA and the FAA to estimate available seats for cancelled flights.

The forecasted number of seats available on flights that were delayed was then reduced using several factors. First, to estimate the number of passengers impacted by any delays, the average annual load factors were applied to the number of available seats per carrier. Second, the estimated number of delayed passengers were reduced by applying the rate of delays outside the carrier’s control, based on carriers’ responses to the industry questionnaire.

Similar to the cancellation methodology, the following adjustments were also made to reduce the forecasted number of passenger legs impacted: passengers who purchased refundable tickets or travel insurance (40%); passengers who are rebooked by the carrier within 48 hours (98%); and flight legs covered by EU or U.S. regulations (21%) are all removed.

Table 3: Number of passenger legs paid refunds by Canadian carriers for lengthy delays
Year Domestic flights International flights
2022 4 551 1 095
2023 5 178 1 258
2024 5 277 1 282
2025 5 377 1 306
2026 5 479 1 331
2027 5 583 1 356
2028 5 689 1 382
2029 5 798 1 408
2030 5 908 1 435
2031 6 020 1 462

Further adjustments to forecast how many Canadian passenger legs are expected to receive refunds by all carriers were made. Similar to the cancellation forecast, the percentage of non-Canadian passengers was removed and a premium was added to account for foreign carriers.

Table 4: Number of legs for which Canadian passengers receive refunds for lengthy delays
Year Domestic flights International flights
2022 3 753 2 988
2023 4 270 3 833
2024 4 351 3 905
2025 4 434 3 980
2026 4 518 4 055
2027 4 604 4 132
2028 4 691 4 211
2029 4 780 4 291
2030 4 871 4 372
2031 4 964 4 455
Benefits
Passenger refunds for flight cancellations outside a carrier’s control

Passengers in category 2, described earlier, are expected to experience a benefit from the Regulations. In the baseline scenario, passengers in category 2 would have paid for their flight and received nothing in return for the cancellation or lengthy delay outside of the carrier’s control, except the promise to be rebooked/flown at the earliest possible time. Passengers who no longer wish to travel as a result of the flight disruption would be left with no option in the baseline other than to take the loss of the fare paid for the ticket or file a complaint with the CTA, where they may or may not be successful based on the merits of the case.

In the regulatory scenario, if a carrier cannot rebook passengers affected by a cancellation outside the carrier’s control within the 48-hour rebooking period and the passengers choose to be refunded, the carrier will have to provide a refund. These passengers experience a net benefit from the Regulations.

To estimate the benefit of refunds to Canadian passengers, the forecasted incremental number of legs for which Canadian passengers (incremental to the baseline scenario) are expected to receive refunds throughout the study period (Table 1) is multiplied by the respective average airfare (of one leg of the flight) for domestic and international flights. Average fares from 2019 Q2 are taken from Statistics Canada and the average ancillary fee per passenger for 2020 ($25.90footnote 5 is added to determine the total fare ($204 for domestic flights and $343 for international flights). It is assumed that the average airfare remains constant throughout the study period. The Regulations are expected to result in an estimated benefit of $28.23 million (or $4.02 million annualized) to Canadian passengers impacted by flight cancellations outside the carrier’s control.

Passenger refunds for lengthy flight delays outside a carrier’s control

Similar to the refund benefit for cancellations outside a carrier’s control, passengers in category 2 are also expected to benefit from the opportunity to be refunded when a lengthy delay occurs due to a situation outside the carrier’s control that prevents it from rebooking passengers within 48 hours of the departure time indicated on the original ticket.

To estimate the benefit of refunds to these passengers, the forecasted incremental number of Canadian passengers who are expected to receive refunds throughout the study period (Table 4) is multiplied by the respective average airfare for domestic and international flights. The Regulations are expected to result in an estimated net benefit of $17.01 million (or $2.42 million annualized) to Canadian passengers in category 2, impacted by long flight delays outside a carrier’s control.

Passenger time savings from reduced complaints to the CTA

In 2019, before the COVID-19 pandemic, the CTA received roughly 9 complaints per month, identified by the complainants as being related to refunds for flight disruptions outside the control of carriers. When the COVID-19 pandemic hit, however, the issue of passenger refunds became more prominent. The CTA received 17 130 complaints between March 2020 and March 2021, of which 8 565 are estimated to relate to refunds.

The analysis assumes that there will not be any refund complaints for flight disruptions outside the control of carriers following the coming into force of the Regulations. Therefore, there is a time savings expected for passengers related to the nine complaints per month received by the CTA (pre-pandemic) with respect to refunds. It is possible that the CTA could experience an increase in other types of complaints following the coming into force of the Regulations; however, such complaints are not considered in this analysis.

The process of filing a complaint involves searching the Internet to find where to make a complaint, filling out the complaint form on the CTA website, uploading all necessary documents and evidence, and doing any necessary follow-ups. In total, it is assumed that this process takes 0.75 hours to complete. An average wage rate of $36.28 per hour is used to estimate the value of a passenger’s time.

It is estimated that the time savings experienced by passengers related to complaints to the CTA will result in a benefit of $18,209 PV ($2,593 annualized).

Passengers are also expected to save time not having to deal directly with the carrier for a refund when a flight disruption outside the control of the carrier occurs. It is assumed that a passenger in category 2 would spend 15 minutes talking to the carrier when a disruption occurs. An average wage rate of $36.28 per hour is used to estimate the value of a passenger’s time.

It is estimated that the time savings experienced by passengers related to refunds for flight disruptions outside the control of carriers will result in a benefit of $1.76 million PV ($0.25 million annualized).

CTA savings from reduced refund complaints

For the same number of complaints reduced in the time savings benefit mentioned above as a result of the Regulations, the CTA is expected to save processing costs. From start to finish, the average complaint takes several months to complete. The average cost of a case, which may include facilitation, mediation or adjudication, and potentially involve the input of legal services and the CTA’s decision makers (members), is multiplied by the number of complaints to estimate the benefit to the CTA. The average cost of a case is $768 (based on internal CTA estimates).

It is estimated that the CTA will save $623,525 PV ($88,776 annualized) from reduced number of complaints as a result of the Regulations.

Reduced passenger stress and anxiety

Passengers who do not have a refundable ticket, or travel insurance, have the added stress and anxiety of the potential loss of their money.

Similar to the methodology employed in the APPR Regulatory Impact Analysis Statement,footnote 6 a premium for reduced anxiety of 1% is applied to the average wage rate of a Canadian passenger ($36.28 per hour) and multiplied by the total time saved by Canadian passengers attempting to get a refund. It is assumed that a Canadian passenger from category 2 would spend a total of one hour attempting to obtain, and worrying, about a refund from the carrier in the baseline.

It is estimated that Canadian passengers in category 2 will experience a benefit of $70,446PV ($10,030 annualized) from reduced stress and anxiety as a result of the Regulations.

Passengers who, in the baseline, would have filed a complaint with the CTA are also expected to experience a reduction in stress and anxiety. It is assumed that a Canadian passenger would spend a total of 12 hours thinking, and worrying, about the status of their case with the CTA.

It is estimated that Canadian passengers will experience a benefit of $2,913 PV ($415 annualized) from reduced stress and anxiety from not having to deal with filing a complaint with the CTA.

Higher utility and satisfaction

Within category 1, in the baseline scenario, it is assumed that there are some passengers who would accept a voucher, and subsequently use the voucher, who would have preferred a cash refund if it had been offered. These passengers do not receive an incremental monetary benefit from the cash refund itself since they receive a voucher of equal value to the cash refund.

A voucher results in a lower utility level for many passengers as it may only allow for one specific use, often with an expiration date. Passengers who go on to use the voucher for travel, in many cases, do so not necessarily because they wanted to travel, but because the alternative is allowing the voucher to expire, and getting nothing from the original flight disruption. In the regulatory scenario, with the cash refund, the passenger is expected to experience a higher utility than they would have with the voucher.

At any given time, only 10% to 19% of gift card balances remain unredeemed, and roughly 94%footnote 7 of all gift cards are eventually used. If vouchers are used at the same rate as gift cards, a large proportion of passengers who receive vouchers go on to use them. Depending on how many would have rather received a cash refund, this benefit could be significant.

Costs
Refund payout by Canadian carriers for cancellations outside their control

Carriers that do not offer vouchers or refunds as a part of their tariffs (category 2 described earlier) in the baseline will now be required to provide refunds when they are unable to rebook the passenger within 48 hours if the passenger chooses to be refunded.

This is an inverse of the benefit situation to passengers in that, in the baseline scenario, Canadian carriers in category 2 retain the funds from the passengers for services not rendered. In the regulatory scenario, these carriers will experience the cost of having to return that money to the passengers. Table 2 displays the incremental number of passenger legs forecasted to receive refunds from Canadian carriers as a result of cancellations outside their control over the study period. The same fares used to estimate the benefits to Canadian passengers are used to estimate the cost to Canadian carriers.

It is estimated that Canadian carriers will assume a cost of $33.37 million PV ($4.75 million annualized) paying refunds for flight cancellations outside of their control.

Refund payout by Canadian carriers for lengthy flight delays outside their control

Canadian carriers will also have to provide refunds to passengers who choose this option further to a lengthy delay outside their control if those passengers cannot be rebooked within the 48-hour rebooking period. Table 3 displays the incremental number of passenger legs that are forecasted to receive refunds for lengthy flight delays by Canadian carriers.

It is estimated that Canadian carriers will assume a cost of $11.66 million PV ($1.66 million annualized) paying refunds for lengthy flight delays outside of their control.

Alternative forms of refund

The Regulations will allow carriers to offer alternatives to cash refunds. These could include travel vouchers, travel credits and points towards loyalty programs. There are conditions on these alternate forms of refunds, which include informing the person who originally purchased the ticket in writing of the monetary value of the original ticket and of the option to receive a refund in monetary form. Further, the person will need to confirm in writing if they choose an alternative to a monetary refund.

Although this analysis assumes that carriers will pay refunds in cash, and that the alternatives will be of equal value to cash, the flexibility will help carriers adjust their practices to meet their individual needs. For example, this flexibility will allow carriers to provide more diverse competitive offerings and help mitigate the risk of carrier insolvency given that there may, in some cases, be an interest in credits/vouchers rather than cash refunds. In addition, this could be used to foster and maintain customer loyalty and goodwill and ensure that the purchaser remains a customer following the event.

Under the Regulations, this flexibility will be extended to all refunds under the APPR, thus providing the same benefits to carriers for cancellations or delays within the carrier’s control as for disruptions outside their control.

Cost to process the refund

Similar to the costs of refunding passengers, only Canadian carriers from category 2 will experience this incremental cost. In the baseline scenario, Canadian carriers in category 1 already assume a similar cost of processing refunds or vouchers.

The cost is estimated by multiplying the time it would take to process a refund by the number of refunds that would be issued (for both cancellations and long flight delays outside the carriers’ control) and by the average wage rate of the carrier staff member responsible for the task of issuing the refunds ($22 per hour for a carrier employee and $36 per hour for a third-party vendor).footnote 8 The average time reported by all respondents in the questionnaire is used to estimate the time to process the refunds (25 minutes).

It is estimated that Canadian carriers will assume a cost of $2.01 million PV ($0.29 million annualized) to process refunds for flight cancellations or lengthy delays outside the carrier’s control.

Cost to verify passenger choice

Carriers are expected to incur a cost associated with verifying the passenger’s choice of either a refund or alternate travel arrangements. This analysis assumes an automated template will be developed in the first year following the coming into force of the Regulations. The cost is estimated by multiplying the time needed to develop the template and the average hourly rate of a carrier employee responsible for developing the template for each carrier. It is estimated that developing a template will take one day’s worth of work (eight hours) at a wage rate of $42 per hour.

It is estimated that Canadian carriers will assume a cost of $11,394 PV ($1,622 annually) to create a template to ask passengers whether they prefer to be rebooked or refunded 48 hours after a cancellation or delay.

Cost to update carriers’ tariffs

Carriers are expected to incur a cost to update their tariffs to reflect the requirements of the Regulations. This cost will be incurred by carriers in the first year following the coming into force of the Regulations. It is assumed that a carrier employee with an education in law, either internal or external, would make the changes to the tariffs. The cost is estimated by multiplying the time needed to make the changes and the average hourly rate of a carrier employee responsible for making the change for each carrier. It is estimated that updating a carrier’s tariff will take one day’s worth of work (eight hours) at a wage rate of $42 per hour.

It is estimated that Canadian carriers will assume a cost of $11,394 PV ($1,622 annually) to update their tariffs to reflect the new requirements of the Regulations.

Cost of refunding unused ancillary services

Under the Regulations, when a passenger is rebooked on an alternate flight following the cancellation or delay of their original flight, any ancillary service purchased by the passenger will have to be refunded if the service is not available to them on the alternate flight. This requirement exists for situations within the carrier’s control (including those required for safety), the Regulations will include this requirement for situations outside the carrier’s control.

It is assumed that all passengers eligible for a refund under the Regulations will accept one. This section applies the cost of refunding unused add-on services to those passengers who are rebooked within 48 hours of their original departure time in situations outside the carrier’s control. According to the industry survey, more than 95% of passengers are rebooked within 48 hours.

Ancillary revenue is estimatedfootnote 5 to be $25.90 per passenger in 2020. It is likely that most passengers rebooked within the 48-hour period will be rebooked on the same plane as the one delayed or cancelled, with the same passengers from the original flight, and will be provided the same ancillary services. However, it is possible in some cases that a passenger will not receive all or some of the add-on services they paid for on the original flight (seat selection, checked baggage, etc.) requiring a refund of some or all of the $25.90 per passenger.

Given the low rate of cancellation and delay outside a carrier’s control and high likelihood that the services will be provided, it is likely that the cost to carriers (and similarly small benefit for passengers) of refunding ancillary services will be low.

Downgrading of passengers on alternate flights

The Regulations will require that the carrier refund the difference in price between the fare class paid for by the passenger and the lower class received on an alternate flight.

While, in these circumstances, the carrier will have to refund a portion of the fare paid, they will not have to provide the services generally offered with those higher classes of fare. Those services (for example food, alcohol, free checked bags, lounge access) are assumed to be valued at the price difference between the fare classes.

In addition, as carriers are in the business of customer service, it is assumed that they will strive to provide excellent service to all their passengers. They may especially wish to ensure a positive experience for preferred customers or those in higher fare classes to maintain their loyalty. Therefore, in the baseline scenario, it is fair to assume that carriers will do everything they can to rebook these passengers at the same fare class, and will refund the price difference (and possibly more) in situations in which this is not possible.

It is expected that downgrading passengers will be a rare scenario due to the carriers’ focus on customer service, as well as the fact that higher fare classes generally are refundable. Therefore, those who do not want to accept alternate travel arrangements in a lower class could elect to receive a refund. Costs to carriers of downgrading passengers, if any, are expected to be low.

Refund deadlines

The Regulations will set a deadline of 30 days for carriers to issue any refund required under the APPR. Previously, the APPR did not set a deadline for refunds. Therefore, the time taken to provide refunds varied depending on the circumstances of the event prompting the refund. If, in the baseline scenario, carriers take longer to issue refunds than the deadlines set out in the Regulations, they could experience a small cost.

There is a “time value of money” principle according to which money now is worth more than the same amount of money in the future, as it can be saved or invested and earn a rate of return. As the Regulations will potentially require a carrier to provide a refund earlier than they otherwise would have, this will represent a cost to the carrier and an equal benefit to the passengers. Carriers will not earn a rate of return on the refund amount for as long a period, but the converse will be true for passengers.

The cost experienced by the carriers and the benefit experienced by passengers should cancel each other out.

Consolidated cost-benefit summary
Table 5: Monetized costs
Impacted stakeholder Description of cost Base year: 2022 Year 4:
2026		 Year 7:
2029		 Final year: 2031 Total
(present value)		 Annualized value
Canadian carriers Refunds paid for flight cancellations $3,242,134 $4,570,553 $4,836,056 $5,021,572 $33,366,204 $4,750,597
Refunds paid for long flight delays $1,301,893 $1,571,738 $1,663,040 $1,726,836 $11,661,064 $1,660,273
Cost to process refunds $202,759 $274,507 $290,453 $301,595 $2,012,007 $286,465
Cost to create template for passenger preference $11,394 $0 $0 $0 $11,394 $1,622
Cost to update tariff $11,394 $0 $0 $0 $11,394 $1,622
Total costs $4,769,573 $6,416,798 $6,789,549 $7,050,003 $47,062,062 $6,700,579
Table 6: Monetized benefits
Impacted stakeholder Description of benefit Base year: 2022 Year 4:
2026		 Year 7:
2029		 Final year: 2031 Total
(present value)		 Annualized value
Canadian passengers Refunds received from flight cancellations $2,748,933 $3,866,680 $4,091,295 $4,248,241 $28,233,843 $4,019,864
Refunds received from long flight delays $1,787,946 $2,309,621 $2,443,786 $2,537,532 $17,010,431 $2,421,903
Time savings from refunds $176,740 $240,393 $254,357 $264,114 $1,761,144 $250,747
Time savings from reduced complaints $2,423 $2,423 $2,423 $2,423 $18,209 $2,593
Reduced stress/anxiety refunds $7,070 $9,616 $10,174 $10,565 $70,446 $10,030
Reduced stress/anxiety complaints $388 $388 $388 $388 $2,913 $414.80
CTA Time savings from reduced complaints $82,968 $82,968 $82,968 $82,968 $623,525 $88,776
All stakeholders Total benefits $4,806,468 $6,512,087 $6,885,391 $7,146,231 $47,720,510 $6,794,327
Table 7: Summary of monetized costs and benefits
Impacts Base year: 2022 Year 4:
2026		 Year 7:
2029		 Final year: 2031 Total
(present value)		 Annualized value
Total costs $4,769,573 $6,416,798 $6,789,549 $7,050,003 $47,062,062 $6,700,579
Total benefits $4,806,468 $6,512,087 $6,885,391 $7,146,231 $47,720,510 $6,794,327
NET BENEFIT $36,895 $95,289 $95,842 $96,228 $658,448 $93,748
Sensitivity analysis

A sensitivity analysis was conducted by altering the discount rate used to calculate the present value costs and benefits in this analysis. A 7% discount rate is used in the central analysis. Since the benefits of the refund paid to passengers are equal to the costs of the refund paid by carriers, and occur in the same period, the direction of the result of the CBA does not change when different discount rates are applied. As shown in Table 8, the net present value of the Regulations is estimated to be $0.58 million when a discount rate of 10% is applied, $0.78 million with a 3% discount rate, and $0.89 million when undiscounted.

Table 8: Present value total benefits and costs using various discount rates
Discount rate Undiscounted 3% 7% (central analysis) 10%
Total benefit $64.58 million $56.33 million $47.72 million $42.61 million
Total cost $63.69 million $55.55 million $47.06 million $42.03 million
Net impact $0.89 million $0.78 million $0.66 million $0.58 million
Distributional impact analysis

The costs from the Regulations may affect carriers differently. In absolute terms, the costs are mostly borne by the larger carriers, as they carry the most passengers and costs are driven by the number of refunds. For example, the two largest carriers are estimated to account for 72% of the costs to all carriers.

In terms of cost per passenger, smaller and northern carriers may incur higher costs than larger carriers. According to the industry questionnaire, for a variety of reasons, smaller and northern, carriers are able to rebook passengers within 48 hours after a cancellation or delay at a lower rate than the larger carriers. In addition, the percentage of cancellations due to situations outside a carrier’s control is slightly higher with the smaller carriers (mostly due to weather issues). Therefore, the number of cancellations and delays forecasted earlier in the analysis for these carriers is not reduced by as much to account for the number of passengers rebooked within 48 hours and the percentage of disruptions outside the carrier’s control.

In response to the Regulations, carriers may increase fare prices, thus passing some or all of their costs to the passengers. This potential increase is not calculated in this analysis because it would be a business decision made by carriers and not a direct impact of the Regulations. That said, price increases would be spread across all passengers, resulting in an increase of less than one dollar per ticket to recover the full cost estimated in this analysis.

Insolvency

Many industry stakeholders expressed concern that a requirement to provide a refund for cancellations or lengthy delays outside their control could lead to higher rates of insolvency. Given the specific conditions under which a refund would be required, and the assumption that another world event, such as the COVID-19 pandemic, is unlikely to occur during the study period, it is not expected that the Regulations would result in insolvency for carriers. Given the relatively small number of passenger legs forecasted that are expected to receive refunds in comparison to the overall number of available seats in a non-pandemic period (less than half of a percent), the impact on industry operations is not expected to be significant.

Small business lens

There are three carriers impacted by the Regulations that meet the definition of a small business for the purposes of the small business lens analysis (having fewer than 100 employees). This is distinct from the concept of “small carrier” under the APPR (those that have transported fewer than two million passengers during each of the past two years).

Costs to small businesses associated directly with compliance with the Regulations include the cost to provide a refund; the cost of processing refunds; and the cost to update tariffs.

The estimated annualized increase in total cost is $0.28 million (in 2021 dollars) for all affected small businesses and the average cost per small business is $92,565 (in 2021 dollars). The estimated present value of total costs and cost per small business over the 10-year period is valued at $1.95 million (in 2021 dollars) and $0.65 million (in 2021) respectively.

The Regulations will not include any flexibilities solely targeted at small businesses. This approach ensures that passengers are equally entitled to a refund, regardless of the carrier from which they purchased their ticket. It also aligns with the refund provisions currently in place for flight disruptions within carrier control.

However, bearing in mind the objective of minimizing, to the extent possible, the risk of insolvency to carriers, the Regulations will address a number of concerns raised by small carriers during the consultations. In particular, compared with the EU regime, the Regulations provide more time for carriers to recover their schedules and rebook passengers before being required to provide a refund. This recognizes the realities faced by small carriers, particularly those in northern and remote areas, which tend to operate with lower frequency and smaller fleets, resulting in fewer rebooking opportunities than for large carriers.

In general, the APPR address concerns regarding small carrier viability through a two-tier approach to both compensation for inconvenience and rebooking requirements, with less stringent requirements for small carriers in those areas. The Regulations will not change the two-tier approach to rebooking requirements for flight disruptions outside a carrier’s control. As is currently the case, small carriers will not be required to rebook passengers on the flight of a competing carrier (one with which they do not have a commercial agreement).

Small business lens summary
Table 9: Compliance costs
Activity Annualized value Present value
Cost 1: Cost to refund passengers $265,072 $1,861,755
Cost 2: Cost to process refunds to passengers $12,350 $86,741
Cost 3: Cost to update tariff $136 $956
Cost 4: Cost to create communication template $136 $956
Total compliance cost $277,694 $1,950,409
Table 10: Total compliance and administrative costs
Totals Annualized value Present value
Total cost (all impacted small businesses) $277,694 $1,950,409
Cost per impacted small business $92,565 $650,136

One-for-one rule

The Regulations will not require carriers to take on any incremental administrative costs, for example to keep additional records or report additional information, in order to meet the new requirements. The one-for-one rule therefore does not apply.

While carriers may provide information or documentation to the CTA in the context of dispute resolution or enforcement, those processes will not be affected by the Regulations. They are the same processes the CTA uses currently to ensure carriers follow all policies in their tariffs, including refund policies.

Regulatory cooperation and alignment

The Regulations were not introduced to comply with an international agreement or obligation, nor do they relate to a work plan or commitment under a formal regulatory cooperation forum.

The CTA reviewed the refund regimes in place in the EU and the U.S. Both jurisdictions require carriers to provide refunds for flights cancelled for any reason if the passenger prefers a refund to continuing their travel. However, in other respects, the EU and U.S. have somewhat different regimes:

As shown above, the EU and U.S. regimes do not always align. This limits the extent to which the Regulations could align with them both. Instead, many key provisions generally align with either the EU or the U.S. model, as outlined below:

That said, some aspects of the Regulations are tailored to Canadian realities that may not exist, or not to the same extent, in the EU or the U.S. For example, those jurisdictions, in part because they have much larger populations in a smaller territory than Canada’s, have a significantly more varied air sector, with many more small- and medium-sized carriers active in their respective markets. They also do not have the same number and wide geographical distribution of hard-to-access communities in remote areas, including the Far North. This means they have less cause than Canada to consider the impact of regulations on small carriers offering lone, infrequent, critical service to remote locales, some of which often have extreme weather events during part of the year.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

The amendments will benefit the travelling public generally by ensuring that Canada’s air passenger protection regime works as intended to support passenger rights. That said, there may be differential benefits for those of middle and lower incomes — people less able to absorb the out-of-pocket costs when a flight cancellation or lengthy delay does not result in a ticket refund.

These middle- and lower-income Canadians could face particular financial constraints in a widespread, sustained disruptive event of the type in which the refund requirements would apply, such that the refund amount would be of financial importance to them. In the case of a pandemic, for example, they might suffer economic impacts similar to those created by COVID-19, which the (ARCHIVED) Fall Economic Statement 2020 found to have included:

The Economic Statement further found that in the COVID-19 context, job and wage losses have been higher among young people, low-income workers, people living with disabilities, and women.

Statistics Canada’s Survey of Household Spending shows that in recent years, most Canadians (except for the highest earners) have spent proportionally similar amounts on air travel: slightly less than 1% of their overall annual expenditures. However, in 2019, the most recent year for which data is available, those in the lowest bracket (with household expenditures of just over $37,000) spent 1.17% of their expenditures on air travel, meaning an average of $441. This was proportionally much more than most others, who remained under the 1% threshold. At the same time, those in the lowest bracket also spent proportionally much more on essential items such as food, shelter, and health care: 51%, compared to 44% or less for those in higher expenditures brackets. This helps demonstrate that not a receiving a refund for cancelled flights or lengthy delays is likely to be proportionally more painful for lower-income households.

In sum, it is expected that various economically vulnerable populations will benefit from the financial protections established in the Regulations when events outside a carrier’s control cause flight cancellations or lengthy delays.

Implementation, compliance and enforcement, and service standards

Implementation

The amendments will come into force on the 90th day after the day on which they are registered.

Compliance and enforcement

The CTA’s ongoing monitoring of the air industry, and existing complaint processes and dispute resolution services, will apply to the new requirements.

The CTA monitors and enforces compliance by the entities it regulates, including carriers, using a variety of tools and activities. These include compliance self-assessment questionnaires, website and routine documentation reviews, desk inspections, and on-site inspections. The CTA’s approach is guided by its modern Compliance Monitoring and Enforcement Policy and enforcement process that were developed and published in 2019.

The CTA is responsible for ensuring that carriers follow the terms and conditions set out in their tariffs, which would include the new requirements. This is done through monitoring and enforcement and by addressing air travel complaints. The contravention of any requirement of the APPR is subject to administrative monetary penalties (AMPs) of up to $5,000 per offence for individuals and $25,000 for corporations, depending on the type of penalty and contravention. This will include the new requirements in the Regulations.

Passengers can complain to the CTA if they believe a carrier has not followed the provisions set out in its tariff (which include all requirements of the APPR). Most passenger complaints are addressed through informal dispute resolution, namely facilitation and mediation (processes in which CTA staff help the passenger and carrier work through their dispute).

If the carrier involved refuses to participate in an informal dispute resolution, or those methods are not successful, the issue is resolved through formal adjudication. If it was found that the carrier in fact owed a refund, the CTA could order it to be paid. The refusal to obey the order could result in an AMP. The CTA has powers under the Act to apply an APPR-related adjudication decision made in response to a written complaint about a domestic or international flight, to all passengers on that flight.

Once the Regulations are in force, the CTA will update its guidance and tools for the public and carriers to help ensure that carriers know their obligations, passengers know their rights, and the amended regime is implemented smoothly.

CTA costs associated with the Regulations will be managed within existing reference levels.

Contact

Allan Burnside
Senior Director
Analysis and Regulatory Affairs Directorate
Analysis and Outreach Branch
Canadian Transportation Agency
15 Eddy Street, 19th Floor
Gatineau, Quebec
K1A 0N9
Telephone: 819‑962‑3310
Email: allan.burnside@otc-cta.gc.ca