The ruling Tuesday came after Gabor Lukacs, 29, a former assistant professor of mathematics, complained to the Canadian Transportation Agency that Air Canada does not adequately compensate bounced passengers.
Lukacs started investigating compensation in 2011 after discovering his flight was overbooked.
"I concluded after my review that Air Canada was very much behind the rest of the world," he said.
The Canadian Transportation Agency said overbooking is an acceptable industry practice, but the compensation Air Canada offers — a blanket rate of $100 cash or a $200 voucher — isn't reasonable.
"It is peanuts," said Lukacs. "Especially how restrictive the travel vouchers terms are. Unless you are a frequent traveller, and you want to travel with Air Canada, this is worthless for you."
In the European Union, passengers can get up to the equivalent of about $800, depending on the length of the delay and the flight.
In the U.S., passengers can get up to $1,300 US, depending on the delay.
New amount to be determined
The CTA said a more suitable amount would start at $200 and increase depending on the length of the delay.
“If they [Air Canada] do a good job and quickly reroute you, their financial exposure will be small. If they don't do a good job they will have to pay a lot — which I think is a big win for passengers,” said Lukacs.
The ruling is significant because it will bring Canada in line with the rest of the world, Lukacs added. He said he hopes airlines will take a close look at the number of extra seats they sell above capacity.
"This ruling only applies to Air Canada, but I certainly believe that this is a very important precedent that other airlines will have to seriously consider."
Others say overbooking should not be allowed.
“It should be illegal to overbook,” said airline passenger Jason Pond, who on Tuesday was preparing to fly to Newfoundland from Halifax. “It’s like selling something you don’t have.”
Air Canada has 30 days to decide if it will fight the CTA’s decision or determine a new compensation amount. The airline had no comment on the ruling.