What chance does Canada have of modernizing its economy to take on the world if it can’t properly manage its own passenger air travel industry?
The strike of about 10,000 Air Canada flight attendants that ended last week, resulting in the cancellation of an estimated 500,000 flights, is the second such disturbance in the past 14 months.
Mechanics struck WestJet Airlines last year. As with the Air Canada work stoppage, stranded passengers had little or no choice in making alternative travel plans.
It’s bad enough that Canada, the world’s ninth-largest economy, must endure an Air Canada-WestJet duopoly that controls as much as 75 per cent of the traffic at Canada’s busiest airports.
To fatten their bottom lines, the two dominant airlines, with the acquiescence of regulators, have divided the country between themselves.
The airline oligopoly has become two semi-monopolies, with Air Canada dominating in Central and Eastern Canada and WestJet having the fast-growing Western Canadian market largely to itself.
That’s how it is that airfares are high and some important domestic routes are served by just one airline.
Passenger rights, meanwhile, are limited. Cancelled flights due to strikes are considered by Canada’s Air Passenger Protection Regulations to be outside the airlines’ control.
In such cases, airlines are obliged to provide only limited compensation, including re-bookings.
A thorough reform of passenger air travel is overdue.
Ottawa has tried to foster competition by encouraging startup airlines. That has proven not to be a solution.
Nine discount airline brands have ceased operations since 2000.
Among the most recent casualties is Calgary-based Lynx Air, which filed for creditor protection last year.
Discount startup airlines typically are undercapitalized and are especially vulnerable to high airport fees.
Canada should welcome deep-pocketed foreign airlines to provide service in a Canadian market starved of competition.
Air Canada and WestJet protest the entry of foreign airlines in the Canadian market. They predict that foreign carriers would “cherry pick” the most lucrative Canadian routes and leave the incumbents with the least travelled ones.
The solution is to allow a limited number of foreign carriers to provide a limited number of flights on selected routes.
A June report by the Competition Bureau of Canada calls for loosening restrictions on foreign airlines serving Canadian routes.
“Added competition brings benefits,” said Anthony Durocher, the bureau’s deputy commissioner of competition promotion.
“When a new competitor enters a route, airfares drop by nine per cent,” he said.
When he was industry minister, François-Philippe Champagne, now the federal finance minister, tried to recruit international grocers to weaken the grip of Canada’s grocery oligopoly on consumers.
If Canadians would benefit from Kroger Co. or Carrefour S.A. operating in Canada, why not Lufthansa and Air India?
Earlier this year, Ottawa allowed Delta Air Lines to buy 15 per cent of WestJet and Korean Air Lines to acquire 10 per cent of WestJet.
So, there already are exceptions to Ottawa’s restrictions on foreign participation in the Canadian air travel market.
European regulators have lifted ownership restrictions, and the result has been lower fares and higher traffic volume.
Genuine competition has created a bigger European market as more travellers are attracted to lower fares.
Continent-wide airlines like Ryanair and easyJet coexist with national incumbents Lufthansa and Air France-KLM.
Opening the Canadian market to airlines partly or fully owned by offshore investors would bring needed additional capital to the Canadian industry.
As to compensation for cancelled flights from labour disruptions, the European Union (EU) recognizes that labour relations are indeed within airlines’ control.
The EU requires that airlines pay cash refunds of about $400 for cancelled short-haul flights, $645 for medium-length flights, and $970 for long-haul flights.
Air travel reform should include reducing Canadian airport fees, among the highest in the world, which can amount to as much as 35 per cent of a ticket cost.
As noted, high airport costs for security surcharges, improvement fees, landing and terminal fees and other charges stifle competition.
Only the largest airlines can absorb them, passing them on to customers who can’t balk for lack of airline choice.
Airports are a profit centre for Ottawa, which collects hefty rent payments from airports for the federally owned land on which they’re located.
In 2023, the federal government pocketed $487 million in rent payments from airports.
Waiving some or all that rent would help make air travel more affordable and better assure the viability of airline startups.
Passenger air travel and cargo flights are essential to the economy, of course. Commercial aviation would be a good place to start in reviving Canada’s rate of productivity growth, which lags that of most of our advanced economy peers.
Reforming air travel should be on Prime Minister Mark Carney’s list of nation-building projects. And unlike most of the candidates on that list, air-travel reform would not cost billions of dollars to achieve.
