An Air Canada flight taxis to a runway as a WestJet flight takes off at Vancouver International Airport, in Richmond, B.C., on March 20, 2020.DARRYL DYCK/The Canadian Press
The top complaint among air travellers in Canada has long been obvious.
As former federal minister David Emerson stated in his transportation study tabled in the House of Commons in 2016: “Canadians continue to pay relatively high airfares, in part due to the lack of competition on many routes.”
Little since then has changed – and the industry is once more the focus of not one but two studies, the first in process at the House of Commons standing committee on transport and the second pending from the Competition Bureau.
One key foundational step, recommended by Mr. Emerson and not acted on, is change in the economics of airports, which effectively operate as unregulated monopolies. Airports pile surcharges on travellers – so-called improvement fees are much higher in Canada compared with the United States – and airports levy such fees in part because they have to pay high rents to the federal government.
This is where reform is first necessary, as this space argued last year.
Easing costs on these fronts could have a galvanizing effect, allowing airports to reduce fees paid by travellers and airlines. As Mr. Emerson put it eight years ago: “Canada is unique among its competitors in charging onerous rents and taxes that undermine competitiveness.”
Like many key industries in Canada, air travel is dominated by a few large companies. Air Canada has about half of the domestic market; WestJet controls about 30 per cent. Porter and Flair roughly split the rest.
The industry is in retreat. In February, discount carrier Lynx Air filed for creditor protection and ended its operations. Meanwhile, after the difficult pandemic years, Air Canada has cut back in the west and WestJet has done likewise in the east. It’s hurt supply: as of late last year, Air Canada and WestJet had cut about a quarter of their domestic seats, compared with before the pandemic.
The Competition Bureau study is promising, as it is the first conducted with new powers to compel evidence, similar to its peer agencies in other countries. That change is part of the overhaul of Canada’s competition laws. A grocery industry study completed last year was hindered because of the lack of such powers.
But the latest effort may be circumscribed before it begins. The bureau suggested it may not use the option – “remains to be determined,” said deputy commissioner Anthony Durocher in May. That was a subdued statement from an organization that has mostly sounded emboldened over the past several years.
The reason? Industry Minister François-Philippe Champagne is looking over the bureau’s shoulder. In a letter in May, Mr. Champagne cited a list of issues on the airlines study. He noted that compulsory power “can be disruptive to businesses” under investigation. He also pointed to challenges in the industry, saying that the study should consider “the long-term sustainability of the domestic airline industry for Canada’s sovereignty.”
One can see the clash coming, after the study is published a year from now. The bureau makes significant recommendations; Ottawa says no.
Consider what happened when two northern airlines, First Air and Canadian North, merged in 2019. The bureau said it was a “merger-to-monopoly” that would lead to higher prices. Ottawa approved the deal, citing a “more efficient and financially sustainable northern air carrier.”
It is true the business of flying isn’t easy anywhere in the world and in Canada the issue of a population scattered over vast distances is prominent. But it isn’t unique. Look at Australia. It also effectively has a duopoly and its airport economics need reform. Australia just saw a discount carrier, Bonza, go out of business, one backed by the same American private-equity firm that invested in Flair.
In 2018, as recommended by Mr. Emerson and others, the federal Liberals loosened foreign ownership limits to 49 per cent, from 25 per cent. It helped bring money to Flair – though individual foreign investors are still restricted to 25 per cent. That could be increased to 49 per cent. A bigger change is much more complicated. Protectionism defines the airline business around the world.
Change in the airline business doesn’t come easy, as past reports make clear. The first place the bureau and legislators should look now is at the airports themselves.