Canada’s airline industry is dominated by Air Canada and WestJet, which hold passenger shares of 34 per cent and 30 per cent, respectively.DARRYL DYCK/The Canadian Press
Canada’s competition watchdog is calling on Ottawa to boost competition in the airline industry with sweeping changes that include allowing foreign-owned carriers to fly domestic routes and phasing out restrictions on foreign ownership.
The recommendations are among 10 the Competition Bureau of Canada makes in a new market study, released Thursday morning.
To increase customers’ choices in Canada’s highly concentrated airline industry, the report also recommends the government: remove the Transport Minister’s ability to ignore antitrust findings when reviewing airline takeovers and partnerships; remove restrictions that prevent smaller airports from offering international flights; and expand airports in the North and implement remote-specific policies that foster competition.
The agency made no recommendations on the proliferation of airlines’ ancillary fees.
The bureau launched the study 13 months ago, shortly after the failure of low-cost airline Lynx Air and amid widespread dissatisfaction among travellers about airline services, fees and availability. The report carries no legislative weight, and is intended as advice to the government.
“Canadians want more competition in the airline industry,” the 117-page report reads. “This study is about how to achieve it.”
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Canada’s airline industry is dominated by Air Canada AC-T and WestJet Airlines, which hold passenger shares of 34 per cent and 30 per cent, respectively. Discount carrier Flair Airlines holds 10 per cent, while Porter Airlines has 9 per cent. About 20 other carriers share the rest of the market.
Although smaller carriers are gaining market share, Air Canada and WestJet account for half to three-quarters of all domestic passengers at the busiest eight airports, the study found.
The lack of choices means travellers are paying more than they should for airfares, Anthony Durocher, deputy commissioner of the bureau’s competition promotion branch, told reporters on Thursday. “Added competition brings benefits. When a new competitor enters a route, airfares drop by 9 per cent.”
Air Canada spokesperson Peter Fitzpatrick said fees charged by airports and governments raise airfares and hurt competitiveness, a fact highlighted by the study. In an e-mail, WestJet said the findings are evidence Canada’s air travel regime needs a “reset” that includes a freeze on federally imposed fees.
The watchdog crafted its recommendations after interviewing industry stakeholders, studying data and reviewing submissions from the public.
“Why do we have only two major airlines in this country and every discount airline that comes into the market is squeezed out?” reads a submission from one woman.
The study calls for the government to lift the ban on foreign airlines flying point-to-point in Canada, known as cabotage. This, in addition to the gradual lifting of foreign investment restrictions, could lead to more routes and better services, the study says.
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The Competition Bureau has previously called for greater foreign involvement in the airline industry as a way to increase competition. In 2018, the government raised the limit on foreign investment in a domestic airline to 49 per cent from 25 per cent. This helped the launches of Flair Airlines and Lynx Air.
The study says the cap on a single foreign investor should be raised to 49 per cent from 25 per cent, with no overall limit on foreign investment in domestic-only airlines. This would create a new class of carrier that would be required to employ Canadians. The study recommends phasing out all foreign investment restrictions on any Canadian airline in the “long term.”
Greater access to capital makes it easier for carriers to expand and buy planes.
The U.S. caps foreign ownership at 25 per cent, but Brazil, Australia and New Zealand allow foreigners to own domestic airlines, with some restrictions.
However, Geraint Harvey, a Western University professor, said many foreign airlines are state-backed and would have an unfair advantage competing in Canada. Lower fares would inevitably mean lower wages for airline employees, he said, given salaries are one of the few variable expenses in the business.
Prof. Harvey also dismissed the idea that competition would improve airline services to the North. “I can pretty much guarantee it isn’t going to increase service to remote communities because they’re not lucrative,” he said.
John Gradek, who teaches aviation leadership at McGill University, said there would be several airlines eager to enter the Canadian market, but they would only be interested in flying Toronto to Vancouver, a busy profitable route.
“Is that going to do any good for the person who wants to get from Yarmouth to Val-d’Or? No,” Mr. Gradek said.
Monette Pasher, president of Canadian Airports Council, agreed. Mr. Gradek predicted the study will not be adopted by the government.
Laura Scaffidi, a spokesperson for Transport Minister Chrystia Freeland, said Ms. Freeland is reviewing the report.
Porter Airlines spokesperson Brad Cicero said the Toronto-based airline likes the idea of raising foreign ownership limits for single investors to 49 per cent, but allowing non-Canadian carriers to serve domestic markets would hurt small operations.
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The Competition Bureau’s job is to investigate abuses of market power, price fixing and false advertising, in addition to advising the government on mergers. In recent years, the watchdog has raised concerns about proposed takeovers involving Air Canada and Transat AT Inc. TRZ-T, WestJet Airlines and Sunwing Airlines, and Canadian North and First Air. (The government approved all three takeovers.)
The Competition Bureau wants the Competition Commissioner to have the power to block a takeover on antitrust grounds, removing the Transport Minister’s override abilities.
The agency declined to make recommendations on one of the thorniest issues in the travel business – the myriad fare classes and fees for everything from seat selection to baggage.
The study says the industry trend of separating every facet of a trip and assigning a fee to it makes it hard for consumers to make comparisons. But the bureau says it already enforces consumer protection laws against misleading advertising and so-called drip pricing, which is the practice of charging surprise fees.