As Canada navigates a mix of economic headwinds, it can consider opening its skies to foreign carriers.Christinne Muschi/The Canadian Press
Air travellers in Canada pay more, get less and often have no choice at all. On many domestic routes, there’s just one airline – and few incentives for it to improve service or lower prices.
That lack of competition – among airlines and the airports that serve them – drives up costs and limits options for consumers. As Canada navigates a mix of economic headwinds, it can respond to the well-worn frustrations of travellers and lay the groundwork for durable growth with a simple, overdue shift: opening its skies to foreign carriers.
Among the 10 recommendations in the Competition Bureau’s newly released landmark study of Canada’s airline market, none struck a nerve among domestic incumbents more than the call to lift foreign ownership limits and allow trusted foreign carriers to run domestic routes. But it is a necessary first step in giving Canadian travellers more choice, lower fares and better service.
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For too long, Canada’s market has been allowed to settle into complacency – protecting airlines and airports at the expense of the millions who pay the tab. The bureau’s study strikes at the heart of a deeper problem in Canada: a policy reflex that favours protection over competition, and the welfare of incumbents over consumers.
In this case, it is Air Canada and WestJet putting their elbows up and suggesting foreign competition would sabotage Canada’s airline industry. The airlines, which together control about three-quarters of Canada’s domestic traffic, argue that foreign carriers would undercut them on price, owing to greater scale and lower costs abroad. The result, they darkly warn, could be job losses in Canada.
But years of international experience show that fears around liberalization are often overstated. In Europe, where countries removed ownership limits and opened domestic routes to foreign competition, fares fell, passenger numbers surged and carriers such as Ryanair and EasyJet reshaped the market. The Competition Bureau – like the OECD and the International Air Transport Association before it – found that opening skies to foreign carriers can attract investment, increase connectivity and lower prices, while incumbent airlines adjust and remain viable.
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Lifting barriers to foreign investment would not only invite new players into underserved routes, the bureau found, but also give smaller Canadian airlines a better shot at long-term success by expanding access to investment.
The successful landing of new players in Canada remains rare – and fragile. Market concentration has undermined smaller entrants by limiting their ability to scale or survive. The bureau’s study was spurred, in part, by the collapse of Canadian low-cost carrier Lynx Air, which filed for creditor protection just shy of two years in business.
The other issue is Canada’s airport fees, which rank among the highest in the world and must be dramatically reduced. The stack of charges – improvement fees, security surcharges, navigation costs, landing and terminal fees – varies by airport but rarely by flight length or load. The result is a fixed-cost burden so steep it can swallow up to a third of a domestic ticket and tilt the economics against anyone trying to serve smaller markets.
This is the direct result of a long-ago decision to offload control of Canada’s major airports to not-for-profit operators. In 1992, Ottawa was aiming to cut costs, improve local oversight and modernize crumbling infrastructure – while retaining ownership of the land. Its fiscal goal was to be “no worse off” than if it had kept running the airports.
Since then, airport authorities have invested more than $19-billion in infrastructure and paid billions in rent to the federal government. They are well past the point of making Ottawa whole.
Ottawa should act on the Competition Bureau’s recommendations and bring Canada’s aviation sector into the modern era.
That means allowing foreign-owned carriers under rules that protect essential routes and Canadian jobs. And it means recognizing that remote air service might still need public support – but not at the expense of competition.
Canada’s aviation policy has too long been animated by a reluctance to expose incumbents to pressure, and by a preference for control over dynamism. That outdated caution now stands in the way of a more competitive economy, and it has to end.