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Should it matter to Canadian travelers and Canadians in general whether any Canadian airline survives to provide domestic service? The unequivocal answer is: You bet it matters!
The Study in Brief
This Commentary focuses on recommendations set out by the Canada Transportation Act Review Panel on permitting foreign entry into the domestic airline market and on the competitive landscape in passenger aviation services in Canada. The paper concentrates on the scope for new entry into the Canadian market, the likelihood that new entrants might, in fact, occur if the Canadian market is opened to foreign airlines and investors and the potential market impact if that did happen.
If the federal government succeeds in negotiating a more liberal agreement with the United States, the Commentary argues that there would be limited entry at best -- there are a very small number of markets in Canada that provide entry opportunities -- and the entry might end up displacing Canadian companies in terms of the routes they operate and the number of frequencies they provide on existing routes.
Even limited entry would weaken the financial performance of Westjet Airlines Ltd., though it might actually benefit Air Canada because it could use modified existing rights to maximize the benefits of its Toronto hub within a North American market.
While I fully support the recommendations of the Review Panel, I believe that the competitive consequences for the domestic Canadian market of a bilateral agreement with the United States are likely to be minimal. Perhaps it is time to recognize that the characteristics of the Canadian market limit the scope for competition and the number of domestic incumbents, regardless of the regulatory environment.
The Author of This Issue
Fred Lazar is an Associate Professor at the Schulich School of Business and in the Faculty of Arts Department of Economics at York University. He has been studying the airline industry in Canada since 1983.
Now that air Canada has entered into the bankruptcy protection process, what is the future direction for the airline industry in Canada? What, if anything, should the federal government do?
The starting point for this Commentary in addressing these questions is an examination of the recommendations set out by the Canada Transportation Act Review...