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We are now entering the final act of a Canadian melodrama that began more than 14 years ago. In April of 1984, the transportation minister at that time, Lloyd Axworthy started the process leading to the deregulation of the commercial aviation industry in 1987.
Axworthy looked for a politically popular initiative and was told by most economists at that time that deregulation of this industry would result in the entry of many new airlines and significantly lower fares. 1, on the other hand, claimed the result would be a rapid consolidation of the industry with only two surviving mainline airlines and the possibility that, over time, only one might survive.
Fast forward to today and we find most economists arguing it is time to open up the Canadian market to all airlines in order to neutralize the monopoly that Air Canada has succeeded in achieving. The new proponents of deregulation will be as wrong as the original proponents of deregulation.
While I have always believed there was room for two national airlines in Canada - Canadian Airlines failed because of mismanagement, not because the Canadian market was too small - I do not believe opening up the domestic market to every foreign airline will do much to create any meaningful competition. Anyone who believes otherwise, does not understand competitive realities and the role of hub-and-spoke networks.
Nevertheless, I do favour, as does Air Canada, the government initiating bilateral and/or multilateral negotiations to further liberalize all markets. But what should the government do in the short run to stimulate domestic competition? Indeed, how much competition will materialize to limit Air Canada's dominance in Canada?
The worst case scenario for Air Canada and the airline industry in this country would be for Air Canada to acquire and fully integrate Canadian Airlines....