Competition Bureau Report Suggests Opening Up Canada’s Skies

A 100% foreign-owned airline could one day operate flights between Canadian cities, if the recommendations of a Canadian Competition Bureau report are followed.

The watchdog has issued its long-awaited report on domestic airline competition in Canada. ‘Cleared for Take-Off: Elevating Airline Competition’ includes a series of 10 recommendations covering issues ranging from foreign ownership to keeping passengers better informed and increasing service in remote areas.

“With the right policy changes, governments can create the conditions for new airlines to grow and compete – and give Canadians access to more affordable, reliable options for flights. With this report, we have identified concrete actions that governments can take to achieve these goals,” said Matthew Boswell, Commissioner of Competition.

It’s not a big surprise that the study found Canada’s airline market to be highly concentrated, with passenger traffic dominated by Air Canada and WestJet. According to the Competition Bureau, the two airlines together account for 56% to 78% of all domestic passenger traffic. 

The Bureau also notes that WestJet is focusing more of its domestic segment on the west and Air Canada the east, meaning they are competing directly on fewer routes, potentially leading to higher fares.

While acknowledging that traction has been gained by some newer entrants – Flair and Porter specifically — the Bureau says start-up airlines in Canada face major challenges including high costs, user fees, limited landing slots and competitive response from established players.

Airline customers aren’t happy with the current situation. The Bureau reports that Canadians consider airline options to be limited, airfares too high, and service levels too low.

Among the Competition Bureau’s recommendations, the most headline-grabbing is a suggestion that Canada should permit up to 100% foreign ownership of airlines that fly only within Canada.

The current foreign ownership cap sits at 49% and no more than 25% of a carrier can be owned by any one foreign entity, a proportion the bureau has proposed raising to 49%.

“Canada’s aviation sector is constrained by foreign ownership limits and restrictions on foreign carriers operating domestic routes in Canada (known as cabotage),” the report states. 

“These restrictions make it harder for airlines to access capital from investors outside Canada. Ultimately, this affects the flying public through fewer choices and higher prices. Other countries have adopted looser regulations.”

Other highlights of the report’s recommendations include:

• Make competition the priority when reviewing airline mergers and collaborations.
• Remove barriers that limit smaller airports from competing with major hubs. 
• Improve the publication of airline industry data.
• Consider reviewing the airport oversight and funding model.
• Increase the single-investor foreign ownership limit for Canadian airlines to 49%. 
• Allow up to 100% foreign ownership for domestic-only Canadian airlines. 

Air Canada has responded to the report with its own document, ‘Myths and Facts on the Canadian Domestic Competitive Landscape’, which argues against some of the Competition Bureau’s assertions.