Canada's not so Friendly Skies

It’s the holiday season – and people are flying hither and yon to visit family and friends. Many won’t be in the holiday mood by the time they land. Instead, they’ll grumpy about bad service and cranky about ticket prices.

Next year, people may be even grumpier if the Ottawa apparatchiks, who transformed Air Canada into Air Monopoly, continue to make bad transportation policy, as appears likely.

Air travel isn’t just a holiday luxury. It’s economically vital. A costly, re-regulated airline system would further weaken the Canadian prosperity, accelerating our decline compared to the United States.

National unity is also under attack. Ottawa can’t impose its silly competition-restricting regulations on international flights. What happens when regulation inside Canada makes it more expensive to fly from Toronto to Montreal than Toronto to Chicago; more expensive to fly from Halifax to St. John’s than from Halifax to Boston; more expensive to fly from Vancouver to Winnipeg than Vancouver to Denver?

US President Jimmy Carter launched airline deregulation in the late 1970s. Canada soon followed suit. Europe took up the cause in the 1990s. For the consumer, de-regulation was a huge success. Where air travel has been de-regulated, the number of passengers typically doubles or triples.

In the United States, the average consumer pays about 70 per cent less in real terms than 20 years ago. The average ticket price has declined less, about 40 per cent, but de-regulation has given consumers more choice. Consumers pick the best deals, so their savings are even greater than the average decline in ticket prices.

Things are a less rosy from the average billionaire’s point of view. Big fortunes were lost, as entrepreneurs jumped into the airline business. But, it’s fine with me if investors want to throw their money at making my airline tickets cheaper.

Now, after two decades of success with de-regulation followed by a government blotched restructuring of the Canadian airline industry, transportation minister David Collenette wants to give it another go by re-regulating the Canadian airline industry.

Collenette had also speculated about opening Canadian skies to competition. In Canada, as in other nations, foreign airlines cannot fly between two domestic destinations. A US airline can fly between Saint John and Boston, but not between Saint John and Halifax.
Collenette suggested lifting this restriction.

His play may have been a bluff to make Air Canada more amendable to re-regulation. Presumably, Air Monopoly would be more sympathetic to re-regulation if the option were real competition.

If this was a bluff, then Air Canada chief Robert Milton called it. Milton came out in support of real competition and shot off letters to the US transportation secretary and the heads of US airlines asking for their support. Collenette backed away, claiming the United States would never accept a reciprocal competition agreement. This may be so, but that’s no reason for giving up on a good idea without testing the waters.

The alternative, re-regulation, would be disastrous. The transportation department is apparently toying with the idea of intense regulation, for example determining which airline will serve which city and creating monopolies on various routes.

Monopolies lead to higher prices while discretionary regulation would politicize Canadian skies. Politicians would add airline favours to their bag of election tricks. “Vote for me,” says the government candidate, “and get better airline service. Vote for my opponent, and you can walk.”

Politicians are used to holding out government favours, or threatening to remove them, during elections. Policy shouldn’t transform airline service into a government favour. Politicization would add further inefficiencies and costs to air travel. It could be economically devastating for communities that vote for the “wrong” party.

The world airline system is better than it was, but remains a messy spot in the world economy. Despite de-regulation, global competition is constrained by a welter of remaining regulation, union obstinacy, and bizarre structures governing airports and air traffic control, which have led to inflexibility and weak investment.

This is no reason to revisit the problems of the past. It should be a reason to move forward to greater competition. Otherwise the Canadian economy and the links that bind our nation will weaken.