Competition watchdog calls for relaxed foreign ownership rules in airline industry report

The Competition Bureau is calling for changes to improve the competitive landscape in Canada's airline industry,  including loosening rules that limit foreign ownership of Canadian airlines.

In a 117-page market study published Thursday, the watchdog reiterated that Canada's airline industry is highly concentrated with two major carriers — Air Canada and WestJet — dominating the domestic market.

Those airlines are competing less directly with each other than they did six years ago, the report said, with WestJet serving fewer domestic flyers at eastern airports, and Air Canada serving fewer domestic flyers at western airports.

More competition would lead to lower fares and a higher quality of service, while improved transparency around prices would help travellers make more informed decisions when shopping for flights, the agency said.

Canada's existing limits on foreign ownership of airlines are also stifling competition, the watchdog said, and loosening those restrictions will make it easier for newer, smaller airlines to access finances from different sources.

It recommended letting foreign companies take full ownership of Canadian airlines that only operate domestically, creating a "new class of airline" that will bring in global expertise and capital.

The bureau also suggested letting individual international investors hold a larger share of voting interests in Canadian airlines, boosting the amount from 25 per cent to 49 per cent.

John Gradek, a professor of aviation management at McGill University in Montreal, said there's a price to pay if the government loosens rules around foreign ownership of carriers.

"The decisions that are going to be made by those carriers that have a significant influence by foreign [owners] may not be in the best interest of Canadians," he said.

Boosting air travel capacity in remote areas

The Competition Bureau noted that northern and remote communities face specific difficulties when it comes to air travel because it isn't cost-effective for most airlines to operate in regions serving smaller, more distant populations, and where air travel infrastructure is lacking.

Canadians, especially those living in secondary markets, are underserved by the current state of the airline industry, said Gradek, adding that introducing and maintaining services in those markets — at a reasonable price — is a major challenge.

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Calgary-based, low-cost airline Lynx Air has ceased operations, citing rising costs among reasons for the closure. McKenzie McMillan, a travel consultant with The Travel Group, tells BC Today host Michelle Eliot that Canadian airlines struggle more than their U.S. counterparts because fewer people travel longer distances between urban areas.

"If you live in Sault Ste. Marie, or you live in Medicine Hat, or you live in Yarmouth ... you're in trouble if you want to get on a flight. And it's going to cost you an arm and a leg to get anywhere in Canada," he said.

The Competition Bureau is recommending that a national working group be established to focus on air transportation in remote regions. Overall, it made 10 recommendations to improve competition, including:

• Removing clauses that only let one airport in a local area offer international flights.
• Improving public access to airline industry data, like information on airline quality.
• Reviewing how airports are managed and funded.

It also suggested limiting the Transport Minister's power to override certain parts of the merger process between airlines. CBC News reached out to the ministry for a statement.

A spokesperson for the ministry responded that it welcomes the report and is "carefully reviewing it."

"Canadians want to visit their families and discover other parts of our country. And they want it to be affordable. We look forward to seeing more innovation and collaboration in the sector."

The minister of transport "basically has a veto" when it comes to decisions on mergers in the transportation sector, according to Keldon Bester, executive director of the Canadian Anti-Monopoly Project.

"Unfortunately what we've seen in the airline market is time and time again, airline mergers will be judged to be anti-competitive or harmful by the Competition Bureau. But the different ministers of transport will allow those to go through under a public interest lens," he said.

"The more that review is focused on competition, I think the better that Canadians will be served," Bester added.

The success of smaller airlines Porter and Flair are improving the playing field, according to the report. Air Canada and WestJet have both faced increased competition from at least one of these smaller carriers since 2019, it said.

"However, the history of airline entries and exits suggests that these competitive gains remain fragile, especially during economic shocks," the bureau cautioned.

Eric Tanner, vice-president of commercial at Flair, said the airline continues to grow out of necessity.

"Without true low-cost competition, affordable air travel in Canada disappears," he said, adding that the report shows the airline industry needs to expand beyond large carriers. 

The issues plaguing Canada's airline industry

The Competition Bureau launched its study last July and called on Canadians to contact the agency and share their opinions. Air Canada and WestJet were ordered by a federal court last fall to hand over information for the market study.

For years, consumer advocates and industry experts have shared concerns that the airline industry suffers from a serious lack of competition, with some saying that Air Canada and WestJet's dominance amounts to a duopoly.

Some travellers have also expressed frustration over the high cost of domestic airfare, with additional fees and surcharges bloating the cost of a ticket beyond the base fare.

In a statement to CBC News, a WestJet representative wrote that the Competition Bureau report provided "further evidence that Canada needs a comprehensive reset of its air transportation policy" and that the "real root cause" of high prices were fees, charges and taxes that airlines or passengers must pay to use airports or fly.

And dissatisfied flyers have made a record-number of complaints about the state of air travel in recent years, with the backlog having hit a new peak last spring.

Meanwhile, many of the country's smaller discount airlines have folded or filed for bankruptcy — including Lynx Air and Canada JetLines — and newer airlines have failed to take off, such as WestJet-owned Swoop, which was ultimately folded into its parent company's primary operations.

In the wake of the agency's report, WestJet called on the federal government to freeze fees and charges, with the intent to eventually lower them.

The National Airlines Council of Canada, a lobby group representing both Air Canada and WestJet, also issued a statement echoing that request, but also said it does not believe increasing foreign investment or competition will address concerns around reducing the cost of travel.