Canadian Airline Competition More Pie in the Sky than Open Sky

Worth A Look, Transportation, Frontier Centre

Buy low, sell high; a penny saved is a penny earned; never let New Democrats run the province’s finances. Those are a few common-sense nuggets that the economically astute should agree with.

And here’s another one: open skies are great for airline passengers.

In a recent BIV issue (September 11 – 17), Andrew Petrozzi reported on a recent Council of Tourism Associations study, which argued that B.C. tourism has been negatively affected by the federal government’s lack of progress in negotiating open skies agreements with other countries. Canada’s current restrictive policy allows foreign airlines to pick up passengers, say in Vancouver, and drop them off in Paris, but they can’t pick up a passenger in Vancouver and drop them off in Toronto.

Federal conservatives, who are supposed to be genetically in favour of competition, have so far promised only mild reforms, the “Blue Sky” policy announced in late 2006.

It ostensibly aims to liberalize air transport between Canada and other countries by, among other reforms, providing:

• more open markets;

• no limits on the number of airlines permitted to operate or on the frequency of service;

• a market-based tariff/pricing regime;

• an open regime for code-sharing services; and

• unrestricted services to and from third countries.

But Ottawa’s Blue Sky policy flatly rejects European Union-style open competition. It states that “under no circumstances will the policy approach include cabotage rights – the right for a foreign airline to carry domestic traffic between points in Canada.”

Right. So for domestic travel, no Canadian consumer is allowed to choose British Airways over Air Canada or Southwest over WestJet. Remind me to moo the next time I board an airplane.

To grasp how a real (as opposed to faux) open skies policy operates, glance at Europe. There, in the land that brought us French mercantilism, German sluggishness and a European Union bureaucracy that once wanted to dictate the content of sausages to the British, the EU finally got one thing right: lovably brutal competition between all European airlines.

Starting in 1987, the European Union began to liberalize airline competition policy. By 1997, every airline within a member EU state gained the right to pick up and drop off passengers within another member country – the right that Ottawa denies to Canadian consumers.

In the European Union, the result has been a boom in air travel:

• intra-community routes increased by more than 40% between 1992 and 2003;

• the number of airlines increased by 25%;

• productivity of the main community carriers rose by 87% between 1990 and 2002; and

• low-cost carriers now represent more than 20% of the market.

In a mini-survey I did earlier this year of five European in-country routes (London to Edinburgh, Paris to Nice, Milan to Rome, Düsseldorf to Berlin, and Barcelona to Madrid), a consumer could buy return tickets on all five routes for a total cost of $483, including taxes and fees.

That’s less than the cost of a Vancouver to Toronto return ticket at $511. (The same assumptions were applied for all flights: 15-day advance booking and a six-day trip beginning on Tuesday and returning on Monday.) Even if we subtract Canada’s outrageous airlines fees and taxes, the chance of buying five return flights anywhere in this country for $483 is nil.

To be sure, some European carrier’s fares are loss leaders, but that’s the airline’s problem. At least European consumers have a crack at such fares.

In contrast to Canada’s yet restrictive and anti-consumer Blue Sky policy, earlier this year, the EU released an official communiqué touting a potential EU-Canadian open skies agreement. It was much more aggressive than Canada’s version. It argued that if full cabotage rights were granted to Canadian and European airlines in each other’s jurisdiction, in the first year alone, an additional half-million new passengers would be added to passenger flows. That would result in 3,700 new jobs in the EU and Canada, and consumers would save about $108 million.

By year five, the EU estimates passenger flows between Canada and the EU would more than double to 17.5 million from 8.5 million in 2005. That would put EU-Canada flows up in Canada-U.S. territory where trans-border traffic amounted to 18.6 million passengers in 2005.

Canada’s Blue Sky policy is regurgitated industrial, pro-corporate policy that happily divides up turkeys – you and me as consumers – between domestic airlines. It’s a stretch to call it pro-competition or pro-consumer.