Why You Pay a Fortune for Airline Tickets: Thank Canadian and American Government Protectionism

-- (historic), Commentary, Transportation, Uncategorized

 

With multiple flights cancelled in Europe recently due to a nasty cold wave, this may not be the ideal time to praise European airline travel. But momentary troubles aside, Europe not only has better architecture than much of North America, it also has cheaper plane fares to get you to Europe’s sights.
 
Europe’s cheap airfares are in distinct contrast to North America where a competitive market in air travel has yet to take flight. North American governments, including our own preach a good game on open skies; in reality, they prefer domestic duopolies.
 
It’s why, as you perhaps sit in your plane seat reading this, an “American” airline can’t pick you up in Calgary and deposit you in Toronto. It’s why a “Canadian” airline cannot shuttle U.S. passengers from Los Angeles to New York—this as if there was any practical difference between airlines owned by shareholders from across the planet.
 
Some history. Starting in 1987, the European Union began to liberalize airline competition, a move that fully blossomed in 1997 when any airline within a member EU state was given the right to full “cabotage” – the right to pick up and drop off passengers within another member country.   
 
Between 1992 and 2003, the number of intra-Europe routes increased by more than 40 per cent and the number of airlines increased by 25 per cent. The European Union notes that productivity of the main carriers rose by 87 per cent between 1990 and 2002, and that low cost carriers went from almost nothing to more than 20 per cent of the market.  
 
The winners have been consumers who now can access extremely competitive and inexpensive airlines fares. Contrast that with North America and consider some examples, first from five North American routes between Canada and the U.S., and then five European routes that also cross national borders. For all of the following, I chose the first week of February, with departure on a Tuesday and returning on a Monday.
 
Here was the lowest-priced result for all return flights, estimated by Kayak.com and in Canadian dollars with all taxes and fees included: Toronto-New York: $355; Vancouver-San Francisco: $383; Calgary-Denver: $432; Montreal-Miami: $341; Halifax Boston: $620. Pretend you wanted to take all of those five flights. Your total would be $2,131.
 
Now consider Europe with the same all-in parameters. Dublin-Berlin return would cost $276—the most expensive flight among the five surveyed. The others were Munich-Rome: $148; Vienna-Athens: $233; Prague-Barcelona: $231. A London-Paris return flight would set you back just $81. Total price for all five tickets was just $969 to traipse all over Europe, or less than half of the cost of North America’s five flights.
 
Try this experiment again using in-country routes only in Canada and then Europe. In Canada Calgary-Victoria would set you back $303; Toronto-Vancouver: $452; Halifax-Montreal: $401; Vancouver-Montreal: $470; Winnipeg-Regina: $344. Total price for all five tickets: $1,970.
 
Now sit down in your cramped airplane seat for this one. In-country return flights in Europe were as follows: London-Edinburgh: $81; Paris-Nice: $100; Milan-Rome: $67; Dusseldorf-Berlin: $127; and Barcelona-Madrid: $92. Grand total? Just $467, or less than one quarter what it would cost to buy the five examples of airline tickets in Canada.
 
Some might argue Europe’s great deals can’t be replicated in Canada with a significantly smaller population. But that’s rather the point. A combined Canadian-American open skies agreement with full cabotage would create a continental market of over 330 million people. At that level, efficiencies and fare cuts become routine.
 
As for North America, negotiations and signed agreements on European Union-type open skies agreements have been stymied. The U.S. and the European Union tentatively agreed in 2005 to a EU-style open skies agreement; it would have allowed American and European carriers to pick up passengers in each other’s countries and fly them to third destination, i.e., to pick up passengers in New York and drop them off in Atlanta, or Paris and then in Nice.
 
But the potential deal was stymied by a protectionist U.S. Congress in 2006 and has gone nowhere since. In Canada, in 2006, the Conservatives announced a “Blue Sky” policy to liberalize air transport between Canada and other countries. But it was less than advertised (which begs the question of why governments can get away with less-than-truthful advertising).
 
Ottawa pointedly rejected EU-style open competition, stating 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.”
 
Such government-dictated “circumstances” are why we all pay a fortune to travel in and from Canada. “Consumers are the key players in the European economy,” states Meglena Kuneva, the EU’s commissioner for consumer affairs on the EU website. But consumers are apparently not so valued by North American governments.