Competition Bureau studying Canadian airlines amid ‘relatively high’ airfares

Canada’s Competition Bureau has launched a market study into the country’s domestic air passenger service, noting that fares remain pricier than they were before the COVID-19 pandemic.

In the study’s terms of reference published earlier this week, the bureau says there are signs “domestic airfares in Canada may be relatively high,” and that “average airfares remain above pre-pandemic level.”

Those terms also highlight the relative duopoly of Air Canada and WestJet, which the bureau says accounts for 80 per cent of Canada’s domestic air capacity — measured by the number seats available multiplied by kilometres travelled.

“I think part of the reasons that fed into our decision to launch this market study include the fact that this is a concentrated sector,” said Anthony Durocher, deputy commissioner of the bureau’s competition promotion branch.

“Recent incidents such as the bankruptcy of Lynx Air [have] clearly indicated it may be more difficult for smaller airlines to operate in the Canadian marketplace.”

The bureau’s study is trying to answer three key questions: what’s the state of competition, how can policymakers further support airline entry and expansion, and how can they also help consumers shopping for airfares.

“There has to be a better way for us to bring service to Canadians and offer them some competitive air services over and above what the two carriers have done so far,” said John Gradek, a faculty lecturer in aviation management at McGill University.

Gradek argues a “new regime” is needed to protect new airlines entering the market from being matched or undercut by Canada’s larger and established companies.

That would involve establishing “floor pricing,” Gradek said — one floor for the larger carriers so they don’t undercut smaller ones and drive them out of business, and another for the new airlines so they don’t price themselves to a point of profit loss.

“Transport Canada says, ‘Let the market decide who’s going to survive, who’s going to die,'” Gradek said. “There’s no oversight on commercial practices.”

Why is it so much more expensive to travel by air in Canada?

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.

WestJet criticizes scope of study

The study also comes on the heels of MPs on the transportation committee looking into the Competition Act and air travel in Northern and remote communities.

Witnesses who’ve addressed the committee’s four meetings since the end of May have commonly raised concerns about airport improvement fees, the excise tax on aviation fuel, and security costs — all of which are passed on to customers through Canada’s so-called “user pay” model.

WestJet has already taken aim at the study’s terms of reference.

In a letter from Andrew Gibbons, the airline’s vice-president of external affairs, WestJet argued the bureau’s scope “fundamentally ignores many of the key barriers that are unique to our country and are truly driving up cost for Canada’s air travelers and reducing competition in Canada’s air travel market.”

The bureau’s “first market study since the passage of the Affordable Housing and Groceries Act will fail to make timely and actionable recommendations that deliver benefits to Canadians,” Gibbons wrote.

For its part, Air Canada urged the Competition Bureau to look at all relevant factors, “not merely those that would enable a narrow market share-based narrative,” the airline wrote to the bureau in June.

“Failing to do so will result in an incomplete study and ineffective or misguided recommendations,” Air Canada said. “This would not achieve the objective of providing informed advice to policymakers regarding steps they could take.”

The bureau is aiming to publish its final report with recommendations to the federal government by June 2025. Canadians can weigh in on the study and make their own submissions until Aug. 31.

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