When Quebec Premier Francois Legault learned of Air Canada’s $520-million offer to buy Transat A.T., he says he felt “a twinge” in his heart. He co-founded Air Transat, the company’s leisure airline, in 1986, and served as its president and CEO for more than a decade. Now that there’s talk of a takeover, Legault knows consumers will also feel a pinch where it hurts the most: their wallets.
Like many critics, Legault argues that Air Canada has a monopoly on a lot of domestic routes, and he wants the carrier to cap fares on some flights within Quebec. ”Air Canada makes a big profit on domestic flights,” he told reporters in May.
Given that a broader shakeup of the airline industry is under way, domestic ticket prices have nowhere to go but up — and not just for Quebeckers. Three days before news of Air Canada’s bid broke, private-equity firm Onex offered $3.5 billion in cash to purchase Calgary-based WestJet.
Onex specializes in fixing companies and flipping them for profit, so you can bet it will amalgamate WestJet with at least one other carrier down the road. There's already speculation that Porter Airlines could be its future consort, because there's nothing Toronto boys fear more than finding themselves without a dance partner.
Who will protect consumers? Over the past several decades, the Competition Bureau has proved to be staggeringly ineffective at the job. To jumpstart competition, Ottawa needs to take more drastic action. Specifically, the federal government needs to open the domestic market to foreign airlines, and slash hefty taxes and fees that drive up ticket prices.
The current wave of consolidation is a damning indictment that federal policies are still failing. The takeover proposals for Transat and WestJet come barely a year after the Trudeau government raised the foreign investment limit for airlines to 49% from 25%. Officials said the move would boost competition, but anyone with a lick of common sense knew the changes didn’t go far enough.
Strong domestic competitors won't sprout simply because financing rules have been eased. Case in point: Air Canada took advantage of the relaxed foreign ownership limits earlier this year, then pursued Transat months later.
If that's not enough to outrage consumers, consider this: One of Transat's largest shareholders, Peter Letko of Montreal based investment manager Letko, Brosseau & Associates Inc., objected to the Air Canada offer because he wants Transat to raise prices before it considers a sale.
Many consumers have resigned themselves to the inevitable: Regulators will likely rubberstamp both the Transat and WestJet sales, imposing minimal conditions. But on the off chance that our parliamentarians grow backbones ahead of October's federal election, there are still ways to keep airline incumbents in check.
Specifically, Ottawa should get over its fear of deep-pocketed foreign carriers and allow them to buy 100% of airlines that only fly domestic routes. Australia and New Zealand have embraced that policy for years. Foreign airlines should also be allowed to service routes within Canada on their way to cross-border destinations. It’s illogical that a foreign carrier can’t pick up passengers travelling from Toronto to Montreal on its way to Paris.
The federal government also needs to stop robbing Peter to pay Paul. It heaps a slew of costs on the industry that are passed onto consumers, including taxes and fees on tickets, airport landing charges and hefty rents paid by big airports.
Fare caps on some regional airfares, such as those being contemplated by Quebec, may sound like a quick fix, but Air Canada will simply raise prices for other flights or impose new fees to recoup those costs.
Canadians are fed up with the whack-a-mole. To create real competition, we need a clean break from the past. Some 37 years ago, a House of Commons committee endorsed a “go slow” approach to airline deregulation. The trouble is that we’ve been stuck in neutral ever since.