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For entrepreneurs, costly flight patterns challenge efficiency

Tim Kimber, CEO of PlaSmart, hams it up on one of his PlaSmart cars.

Fred Chartrand/Fred Chartrand

As vice-president of U.S. sales for Ottawa toy company PlaSmart Inc., Anne Leahy has a fun product to sell: the Plasmacar, a small plastic vehicle that children drive in a zig-zag pattern by manipulating the steering wheel.

Much less fun for the Boston-based executive is the zig-zag route she takes for her frequent trips to the home office. She could fly direct on Air Canada in 75 minutes, but that costs between $1,000 and $1,800 return. "I can't get [to Ottawa] quickly and cheaply, and it's such a short flight. Outrageous," she said, adding she has paid less to fly to Hong Kong.

Instead, she takes Porter Airlines, a trip that costs hundreds of dollars less, but, with a transfer in Toronto, often burns up much of her day. "It may be cheaper to connect through Toronto, but her time is extremely valuable," said PlaSmart chief executive officer Tim Kimber. "The value isn't there for what [Canadian airlines] they charge."

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Ms. Leahy's experience is hardly unique, nor the only gripe business travellers have about flying here. What makes her situation particularly troubling, however, is that as a key executive with a fast-growing, export-driven Canadian company, she has two choices: spend too much of her time, or too much of her company's money, to travel for business.

Across the spectrum of Canadian companies, these kinds of choices add up to a drain on productivity and competitiveness. Air travel is a vital business service, enabling firms to close deals, meet customers and suppliers, generate leads and expand globally. And yet the cost of flying to and from Canada is onerous, particularly compared to what U.S. companies pay for travel south of the border.

For example, it costs so much for Crawford Technologies, a Toronto enterprise software firm with 75 per cent of its sales in the U.S., to fly employees across the border that "we've had to hire more people in the U.S. than we wanted," president Ernie Crawford said.

"Those jobs could have been in Canada. But when your customer is paying for it" – such as the $1,660 fare to fly a tech support employee from Toronto to St. Louis next week – "they push back. They're used to someone flying in from Philadelphia for $300."

Unfortunately, Canada's aviation sector is ill-suited to help. Foreign ownership restrictions and a small, spread-out population have left Canada with one large carrier, Air Canada, and one national challenger, WestJet, that flies almost exclusively within North America.

Together with its Star Alliance partner United Continental Holdings Inc., Air Canada would maintain an exclusive lock on direct flights between Washington and Ottawa, Calgary and Houston, and Toronto and San Francisco, and seven other routes under a proposed joint venture that the Canadian Competition Commissioner is trying to block.

Open Skies bilateral agreements have given more foreign carriers access to Canada, but many have either pulled out or not bothered to fly in due to high fees or limited landing slots granted by Transport Canada.

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The Senate Committee on Transport and Communications this week blamed government fees, taxes and levies for jacking up air travel costs and driving 4.8 million Canadian passengers in 2011 to fly from nearby U.S. border outposts such as Bellingham, Wash. While that may work for vacationing Canadians, it is of little help to business people, who often have to travel on short notice and need quick links.

Airport fees and taxes in Canada are higher, as the government has maintained that travellers should foot the bills, not taxpayers. That's at odds with the U.S., where public investment in airports is seen as necessary to foster economic growth. But government-imposed costs are only part of the story.

When Ambarish Chandra, an assistant professor with the University of Toronto's Rotman School of Management, compared costs between flying from Canadian and U.S. border airports, he found most of the difference related to charges imposed by Canadian airlines themselves. His conclusion? "There simply is not enough competition in the domestic airline sector to bring prices in line with those in the U.S. or elsewhere," he told the Senate committee in March.

Relaxing foreign ownership rules would help, but it's unlikely Ottawa would open up the sector unless other countries do. So Mr. Chandra suggested that foreign carriers should be allowed to fly between points within Canada – known as "cabotage." That would require a major policy change, but "we need to consider unconventional measures that may not be necessary in other countries," he said.

"Government policy that protects one industry ends up hurting all other industries and businesses that rely on air travel."

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About the Author

Sean Silcoff joined The Globe and Mail in January, 2012, following an 18-year-career in journalism and communications. He previously worked as a columnist and Montreal correspondent for the National Post and as a staff writer at Canadian Business Magazine, where he was project co-ordinator of the magazine's inaugural Rich 100 list. More

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