A recent market study by the Competition Bureau is calling for more airline competition in Canada's airline industry to reduce fares, increase service quality and provide better services to remote communities.
Author
- Geraint Harvey
DANCAP Private Equity Chair in Human Organization, Western University
The study reiterates that Canada's domestic air travel market is largely dominated by just two carriers, Air Canada and WestJet. Together, they account for between 56 per cent to 78 per cent of all domestic passenger traffic. This concentration limits passenger choice, and many Canadians feel airfares are high and quality of service is low as a consequence.
Increased competition has lowered air fares elsewhere, like in Europe, for example, where low-fares airlines dominate the continental market . However, there have been negative outcomes for consumers.
While the bureau positions competition as the solution to the many issues plaguing the industry, it overlooks how an increase in competition can fall short, particularly when it comes to transparency, service quality, labour conditions and regional connectivity.
Cost transparency not likely to improve
One of the Competition Bureau's key criticisms of Canada's airline industry is the lack of cost transparency when booking flights. Hidden fees and complex fare structures make it difficult for travellers to effectively make comparisons among airlines.
But it's unreasonable to expect increased competition - when airlines seek to make their offering more attractive than their competitors - to lead to greater transparency in Canada. In fact, competition has been linked theoretically and empirically to dishonest practices .
Europe provides a cautionary example. Increased competition has not led to greater air fare transparency in Europe. Airlines like Ryanair, a low-fare airline and the continent's largest airline by passengers carried, have been accused of hiding fees for passengers .
Service quality and workers
The bureau's study also found that many Canadians are dissatisfied with the quality of service offered by domestic airlines. Yet increased competition is unlikely to raise service standards. As airlines compete to offer the lowest fares, they often look to reduce operating costs, typically at the expense of service quality.
Those who suffer the most from airlines minimizing costs are employees, since labour represents one of the few areas where airlines can cut back .
The morality and safety implications of introducing wage and employment insecurity to workers within high reliability organizations aside, reducing the quality of employment terms and conditions for workers in such an important industry is short-sighted.
Claims of a pilot shortage are contested , and making employment in Canadian aviation less attractive for a highly skilled and crucial occupational group like pilots is a strategic faux pas that could have long-term consequences for the industry's stability.
Remote communities left behind
Canada's unique geography means that many remote regions rely on airlines for goods and transport. Yet these areas are not effectively served by the commercial aviation industry. The bureau suggests greater competition could help, but that claim is questionable.
The reason existing airlines are not providing a greater number of flights between remote communities and larger airports is because these routes aren't profitable. Rather than expanding service, a more competitive market could shrink route availability because airlines could abandon less profitable routes or refuse to compete on routes where a market leader emerges.
To its credit, the bureau offers several recommendations for northern and remote communities. But these communities are unlikely to benefit from competition alone. In fact, increased competition would likely mean airlines will focus on profitable routes and remove those that don't yield high profits.
Europe's airline industry is once again instructive. Eurocontrol, a pan-European organization dedicated to the success of commercial aviation in Europe, states that "domestic aviation in Europe has experienced a substantial and persistent decline over the past two decades," including the demise of regional operators serving lower-density routes.
Where routes have been maintained - in Norway, for example - it's as a consequence of public service obligations that guarantee essential routes are maintained through government support.
It's because of public service obligations, not competition, that the Canadian government can serve remote communities. Without such safeguards, increased competition has the potential to do more harm than good.
Risks of relaxing foreign ownership
The bureau also recommended relaxing rules around foreign ownership within the Canadian airline industry so that a wholly foreign owned airline can compete domestically.
But not all airlines are equal. Some, like Qatar Airways , are backed by the government of their home state. Qatar Airways has purchased stakes in airlines in Asia Pacific and Africa.
Competition with airlines such as Qatar Airways is inherently unfair because of the huge financial support it receives. Allowing such state-backed carriers into the Canadian market could place domestic airlines at a significant competitive disadvantage. This could not only weaken Canadian airlines, but also be detrimental to the Canadian economy if domestic carriers are pushed out.
Competition may reduce fares, but it always comes at a cost. Canadians must be certain that lower fares are worth the cost.
Geraint Harvey does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
