The Charlottetown Guardian – October 12, 1999
The Daily Gleaner – October 4, 1999
The Halifax Chronicle Herald – October 3, 1999
By: Senator Colin Kenny
In an age when the average consumer is so much more knowledgeable and sophisticated, it is intriguing to find that there are still roving bands of entrepreneurs dedicated to proving that they can create something from nothing. Surely this is the case for the proposed merger and takeover of Air Canada and Canadian Airlines by the Onex group.
Do Canadians really believe that by introducing a hefty injection of "other people’s money," Onex can pull off what so many others before them have tried and failed to create -- a productive and profitable airline industry, effectively owned and managed by Canadians?
To satisfy the public interest, a productive and profitable airline industry must be aggressive, and have competition both in domestic and overseas markets.
At the present time, most of the options being discussed to make our airline industry profitable are monopolies. These are bad for consumers, and bad for employees. Monopolies inevitably result in more government regulation.
With a monopoly, the most likely approach would be to raise ticket prices. Air fares in Canada are already significantly higher than equivalent routes in the United States. Price hikes in the future could turn into acts of patriotism, when regulators are threatened with the demise of Canada’s last major airline.
A hidden cost, the loyalty or frequent flyer reward plans, would also be quickly eliminated. When consumers are facing a monopoly, loyalty is mandatory. Why bother creating enticements when there is only one airline in town?
In-flight service would rapidly erode. This is one area of competition that actually creates some uniqueness in the way Air Canada and Canadian differentiate their products.
Finally, the Onex proposal would undoubtedly reduce the number of scheduled flights, restricting consumer choice even further. This would appear to make sense for those routes where both airlines are taking off to similar destinations within minutes of each other, effectively cutting a single market in half.
The fact is, we don’t need a forced merger to solve scheduling problems. There is enough skill in the marketing and operations departments of both airlines to develop profitable solutions for these routes.
Ironically, one of the best solutions for avoiding a domestic monopoly may lie with the federal government’s ability to control access to overseas routes and markets. Why not consider a re-allocation of these routes in a more effective manner? For example, Air Canada could be allocated all the Atlantic routes and Canadian would have all the Pacific routes. Or, give Canadian as many routes as it needs to attract new capital and become profitable.
The two airlines could be encouraged to feed each other’s overseas routes before a foreign alliance partner. Currently, only 1/3 of Canadians fly overseas on either Air Canada or Canadian because both airlines have "strategic alliances" where they automatically feed foreign flag carriers for destinations that they don’t serve. The objective should be to put more Canadian butts in our own carrier’s seats when they are flying overseas.
Air Canada and Canadian would have to negotiate with each other in order to work out the details of a strategic international alliance, or face government intervention. The government could divide the overseas routes and keep both airlines viable. The government could also impose a condition that each carrier feed its passengers to the other airline for destinations they don’t serve.
Let’s have Canadian flag carriers compete with each other in Canada and cooperate with each other overseas. Consumers could take comfort that this "cooperation" would still face stiff competition from foreign carriers on every route. Too simple eh? Well it’s a lot better than the options being floated elsewhere.
The Canadian airline industry and the Canadian consumer need more smart thinking, not smart money. There are operational and regulatory solutions to the problems plaguing our major carriers. Let’s make sure that all Canadians derive benefits from the billions of dollars they have already sunk into this industry, not the guys with red suspenders on Bay Street or Wall Street.
Senator Kenny is a Member of the Banking, Trade and Commerce Committee and has written frequently on airline issues. For further information, please visit http://sen.parl.gc.ca/ckenny.