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Canada’s unfriendly skies: Why our airlines need competition

Fred Lum/The Globe and Mail

At this time of the year, almost everyone has a travel story. Mine involved nearly missing a connecting flight to Victoria after being forced to check carry-on luggage that was standard size and well-under the weight limit. Seeking help from an airline employee, I was curtly refused and accused of having an overweight bag.

Canada's airlines, it seems, are the inevitable punching bag for most tales of holiday woe.

Why do airlines get away with poor customer service? There are two problems. Both are issues of competition.

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The first problem is the lack of foreign entry into domestic carriage. The current rules on foreign ownership deprive Canadians of choice. For example, Australia has allowed a right of establishment for foreign carriers, resulting in lower fares and expanded routes. My friends actually enjoy their air travel experiences in Europe where airlines compete for their business. In Canada, we remain beholden to Canadian-owned carriers if we want to fly between two Canadian cities. The result is an oligopoly that gouges travellers and takes their business for granted.

Ambarish Chandra of the University of Toronto found that, relative to Americans, we often pay between 50 and 100 per cent more for comparable travel between Canadian cities. Statistics Canada research shows that productivity growth in Canada's airline sector is abysmal, markedly outpaced by U.S. airlines. Various expert reviews of the airline industry – including by the Competition Bureau and the 2002 independent observer on airline restructuring – have recommended allowing a right of establishment for foreign carriers on domestic routes to put pressure on our laggard airlines to improve.

The airlines argue that foreign carriers would only operate on lucrative routes. However, Canadian carriers are under no obligation to fly to money-losing destinations and there is scant proof that the airlines presently cross-subsidize to operate otherwise unprofitable routes. Look at prices to fly to Sydney, Nova Scotia or Medicine Hat, Alberta. It certainly seems like airlines are recovering their costs on these routes.

The 2008 Competition Policy Review Panel recognized that a moribund air travel sector is a drain on the national economy. People depend on air travel to conduct business face-to-face. The panel recommended significant liberalization of air travel. We are still waiting.

The second problem is the bargaining power of unions in this oligopoly context.

The freedom of association guaranteed in Canada's Charter of Rights and Freedoms means that employees have a right to bargain collectively . Unions play a key role in protecting workers against exploitation.

However, Canadian labour law has not paid much attention to the ability of unions in protected sectors to squeeze consumers. In most industries, if unions demand too much from employers, some other competitor in that industry will trounce them. Market competition disciplines what unions can demand.

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Not so for Canada's airlines. These unions can demand much more. Not fearing a more efficient competitor who would undercut its prices, the airline can simply charge higher fares. If unions don't get what they want, they can grind travel to a halt and hold customers ransom.

At any workplace that I have worked, an employee who treated a client as dismissively as I was would have been given notice the next day. But, under coverage of collective agreements, the process to get rid of such an employee can be lengthy and onerous. This is unfortunate. Officious employees give the rest of their bargaining unit a bad name, feeding our stereotypes about airline staff. I will have less sympathy when a striking airline union is ordered back to work.

We need more competition to discipline our airlines and their unions. Canadians should reflect on their experiences on our airlines whenever we hear our politicians argue that we need to protect our "national champions". The shakedown that Canadian travellers face today is too high a price for maple leaves on tailfins.

Grant Bishop is a law student at the University of Toronto and previously served as an economist at a major Canadian financial institution

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