Competition Bureau pushes for air travel changes as passengers face high costs and limited choice
Canadians appear on a "YYC" sign at Calgary International Airport in Calgary, Alta., Monday, Oct. 10, 2022. (THE CANADIAN PRESS/Jeff McIntosh)
A new report from Canada's Competition Bureau has called for significant reforms aimed at increasing competition in the domestic airline market, reducing airfare prices, and reining in government powers that could hinder a truly competitive environment.
The news is promising for airline passengers like Kelsey Wokke who says she just spent $1,000 for a roundtrip flight between Vancouver and Calgary.
'That's absolutely crazy to me,' she said. 'So yes I do think there should be more competition in Canada's airline prices.'
'It's also interesting how if you look at the cost breakdown of your ticket, just how much of it isn't going to your actual flight and directly into airport fees instead. So finding ways to put that money elsewhere would be nice.'
Released Thursday, the Competition Bureau's report on the air travel industry advocates for a 'leverage (of) international capital and experience to strengthen domestic competition,' including through raised ownership caps for investors outside Canada.
Some of the highlights include recommending major reforms to rebalance the playing field.
Among them: raising the cap for foreign ownership of airlines from 25 per cent to 49 per cent, and creating a new class of 'domestic-only Canadian airlines' that could be 100 per cent foreign-owned—a model already in use in Australia.
Passengers bear the burden of fees
The Competition Bureau also advocated for the Canadian aviation system to make changes to its 'user-pay' model, in which airlines and passengers cover the full costs of building and operating airports and navigation services.
These fees account for 30 cents of every dollar passengers pay on traditional full-service airlines, and an even higher share on ultra-low-cost carriers.
The breakdown includes:
Fuel tax: 1 per cent
Air travelers security charge: 3 per cent
Nav Canada air navigation charges: 5 per cent
Airport landing, terminal, and operational fees: 20 per cent
Competition commissioner Matthew Boswell argues this fee structure disproportionately impacts travelers and new market entrants, adding to the challenge of fostering a more competitive and affordable domestic airline market.
'With the right policy changes, governments can create the conditions for new airlines to grow and compete – and give Canadians access to more affordable, reliable options for flights.'
Independent aviation analyst Rick Erickson called the report one of the most thorough he's seen, but warned that 'we've heard this before.'
'The structural problem is we don't have enough secondary airports, which stifles new entrants,' he said.
'And the fee structure is nuts—aviation pays more than 100 per cent of its costs. Marine pays 10 per cent, Via Rail gets a subsidy, but aviation gets punished.'
Erickson supports the idea of loosening foreign ownership rules. 'We've got to allow more entrants into the market. Full stop.'
Nine per cent decrease in airfare for every new competitor added
Research from the Competition Bureau shows that when just one new competitor flies on a route between two cities, airfares go down by nine per cent on average.
Currently, two airlines—Air Canada and WestJet—handle between 56 and 78 per cent of domestic passenger traffic at Canada's major airports.
Over time, they have divided the market geographically, with Air Canada dominating the east and WestJet the west, leading to diminished competition between them, the report notes.
The Competition Bureau identifies part of the problem as a restrictive regulatory environment that limits international competitors.
Restrictions on non-Canadian airlines operating domestic flights, along with caps on foreign investment, have hindered new and smaller players from entering the market—restrictions the Bureau believes could be eased to foster greater competition.
Balanced regulation and consumer protection
Gabor Lukacs, President of Air Passenger Rights, welcomed the report's push to reduce government intervention that has historically hindered competition.
'We are pleased that the Competition Bureau adopted our position on opening up domestic air travel to foreign competition and improving transparency around subsidies for remote routes,' Lukacs said.
'Importantly, the report recommends curtailing the minister's ability to override expert decisions on anti-competitive agreements between airlines. This creates a necessary balance between political interests and consumer protections.'
Lukacs also highlighted challenges with the current Air Passenger Protection Regulations (APPR), which airlines have frequently contested, driving up costs.
'The APPR has been a failure by design. Airlines complicate the claims process and litigate legitimate passenger complaints, inflating administrative costs,' he explained.
'The solution is to simplify the regulations, following the European gold standard, where passengers can quickly determine compensation eligibility and airlines comply with the law. We want profitable airlines that respect consumer rights, not those that profit by breaking the law.'
090324_flair
Flair Airlines Captain Ken Symonds inspects the outside of one of the company's Boeing 737 MAX 8 aircraft, in Richmond, B.C., on Wednesday, April 17, 2024. (Source: The Canadian Press/Darryl Dyck)
Opportunity in increased competition: Flair
Eric Tanner, VP Commercial at Calgary-based Flair Airlines, welcomed the Competition Bureau's report but stressed that government action is essential.
'We know how difficult it is to compete in Canada's aviation market, dominated by entrenched legacy carriers, with high costs making travel more expensive than elsewhere,' Tanner said.
He criticized the current 'user-pay' airport model and lack of oversight, noting, 'Airports here cost much more than in other parts of the world, and fees are unfairly structured to favour certain business models.'
Tanner also highlighted that connecting passengers pay far less in fees than local travelers, calling this 'unacceptable,' and pointed out that Flair's customers often pay more in airport fees than those flying with Air Canada or WestJet.
'This report identifies the problems, but now we need government to turn these findings into policies that improve competition and make air travel more affordable for Canadians,' he said.
Porter plane
A Porter airplane lands in Toronto on Wednesday, March 18, 2020. Porter Airlines and Air Transat are announcing a joint venture as the two carriers look to expand their range of destinations and tap into each other's markets. THE CANADIAN PRESS/Nathan Denette
'Cautious support': Porter
Porter Airlines highlighted its efforts to increase competition by expanding its fleet and route network across Canada since 2023.
In an statement to CTV News, the airline says it 'sees value in several of the report's suggestions, such as opening international flights at Montreal Metropolitan Airport and exploring new aircraft technology at Billy Bishop Airport.'
Porter supports raising foreign ownership limits to 49 per cent for a single shareholder but urges caution on broader foreign ownership and market access changes.
The airline warns that allowing foreign carriers to operate domestic routes could disadvantage smaller airlines unless reciprocal access is guaranteed for Canadian airlines abroad—benefits that would mainly favor the largest, most established players.
CTV News reached out to both WestJet and Air Canada for comment on the Competition Bureau's report and recommendations, but has not received a response.
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