Transport Committee on May 9th, 2024

[John Lawford]

I'll start.

We thought Flair had previously complained, and the Competition Bureau confirmed it today, with respect to route-matching and price-cutting, which is the usual method for an established incumbent to try to break a new player. The specific allegations were about routes. I believe there was one from Edmonton, and that has been dropped.

Our concern with that type of behaviour is that the Competition Bureau has reacted in a slow way. We're hopeful that the new changes to the Competition Act will allow either the Competition Bureau or a party to go directly to the tribunal with a quicker application in the nature of a prohibition, but we don't yet know if that's going to work. One of the concerns we have is that airlines maybe don't do this themselves for other reasons, but there is anti-competitive behaviour going on. It's hopefully going to be one of the outcomes of the Competition Bureau that the bureau will take that seriously and start doing that.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Part of the transport minister's role is to ensure that there is healthy competition in Canada, especially in the airline sector. Has the government dropped the ball in terms of competition in Canada? Do we have competition in Canada?

[John Lawford]

From a consumer point of view, it's very discouraging. The mergers aspect, which has been spoken about, is very depressing because, in the United States, mergers are blocked with fairly high regularity. In the United States, there was just the Spirit Airlines merger. That's run into trouble, and that's typical of their activity there. We just don't seem to have either the act or the will to carry that out, and that helps.

In terms of other changes, we've heard a lot from Canadians about how they don't have enough choice, especially in smaller communities, and I think that's due in part to the lack of competition.

[Ryan Williams, Conservative, Bay of Quinte, ON]

In terms of mergers, are you aware that Canada has never blocked a merger?

[John Lawford]

Oh yes, we're well aware, because we work in telecom.

[Some hon. members]

Oh, oh!

[Ryan Williams, Conservative, Bay of Quinte, ON]

On the latest three mergers that we mentioned earlier—First Air and Canadian North, Air Canada and Air Transat, WestJet and Sunwing—how have those affected competition in airlines in Canada? The Air Canada-Air Transat merger was approved but never went through because of COVID. How would those mergers affect competition?

[John Lawford]

For the record, PIAC opposed both the Sunwing and the Air Transat-Air Canada mergers. My understanding is that the European Union blocked the Air Canada-Air Transat merger, and probably COVID didn't help the business environment.

It is discouraging to hear the Competition Bureau say that this is anti-competitive and then hear the minister say that there are other considerations, which are never really specified in enough detail, to have a merger go through.

We're trying to change that dynamic with our recommendation to take it out of the hands of the Minister of Transport. In the United States, the transport minister doesn't approve mergers. The Department of Justice does.

[Ryan Williams, Conservative, Bay of Quinte, ON]

We had some smaller airports come to the table. I think that's really important. Canada is very rural. We have only 94 urban centres, and there are 3,700 rural municipalities in Canada, so we need our smaller airports to step up.

Abbotsford is really neat, because it is within the vicinity of a Vancouver airport destination. We look at jurisdictions like Tokyo. They do shares, where some airports will do regional and some will do long haul. There are different ideas that can help the rurals grow in order to provide the gates and perhaps the routes, which is something that we really struggle with.

How do we grow our rural airport system, and what do we do to create competition in that aspect while growing the competition in the urban airport centres?

[John Lawford]

For the ULCCs, I think they can be very helpful to open up routes to smaller airports, but they have to be supported in some fashion beyond just the competition protection. That's why we suggested a lending library of planes. It could be something else.

Also, regional powers like Porter and—well, I'm running out of examples—WestJet could be asked to do more in their regions, and an air policy from Transport would help in that regard.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you.

We also talked about the gate allocation. Other jurisdictions seem to look at common-use gates. That seems to be something that works very well in New York and other high-frequency airports. You land at Pearson now, and there are gates that are dominated only by Air Canada. I call it “Air Canada alley”.

How do we produce more competition with the slot allocations for gates to ensure there's more competition for Porter, Flair and other airlines that want to compete?

[The Chair, Liberal, Peter Schiefke]

You have 10 seconds, please, Mr. Lawford.

[John Lawford]

The present rules are, I believe, that the incumbents get first shot back at it. We want to maybe take a look at that and, as we said in our recommendations, at putting some aside for new entrants so that they're there as a first stop, and then the incumbents get to get them if the ULCCs won't take them.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Lawford.

Thank you, Mr. Williams.

Next up, we have Mr. Fillmore.

I'll take this opportunity to welcome Mr. Fillmore to our committee on behalf of all members.

Mr. Fillmore, it's good to have you here. The floor is yours. You have six minutes, sir.

[Andy Fillmore, Liberal, Halifax, NS]

Thank you very much, Mr. Chair.

I'm glad to be back. I was an associate member some years ago, and I'm glad to be back with the committee again today.

First of all, thank you to the witnesses for sharing your time and knowledge with us today.

I'd like to begin with Dr. Prentice, if I could.

Dr. Prentice, I would love to ask you about the future of airships in Canada. Perhaps we can have you back another time to talk about that. I'm fascinated by your work there. Today, I'll stick to the script of the study that we're interested in.

Everyone around the table knows that the transportation industry in Canada, the airline industry in Canada, is a critical component of the Canadian economy, of course, but we seem to be in a cycle in Canada that lacks true competition, with the smaller airlines being bought out or failing. What would you say are the key takeaways? What are the lessons to be learned from all this? As you think about and respond to that, we're looking for recommendations here, of course, so framing it with recommendations in mind would be helpful.

Thank you very much.

[Dr. Barry Prentice]

Thank you very much.

It's difficult, because you have to ask the question of what competition is possible within a market. Again, we have a very narrow, linear market for most of the air travel. Most of the air travel is between the major centres—the nine or 29 major airports.

Also, you have the same sort of service offered, except one has more frequency. Consumers are going to look for that, because they want to get home at the time they want to get home. Some connect over to international services. You also have to consider that the international market has international carriers as well as our domestic carriers, so there's more competition on those international markets than just WestJet and Air Canada. Of course, they have a feeder system leading to those markets. There's also a question of how many foreign airlines fly into which markets.

Right now we're in a situation where there's a great shortage of pilots, and the actual amount of competition we have is constrained by that. To some degree, then, some of the services that might go to smaller communities are not happening just because there's nobody to fly the airplanes. That's an issue in its own right.

I'm not sure if I'm answering your question fully enough, and certainly I would love to talk about airships.

One of the issues we're talking about here that I can speak to is that there is airline competition only in southern Canada. If we start looking at the north, there really is no competition, and it's very hard to have competition because of the thinness of the markets and the cost of actually operating in those markets. Therefore, another form of transport to help assist in that would make a big difference.

[Andy Fillmore, Liberal, Halifax, NS]

Okay, thank you.

I know some of your research is related to the movement of goods and not just people. Supply chains are on all of our minds these days. I wonder if you have any reflections on the impact of the existing rules, especially those around competition, on our ability to move goods around the country on the supply chain. Is there a link between supply chain challenges and competitiveness in the airline industry?

[Dr. Barry Prentice]

I don't really think so. First of all, you have dedicated cargo movers, like Cargojet, as well as the big airlines moving in belly space. Most of the air cargo is moved by the couriers: UPS, FedEx, Lynx and Purolator, and of course Cargojet.

Cargo moves pretty well, then. The big airlines are now into this. WestJet and Air Canada both have cargo services now, so they're operating that as well. I don't hear anybody ever complaining about air cargo.

[Andy Fillmore, Liberal, Halifax, NS]

Okay. Thank you, Dr. Prentice.

I would like to move to our friends at PIAC.

You mentioned, in your opening comments, that there are barriers to entry for competitors. You gave, I think, five or six recommendations to deal with those barriers, but I didn't hear a clear articulation of the barriers. I think there's about a minute and a half left. I wonder if you could give us a rundown of what you see as the barriers.

[John Lawford]

Sure.

Actually, I'm going to cheat a bit and use the Competition Bureau's 2015 submission to the OECD.

The first one was the change of foreign ownership, which has been done. The second one was “Lack of feed traffic at both ends of their routes”. The third one was “Lack of an effective frequent flyer program”, which no one has spoken about so far. Then there's “Lack of business class airport lounges”; “Lack of an established brand”; “Costs of leasing or purchasing aircraft”, which is a huge one we did address; “Costs of hiring flight crew”; “Obtaining access to airport facilities”, especially gates and lots of other hardware; “Costs of committing to a schedule in order to establish a reputation for reliability”; “Advertising, travel agent familiarization costs”, etc.; “Regulatory requirements...under the Transportation Act”; and “Scarcity of attractive time slots at key airports”. That one we tried to address as well.

That's the Competition Bureau's list. We say that, but I'd like to see what they would find if they did a new market study.

[Andy Fillmore, Liberal, Halifax, NS]

Okay.

Mr. Chair, is there a moment left, or are we at the end?

[The Chair, Liberal, Peter Schiefke]

You have 30 seconds, sir.

[Andy Fillmore, Liberal, Halifax, NS]

Just quickly, what do you think accounts for the success, popularity and busyness of WestJet and Air Canada, given the reputational harm that's come about lately?

[John Lawford]

It's a lack of other choice. Also, to be honest, both have rationalized—if I can put it in a nice way—their operations to the east and west of the country, which makes them more money and is more convenient for them but may not be for Canadians. Again, there's no choice. You basically have a duopoly market for many routes in Canada, and so we live with what we have.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Lawford.