Madam Chairman, I am happy to participate in this take note debate. I will begin by looking at the federal government's role, in particular its role and legacy with respect to Air Canada and the airline industry in general. It is a sad legacy that goes back several decades.
Air Canada was incorporated by an act of parliament in 1937, although it was called TransCanada Airlines at the time. In 1965 it became a crown corporation and was renamed Air Canada. Like most other airlines it expanded dramatically during the sixties and seventies, largely fuelled by revenues from the population of Canada. However by the mid-1970s rising fuel costs, price wars and the recession took its toll.
Before restrictions were removed from CP Air, Air Canada carried almost 80% of domestic air traffic. However passengers and cargo declined drastically in the early 1980s with the recession that occurred. The previous Conservative government privatized Air Canada in 1989. It was a good move as it got rid of some of the crown corporations that were bleeding a lot of money from the Canadian public.
It was no surprise that financial losses for Air Canada continued even though it came out of it with a pretty generous restructuring package and a modern fleet when it was privatized.
With the introduction of the open skies agreement between Canada and the U.S., Air Canada introduced 99 direct flights to Florida. Overseas and transborder flights are where Air Canada earns the bulk of its profits. Domestic service, however, remains a problem.
After the Onex bid to merge Air Canada and Canadian Airlines was declared illegal by a Quebec court, the transport minister suspended the competition laws to give the two companies 90 days to talk merger. In December 1999, against the advice of the Competition Bureau, the government permitted Air Canada to swallow its only large competitor, Canadian Airlines, for $92 million or $2 a share. That is where it started to come apart.
We have a market economy in all sectors in Canada. Essentially 99% of all businesses operate under a market economy. We have a few regulated industries as well. Why was the market not allowed to take its natural course in the time that Canadian Airlines had problems?
Bankruptcies occur all the time. Many Canadian businesses are subject to bankruptcies in tough times. It is a natural part of the business cycle. The shares and product of Canadian Airlines could have been picked up by a company. It could have been accomplished for 20 cents on the dollar and a company could have been structured in a way that it could make money. However we gave it to Air Canada, the only major competitor. Not only that, we put it through a regulated environment, took it back to regulation, and the market economy was not allowed to take its course.
Even when Canadian Airlines was operating and swallowed PWA about 10 years earlier, it acquired too much debt. The same thing occurred with Air Canada when it took on Canadian Airlines. There was too much debt. Too many conditions were imposed in a regulated environment by the government.
Monopolies are not good for consumers. With 80% of the domestic market the new Air Canada was close to a total monopoly. In the vacuum of competition the Liberals attempted to regulate the situation by setting up watchdogs who, despite having $10 million in fines and jail terms to back them up, turned out to be rather toothless in practice.
The Canadian Transportation Agency was given powers to determine acceptable levels of prices to protect consumers against price gouging. The Competition Bureau was ordered to ensure that Air Canada did not deliberately undercut what little competition it had. It did not take long for the new Air Canada to flex its muscles against smaller airlines.
Following complaints from WestJet and CanJet the competition commissioner issued a temporary order requiring Air Canada to withdraw a targeted seat sale for routes served by the two discount airlines. This put the Competition Bureau in an awkward spot. An organization dedicated to protecting consumers by enhancing competition now found itself arguing for higher prices.
The Liberal government's style of corporate governance is a sham. It is a sad legacy of what should have happened in the country. There is no substitute for the market economy, and we are living evidence of it today when we talk about the difficulties in Air Canada. We have had regulated airlines and airlines that fail. There were three small ones in the last year. RootsAir is one that comes to mind. That is the legacy of the government.
Air Canada responded by challenging the order of the Competition Bureau on a constitutional basis that was rebuffed by the Quebec superior court. Air Canada tried again before the Competition Bureau but again it lost.
Currently the whole issue of whether Air Canada is abusing its dominant position by offering tickets below cost to drive out competition is before the tribunal. I recall being in Calgary about a month ago when two Air Canada flights, each half full, left for Vancouver seven minutes apart. Price is not the only way that competition can be discouraged. Overcapacity is another.
Prior to the September 11 incident Air Canada was getting busy to launch its own discount carrier and musing about entering the growth charter business. Obviously 80% of the market was not enough for Air Canada.
Why a monopoly was less tasteful to the Liberal government than increasing the foreign investment caps or allowing foreign airlines to compete in Canada is not the subject of this debate. However we would like to get involved in that another day.
The Liberals should resist the urge to intervene yet again in the airline industry. Let the market take its course. If the company goes bankrupt, somebody will pick up some of that fleet and offer service across the country in a good fashion.
Assistance to airline companies could include lowered or deferred air navigation fees, gas tax relief and continued third party liability indemnity. However no bailout for the industry.
What industry will be next? We have many that are suffering difficulties as a result of September 11. There have been four hour backups at the border with the United States last week. Members should think of the trucking companies and the tourism business in Quebec City and Whistler, B.C., that had conventions cancelled.
Any post-terrorist attack drop in air passenger traffic should be allowed to work itself out through the market. Ninety-nine per cent of Canadian businesses operate in a market economy. Why should the airline industry not do the same?
The unfortunate reality that existed prior to September 11 was that passenger traffic was down. There were too many half empty airplanes flying and too many employees to retain during the economic downturn that we all knew was coming.
Although there is no question and answer period this evening I would like to end with a question. If we bailout the airline industry how long will the list be of those who come next asking for the same treatment? Let the market decide what should happen.