Canada's restrictions on foreign ownership of domestic airlines and the national model for funding air transport infrastructure are one of the factors that limit small airlines to bring more competition to Canada's skies.
This urges Canadian governments to make policy changes that will allow Canadian governments to own 100% of Canadian Airlines, which operate only domestic flights, according to a new report from the Competition Canada Agency. He says that doing so could encourage more competition.
Under current rules in Canada, non-Canadian entities can own less than 49% of Canadian Airlines from 25% prior to June 2018.
The 49% cap is still too restrictive as it limits the ability of small and new airlines to secure funding, hinders the ability of competitors to challenge market-controlling Air Canada and WestJet.
“New airlines face difficult challenges, both entering the market and growing into long-term competitors,” the report, released on June 19th, said. “The barriers for these entrants arise naturally, but other barriers can be addressed through policy changes.”
In 2023, Canada Air travelled 34% of Canadian air passengers domestically, WestJet carried 30%, while Flare Air and Porter Air each held a share of about 10%, the report said.
“The Canadian aviation sector is constrained by foreign ownership restrictions and restrictions on foreign airlines operating domestic routes in Canada,” he adds. “These restrictions make it difficult for airlines to access capital from non-Canadian investors,” particularly undermining “new and small airlines.”
It encourages the Canadian government to “create a new class of airlines operating only in Canada,” allowing it to be up to 100% owned by foreigners. It also seeks that a single non-Canadian entity can own up to 49% of Canadian Airlines, up from the current 25%.
“National aviation can then benefit from greater global expertise,” the report states.
Additionally, Contest Watchdog says Canada's “user payment” aviation infrastructure funding model poses certain challenges for small airlines. Approximately 30% of each dollar traveler is spent on airline tickets. Dealing for payments for services such as air travel security, air traffic control, airport landing and access.
“Reducing these costs will help drive competition as more businesses can begin to provide sustainable services. This is especially true for (ultra-low-cost carriers), who rely on low fares to attract new travelers,” the report states.
The agency is calling for changes despite recent increase in air travel competition, thanks to expansions by Porter Airlines and Flair Airlines.
“The history of airline entries and exits suggests that the benefits of these competition remain vulnerable, especially during economic shocks.”
