Ottawa eyes competition in the skies
Posted: Sat Oct 30, 2004 9:42 am
Ottawa eyes competition in the skies
Sharp policy shift
Peter Brieger / National Post
Saturday, October 30, 2004
The federal government is mulling a dramatic overhaul of the country's airline industry, including the elimination of limits on foreign ownership in Canadian airlines and even letting U.S. carriers fly passengers between Canadian destinations.
In a stark policy shift from one of his predecessors, Jean Lapierre, the Transport Minister, said yesterday Canada must open up its airline sector and force Air Canada to survive on its own. The national carrier emerged from bankruptcy restructuring earlier this month.
"For nearly a quarter of a century, the federal government's air policies have been built on protecting what we have, rather than building something better, protecting against loss of service, against the loss of our national flag carrier," Mr. Lapierre said in a speech to airline executives in Toronto. "The time for this approach is over."
The trend around the world has been to move away from a "traditional industry model" that counted on closed domestic markets and "strong" national airlines, he said.
It is unclear how far the government will go in terms of loosening restrictions on the sector.
A wide-ranging list of proposals -- including a review of air service agreements with more than 70 countries -- is going to be studied by a parliamentary committee, which could make recommendations early next year, Mr. Lapierre said.
The minister declined to say whether he personally supports air industry liberalization.
"By next spring, we should have something in hand and then move forward very quickly," he said. "[But] I'd be crazy to prejudge the outcome of the committee."
Meanwhile, Mr. Lapierre defended Ottawa's decision to extend $1.5-billion in loan guarantees to Air Canada so it can buy as many as 45 regional jets from Montreal-based transportation giant Bombardier Inc.
All Canadian airlines are eligible for similar help, but the practice has been derided by critics as "corporate welfare" paid for with public money.
"I'm very excited about the idea that Canadian airlines who buy Canadian planes could get financing," Mr. Lapierre told reporters after his speech. "This program opens the door for airlines who might have had financing problems."
As for airline ownership limits, foreigners cannot hold more than 25% of a Canadian carrier.
Proponents of higher limits, including Air Canada, say it would benefit the industry to raise that figure to at least 49%, just under what is required for ownership control of a company.
Raising the ceiling, or ditching it altogether, would give Canadian airlines better access to foreign capital, allowing them to beef up their own operations, said Jacques Kavafian, an industry analyst in Toronto.
"It's great," he said of the proposed changes. "I think the sooner the better. The 25% ownership limit is outdated. You won't find a single living soul that would be against raising the limit. Well, I think there was one -- David Collenette was his name."
Mr. Collenette, a former federal transport minister, opposed deeper integration of the North American airline industry, a view that ran counter to the one held by Paul Cellucci, the current U.S. ambassador to Canada.
Earlier this year, Mr. Cellucci renewed his call to liberalize North American air travel and Mr. Lapierre said he would like to renegotiate the 1995 Open Skies agreement, which regulates air travel between the United States and Canada.
Those talks may pave the way for U.S. carriers to fly between Canadian cities -- a practice that is currently prohibited -- if Canadian airlines are afforded similar access to the U.S. market, Mr. Lapierre said.
The U.S. Ambassador and Norman Mineta, the U.S. Transportation Secretary, are "enthused" about reopening talks over the bilateral treaty, he added.
Mr. Lapierre shrugged off concerns that U.S. airlines would go after popular routes while ignoring flights between small Canadian centres.
"If there is a market, someone will want to fly there," he said. "The problem for the smallest regions is not competition. The problem is volume."
Competition from the likes of WestJet Airlines Ltd. and CanJet Airlines has been good for consumers and the industry as a whole, he said, adding that the European Union already allows airlines to operate anywhere within the 25-nation trade club.
Airline analyst Mr. Kavafian said the idea is a "good thing philosophically," but he doesn't see any advantage for Canadian or U.S. carriers to fight over each other's domestic routes when the industry is struggling to recover from a slump in business that left several U.S. airlines in bankruptcy court.
"Whatever one airline gains here they might lose [in their home market]," he said. "I think it's totally unlikely -- it's a pipe dream.
"What we really need is three or four years of stability in the industry."
© National Post 2004
Sharp policy shift
Peter Brieger / National Post
Saturday, October 30, 2004
The federal government is mulling a dramatic overhaul of the country's airline industry, including the elimination of limits on foreign ownership in Canadian airlines and even letting U.S. carriers fly passengers between Canadian destinations.
In a stark policy shift from one of his predecessors, Jean Lapierre, the Transport Minister, said yesterday Canada must open up its airline sector and force Air Canada to survive on its own. The national carrier emerged from bankruptcy restructuring earlier this month.
"For nearly a quarter of a century, the federal government's air policies have been built on protecting what we have, rather than building something better, protecting against loss of service, against the loss of our national flag carrier," Mr. Lapierre said in a speech to airline executives in Toronto. "The time for this approach is over."
The trend around the world has been to move away from a "traditional industry model" that counted on closed domestic markets and "strong" national airlines, he said.
It is unclear how far the government will go in terms of loosening restrictions on the sector.
A wide-ranging list of proposals -- including a review of air service agreements with more than 70 countries -- is going to be studied by a parliamentary committee, which could make recommendations early next year, Mr. Lapierre said.
The minister declined to say whether he personally supports air industry liberalization.
"By next spring, we should have something in hand and then move forward very quickly," he said. "[But] I'd be crazy to prejudge the outcome of the committee."
Meanwhile, Mr. Lapierre defended Ottawa's decision to extend $1.5-billion in loan guarantees to Air Canada so it can buy as many as 45 regional jets from Montreal-based transportation giant Bombardier Inc.
All Canadian airlines are eligible for similar help, but the practice has been derided by critics as "corporate welfare" paid for with public money.
"I'm very excited about the idea that Canadian airlines who buy Canadian planes could get financing," Mr. Lapierre told reporters after his speech. "This program opens the door for airlines who might have had financing problems."
As for airline ownership limits, foreigners cannot hold more than 25% of a Canadian carrier.
Proponents of higher limits, including Air Canada, say it would benefit the industry to raise that figure to at least 49%, just under what is required for ownership control of a company.
Raising the ceiling, or ditching it altogether, would give Canadian airlines better access to foreign capital, allowing them to beef up their own operations, said Jacques Kavafian, an industry analyst in Toronto.
"It's great," he said of the proposed changes. "I think the sooner the better. The 25% ownership limit is outdated. You won't find a single living soul that would be against raising the limit. Well, I think there was one -- David Collenette was his name."
Mr. Collenette, a former federal transport minister, opposed deeper integration of the North American airline industry, a view that ran counter to the one held by Paul Cellucci, the current U.S. ambassador to Canada.
Earlier this year, Mr. Cellucci renewed his call to liberalize North American air travel and Mr. Lapierre said he would like to renegotiate the 1995 Open Skies agreement, which regulates air travel between the United States and Canada.
Those talks may pave the way for U.S. carriers to fly between Canadian cities -- a practice that is currently prohibited -- if Canadian airlines are afforded similar access to the U.S. market, Mr. Lapierre said.
The U.S. Ambassador and Norman Mineta, the U.S. Transportation Secretary, are "enthused" about reopening talks over the bilateral treaty, he added.
Mr. Lapierre shrugged off concerns that U.S. airlines would go after popular routes while ignoring flights between small Canadian centres.
"If there is a market, someone will want to fly there," he said. "The problem for the smallest regions is not competition. The problem is volume."
Competition from the likes of WestJet Airlines Ltd. and CanJet Airlines has been good for consumers and the industry as a whole, he said, adding that the European Union already allows airlines to operate anywhere within the 25-nation trade club.
Airline analyst Mr. Kavafian said the idea is a "good thing philosophically," but he doesn't see any advantage for Canadian or U.S. carriers to fight over each other's domestic routes when the industry is struggling to recover from a slump in business that left several U.S. airlines in bankruptcy court.
"Whatever one airline gains here they might lose [in their home market]," he said. "I think it's totally unlikely -- it's a pipe dream.
"What we really need is three or four years of stability in the industry."
© National Post 2004
and Jetsgo! 
