Watchdog urges Canada to open airline sector to more foreign ownership

Article content

Canada should loosen investment rules for airlines to allow full foreign ownership of carriers that fly only within the domestic market, according to the country’s competition watchdog.

The recommendation is one of several released Thursday by the Competition Bureau following a nearly yearlong study. It also suggests raising the ownership limit for Canadian airlines so that a single foreign investor can own as much as 49%, up from the current 25%, and prioritizing competition in merger reviews.

“Recent market entrants have said that foreign investment is critical for them to launch and continue flying,” the bureau said, pointing to Australia as an example of a country where such capital has led to more competition.

Canada’s airline industry is concentrated, with Air Canada and WestJet accounting for between 56% to 78% of domestic passenger traffic at the eight busiest airports, the study said. Their dominant position is sometimes a source of frustration for consumers in a massive country where the distances between cities are vast and there’s no high-speed rail service.

But the expansion of Porter Airlines and Flair Airlines caused market concentration to drop between 2019 and 2023, the bureau found.

“Our research shows that when just one new competitor flies on a route between two cities, airfares go down by 9% on average,” it said.

Low-cost entrants have a mixed record, and many that have launched failed quickly. Lynx Air ceased operations in February 2024, saying it had been “devastated” by low passenger volumes and rising fuel costs.

Canada, like many countries, doesn’t allow foreign-owned airlines to fly domestic routes.

Price competition in the Canadian airline sector lessened after the pandemic, the bureau found. In launching its study in 2024, the bureau pointed out that congestion, flight delays, cancellations, baggage issues and complaints have picked up in recent years.

“Competition in the Canadian air transport industry is robust, and comparable or greater than other countries around the world, to the benefit of Canadians,” Air Canada, the country’s largest airline, said in a submission to the Competition Bureau. The company argued that the increase in airfares is mainly due to third-party fees, supply-chain challenges, inflation, rising fuel prices and labor shortages.

In 2021, Air Canada dropped its planned acquisition of Quebec-based Transat AT Inc. because it couldn’t convince European regulators to approve the deal on acceptable terms.

WestJet’s submission to the bureau said Air Canada and WestJet provided 72% of available domestic seats last year, down from 81% in 2019. Delta and Korean Air announced in May they would buy stakes totaling 25% in WestJet.