Canadians are paying sky-high prices for flights – and merger could make it worse

https://www.theguardian.com/world/2019/jun/29/air-canada-transat-merger-high-fares

Version 0 of 1.

For most Canadians, flying from one corner of their country to the other can be a pricey endeavour – so expensive, in fact, that they could fly to Europe or Asia for nearly the same price.

Online travel agency Kiwi noted in its 2017 flight price index that Canadians pay more than twice the price Americans do for similar-distance domestic flights.

On Friday, the cheapest Air Canada return fare from Montreal to Vancouver on 1-8 September cost C$759 (US$580); for just C$79 more on the same dates, one could fly from Montreal to Paris instead.

Air Canada near miss: picture shows how close planes came to crashing

Meanwhile, a direct US flight from New York City to Los Angeles costs a mere C$344.

That's why Air Canada’s C$520m purchase this week of fellow Canadian carrier Air Transat is prompting alarm over dwindling competition and rising ticket prices.

The move further consolidates Air Canada’s power in an already tiny market; the airline and its main Canadian competitor WestJet enjoy a duopoly, together controlling 82% of domestic seats.

“It’s consolidation in what is a pretty small airline sector,” Rick Erickson, a Calgary-based independent aviation analyst says of the Transat deal.

The deal puts Air Canada in a position to further control pricing, though analysts say it’s difficult to predict whether fares will actually increase.

The Competition Bureau will probably scrutinize the deal, though it may not be able to stop it. Earlier this year, the bureau concluded that a merger between two small northern Canadian airlines was anti-competitive, but the federal government still approved it.

Ultimately, it will come down to efficiencies, says Vincent Geloso, a research fellow at the Montreal Economic Institute and an economics professor at Kings University College.

“It happens that firms are in 100% market shares, but they’ve achieved these market shares because they’re efficient. They were able to reduce costs [and] prices, they were able to improve quality. But once they get that high level of market share, their ability to abuse customers will depend on whether or not they can be threatened,” Geloso says.

Canadian airlines are tough to threaten, because the federal government works hard to keep foreign competitors at bay, says Geloso. Loosening restrictions on foreign airline ownership or operation could drive down domestic airline prices while enabling the carrier to operate a greater network of feeder routes to overseas destinations.

Some foreign airlines have instead boosted service at airports just across the US border. According to the Conference Board of Canada, 5 million Canadians a year cross the border on land to fly out of US airports.

A lack of competition isn’t the only thing driving Canadian airfares skyward.

“We do some things completely wrong here that add to the fee structure,” says Erickson. Canadian travellers pay security costs and airport improvement fees, which typically tack on an extra $30–60 per one-way ticket.

Furthermore, the Canadian government owns the majority of the country’s airports, and leases them to local airport authorities. Most regional markets have only one airport, which keeps the number of available gates low. And fewer gates means higher prices, the cost of which gets passed on to consumers.

“All of these factors amount to massive protections for any incumbent firm on the Canadian market,” says Geloso. “[For a monopoly], they’re the perfect ingredients.”