Air Transport Industry

Air Transport Industry

As would be expected in a large, thinly populated country, air transport is a very important part of the Canadian economy. Worldwide statistics published by the International Civil Aviation Organization (based in Montréal) show that Canada ranks well behind large, more heavily populated countries such as the US and the Commonwealth of Independent States in the amount of domestic air traffic, but well ahead of countries such as the former West Germany and Italy, which have more than twice the population but are smaller geographically. Although only 4.6% of all Canadian intercity passenger trips are carried out by air in 1984 and the proportion of freight moving by air is also relatively small, these figures reflect the heavy use of the automobile for comparatively short passenger trips between cities, the economies in freight transportation from very large loads carried in ship and train transportation, the door-to-door convenience of truck transportation and the relatively high energy cost of air transportation.

Air transport occupies a special niche. Any trip of over 500 km taken by a person who travels alone and who places a high value on his or her time is likely to be by air. Distance and the value placed on time are also important factors in air freight; eg, perishable food shipped to isolated communities. For the hinterland and for population centres separated by large bodies of water, the high costs per unit of building roads or railways serving very small populations, or of providing ferry services, often mean that the choice is clear; air is the only way to go (see bush flying).

The federal government is an important part of the air transport industry. It builds and operates nearly all of the airports serving scheduled flights; designs and operates the system of rules, communications equipment and electronic monitoring devices that form Canada's "airways"; takes partial responsibility for air safety by, for example, operating licensing systems for aircraft, pilots, mechanics, etc; and regulates the activities of air carriers by controlling when an airline can start or stop a service, and the prices charged and qualities of service provided.

The users of airports and airways enjoy benefits much greater than the benefits accruing to taxpayers in general. Under such circumstances, pressures often develop to introduce charges on users for services rendered, thus reducing the burden on the general taxpayer. The federal air transportation program incurs expenses of $1.3 billion, while revenues from users are estimated at almost $.9 billion, from such things as space rentals, concession and landing fees, charges for licences and the air transportation tax. (This tax is by far the largest single source of Transport Canada's revenues - an estimated $431.5 million in 1987-88.)

Consonant with trends elsewhere in the world during the 1980s, the federal government took a number of initiatives to diminish its role in air transport. For example, on 9 April 1987, the Honourable John C. Crosbie announced a new policy for airport management in Canada in which local authorities could take over ownership, operation or partial operation of federal airports. Another large area of government disengagement is in the field of economic regulation. Prior to the 1980s, Canada applied a 2-tiered regulatory system. As one tier, the government selected a carrier or carriers and defined roles for the carrier or carriers to perform. In the early years, Trans-Canada Airlines was the designated international and transcontinental carrier; gradually, other air carriers were assigned specific roles in specific parts of the country. A second tier of economic regulation was a licensing authority (named the Canadian Transport Commission after the National Transportation Act of 1967) which had quasi-judicial powers, and was obliged to find that a proposed air service was required for the "public convenience and necessity" before it issued a licence.

In 1984, following a period of drastic deregulation in the US, the Canadian minister of transport instructed the CTC to "give much greater weight to the benefits of increased competition in judging the requirements of public convenience and necessity." The succeeding minister carried these changes a step further and spelled out a new, much freer regulatory regime for air transport in a new National Transportation Act (Bill C-18), which makes issuance of a licence virtually automatic, as long as the applicant is at least 75% Canadian owned or controlled, has sufficient liability insurance and can meet Transport Canada's safety requirements.

The effects of deregulation, in the form of mergers resulting in sharp reductions in the number of competitors, has proceeded much more rapidly in Canada than in the US. Canadians now face the prospect of having 3 carriers competing on long-haul transcontinental routes (Air Canada, Canadian Airlines International Ltd and Wardair), with only Air Canada and Canadian Airlines in sight for other, moderately dense routes. There will probably be but one source of service for a large number of thin markets between small centres and in the hinterland.

The 2 largest carriers have created alliances, involving partial or complete ownership, with smaller carriers feeding traffic from smaller aircraft to jets at the major centres. Virtually all of the large and medium-sized scheduled carriers are now members of one of the 2 large air carrier groups. Air Canada holds 100% interest, directly or indirectly, in 4 Canadian regional airlines: AirBC Ltd, Air Ontario Inc, Air Alliance Inc, and Air Nova Inc. Canadian Airlines is the successor of 4 predecessor airlines (Canadian Pacific Air Lines, Eastern Provincial Airways, Nordair, and Pacific Western Airlines), which amalgamated to form the new airline in 1987, and Wardair was acquired in 1989. Canadian Regional Airlines Ltd, a wholly-owned subsidiary of Canadian Airlines, was formed in 1991 from 3 regional commuter airlines: Time Air, Ontario Express, and InterCanadian (InterCanadian was sold in 1998).

The trend toward deregulation has been most evident for domestic air service, but increasing flexibility is a feature of international regulation, too. International air services are governed by air bilateral agreements between Canada and other countries. Canada is a party to over 40 such agreements, and roughly 12 negotiations are now carried out each year, with half of them resulting in revised agreements.

The long border between Canada and the US and strong north-south ties have resulted in air bilateral agreements between the 2 countries allowing services between many more points than is the case for Canadian bilateral agreements with any other country. About every 10 years, a new, enlarged Canada/US agreement has been put in place. Recently the 2 sides have been at an impasse. Canada has proposed a free regime for carriers wishing to provide transborder services, as long as this policy is accompanied by rights to provide "cabotage" services as extensions to transborder services (eg, Air Canada could serve Chicago to Los Angeles traffic on a Toronto-Chicago-Los Angeles flight). The cabotage proposal has met with opposition from US negotiators.

Most Canadian air carriers are members of the Air Transport Association of Canada, based in Ottawa, and airlines providing international scheduled services also belong to the International Air Transport Association, based in Montréal.