Opening of airline ownership rules is good news for travelers

Stanfield
(Stanfield International Airport. Photo credit: Nova Scotia Department of Tourism)

By Jackson Doughart, Research Coordinator

The Globe and Mail reports that the federal government intends to introduce legislation allowing greater foreign ownership in Canada’s airline industry. The announcement comes from the office of Transport Minister Marc Garneau.

If the legislation passes, it will increase the limit on foreign ownership from 25 percent to 49 percent. In the meantime, two new airline companies will be granted exemptions to the present 25 percent rule, allowing them to move toward offering discount flights by Summer 2018.

This is unquestionably good news for Canadian travelers. Unlike their counterparts in Europe or the United States, they do not benefit from ultra-low cost carriers to compete with the mainstream airlines. Thanks in part to the cap on foreign ownership, Westjet and Air Canada lack competition. It is no surprise that one can only fly domestically by paying exorbitant fares.

Regulations of this kind are analogous to protectionism, limiting investment in Canadian airlines from a worldwide market in financial capital. As when a jurisdiction removes barriers to the trade of goods, the principal benefactor to accepting more sources of airline investment will be consumers, whose costs decline. Plus, the appetite for more international investment is not merely theoretical: the case of the two airlines granted immediate exemptions shows that foreign investors are willing to contribute to an untapped market for discount airlines immediately.

Mr. Garneau is right to anticipate that introducing more competition will result in lower fares. The benefit will accrue to travelers, of course, but also to the country as a whole. With Canada’s peculiar geography – including a population spread mostly beside the long U.S. border – impediments such as high air fares limit travel for many people, thereby reinforcing the country’s persistent regionalism. Lower costs will motivate more air travel, and with hope greater exchange – both economic and cultural – between Canadians from different regions.

The new law would ensure that Canadians remain the majority shareholder in domestic airlines. This is a rule worthy of scrutiny as well; but for now, the effective doubling of allowed foreign ownership is an excellent step for Canadian travelers.

 

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