Want cheaper airfare? OECD tells Canada to increase foreign ownership in airlines
Flying in Canada isn’t cheap, and if that’s going to change the federal government should open up its airline industry to foreign ownership, the Organization for Economic Co-operation and Development (OECD) said in a report released Wednesday.
The OECD says loosening restrictions on foreign companies from owning a controlling interest in Canadian airline companies “would reduce quality adjusted prices.”
“A number of policies could raise productivity and reduce income inequality,” the report said. “Easing restrictive foreign ownership rules would sharpen competitive pressures, raise productivity and reduce prices for consumers.”
Canadians travelling across the country know that flying can be an expensive endeavor. A recent travel report from Cheapflights.ca found the 10 most affordable flights in Canada are all to U.S. destinations.
Todd Crawford, senior economist with the Conference Board of Canada, said Canadian airfares are higher for a number of reasons, including the diverse geography of the country, but restrictions on foreign ownership have hindered ultra-low-cost carriers.
“[The Canada Transportation Act] requires that 75 per cent of voting shares be controlled and owned for domestic air service in Canada,” explained Crawford, “It works against competition in the long run by cutting down on the venture capital that is available for new airlines and makes finding appropriate funding difficult.”
Crawford said another regulation requires that new airline companies have enough capital on hand to “operate without profit for three months.”
“It’s kind of a two-pronged whammy for competition in the sense that, while we can’t access capital from outside Canada, it’s got to come from within the country, and we actually need to have extra capital to operate without profit for a period 90 days,” he said. “That’s why it’s been difficult to get extra competition in the Canadian market.”
However, some budget airlines are poised to shake up the travel industry this year.
Icelandic carrier WOW Air began offering $99 flights to Iceland and $149 flights to European destinations from Toronto and Montreal in May.
NewLeaf Travel Company has been cleared for takeoff by the Canadian Transportation Agency after the company announced in January it would start selling flights from select Canadian cities with prices ranging from $89 to $149.
Jetlines and Jet Naked, two low-cost airlines, are also hoping to take flight this year.
Another report earlier this year from former Conservative and Liberal cabinet minister, David Emerson, argued for an increase in foreign ownership limits on domestic air carriers. The report recommended the limit be raised from 25 per cent to 49 cent, similar to what is seen in the European Union.
“Our goal is to see Canada join most other large aviation markets in allowing significant (but not full) foreign ownership of passenger air carriers, and become a leader in allowing full ownership for freight and specialty air services,” Emerson said in his report. “They would also bring Canada up to the OECD average for ‘trade friendliness’ in air transport.”
Global News attempted to reach the National Airlines Council of Canada, which represents Air Canada, Air Transat, Jazz Aviation LP and WestJet, but did not receive a response.
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