I’m often asked why it’s so expensive to fly within our own country. Why is it that a Canadian can fly to the United States, or even to destinations outside of North America, at a lower cost than flying within our own borders?
Lack Of Competition
Airfare is just a product. Like any other product, the less competition there is, the higher the price. On flights within Canada, there can be anywhere from 1 to a maximum of 3 airlines competing on any given route.
In Eastern Canada, if the route involves a decent sized city to another decent sized city, Air Canada, Westjet, and Porter will all be competing on it. If it’s in Western Canada, it will just be Air Canada and WestJet. And anywhere in Canada, if it involves a very small population, it’s likely to just be Air Canada monopolizing the route (although WestJet is looking to change that with WesJet Encore).
Contrast that to routes from Canada to the U.S. If it’s a fairly popular tourist destination, you can have up to 6 or 7 airlines competing on the route. The route from Toronto to Orlando for example, has 4 U.S.-based airlines competing on it, in addition to Air Canada and WestJet.
Toronto to Orlando can usually be had for under $300 roundtrip after taxes. Toronto to Winnipeg is usually around 30% more, despite both routes being around 1600km each way.
So why don’t we allow the U.S.-based airlines to compete on routes within Canada? This is referred to as aviation cabotage, where a country doesn’t allow a foreign operated airline to operate between cities within their borders. U.S.-based airlines can fly back and forth directly between U.S. cities and Canadian cities, but they’re not allowed to fly from one Canadian city to another.
It’s actually pretty common around the world for countries to have similar aviation cabotage rules like Canada and the U.S. have with each other. One notable exception is the European Union, where pretty much any country in the EU can fly planes on whatever routes they want.
So then I think the question becomes, if we did change our policy and allow foreign airlines to fly between Canadian cities, would they even want to? Would it be profitable for them? Loosening the rules worked in Europe, but they also have a much higher population density than Canada, with many large cities in a relatively small area.
Looking At Australia
The best example for Canada to look at would probably be Australia, a similarly large country in terms of area with a small number of large populations scattered throughout. Australia used to have 2 airlines, one government owned, the other a privately held company, and had very high airfare prices (sound familiar?).
In the 1990′s, Australia opened up their skies and started allowing foreign carriers to compete on routes within Australia. There were failures along the way, airlines came and went, but it has seemed to eventually result in lower fares. Airfare prices are certainly nothing like what you’ll find in Europe with their abundance of low cost carriers, but fares are somewhat cheaper than Canada’s on a cost per mile basis.
Opening up our skies to competition from foreign countries or carriers may or may not lead to lower airfares in Canada, but one thing is for sure, as long as we have an environment where competition is stifled, it’s impossible.
2016 – Hope for the future?
Porter Airlines recently announced the purchase of some new long distance jets for 2016, and are hoping to expand their reach as far West as Vancouver. This could certainly have an impact on prices within Canada, particularly on East-West travel, as our country will have 3 regularly scheduled airlines competing on East-West routes for the first time.
In the U.S., the quintessential East-West route of New York to Los Angeles has no less than 10 airlines competing on it. We’ll probably never see anything like that on a cross-country route within Canada, but for a nation with one-tenth the population of the U.S., 3 national airlines would be an encouraging step in the right direction.