Empty Air Canada check-in counters are seen at Toronto Pearson International Airport on April 1, 2020 in Toronto.Cole Burston/Getty Images
The federal Liberals are embracing support for Canada’s airlines after being told domestic carriers are losing their most lucrative line of business – international flights – to government-backed rivals.
Air Canada, WestJet Airlines Ltd. and Transat A.T. Inc. have lobbied intensely about the alarming market shift, and Transport Minister Marc Garneau stated the obvious on the weekend. In a rare Sunday news release, Mr. Garneau said: “A strong and competitive air transport industry is vital for Canada’s economy and the well-being of Canadians.”
Mr. Garneau held out the prospect of low-interest loans to airlines – after they give refunds to passengers whose flights were cancelled owing to COVID-19 – and said negotiations would start this week. The move came after WestJet cut routes to Atlantic Canada last month, and a day before Air Canada threatened to shut down 95 routes in addition to 30 it closed earlier this year. Last month, three major airline unions pitched the federal government on a $7-billion financial package.
The industry is bleeding cash – Air Canada expects to burn through as much as $1.3-billion in the final three months of the year – and market share on international flights.
Outside Canada, governments are throwing money at airlines that compete with domestic carriers. Research from OAG, a Britain-based travel data service, shows the subsidies start at US$3.9-billion for Cathay Pacific, which links Canada to Asia. United Airlines and American Airlines, which connect Canadian and U.S. destinations, have each received more than US$5-billion in support from Washington. Air France-KLM Group and Lufthansa Group, which fly trans-Atlantic routes, have each received about US$12-billion from European governments.
For months, domestic carriers have told the Liberals that foreign airlines now enjoy a competitive advantage when serving Canadian cities, courtesy of the massive support from governments.
Prepandemic, about 40 per cent of international flight capacity from Canadian destinations came from foreign carriers, according to data from the International Air Transport Association (IATA). Domestic airlines – mainly Air Canada, WestJet and Transat – offered 60 per cent of flights to the United States, and on trans-Atlantic and trans-Pacific routes.
That has now flipped, as foreign carriers use financial support to subsidize routes. In September, IATA data showed airlines that received public aid, including direct equity investments, accounted for 55 per cent of international flight capacity in Canada. Domestic carriers and airlines that have not received bailouts now account for just 45 per cent of international flights to and from Canadian airports.
The shift is easy to explain: Foreign carriers propped up with government money can afford to fly routes with far fewer passengers.
“Canada has been consistent in not supporting its airlines, making it one of the few countries to take such an approach,” John Grant, senior analyst at OAG, said in an e-mail on Monday. He said there is “major distortion in the markets” when domestic carriers go head-to-head with deeper-pocketed foreign rivals.
“For instance, Air Canada would be perfectly right to say that competing with Air France-KLM, who received over US$12-billion, is unfair,” Mr. Grant said.
Every airline is trying to keep its fleet ready for the return of passengers when the pandemic eases, or people become more comfortable with containment and testing measures. Air Canada is attempting to bulk up on international routes with its proposed $190-millon takeover of Transat. While industry executives caution it may take two or three years for air traffic to return to normal, there are indications that attitudes are shifting.
Last month, OAG surveyed 4,000 travellers and found 69 per cent intended to fly internationally within the next six months. “Most consumers, especially younger travellers, are prepared to fly under the right circumstances,” Mr. Grant said. “The lack of fear is certainly surprising and bodes well for the market recovery.” The fear at Air Canada and WestJet is that government-backed rivals will snag those international travellers.
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