Ottawa to ease foreign owner rules for airlines

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Allowing foreign companies to take increased ownership stakes in Canadian passenger airlines will make air travel cheaper for consumers and help to spur more competition, federal Transport Minister Marc Garneau says.

Mr. Garneau said Thursday that the Liberal government plans to introduce legislation to ease foreign ownership restrictions on domestic airlines to 49 per cent from the current 25 per cent.

In the interim, he added, two upstart airlines – Canada Jetlines Inc. and Enerjet – will be allowed to increase their level of foreign ownership immediately.

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"I expect fares to go down" as a result of increased competition resulting from the easing of the rules, Mr. Garneau said after his presentation on the government's new transportation policy to the Chamber of Commerce of Metropolitan Montreal.

"I expect that, as new carriers come into the field, the measures announced today will allow that to happen. This can bring down airfares but also provide more destinations and more choice to passengers."

Executives from the two ultra-low-cost carriers – as they're billing themselves – that won the immediate exemptions from the current rules, said Thursday their fares will be 30 per cent to 40 per cent lower than those offered by Air Canada and WestJet Airlines Ltd., which dominate the domestic market.

The exemptions, which give new entrants access to foreign sources of capital for startup and other costs, signal that the federal government wants a third national carrier, said Jim Scott, president of Vancouver-based Canada Jetlines, which hopes to begin offering flights next summer.

"We can get moving in earnest now," Mr. Scott said.

Calgary-based Enerjet, a charter airline operating one plane now, but which intends to offer scheduled service, immediately announced a deal with Indigo Partners LLC of Phoenix, Ariz., a company that invests in ultra-low-cost carriers.

"Canada is very fortunate to be serviced by two of the safest and most successful airlines in the world, yet remains one of but a few developed nations not to benefit from a discount airline," president Tim Morgan said in a statement.

The new rules ensure, however, that no single foreign investor or group of foreign investors can have more than a 25-per-cent ownership stake.

The key for the discount airlines is gaining access to investors who are prepared to accept the risks involved in financing airlines that are challenging existing carriers, said Mark Morabito, president of Jet Metal Corp., which plans to merge with Canada Jetlines once they have raised $6-million in fresh capital.

"There are relatively few interested parties in Canada that have risk capital available and have an interest in aviation," Mr. Morabito said. "There are far more as we open up investment to [entities] around the world."

Mr. Garneau also announced plans for a passenger bill of rights that clearly spells out airline responsibility and customer compensation in cases of overbooking or lost luggage, as well as measures to eliminate long waits at airport security points.

Transport Canada will examine other such schemes around the world, including Europe, where airlines must pay substantial fees to travellers who are bumped from flights or delayed for longer periods of time.

The federal New Democratic Party has proposed compensation that rises as flight delays grow as well as payments for travellers who get bumped because of overbooking by airlines.

Both Air Canada and WestJet criticized the government for not addressing costs faced by existing carriers, such as airport fees and fuel taxes.

"We firmly believe the largest challenge to ensuring low fares for Canadian consumers is the rising cost of aviation infrastructure," WestJet chief executive officer Gregg Saretsky said in a statement.

Air Canada noted that Canada has among the highest ticket taxes and airport charges in the world, with just four of 140 countries having higher fees.

Mr. Saretsky said earlier this week that the Calgary-based carrier will defend its franchise against competitors offering cheaper fares, but noted that in the 70-year history of commercial aviation in Canada, there has never been room for more than two profitable airlines.

Mr. Morabito responded that competing against Canada Jetlines on low fares while expanding internationally in a full challenge to Air Canada makes no sense for WestJet.

"Are they going to go back and grab the discount space and chase Jetlines into Kitchener and Hamilton?" he asked. "You can't do both effectively."

Porter Airlines Inc. chief executive officer Robert Deluce, who attended the Montreal event, told reporters there will be little impact on his airline because it has a solid balance sheet, but that "for some new carriers, it might in fact give them a little more opportunity to access financing."

Ottawa's change follows a review of Canada's Transportation Act by former federal cabinet minister David Emerson, who earlier this year recommended raising the limit to 49 per cent.

Canada Jetlines, which is proposing to make use of so-called secondary airports such as Abbotsford, B.C., Hamilton, and Kitchener, Ont., where fees are lower, will need to have at least six planes to make money, Mr. Scott said.