Air Canada Proposes Unrestricted Open Skies With U.S.

Air Canada, responding to suggestions from Transport Canada last week that the airline’s ca. 80 per cent market share is not competitive, is proposing a full Open Skies Agreement between Canada and the U.S..

The agreement would create an unrestricted, single aviation market with the United States as the preferred option to fostering a competitive airline environment in Canada.

Air Canada’s proposal, sent in a letter to Transport Minister David Collenette, and U.S. Transportation Secretary Norman Mineta, follows on Collenette’s statement earlier this week that the government would look at options such as “more foreign competition, modified sixth freedoms or cabotage” as an alternative to reregulation to increase competition in the Canadian domestic market.

“We need a market solution as a means to foster a competitive environment in the Canadian domestic market,” said Robert Milton, Air Canada’s president and chief executive officer.

“While we had previously indicated to the Minister of Transport that we might be open to a domestic reregulation of all carriers operating in the country if that was government policy, that is clearly not the preferred option for ensuring a competitive, efficient industry.
Furthermore, we would not support re-regulation if it involved any expropriation or indirect transfer of our market share, routes or assets. We do not believe a truly competitive environment can be developed in Canada by resorting to outmoded regulatory remedies such as limiting the number of carriers allowed to serve a market or a particular route, imposing frequency, capacity or pricing restrictions or nationalizing the flag carrier,” said Milton.

He is urging the two governments to build on the 1995 Canada-US Open Skies Agreement by ‘progressively removing all restrictions in order to arrive at a fully integrated, common air transport market with the United States.’

Unlike the open skies agreements the United States has concluded with over 50 other countries, the Canada-U.S. Open Skies Agreement maintains restrictions in the following areas: fifth freedom rights for passengers and all-cargo operations; the right for all-cargo carriers to serve points in the other country on a co-terminal basis; and full routing and pricing flexibility on all air service operations, especially to third countries.

“The restrictions to the 1995 Open Skies Agreement were put in place due to Canadian concerns on the impact open skies with the U.S. could have on the airline industry in this country. The landscape has changed dramatically since then. Furthermore, a fully liberalized Open Skies Agreement including the exchange of “modified sixth freedom opportunities” leading to full continental cabotage rights will fully respond to the concerns of all stakeholders concerned with Air Canada’s dominance of the Canadian industry,” said Milton.

Granting both Canadian and U.S. carriers the right to carry domestic traffic from each other’s country over their respective hubs will bring immediate benefits to consumers and airlines on both sides of the border, suggested the airline.

“In the post-September 11 environment, air carriers worldwide are seeking opportunities to enhance revenues. Moreover, the industry is expected to see significant consolidation, especially in the U.S. Liberalization of the 1995 Agreement will provide U.S. and Canadian carriers access to more markets while at the same time increase efficiencies and provide for a more competitive environment through enhanced domestic service options for consumers. Re-regulation of the Canadian industry will therefore become moot,” said Milton.