Airline deregulation in Canada and the sustainability of competition

In this chapter we catalogue the evolution of air policy and airline competition in Canada’s domestic, international and transborder markets. We examine how Canada’s air transport sector transitioned from being highly regulated, government-controlled and subject to public utility style regulations to one of ‘differentiated’ liberalization. Yet despite deregulation, privatization and ‘open skies’ agreements, the status quo of dominance by a small number of airlines in Canada remains. While air service agreements have led to market growth in some dimensions the evidence is that airline market power has not been eroded. In particular Air Canada, once a government-created monopoly, continues to dominate as part of the Star Alliance. We discuss what a new air policy might look like for Canada and the balance between consumer welfare and wider economic benefits to aviation-dependent sectors versus policy that seems focused on the economic well-being of a small number of private airlines.