Business Brief: The price of protecting Air Canada

Globe and Mail

2 hours ago

Good morning. Air Canada says it could take up to 10 days for operations to return to normal after a tentative deal with flight attendants ended the strike. For passengers, frustrations may linger far longer. That's in focus today, along with a look at what's fuelling inflation.
Inflation: Canada's annual inflation rate slowed to 1.7 per cent in July. But that was mainly owing to a decline in gasoline prices, which reflected Ottawa's removal of the consumer carbon tax.
Trade: The U.S. is hiking steel and aluminum tariffs on more than 400 products including appliances, railcars, and EV parts.
Energy: Alberta carbon-capture test site is powering up despite an uncertain cleantech outlook.
Catch up quick: Air Canada resumed flying yesterday afternoon after reaching a tentative labour agreement with the union that represents its 10,000 flight attendants, who had been on strike since Aug. 16.
The cost of returning to autopilot: Now that Air Canada has agreed to pay cabin crew for their work before takeoff and after landing, the airline could turn to strategies to offset those losses, such as:
Given Canada's foreign ownership restrictions, Air Canada may be more inclined to push some of those options further than others. That's because WestJet – the only other Canadian competitor its size – isn't giving it much of a race. They're both just sort of jogging at the pace of a couple of baseball players headed toward the dugout.
In the U.S., where markets are less regulated, consumer choice compels companies to cut costs. Canada's oligopolistic airline industry faces no such pressure, writes Eugene Lang, acting director of the School of Policy Studies at Queen's University.
Geoff White, executive director and general counsel at the Public Interest Advocacy Centre, said Canadian travellers are stuck with the effects of an uncompetitive industry – unless policymakers step in.
'This will take a legislative fix – this is fundamentally a failure of competition,' White told The Globe. 'When it comes to Canada's addiction to monopolies, it's a matter of political will.'
The case for changing course
Beyond lowering prices, competition also presses companies into becoming more efficient and innovative – two factors that lead to productivity growth, which basically means making more of something with the same amount of work.
Being able to produce more of a good or service allows a company to invest more in skills or equipment, and to pay higher wages.
That means productivity growth also helps companies and their employees navigate higher costs. Rather, it might have: Productivity has flatlined in recent years as Canadian businesses invest at levels that rank among the lowest of its peers in the OECD.
That weakness leaves households more vulnerable to rising costs. Yesterday's inflation report might suggest Canada is holding up better than expected since U.S. tariffs went into effect, but prices for shelter and groceries are still high, and getting higher.
The strain has put fresh focus on whether government policy can bring relief — including proposals to boost competition in the airline industry.
In June, the federal competition watchdog recommended 10 ways Ottawa could boost competition in the airline industry. Two of those recommendations were to open the skies to more foreign investment, and to allow foreign airlines the ability to fly domestic routes.
More competition delivers major benefits to Canadian travellers, the report found. New companies have entered the market and are making progress, the authors noted, yet Canada's domestic aviation market remains 'highly concentrated.'
Some industry leaders pushed back, arguing too much foreign money and competition for domestic routes – a practice known as cabotage – would be devastating to Canada's homegrown employers.
(Air Canada called the very premise that the country lacks competition a 'myth,' instead blaming high government charges for keeping prices elevated. There's a lot of truth in the taxation argument, but little evidence that eliminating them would lead to more spending on innovation.)
The government, by and large, seems to agree with the industry – it isn't expected to enforce the watchdog's recommendations – and applies similar logic in protecting banks and telcos.
Basic offerings from the Big Six make the banks virtually interchangeable for most Canadians. And have you ever caught yourself pausing to remember if you're a Bell or Rogers customer because you've bounced between them more than once?
Ottawa could allow more competition, Air Canada could feel more pressure to innovate, and Canadians could see cheaper fares. Instead, consumers are left with rising costs and fading patience — in an economy where protecting incumbents has become the default across airlines, banks, and telecoms alike.
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Global markets came under pressure after a tech-led selloff on Wall Street yesterday. U.S. futures pointed lower, while TSX futures pointed higher.
Overseas, the pan-European STOXX 600 was up 0.15 per cent in morning trading. Britain's FTSE 100 rose 0.29 per cent, Germany's DAX fell 0.34 per cent and France's CAC 40 edged up 0.06 per cent.
In Asia, Japan's Nikkei closed 1.51 per cent lower, while Hong Kong's Hang Seng inched up 0.17 per cent.
The Canadian dollar traded at 72.08 U.S. cents.