Flyers' Poker

Flyers' Poker

November 13, 2020

Here we go again: WestJet and Air Canada, hat in hand, asking for a bail-out.

They’re at the taxpayers’ table in a “flyers’ poker” game, with the future of the airline industry at stake. They argue that they need support because of the pandemic. They’ve said that they need help, or they’ll fold.

Maybe. Nobody wants to see our airlines and their employees thrown on the ash heap of history. But if a bail-out of some sort occurs, there have to be strings attached. Strong ones.

The first and most important step before any bail-out is for the airlines to issue ticket refunds. Executive compensation needs to be slashed too. How can Air Canada CEO Calvin Rovinescu walk away with a $1.6 million bonus in the middle of a pandemic with 90 per cent of Air Canada’s fleet grounded, and ask the government for money with a straight face?

That said, just trading government support for refunds is a bad deal for customers, and for tax payers, because airlines are contractually obligated to give refunds regardless of whether or not they get government money. Instead, our counter should be government support in exchange for passenger refunds, allowing international competition and lifting cabotage restrictions.

This allows international carriers to fly Canadian routes, something that can’t be done today.

Canadians pay way through the nose to fly domestically. When compared to travel in other countries, Canada ranks 65th in terms of affordability on a per kilometer basis.  Allowing for international carriers to fly domestic routes could go a long way in offering Canadians more choice and better prices.

Why not let Lufthansa fly from Vancouver to Toronto, en route to Berlin?

As this poker game goes on, Canadian airline companies will continue to argue against allowing international carriers in because those carriers receive financial support from their respective governments. Air Canada and company are essentially arguing that protectionism is justified because competitor carriers get subsidies.

The argument might sound convincing at first, but it doesn’t hold up when we dig a little deeper.

Their argument implies that foreign carriers get subsidies, and Canadian airlines do not. This really isn’t true given that the industry has extensively used Canada’s wage subsidy program, at an estimated amount of more than $600 million.

Air Canada alone used CEWS for 36,000 of their employees. In addition to those supports, most aircraft for Canadian airlines are produced by companies who get government money through manufacturing subsidies. The claim that Canadian airlines don’t get government support isn’t really that accurate.

But what if their claim was true? Would protectionism be appropriate to try and level the subsidy playing field?

No, because protectionism always hurts domestic consumers by limiting choice and inflating costs.

Claiming that Canadians shouldn’t have more choice in airlines because of foreign subsidies is punishing Canadian consumers for policies in other countries, which are completely out of their control. Canadian consumers need to take priority over corporate interests, and more competition should take priority over more protection.

On top of being unfair to consumers for the benefit of corporate interests, this defense of protectionism can quite easily be used on an endless list of other products/services.

For example, most American agriculture is subsidized, in some way, through the Farm Bill. Despite that, we don’t accept the protectionist argument and limit consumer access to US agriculture because of these subsidies. Consumer access takes priority, as it should.

Want to help Air Canada and WestJet with a bail out? Give paying customers a break and make the post-Covid airline market more consumer-friendly.

Doing so would allow for our Canadian carriers to weather the pandemic, while also offering consumers the structural change needed to make travelling less costly for all Canadians.

At the end of the day, airline protectionism benefits a few large companies – and executive bonus pay-outs - at the expense of all Canadians. We deserve better. Our government can’t fold their cards in this poker game.

 

- Rick Peterson


CAN I ASK A FAVOUR?


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