Mr. Chair, Honourable Members,
Air Passenger Rights is Canada’s independent nonprofit organization of volunteers, devoted to empowering travellers.
We speak for passengers whom we help daily in their struggle to enforce their rights. We take no government or business funding, and we have no business interest in the travel industry.
I hold a PhD in mathematics, and I taught financial mathematics at Dalhouise University for several years.
Competition and oligopolies are some of the most complex problems in economics that have been studied for two centuries. The 1994 Nobel Memorial Prize in Economics was awarded for research with applications in this very topic.
Questions about competition must be addressed using real-life data and calculations, not by opinions or guesses. To answer Mr. Barsalou-Duval’s question to witnesses from last week: competition and the lack thereof can be quantified, for example, using the Herfindahl-Hirschman Index [HHI].
The HHI is used by the Competition Bureau of Canada and the US Department of Justice and the Federal Trade Commission. For example, the HHI can quantify Mr. Rogers’s comment about the challenges of travelling to Gander. Calculating the HHI also validates Mr. Williams’s views that Canada’s domestic air travel market has been a near duopoly of Air Canada and WestJet.
Between 2014 and 2019, the HHI for air travel within Canada was over 4200, which indicates high market concentration. The HHI in the US domestic air travel market in the same period was only around 1200. This quantifies that there is significantly more competition in the US domestic market than in the Canadian one.
To remedy Canada’s domestic air travel market’s competition deficit, I recommend granting to selected trustworthy foreign airlines the right to operate flights within Canada.
Lack of data on the airlines’ operations poses an additional challenge in Canada. The little information that is reported to Statistics Canada under the Monthly Civil Aviation Survey must be kept confidential.
In sharp contrast, the US requires airlines operating within, to and from its territory to file monthly route-based data on passenger and cargo numbers, as well as a 10% sample of all tickets sold. The data collected is publicly available on the US Bureau of Transportation Statistics website. It has generated a substantial amount of valuable research on competition in the US airline industry, and enables data-driven policy making.
I recommend that Canada adopt airline data reporting and dissemination rules similar to the US 14 CFR Part 241.
I share Mr. Schiefke’s and Mr. Bachrach’s concerns from last week that indiscriminate subsidies to air travel without a substantial increase in competition will only enrich airlines at the public’s expense and will unfairly favour wealthy travellers. I urge data- and calculation-driven policy making on this issue.
First, subsidies must be targeted to specific airports or routes, and to the lowest fare classes, so as to incentivize low fares. Indeed, passengers who can afford a business class ticket can also afford to pay the full cost of their security screening.
Second, the subsidized airports and routes should be selected on the basis of real-life data and economic analysis to ensure that the subsidy has a net positive effect on tax revenues, and that taxpayers get the maximum economic benefit for their dollars.
Lastly, subsidizing air travel without opening up our domestic market would be throwing good money after the bad. Targeted subsidies must go hand-in-hand with remedying Canada’s competition deficit by permitting selected trustworthy foreign airlines to transport passengers within Canada.
Thank you.
