BUSINESS/ECONOMY

Axworthy vs. the airlines

Ann Finlayson February 13 1984
BUSINESS/ECONOMY

Axworthy vs. the airlines

Ann Finlayson February 13 1984

Axworthy vs. the airlines

BUSINESS/ECONOMY

Ann Finlayson

When Ottawa first tried to deregulate Canada’s airline industry by loosening control of fares and routes in 1982, then Transport Minister Jean-Luc Pepin had to shelve the idea because of objections from a financially troubled airline industry which faced soaring fuel costs and dwindling numbers of passengers. Although the industry lost $100 million in 1982 and an estimated $40 to $50 million in 1983, Transport Minister Lloyd Axworthy now has reopened the divisive deregulation debate, and next week his ministry will take its case to the federal regulatory body for airlines.

Axworthy is convinced that the policies of the Canadian Transport Commission (CTC) have to change. Declared Axworthy: “Canadian air travel is too industry-oriented. I am aiming at a more open, competitive system.”

Axworthy has hinted publicly that he would like to see lower prices and increased competition between a greater number of airlines. That, he said, could be accomplished by giving the airlines more flexibility in setting prices and by changing the way routes are awarded. Axworthy also suggested that secondary airports near major cities could become the hubs for nonregulated, nofrills carriers. Next week the CTC will begin hearings in Hull, Que., to study those ideas and get the reactions of the public and the airline industry. Over the next two months the CTC will carry the debate to 12 other cities across Canada. But although the public is likely to react favorably to the prospect of lower fares, airline industry executives and union spokesmen already have expressed reservations about loosening the rules. They claim that deregulation has led to labor disputes and bankruptcies in the United States since its advent in 1978.

According to a Gallup poll released to Maclean’s by the Consumers’ Association of Canada (CAC), 43 per cent of adult Canadians in a sample of 1,071

have flown on a commercial airline in the past two years. About 66 per cent of Canadians believe that high fares are the major deterrent to air travel. The poll also revealed that three-quarters of Canadians believe airlines should be allowed to provide service anywhere in the country—the CTC now divides routes between regional and national carriers. And Canadians feel that the level of service to a community should be determined by the number of users and that each route should recover its own costs. According to CAC spokesman Ken MacDonald, consumers believe the airlines have become “somewhat inefficient and unresponsive to passengers’ wishes.”

But there are strong arguments on both sides of the deregulation debate. Proponents point out that since the administration of Jimmy Carter introduced the Airline Deregulation Act in 1978, discount fares in the United States have dropped by 50 per cent, about 80 new airlines

have entered the market, and there has been intense rivalry on lucrative routes between major cities. By contrast, opponents are alarmed by the heavy losses incurred by the U.S. airline industry— $500 million in the first half of 1983 alone. Among other things, they point to the bankruptcy of Braniff International Corp. in 1982.

Canadian airline unions fear a repetition of U.S. labor turmoil

north of the border. Union leaders contend that deregulation has led to thousands of layoffs and reduced salaries for U.S. employees. They also complain that small, nonunion airlines, which rely on reduced labor costs to lower fares, make competition increasingly difficult for high-paying major carriers. According to Mike Rygus, Canadian vicepresident of the International Association of Machinists and Aerospace Workers, radical deregulation “would be suicidal

for the industry and chaotic for the public.”

He described the current

situation in the United States as “jungle warfare” that has resulted in reduction of service to small communities, confusing schedules ánd fare structures and threats to passenger safety.

York University economist William Jordan, who prepared a 1982 comparison study of the Canadian and U.S. airline industries for the department of consumer and corporate affairs, disagreed with that conclusion. There is no evidence that deregulation has compromised the safety of air travellers, he said. As well, he claimed, there has been no loss of service to small cities, fares are generally lower, and the airline industry in the United States, unlike its Canadian counterpart, is growing rapidly.

Canadian airlines have reacted cautiously to the suggested regulations. Air Canada President Claude Taylor pointed out that while U.S. fares have dropped on popular routes, they have risen on less travelled ones. Taylor also maintained that Canadian airlines, through seasonal seat sales, advanced booking and charters, already provide discounted service to most destinations. “The universality of the discounts we have in Canada is unmatched anywhere else,” he said, “and we should be reluctant to tamper with that concept.”

The airlines also share some of labor’s concerns. CP Air President Dan Colussy said that deregulation “is turning out to be the largest piece of antilabor legislation the U.S. Congress has ever passed. That was not their intention, of course, but when you start permitting anyone to enter or exit markets, there is really only one place the established carriers can turn and that is to labor cost.”

According to Axworthy, Canadians are envious of the lower fares and better service offered by U.S. airlines. One result of that, he said, is the “leakage” of business that occurs when Canadian travellers go to the United States to take advantage of greatly reduced fares. Indeed, the Gallup poll showed that in the past two years 11 per cent of Canadian travellers went to the United States to board a flight.

Axworthy recently revealed that there are 60 applications on file from U.S. airlines that want to provide service in Canada. They are watching Canadians “digging ourselves into a hole,” said Axworthy, “and unless we can increase productivity and stimulate growth through lower fares, the Canadian airline industry will continue to stagnate.” But the CTC hearings may not produce the consensus for change that Axworthy seeks. So far, there is only agreement on the fact that the U.S. experience has provided some instructive lessons for all sides of the Canadian airline industry. &t;£?