R&S Executive Summary draft [R&SExSum.doc] Page 1-1 Policy Proposals for Enhancing Competition in Canadian Airline Markets Thomas W. Ross and W. T. Stanbury Executive Summary Draft #2: March 11, 2001 This report considers a variety of policy options available to the Government to enhance the performance – particularly the competitiveness—of the Canadian airline industry. The report begins in Chapter 2 by laying the foundations for the proposals by describing the current state of competition in Canadian airline markets. The core of the report, in Chapters 3-5, provides our analysis and advice. Chapter 3 describes the current public policy framework as it applies to the airline industry in Canada with particular attention paid to the recent changes to the Competition Act directed at protecting smaller carriers from predatory or other abusive practices of a dominant carrier. Chapters 4 and 5 then describe and evaluate a wide set of policy alternatives. These options focus on mechanisms to preserve or enhance competition and include: (i) behavioural policies such as re-regulation and rules on predation, that seek to control the conduct of incumbent air carriers; (ii) structural policies that seek to reduce the power of the incumbent carrier either directly (e.g. by breaking it up into smaller firms) or indirectly by facilitating entry of alternative domestic carriers (e.g. by reducing barriers to entry); and (iii) policies that seek to encourage the participation of foreign carriers in Canadian airline markets. While recognizing that each of these proposals would require more detailed analysis prior to adoption, we put forward a list of our own preferred options. These include: (i) exploring ways to facilitate new domestic entry by easing access to both foreign capital (by relaxing foreign ownership regulations) and access to important airport facilities (e.g. slots, gates, counters); (ii) possible adjustments to the predatory pricing regime to provide greater clarity to large firms; and (iii) a number of policies that could be adopted unilaterally to reduce the barriers to foreign carrier participation in Canadian markets. These latter policies include granting rights of establishment, permitting what has been referred to as “modified sixth freedom” (or “indirect cabotage”); and relaxing the foreign ownership regulations in such a way as to encourage franchising of foreign carrier operations in Canada. Finally, we encourage the Government to take its earliest opportunity to begin discussions, particularly with Europe, Australia, New Zealand and Mexico, regarding the creation of a common aviation area. Finally, the list of policies we found we could not support (at least at this time) were proposals to break up Air Canada, to re-regulate the airline industry or to unilaterally grant general rights of cabotage.
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