Policy Proposals for Enhancing Competition in Canadian Airline by Sfusaro


									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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