The Big Two airlines dominate the industry in Canada. It’s great for them and bad for us.
Canada is not known for its cheap flights (or cheap cellular service or banking fees for that matter). Why are fares so expensive here? Competition, of course, or the lack of competition as is the case in Canada.
While there are many reasons for this lack of competition, the biggest factor is that the airline industry in Canada, like the banking and telecommunications industries, is an oligopoly. How did we manage to create yet another oligopoly in Canada? One word: protectionism.
In this case, protectionism means that the Canadian government has, over many years, enacted and kept in place laws and regulations that protected many Canadian industries from foreign competition. The airlines and their sky high prices are simply another example of protectionism’s effect on regular Canadians.
While protecting our airlines from huge global players was arguably necessary at one point in time, that time has passed. Our airlines are very, very profitable now and continued protectionist policies only serve to hurt Canadians.
We see the effects of airline protectionism and the oligopoly it has created whenever we need to take a flight. Look at Air Canada’s fares at any time during a given day and, by some ‘miracle’, WestJet’s fares are nearly identical.
Sure, both airlines will have seat sales from time-to-time, but any low prices at one airline are almost always immediately matched by the other airline, at least until the sale is over. And when those sales are over, both carriers revert to their regular overpriced fares.
In the end, there is never any sustained downward pressure on fares. Why would there be? The two carriers control the market and the supply of seats, and since, as we all know, if supply is kept low enough, and demand is high enough, prices will never go down.
Simply put, protectionism helps put in place an artificial limit on supply by keeping the number of players in any market artificially low.
In the case of the airline industry, the demand for seats is fairly constant so a low supply of seats means higher prices for those seats. There are additional, more complex factors at play to be sure, but these simple market forces are the main drivers.
In short, we need to increase supply to lower prices. In this case, an increased supply means a combination of more airlines and a more competition-friendly regulatory framework. Again, only governments can force these changes and it’s about time they did.
What can we do? Well, we can start by expecting more. Once we have made that shift in our thinking, and we realize that we deserve more, then we can get together and demand more.
Connect with other Canadians, and demand more from your elected officials, who are the only ones with the power to force the changes we want.
Ultimately, it is your responsibility to tell the elected officials what you want. It is their responsibility to make it happen. Assuming, of course, they want to get re-elected.