Union rep wrote that Canadian air travel market should be re-regulated, is she right? 

Air Canada is once again teetering on the brink of bankruptcy protection after emerging from it just six years ago. Peggy Nash, the chief negotiator for CAW in the most recent round of talk with Air Canada, argued that the Canadian government should re-regulate the airline industry in order to provide some much needed long-term financial stability for Air Canada. She made some convincing points in her article, however, is re-regulation is right way to go? Will re-regulation bring just as much problems as those it might solve?

Peggy’s main points in support of re-regulation are:

• During the last round of bankruptcy protection six years ago, Air Canada’s holding company ACE sold off key profitable segments of Air Canada, for example the Aeroplan rewards program, the maintenance section and its regional subsidiary Air Canada Jazz. The approach fixed the airline balance sheet temporarily, but the goal was extremely short-term oriented.
• Huge profits out of these selling benefited the investors, especially U.S. hedge funds, and the senior executives, including Robert Milton, the former CEO of Air Canada who, in many analyst’s opinion, ran Air Canada to the ground.
• The 2-billion-dollar concession from Air Canada workers didn’t get invested back into the airline, instead they went straight to the pockets of the investors.
• Contrary to common belief, the private sector does not all do better. Anyone who needs proof only need to look to Wall Street, where institutional and personal greed works against public interest and dragged the whole world into the worst recession in several decades.
• Privatisation caused many airlines to fail, Air Canada has lost 6 billion dollars since it was privatized, and is feeling extremely vulnerable in the current market environment.
• To make things even worse, West Jet and Porter Airlines are beefing up their assault on Air Canada, hoping to grab even more market share from it, therefore exacerbating a precarious operating environment that Air Canada already find increasingly difficult to survive in. The government should put a stop to it.
• The government taking a stake in Air Canada is much better than the alternative: a foreign take-over of Air Canada.

Although I agree with Ms. Nash’s criticism of the selfish and predatory nature of those hedge funds who specialize in corporate  restructuring and think the government should oversee the bankruptcy protection process , I doubt that the Canadian government should step in and protect Air Canada from competition, I don’t think it will do any good to the airline and general public in the long run.

What happened in the US and European commercial aviation markets have clearly demonstrated that deregulation and liberalization is the historical trend that benefited both the airline industry and the travelling public.

Without the  Airline Deregulation Act in the late 70s in the US, there wouldn’t be the wonderful new low cost airline called Southwest Airlines; without the Single Aviation Market initiative in EU, there wouldn’t be Easyjet and Ryanair; and millions of people wouldn’t have access to low cost air travel.

Since the mid-80s, many formerly state-owned airlines have now been fully privatised. British Airways, Lufhansa, Qantas, and Air Canada are examples. Without the protection of state-ownership, a lot of these full service airlines have not been able to compete effectively with their low cost rivals, partly because they are often still run like government entities with an outdated mentality and excessive bureaucracy. 

Unions must also share part of the blame for legacy airlines’ inability to compete: when airlines try to use regional jets on some routes to reduce costs and serve more markets, unions put a scope clause on it; when the economy is booming and airlines start to make a profit, unions negotiate hefty salary increases that simply can’t be sustained when the economy eventually slows down.

As for West Jet and Porter Airlines adding more capacity in a shrinking market to capture more traffic at Air Canada’s expense, as long as they are not asking Ottawa to fund their expansion, why should the government put a stop on that? Isn’t this what competition all about?

Now Air Canada is in trouble again, should the Canadian government step in and bail it out with tax payer’s money? I would like to hear your opinion, dear readers. Please leave you comments!