Cleared for take-off: Elevating airline competition

A market study of Canada’s airline industry

June 19, 2025

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  Date: 2025-06-19

  Aussi offert en français sous le titre Prêt pour le décollage : renforcer la concurrence dans le transport aérien.

Table of contents

Executive summary

Canadians want more competition in the airline industry. This study is about how to achieve it.

In this report, we analyze Canada’s domestic airline industry and make recommendations to enhance competition. These recommendations are based on our research.

We have explored challenges faced by both airlines and consumers:

• Airlines are struggling to enter the market, stay in business, and grow.
• Passengers are navigating complex flight bookings.

We also look at how we and other Canadian government bodies can take action to deliver a more competitive marketplace.

Robust competition drives airlines to offer better service at lower prices. When competition works well:

• Successful airlines expand.
• New ones enter the market with fresh ideas.
• Underperforming airlines either improve or exit the market.

This competitive process ensures resources flow to where they are most useful. This in turn drives the aviation industry and broader economy to innovate and be more productive.

In this executive summary, we highlight our study’s findings and then give our recommendations.

Competition in airlines matters to Canadians

Competition delivers major benefits to Canadian travellers. Beyond lower prices, competition drives quality improvements and innovation.

Yet competition in Canada’s airline sector has struggled to take off. Canadians often voice their dissatisfaction because:

• Airline options are limited
• Airfares are high
• They want better-quality service

Many Canadians report that international flights are often cheaper than flights within Canada.

For many in Canada, air travel is necessary, not a luxury. In this vast country, there are long distances between populations. Flying is often the only practical way to travel. This is especially true for northern and remote communities. For people there, air service provides an essential lifeline to necessary goods and services, including:

• Food
• Healthcare
• Social connections
• Jobs

The Canadian airline market is concentrated

New companies have entered the market and are making progress. Yet Canada’s domestic aviation market remains highly concentrated. This means that there are only a few large airlines.

At major airports across the country, Air Canada and WestJet together account for roughly half to three quarters of all domestic passenger traffic (56% to 78%). Market concentration has gone down by one tenth (10%) between 2019 and 2023. This reflects the fact that airlines like Porter and Flair have had success entering the market and growing, even as others, such as Lynx Air, have exited the market. However, the average concentration remains extremely high and competition from new sources remains fragile.

The competition between Air Canada and WestJet appears to be changing across the major population centres. WestJet’s share of domestic passengers is declining more at major eastern airports while Air Canada’s share is declining more at major western airports. They are directly competing on fewer routes compared to 2019.

Barriers to entry limit competition

New airlines face daunting challenges both entering the market and growing into competitors that last long term. Some barriers for these entrants just naturally occur. But others could be addressed through policy changes. Here are some important ones.

User fees affect costs and competition

Canada follows a user-pay model for aviation infrastructure. Fees airlines and passengers pay cover most of the costs of building and running airports and air navigation services. These fees make up thirty cents of every dollar that passengers pay airlines (30%) for traditional full-service airlines. Those costs take up an even higher share of what passengers pay for flights on ultra-low-cost carriers (ULCCs).

Key fees passengers pay that make up that 30% roughly break down to:

• Fuel tax – 1%
• The Air Travellers Security Charge – 3%
• Nav Canada air navigation charges – 5%
• Airport fees – 20%

Lowering these costs would help promote competition because more companies could start offering sustainable services. This is especially true for ULCCs. They rely on low fares to attract new travellers.

However, government subsidies do not lower costs—they just change who pays them. Subsidies may help, but governments have to weigh the economic and social benefits of greater connectivity against the costs of subsidies.

Airport access affects how airlines compete

Airline competition depends on access to airport facilities—including slots, gates, and check-in counters. Here are some factors that affect this access:

• Landing and takeoff slots at busy airports favour airlines with existing rights, due to rules on how slots are allocated. So, it’s hard for new carriers to enter the market, especially at peak times.
• Airports’ infrastructure decisions may favour large carriers.
• Airports can offer incentives that support new entrants, but incentives can also disadvantage some airlines.
• Secondary airports provide more options, but they face restrictions that limit competition.

Levelling the playing field to provide equitable access would help new entrants take off.

New entrants to the market face aggressive competitive responses

Smaller and new airlines face the risk of competitive responses from established carriers. Often, this means lower prices and more seats available. Competitive responses are a normal part of how the market works.

The Competition Act restricts certain behaviour by powerful players in the market when that behaviour harms competition by driving out competitors. This includes predation—which has a specific meaning under the law—and other related practices that harm competition. However, determining whether aggressive competitive responses are legitimate or anti-competitive requires careful analysis.

Northern and remote aviation faces unique challenges

Air transportation in Canada’s northern and remote regions is an essential lifeline, even for residents who never fly. These communities depend on air service to access:

• Healthcare
• Groceries
• Medicine
• Jobs
• Social connections

These regions face distinct challenges:

• They lack other transportation options.
• Their populations are small and far apart. This means airlines are less able to make money and face higher costs including for fuel, labour, and housing.
• Costs to run airlines are higher due to poor runway conditions, outdated facilities, and unreliable systems to monitor weather.
• New entrants face major barriers because existing carriers control critical assets at the major northern airports.

These unique conditions show why solutions must be tailored to northern needs. The economics of the North limits the number of competitors serving some routes. Still, competition can be enhanced through lower entry barriers. This will make the market easier to enter and pressure airlines to improve or be replaced.

Foreign ownership restrictions limit competition

Canada’s aviation sector is constrained by foreign ownership limits and restrictions on foreign carriers operating domestic routes in Canada (known as cabotage). These restrictions make it harder for airlines to access capital from investors outside Canada. Ultimately, this affects the flying public through fewer choices and higher prices. Other countries have adopted looser regulations.

These restrictions affect new and smaller airlines above all. They already struggle more than established carriers to secure funding. Reconsidering these restrictions would unlock new capital sources for Canadian airlines. This in turn will stimulate greater competition and innovation in the domestic market.

Consumers face challenges when shopping for flights

It can be difficult for consumers to compare prices across airlines, and this can limit how hard airlines compete for passengers. Airlines often market base fares that do not include services consumers typically want, like carry-on baggage and seat selection. These other services are offered as optional extras more often now. Prices for optional extras are often not known until late in the booking process. With there being so many more options, there is more choice, but the process of comparing flights is more complex.

There is limited data available to the public on how reliable airlines in Canada are in terms of delays, cancellations, etc. This makes it harder for consumers to compare service quality.

Countries such as the US and UK make this information available. Making quality metrics publicly available offers these benefits:

• Consumers make more informed choices.
• Airlines invest in service improvements to remain competitive.
• Customers shift to carriers that perform better.

In short, performance data drives performance.

Information that is clearer and easier to compare would let consumers identify the best option for their needs and increase the competitive pressure on airlines.

Competition is growing, but challenges remain

Despite persistent challenges, Canada’s airline industry is showing encouraging signs of increasing competition. Porter’s jet expansion and Flair’s market entry have introduced more competitive options on major routes. More of Air Canada's major routes are facing competition from both WestJet and at least one smaller carrier (Flair or Porter) since 2019—up from 11% to 16%. WestJet has seen an even bigger shift. On its major routes, competition from both Air Canada and at least one smaller carrier is up from 13% to 21%.

However, the history of airline entries and exits suggests that these competitive gains remain fragile, especially during economic shocks.

Our recommendations

Governments can create the right conditions for competition. These conditions should be designed to:

• Promote airline entry and growth, and
• Support informed passenger decision-making.

In this report, we have identified three areas of focus, with 10 specific recommendations to governments. And we have also outlined our commitment, at the Competition Bureau, to do our part to protect airline competition.

Prioritize competition in Canada’s aviation policy

1. Make competition the priority when reviewing airline mergers and collaborations.
   Remove the Minister of Transport’s power to override the merger and competitor collaboration review processes under the Competition Act. This will help ensure that anti-competitive deals are not approved.
2. Remove barriers that limit smaller airports from competing with major hubs.
   Eliminate international flight exclusivity clauses, which are rules that mean that only one airport in a local area can have international flights. Expand standard security screening services to secondary airports. Adopt a technology-neutral approach to aircraft restrictions at secondary airports so that they can compete more freely with major airports.
3. Improve the publication of airline industry data. Publish information on airline traffic, quality, and takeoff and landing permissions (known as slots) to help consumers, businesses, and regulators make more informed decisions.
4. Consider reviewing the airport oversight and funding model. Consider reviewing the way airports are overseen and funded. What else can be done to improve airline access to airports and benefit Canadians?

Leverage international capital and experience to strengthen domestic competition

5. Increase the single-investor foreign ownership limit for Canadian airlines to 49%.
   Allowing more foreign investment in Canadian airlines improves access to capital, drives growth, and promotes competition.
6. Allow up to 100% foreign ownership for domestic-only Canadian airlines. Create a new class of airline that operates only in Canada but can have owners from outside Canada. Domestic aviation can then benefit from greater global expertise and capital.
7. Work with other countries to remove foreign competition restrictions in international agreements. Phase out specific restrictions on airlines having owners from outside Canada. Also, allow airlines from partner countries to fly domestic service within Canada. This practice is known as cabotage. These changes will mean Canada can benefit more from capital and industry knowledge from other countries.

Support northern and remote market access

8. Coordinate leadership of northern and remote aviation. Establish a national working group focused on air transportation in remote areas. Make it a priority to find competitive solutions to create higher quality and more accessible service for northern communities.
9. Tailor regulations to the northern context. Adopt an approach to policy that is specific to the North. This policy should focus on outcomes to eliminate unnecessary costs northern operators pay to meet regulations.
10. Leverage government investments and tools to promote competition. Upgrade northern airports so they can handle more aircraft types and airlines. Develop open-access facilities that all airlines can use, instead of facilities controlled by one existing airline. Open government contracts to as many bidders as possible. When there are more bidders, competition drives better value for Canadians. Promote interlining agreements to improve connecting flights between airlines. This will improve connections between regions.

We are committed to acting quickly to protect airline competition

The Competition Bureau will use its enforcement tools under the Competition Act to stop anti-competitive practices in the airline industry. When justified, we will seek a court order to try to quickly stop anti-competitive practices by dominant companies.

About the Competition Bureau

The Competition Bureau is an independent law enforcement agency that protects and promotes competition for the benefit of Canadian consumers and businesses.

To protect competition, we investigate potential breaches of the Competition Act such as:

• Abuses of market power
• Anti-competitive mergers
• Price-fixing
• Deceptive marketing practices

To promote competition, we work with governments across Canada to champion the key role of competition in the Canadian economy. Market studies, like this one, are one way that the Bureau works to promote competition.

About the study

This study takes a close look at the state of competition in the airline industry and the ways to improve it. It is not an investigation of any allegations of wrongdoing. During our review, we noted conduct that may go against the Competition Act. Where appropriate, these issues are being reviewed separately.

We study domestic air passenger services from both the airline and the passenger side of the market. On the airline side, we focus on challenges carriers face when starting up and growing. On the passenger side, we look at the challenges consumers face when shopping for flights. This study also addresses restrictions on international involvement in Canadian air services. In addition, we look at specific challenges in northern and remote areas.

To conduct this study, we relied on a wide range of information sources. We:

• Reviewed our previous work in this sector
• Analyzed publicly available sources, including academic studies and government reports
• Reviewed public input through our website and via email
• Analyzed Canadian survey data from the Privy Council Office (PCO) Survey on Current Issues
• Interviewed stakeholders and went over their written submissions and responses to requests for information
• Reviewed court-ordered information from Air Canada and WestJet
• Analyzed airline traffic and schedule datasets from OAG, formerly known as the Official Airline Guide
• Collaborated with independent economic and industry experts
• Conducted field research in Iqaluit to observe firsthand the challenges of northern and remote areas and engage with local stakeholders

We interviewed more than 120 stakeholders, often over multiple sessions, including:

• 1 labour union
• 4 consumer advocacy groups
• 6 corporate customers and chambers of commerce
• 10 international competition and regulatory authorities
• 14 academics and other industry experts
• 15 travel and tourism companies and associations
• 20 government organizations in Canada
• 24 airports and airport associations
• 29 airlines and airline associations

• Description for "What we heard"

  An infographic summarizing the number of stakeholders interviewed by category. At the center, a blue circle contains the text “We interviewed more than 120 stakeholders”, accompanied by a blue outline icon of three people. Around this central element, nine categories of stakeholders are arranged in a circle, connected by a blue arc.

  The stakeholder categories and their respective icons are:

  • 29 airlines and airline associations
  • 24 airports and airport associations
  • 20 government organizations in Canada
  • 15 travel and tourism companies and associations
  • 14 academics and other industry experts
  • 10 international competition and regulatory authorities
  • 6 corporate customers and chambers of commerce
  • 4 consumer advocacy groups
  • 1 labour union

Added to this, we received more than 100 submissions through our webform and email address. We published 21 of those submissions. We also received more than 1,400 written responses to our consultation on the terms of reference for the market study. We published 23 of those responses and one summary of individual comments.

Many of these comments addressed the issues identified in the draft terms of reference, so we considered them as part of our study. We are grateful to all participants who shared their time, information, and perspectives with us.

We collected information until January 31, 2025. Where feasible, we have incorporated select updates beyond this date.

What competition is and why it matters

Competition improves the lives of Canadians. It lowers prices and empowers consumers. It drives innovation and productivity to grow our economy.

At its heart, competition is about the rivalry between firms to fight for consumer spending. Competition is a process where both firms and consumers make decisions that shape the market.

When competition works well, airlines enter markets where they see profit potential. They adapt their products and services to what passengers want so they can win their business. Airlines also manage their costs. They adapt prices and operations as their costs and supply conditions change. And they make smart investments in their business to continually improve over time.

For passengers, competition means they can choose flights and related products and services that best match their needs. Their choices send powerful signals about what they value. Through their purchasing decisions, customers reward good offerings and punish poor ones.

The result is a market where airlines succeed by delivering value to passengers. Successful airlines expand, new ones enter with fresh ideas, and underperforming carriers either improve or exit. This lets scarce resources naturally flow to where they are most productive. These important resources include skilled workers and aircraft. When the competitive process works well across the economy, it drives innovation and makes it more productive. The result is rising living standards over time.

Clearing competition for takeoff means everyone wins—consumers, workers, and businesses alike.

What we heard from Canadians

We invited feedback from the public to better understand their perspectives on airline competition in the country. Over 1,500 people answered the call. They provided feedback on the study’s terms of reference and shared relevant information during the public consultation. These are the key themes we heard:

Theme 1: Canada needs more airline competition

Many people who wrote in said that they want more competition when it comes to flights within Canada. They believe that having more competing choices could help address concerns that airfares are too high, and service quality is too low. Canadians told us that major airlines undermine new competitors through aggressive pricing and flight scheduling tactics designed to limit the success of new airlines.

Why do we have only two major airlines in this country and every discount airline that comes into the market is squeezed out?

Theme 2: Airfare in Canada is too expensive

The cost of flying is a major concern for Canadians. High domestic airfares restrict their ability to travel within Canada. Many people reported choosing to fly outside the country rather than domestically, as international flights are often cheaper.

It is far too expensive to travel by air in a country where air travel is sometimes the only realistic option... I would love to go to visit the Maritimes and explore my own country, but it’s cheaper to fly to Europe or Mexico.

Theme 3: Northern and remote communities need more support to connect with each other and the rest of the country

Commenters emphasized the unique challenges northern and remote communities face when it comes to air travel, which is often their only practical form of transportation.

These responses highlighted that Indigenous Peoples are markedly more impacted and the need for improvements is urgent. Unlike in many urban regions, respondents said that air travel in the North is not a luxury or a privilege, it is a lifeline.

There [are] a lot of youth who overdose to get out of town. That is the only way out for some youth who have never seen outside of [our community]. Our people want to travel but it is too expensive. [We are] stuck in an isolated community. Lowering the airfare is also suicide prevention for the Arctic. [It also addresses] food insecurity and housing[.] They all connect.

Theme 4: High airport fees and taxes are driving up ticket prices

The feedback shows people are concerned about high airport fees and taxes in Canada. They noted that these extra costs for airlines make it harder for them to operate and lead to higher ticket prices.

Airport fees, fuel taxes, and security costs make it expensive for airlines to operate in Canada, especially for budget carriers.

Theme 5: Canada should allow international carriers to serve domestic routes

Canadians expressed support for changing the law to allow international airlines to operate domestic flights within Canada. Many believe that allowing international carriers to serve domestic routes (known as cabotage) could bring benefits, including:

• More choice
• Better service
• Lower prices

First of all, the overly restrictive foreign ownership requirement should again be reduced or eliminated. The old school thinking that protecting domestic airline companies would promote the economic and national interests seems to serve no one other than the owners of these oligopolies.

Theme 6: Airlines are not meeting needs for quality and accessible services

The public raised concerns about the customer service offered by airlines. Many cited inconsistent service and a lack of attention to passenger needs. Some believe that airlines have little incentive to improve service quality because passengers have limited choices.

Another concern was that air travel was not fully accessible for all passengers. Many people who provided feedback said that airlines should do more to ensure proper accommodations for everyone.

There is zero accountability among our airlines because they know Canadians have no other choice, and they have zero interest in customer service.

Theme 7: Canada’s Air Passenger Protection Regulations are not working

Canadians shared their frustrations with the Air Passenger Protection Regulations (APPR). They said that the regulations do not provide proper support when flights are delayed or cancelled.

Many believe the system has too many inefficiencies and loopholes and often leaves passengers without compensation.

Currently, airlines are not consistently following the APPR, in part because they seem to believe there are no consequences for not meeting the standards of treatment.

Theme 8: Price transparency is an issue

Canadians reported that it was difficult to compare flight prices because of how additional fees are structured, and how they are often not disclosed upfront. They report that this lack of open communication, or lack of transparency, makes comparing prices complicated.

When booking flights there is no way to compare services due to the nickeling and diming of add-on fees.

Mapping the competitive environment

Introduction

Understanding competition in Canada’s airline industry requires some background. This section maps out the key elements of Canada’s aviation system, from its history to its current structure and major players. This foundation helps frame the competition analysis discussed in this report.

Key takeaways

• Canada has historically had a few major carriers and many have tried and failed to enter the market.
• Recent market entry from new carriers shows promise, but their chances of success remain fragile.
• Canada’s geography and population patterns create challenges for aviation.
• Different airline types serve distinct market needs.
• Multiple organizations beyond airlines are essential to air travel.

A short history of Canadian aviation

Aviation in Canada has long been marked by a few major airlines and many failed attempts by new airlines to take off.

Canada’s commercial aviation market was largely deregulated in the 1980s through the National Transportation Act (1987) and Air Canada’s privatization (1988-89). So, from this point, it was subject to less government control. By the 1990s, the market developed into two major airlines: Air Canada and Canadian Airlines International (CAIL).

WestJet entered in 1996, serving Western Canada. CAIL faced financial trouble and was acquired by Air Canada in 2001. This now made Air Canada the largest carrier. They flew more than eight in every 10 domestic passenger.

After the merger, several discount carriers entered the domestic market, but many of them failed over a fairly short period. Canada 3000 began scheduled service and acquired Royal Aviation and CanJet before shutting down in November 2001. CanJet relaunched in 2002 but ended scheduled service in 2006. JetsGo also launched in 2002 and ended service in 2005.

However, some airlines were able to continue flying. WestJet expanded to become a national carrier. Then Porter Airlines entered in 2006, serving Eastern Canada and the United States from Billy Bishop Toronto City Airport.

Timeline: Airline entry and exit in Canada

• Description for "Timeline: Airline entry and exit in Canada"

  An infographic displaying a timeline of airline entry and exit and other significant events. Key events are listed next to their corresponding years, connected by lines matching the year's color.

  The timeline reads as follows:

  • 1980s: Industry deregulation: National Transportation Act and Air Canada’s privatization
  • 1990s: Industry consolidation: Air Canada and Canadian Airlines International emerge as the two major airlines
  • 1996: WestJet entered
  • 2001: Air Canada acquired Canadian Airlines International, Canada 3000 acquired Royal Airlines and CanJet before exiting
  • 2002: JetsGo entered, CanJet re-entered
  • 2005: JetsGo exited
  • 2006: CanJet exited, Porter Airlines entered
  • 2017: Flair Airlines entered
  • 2018: Swoop entered
  • 2020-2021: Covid-19 pandemic
  • 2022: Lynx Air entered, Canada Jetlines entered
  • 2023: Swoop operations folded back into WestJet
  • 2024: Lynx Air exited, Canada Jetlines exited

One way we look at who leads in the industry is by the “domestic capacity share.” Capacity shares show how much of the total flying capacity each airline controls. We measure them by available seats (how many passenger seats were on all of an airline's flights) or seat-kilometres (the number of seats and how far they flew).

By 2014, domestic capacity shares (by available seat-kilometres) were:

• Air Canada had over half (55%).
• WestJet had more than one third (36%).
• Others had just under one tenth (9%).

More recently, several ultra-low-cost carriers (ULCCs) entered the market with mixed success. Lynx Air (2022 to 2024) and Canada Jetlines (2022 to 2024) were short-lived. WestJet’s ULCC brand, Swoop (2018 to 2023), was eventually folded into its main operations. Flair Airlines began its current operations in 2017 and is the only remaining ULCC in Canada.

By 2023, domestic capacity shares had shifted:

• Air Canada had less than half (47%).
• WestJet had just over a quarter (27%).
• Others now had one fifth (26%).

Figure: Carrier share of domestic available seat kilometres by year

• Description for "Carrier Share of Domestic Capacity (Available Seat Kilometres), 2015 to 2024"

  Figure: Carrier Share of Domestic Capacity (Available Seat Kilometres), 2015 to 2024

  Carrier	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024
  Air Canada	55%	56%	54%	52%	53%	54%	51%	49%	46%	48%
  WestJet	37%	37%	37%	35%	32%	31%	29%	26%	26%	28%
  Porter Airlines	3%	2%	2%	2%	2%	1%	1%	2%	6%	11%
  Flair Airlines	0%	0%	1%	2%	2%	3%	7%	9%	9%	8%
  Swoop	0%	0%	0%	1%	3%	3%	5%	6%	3%	0%
  Lynx Air	0%	0%	0%	0%	0%	0%	0%	2%	4%	1%
  Other	5%	5%	6%	7%	7%	8%	7%	6%	5%	4%

Source: Bureau analysis of OAG data

Figure: Map of the 100 busiest domestic routes in Canada, 2023

• Description for "Map of the 100 busiest domestic routes in Canada, 2023"

  A map of the 100 busiest domestic routes in Canada as of 2023. The map displays a network of blue lines connecting blue dots, representing Canada's domestic air routes between airports. The thickness of the lines visually indicates the busyness of the routes.

  The busiest routes are predominantly found between major urban centres. Fewer, thinner routes extend to smaller communities. Most of the busiest routes are concentrated in southern Canada, forming a dense east-west network. The routes connecting regional, rural, and northern airports are less dense.

Source: Bureau analysis of OAG data

The COVID-19 pandemic caused a severe disruption to air travel beginning in 2020 and extending into 2021, before it started to recover in 2022. By 2023, the industry had mostly rebounded to 2019 levels. Still, its recovery has been uneven across different travel segments.

Figure: Annual domestic air passenger traffic

• Description for "Annual domestic air passenger traffic"

  Figure: Annual domestic air passenger traffic

  Year	2019	2020	2021	2022	2023
  Passengers	46,656,763	14,522,278	17,226,097	36,218,675	43,023,646

Source: Statistics Canada. Table 23-10-0253-01 Air passenger traffic at Canadian airports, annual

Types of airlines and air services

Airlines provide air transportation services, moving passengers and cargo between origin and destination points. Routes are set out as origin-destination pairs, such as Toronto-Vancouver.

Airlines must get government approval to operate and must comply with different laws and regulations. Airlines maintain fleets of aircraft and employ trained pilots and crew. They depend on access to airports and other transportation systems to operate.

Service types

Airlines provide different types of service:

• Scheduled service refers to regular, pre-planned flights. They run on a fixed timetable, and the public buys tickets in advance.
• Charter service involves renting an entire aircraft for a specific trip. The charter client then sets flight times and destinations.

Network structures

Airlines operate different network structures:

• Hub-and-spoke networks bring together air traffic through central airports (hubs). Passengers connect in these hubs to reach final destinations.
• In contrast, point-to-point networks directly link city pairs without connections.
• Multi-stop routes serve several destinations one after another on a single flight.

Business models

Airlines also operate under different business models:

• Legacy carriers are full-service airlines that have been in business for the longest time. They offer extensive networks, various aircraft types, multiple service classes, and comprehensive amenities.

  These airlines mostly use hub-and-spoke networks to increase connection opportunities and network coverage.

• Discount airlines focus on keeping costs low to offer lower fares. They include low-cost carriers (LCCs) and ultra-low-cost carriers (ULCCs). They feature point-to-point networks, have all-economy seating, and charge passengers extra for options like baggage and seat selection.

  These carriers often operate a single aircraft type, keep their planes full and flying as much as possible, and serve   secondary airports to reduce fees.

• Hybrid airlines combine elements of full-service and low-cost models.

In northern and remote regions, airlines may operate combi-aircraft. These are aircraft that carry both passengers and cargo.

Flight types

Flights are commonly split into three types:

• Domestic flights: between two points within Canada
• Trans-border flights: between Canada and the United States
• International flights: connecting Canada with other countries

This study focuses on scheduled domestic passenger service, but other air transportation services are sometimes important.

The main service providers covered in this report

To transport passengers across Canada, airlines rely on airports and air navigation, security screening, and other services. They also need other important inputs, but those are not the focus of this report.

This section focuses on the biggest domestic carriers, major airports, and the main government regulators and other service providers. This report as a whole will also address the unique circumstances and challenges of regional airports and airlines where warranted.

Figure: Main service providers

• Description for "Main service providers"

  An infographic displaying logos of major Canadian aviation organizations, categorized into three sections: “Major airlines,” “Major airports,” and “Government.”

  Major airlines section:

  • Air Canada
  • Flair Airlines
  • Porter Airlines
  • WestJet

  Major airports section:

  • Toronto Pearson International Airport
  • Montréal-Trudeau International Airport
  • Vancouver International Airport
  • Calgary International Airport

  Government section:

  • Transport Canada
  • Canadian Transportation Agency
  • NAV Canada
  • Canadian Air Transport Security Authority (CATSA)

Who are the major airlines?

Canada has four main domestic passenger airlines and several regional and smaller airlines. The four main airlines are Air Canada, WestJet, Porter, and Flair. They mainly operate on busy, southern routes. While smaller overall, regional airlines may be very important to the areas they serve. Airlines are also often referred to as carriers.

The table below shows how many of the total domestic passengers are estimated to fly with the four main airlines. We refer to this as the “passenger share.” These numbers came from OAG flight data where the origin and destination were both in Canada. Keep in mind that they are estimates. We found some numbers were different when we compared them with other data sources.

Figure: Airline share of 2023 domestic passengers

• Description for "Airline share of 2023 domestic passengers"

  Figure: Airline share of 2023 domestic passengers

  Airline	Estimated Passenger Share
  Air Canada	34.1%
  WestJet	30.1%
  Flair Airlines	9.8%
  Porter Airlines	9.0%
  Others	17%

Source: Bureau analysis of OAG data

Why use passenger and capacity shares?

Both passenger and capacity shares help measure airlines’ size.

• Passenger shares directly reflect actual consumer choices. They are the percentage of travellers choosing each airline.
• Capacity shares show how much of the total flying capacity each airline controls.

Revenue shares would also be valuable, but we often lack this information.

Passenger and capacity shares are both useful. We have focused on passenger shares because they combine information about both how much capacity an airline has and how they can fill that capacity. This is known as its “load factor.” It makes passenger shares a more complete indicator. When we do not know the passenger share, we will sometimes use the capacity shares.

We discuss shares and market concentration in more detail later in the report.

Airline partnership agreements

• Description for "Agreements that affect services airlines offer"

  An infographic displaying four types of airline agreements, arranged horizontally from left to right, representing increasing levels of integration. Below these, a horizontal arrow indicates a spectrum from “Lower integration” to “Higher integration.”

  The agreements are:

  • Interline agreements: Icon of two airplanes within a circle. Description: Shared ticketing.
  • Codeshare agreements: Icon of two flight tickets. Description: Shared sales
  • Joint ventures: Icon of two hands shaking. Description: Shared profits and decision-making.
  • Capacity purchase agreements: Icon of a larger airplane above a smaller airplane within a circle. Description: Flights operated by regional airline for a major airline.

Interline agreements are agreements between airlines that allow passengers to travel across multiple airlines on a single ticket. Interline agreements make it easier to connect between carriers, especially to or from smaller communities. These agreements normally include baggage transfer between airlines, and people only have to check in once for the entire journey.

Codeshare agreements are partnerships where airlines can sell seats on each other’s flights using their own flight numbers and codes. Codeshare agreements are deeper than interline agreements. They allow airlines to market and sell tickets on flights on their partners’ planes as if they were their own.

Joint ventures are deeper, strategic partnerships. In joint ventures, two or more airlines combine their operations, resources, and revenue on specific routes or regions. Yet they remain separate companies. These agreements allow partner airlines to:

• Coordinate schedules
• Share costs and revenues
• Make joint decisions about pricing, marketing, and services to offer

Joint ventures are different from simpler partnerships. In effect, they create a single business unit for the routes they cover. The airlines share both profits and risks as if they were one carrier. Yet they maintain their distinct brands and independence.

Capacity purchase agreements are contracts where a major airline pays a regional carrier to run flights on specific routes using smaller aircraft. Usually, these flights are offered under the major airline’s brand. These agreements usually involve the major airline handling scheduling, pricing, and marketing. Then they pay the regional carrier a fixed fee that stays the same no matter how many passengers actually fly on those routes.

Air Canada

Air Canada is Canada’s largest airline. It provides passenger services to 50 domestic airports through its three main hubs:

• Toronto-Pearson International Airport
• Montréal-Trudeau International Airport
• Vancouver International Airport

Air Canada has agreements with other airlines to provide services beyond its travel routes.

Regional service

For travel to and from smaller communities, Air Canada provides regional service under the Air Canada Express brand. These routes often run smaller planes, and they connect regions with smaller airports. Air Canada offers regional service through a capacity purchase agreement with Jazz Aviation. They hold a minority share in Jazz through Chorus Aviation, Jazz’s parent company. In 2023, Air Canada expanded through the same type of agreement with PAL Airlines. This agreement with PAL allowed them to serve more regions in Eastern Canada.

Routes to regional and remote communities

Air Canada extends its reach to remote communities in Canada through interline agreements. There are agreements with several regional carriers, including:

• Air Creebec
• PAL Airlines
• Pascan Aviation
• Bearskin Airlines
• Canadian North
• Central Mountain Air

They have an added codeshare agreement with Central Mountain Air.

Leisure and rewards

Air Canada Rouge is Air Canada’s leisure carrier for vacation travel. The company also runs Aeroplan, its travel loyalty program.

Joint ventures

Air Canada has several international joint ventures. An example is one with United Airlines for most flights between Canada and the United States.

Air Canada is also a founding member of the Star Alliance network.

WestJet

WestJet is Canada’s second-largest airline and provider of passenger services. Its main hub is Calgary International Airport. It is a private company owned by Onex Corporation. WestJet announced on May 9, 2025, that Delta Air Lines will acquire a 15% stake and Korean Air a 10% stake in the airline from Onex Partners.

Regional service

WestJet provides regional service under the WestJet Encore brand.

Leisure and rewards

WestJet Rewards is the company’s loyalty program. WestJet acquired Sunwing Vacations and Sunwing Airlines in May 2023. It also has WestJet Vacations and other brands.

Routes to regional and remote communities

WestJet extends its reach to Canadian remote communities through interline agreements with several regional carriers, including:

• Central Mountain Air
• Pacific Coastal Airlines
• PAL Airlines
• Air North
• Canadian North

WestJet recently merged its operations and discontinued two brands:

• Swoop stopped running in October 2023. This was WestJet’s ultra-low-cost carrier (ULCC).
• WestJet Link ended in October 2024. This was its regional service offered through a capacity purchase agreement with Pacific Coastal Airlines.

Porter Airlines

Porter Airlines flies to destinations across Canada and the United States from multiple hubs. Its original base is at Billy Bishop Toronto City Airport. Only smaller turboprop aircraft can use this airport.

As Porter added jets to its fleet, the airline expanded to include hubs at Toronto-Pearson International Airport and Ottawa International Airport. Porter is also developing Montréal Metropolitan Airport in Longueuil as a secondary airport for Montreal. This airport can only offer domestic flights.

Porter has a joint venture with Air Transat. This allows it to connect its flights with Air Transat’s. Air Transat mainly flies to European and sun destinations.

Flair Airlines

Flair Airlines is a Canadian ULCC based in Edmonton. They fly to over 35 destinations across Canada, the United States, and sun destinations.

As a ULCC, Flair offers low base fares for basic travel. Passengers pay separately if they want to add services such as baggage, seat selection, and in-flight refreshments.

The airline reports that its low-cost model has saved Canadian travellers over $702 million since 2021.

Regional airlines

Several regional and smaller carriers also provide air service across Canada.

A complete list of airlines offering passenger air services in Canada appears in Appendix B: Canadian Domestic Airlines. You will see some of these other airlines discussed throughout this report.

The role of airports

Airports create systems to handle the flow of passengers, baggage, and aircraft. To move and park aircraft for flight operations, they maintain:

• Runways
• Taxiways
• Apron areas

For passengers, they offer terminal buildings with:

• Check-in counters
• Security screening
• Waiting areas
• Boarding gates

Additional services include:

• Baggage handling
• Retail shops
• Restaurants
• Parking
• Car rentals

Ground handling services help maintain and refuel aircraft.

Canada has 295 certified airports that can offer scheduled passenger flights. The federal government owns most of Canada’s major airports. They mostly lease the airports to not-for-profit airport authorities responsible for running and developing them.

Toronto-Pearson International, Vancouver International, Montréal-Trudeau International, and Calgary International are the country’s four busiest airports. They handle more than half (55%) of all domestic passengers.

Figure: Share of domestic passenger traffic by airport, 2023

• Description for "Share of domestic passenger traffic by airport, 2023"

  An infographic of the share of domestic passenger traffic by airport as of 2023. The larger segment shows 55% and represents the “Four busiest airports: Toronto-Pearson International, Vancouver International, Calgary International, and Montréal-Trudeau International.” The smaller segment shows 45% and represents “Other airports.”

Main government regulators and other service providers

Transport Canada is the federal department responsible for transportation policies and programs. In aviation, Transport Canada oversees these important components, among others:

• airlines
• airports
• air navigation services
• essential employees

The Minister of Transport is responsible for reviewing how mergers affect the public interest. They also oversee agreements between airlines to coordinate their services.

The Canadian Transportation Agency (CTA) is an independent regulator and tribunal with certain powers. The CTA:

• Sets and applies rules for transportation service providers and users
• Hears and resolves disputes
• Oversees consumer protection for air passengers, including the Air Passenger Protection Regulations
• Licenses airlines and administers the Canadian ownership and “control in fact” tests for airlines
• Hears appeals of decisions about how much Nav Canada charges

Nav Canada is a not-for-profit corporation that finances itself. Nav Canada provides civil air navigation services including:

• Air traffic control
• Flight and weather information
• Communication facilities
• Navigation aids
• Assistance in emergencies

The Canadian Air Transport Security Authority (CATSA) is a Crown corporation that:

• Screens air travellers and their baggage
• Screens airport workers
• Manages the airports’ identity card system

State of competition

Introduction

Understanding the state of competition in Canada’s airline industry is crucial for several reasons.

1. It directly impacts millions of travellers. It affects how much airfares are, what routes are available, and whether airlines provide quality service.
2. Canada is a vast country where air travel is often the only practical way to connect communities. So competition in this industry affects Canada’s economic wellbeing and social fabric.
3. Recent industry developments have reshaped the competitive environment. Highlights are that new entrants are expanding and major carriers are making strategic moves.

This section looks at several key dimensions of airline competition:

• How passengers choose between travel options
• How concentration has evolved and how it affects the market
• How competition impacts prices
• How the dynamics between major carriers are changing
• How new entrants are shaping competition

Key takeaways

• Market concentration remains very high despite new entrants making progress. Air Canada and WestJet still account for between half and three quarters of domestic passengers at major airports (56 to 78%).
• Competition brings big benefits. Adding an extra competitor to a route reduces airfares by almost one tenth on average (9%). It can also push other carriers to improve their service quality.
• Head-to-head competition between major carriers has decreased. Air Canada and WestJet serve fewer common routes than before.
• With so many new carriers failing to stay in the market, especially ULCCs, it is clear there are challenging barriers to stable, long-term competition that make current progress fragile.

How travellers choose between transportation options

It helps us to analyze competition when we can identify which services customers see as realistic alternatives to each other. When travellers plan a trip, they compare options based on factors like travel time, convenience, and price. Our past work shows that for most routes in Canada, flying is quite different from other ways of travelling, such as driving or taking the bus. Shorter trips might have more options to choose from. Future high-speed rail projects could create new ones on some routes.

Still, air travel serves a distinct need. Understanding this helps focus our analysis on competition between airlines, not between different modes of transport.

High-speed rail network: A new travel option and how it may change competition

The Canadian government is planning a new passenger rail network that may create another travel option for the region. It would run between Québec City and Toronto. The project was called High-Frequency Rail and then renamed as Alto. It would provide train service for passengers that is fast, frequent, and reliable. There would be stops in Québec City, Trois-Rivières, Laval, Montréal, Ottawa, Peterborough, and Toronto.

The Canadian government has selected a team to develop the train service. Air Canada is part of this team. The next step is project development. It will be five years before construction starts.

Air Canada says that its part in the planning will help integrate the future rail network with existing airports and benefit all passengers. However, high-speed rail advocates and others have raised concerns that Air Canada may oppose having a competing transportation option. They have raised other competition questions as well.

A new passenger rail service could compete with airlines for certain routes like Montréal-Toronto or Ottawa-Toronto. However, rail service could also promote air travel. It could provide efficient airport connections to more locations.

Faster ground transportation could also increase competition between airports because it expands each airport’s reach and makes smaller airports more attractive to new airlines. For example, some residents of Ottawa and Montreal may be more likely to consider using either city’s airport with an improved rail option. The project is at an early stage, so it is difficult for us to know the project’s overall effect on competition. We intend to keep track of it and are available to provide competition advice to policymakers.

Air Canada offers bus connections

In May 2024, Air Canada began offering motorcoach service from Hamilton and Waterloo airports to Toronto-Pearson International Airport. This new ground transportation option aims to make it easier and more convenient to connect people between regions. Passengers can book a single itinerary that includes a bus trip. Customers check in at Hamilton or Region of Waterloo airports. And just as if they were flying, they would be automatically rebooked if the bus is delayed.

Several factors besides price affect passengers’ flight choices:

• Direct versus connecting flights (people prefer direct)
• When and how often flights are available
• An airline’s reputation, service quality, and loyalty programs
• Where the airport is and how easy it is to get there

Normally, we look at competition for specific origin-destination pairs, an example being Toronto-Montreal. Our review usually focuses on an airport, but sometimes we look more broadly based on a city or region.

When multiple airports serve the same area, we look at whether they are good alternatives to each other. We consider factors such as:

• What flights are available
• Where the airports are
• How available ground transportation is

In this report we look at services between airports and cities. And we consider both direct and connecting flights.

A concentrated airline industry with few major competitors

The Canadian airline industry is concentrated because just a few major carriers serve most passengers.

Market concentration is based on the number and size of airlines. It helps us measure competition. A concentrated market has few, large airlines. They face less pressure to offer passengers a good deal because travellers have few choices.

Earlier in this report we looked at airlines’ national share of domestic passengers. This helps us understand domestic airlines. But it does not fully capture passengers’ competitive options. We typically assess airline competition based on routes, because passengers generally choose between carriers serving the same origin and destination points. However, Canada’s wide network of routes means we cannot practically look at each individual route one at a time. Instead, we look at concentration at major airports. We also analyze data on each individual route and summarize what we find. This approach gives us a clearer picture of competition overall. It helps us capture regional differences and trends over time.

The following is more on what we learned.

Airline passenger share at major airports

Canada’s domestic aviation sector is highly concentrated, with two leading carriers. At Canada’s eight busiest airports, in 2023 Air Canada and WestJet accounted for half to three quarters of all domestic passengers combined (56% to 78%).

Air Canada has the largest share at its Toronto, Vancouver, and Montreal hubs, and at eastern airports in Ottawa and Halifax. WestJet is the largest carrier at its Calgary hub, and at western airports in Edmonton and Winnipeg.

Figure: Major airline share of domestic passengers at large airports in 2023

• Description for "Major airline share of domestic passengers at large airports in 2023"

  Figure: Major Airline Share of Domestic Passengers at Large Airports in 2023

  Airport	Air Canada	WestJet	Flair	Porter	Other
  Toronto-Pearson	50%	23%	10%	10%	7%
  Vancouver International	41%	28%	12%	4%	14%
  Montréal-Trudeau	61%	5%	6%	15%	13%
  Calgary International	24%	54%	12%	2%	8%
  Edmonton International	21%	49%	18%	5%	6%
  Winnipeg International	25%	42%	14%	2%	17%
  Ottawa International	41%	15%	10%	30%	4%
  Halifax International	40%	23%	15%	19%	4%

Source: Bureau analysis of OAG data

Airline passenger shares at major Canadian airports have shifted in recent years. Between 2019 and 2023, Flair Airlines and Porter Airlines increased their domestic passenger market share at Canada’s major airports. At the same time, Air Canada and WestJet saw their shares decline. Porter is now the second largest airline at Montreal and Ottawa.

This shift signals that competition is changing. Newer airlines are gaining ground and established ones are losing share. However, it is difficult to separate out the reasons for these changes. Some possible reasons are:

• The pandemic disrupting the airline industry
• The larger airlines purposely pulling back, which left room for new entrants
• Porter and Flair expanding and eating into Air Canada and WestJet’s market share

These and other factors may be combined. It is also difficult to know how lasting these changes will be.

Things changed most dramatically in opposite parts of the country: WestJet lost the most share in eastern markets while Air Canada lost the most share in the west.

WestJet’s share in eastern markets dropped by close to two thirds in Montreal (15% to 5%) and by nearly half in Halifax (43% to 23%). Its share also declined by roughly one third in Ottawa (24% to 15%) and Toronto (34% to 23%).

Air Canada saw its steepest drop in western markets. Its share fell by nearly one third in Calgary (35% to 24%) and Edmonton (31% to 21%). Its share fell by about one fifth in Vancouver (52% to 41%) and Winnipeg (31% to 25%).

We look at these changes in more detail below.

Competitors on Canadian routes

The number of competitors varies a great deal across Canadian routes. Overall, though, it has increased over time. Most Canadian routes are served by only one airline, but most passengers fly on routes with multiple carriers. There are a large number of routes with small passenger numbers and a few routes with many passengers. That is why the picture looks so different for passengers and routes.

In 2019, roughly two thirds of passengers flew on routes with either two or three airlines. By 2023, more than half of passengers were flying on routes served by four or more airlines. This increase shows greater competition on major routes. However, during this same period, the total number of routes in Canada lowered from about 2,700 to 2,400.

We looked at all routes between any two Canadian airports with up to two stops. We did not use the direction of travel when counting routes, e.g. we counted Toronto-Vancouver and Vancouver-Toronto as one route. This is known as a bidirectional route. Lynx Air and Canada Jetlines are included in these counts but exited the market in 2024. Without these two carriers, the picture shifts. But two thirds of passengers would still have travelled on routes with three or more airlines.

Figure: Percentage of passengers travelling on routes served by 1, 2, 3, or 4+ airlines

• Description for "Percentage of passengers travelling on routes served by 1, 2, 3, or 4+ airlines"

  Figure: Percentage of passengers travelling on routes served by 1, 2, 3, or 4+ airlines

  Year	1 Airline	2 Airlines	3 Airlines	4+ Airlines
  2019	14%	31%	31%	24%
  2023	12%	20%	10%	58%
  2023*	14%	20%	26%	41%
  Note: 2023* excludes Lynx Air and Canada Jetlines.

Source: Bureau analysis of OAG data

Figure: Number of routes served by 1, 2, 3, or 4+ airlines

• Description for "Number of routes served by 1, 2, 3, or 4+ airlines"

  Figure: Number of routes served by 1, 2, 3, or 4+ airlines

  Year	1 Airline	2 Airlines	3 Airlines	4+ Airlines	Total
  2019	1,572	825	235	74	2,705
  2023	1,245	638	246	231	2,359
  2023*	1,266	644	295	153	2,357
  Note: 2023* excludes Lynx Air and Canada Jetlines. Route counts by year are averages of route counts by month in that year.

Source: Bureau analysis of OAG data

Concentration is dropping but still high

Concentration in the Canadian airline industry fell by 10 percent from 2019 to 2023. This reflects smaller airlines entering the market and growing, and it suggests more competition.

However, on average the market is still extremely concentrated. It reaches more than three times the level at which the merger provisions of the Competition Act consider markets to be concentrated.

To come to these conclusions, we measure market concentration in three steps:

1. Calculate each airline’s passenger share for each airport-to-airport route
2. Convert these shares into concentration measures by route
3. Calculate a national average based on how many passengers fly each route

Again, we looked at all bidirectional routes between any two Canadian airports with up to two stops. This measure of concentration is known as the Herfindahl-Hirschman Index (HHI). It is higher in markets with fewer, larger carriers.

Major airlines note that concentration levels are similar to the US, Europe, and Australia. They view the Canadian market as competitive overall, mainly because new airlines have entered the market and expanded.

Competition leads to much lower fares

To learn more about how competition is playing out in the market, we worked with an independent economic expert. We looked at how Air Canada, WestJet, and Porter adjust their prices in response to competition from each other and Flair.

We learned that Air Canada, WestJet, and Porter price 9% ($27.80) lower on average when they face an additional competitor on a specific route. This shows that competition drives airlines to improve, and passengers benefit.

We find that competition leads to much lower fares in most situations we looked at. Interestingly, we found that competing with WestJet reduces Air Canada’s pricing. But we did not find the opposite was true. We have not found a reason for this difference.

The effect of competition on airfares shifted before and after the pandemic. Competition with WestJet, Porter, and Flair had a weaker effect on Air Canada’s prices after the pandemic. Likewise, competition with Air Canada and Porter had a weaker effect on WestJet’s fares after the pandemic. The same was true for WestJet’s impact on Porter’s fares. On the other hand, competition with Flair had a stronger impact on WestJet’s and Porter’s prices after the pandemic.

This suggests there is less price competition now among Air Canada, WestJet, and Porter, but it is still important. We have not found a reason for this shift.

We can measure Flair’s impact on other carriers’ pricing, but we don’t have data to measure Flair’s own pricing responses. We also cannot measure Porter’s pricing responses to Air Canada because Porter almost always operates on routes with Air Canada.

We focus our analysis before and after the pandemic periods, but not during the pandemic itself. Specifically, our study covered January 2019 to February 2020, and May 2022 to October 2025. It includes domestic air travel routes between Canada’s 35 busiest cities with up to two stops. These routes may only be about 8% of routes, but they are nearly two thirds of domestic passenger traffic. They also have the most reliable data. The fare data is for base fares. It does not include extra services like seat selection or checked baggage. The data is reported in US dollars, which we convert to Canadian dollars. We analyzed the data using a technique called Instrumental Variable Regression. This technique helps us find the effect of competition. It takes into account other factors that can affect an airline’s prices and decisions to serve certain routes. We call this “controlling for other factors”.

Flair reported that when it enters a market, airfares fall by one third on average (34%). We asked Flair about their research. They told us that they compared total route fares after they entered the market to those from the same month in the year before. Flair’s research uses different data than ours. Theirs includes Flair’s lower fares and routes to the US and sun destinations. Flair’s research also used a different approach than ours. They did not control for other factors like we did. In the most recent numbers they shared with us, fares fell by more than one tenth on average when Flair enters a market (12%). This number aligns more closely with our findings, even with a different approach and set of data.

Changing competitive relationship between Air Canada and WestJet

How Air Canada and WestJet compete with each other has changed since 2019. The main aspects of these changes have been:

• Changes to their flight network
• Different pricing trends
• Contrasting approaches to managing quality and cost

Market restructuring post-pandemic

During the pandemic, Air Canada and WestJet offered fewer flights and faced each other on fewer routes. In 2022, WestJet announced a new strategy. They planned to reposition their regional fleet to concentrate on Western Canada and reduce services elsewhere. In 2023, media reported on changes in the routes flown by both airlines. WestJet was reducing service in eastern Canada while Air Canada was reducing service in western Canada.

Changes in route competition

Air Canada and WestJet are competing head-to-head on fewer routes now compared to 2019. Air Canada and WestJet have both reduced their routes. From 2019 to 2023, Air Canada reduced its routes between top-35 Canadian cities by more than one tenth (12%) and WestJet by one fifth (20%). We count routes with up to two stops.

There is also less overlap between these carriers: Air Canada now competes with WestJet on roughly six in 10 of its routes (61%), down from seven in 10 in 2019 (72%). Similarly, WestJet now competes with Air Canada on less than eight in 10 of its routes (77%), compared to more than eight in 10 in 2019 (83%).

The share of routes where only one of the major airlines operates has increased. Air Canada now operates without competition on close to one third (30%) of its routes, up from one quarter (25%). For WestJet, the increase has been from roughly one sixth (17%) of its routes to almost one quarter (23%).

However, on routes where both major airlines operate, competition from smaller carriers has gone up. Since 2019, Air Canada now faces both WestJet and at least one smaller carrier (Flair or Porter) on nearly one sixth of its routes, up from just over one tenth (11% to 16%). For WestJet, this figure has increased by even more, from less than one sixth to more than one fifth (13% to 21%).

These trends show Air Canada and WestJet now overlap less in their routes but face smaller airlines more often where they do overlap.

Evolving pricing dynamics

In addition, Air Canada has been steadily raising its fares compared to WestJet since 2022. This trend is strongest where the airlines compete directly, which indicates that it’s not simply due to network changes. On routes between top-35 cities where both carriers operate, the average difference between their fares has grown quite a bit:

• $76 in 2019
• $170 in 2023
• $214 for the 12 months ending October 2024

Air Canada’s prices have risen compared to WestJet’s at the same time as it lost market share to WestJet. This suggests that Air Canada may not have made quality improvements that fully justify the price increases.

Figure: Average base fare difference between Air Canada and WestJet on competing top 35 city routes

• Description for "Average base fare difference between Air Canada and WestJet on competing top 35 city routes"

  Figure: Average base fare difference between Air Canada and WestJet on competing top 35 city routes

  Month	Air Canada - WestJet fare gap
  2019-01-01	$83.37
  2019-02-01	$90.42
  2019-03-01	$91.43
  2019-04-01	$83.45
  2019-05-01	$73.30
  2019-06-01	$71.88
  2019-07-01	$62.15
  2019-08-01	$68.93
  2019-09-01	$72.51
  2019-10-01	$72.70
  2019-11-01	$73.18
  2019-12-01	$62.46
  2020-01-01	$77.65
  2020-02-01	$76.42
  2020-03-01	$73.73
  2020-04-01	$46.55
  2020-05-01	$44.52
  2020-06-01	$31.83
  2020-07-01	$29.66
  2020-08-01	$33.91
  2020-09-01	$86.01
  2020-10-01	$65.95
  2020-11-01	$65.64
  2020-12-01	$80.20
  2021-01-01	$79.39
  2021-02-01	$102.78
  2021-03-01	$111.12
  2021-04-01	$89.74
  2021-05-01	$149.64
  2021-06-01	$94.91
  2021-07-01	$88.04
  2021-08-01	$113.96
  2021-09-01	$98.69
  2021-10-01	$86.65
  2021-11-01	$99.83
  2021-12-01	$84.73
  2022-01-01	$82.83
  2022-02-01	$90.07
  2022-03-01	$123.25
  2022-04-01	$134.89
  2022-05-01	$111.67
  2022-06-01	$104.19
  2022-07-01	$102.07
  2022-08-01	$98.20
  2022-09-01	$127.63
  2022-10-01	$139.26
  2022-11-01	$141.84
  2022-12-01	$135.60
  2023-01-01	$148.49
  2023-02-01	$173.03
  2023-03-01	$129.20
  2023-04-01	$169.38
  2023-05-01	$176.52
  2023-06-01	$179.03
  2023-07-01	$168.09
  2023-08-01	$172.19
  2023-09-01	$183.24
  2023-10-01	$171.05
  2023-11-01	$196.39
  2023-12-01	$170.83
  2024-01-01	$208.89
  2024-02-01	$224.98
  2024-03-01	$243.46
  2024-04-01	$209.71
  2024-05-01	$202.06
  2024-06-01	$179.06
  2024-07-01	$218.45
  2024-08-01	$234.03
  2024-09-01	$221.69
  2024-10-01	$255.02

Source: Expert economic analysis of OAG data

Further analysis and implications

To better understand airline competition and pricing, we analyzed how customers choose between different airlines. To do this analysis, we worked with an independent economic expert using a standard economic model.

What we learned suggests that Air Canada and WestJet have pursued different competitive strategies in managing pricing, quality, and costs. These differences have widened the fare gap between the flights they now offer. This mirrors the changes in their route networks discussed above.

The analysis we did reveals that Air Canada has focused on improving service quality over time, and this has led to higher costs. This finding is based on overall quality and cost estimates from the model. It is not based on specific measurements of factors like whether they are reliable, what in-flight amenities they offer, or how much they spend on their business. WestJet’s focus contrasts with that. They appear to be managing operating costs while maintaining service quality. This approach proved quite successful. WestJet has been able to be more profitable without losing market share.

Based on our estimates, Air Canada used to lead the market in profit margins, with WestJet following closely and Porter in third place. However, this pattern shifted notably in 2023 when WestJet took the lead and maintained it.

Porter’s jet expansion increasing competition

Porter’s jet expansion is lowering prices for passengers and causing other airlines to increase the quality they offer. Public reporting linked Porter’s expansion with Air Canada’s introduction of complimentary alcoholic drinks and WestJet’s introduction of free Wi-Fi. Reports also discuss Porter’s growth and role in helping to drive down prices.

In February 2023, Porter Airlines began a major expansion with new jet service. The airline’s fleet grew a lot. They added at least 36 new jets to their 29 existing turboprops. The new jets seat 132 passengers. They can take people across North America, unlike the 78-seat turboprops.

Porter’s new domestic routes include:

• From Toronto-Pearson: Vancouver, Edmonton, Calgary, Halifax, Winnipeg, St. John’s, Victoria, Saskatoon, Quebec City, Thunder Bay
• From Ottawa: Toronto-Pearson, Thunder Bay, Charlottetown, Vancouver, Calgary, Winnipeg, St. John’s
• From Montréal-Trudeau: Vancouver, Edmonton, Calgary

Porter was able to expand at Toronto-Pearson, but the airport’s congestion limited their growth during peak hours. The airline had to schedule most of its flights during off-peak periods. Ottawa is not a congested airport, but Porter invested in hangars there to support its expansion. Porter’s new jet service at Montréal-Trudeau is more limited, and they are investing in Montreal Metropolitan airport. Flair noted similar challenges accessing slots at Toronto-Pearson and Montréal-Trudeau.

However, major barriers to lasting market entry still exist, as we will see next.

Barriers to entry

Introduction

For the competitive market to thrive in Canada’s aviation sector, airlines need to be able to enter and expand in markets where they see opportunities. However, multiple barriers can block or discourage new airlines from entering the market.

These barriers limit competition and ultimately affect the choices and prices available to Canadian travellers. They range from direct restrictions on operating airlines, to high start-up costs and other factors that reduce potential profits.

It is crucial to understand and address these barriers. Doing so will support a more competitive aviation sector that better serves Canadians. Removing barriers will help promote:

• Increased choice
• Improved service
• More competitive prices

Key takeaways

• New airlines struggle to compete, but policy changes can help.
• User-paid aviation fees make up close to 30% of passenger revenue for most airlines, and they hit ultra-low-cost carriers even harder. Yet calls for government to subsidize the industry raise more complex questions. We do not study these questions.
• Airport access favours established airlines over newcomers. Secondary airports could increase competition if they are allowed to freely compete with primary airports serving the same metropolitan region.

Barriers airlines face to enter the market

When assessing competition in a market, we look at both current competitors and potential new ones. New airlines can put competitive pressure on existing airlines. These airlines may even feel the pressure if they learn that a new airline is poised for success in entering the market.

Airlines might be blocked from entering if they cannot get the permissions they require. Even if they can enter, they will only do so if they believe they can make more money in the future than they spend getting started.

That is why we look at barriers to entry that can:

• Directly restrict airlines’ operations
• Increase start-up costs
• Reduce operating profits

In the past, we have found that it was hard for new airlines to enter the market and stay in business. Without a lasting presence, a new airline cannot challenge existing airlines. During this study, we heard from airlines and other stakeholders about different barriers to entry. Many stakeholders noted Canada’s geography, weather, and population as common challenges to the airline industry. These factors lead to higher costs to operate and lower potential to earn revenue and make a profit. This is especially true for regional markets with smaller populations, even more so where the people there can drive to larger airports. This means fewer passengers to offset fixed costs and achieve “economies of scale”. Economies of scale mean airlines become more efficient and save money as they get bigger.

New airlines face distinct challenges compared to established carriers:

• When they open, they pay high start-up costs but make limited revenue. Routes often operate at a loss until passenger volumes grow. Building brand recognition to attract passengers takes time.
• Because they have a smaller scale, new airlines often attract fewer passengers than established carriers, even with lower fares. They have fewer planes, less-frequent service, and limited route networks. They also usually lack access to interline agreements and global alliances that would extend their network reach.
• Loyalty programs can worsen these issues because some passengers may only travel with one preferred airline. Even when a new airline offers better prices on specific routes, passengers may stay with major carriers to keep their loyalty benefits for other flights.

Figure: Key challenges faced by new airlines

• Description for "Key challenges faced by new airlines"

  An infographic summarizing the key challenges faced by new airlines. It displays five challenges arranged in a semi-circle above a series of concentric blue arcs. Each challenge is described by text and accompanied by a green outline icon within a dotted circle.

  The challenges and their corresponding icons are:

  1. High start-up costs and slow revenue growth, depicted by a stack of paper money.
  2. Difficulty building brand recognition, depicted by a megaphone.
  3. Small scale (fewer planes, less frequent service), depicted by an airplane.
  4. Lack of access to interline agreements and alliances, depicted by a broken chain link.
  5. Loyalty programs favour incumbents, depicted by a star medal with a ribbon.

High barriers to entry means less competitive pressure on existing airlines. The fact that airlines drop their prices when facing a new competitor suggests that barriers to entry are high. If entry were easy, prices would already be at competitive levels. That said, the mere threat of entry may still create some competitive pressure on prices, even if this effect is less powerful than actual competition.

The rest of this section discusses the main barriers to entry that we heard about during our study. We first review concerns airlines and other players in the industry have raised, but where we do not make recommendations:

• Industry trends – including the shift to larger aircraft and labour shortages
• Regulatory costs – including outdated regulations, pilot flight and duty time regulations, and the Air Passenger Protection Regulations

Next, we turn to issues where we do make recommendations:

• How aviation infrastructure is funded, including Canada’s system of fees and taxes
• How airlines access airports
• How CATSA services are provided to different airports
• Predatory behaviour in the airline industry

Industry trends raising costs and limiting regional service

We heard from stakeholders about different issues affecting the global airline industry.

• High fuel costs impact operating expenses.
• Supply chain issues with aircraft and engine manufacturers have led to aircraft shortages.
• Labour shortages and the shift to larger aircraft are changing how airlines operate and which routes they choose to serve.

Shift to larger aircraft

An industry shift to larger planes globally has made routes to smaller communities unprofitable. There are not enough travellers for the larger planes. For some communities, this means losing air service entirely. For others, there are fewer flights or direct connections.

For example, Air Canada phased out 37- and 50-seat regional aircraft in 2020 and 2022 respectively. The airline’s smallest regional aircraft now seat 76 to 78 passengers. Likewise, WestJet transitioned WestJet Link routes to WestJet Encore in 2024. WestJet Link planes seated 34 passengers while WestJet Encore planes seat 78. We heard that most 30- to 50-seat aircraft are ageing out of service with limited replacement options. Added to that, rising fuel and labour costs make this size aircraft uneconomic to operate in many settings.

The shift across the industry is reflected in the Canadian Airports Council submission. From 2019 to 2024, it shows a clear trend toward airlines operating larger aircraft and less frequent flights. Major airports’ seat capacity has remained stable. But flights are far less frequent, down by as much as one third (35%). The impact on regional airports has been more severe. Their seat capacity has dropped by as much as half (58%) and flights have gone down by almost three quarters (70%).

Labour shortages

The air transportation sector faces major labour shortages in important positions. A shortage of air traffic controllers and airport screening officers limits overall capacity at airports. Some stakeholders called for Nav Canada, CATSA, and other agencies to make a greater effort to help improve capacity. Airlines also face shortages of pilots, cabin crew, and aircraft maintenance personnel. So they choose to use the people they have for their most profitable routes.

Regional airlines feel an even greater impact. They struggle to keep employees who often move to larger carriers that pay better. At the same time, major carriers like Air Canada and WestJet are reducing regional service, favouring busier routes with larger aircraft. ULCCs also take a big hit from higher labour costs. Their business model is based on using low fares to attract more passengers.

Regulatory costs

Regulations are rules set by the government that tell people and businesses what they can and cannot do. There are consequences (like fines or penalties) if they are not followed. Well-designed rules are essential for competitive markets. They meet important objectives, such as keeping people safe and protecting consumers. They can also impact competition in a market, for example by changing the cost of doing business.

Here are some examples of how regulations affect airline competition in Canada.

Outdated regulations

Airlines and other stakeholders have called for regulations to be modernized. They told us that some regulations are outdated or have not been reviewed in years. The National Airlines Council of Canada notes that outdated regulations create inefficiencies. One example is requiring that Canadian airports still manually verify passenger documents, even while other countries use modern biometric technology.

Transport Canada’s Office of Regulatory Policy and Innovation promotes improved regulations. These include modernization efforts spelled out in the Annual Regulatory Modernization Bill. This annual law-making process provides a way to make updates and eliminate rules that may be hampering innovation and competition in the sector.

For policymakers: Policymakers can use our Competition Assessment Toolkit to help identify competition issues and solutions so that people benefit from competitive markets.

Pilot flight and duty time

Pilot flight and duty time regulations manage crew fatigue and improve aviation safety. They were updated in 2018 and came into force in 2020 for large commercial operators and 2022 for smaller operators.

The effect of these regulations is that more pilots are needed for the same amount of flying. And this contributes to issues linked to pilot shortages: they affect the number and types of flights airlines can operate, and again they have even more impact on regional routes.

Transport Canada has noted industry concerns and continues to work with stakeholders to identify key issues and consider improvements. Safety is critical no matter what, but we encourage regulators to find cost-effective approaches. Applying those approaches can make more routes possible and promote competition.

Air Passenger Protection Regulations

The Air Passenger Protection Regulations (APPR) are designed to compensate passengers for travel delays and lost or damaged baggage.

Consumers expressed frustration that compensation is only required for issues within airline control and that it can be unclear what is in “airline control.” Airlines said they were frustrated with being the only part of the air transportation sector required to compensate passengers.

However, extending compensation requirements to other service providers would likely not help. These providers do not earn profits and tend to work on a cost-recovery basis, so they would simply pass any extra costs back to airlines, passengers, and taxpayers. The Canadian Transportation Agency is in the process of updating the regulations following changes to the laws in 2023. These updates aim to strengthen protections and make them clearer and less complex.

Airlines point to the APPR as an additional cost for them. The Canadian Transportation Agency has proposed a new fee of $790 for each eligible air travel complaint it processes and closes, no matter the outcome. They planned to start charging the fee in fall 2024, but still have not as of January 31, 2025. Airlines have expressed concern that this new fee will further increase their APPR-related costs.

We collected information from airlines on their expenses related to the APPR. They pay for administration, compensation, and administrative monetary penalties. These costs are approximately a dollar for every hundred dollars of what airlines charge passengers.

This may seem modest overall, but these costs could make the difference between profit and loss on some routes. Stakeholders noted that this poses a particular challenge for smaller regional routes. These routes tend to have lower profit margins to begin with and face a higher risk of disruptions that trigger APPR expenses. Both factors increase the likelihood that APPR costs could tip a regional route from profitable to unprofitable. Airlines tend to choose where to fly based on how much money they can make, so reducing profits risks continued service.

It also contributes to the trend towards hub flights. In hub flights, a flight starts or ends at a hub instead of providing point-to-point service that connects two non-hub airports.

Smaller regional airlines told us that the APPR are also especially challenging for multi-stop routes. In those routes, delays are harder to recover from than they are in either point-to-point or hub-and-spoke routes. ULCCs also told us of the particular challenges APPR create for their operations. Their business model relies on low prices, and they tend to offer point-to-point routes. These comments suggest that APPR costs could affect whether certain routes and carriers can remain in the market.

We recognize that protecting consumers is important. But we encourage policymakers to also consider competition. Regulations that affect whether routes can stay open have big impacts on consumers and competition. In addition, promoting competition can help achieve the APPR’s goals. This is especially true when it comes to planes arriving on time, as airlines facing competitive pressure are more likely to improve their on-time performance.

Aviation infrastructure funding and effects on ticket prices and competition

Canada follows a user-pay model for aviation infrastructure. Airlines and passengers pay fees for the services they use and to invest in infrastructure. The government has some programs to fund aviation systems and services. But this funding is limited compared to other countries where governments provide more funding and impose lower user fees overall.

User fees directly affect ticket prices, and these in turn influence travel decisions. It is true that users make better economic decisions when prices reflect actual costs (travelling only when the value received exceeds the price).

Yet setting optimal user fees is complex. Current fees aim to recover all costs, including fixed costs that do not increase when serving an additional user. This can result in charging users more than the actual cost to serve them.

These higher fees create several challenges:

• They weaken the business case for airlines to enter and maintain service in markets.
• They have the strongest impact on low-cost carriers, whose business model relies on attracting new flyers with low fares (in some cases, mandatory fees in Canada are higher than the entire ticket price of low-cost carriers in other countries ).
• They can leave commercial air service on shaky ground in regions with lower demand.

Lower costs promote competition because more carriers can enter markets and run successful flights. However, simply shifting costs through subsidies does not reduce actual costs—it just changes who pays them. At the same time, air travel creates important economic and social benefits for communities, including increased business activity and connections to friends and family. Increasing these connections can help workforces to be more mobile and strengthen business and innovation clusters. All of these outcomes boost productivity.

Because of economies of scale, more domestic traffic would also help make airline networks more efficient. It may be especially important to consider these benefits in regions with lower demand, where commercial air service might not succeed without support. Air travel also creates external costs, such as noise and pollution, and these need to be considered. Whether subsidies from the government are a good idea or not is a more complex economic and policy question and is outside the scope of our study.

In response to these challenges, airlines and other stakeholders have called for a review and revision of the current user-pay model. They point to the following costs in particular.

User fees

Air Travellers Security Charge

The Air Travellers Security Charge (ATSC) is a fee included in airline ticket prices. Airlines collect this fee on behalf of the federal government. It is $9.94 for a one-way domestic flight. While it is designed to fund airport security screening, the revenue actually flows into general government funds and CATSA receives its funding through parliament.

Some industry stakeholders argue that the amount ATSC brings in is higher than the costs CATSA pays. However, government officials responsible for the ATSC explained to us that the total amount collected is intended to match security costs over time.

The charge varies by flight type: domestic, transborder, and international. So, depending on their itinerary, passengers may pay more or less than the actual cost of their security screening.

Navigation charges

Nav Canada charges airlines for its services. They calculate service fees related to airports using aircraft weight and apply them per departure. En-route service fees in Canadian airspace are based on both distance flown and aircraft weight.

These fees are not directly included in airline ticket prices like the ATSC’s. But airlines need to cover them from the money they make, so they will indirectly influence ticket prices. Nav Canada has a process for setting fees that includes providing notice, consulting with stakeholders, and following a methodology for determining appropriate charges.

A user having issues with Nav Canada’s charges can file an appeal with the Canadian Transportation Agency under the Civil Air Navigation Services Commercialization Act. They can bring an appeal for failing to observe charging principles or for not complying with notice requirements.

In 2020, WestJet appealed Nav Canada’s revised charges, citing that it did not adhere to charging principles and did not share enough information about them. But this appeal was dismissed.

Airport fees

Many stakeholders told us that airport fees make it more expensive for airlines to operate. They highlighted that the current user-fee system should be restructured to make it easier for low-cost and regional carriers to enter the market.

Airports earn their revenue from three main categories:

• Airline fees
• Passenger fees
• Commercial operations

Airline and passenger fees contribute to the cost of airfare; revenue from commercial airport operations helps to reduce airports’ need to charge airlines and passengers to cover their costs. Airport fees are not regulated. This is described further in the next section and in Appendix A: Airport Policy Framework.

Airline fees include charges for:

• Landing
• Terminal
• Operations

Passenger fees consist of these fees added to airline tickets:

• Airport Improvement Fees
• Passenger Facilitation Fees

Commercial operations generate revenue through:

• Retail
• Restaurants
• Duty-free stores
• Car rentals
• Parking facilities
• Real estate leases on airport property

Across Canada’s eight busiest airports, passenger fees bring in the most revenue, ranging from one third to almost half (33% to 47%). Revenue from commercial operations hovers around a third (29% to 38%). The amount of revenue from airline fees varies the most, from between one and two fifths (20% to 38%).

Airport rents

Many stakeholders told us that airport rent contributes to higher costs for airports, and they recover these costs through higher airport fees on airlines and passengers.

The rent airports pay to the federal government follows a formula established in 2005. It is calculated as a percentage of gross revenue. This means that airports pay more rent as they earn more revenue. This increases the fees and commercial revenue needed to cover a certain level of costs.

The government described the 2005 rent formula as “based on modern commercial leasing principles and ... in line with other rent formulas within the Government of Canada and the private sector.” In a 2012 Senate of Canada report, the government described airport rents as a fair return on taxpayer investments. But most witnesses saw the rents as a tax on airports. During our outreach, most stakeholders continued to say that airport rents are more like a tax on airports than a payment for land use.

In 2023, Canadian airports paid $487 million in rent to the federal government. This adds up to a total of $7.3 billion since airport operations were privatized in the early 1990s.

Fuel taxes

Stakeholders have pointed to fuel taxes and carbon pricing as another factor contributing to the cost of airfares in Canada.

Aviation fuel, like other fuels, is subject to an excise tax. The current rate of the federal excise tax on aviation fuel is $0.04 per litre.

Carbon pricing is designed to cover the costs of carbon emissions. It has in the past been applied to flights within provinces but not to flights between provinces, which make up the majority of air travel in Canada.

Until March 31, 2025, the federal carbon pollution price applied to most provinces. It went up from previous years to reach $0.2065 per litre of aviation fuel from April 1, 2024, to March 31, 2025. However, as of April 1, 2025, the federal carbon price no longer applies to aviation fuel.

British Columbia, the Northwest Territories, and Quebec used to operate independent carbon pricing systems that met national standards. Now, only Quebec continues to do so. The carbon price for aviation fuel remains at $0 in Yukon and Nunavut.

Data on fees

We collected information from airlines on these charges:

• ATSC
• Nav Canada charges
• Airport improvement fees
• Airport charges
• Fuel tax
• Carbon pricing

These fees add up to a large and growing portion of the average amount passengers pay. In 2019, these fees were roughly one quarter (25%) of passenger revenue for the full-service airlines we surveyed. They had risen to nearly one third (30%) by 2023. These fees make up a much higher percentage of passenger revenue for ULCCs.

Carbon pricing had the lowest impact at less than one for every hundred dollars (1%). This is in part because it only applies to flights within provinces. That number is expected to be even less important going forward.

Fuel taxes followed at about 1%, while the ATSC and Nav Canada charges were about 3% and 5%. Airport fees made up the largest amount. They accounted for about 20 cents of every dollar passengers paid.

Lower operating costs help airlines serve routes. However, using government subsidies to lower fees—but not actual costs—is a more complex policy question that we have not studied.

Airlines airport access critical for airline competition

Access to airports is critical for airlines to operate and compete. They need facilities like slots, gates, and check-in counters. How carriers secure these directly affects the range of services they can provide and whether they can compete. Overcrowded or costly airports can force airlines to limit their operations. This reduces competitive options for consumers.

In our outreach, airports emphasized that they are not-for-profit entities that promote regional interests and strive to treat airlines equally. However, airports are more or less left to make their own economic decisions. Each one may have its own ideas about how to best ensure competitive access to airport facilities. Additional details on the limited economic regulation of airports are in Appendix A: Airport Policy Framework.

This section looks at critical aspects of airport access:

• Landing and takeoff slot allocation favours existing airlines at busy airports.
• Larger airlines can enjoy preferred boarding gates and check-in counters.
• Airport infrastructure decisions can favour hub carriers.
• Airport incentives can support entry, but they risk creating an uneven playing field.
• Secondary airports provide added capacity and competitive choices.

These factors have a major impact on airlines’ ability to enter markets, expand services, and compete effectively.

Landing and takeoff slot allocation favours existing airlines at busy airports

Airport slots are permissions for airlines to arrive or depart at specific times. They are crucial for airline competition at busy airports because there is more demand than supply. Without adequate slots, airlines cannot compete for passengers, especially during peak times.

New and growing airlines report challenges accessing slots at busy airports during peak periods. Carriers also cite concerns about there not being information available about how slots are allocated. They have trouble finding these things out about slots at crowded airports:

• Who holds the slots
• How many are left
• When slots become available

In contrast, other countries make slot allocation information publicly available. For example, the Federal Aviation Administration in the United States provides reports on who has held slots over time.

Canada does not have laws governing slots. But six crowded airports generally follow the Worldwide Airport Slot Guidelines (WASG):

• Level 3 coordinated airports that are highly congested: Toronto-Pearson, Billy Bishop Toronto City, and Vancouver International
• Level 2 coordinated airports that are occasionally congested: Calgary International, Montréal-Trudeau International, and Québec City Jean Lesage International

Scheduling conflicts at Level 2 airports are resolved through negotiations. The WASG recommend that an independent, neutral facilitator oversee this process. All schedule adjustments require mutual agreement between airlines and the facilitator.

Level 3 airports coordinate slots more strictly. The WASG requires that slot coordinators operate independently and neutrally. But some Canadian Level 3 airports use coordinators from the airport and not independent ones. Under the guidelines, carriers must use 80% of their slots to keep them (“use it or lose it” rule). When new slots become available, half are reserved for new entrants. However, under the WASG’s principles, already taken slots cannot be reallocated to new entrants.

This system tends to favour established airlines who already hold prime slots. This creates barriers for new carriers attempting to enter the market and offer competitive services.

Larger airlines can enjoy preferred boarding gates and check-in counters

Some airlines reported disparities in accessing airport facilities. Larger carriers often operate from preferred locations such as more central gates. Smaller carriers use less desirable areas. This makes it harder for them to compete on an equal playing field.

However, airports we contacted indicated they follow a “common use” approach when allocating facilities such as gates, check-in counters, and self-serve kiosks. They allocate facilities to maintain a smooth flow of passengers. Major carriers may have dedicated check-in counters in some airports. These are known as exclusive use agreements. Other counters are also available for common use. The common use approach allows airports to be more flexible to let in new and growing airlines.

Airport infrastructure decisions can favour hub carriers

Regional and smaller airlines reported having limited influence over decisions about how airport infrastructure—such as facilities and systems—is set up. Large carriers have much greater influence. This can result in airport capital plans favouring “hub carriers,” and not benefiting all airlines equally.

Hub carriers have more connecting traffic than point-to-point carriers. Airports normally charge lower fees for connecting passengers, and this can benefit hub carriers’ business model. Airports may also encourage connecting traffic for their own reasons. One of these is that more transfers can boost their overall passenger numbers and strengthen their position as a regional hub.

This imbalance can also extend to specialized committees overseeing fuel and de-icing facilities. Their voting systems usually give more power to airlines with higher usage rates.

Low-cost carriers prefer fewer airport amenities and lower airport fees. Their point-to-point model focuses on direct routes. So they may not need advanced baggage handling for connecting flights. In other regions like Europe and Australia, some airports have facilities that cater only to low-cost carriers. Secondary airports exist that also target low-cost carriers with fewer amenities and lower fees. This is less common in Canada. Abbotsford and Waterloo though are well-known examples of low-cost airports. We have also heard of at least one airport that is considering building low-cost-only facilities.

Airport incentives can support entry, but they risk creating an uneven playing field

Often, airports and airlines agree on incentives to encourage flights to new destinations or more flights on routes where there aren’t as many. These can be offered at reduced fees or with added marketing support. They are often time-limited, and only airlines that perform well will receive the full incentive.

Those we heard from explain that these arrangements aim to reduce risk for airlines launching new services. The end goal is that these routes can endure beyond the incentive period. In some cases, airports work with local or provincial governments to increase the incentives.

These agreements can encourage new services to open up and expand, they also risk putting some carriers at a disadvantage. In Canada, there are no regulations governing these arrangements. But the Competition Act may apply if incentive agreements have a major effect on competition.

This situation contrasts with Europe. There, the European Commission (EC) has established rules for charges at large European airports. These rules include requirements for:

• Non-discrimination
• Transparency
• Oversight

The EC found these rules have improved things. Still, they are being looked at because they have not fully addressed concerns that charges are still uncompetitive, discriminatory, and not transparent.

Secondary airports provide added capacity and competitive choices

Secondary airports provide added airport capacity and may offer some competition to primary airports. These are often smaller airports serving the same metropolitan area as a major airport. Toronto and Vancouver have both primary and secondary airports nearby. Montreal may soon see a secondary airport as well.

Billy Bishop Toronto City Airport

Billy Bishop is on the Toronto Islands next to downtown. It serves mainly regional short-haul flights. This airport has to follow strict rules to operate. It is part of a Tripartite Agreement between Ports Toronto, the City of Toronto, and Transport Canada. Here are some of its main limits under the agreement:

• Aircraft limitations: Jet aircraft and certain propeller aircraft are not allowed.
• Operating hours: Flights are not allowed between 11:00 p.m. and 6:45 a.m.
• Physical constraints: They cannot expand the island or make a longer runway.
• Noise control: There are strict limits on the amount of noise.

John C. Munro Hamilton International Airport

This airport is 85 kilometres southwest of Toronto in Hamilton. This airport has in the past attracted low-cost carriers. Today, its only domestic service is WestJet’s Calgary route.

Region of Waterloo International Airport

This airport serves the Kitchener-Waterloo-Cambridge region from its location in Breslau. It is roughly 100 kilometres west of Toronto. The airport handles domestic flights through two carriers:

• Flair Airlines flies to Halifax, Calgary, and Vancouver.
• WestJet flies to Calgary.

Abbotsford International Airport

Abbotsford International is 70 kilometres southeast of Vancouver. It serves as a low-cost option. Two carriers fly out of this airport:

• Flair Airlines flies to Calgary, Edmonton, and Toronto.
• WestJet provides direct flights to Calgary and Edmonton

Coal Harbour

Coal Harbour is a seaplane airport in downtown Vancouver. It serves communities along the Pacific Northwest coast. Three carriers offer schedule services from Coal Harbour:

• Harbour Air
• Seair Seaplanes
• Gulf Islands Seaplanes

Montréal Metropolitan Airport (formerly Saint-Hubert)

This airport is 15 kilometres south of Montreal in Longueuil. It plans to expand its scheduled passenger services in 2025.

However, it is not allowed to offer international flights. This is in part because the federal government and Montréal-Trudeau International Airport agreed that it would be the only airport near Montréal with international flights. As currently implemented, transborder flights to the US are included in the restriction on international flights.

Indirectly, this also affects domestic flights. Canadian carriers often serve domestic, transborder, and international destinations. They benefit from connecting flights across their operations. If airlines fly from Montréal Metropolitan, they would need to use Montréal-Trudeau for international flights. This would create some additional costs, and it would limit connection opportunities. It can discourage airlines from using Montréal Metropolitan.

Differences between primary and secondary airports

We see a different range of services at primary and secondary airports when we compare domestic passenger traffic and routes.

For example, Toronto-Pearson serves eight of every 10 domestic passengers travelling in the Toronto Region and connects to 60 domestic destinations, much more than the secondary airports. This comparison is from an analysis of routes serving more than 10,000 passengers.

Secondary airports are important to Canada’s air transportation system. But they play a limited role. They can add flight capacity and possibly offer lower-cost choices. Whether secondary airports are successful appears to depend on several factors, including restrictions that apply to them. However, even without those restrictions, these airports usually handle only a small fraction of their region’s total air traffic.

CATSA services limited to specific airports

CATSA provides security screening services at 89 designated airports across Canada. They have contracts with outside companies who provide these services. Designated airports are listed in the CATSA Aerodrome Designation Regulations.

Security screening services help airports attract commercially successful airlines. But the regulations provide no clear path for airports to be added to the list of designated airports.

Instead, the 2018 Transportation Modernization Act introduced provisions allowing CATSA to provide extra screening services to both designated and non-designated airports. CATSA charges the airports for this service to cover their costs. The Minister of Transport needs to approve these services. However, non-designated airports have reported that these extra costs can affect whether they can offer competitive services to airlines. So non-designated airports face extra costs if they want security screening services. And these costs may affect whether they can bring airlines to their airport.

Predatory behaviour a challenge for entrants

Smaller airlines describe aggressive competition from existing airlines. This may include adding seats and lowering fares on select routes. This behaviour is a major challenge overall, and particularly for airlines wanting to start serving a new route.

However, it is hard to tell the difference between valid competitive responses and anti-competitive practices. After all, lowered prices are a natural feature of healthy market competition. But more serious competition concerns can arise when powerful carriers respond to new competitors by both offering more seats and lowering fares, instead of just reducing fares.

Expanding capacity this way is harder to justify on economic grounds, so it more likely suggests an anti-competitive purpose to force competitors from the market. That said, one has to look at a specific case and at the market situation to know whether a certain competitive response breaches the Competition Act.

Other countries also face concerns about predatory practices in the airline industry. The Australian Government requested that the Australian Competition and Consumer Commission (ACCC) monitor domestic air travel markets following the COVID-19 pandemic. The ACCC now watches for early signs of anti-competitive behaviour and can either take direct action or report back to the Australian Government. One key concern they are watching for is whether airlines are adding flights to specific routes to harm a competitor or force them to abandon those routes. This type of monitoring may deter airlines from behaving in ways that harm competition.

Protecting themselves from predatory behaviour

During this study, we learned about strategies that growing airports and airlines used to protect themselves against aggressive competition from existing airlines.

Flair and Region of Waterloo

The Region of Waterloo International Airport attracted new airline routes by offering carriers time-limited agreements where they could be the only one flying to destinations where planes did not already go. This arrangement was available to all airlines equally. It was specifically designed to encourage new service while protecting routes for a short time. Flair Airlines successfully used this opportunity to expand their service at Waterloo without facing responses by other airlines, according to the airport director.

Porter and Billy Bishop

Porter’s position at Billy Bishop Toronto City Airport may have worked the same way. Porter made investments to fly from this airport. Its behaviour also limited whether other airlines could add capacity on Porter’s routes. Porter may have had success entering the market as a result.

In 2002, Porter asked Billy Bishop for exclusive rights to most of the available slots. They also proposed specific restrictions for 30 months. These included:

• Limiting how many slots Air Canada could have
• Preventing Air Canada from expanding to new destinations
• Restricting Air Canada and other carriers from using additional slots for the destinations Porter already flew to

The Competition Bureau reviewed Porter’s proposal in 2003. Based on the information available, we concluded that they would not breach the Competition Act. This was in part because Air Canada already had a large network of flights at Toronto-Pearson and Porter was a new entrant to the market.

Porter received up to 112 slots in 2005. When it renewed its agreement with Billy Bishop in 2010, Porter got to keep their existing slots and secured 45 of the 90 new available slots. So they now had up to 157 out of the total 202 slots. In 2012, Porter got 16 more slots.

For new market entrants, these strategic arrangements can promote competition. However, they can be anti-competitive if existing carriers use these same practices to prevent new entrants from competing for a route.

We also heard from new airlines that it was important to quickly grow their business. They described being under the most threat of aggressive competition in their first couple of years and when they have a small number of aircraft.

Some stakeholders were concerned about the duration of our investigations into predatory behaviour and their uncertain results. Recent amendments to the Competition Act may help solve these problems by streamlining future predation cases.

What we recommend

We make recommendations to prioritize competition in Canada’s aviation policy at the end of this report.

Northern and remote air travel

Introduction

In Canada’s northern and remote regions, air travel is needed to provide access to essential services such as food and medical care. It also plays a crucial role in connecting these isolated communities to the broader economy. It is a vital lifeline, not a luxury.

But these regions face different challenges from the rest of the country. It is difficult for airlines to fly in this market because of:

• Harsh and unpredictable weather
• Limited facilities
• Small populations

These challenges limit competition and increase costs. Even if northern and remote residents never fly, competition in the airline industry has a major impact on their cost of living.

Key takeaways

• Northern communities often lack other transportation options and depend on air travel for essential services. These include healthcare, food, and opportunities for work and business.
• Northern airlines face higher costs from the harsher weather, poorer facilities, and smaller populations.
• Today’s approach needs updates that meet the specific needs of the North.

Geographic scope

There are different ways to categorize airports as northern or remote.

Our study mainly focuses on Canada’s territories and remote areas within these regions:

• Nunavut
• Northwest Territories
• Yukon

However, we also engaged with stakeholders from other remote areas, including:

• Northern Ontario
• Northern Quebec
• Northern Manitoba
• Labrador

People in these areas highlighted similar challenges to the ones the territories faced. This highlights the broader issues impacting air travel across these regions.

Overview

Purpose of travel

Reasons for air travel in these regions are very different from other parts of the country. People here do travel for tourism and meeting family members. But it is also critical to meet the following needs of daily life in the North.

Figure: Types of northern and remote air travel

• Description for "Types of northern and remote air travel"

  An infographic detailing four types of northern and remote air travel, each presented with a title, a brief description, and a corresponding outline icon. Each section is visually distinct with a different color.

  The types of air travel are:

  1. Medical travel: Icon of a light blue caduceus (medical symbol).
     • Description: Residents travel to larger southern cities for specialized healthcare they cannot access locally. This ranges from routine medical appointments to emergency evacuations.
  2. Duty travel: Icon of a dark blue airplane with a briefcase.
     • Description: Government officials travel to remote communities for work such as community development.
  3. Fly-in fly-out operations: Icon of two light green airplanes, one landing and one taking off.
     • Description: Employees fly to remote sites to work temporarily. This is common in resource extraction industries like mining.
  4. Freight movement: Icon of stacked dark green cargo boxes.
     • Description: Essential goods are transported year-round, such as food, fuel, and medication. Another critical way to transport cargo is sea lifts. But these are only available in summer. Many communities receive only one sea lift per year.

Northern hubs and networks

Cities such as Iqaluit, Yellowknife, and Whitehorse serve as key gateway cities. They serve as points of connection. They link larger southern cities to regional hubs and smaller communities in each territory. The network of routes is crucial for airlines: While north-south routes between major hubs often make money, smaller regional routes tend to lose money.

As a result, the overall network of major and regional routes is vital for ensuring that airlines in the North can stay in business.

Types of airlines

Air services in northern Canada are provided by a mix of large national carriers and regional airlines:

• Air Canada and WestJet fly large routes connecting southern and northern gateway cities.
• Larger regional airlines serve both major and regional routes. Many of the regional players have partnerships with Indigenous communities, who may also partially own them. Canadian North and Air North are two of these.
• Smaller regional carriers focus on serving smaller communities and remote areas. Air Creebec and Air Tindi are two of these.

Types of aircraft

Large jets connect major cities, while smaller turboprops serve smaller communities with gravel runways. Combi-aircraft are those that carry both passengers and cargo. They are useful in northern and remote regions.

Government initiatives

While airports are mainly responsible for their own funding and operations, the government provides some support. Low traffic often prevents these airports from earning enough to cover their costs. So, government initiatives are crucial for helping northern and remote airports upgrade and maintain their facilities. Some of the key government programs and initiatives are:

• Airport Capital Assistance Program (ACAP)
• National Trade Corridors Fund (NTCF)
• Remote Air Services Program (RASP)
• Quebec’s Remote Air Access Program (RAAP)

However, this support remains limited compared to how much is really needed for these airports. Northern and remote airports still struggle to pay for necessary upgrades and maintenance.

Need for competition in northern and remote regions

Governments play a vital role in ensuring northern and remote communities have reliable and affordable air services. This is critical because isolated communities rely on air travel to access:

• Healthcare
• Groceries
• Medicine
• Jobs
• Social connections

Competition-friendly policies can help governments provide proper support for air services.

Increasing competition does not always mean adding more airlines to existing routes. In fact, some routes may only be able to handle one carrier. Still, we can improve competition if we lower barriers to entry and make it easier to enter markets. This can create pressure on existing airlines to improve or be replaced by new, more efficient airlines offering better value. And, when airlines can enter the market and compete, it encourages these benefits that help enhance connectivity and meet the unique needs of these communities:

• Lower prices
• Improved service
• Better flight schedules
• Expanded network options

State of competition in the territories

Here are some of the main things we consider to understand the overall state of competition in Canada’s territories:

• How many airlines there are
• Where they fly to
• What kind of facilities they can use
• Who lives there and how many people there are
• What the terrain is like
• Whether there are other kinds of transportation

Figure: Passenger share by airline in Canada’s territories, 2023

• Description for "Passenger share by airline in Canada’s territories, 2023"

  Figure: Passenger share by airline in Canada’s territories, 2023

  Airline	All Territories	Northwest Territories	Nunavut	Yukon
  Canadian North	33.4%	37.0%	53.8%	0.2%
  Air North	20.3%	5.3%	0.0%	80.4%
  Calm Air	18.0%	0.0%	44.2%	0.0%
  Air Canada	9.3%	13.4%	0.5%	16.0%
  WestJet	7.6%	17.3%	0.2%	3.0%
  Air Tindi	5.2%	13.1%	0.0%	0.0%
  North-Wright Airways	3.6%	9.2%	0.0%	0.0%
  Northwestern Air	1.7%	4.2%	0.0%	0.0%
  Other	0.4%	0.4%	0.3%	0.5%
  Air Inuit	0.4%	0.0%	0.9%	0.0%

Source: Bureau analysis of OAG data

The largest northern airlines are:

• Canadian North in eastern and western Nunavut and the Northwest Territories
• Air North in Yukon
• Calm Air in central Nunavut

Smaller airlines that operate in parts of the Northwest Territories are:

• Air Tindi (Yellowknife)
• North-Wright Airways (Norman Wells)
• Aklak Air (Inuvik)

Air Canada and WestJet also serve some northern routes, mostly north-south connections to gateway hubs. Canadian North, Calm Air, and Air North also connect to southern gateway hubs. But most northern routes are served by only one airline, and high barriers to entry severely limit competition.

Limited transportation choices make air travel even more critical in the North. Other regions of Canada may have imperfect substitutes like long-distance buses, trains, or highway networks. Many northern communities completely lack these options. This makes their reliance on air travel even more serious. And it amplifies concerns about market competition. How strongly communities rely on air travel varies across the North.

Nature of competitive environment

The following factors make it hard for airlines to operate in northern and remote regions, and they limit the number of competing airlines that can serve passengers at a profit. Many of these factors relate to each other.

High entry and operating costs

Many stakeholders spoke of the challenging weather conditions in the North. They create delays and disruptions that increase costs for airlines. Canadian North’s CEO noted that the company averages 175 cancelled flights due to weather each month. The International Transport Forum at the OECD reported that climate change makes weather even more unpredictable in the North and makes air transport worse.

Beyond weather, there are higher costs for almost everything in the North. Labour, fuel, and housing costs all affect whether northern airlines can stay in business. Stakeholders told us that in many cases, northern airlines have to directly provide accommodation for their staff.

In addition, the infrastructure gap at northern and remote airports means airlines must invest in additional facilities. So their capital costs rise. This makes it is even more difficult for smaller companies to be profitable.

Low population and passenger volumes

Low population and numbers of passengers in the North mean less chance for airlines to make money. Higher costs are spread over fewer passengers. According to OAG data from the past five years, southern routes in Canada carry nearly 17 times more passengers than northern routes. These economics make it crucial to lower barriers to entry. Then the most efficient airlines can serve these challenging routes. Again, many routes may only be able to sustain one carrier at a time.

Multiple lines of business

With high operating costs and low passenger numbers, many northern airlines rely on multiple lines of business to stay afloat. Most airlines offer scheduled passenger, charter, and freight services. They often bid on government or private contracts for various purposes. These business lines and contracts can be critical to sustaining an airline’s local operations.

Mining spare capacity: Chrono Aviation’s innovative entry on the Montreal-Iqaluit route

Airlines can use similar business lines to help enter challenging markets. That’s what Chrono Aviation did when it launched Montreal-Iqaluit service in 2024.

In August 2024, Chrono Aviation saw an opportunity when a change in aircraft left them with spare capacity on their flights to Nunavut for a mining company. The airline decided to offer these seats to the public at $699 each way. Before that, Canadian North served the Montreal-Iqaluit route only via Kuujjuaq, with prices ranging from $900 to $2,000.

Maintenance issues eventually forced Chrono to switch back to smaller aircraft, and public service ended in November 2024. Still, their approach shows one way that airlines can enter challenging markets.

Barriers to competition

We have identified barriers that affect whether new players can enter the market and expand.

Northern airport infrastructure gaps raise costs

Airport facilities are worse in northern and remote regions. Infrastructure such as buildings, systems, and runways play a large role in airlines’ operations and costs. This is underdeveloped in the North’s airports, so it is more challenging for airlines to operate and their costs rise. Fewer airlines can enter and serve the region.

During stakeholder interviews, we heard about the following infrastructure challenges:

• The state of runways
  Short gravel runways are a major issue for northern airlines. Researchers have shown that flight arrivals are less reliable in airports with shorter runways. According to a University of Calgary study, more than eight in 10 northern airports (83%) have gravel or crushed rock runways. Included here are northern regions of the provinces. These runways restrict the type of aircraft that can land, so airlines must use older and less efficient aircraft, raising safety and cost concerns. Airlines have been retiring jet aircraft that can land on gravel runways and replacing them with smaller turbo-prop airplanes.
• Runway lighting
  Not enough good runway lighting means airlines cannot always land when visibility is low. This forces airlines to delay or cancel more flights, especially during poor weather. These disruptions have knock-on effects across the flight network.

The Auditor General’s Spring 2017 report highlighted issues with runway lighting. Of the 117 remote northern airports they examined:

• More than four in 10 (44%) did not have an approach lighting system, which guides pilots on approach to the runway.
• Just over one in four (26%) did not have any lighting for pilots to identify the runway. Or they only had low-intensity lighting.
• Just over one in five (21%) did not have precision approach path indicators. These provide pilots with visual information on whether they are too high or low when landing.

Stakeholders have confirmed that runway lighting is still an issue that impacts their flights in northern and remote regions. In 2023, the Northern Air Transport Association also advocated for the improvement of runways, stating runway lighting needed improvements.

• Weather monitoring and reporting
  Northern regions have harsh weather, but they have less weather monitoring and reporting. This leads to more disrupted flights and higher costs to airlines. Weather monitoring and reporting systems can be staffed or automated.
• The impacts of climate change
  Recent studies and stakeholder input suggests that climate change is making weather in the North more extreme. The Government’s Arctic and Northern Policy Framework highlights that Northern Canada is warming at about three times the global average rate.

This climate change threatens existing infrastructure and makes building new infrastructure more challenging. For example, the thawing of permafrost is causing runway damage. Extreme weather conditions can also create delays for airlines, disrupting their networks and raising costs.

At the same time, shorter ice road seasons make northern communities depend even more on air transportation. Ice road season is when temporary roads made from ice and packed snow can be used.

Northern airlines have to provide more airport services themselves

Airlines often must invest in crucial facilities to operate at certain northern and remote airports. They need ground handling services, de-icing facilities, warehouses, and hangars. In busier southern airports, it is the airport or outside companies that provide these services.

As a result, larger existing airlines invest in needed facilities, while smaller airlines have restricted access. Smaller airlines may not find it profitable to make these investments or they may not be able to if airport space is limited. We heard that existing airlines may not provide access to new or smaller airlines seeking to compete. Or, they may set terms so that the other airlines struggle to compete with them. We heard this is challenging for new airlines at northern airports, especially important hubs like Iqaluit and Rankin Inlet.

Government funding is limited and mainly supports existing airlines

There are government funding programs for airports, but we heard that they are not enough to resolve the infrastructure gaps. A 2017 report from the Auditor General and a 2023 report from Transport Canada, suggest that Transport Canada is aware of these gaps and the upgrades needed to bring northern and remote airports up to national standards.

Stakeholders indicated that Nav Canada is also aware of gaps related to weather reporting. While it is working to address local needs, it is limited in the number of projects it can take on. For example, right now Nav Canada is reviewing aviation communication and weather needs in Yukon.

We also heard that government funding can favour existing airlines. This is even true for programs that are open to all airlines. Governments help pay for airline assets, but airlines that receive government money are not obligated to share these facilities with other airlines. This is even the case when there is capacity available. The most notable example is from 2018. That year, the Government of Canada announced a $35 million investment that in part would help expand and improve a First Air cargo warehouse at the Iqaluit airport. First Air was an existing airline, not a new entrant, and does not have to share this facility with other airlines.

Other examples of government support reinforcing existing carriers include:

• In 2023, the Government of Canada announced it would invest up to $11 million to help Canadian North build a new cargo facility at the Ottawa airport.
• In 2024, the Government of Canada announced it would invest up to $14.5 million to help Air Inuit construct a new cargo warehouse at the Kuujjuaq Airport in northern Quebec.
• Also in 2024, the Government of Canada announced it would invest up to $9.5 million to help Perimeter Aviation renovate and expand its existing terminal building at Winnipeg airport.

This support went to airlines owned by either Makivvik or Exchange Income Corporation. Makivvik’s First Air merged with Canadian North in 2019. The result is that Makivvik owns Canadian North with the Inuvialuit Development Corporation. Makivvik also owns Air Inuit, while Exchange Income Corporation owns Perimeter Aviation.

Regulations mean higher costs in northern and remote regions

Regulations are vital to the aviation sector, but the way they are applied in northern and remote regions can make airlines lose money and lead them to exit. Stakeholders explained that one reason for this is that regulations are not tailored to the North. Instead, it is a one-size-fits-all approach that does not work in the North.

Stakeholders know the safety concerns but noted that the way regulations are applied does not consider the northern context. A common theme in our interviews was that the federal government should work with northern stakeholders to create policies tailored to their unique situation and focus these on outcomes they want to achieve.

The Bureau recognizes that regulations are important for ensuring passenger safety and protecting consumer rights. This is especially true in challenging environments like the North.

But it is important to recognize that complying with these regulations comes at a serious cost. And this burden can be much heavier for airlines in remote regions. Regulators sometimes need to make difficult trade-offs. But if they tailor their rules to specific contexts, it may help them find better solutions to important safety concerns. New competitors that face unintended costs have a much harder time entering the market. This reduces options for passengers in the end.

Stakeholders expressed concerns about the following regulations:

• Air Passenger Protection Regulations (APPR)
  Stakeholders raised concerns about how the APPRs apply in northern communities, since harsher weather and limited facilities lead to more frequent flight cancellations and delays. There are few or no hotel rooms, so airlines are often unable to find places for passengers to stay when flights are cancelled.

In December 2024, the CTA began a public consultation about amending the APPRs. In their consultation documents, they recognize the likely impacts on small and northern carriers, and on northern and remote communities. They suggest some steps to address these impacts.

• Pilot flight and duty time
  The new flight and duty time rules make it harder for airlines to keep flying some northern and remote routes. Pilots in these regions usually work longer hours each day and take extended breaks in between. But the new rules shorten their duty periods by a great amount. Northern airlines face unique scheduling challenges due to:
  • Seasonal work patterns
  • Extended summer daylight hours
  • Limited places to stay in northern communities
  • Needing to use slower aircraft, as these are sometimes the only planes that can serve certain communities

Smaller, northern airlines are already struggling to attract enough pilots. They have reduced the number of routes and flights they operate. In January 2025, Northwestern Air Lease ended its scheduled passenger services. The pilot shortage was one of their reasons.

• Minimum visibility during approaches
  Transport Canada’s proposed changes to flight visibility rules could pose challenges for northern aviation. These new national standards aim to improve safety for planes landing. But northern stakeholders warn they may not work well in remote regions. These airports often do not have the advanced weather monitoring systems the south has.

Important contracts have unnecessary bidding restrictions

Government contracts are important to northern airlines. For example, in Nunavut, the airline that receives its government’s multi-year contract for medical and government duty travel is likely the only one that can succeed on those routes. Except on select routes, competition is more likely to be between carriers vying for these contracts. The contracts can help support an airline’s entry into other services.

We heard that these contracts can be difficult for smaller operators to bid on. One issue raised with us is that some contracts require a complimentary hot meal on flights over two hours. This limits the choice of aircraft. We also heard that contracts may require larger aircraft when smaller planes could serve the same passenger numbers. Another issue is that the contracts are not long enough to justify airlines investing in new equipment. This limits the bidders available to the government for some contracts.

Existing airlines’ strategic behaviour creates challenges for new airlines

New airlines face several strategic barriers to entering northern markets. These challenges stem from the competitive responses and business practices of existing airlines. In northern and remote regions, these barriers can be even more pronounced because there is limited infrastructure, fewer passengers, and higher costs too operate. New carriers find it hard to establish a foothold.

This section examines two key issues:

• Aggressive responses to entry
• Interline agreements

Aggressive responses to entry

Similar to other regions in Canada, we heard that existing airlines aggressively add more flights and cut prices on routes when new airlines try to enter. They do this to make it difficult for a new competitors to succeed. Further, as noted above, existing airlines can use their control of airport facilities to restrict access to new airlines. This makes it more difficult for the new airline to enter, earn a profit, and stay in business.

The GoSarvaq Case

In April 2016, the Competition Bureau received information suggesting that First Air and Canadian North were trying to prevent GoSarvaq, a new airline, from running flights between Ottawa and Iqaluit. GoSarvaq had announced a competitive rate of $499 for the route. The existing airlines were accused of offering drastically lower prices for passengers between May and August 2016 to prevent GoSarvaq’s launch and drive it out of the market. Canadian North and First Air started by offering $399 tickets, and later First Air made a limited time offer for $299. On May 6, 2016, GoSarvaq announced it was closing down.

We investigated these claims under the abuse of dominance provision of the Competition Act. Our focus was potential predatory pricing. The Bureau found that First Air and Canadian North were dominant on the Iqaluit-Ottawa route, and evidence suggested they perceived GoSarvaq as a competitive threat.

However, the investigation concluded that Canadian North and First Air revenues were not consistently pricing below average avoidable costs during the May to August period. This was a legal test used in the 2001 Air Canada predation case.

The other carriers’ pricing promotions likely did have some impact on GoSarvaq's entry plans. But we did not find enough evidence that these were anti-competitive acts according to the Competition Act, and the investigation was closed. This case highlights the challenges in proving predatory pricing allegations. There have since been changes to the law that might make this easier.

Since GoSarvaq’s attempted market entry in 2016, only Chrono Aviation has entered with service to Iqaluit, operating briefly in 2024, indicating ongoing challenges for new entrants in this market.

Interline agreements

Regional carriers—and their passengers—can benefit from interline agreements with major carriers. The limited networks of regional airlines means passengers may use multiple airlines to reach their final destinations. Without interline agreements, these passengers must book separate tickets. The result is double the fees, complicated baggage handling, and increased risks from missed connections.

These challenges make smaller carriers less attractive and limit travel options in northern markets. Interline agreements offer a solution, because carriers can coordinate ticketing, baggage handling, and connections. We heard that the Air North-WestJet agreement has improved connections and travel options in Yukon. And this can mean benefits for tourism and business travel.

Parliamentary committees and territorial governments have recommended encouraging interlining agreements between major and regional carriers. Some stakeholders advocate for mandatory agreements. They say that major airlines may be resisting these agreements to limit competition. Others oppose mandated arrangements. They note differences in how carriers operate, costs to integrate IT systems, and potential money lost from missed connections.

What we recommend

We make recommendations to support northern and remote airline competition at the end of this report.

International involvement in Canadian aviation

Introduction

Canada has been benefiting from opening up its aviation sector to more foreign investment and competition. This means travellers can enjoy more choice and more destinations. Plus, increased competition pushes airlines to lower airfares and improve the travel experience. We can continue this trend to further benefit Canadians, and still respect other important policy goals and international partnerships.

Key takeaways

• Limits on foreign ownership and restrictions on foreign carriers running domestic routes limit competition in Canada.
• Other countries show successful alternatives. They focus on where an airline does most of its business, not on where most of the airline’s investors live. As one option, we could allow carriers that only fly within Canada to be owned by investors in other countries.
• Existing frameworks and targeted policies can address national security and regional service concerns while opening the market to more competition.

Canada has been opening up its aviation sector

Since World War II, bilateral air service agreements (ASAs) between countries have governed international air travel. These agreements regulate many aspects of international travel:

• Which airlines can operate between countries
• Where the permitted routes and airports are
• What rights flights continuing to third countries have
• How often flights run
• How many seats they hold
• How much airlines can charge

International air services have evolved based on both government policy and commercial concerns.

Most countries restrict foreign ownership of their airlines. They do so to comply with ASA requirements that their citizens have majority ownership. They also want to maintain strategic control over airlines to protect national security and safety. The Convention on International Civil Aviation (Chicago Convention) of 1944 is the treaty that governs international air travel. The International Civil Aviation Organization (ICAO) came out of the Chicago Convention. It is a UN agency that coordinates global aviation standards.

The Chicago Convention:

• Sets rules for airspace, safety, and aircraft registration
• Affirms a country’s authority over its airspace
• Promotes safe international non-military air travel
• Standardizes navigation, customs, and immigration procedures

The freedoms of the air

There are nine commercial aviation rights, known as the freedoms of the air. They describe the privileges countries grant to foreign airlines to operate within and through their airspace. These include the right to:

• Overfly a foreign country without landing
• Land for technical stops
• Fly to and from foreign countries
• Fly between foreign countries
• Fly routes within another country (known as cabotage)

These freedoms form the basis of modern air transport agreements. They enable airlines to connect the globe while respecting each country’s right to control its own airspace.

Figure: Illustration of the nine freedoms of the air

• Description for "Illustration of the nine freedoms of the air Source: Air Freedom Rights, The Geography of Transport Systems"

  An infographic illustrating the nine freedoms of the air. It presents nine separate panels, each depicting a simplified map with a “Home” country, “Country A,” and “Country B.” Lines with arrows represent flight paths. Each panel is labeled with its number (First to Ninth) and a description of the freedom it illustrates.

  The nine freedoms are:

  1. First: Right to overfly a foreign country without landing.
     • Illustrated by a flight path originating in “Home,” passing over "Country A” without landing, and continuing to “Country B.”
  2. Second: Right to land for technical stops (e.g., refueling) in a foreign country.
     • Illustrated by a flight from “Home” making a stop in “Country A” before continuing to “Country B.”
  3. Third: Right to fly from home country to a foreign country.
     • Illustrated by a direct flight from “Home” to “Country A.”
  4. Fourth: Right to fly from a foreign country to home country.
     • Illustrated by a direct flight from “Country A” to “Home.”
  5. Fifth: Right to fly between two foreign countries during flights which begin or end in home country.
     • Illustrated by a flight from “Home” to “Country A,” then continuing to “Country B.”
  6. Sixth: Right to fly from one foreign country to another via home country.
     • Illustrated by a flight from “Country B” to “Home,” then continuing to “Country A.”
  7. Seventh: Right to fly between two foreign countries without connecting to home country.
     • Illustrated by a direct flight from “Country B” to “Country A.”
  8. Eighth: Right to fly domestic routes in a foreign country as part of international service with home country.
     • Illustrated by a flight from “Home” to a point in “Country A,” then to another point within “Country A.”
  9. Ninth: Right to fly domestic routes in a foreign country independent of service to home country.
     • Illustrated by a direct flight between two points within “Country A.”

  Source: Air Freedom Rights, The Geography of Transport Systems

In the past two decades, governments have loosened their approach to international air markets. They see the benefits of market-driven air services. Canada has pursued open skies agreements. These agreements allow carriers to operate routes with minimal restrictions on:

• Capacity
• Frequency
• Pricing
• Rights to transport passengers between two foreign countries (fifth and sixth freedom rights)
• Code-sharing arrangements
• All-cargo operations

Canada has signed important agreements with the European Union and the United States.

Canada and the EU

The 2009 Agreement on Air Transport between Canada and the EU was a major development in Canada’s aviation policy. It replaced various treaties that restricted flight frequencies, airlines, and routes. Now, airlines from both regions can operate more freely based on market demand.

The agreement is fairly liberal. But Canadian carriers still have some limits:

• Flying from the EU to third countries is more restricted than flights between Canada and the EU.
• Flying between two points within the EU is not allowed unless the flight begins or ends in Canada.
• In the same way, European airlines cannot operate domestic routes within Canada.

Canada and the US

The Canada-US Air Transport Agreement was made in 1995 and updated in 2007. It had similar effects of loosening the rules on air travel between the two countries. It replaced a patchwork of treaties that restricted flight frequencies, routes, and the number of designated airlines. The 1995 agreement aimed to open the market and support competition. The 2007 revision took this further, especially when it comes to flying to third countries. It added the fifth freedom right and the seventh freedom right for cargo. Under the fifth freedom, a Canadian airline could fly from Canada to the US, pick up new passengers in the US, and fly them on to a third country. For cargo, it’s even more flexible – a Canadian cargo plane could fly directly between the US and a third country without ever touching down in Canada.

Important restrictions remain:

• Investors from each country cannot own airlines in the other country.
• Each country’s airlines cannot operate domestic flights in the other country (so no cabotage is allowed).

Restrictions on international involvement in Canadian aviation

Only Canadian airlines can fly from point to point within Canada. To be “Canadian,” airlines must be owned and controlled by Canadians. The current rules—last updated in 2018—allow foreign investors to own up to 49% of the voting shares in Canadian airlines. However, no single foreign investor can own more than 25% and foreign carriers cannot own more than 25%.

Besides setting limits for who owns voting shares, the Canadian Transportation Agency also assesses other factors to decide whether non-Canadians control an airline. They weigh together all the facts of each individual case. There is not a single, objective test.

Aviation experts point out that Flair and Lynx were able to launch thanks in part to the 2018 change to the foreign ownership limit from 25% to 49%. But many of the stakeholders we interviewed criticized the stricter limit on single entities and foreign carriers for restricting investments by firms with expertise. This was highlighted in 2022 when the Canadian Transportation Agency raised concerns about whether Flair met foreign ownership requirements. Flair responded by restructuring its organization. Experts we spoke with also noted that the test of whether non-Canadians control an airline is so complex that some investors will walk away from investing in Canadian airlines.

Other countries put up fewer restrictions

If we look at how other countries have approached these restrictions, we gain valuable insights into how regulatory changes could improve competition in the sector. Some other countries have made notable progress towards further opening up aviation markets.

A growing number of countries now prioritize an airline’s principal place of business over foreign ownership limits. Latin America (Chile, Costa Rica, and El Salvador), Singapore, and Hong Kong have adopted this approach. The International Civil Aviation Organization (ICAO) developed criteria to help countries gradually relax airline ownership and control requirements and to give airlines access to international capital. They call these the “principal place of business and effective regulatory control” criteria. Their effect is to separate the country that sets an airline’s rules from the country of its shareholders or decision-makers. This approach offers more flexibility in ownership structures.

The EU single aviation market permits carriers from the EU to operate any route within the EU, and investors from the EU can invest in any EU carrier. This means carriers from one EU member state can fly domestic routes in another member. And investors from one EU member state can fully own and control a carrier in another member. Non-EU citizens can only own up to 49% of an EU airline’s voting shares.

Australia has different foreign ownership rules for domestic and international services, as well as for Qantas, Australia’s flag carrier. Foreigners can acquire up to 100% of domestic airlines and 49% of international airlines, unless it runs contrary to the national interest. With Qantas, all foreign investors as a group can only own up to 49%. Each individual investor can only own up to 25% and foreign airlines can together only own up to 35%. In addition, owners and the airline must meet certain national interest criteria. These relate to the nationality of Board members and where the airline operates.

New Zealand is similar. It has a 49% foreign-ownership limit for airlines that fly outside the country, but foreign investors can own up to 100% of carriers that only serve domestic routes. The New Zealand Government owns 51% of Air New Zealand.

Brazil allows foreign investment in Brazilian airlines up to 100%. International airlines can own a Brazilian airline, but it must still be based in Brazil.

The US caps foreign ownership at 25% of voting shares. A US Government Accountability Office report looked at increasing that limit to 49% while retaining US control. They found that this change would likely not have much effect on foreign investment, competition, employment, or national security. The report also noted that US airlines already have access to enough investment from their own citizens.

Airlines alliances allow for some collaboration

Airline alliances and other forms of cooperation allow airlines to respect foreign competition limits but still reap some of the benefits of operating across borders. However, they can also raise competition concerns and may be reviewed under the Competition Act.

A few examples are Star Alliance, SkyTeam, and Oneworld. They are global networks of airlines where members can:

• Coordinate through codeshare agreements
• Share some facilities and services like airport lounges and ground handing
• Recognize each other’s loyalty programs

Codeshare agreements let members expand their network by marketing flights operated by their partner. Joint ventures allow airlines to go further and coordinate on pricing and scheduling and share revenues and costs in ways that brings them closer to acting as one entity. (We provided fuller definitions of codeshare agreements and joint ventures in an earlier section.) Airlines may also make minority investments in each other.

Some airline groups have combined ways of cooperating so they can operate in multiple countries. For example, low-cost carrier AirAsia is a Malaysian airline with partner airlines in other Southeast Asian countries including Thailand and Indonesia. These other airlines are majority owned by people in those other countries. This creates a wider network for the entire group.

Costs of limiting foreign competition

Restricting foreign investment and foreign carriers reduces competition in Canada’s domestic aviation market. New carriers and existing airlines seeking to expand their operations or renew their fleets need affordable funding. Restricting foreign investment makes it harder and more expensive for Canadian airlines to get funding. These restrictions narrow the pool of potential investors, and this:

• Reduces how much capital is available overall
• Limits the choice of investors
• Reduces competition among investors

As a result, some business opportunities are not possible. This most strongly affects new and smaller airlines. They already struggle more than larger carriers to get funding.

Foreign carriers offer established networks and economies of scale. These strengths could support minor Canadian routes by linking domestic passengers to international flights.

These carriers have larger scale and stronger operations. This makes them more able to withstand existing airlines reacting by adding extra seats and dropping their prices. However, today’s regulations prohibit foreign carriers from serving routes within Canada. This directly limits the number and type of airlines available to Canadian passengers.

We heard from industry participants that it can take a year or two for an airline to establish itself on a new route. During that time, these new entrants face the highest threat of exiting because of aggressive pricing by existing airlines. Smaller airlines are especially at risk because they have fewer planes and routes to support them during price wars.

Opening the door to foreign carriers and foreign capital would help address these challenges. It would improve new airline funding and introduce established carriers with an international scale to the market. This would enable more carriers to successfully enter and succeed in the Canadian market, creating more competition.

Concerns with further opening up

Some stakeholders we consulted expressed concerns about maintaining Canadian sovereignty and control over the domestic airline industry. They worry that larger foreign airlines might dominate the market. And these other airlines may focus only on profitable routes and neglect crucial regional services that keep Canada’s communities connected.

Aviation is a network industry. So changes to airlines’ profits on a single route can have cascading effects across the system. If earnings decline on major routes, airlines may no longer serve regional communities. This again could reduce Canada’s connectivity.

In the present business model, profitable main routes may subsidize essential regional service. They may no longer be able to do so if foreign competition threatens those major routes’ profits. Once more, connections between regions could be threatened.

We heard from people in the industry that allowing foreign carriers to operate domestically may not lead to more market entry. For example, US network carriers already serve Canadian cities from their US hubs, and they may prefer to continue funneling passengers through these existing hubs and not create new ones in Canada. Plus, if foreign airlines acquired Canadian carriers, they might redirect traffic to their existing hubs. There could then be fewer global connections available from Canadian airports.

Major Canadian carriers argue that allowing foreign airlines greater access or ownership rights in Canada could disadvantage them without giving them similar options abroad. They also note that foreign carriers may be reluctant to expand in Canada, largely because operating here is expensive. These carriers point to the limited number of US airlines in smaller Canadian markets post-pandemic.

International experience shows mixed results. In New Zealand, deregulation and relaxed foreign ownership rules did not attract much new entry. In contrast, Australia’s relaxed rules helped carriers like Virgin Blue, Tiger Airways, and Bonza start up. For that country, open policies boosted competition. Virgin Blue evolved into Virgin Australia in 2011 and later acquired Tiger Airways (rebranded as Tigerair) in 2015. Still, the market has faced recent setbacks and reduced competition:

• Tigerair shuts down in 2020
• Bonza exited in 2024
• Rex Airlines stopped its jet service between major cities and re-organized its finances in 2024

This only highlights the challenges of sustaining a competitive market.

Some financial experts believe relaxing foreign ownership limits could attract much-needed capital. Yet they recognize that restricting foreign shareholders to a minority voting position is still a major obstacle. And it could continue to hold back start-up airlines’ success, preventing meaningful changes in market competition.

Labour groups and unions we heard from strongly oppose allowing foreign carriers to fly in Canada or increasing foreign ownership beyond 49%. They argue this would threaten employment, national interests, and regional service. They are concerned that foreign carriers could outcompete Canadian carriers with their extensive networks and greater scale. These carriers also may not follow the same labour and safety standards as Canadian airlines.

Overall, stakeholders strongly believe that allowing foreign competition alone may not be enough to boost competition. It needs to work together with broader reforms to address other barriers to entering and expanding in the market.

Cabotage: Allowing foreign airlines to serve Canadian domestic passengers

We heard from many Canadians who strongly pushed for cabotage to improve domestic airline competition. Cabotage gives foreign carriers the right to run domestic flights within another country’s borders.

While some foreign airlines did not see a business case to enter the Canadian domestic market, we believe that others might see opportunity. And cabotage alone is not a complete solution.

We believe the industry needs broader reforms. But removing restrictions on foreign airlines could strengthen domestic competition.

Figure: Our perspective on international involvement in Canadian aviation

• Description for "Our perspective on international involvement in Canadian aviation"

  A circular infographic detailing our perspective on how to improve competition in the domestic airline sector.

  The segments are:

  1. Open market to foreign competition:
     • Relax restrictions on foreign carriers serving domestic routes and foreign ownership of Canadian airlines.
  2. Address concerns directly:
     • Only limit competition when necessary.
  3. Use existing investment protections:
     • Leverage the Investment Canada Act.
  4. Promote competitive markets:
     • Competitive markets are the best guarantee of successful firms and good jobs.
  5. Benefits of foreign participation:
     • Global networks and capital lower prices and improve service.
  6. Way forward:
     • Opening Canada’s aviation to trusted foreign partners will strengthen competition and benefit Canadians.

Our perspective

Reform is needed

For trusted partner countries, Canada should relax its restrictions on:

• Foreign carriers serving domestic routes
• Foreign ownership of Canadian airlines

These changes would boost competition by allowing more carriers to enter the market and giving airlines better access to global capital. This could lead to:

• More routes
• Innovative services
• Improved efficiency

This change alone will not solve all competition issues, but it represents a critical step forward. This aligns with the global aviation industry’s long-standing efforts to loosen restrictions over the past 80 years.

Regional service concerns should be addressed directly

Concerns about foreign carriers neglecting small regional routes should be addressed head-on. No airline – Canadian or foreign – has to fly routes that lose money. If rules are blocking foreign competition to protect regional service, policymakers should make this trade-off known and look at it more closely. Instead of blocking competition, regional routes could be supported directly. The government could hold auctions where airlines bid for subsidies. This would find the most cost-effective way to keep these routes running while allowing competition that benefits all passengers.

Existing regulatory frameworks offer protections

Canada already has a process to review foreign investments under the Investment Canada Act. The Act’s provisions protect national security and deal with economic concerns. They make restrictions on airline ownership unnecessary.

Competitive markets are the best guarantee of successful firms and good jobs

Sheltering companies from competition does not create national champions. As renowned economist Michael Porter famously stated, “unless a firm is forced to compete at home, it will usually lose its competitiveness abroad.” If a company faces little competition at home, it is ill-prepared to compete elsewhere.

Competition drives firms to be more innovative and efficient. True, increased competition might affect some existing jobs. But it usually creates more jobs in the end as the sector expands. Having more competing firms also means better working conditions as companies compete for talent.

Some workers today may capture a share of the excess profits if competition is limited. But this is not a sustainable or equitable way to raise wages. It benefits a select few at the expense of the many. The same goes for some shareholders. If Canadian airlines are unable to compete, it could affect head office jobs in Canada. However, a basic principle of competitive markets is that inefficient firms must be allowed to fail.

Foreign participation benefits Canadians

Foreign carriers and investment may bring major benefits:

• Companies have stronger financial backing.
• They are more resilient against aggressive pricing tactics.
• Global networks lead to more efficient operations.
• Service quality improves.
• Consumers enjoy lower prices.

The way forward

This proposed change aligns with Canada’s efforts to loosen restrictions over the past 80 years. It will help ensure that the aviation industry remains vibrant and responsive to the evolving market.

Opening Canada’s aviation sector to greater foreign investment will:

• Strengthen competition
• Drive economic growth
• Benefit both consumers and businesses

We should continue to modernize our regulations and gradually embrace a more open market environment.

What we recommend

We make recommendations to leverage international capital and experience to strengthen competition at the end of this report.

Consumer search and decision-making

Introduction

Consumers are able to make better choices when they can find, understand, and compare products, services, and prices. They can better decide on the options that most meet their needs. This informed decision-making benefits consumers directly, and it makes the market more competitive. This in turn can lead to lower prices and better service quality.

Add-on fees are more and more common, with new charges for carry-on luggage. This makes transparent pricing and clear information about fees even more important for consumer choice.

Key takeaways

• Complex pricing makes it hard to compare products. Airlines use multiple fare categories and present fees for add-ons later in the booking process. The effect is weakened competitive pressure on airlines.
• Publishing how often flights arrive on time would help travellers choose airlines and encourage airlines to do better.

Focus of this section

This section looks at the challenges consumers may face when searching for and booking flights. Informed consumer choice pushes airlines to improve services and lower prices. We focus on whether travellers have what they need to make informed decisions. We explore:

• How people search for and book flights
• Whether data on an airline’s service quality is available (especially whether flights are on time)
• What policies could help consumers navigate these challenges

We focus on passengers travelling for leisure or a personal reason rather than business travel. This is because personal travellers are more likely to book and pay for themselves. As part of this study, we assess Canadians’ attitudes and behaviours using the Privy Council Office (PCO) Survey on Current Issues. This survey includes people chosen to represent the whole country. The survey was conducted with a sample of 2,000 Canadians aged 18 and over between October 7 and October 20, 2024. The sample had a margin of error of ±2.2%, 19 times out of 20.

Flight search and booking process

Where consumers search for and book air travel

Consumers search for flights directly with airlines and through other companies, including online travel agents (OTAs) like Expedia and metasearch sites like Google Flights, Kayak, or Skyscanner.

• Airlines sell tickets directly to consumers through their websites and mobile apps. They also distribute flight information to other companies for sales and marketing.
• OTAs have websites and mobile apps that let consumers search for, compare, and book flights from different airlines. Old-style travel agents and travel management companies also exist, but individual consumers use them less often. Travel management companies specialize in making travel arrangements for corporate travel.
• Metasearch sites—also known as “aggregators”—differ from OTAs in one key aspect: They do not let consumers book flights directly. Instead, metasearch sites redirect customers to an airline or OTA site to complete their booking.

Both OTAs and metasearch sites tend to attract more price-sensitive passengers who typically choose lower-priced economy tickets and are less likely to pay for extras like seat selection or baggage. Even though price is critically important to them, passengers may be challenged finding the total price of a flight with all the add-ons.

The PCO Survey on Current Issues shows how important these different channels are. Among Canadians who booked at least one domestic flight online within the past two years, almost half (45%) usually started their search directly with an airline’s website or mobile app. A quarter used an OTA, and another quarter used a metasearch site. When it came to actual bookings, about two thirds (67%) booked directly with an airline’s website or mobile app and about a quarter (27%) used an OTA. The remainder used other means or were unsure. For clarity, an OTA was presented as “a third-party booking service’s website or mobile application” and a metasearch site was presented as “a flight comparison website” in the survey. These findings align with information gathered from people in the industry.

Figure: Flight search and booking process

• Description for "Flight search and booking process"

  An infographic of the flight search and booking process. It displays two donut charts showing passenger behavior.

  The left chart, titled “Where passengers start their flight search,” features a central icon of a globe with a search bar. It illustrates the following breakdown of starting points for flight searches:

  • 45% with an Airline website or app
  • 25% with a Metasearch site
  • 25% with an Online Travel Agent (OTA)
  • 5% using other methods or unsure

  The right chart, titled “Where passengers book flights,” features a central icon of a passport and a flight ticket. It illustrates the following breakdown of flight booking methods:

  • 67% with an Airline website or app (direct booking)
  • 27% with an Online Travel Agent (OTA)
  • 6% using other methods or unsure

The consumer experience with searching for and booking flights

Passengers often report challenges shopping for airfares

Airlines say that they follow the rules in being open about prices. This includes displaying both all-inclusive prices and fees for any optional services. These rules are spelled out in the Air Passenger Protection Regulations.

However, other stakeholders raised concerns about consumers’ ability to find, understand, and compare flight options. The complexity of airlines’ fare categories and optional extras can make it difficult to properly compare flights. This challenge is most striking for infrequent flyers. And the PCO Survey on Current Issues found that most Canadians (57%) have not booked a domestic flight in the past two years.

Airlines offer many combinations of seats and services

Major airlines usually offer several versions of each cabin class: economy, premium economy, and business. Within each class, airlines sell the same seat at different prices with varying terms and conditions. These differences affect:

• How flexible the ticket is for changes and cancellations
• Whether carry-on bags are permitted, cost extra, or are included
• Whether checked bags cost extra or are included
• Whether seat selection costs extra or is included

Airlines offer added services like seat selection in two ways: customers can buy them either individually or as part of packages that bundle multiple services together (such as combining seat selection with checked baggage). This variety of purchasing options offers more choice. But it makes searching and booking more complex.

In the airline industry, people refer to the different versions of cabin classes as fare brands. And they refer to added products and services beyond the base airfare as ancillaries.

The following table illustrates these options for an economy class with three fare brands: Low, Medium, and High. A green check mark () means an item is included; a red “x” (X) means an item is not included and cannot be added; and a red dollar sign ($) means an item is not included but can be added for a fee.

Figure: Fare brand examples

• Description for "Fare brand examples"

  An infographic displaying “Fare brand examples” for economy class with three options: Low, Medium, and High. Each fare brand is presented in a separate column, with its price and a list of included features or options.

  Legend for symbols:

  • A green check mark (✓) means an item is included.
  • A red "x" (X) means an item is not included and cannot be added.
  • A red dollar sign ($) means an item is not included but can be added for a fee.

  Fare brand details:

  1. Economy Low:

  • Price: $200
  • Carry-on bag: $ (can be added for a fee)
  • Checked bag: $ (can be added for a fee)
  • Seat Selection: $ (can be added for a fee)
  • Cancellation coverage: $ (can be added for a fee)
  • Itinerary change coverage: $ (can be added for a fee)
  • Airport lounge access: X (not included, cannot be added)

  2. Economy Medium:

  • Price: $325
  • 1 Carry-on bag: ✓ (included)
  • 1 Checked bag: ✓ (included)
  • Seat Selection: ✓ (included)
  • Cancellation coverage: $ (can be added for a fee)
  • Itinerary change coverage: $ (can be added for a fee)
  • Airport lounge access: X (not included, cannot be added)

  3. Economy High:

  • Price: $500
  • 2 Carry-on bags: ✓ (included)
  • 2 Checked bags: ✓ (included)
  • Preferred Seat: ✓ (included)
  • Refundable: ✓ (included)
  • Itinerary change coverage: ✓ (included)
  • Airport lounge access: ✓ (included)

Base fares are just the beginning

Ancillaries can add up to a sizeable portion of an airline’s total revenue. This is especially true for ultra-low-cost carriers (ULCCs) who offer low-priced basic seats with few services included. For example, according to an industry report, 40% of Flair’s revenue comes from selling extras to passengers.

Our research found that revenue from extra services is also important for other airlines, and it may be even more important in the future. There is an industry trend towards including fewer services in base fares, resulting in more optional extras. This is also known as “unbundling.” Recent examples of this trend include WestJet’s introduction of UltraBasic fare in June 2024 and Air Canada’s Basic fare changes in January 2025. Both fare changes exclude carry-on baggage for domestic flights. They allow only a personal item, with an added fee for checked baggage.

This unbundling trend can benefit consumers through lower basic fares and more choice. But it also makes it harder for consumers to determine which airline offers the best value.

What makes comparing flights difficult?

We found several main challenges when comparing airfares. These apply across all ways Canadians book flights: airlines, metasearch sites, online travel agents, and even travel agents.

The comparison challenges relate to how complex the product is, how airlines differ from each other, and what has changed over time.

Here are the key challenges in comparing flights:

1. Basic product marketing
   Airlines normally market a basic product that does not include services customers often want, such as a carry-on bag. This is a fairly recent change for some airlines.
2. Complex search results
   On airline websites, initial search results typically show the lowest-priced fare (usually basic economy without carry-on). This first result may not be relevant for consumers who need or want a different fare type. Fare options and what’s included are normally revealed only after someone selects a specific flight. Prices for extra services are shown even later in the booking process, often after someone enters their personal information. And what then pops up may depend on previous choices they made.
3. Website design barriers
   Website design may also make it hard for customers to make informed decisions:
   • Research shows that staged disclosure of fees and options (described above) leads consumers to choose options with lower initial prices but higher total prices. They also rarely backtrack to compare other options once they learn the final price.
   • Countdown timers mean consumers risk losing their current fare if they take too long to complete their purchase. As a result, comparing prices across airlines is complicated even further.
4. Different airline practices
   Airlines differ in how they:
   • Show what is included in a fare brand and what is extra.
   • Set terms and conditions

For example, Air Canada’s Standard fares are not refundable, yet WestJet’s Flex fares are if the person pays a fee. WestJet’s carry-on baggage size is a little smaller than Air Canada’s.

5. Incomplete information sources
   Travel agents and metasearch sites may not have complete information, meaning consumers cannot rely on them to compare total price.

Impact on consumers

Overall, this booking process can be complex for customers to navigate. Even tech-savvy consumers can be affected, but it’s worse for those with less time and resources.

Airlines post wide fee ranges online, making comparison difficult

Airlines do provide some information on extra fees on their websites that could help consumers. But these often appear as broad ranges or minimums that make comparison difficult. For example, seat selection fees vary widely at each major airline:

• Air Canada (Standard fare): $15 to $80
• WestJet (Econo fare, Standard seat): $5 to $250
• Porter (Standard fare, PorterClassic seat): from $12
• Flair (Standard seat): $16 to $54

Travel sites cannot present comprehensive comparisons of airline offers

Technical limits and airlines’ business strategies affect what information online travel agents and metasearch sites receive and show. As a result, travel sites cannot display airlines’ extra services and fees in a way that makes them comparable.

Technical limits on information sharing

Much of the industry relies on an older technology to share flight data. It limits what can be shared, including information about ancillary services like seat selection and baggage fees. Further, the way each airline provides this information is often different. These extra services are usually not available through online travel agents or in person. Instead, consumers must usually purchase these services directly through the airline’s website. Newer, better technology is available, but most of the industry does not use it.

Distribution strategy

When airlines sell tickets directly through their own websites and apps, they have:

• Lower distribution costs because they avoid paying OTAs
• Better control over how their content and offers are displayed
• Direct relationships with their customers

On the other hand, airlines use OTAs to reach more customers. But when they sell through OTAs, they do not always provide information about extra fees and services. Even when this information is provided, it may be incomplete or difficult to use.

More and more, airlines prefer lower-cost direct connections using newer technology over older-style systems. Some airlines are encouraging this shift by:

• Offering better fares through their preferred channels
• Making certain content exclusively available
• Adding surcharges to bookings made through those older systems.

How competition works in the travel distribution industry is outside the scope of our study.

What we considered and why this is hard to fix

We looked at multiple approaches to improve how flight information is shared and displayed, including stakeholder proposals. Our study found that each potential solution presented limitations and risks. In this section, we do not recommend specific changes. We do discuss the approaches we have considered and what they would mean for the industry.

Standardized labels

We considered a requirement for airlines, travel agents, and metasearch sites to display common “labels” upfront. These labels would present important flight information, including:

• Base fares
• Included services
• Services and prices for common extras
• Important policies and restrictions

The goal is to make information more transparent and help people better compare prices, yet several challenges exist. For one, with so many flight options and so much information per flight, consumers may be overwhelmed and companies may face technical challenges. Add to that the fact that what airlines offer varies between them and keeps changing. This makes it hard to standardize a label and make it consistent across airlines and their ticket options. If labels are not shown upfront, then their value for comparison shopping is limited.

Despite these challenges, we believe that there are opportunities to bring more relevant information to consumers earlier in the booking process. For example, common fare options could be displayed in the initial search results. In addition to price, these initial results could display information on the services most passengers care about.

Standard representative airfares

We considered a requirement for airlines and travel sites to initially display “standard representative airfares” that include extras most people buy, like seat selection and checked baggage. From this starting point, customers could then remove unwanted features to reduce the price. This would make it easier for consumers to compare prices for a standardized flight across carriers.

However, it may be challenging to decide on and specify a standardized flight. For example, what extras people most often buy may differ by airline. These challenges are likely to be greater over time as industry practices change. In addition, behavioural research shows that default selections can strongly influence consumer choices, so this approach may steer customers to the standard option.

That said, there may be other ways to make airfares more transparent. For example, Australia requires that any fees for pre-selected options must be included in the headline price.

Mandatory sharing of information on flight extras

We considered a requirement for airlines to provide complete information about flight extras (like seat selection and baggage fees) to travel agents and metasearch sites that they work with. However, this approach presents several challenges and risks:

• Technical barriers may make this difficult. Systems often follow older standards that cannot handle this information.
• Travel sites could struggle to use this information. If there are no common formats for prices and offers, they could find it hard to display and compare extra services across different airlines.
• Requiring this information could disrupt existing market relationships between airlines, travel sites, and GDS companies. It could affect business arrangements and competition in complex ways that we have not studied. GDS, or global distribution systems, are networks that connect airlines and travel sites to share booking information.

We are typically in favour of sharing more information about extra services and prices. However, mandatory regulations may be difficult to specify. Plus, they could add costs and have unintended consequences.

Mandatory upfront preference selection

We considered a requirement for airlines and travel sites to let consumers select all preferences (seats, baggage, etc.) before seeing initial flight prices. This approach would replace the current model where extra charges are revealed bit by bit during the booking process. Allowing customers to select their preferences up front could help consumers compare the total cost of their journey during the initial search phase.

However, this would require changes to website design that may be complex and may not improve the user experience. Consumers would face many choices at the start of their search. It may also not be possible to show the prices for all these choices at this early stage.

Standardized fare categories and extra services

We considered a requirement for all airlines to use the same fare brands across all airlines, with the same inclusions, extras, and policies, so that comparing prices is easier. Carriers would be free to set their own prices, but the structure and content of packages would be fixed.

Some argue that this requirement could help address confusion around comparing airline offers. In our opinion though, such a solution would likely create bigger problems than it solves.

Attempting to standardize fare structures through regulation would:

• Require intrusive government intervention in airline operations
• Face weighty challenges in determining appropriate standards
• Likely fail to predict or adapt to changing consumer preferences
• Stifle innovation by preventing airlines from creating new service combinations
• Reduce the competition on fare structures that benefits consumers

While it is not perfect, the current market-driven approach allows airlines to evolve different fare structures based on real consumer behaviour and preferences. This process is more likely to discover workable solutions than regulating standard fare categories.

Data available on airline performance

It is important for passengers to arrive on time with their baggage. Measures of on-time performance include:

• Flight delays
• Cancellations
• Denied boardings resulting from overbooking

Overbooking is when airlines sell more tickets than available seats to account for no-show passengers.

Other performance measures include lost and damaged baggage and mobility devices (such as wheelchairs and scooters). The most relevant information for passengers is about specific airlines, airports, and routes, because airline performance may vary depending on where they fly.

Not a lot of data on airline performance is available in Canada. So it is harder for passengers to know what to expect and make informed choices when booking flights. This is most pronounced for infrequent flyers. Other countries publish more information on airline quality. This suggests that we can do more to help consumers make informed choices.

As one industry insider put it, “performance data drives performance.” Research backs up this idea. When more information on quality is available:

• Consumers choose products that are a better fit for them.
• Companies find it profitable to improve quality.
• Customers move their business to better-quality companies.

Greater competition in turn drives better quality. A study of the US airline industry found that airlines invest more in improving on-time performance on more competitive routes because of the greater risk of losing customers to competitors.

It is important to make airline performance data available to the public. We heard from many people who all agreed, from policymakers and academics to consumer advocates and the private sector.

International comparison of airline performance data availability

Canada

Industry data providers like Cirium track on-time performance, but they sell these datasets and only make limited information public. Flair publishes information on Canadian airlines’ delays and cancellations based on Cirium data. Also, AirHelp publishes a measure of airline and airport quality, including on-time performance. This company helps air passengers with compensation for flight disruptions.

Transport Canada reports on the rate of flight cancellations and departures within 15 minutes and within one hour of schedule at the eight busiest airports. These reports come out weekly, but they do not provide measures for specific airlines, airports, or routes.

Canada collects more information on airline performance through the Transportation Information Regulations. But they mainly collect this data for regulatory purposes rather than public access. The regulations require large carriers to submit monthly reports including:

• Flight-specific information:
  • Scheduled versus actual departure and arrival times
  • Length and cause of any delays (in minutes)
  • Flight cancellations and their reasons
• Monthly flight segment statistics:
  • Total boarding denials
  • Number of lost baggage items
  • Number of damaged baggage items

United States

The US Department of Transport (US DOT) publishes a monthly Air Travel Consumer Report. It provides a wealth of information, including:

• On-time arrivals by airline and arrival airport
• Flight cancellations by airline
• Mishandled (lost, damaged, etc.) baggage and mobility devices broken down by airline
• Boarding denials by airline

The US DOT also publishes an interactive website and detailed data for download, so there is more data there to analyze and report on. Large US airlines are also required to provide on-time performance percentages for individual flights on their websites. Passengers can then make informed decisions when booking flights.

US carriers place greater emphasis on on-time performance than Canadian carriers in their public communications. They discuss both challenges and improvement plans in annual reports and news releases. Stakeholders suggested that this indicated more intense quality competition in the US compared to Canada.

United Kingdom

The UK Civil Aviation Authority publishes monthly punctuality statistics for airlines that fly out of 10 major UK airports. They include data on delays and cancellations for both arrivals and departures. These statistics provide detailed information on flight performance by airline, origin airport, and destination airport.

Australia

The Australian Bureau of Infrastructure and Transport Research Economics publishes monthly airline on-time performance statistics. The reports track arrival and departure delays and cancellations for major domestic and regional airlines. They also include detailed breakdowns for individual airlines’ performance on routes served by multiple carriers, as well as results for these routes broken down by airport.

New Zealand

The New Zealand Ministry of Transport began publishing monthly on-time performance reports for airlines in 2024. The reports include arrival and departure delays and cancellations for jet services across New Zealand’s main domestic routes.

What we recommend

We make recommendations to prioritize competition in Canada’s aviation policy at the end of this report.

Recommendations to increase airline competition

Our study shows that governments and policymakers can take action to improve the competitive landscape by creating the right conditions for competition. Greater competition increases incentives for airlines to improve their offerings. This in turn provides consumers with more options, better services, and lower prices.

Our recommendations are designed to promote the entry and growth of airlines and empower passengers to make informed purchasing decisions so that competition can work better for more Canadians. In developing these recommendations, we look to ensure that regulations do not unnecessarily limit competition and are designed to enhance the role of market forces to drive competition and incentivize performance.

We have three areas of focus:

• Focus area 1: Prioritize competition in Canada’s aviation policy – Promote competition across the country’s aviation system
• Focus area 2: Leverage international capital and experience to strengthen domestic competition – Open the airline industry to more foreign competition
• Focus area 3: Support northern and remote market access – Address the particular transportation needs of these communities

Focus area 1: Prioritize competition in Canada’s aviation policy

Canada’s domestic aviation market would benefit from making competition a policy priority. Our analysis shows that policymakers can create better conditions for competition by:

1. Strengthening reviews of airline mergers and other deals
2. Enhancing secondary airports’ ability to compete
3. Making the market more transparent
4. Reviewing economic oversight measures

These changes would help create a more dynamic aviation sector that better serves Canadian passengers, workers, and businesses. Here is more specific information on what we recommend under this focus area.

1. Make competition the priority when reviewing airline mergers and collaborations

Any measures to increase competition in this sector are wasted if anti-competitive mergers or collaborations are allowed. This is the first line of defence to protect competition.

Recent amendments to the Competition Act have given Canada a much stronger system for preventing anti-competitive mergers and similar agreements. However, the new framework may not be applied as successfully in the airline industry due to the statutory override in the Competition Act (sections 90.1 and 94) and in the Canada Transportation Act (sections 53.2 and 53.73).

This override allows for approvals of anti-competitive agreements involving transportation companies when they are in the public interest:

• On the Minister of Transport’s recommendation, the Governor in Council may approve anti-competitive mergers.
• The Minister of Transport may approve anti-competitive coordination arrangements.

This override creates a great deal of uncertainty and makes the role of competition less of a priority in reviews of airline mergers and other forms of airline collaboration.

The Public Interest Advocacy Centre has also suggested strengthening the Competition Bureau’s role in airline merger review. All three of Canada’s most recent proposed airline mergers were approved despite serious competition concerns from the Competition Bureau. The merger of Canadian North and First Air was one of these.

In contrast, competition authorities in other countries have recently stopped anti-competitive airline mergers including:

• British Airways owner IAG and Air Europa in Europe
• JetBlue and Spirit in the United States
• Qantas and Alliance Aviation in Australia
• Air Canada and Air Transat in Europe

The transport override applies broadly to all transportation companies, not just airlines.

We recommend removing the Minister of Transport’s ability to override the merger and competitor collaboration review processes. Instead, we recommend adopting a system of parallel reviews. Under this system, both the Commissioner of Competition and the Minister of Transport would conduct independent reviews. Either process could block a transaction, and deals could only proceed if they cleared both reviews.

This would mirror the process for reviews of foreign investments and of mergers in most other regulated sectors including telecom, broadcasting, energy, and forestry.

2. Remove barriers that limit smaller airports from competing with major hub airports

Secondary airports are important parts of Canada’s aviation infrastructure. They can offer an important entry and expansion point for new airlines. Yet they face restrictions that lessen their competitive impact.

We recommend that governments and other stakeholders remove barriers to developing secondary airports through three key actions:

• Eliminate exclusivity clauses on international flights that restrict competition.
• Expand regular CATSA services to secondary airports.
• Adopt a technology-neutral approach to aircraft restrictions.

Exclusivity clauses in ground leases at Montréal-Trudeau International Airport and related restrictions currently prohibit international flights at nearby secondary airports. These restrictions prevent secondary airports from launching competitive services and limit their market impact. Removing these restrictions would enable secondary airports to respond to market opportunities. Passengers, workers, and airlines would then have more options.

CATSA’s security screening mandate is limited to designated airports, and this makes non-designated airports less able to offer scheduled passenger services. The list of designated airports should be reviewed and updated. Airports with growing or potentially important passenger traffic could be put on a priority list to be designated.

Billy Bishop Toronto City Airport faces restrictions on its operations designed to manage its impact on the community, especially when it comes to noise and the environment. But these restrictions are not always flexible to allow for new technologies. Focusing more on outcomes would allow the airport to benefit from new technology while still managing its noise and environmental impact. Being free to serve passengers more efficiently would make Billy Bishop a more attractive alternative to Toronto-Pearson and other regional airports for some flights.

3. Improve the publication of airline industry data

More transparent data can give incentives for airlines to perform better, and it can improve decision-making. We recommend that more airline industry data be publicly available, including performance metrics, routes, fares, passenger volumes, and slot information.

Timely public access to detailed industry data:

• Supports informed consumers
• Helps businesses grow
• Promotes sound policy analysis

While some data is available at the moment, we have identified areas where greater transparency could benefit the market.

Publishing information on airline performance helps consumers make informed choices and pushes airlines to improve their quality. People could better assess opportunities, monitor competition, and create policy if data were made public on:

• Airport slots – including who has them, which ones are available, and how they are allocated
• Carrier routes
• Fares
• Passenger numbers

Some users may benefit indirectly from increased public data, including through media reporting, studies, and online tools.

Inappropriate exchanges of sensitive information between competitors can open a path for coordination or cartel agreements that are contrary to the Competition Act. Still, we consider that enhanced public data about the domestic airline industry would benefit all stakeholders including passengers, businesses, and regulators. At present, competitors can purchase industry data. In other words, the coordination risks are present but the public does not get all of the benefits of transparent information.

Several countries provide positive examples of aviation data transparency. Through its Origin-Destination Survey of Airline Passenger Traffic (commonly known as DB1B), the United States regularly publishes a dataset that samples airline tickets from reporting carriers. Its detailed information includes carrier routes, fares, and passenger numbers. This dataset is being improved upon: starting in July 2025, the US Department of Transportation will increase both how many airline tickets it includes in its sample (from 10% to 40% of tickets sold) and how often it reports the data (from quarterly to monthly). Other countries also publish airline performance and slot data.

Canada collects airline performance data and information similar to DB1B through the Transportation Information Regulations. But Transport Canada mainly collects this data to inform their regulations. The public has limited access. Canadian airports and slot coordinators collect slot information, but again this data is mostly kept private.

Making relevant portions of Canadian aviation data publicly available, with the proper privacy protections, would benefit all stakeholders while getting the most value out of existing reporting requirements.

4. Consider reviewing the airport oversight and funding model

Airports can serve as gatekeepers of airline competition.

A full review of the model for how airports are overseen and funded was beyond our study’s scope. But stakeholders did raise several competition-related concerns about user fees and airport operations that fit within our study’s terms of reference.

Today, Canada’s airports have few economic rules. Further, airports often do not face market discipline from strong competition.

We did not conduct a detailed analysis of airport market power or evaluate the costs and benefits of increased oversight. But the competition issues stakeholders raised suggest this topic deserves further study. Congested Canadian airports usually follow the Worldwide Airport Slot Guidelines (WASG), but they are not required to. This makes it uncertain when an airport should start to follow the guidelines. And some airports’ practices diverge from WASG recommendations. For example, the most congested airports may manage slots on their own instead of following the guideline of using independent coordinators.

Some airports told us that they adopt principles of fair and equal access for all airlines. But no one formally oversees these practices, and different people may interpret these principles differently. This can lead to concerns of favouring large legacy carriers over newer, smaller, or lower-cost airlines. Airports also raised concerns that adding more rules could complicate their operations and raise their costs. These costs are then passed on to airlines and passengers.

It is worth noting the difference between how Canadian airports are overseen and how other players are overseen. For instance, Nav Canada operates under more rigorous oversight, as do airports in many other jurisdictions. It is also worth noting that laws have been proposed in the past to increase economic regulation of Canadian airports.

We are not recommending more economic oversight at this time. Yet these observations suggest that government should review the current oversight framework. It could help determine whether new rules would benefit Canada’s aviation sector and its stakeholders. Promoting competition should play an important part in such a review. One option is to make promoting competition part of airports’ official duties. This could include:

• Ensuring fair and non-discriminatory access to airport facilities
• Preventing anti-competitive practices, including those that relate to slot allocation
• Facilitating market entry for new airlines and service providers
• Transparently managing infrastructure and services to support airlines’ competitive access to airports

A review of airport oversight should also consider whether the current balance between user fees and government support serves the aviation sector to its fullest. We heard how user fees weaken the business case for airlines to enter the market and sustain services, especially for low-cost carriers and remote regions. However, any discussion of subsidies is a complex economic and policy question. It brings up elements outside the scope of our study, like whether subsidies are appropriate and, if so, what form they should take. A broader review could help assess these competition and policy issues in the right context.

Focus area 2: Leverage international capital and experience to strengthen domestic competition

Greater access to international capital is important for competition, and it has been proven to work well in Canada and elsewhere.

Canada should continue to open up Canadian aviation markets to benefit from international capital and experience. In particular, the government should further loosen the current foreign ownership rules under the Canada Transportation Act (CTA) and allow foreign airlines to operate more freely within Canada. More specifically, we recommend the following.

5. Increase the single investor foreign ownership limit for Canadian airlines to 49%

Increase the foreign ownership limit for any one investor, including foreign airlines, from 25% to 49%. Several other countries have adopted the 49% limit. Doing so will allow for more foreign investment while maintaining Canadian control. This increase would give airlines more flexible options so they can access capital, drive growth, and be more competitive.

6. Allow up to 100% foreign ownership for domestic-only Canadian carriers

Create a new class of licensee under the CTA to allow up to 100% foreign ownership for airlines that only fly within Canada. This may attract more foreign capital and expertise to increase competition, yet it would avoid complications under Canada’s international agreements. These agreements establish rules for flights between countries and often set out what makes an airline “Canadian”. This typically includes Canadians owning at least 51% of the airline. But these international agreements do not apply to domestic-only carriers.

This approach has proven successful in Australia. These carriers would face the same competitive conditions as other Canadian carriers operating domestically. They would use Canadian crews and comply with Canadian laws and regulations.

7. Work with other countries to remove foreign competition restrictions in international agreements

Work to phase out restrictions on foreign competition with Canada’s trading partners, starting with allowing foreign investors to hold up to 49% of voting shares in Canadian airlines, as recommended above.

The long-term goals should be to:

• Entirely remove foreign ownership restrictions on airlines
• Allow airlines from partner countries to operate domestic service within Canada, known as cabotage

Steps along the way can include:

• Renegotiate important air service agreements to remove restrictions
• Establish regional open aviation areas
• Adopt “principal place of business” tests instead of nationality rules

This stepwise approach allows policymakers to address any emerging issues and gain the most benefits. Other domestic laws may need to be updated to align with ownership reforms, such as those protecting consumers and workers.

Focus area 3: Support northern and remote market access

The economic realities of northern and remote regions may limit the number of airlines that can fly on certain routes. But ensuring these markets remain open to competition is still crucial.

The goal of our competition recommendations is not always to promote multiple carriers on every route. Rather, we want to promote competitive markets where the best airline serves each route but knows it can be replaced. Additional airlines can operate wherever there’s enough business to support them.

Northern and remote regions face distinct challenges that make supporting competition especially difficult, yet that is what makes it all the more important. In response, we have created recommendations tailored to address these specific circumstances.

Even residents who do not travel by air benefit from increased airline competition, because it reduces the costs of shipped goods and services that rely on air transportation. By promoting competition, we can help ensure that the isolated northern and remote communities are not left behind and have the air services they need to stay socially connected and access essential services like medical care, groceries, and jobs.
Therefore, we recommend that governments and policymakers consider the following.

8. Coordinate leadership of northern and remote aviation

Stakeholders told us that there is a lack of leadership when it comes to northern and remote air transportation in Canada. The Auditor General’s Spring 2017 report noted that Transport Canada did not take the lead in coordinating efforts to address the unique challenges remote northern airports faced. Transport Canada has taken steps to address issues raised in the report. However, our recent stakeholder interviews suggest that more work needs to be done.

To properly address these challenges, it is critical that all relevant stakeholders work together to find solutions: federal, provincial, territorial, and local. Current policies may be limiting whether airlines can truly compete in northern and remote regions. Stakeholders have highlighted that when regulations are developed, they may not fully account for the unique challenges of these regions.

We recommend a national working group focused on remote air transportation. This group should prioritize the main issues that relate to competition in Canada’s aviation sector, paying special attention to fostering a competitive environment that leads to high-quality and accessible air service for northern communities.

9. Tailor regulations to the northern context

We recommend that governments adopt an approach to policy specific to the North. A one-size-fits-all approach may not suit all carriers and regions. Policymakers should focus on the outcomes they want a policy to achieve so that consumers see the greatest benefit.

In our interviews, stakeholders emphasized that policies designed for southern operations often create unintended challenges when applied in the North. These communities have unique operating environments that require more tailored solutions. One example is flight and duty time regulations. Another is the APPRs, which can also be ill-suited to the unique conditions in these regions. Therefore, policies should more strongly account for the needs of northern regions. This will help airlines operate smoothly and keep competition strong in these areas.

By focusing on the outcomes they seek, policymakers can promote competition and better support policy outcomes in these regions. For example, being more flexible in how flight and duty time regulations apply to northern regions could help create rules that lessen the burden of regulations on their airlines. In all decisions, safety remains the guiding principle. A regulatory sandbox can serve as a valuable tool for regulators to test the impact of tailored policies. They can help meet safety and consumer protection goals while also balancing their effects on competition and the airline industry.

International best practices

In the United States, transport regulation and policy are applied differently depending on the region. Notably, Alaska has exemptions when it comes to aviation policy. For example, the Essential Air Service Program allows for Alaska-specific rules and exceptions to address the remote nature and small population size of most communities in the state.

10. Leverage government investments and tools to foster competition

Our analysis has identified four specific areas where governments can promote competition in northern and remote airline markets. These recommendations aim to ensure these regions see better outcomes thanks to greater competition.

A. Improve critical infrastructure at key northern airports

Improving airport facilities lowers airline costs and allows new airlines to serve northern and remote routes. Resources may be limited, but strategic investments in infrastructure can bring economic benefits.

Runway upgrades make airlines more efficient and safe. They reduce aircraft damage and increasing the types of airplanes that can use the runway. Upgrades include maintaining, lengthening, and paving gravel runways. We also heard that aluminum runways may be a promising alternative to asphalt. They may require less maintenance and be more durable and resilient to the impacts of climate change.

Runway lighting and systems to monitor and report weather increase safety and let more flights take off and land.

B. Develop open-access airport infrastructure

There are not enough open-access essential facilities at northern airports, such as hangars, warehouses, and de-icing facilities. This creates extra costs and barriers for airlines seeking to enter or expand services.

We recommend that airport authorities develop important facilities and make them available to all airlines. Airport authorities may consider acquiring these assets from existing airlines.

We also recommend that government funding target airport authorities rather than individual airlines for infrastructure development. When providing funding, governments should consider requiring that the specific access facilities built with public money be open to all airlines on equal terms. If funding infrastructure that the airline owns, governments should consider requiring similar open access to that funded facility.

C. Open government contracts to as many bidders as possible

We recommend that governments review contracting conditions for medical and duty travel to foster competition and encourage bidding from as many airlines as possible. Request for proposal (RFP) requirements should balance essential service needs while also allowing a broader range of airlines to participate. Where possible, replacing one large contract with multiple smaller contracts may also mean more airlines can participate.

D. Promote interlining agreements to support smaller carriers and regional market development

We recommend that governments promote interlining agreements to:

• Increase connections
• Attract customers to smaller regional markets
• Support the growth of smaller airlines

These agreements help smaller airlines connect with larger networks. They would improve service for consumers and support traffic on regional networks. An example policymakers can consider is the recent interline agreement between Air North and WestJet. The Government of Yukon worked to secure this agreement.

Our commitment to protect airline competition

We recognize the important role the Competition Bureau plays to safeguard competition against anti-competitive activity in this sector.

Along with our recommendations for governments across Canada, we will continue to approach our work in the Canadian airline industry with careful attention and scrutiny. Following recent amendments to the Competition Act, we are committed to using the full range of our enforcement tools. This includes seeking court orders where appropriate to try to quickly stop anti-competitive practices during investigations and lawsuits against dominant companies.

Appendix A: Airport Policy Framework

Overview

The 1994 National Airports Policy (NAP) established the framework for privatizing airports in Canada and created a system to classify the country’s airports using a series of tiers. The policy designated 26 airports as part of the National Airports System (NAS). They were seen as essential to Canada’s air transportation network.

To qualify as a NAS airport, a facility must either serve a provincial or territorial capital or handle more than 200,000 passengers each year. Below this tier, regional and local airports provide scheduled passenger services but serve fewer than 200,000 passengers a year. Small airports handle fewer than 1,000 passengers and do not offer regular scheduled service.

Under the NAP, the federal government maintains ownership of 23 large airports. They have long-term lease agreements with 21 airport authorities that run, maintain, and develop these facilities.

These airport authorities operate as not-for-profit corporations. No one owns shares in them. Kelowna International Airport operates under a unique arrangement. It is managed by the City of Kelowna and not by an airport authority. The NAS also includes three airports in the territorial capitals owned and operated by territorial governments.

Along with the 23 large airports, the federal government owns 18 smaller airports. It had numerous other smaller airports but divested them to provincial and local governments, not-for-profit airport commissions, private businesses, and other interests. The Air Services Charges Regulations apply to airports operated by the federal government.

The federal government regulates all airports. It ensures they comply with national and international safety and security standards. And it ensures they meet certification requirements for scheduled passenger services.

Limited economic regulation of airports

The approach to airport economic regulation has been mostly informal since the airports became private. The federal government’s role in overseeing airport charges and operations was not formally established during the process. Attempts were made to introduce formal economic regulation for airports through Bill C-27 (2003) and Bill C-20 (2006), but these initiatives did not come to pass.

Canada is a founding member of the International Civil Aviation Organization (ICAO), which has Policies on Charges for Airports and Air Navigation Services to guide member states. However, Canada has not adopted these principles – or other measures – in federal legislation for airports. This stands in contrast to other sectors. For instance, the Civil Air Navigation Services Commercialization Act provides formal economic regulation for Nav Canada, including specific rules for setting fees, consulting users, and hearing appeals.

Oversight of airport operations and charges does not fall under formal regulations. It has evolved though a system of informal checks and balances. Various systems and tools apply instead, including:

• Ground lease agreements
• Public accountability principles
• Airport master plans
• Airport fee agreements

Ground lease agreements

The federal government maintains some oversight through ground lease agreements with airport authorities. Using the Greater Toronto Airport Authority (GTAA) agreement as an example, these leases set out key requirements including:

• Responsibility for capital improvements and infrastructure maintenance
• Compliance with federal safety, security, and environmental regulations
• Meeting specific performance standards for service quality and efficiency
• Regular reporting of performance metrics and financial results
• Ensuring the airport is returned to the federal government in good condition and debt-free at the lease’s end

Public accountability principles

The 1994 Public Accountability Principles for Canadian Airport Authorities set out further oversight mechanisms. These principles give Transport Canada the right to independent audits and require airport authorities to:

• Hold public annual general meetings
• Publish comprehensive annual reports
• Provide advance notice of user charge increases
• Establish Community Consultative Committees
• Undergo independent performance reviews every five years
• Make key documents publicly available, including master plans, business plans, financial statements, articles of incorporation and by-laws, and airport transfer agreements

Airport master plans

Airports must develop master plans that provide a 20-year perspective on development and improvements. They must revise them every decade. These plans include projections for air services, developing facilities, and designating land use for both aviation and non-aviation purposes. The land use portion requires Transport Canada approval, and the planning process involves broad consultation with stakeholders including local communities, businesses, and airlines.

Airport fee agreements

Formal agreements between airports and carriers on Airport Improvement Fees (AIF) and Passenger Facilitation Fees (PFF) provide another layer of oversight. These agreements define how fees are collected and used. Airlines collect both types of fees from passengers as part of the ticket price and transfer the funds to airports, apart from a processing fee that they keep. AIF can only be used for capital expenditure projects, but PFF can fund both capital and operational expenses.

These agreements also establish Airline Consultative Committees (ACC). The ACC hold formal consultations on the fees and their uses between the airport and the airlines that use it. These committees give the largest airlines at the airport considerable influence; the largest airline by passenger volume appoints the committee chair and each member receives a number of votes in proportion to airlines’ share of passenger volume at the airport.

Appendix B: Canadian Domestic Airlines