Draft market study notice: Competition in Canada’s airline industry

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The consultation on this draft market study notice has ended. The Competition Bureau has published the final terms of reference in our market study notice.

Table of contents

Notice of study

  1. The Competition Bureau believes that it is in the public interest to conduct a market study into the state of competition in the airline industry, in particular with respect to domestic air passenger services.Footnote 1
  2. As an initial step, we are calling for comments on the terms of reference in this draft market study notice.Footnote 2 Comments can be submitted through our feedback form or by emailing airlinemarketstudy-etudemarcheaerien@cb-bc.gc.ca until June 17, 2024.
  3. Market studies allow the Bureau to assess a sector from a competition perspective to identify relevant laws, regulations, policies or other factors that may affect competition. Through market studies, the Bureau makes findings and provides evidence-based recommendations on ways to enhance competition in a particular sector.

Terms of reference

Purpose of the study

  1. The purpose of this study is to examine the state of competition in the airline industry and how governments across Canada can improve competition for the benefit of domestic air passengers as well as the workers and entrepreneurs who enable these services.
  2. In undertaking this study, the Bureau is not examining any specific allegations of wrongdoing. However, should the Bureau uncover any evidence during the study that the Competition Act has been contravened, it will investigate and take appropriate action.

Public interest reasons for the study

  1. The airline industry is important to Canadians and the Canadian economy. It provides an essential mode of transportation for both business and leisure purposes. In 2022, the industry served 72 million passengers on domestic services.Footnote 3 Since the Canadian population is spread out over vast distances, other modes of transportation are often not feasible replacements for air travel. And for some remote areas, air transportation services may be the only available option. This is why Canadians need affordable and accessible air transportation.
  2. The industry has faced challenges associated with the COVID-19 pandemic, including labour shortages.Footnote 4 However, there are also reasons to ask whether competition could work better in this market. The domestic air travel market is concentrated with only two major airlines, Air Canada and WestJet, who together are estimated to account for close to 95 per cent of industry revenue.Footnote 5 There are also signs that domestic airfares in Canada may be relatively high.Footnote 6 Additionally, average airfares remain above pre-pandemic levels.Footnote 7
  3. Recent travel experience has included congestion, flight delays, cancellations and baggage issues during busy travel seasons in 2022.Footnote 8 In addition, Canadians are filing an increasing number of complaints with the Canadian Transportation Agency about air travel services in recent years.Footnote 9
  4. Commentators have noted that WestJet and Air Canada have scaled back their operations into Western and Eastern Canada, respectively, leading to increased fares for flights in those regions. Conversely, new and growing airlines serve busy domestic routes and winter sun destinations, leading to reduced fares on those routes.Footnote 10
  5. Despite the promising entry and expansion by some airlines, the Canadian market appears challenging for many carriers. This includes low-cost and ultra low-cost carriers, which seem to face more difficulties in Canada compared to other countries. For example, Lynx Air recently ceased operations.Footnote 11
  6. These initial market observations suggest that a study of competition in the airline industry will be informative for the Bureau and policymakers.
  7. In addition to recent events, there is a long history of competition enforcement in the sector by the Bureau and other global competition agencies.Footnote 12 The Bureau has previously called for more competition in the airline sector, including advocating for changes to the foreign ownership rules, and allowing foreign carriers to operate within Canada’s domestic borders, also known as cabotage rules.Footnote 13 Since then, the Government of Canada increased international ownership limits from 25 to 49 per cent of voting interests for Canadian air carriers.Footnote 14 This history further underscores the importance of studying the state of competition in the airline industry.
  8. Greater competition can complement other policies aimed at improving air travel. The Government of Canada is taking steps to better protect air passengers, enhance accountability and accessibility of airports, and support investments in airport facilities.Footnote 15 This includes measures aimed at fees for optional airline services such as seat selection and baggage. Insights from our study may help policymakers better achieve their goals.
  9. Supporting competition in this industry will help reduce prices for consumers, improve quality of service and working conditions, increase productivity, and boost innovation.

Scope of the study

  1. The Bureau plans to examine three key topics as part of its study:
    • the state of competition in Canada’s airline industry;
    • barriers to entry and expansion; and
    • impediments to informed customer choice.
  2. The Bureau will aim to answer the following questions during this study:
    1. What is the state of competition in the Canadian airline industry?
      1. What is the state of competition in the Canadian airline industry, how can we achieve greater airline competition, and what are the benefits for Canadians?
      2. How is the industry evolving in terms of consumer preferences and airline operations, e.g. demand for direct flights, demand for domestic vs international flights, passengers’ willingness to use secondary or more distant airports, and business models?
      3. What can we learn from recent market events, including the entry of ultra low-cost carriers, Porter Airlines’ expansion, and the reduction in regional service by WestJet and Air Canada?
    2. How can policymakers further support airline entry and expansion?
      1. What are the major barriers to entry and expansion and how can policymakers lower them to stimulate competition?
      2. How can airport operations and other air travel services support air carrier entry and growth?
      3. How can government procurement or other initiatives support airline competition in remote regions, including the North?
      4. Should policymakers open domestic routes to more international competition? If so, how?
    3. How can policymakers further support consumers when shopping for airfares?
      1. What difficulties do consumers face when shopping for airfares?
      2. Do consumers have the information they need to make informed purchasing decisions, particularly when it comes to service quality and pricing of ancillary services, such as seat selection and checked baggage?
      3. How can policymakers help consumers benefit more from existing competitive options?
  3. While there are many important issues relating to airlines beyond those mentioned above, for this study the Bureau does not intend to evaluate:
    1. Issues pertaining to air cargo services or international air passenger services, except to the extent that they relate to competition in domestic air passenger services.
    2. Issues pertaining to airport governance, except to the extent that they relate to competition in domestic air passenger services.
    3. Issues pertaining to specific passenger complaints under the Air Passenger Protection Regulations and recently held consultation on strengthening these regulations. Passenger complaints should be addressed through the Canadian Transportation Agency’s air travel complaints resolution process. More information on the recent consultation is available through the Canadian Transportation Agency's consultation webpage.
    4. Specific complaints that may raise concerns under the enforcement provisions of the Competition Act. These complaints should be directed to the relevant enforcement directorate or the Bureau’s Complaint Form or Information Centre.
  4. As the study progresses, the Bureau may advise stakeholders of any updates through the market study webpage.

Outcomes of the study

  1. The Bureau will publish the results of the study in a public report, which may include recommendations to relevant government authorities on steps they can take to improve competition for the benefit of passengers, workers, and entrepreneurs.
  2. The study will enable the Bureau to, among other things:
    1. Increase its knowledge and understanding of the competitive dynamics within the airline sector to inform its future work.
    2. Provide informed advice regarding steps that policymakers could take to further support competition in the airline sector.

Process and study milestones

  1. Over the course of the study, the Bureau intends to engage with a wide range of stakeholders including industry players and government decision-makers, and will gather and analyze information from various other sources. The Bureau welcomes submissions from interested stakeholders, as detailed below under ‘Get Involved’. The Bureau may also consult with industry, economic, and other experts and consider the experience of other jurisdictions. While the Bureau continues to welcome stakeholders providing relevant information voluntarily, we may use a new legislative tool to ask the Courts to order companies to provide relevant information to the Bureau.

Timeline

  1. The duration of the proposed market study will be 12 months:
    1. June/July 2024: Publish final terms of reference for market study
    2. August 2024: Deadline for written submissions from the public
    3. Summer/fall 2024: Stakeholder engagement and research
    4. Winter/spring 2025: Analysis of potential solutions and recommendations
    5. June/July 2025: Publish final report
  1. The Bureau may modify the schedule as needed. Should there be any material change to this schedule, the Bureau will update the notice and advise stakeholders of the changes through the market study webpage.Footnote 16

Get involved

  1. As an initial step, we are calling for comments on the terms of reference in this draft market study notice. Comments can be submitted through our feedback form or by emailing airlinemarketstudy-etudemarcheaerien@cb-bc.gc.ca until June 17, 2024. All comments will be made public and posted on the Bureau’s website in the language provided unless it is specifically requested that they be kept confidential.
  2. After considering the comments received, the Bureau will publish final terms of reference. The final terms of reference will include further details about providing submissions in response to the final market study scope.

Confidentiality

  1. The Bureau conducts its advocacy and enforcement activities under the authority of the Competition Act. Section 29 of the Competition Act protects information obtained by or provided to the Bureau, including the identities of the persons who provided the information, and any information that could reveal their identities. However, when information has been made public or where persons providing information authorize its communication to other parties, subsection 29(2) permits the disclosure of such information.
  2. Additionally, subsection 29(1) provides exceptions for the communication of information to a Canadian law enforcement agency or for the purposes of the administration or enforcement of the Competition Act.
  3. The Bureau encourages stakeholders to consult its Information Bulletin on the Communication of Confidential Information under the Competition Act or direct specific questions to the market study team by emailing airlinemarketstudy-etudemarcheaerien@cb-bc.gc.ca.
  4. Any reports or other products published in relation to the study may contain analysis that is based on confidential or commercially sensitive information. We encourage stakeholders to identify any confidential or commercially sensitive information in their submissions or discussions with Bureau officials. The Bureau will endeavour to anonymize sensitive information.
  5. The Bureau will conduct its analysis in confidence. For greater clarity, the Bureau will send an advance copy of relevant portions of the report to every person who supplied information in response to a section 11 production order so that they may, within three working days, share any concerns regarding factual inaccuracies or confidential information that should not be disclosed in the final report.
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