11
STRUCTURE OF THE TRANSPORTATION INDUSTRY
Air Transportation Industry
Major Events in 1999
Industry Restructuring
On August 13, 1999, the federal government issued an Order
in Council, using its authority under the Canada Transportation
Act, that established a special 90-day process to support the
orderly restructuring of the Canadian airline industry. During
this period, all parties wishing to discuss airline restructuring
options with Canada's two major airlines, Air Canada and Canadian
Airlines International Ltd., were exempted from the conspiracy
provisions of the Competition Act. The government took this
action for two reasons: to avoid any potential disruptions
to the national air transportation system that might have resulted
from the weak financial position of Canadian Airlines; and to
ensure that all aspects of the public interest were considered
in any major airline industry restructuring.
On October 26, 1999, before the 90-day period had expired,
the Minister of Transport released "A Policy Framework for
Airline Restructuring in Canada." This document detailed
the federal government's public policy objectives, which would
be achieved through commitments from a dominant carrier, conditions
on the restructuring, legislation and regulations.
At that time, the Minister sought the views of parliamentarians
by referring the document to the House of Commons Standing
Committee on Transport and the Standing Senate Committee
on Transport and Communications. Both committees published reports
with recommendations in early December 1999.
In addition to stating that safety and service to the travelling
public in both official languages are fundamental, the policy
framework included five areas of concern to the government.
These were Canadian ownership and control, fostering competition,
pricing, service to small communities, and rights and concerns
of employees. It also outlined a new three-track process for reviewing
mergers and acquisitions in the airline industry.
During the 90-day period, three proposals that would have restructured
the industry were put forward by the private sector. Of these,
only one remained by the close of the 90-day period. This
was an offer made on November 5, 1999, by 853350 Alberta Ltd.,
a corporation owned in part by Air Canada, to acquire all of the
common and non-voting common shares of Canadian Airlines Corporation.
The proposed acquisition was subjected to a formal review
by the Competition Bureau and the Minister of Transport.
On December 21, 1999, the Minister announced that the government
was prepared to allow the proposal to acquire Canadian Airlines
to proceed on the basis of commitments that had been secured from
Air Canada and 853350 Alberta Ltd. and the undertakings that
the parties had made to the Commissioner of Competition.
It is expected that this acquisition will result in Canada's
two major carriers, although operated separately for the time
being, coming under common control. The commonly controlled entities
can be expected to offer most of the services and carry the vast
majority of passengers and cargo within Canada, the Canada-US
market and other international services for the foreseeable future.
Major Commercial Air Services
In 1999, scheduled air services continued to be defined largely
by the operations of the nation's largest operators, Air Canada
and Canadian Airlines. These airlines, in co-operation with their
subsidiaries and commercial partners, provided competing networks
of domestic, transborder and international air services. Each
airline belonged to a global alliance that, through code sharing,Note
9 can offer travellers a seamless travel experience
on one ticket, even if more than one airline within the alliance
is part of the itinerary. Table 11-12 provides a more detailed
look at global airline alliances.
Canada's large operators of charter air services, including
Air Transat, Canada 3000, Royal Air and SkyService, continued
to be the price leaders in low-fare long-haul air travel. Overall
these operators' importance is not only in terms of market share,
but also of the extra capacity they provide and the influence
they have on prices. Charter carriers operate according to a distinct
seasonal pattern: in the winter, their flights connect Canadian
centres with "sun destinations" in Florida, Mexico
and the Caribbean, while in the summer their services operate
across Canada and to Europe. This reflects the pattern of leisure
travel during these seasons and is complemented by the long-haul
domestic services, which they also provide on a year-round basis.
Table 11-13 shows the relative market share of mainline, charter
and significant independent airlines in Canada's domestic and
international markets in the summer of 1999.
WestJet took delivery of two additional B737-200 aircraft during
1999, bringing its total fleet to 14 aircraft. These new aircraft
were used to add three destinations to its network, Grande Prairie,
Prince George and Thunder Bay, and to increase its frequency of
service on existing routes. Table 11-14 shows the types of aircraft
in the fleet of a number of important Canadian air carriers.
A number of carriers acting on behalf of courier operators
provided all-cargo air services, including Kelowna Flightcraft,
Air Express, All Canada Express and International Charters
Canada (ICC). Table 11-15 shows the Canadian carriers operating
for US-based courier companies.
Table 11-16 lists the economic licence authorities held in
Canada in 1999 and illustrates the number of US-based and other
foreign carriers that have the authority to operate to or from
Canada on both a scheduled and charter basis.
Regional & Local Air Services
In April 1999, two of Air Canada's wholly owned subsidiaries
serving Atlantic Canada and Quebec -- Air Nova and Air Alliance
-- completed the consolidation of their operations, which had
begun in the fall of 1998. While these carriers continue to operate
as separate brands under the management direction of Air Nova
Inc., their fleets have been redeployed to better match seating
capacity to local demand, including the addition of more air
services by Air Alliance, whose operations are more focused
on serving Quebec.
Inter-Canadien, an independently owned commercial partner serving
Ontario, Quebec and Atlantic Canada within Canadian Airlines'
domestic route network, suspended operations on November 29, 1999,
due to financial difficulties. Inter-Canadien's commercial partner,
Canadian Airlines along with its subsidiary Canadian Regional,
and Air Canada and its subsidiaries Air Nova, Air Alliance and
Air Ontario, as well as Air Georgian, moved to offer services
to most of the communities served by Inter-Canadien.
Table 11-17 shows the regional carriers in commercial partnerships
with Air Canada and Canadian Airlines at the end of 1999.
Independent airlines (i.e. carriers not affiliated with either
Air Canada or Canadian Airlines) have been reluctant to compete
directly with regional carriers. As a result, there is little
overlap between independent airline services and those of the
national networks. While independents are most prominent in the
northern parts of Newfoundland and central and western Canada,
they have also filled service voids left by regional affiliates.
A case in point was the independent's takeover of services
to Stephenville, Newfoundland, a region that had previously been
served by Inter-Canadien. More recently, some independents (e.g.
Regionair and Air Montreal) have pursued more aggressive strategies
to compete with regional affiliates. Table 11-18 lists a number
of independent airlines and their major bases of operation.
General Aviation
The general aviationNote 10 sector comprises all types
of private-sector aviation activity except air transportation
services. It includes both recreational flying and commercial
activities.
General aviation represented about half of all aircraft movements
at controlled airports during 1998, although much of the activity
was also at non-controlled airports. Recreational flying in its
various forms represents the bulk of general aviation activity,
underlining the former's importance in civil aviation in Canada.
The importance of recreational aviation is also evident by
other measures: it accounts for about two thirds of Canada's
pilots, three quarters of aircraft registered in Canada in
1999, and represents the largest segment of Canadian civil
aviation activity. Further details about recreational aviation can
be found in Table 11-19 and Figure 11-8. A summary of personnel
licences appears in Table 11-20 and 11-21.
Specialty Air Services
The specialty air services sector is made up of a variety of
commercial air activities that share one common characteristic:
they are not involved in the movement of passengers or cargo
between two points. This sector's activities include flight training,
parachute jumping, glider towing, aerial fire fighting, aerial
inspection and construction, aerial photography and surveying,
advertising, weather-sounding and crop spraying. Transportation
of human organs for transplant, forest fire management and heli-logging
are other activities which use specialty air services. In
addition, air-cushion vehicle services are included in this category.
While there are some large companies in this sector, such
as Canadian Helicopters, many are very small operators serving
local markets.
Business Aviation
The business aviation sector continued to grow in 1999, with
manufacturers reporting increases in deliveries and some backlog
orders. One factor helping is "fractional ownership",
whereby individuals or businesses who would not otherwise
own an aircraft by themselves, share its use by selling units
of flight time. Fractional ownership programs in Canada are regulated
as commercial air services.
- Appendix 11-1 Railway Operators
by Region, 1999
- Appendix 11-2 Selected Urban
Transit Systems of Importance to Canada
Air Transportation Industry
NOTES
9
Code-sharing is the ability to sell air travel under one airline's
name on the flights of another airline. In the international context,
code-sharing allows airlines to sell transportation on the network
of services of code-share partners as if it was their own. In
addition, by co-ordinating their marketing efforts, alliance partners
can provide a combined product to the consumer, including common
check-in, better co-ordinated connections, and priority baggage
transfer.
10
Gereral aviation has not been formally defined in Canada. Consequently,
it has been defined for the purpose of this report as all non-commercial
aviation activities.
|
