(Page 2 of 2)

Canada Importing Airline Deregulation

September 06, 1985|By Carol Jouzaitis.

Under an agreement reached earlier this year, operators flying small aircraft (turboprops with 60 or fewer seats) have an easier time entering routes across the U.S.-Canadian border.

A number of carriers have inaugurated service on new routes, such as First Air`s flights between Boston and Ottawa, and between Hartford, Conn., and Toronto.

While the Canadian government has already given transportation companies some new freedoms, it has yet to solve a difficult issue: how to privatize its ``Crown`` corporations, government-owned Air Canada and Canadian National Railway Co.

Air Canada favors selling all its stock gradually to its employees and the public. Competitors support that concept, contending that the government- owned companies are at less risk and therefore have a competitive edge.

However, ``the government proposal included very little on privatizing Crown corporations and less so on Air Canada,`` Air Canada`s Couture said. There are indications that the government may choose to allow the private sector to partly share in the Crown corporations.

Air Canada was formed by the government in 1936, when Canadian Pacific Railroad refused the defense minister`s appeal to found an airline. It hasn`t received a goverment subsidy in 30 years and paid $55 million in dividends to public coffers between 1977 and 1983.

Several years later, Canadian Pacific did enter the airline business, creating Vancouver-based CP Air.

Canadian National Railway, a coast-to-coast network, was created 70 years ago, when the government took over several bankrupt lines. Also in the telecommunications and real estate businesses, Canadian National made $242 million on $5 billion in revenues last year.

Both CP Rail and Canadian National receive subsidies for maintaining unprofitable branch lines as a public service.

Government reforms would include the dismantling of the Canadian Transport Commission. The policymaking and regulatory body would be replaced with an independent agency that would exist mainly for settling disputes with shippers.

Canadians have been getting a taste of deregulation for more than a year. The Canadian Transport Commission (CTC), which oversees air, rail and maritime companies, has been permitting more marketing flexibility.

Proposed fare changes that once were tangled in red tape for as long as 45 days now get the government`s nod in 24 hours or less. As a result, the airlines have become more aggressive in pricing: Witness Air Canada`s new discount fares.

An airline`s request to withdraw from any route still entails extensive government scrutiny, however.

Despite the new freedoms, in Canada there have been no new entrants, no no-frills, nonunion competitors springing up to engage in bloody fare wars.

The recession several years ago created fertile ground for entrepreneurs, with plenty of experienced airline workers on furlough and a glut of used aircraft available at cheap prices.

Those conditions don`t exist now. ``It`s not easy to launch a new airline anymore,`` said Air Canada`s Couture.

``The industry doesn`t expect to see a surge of new carriers,`` Watson said. ``The business isn`t that profitable. But we do expect greater price competition.``

What is profitable, even if marginally so, the current competition wants to hold on to.

Most fearful are the small carriers flying in frigid, remote areas of northern Canada, where airplanes often provide the only means of

transportation. Profits are razor-thin, and added competition could mean bankruptcies and areas left without crucial service.

Ironically, a system of ``essential service`` subsidies, a program all but abandoned in the U.S., is being considered for the first time in Canada as a way of mitigating such disastrous results.

Canada`s smaller airlines, Pacific Western, Nordair and Quebecair, and a thriving charter carrier, Wardair, are hungry to expand. Wardair just received permission to begin scheduled flights to Britain.

On the rail side, pricing has largely been deregulated, but railroads must publish their rates. As a result, Canadian railroads, unlike their American counterparts, have been unable to bargain confidential rates with shippers.