Free Trade In North American Skies

RonnieWood · January 30, 2004

Some Globe and Mail articles about ‘Free Trade’ in North American skies:

The articles talk about having 'free trade' in the skies over Canada and the United States (cabotage).

This wouldn't be such a bad idea if the airlines on both sides of the border were of equal size and could fairly compete with each other.

The consumers will probably be able to fly at much lower rates, for awhile.

I think eventually the bigger American Airlines would take over the Canadian skies, Air Canada, Westjet, and most other small Canadian airlines would disappear.

Right now American Airlines has dozens of planes (big and small) going unused all over the United States. If these planes were allowed to fly between Canadian cites (essentially a whole new market) we would be flooded with cheap flights and our Canadian airlines would not be able to compete.

I'm interested to see what you all think. I've been looking around these forums for a few weeks now but this is my first post.

Thanks,

Ron

Rasputin · January 30, 2004

Hi Ron, welcome. I read the articles. A couple of points. 1. Collenette is a dinosaur and one reason why i believe Martin = Chretien is his fondness [even in lieu of Coll. announcing he will retire], of keeping incompetents like Collenette in places of power who do not understand market dynamics. National champions are boondoggles - Air Canada is a monopoly that incredibly can't make money and has used billions in the past years in subsidies both direct and indirect to stave off reforms. It is poorly ran, predatory and reliant on gov't to inure itself against reality. I simply don't buy the argument that we need national champions - what we need are consumer oriented markets, level playing fields and the end of corporate subsidies. The EU is the king of the national champion school and such profound market dislocations existent in such a policy lead to higher taxes, lowered consumer choice and inefficiencies.

Mr. Collenette continued to reject the idea even after it was recommended by the director of the Competition Bureau, Konrad von Finckenstein, and by the minister's own airline industry review. Debra Ward, who was asked by Mr. Collenette to survey the state of the industry in the fall of 2002, said in her report that talks should be held, and that if reciprocal cabotage was not forthcoming, we should allow U.S. airlines to fly within Canada anyway in order to jump-start competition.

Martin do us a favor, fire this guy.

2. The concept that the US will 'eat' up all Cdn firms in any sector is simply not borne out by the facts. In the oil patch US % ownership has declined for example. In Cross border investments the US invests about 15 % more in aggregate than Cdns invest in the US. Many posts in other threads give sources, i will provide them later if you like when i have some time to look them up. This ratio hardly calls out for death knells and panic.

NAFTA and free trade has benefitted Canada. It has doubled our economic size and allowed us to maintain our standard of living [though it is falling vs. the US]. Cdn firms can compete as NAFTA as shown and we need larger markets. Airlines are no exception. It is a nonsense that i can fly from Buffalo at half the price to US cities than from Toronto. All the while Pearson pays Ottawa $200mn plus per year in 'fees' - what exactly these fees are I don't know, but they increase costs all around from parking to tickets. And let us not forget the almighty 'temp' security tax on tickets.

Thank 'Taxcutter' Paul for that little gem.

The liberal / leftist babbling that preceded NAFTA has no basis in fact. Mel Hurtig and his crew predicted catastrophe before NAFTA and they would predict disaster under 'open skies' - so where are the facts to support that trade and open exchange is inimical to Canada's best interests ? Where are the facts that Open skies will presage the collapse of the Cdn airline industry - you can look at Europe or even the US to get a clue. Shouldn't Southwest, JetBlue or other smaller, regional, or focused airlines all be dead or eaten by the unstoppable gargantua that lumber in the air?

The CEO of JetBlue Airways for instance has apparently stated that the mergers could 'bode well' for his airline since they may result in 'chaos and distraction' for the carriers involved.

He is right. His firm is focused. It makes money. It has a plan. Markets work such. Schumpeterian destruction. If open skies in the US was such a mess only the big airlines would survive.

As it is the biggest are having the most trouble.

Sorry mate, the idea that open anything means destruction of the Cdn identity just doesn't stand up to scrutiny.

Compete and be happy.

Without trade Canada would not exist except as a poorer, even more mediocre nation, committed to outdated policies.

Even [surprisingly] the Globe agrees ending one of the articles you posted with :

The United States and the European Union are in the midst of talks about opening up their airline markets to each other. Airline industry observers such as Don Carty, the Canadian-born former CEO of American Airlines, have said Canada should become part of those discussions and further expand its open-skies agreement. Paul Martin's government would be wise to heed the advice its predecessor ignored.

RB · January 31, 2004

the airlines were deliberately kept out of the original free trade agreement and then out of NAFFTA. The rational was there were going to be separate “deals” so first criticism is an entire service sector kept excluded and treated different from other economic areas

and this is fine because you want “symbolism” and continue to be the flag carrier ... in this context you can also continue to have your visits to handful of cities consisting of unprofitable routes and when compound with crown inefficiencies you get to realize a sense of public duty and purpose bailing out the airline industry

but I do have some comments that:

- the US airlines are allowed to access major canadian airport but currently this is not reciprocated for canadians

-hence the uneven balance of competition but

- also if you do allow for this free reign over the skies be aware that there will be no dominant airline in canada

but if you think it is time to “think bigger” then focus shifts away from a individual carriers one by one with priority of how to work together tapping into an interacting network with a global think

well it is more profitable to be competitive than operating independent on couple of routes. what i mean is for example: even if the canadians airlines are allowed to hub and become feeders in major US cities it would give access to

- economies of scale of people travel nevermind fares

- the fares will become cheaper because planes are going where people want to be

- but also currently you have to travel all the way from Toronto to Atlanta by mostly US carrier

my take is in order for the canadian airline industry to succeed in this market it has to be serious or they will be pushed into oblivion because mergers and acquisitions are reality and there will be less players in the market place

oh so for the smaller air lines, well they can do as canada 3000 reemerge as opus and run by the dini pettys

Rasputin · January 31, 2004

Hi Ron, welcome. I read the articles. A couple of points. 1. Collenette is a dinosaur and one reason why i believe Martin = Chretien is his fondness [even in lieu of Coll. announcing he will retire], of keeping incompetents like Collenette in places of power who do not understand market dynamics. National champions are boondoggles - Air Canada is a monopoly that incredibly can't make money and has used billions in the past years in subsidies both direct and indirect to stave off reforms. It is poorly ran, predatory and reliant on gov't to inure itself against reality. I simply don't buy the argument that we need national champions - what we need are consumer oriented markets, level playing fields and the end of corporate subsidies. The EU is the king of the national champion school and such profound market dislocations existent in such a policy lead to higher taxes, lowered consumer choice and inefficiencies.

Mr. Collenette continued to reject the idea even after it was recommended by the director of the Competition Bureau, Konrad von Finckenstein, and by the minister's own airline industry review. Debra Ward, who was asked by Mr. Collenette to survey the state of the industry in the fall of 2002, said in her report that talks should be held, and that if reciprocal cabotage was not forthcoming, we should allow U.S. airlines to fly within Canada anyway in order to jump-start competition.

Martin do us a favor, fire this guy.

2. The concept that the US will 'eat' up all Cdn firms in any sector is simply not borne out by the facts. In the oil patch US % ownership has declined for example. In Cross border investments the US invests about 15 % more in aggregate than Cdns invest in the US. Many posts in other threads give sources, i will provide them later if you like when i have some time to look them up. This ratio hardly calls out for death knells and panic.

NAFTA and free trade has benefitted Canada. It has doubled our economic size and allowed us to maintain our standard of living [though it is falling vs. the US]. Cdn firms can compete as NAFTA as shown and we need larger markets. Airlines are no exception. It is a nonsense that i can fly from Buffalo at half the price to US cities than from Toronto. All the while Pearson pays Ottawa $200mn plus per year in 'fees' - what exactly these fees are I don't know, but they increase costs all around from parking to tickets. And let us not forget the almighty 'temp' security tax on tickets.

Thank 'Taxcutter' Paul for that little gem.

The liberal / leftist babbling that preceded NAFTA has no basis in fact. Mel Hurtig and his crew predicted catastrophe before NAFTA and they would predict disaster under 'open skies' - so where are the facts to support that trade and open exchange is inimical to Canada's best interests ? Where are the facts that Open skies will presage the collapse of the Cdn airline industry - you can look at Europe or even the US to get a clue. Shouldn't Southwest, JetBlue or other smaller, regional, or focused airlines all be dead or eaten by the unstoppable gargantua that lumber in the air?

The CEO of JetBlue Airways for instance has apparently stated that the mergers could 'bode well' for his airline since they may result in 'chaos and distraction' for the carriers involved.

He is right. His firm is focused. It makes money. It has a plan. Markets work such. Schumpeterian destruction. If open skies in the US was such a mess only the big airlines would survive.

As it is the biggest are having the most trouble.

Sorry mate, the idea that open anything means destruction of the Cdn identity just doesn't stand up to scrutiny.

Compete and be happy.

Without trade Canada would not exist except as a poorer, even more mediocre nation, committed to outdated policies.

Even [surprisingly] the Globe agrees ending one of the articles you posted with :

The United States and the European Union are in the midst of talks about opening up their airline markets to each other. Airline industry observers such as Don Carty, the Canadian-born former CEO of American Airlines, have said Canada should become part of those discussions and further expand its open-skies agreement. Paul Martin's government would be wise to heed the advice its predecessor ignored.