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Bluer skies to come: Canada explores the potential

For Canada and its aviation sector, the expression “Open Skies” is somewhat analogous to “Free Trade.” In both cases we are part of the way to both “free” and “open” but in neither case has the promised land been totally reached. Perhaps it would be accurate to describe both movements as being in a constant state of liberalization with periodic advances being followed by longer periods of assessment and adjustment.

For the Canadian aviation scene, one of these major moves to improve on the original 1995 agreement took place in November 2005, when Washington and Ottawa announced an agreement to further open up the skies over the two countries. The most significant step was to allow each other’s carriers to pick up passengers for a third country; this was considered as something of a breakthrough, given that for a long while countries had tended to guard jealously their ability to protect their own markets – what protectionists have come to call “fair trade,” but is in reality one-sided trade.

At the same time both the US and Canada had to recognize that the European Union had stolen a march on North America in colouring its skies a bluer shade. Anybody who has travelled there recently has come across names of airlines, not to mention cities and airports such as Ryanair, flybe and babooair, Frankfort-Hahn, that they had never heard of before. The Europeans have been extremely fortuitous in being able to reactivate a considerable number of former NATO air bases closed after the demise of the Soviet Union. These bases have long paved runways and considerable infrastructure.

A case in point is the former Canadian NATO airfield at Baden/Soellingen in Germany. After the departure of the CAF’s  F-18’s in 1992, the base became virtually abandoned. Today it is a busy airport serving the areas of Baden and Karlsruhe, not to mention that part of France on the other side of the Rhine River. There are no fewer than six airlines and nine destinations, not counting charter flights. Most of the flights are by these low-cost carriers.

This is an enviable situation for a once neglected landing field.  Canada has many small airports with paved runways but the low population density in this country does not really give scope for airlines even of the low-cost variety, unless, of course, you are offering services with a J-3 Cub. This is quite different from either Europe or the US, both of which have a much greater population density.

One of the reasons Ottawa could feel comfortable deciding to open up the skies in 2005 was that our airline industry was, and still is,  arguably in better shape than the competition in the US. Of all the major American carriers, American Airlines alone has escaped the traumatic experience of going through bankruptcy proceedings and even it came close. Only the leading low-cost carrier, Southwest Airlines, has remained virtually unharmed by the aviation turmoil.

At home, Air Canada escaped from its lengthy bankruptcy proceedings in relatively good shape with 60% of the domestic market although it has unfinished business to be carried out internally. The No. 2 carrier, WestJet, has grown steadily from a regional to a national carrier while avoiding most of the pitfalls along the way; it has just seen fit to expand its services to Quebec City and has wisely remained with one type of aircraft, the Boeing 737 NG. It is also not afraid to pull back from routes where load factors fail to meet expectations.

The 2005 agreement was to come into effect on September 1, 2006, but the world of politics being what it is, the Liberal government fell before that date and was replaced by the Conservatives. The latter, to their credit, did not let the changes wither on the vine but made sure that the agreement was put into place. On March 12, 2007, Ottawa announced its version of the 2005 accord, one that is basically the same as that negotiated by the Liberals.

While the above-mentioned third-country servicing rights is an important item, the major hurdle of cabotage still remains untouched. This is the ability of a Canadian airline to pick up passengers in the US and fly them to another destination in the same country (ditto for US carriers in Canada). Some Canadians are strongly opposed to taking such a step, due partially to our relatively small population. However, cabotage is an issue that has to be faced sooner or later and, if accepted, could well be introduced in stages, permissible initially only between cities above a certain population level.

Even before the issue is faced, the battle lines are being drawn. The Competition Bureau (CB) in Ottawa, supported by Canadian Business magazine, has come out strongly in favour of a one-sided agreement, no less, of granting foreign carriers cabotage rights in Canada without demanding them for Canadian carriers in other countries (for other countries, read US). The Air Transport Association of Canada, representing our air carriers, has come out strongly against such a measure. In view of the give-and-take relationship that exists in current international negotiations, it seems somewhat unrealistic to expect that the CB will get its way in this matter.

Meanwhile, Ottawa has also recently opened negotiations on another front, with the European Union (EU). While Canada has individual agreements with most (19 out of 27) members of the EU, this will be the first time we have attempted to wrap all these into a single accord. The negotiations could be challenging since the EU has already reached a more advanced level in the liberalization of its airways.

The two moves to further open commercial air traffic with the US and the EU are the bookends. In between came an announcement from Ottawa on November 27, 2006, of the “Blue Sky” policy that holds all the international agreements together. This policy declares that Canada is prepared to negotiate an agreement with another country if it can be shown to be of benefit to us. With the US and the EU looked after, the most obvious area for Ottawa to examine would be the Pacific Rim countries of Asia.

While the Blue Sky framework will not have an agreement signed one day to fly to Ouagadougou or Timbuktu and a Canadian carrier able to take off the next with a load of passengers for either of those two places, it does accelerate not only the opening up of Canadian skies but also improves or introduces service to more international destinations.

Canada is wise to explore all the possibilities that would lead to better service for Canadian travellers in the form of better service and lower prices since the open skies concept is an idea whose time has obviously come and we will not be allowed to stand pat. The US already has an agreement with the EU; this will give Ottawa something to go on as it progresses in its negotiations with the EU as well as further negotiations with the US.

These talks will also set the stage for the next round in which the delicate question of cabotage is highly likely to come up. Canada seems comfortable with a two-airline national system; this keeps fares lower than they might normally be but they could be even lower. Other major airlines such as Air Transat and Zoom are mainly into charter work and are developing their niche in the international market. The US still has one major airline too many; it is a question of which will eventually be the one to go or to be absorbed. Talks have taken place between Delta, Northwest and United, although negotiations between the first two have stalled over seniority and other issues.

One of the clouds in our blue-sky policy is the current minority government that exists in Ottawa. We could well have an election in 2008 and, according to the polls, no party is currently in majority territory. In the meantime, the outcome of the current talks with the EU should be awaited with positive anticipation as it will undoubtedly help set the tone for adding more blue to Canadian skies at a later date.

Raymond Canon is an Aviation Analyst at the University of Western Ontario.