PRO CEE J IN S- Twenty-fourth Annual Meeting

Theme: "Transportation Management, Policy and Technology"

November 2-5, 1983 Marriott Crystal City Hotel Marriott Crystal Gateway Hotel Arlington, VA

Volume XXIV • Number 1 1983

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TRANSPORTATION RESEARCH FORUM 675 Co-operation: A Pragmatic Response by Canadian to "Deregulation" • by Robert A. Ellison,* Gerald E. Sinzi3§on** and EtTold D. Smith*"

INTRODUCTION The major purpok of this paper is to examine the facets of co-operation ..be- HOW DIFFERENT are the regulation tween and among carriers that are mi.- . philosophies of and the rently being discussed and implemen4a. regarding air transpor- An overview of the history and current tation? An illustration of the difference structure of the Canadian indus- between the philosophies of the two was try will be presented. The advantages shown earlier this year through Air Can- and disadvantages of co-operation will wila's proposed seat sale on transborder be examined from several perspectivesi flights. That sale developed into a con- the, air carriers, ,tho employees and troversy affecting other carriers in Aus- unions, the travelling public, and agen- tralia, Canada, and the United States. cies and governments. Recently pub- The process of change in the United lished reports calling for deregulation States, based on the Airline Deregula- the Canadian airline ,industry are sum- tion Act of 1978, has been revolutionary marized and implications for policyl and whe.-cae, that in Canada, based on the Canadian domestic and transborder car- National Transportation Act of 1967, riage will be drawn... Such co-operation has been evolutionary. This difference in may be a short term pragmatic respcni=e philosophies may lead to still regulatory to the economic environment and not:a, other conflicts and disputes not only on long term approach. the transborder operations of U.S. and Canadian carriers but also on opera- Cons to other countries. It would result HISTORICAL OVERVIEW in at least three countries being involved The history of the Canadian airline in- in the hi-lateral agreements between the dustry set the stage for the introduction other country and Canada and the other of co-operative services by CP Air and country and the United States. Eastern Provincial Airways in 1983. The regulatory philosophy in Canada Harris (1) in 1978 and Smith (2) i hasevolved from maintaining the mo- 1981 made detailed presentations on air- nopoly position of Trans-Canada Air- line development in Canada and identi- lines, the predecessor of , on fied several events which have directed domestic trunk line routes from 197 present developments: through the advent of limited trunk line competition to the development in the 1930's Development of U.S. trunklines 1970's of more extensive national and • regional competition. This evolutionary Potential diversion of• - process from monopoly to regulated. cross-Canada traffic to competition could be completed by mov- U.S. routes ing toward deregulation. The deregula- 1937 Establishment of Trans-Canada tion revolution in the United States in- Airlines by Canadian Govern- dustry, in part, has influenced the "Eco- ment nomic Council of Canada, the Ministry of Consumer and Corporate Affairs and TCA given monopoly on the House of Commons Standing Com- international and trans-- mittee on Transportation to call for the continental routes deregulation of the Canadian airline in- After Canadian Pacific allowed to dustry. Yet, instead of moving toward 1945 operate on international greater competition under deregulation, routes the Canadian air carriers are responding to the current recessionary environment 1958 TCA's transcontinental by pursuing co-operation, a pragmatic monopoly broken rationalization of their services. CPA allowed one flight daily on Vancouver- *Dalhousie University, Halifax, Nova route to con- Scotia nect international routes **Air Canada, Halifax, Carrier Policy ***Eastern Provincial Airways, Hali- 1966 Regional Air fax, Nova Scotia One carrier in each TRANSPORTATION RESEARCH FORUM

region designated as lines under deregulation. As the Cana- preferred carrier dian economy entered a recessionary pe- riod in the 1980's the air carriers stim- 1966 Bilateral agreement between ulated travel and met competition by in- United States and Canada creasing the number of seats per flight More routes to 'U.S. sold on a discount basis. By mid-1982, opened; majority granted after Air Canada and CP Air reported to Air Canada large first half operating losses as the recession deepened, the CTC restricted 1967 National Transportation Act price competition by imposing restric- Recognized strong tions on deep discount fares. In 1978 the competitive nature of number of competitors was reduced transportation when the CTC allowed Air Canada to acquire , a large regional carrier. 1970 CP Air allowed 25 percent of Therefore, given the current economic transcontinental traffic climate, it might be questioned whether or not the CTC in the near future will 1974 Bilateral agreement between allow the Canadian airline industry to U.S. and Canada amended follow the recent U.S. deregulation ex- Significant price competition market perience. 1978 CP Air's permitted will probably not be allowed through share increased deep discount fares nor will additional Competition was both encouraged and competitors, either by new or existing discouraged by the Canadian Transport carriers, be allowed entry on most Commission during the period from 1978 routes. to 1982. The Canadian carriers emulated The Canadian air carriers, in response their U.S. counterparts by introducing to the recession, are conducting a ra- deep discount fares in 1978 and 1979 tionalization of their services, through that cultivated a more price elastic mar- either retrenchment or the introduction ket which grew 11 percent and 12 per- of co-operative services. The route po- cent respectively (3). However the num- sition, ownership, and status of the ma- ber of seats made available was sub- jor airlines in Canada are shown in Ta- stantially less than that by U.S. air- ble 1. Many airlines would like routes to

TABLE 1

ROUTE POSITION, OWNERSHIP, AND STATUS OF THE MAJOR AIRLINES IN CANADA

Ownership Status Airline Routes Federal Government - Some retrenchment ar Canada Trunk International Private (Canadian Pacific - Retrenchment CP Air Trunk Co-operative services with International Limited) but a Province of - pension agency Eastern Provincial Airways ewes 9.32 of CP Ltd. (Spring 1983)

Government of (1974) - Available for sale Western Regional (Western • Pacific - Seeking more routes.to U.S. to ; Canada Co-operation discussions northern services; - with CP Air route to Seattle) - Federal Transport Minister Regional (, Controlled by Air Canada Vordair has ordered Air Canada to Quebec; northern (86.45 of shares purchased sell Noriair to the services; route to in 1978) private sector Pittsburgh) difficulties Privately owned but - Severe financial Regional (Quebec, Government) effectively controlled (Propped up by Quebec Ontario) Minister by Quebec Government - Federal Transport rejected mer,;:r with rordair in 1932 - Would like routes to U.S. - May be nationalised by Quebec Government

- retrenchment Regional (Atlantic Privately owned (Newfoundland Some Eastern Provincial Seeking routes to U.S. Canada to Toronto) Capital Corporation) - - Co-operative services with CP Air (Spring 1983) A PRAGMATIC RESPONSE TO "DEREGULATION" 677

the United States, yet differences in the national operations make a modest regulatory philosophies of Canada and profit but expanded transcontinental the United States may preclude a new flights are sustaining substantial losses or amended bilateral agreement. and northern services are suffering dev- astating losses. This is why CP Air is CO-OPERATION concerned about the recent Air Canada seat sale dispute with the U.S. and the The connotation of the term co-oper- settlement which allowed Continental ation or co-operative services as used in Airlines to fly up to 8,000 Canadians to this paper means an arrangement for on the same terms as offered Joint services by different carriers in by CP Air; why it has entered into co- the same mode without common owner- operation with EPA on transcontinental ship. flights; and why it has discussed co- In September 19S2 CP Air, a national operation on northern flights with Pa- carrier, and Eastern Provincial Airways, cific Western. Co-operation should mean a regional carrier, announced a co-oper- an increase in EPA's presence in the ation plan to be introduced in April Montreal and Toronto markets. CP Air 1983. It had been studied for a year by should also benefit from increased inter- the two rival airlines in eastern Canada line business routed through EPA be- under the code name "Operation Kip- cause of interconnected scheduling and ling—East meets West." Joint sched- the intention of EPA to switch its res- uling of equipment, interconnection of ervation system from Air Canada to CP flights, joint general handling at air- Air (0). ports, joint promotion of the two air- There are also disadvantages with co- lines' services and destination are in- operation. EPA could suffer some ero- cluded in this co-operative venture. Sim- sion of interline business with Air Can- ilar links are expected in charter oper- ada, which is five times greater than ations, crew training, and maintenance. that involving CP Air. Co-operation Eastern Provincial Airways had orig- hinges upon both technological and so- inally discussed this type of co-opera- cial factors such as: 1) compatibility of tion with which aircraft equipment (Table 2); 2) range would have linked an eastern regional of aircraft; and 3) loss of identification carrier with a western regional carrier through the public confusing the image but these talks fell through because being presented to it. Management de- fewer opportunities for co-operation cision-making may be unduly influenced were possible. by the short term needs of co-operation When co-operation services are intro- (e.g., aircraft purchase) rather than the duced a number of parties are affected: long term needs of the individual carri- air carriers, employees and their er. This could be important if Canada union5,2 the travelling public, the Cana- were to move toward total deregulation. dian Transport Commission, and the fed- eral and provincial governments. Employees and Unions Air Carriers Employees and their unions may per- ceive disadvantages to co-operation as Co-operation provides advantages and they are concerned with salaries and disadvantages to the air carriers. The fringe benefits, working conditions, job major advantages to CP Air and Eastern security, and seniority. Most Canadian Provincial Airways are the increased airlines have had to retrench during the usage of both airlines' fleets economic recession and have reduced the (CP Air has 16, EPA 6) and the in- number of employees. CP Air is reduc- creased load factors on both systems. ing its staff from a high of 8,850 in 1982 EPA was profitable in 1982 although to 7,750 (8), a reduction of 12.5 percent. the load factor was down 54 percent. EPA foresees no staff reduction but EPA estimates that co-operation with there will be staff relocations because of CP Air will add $8-$10 million in in- co-operation. The pilots of the two air- creased revenue and $5-$6 million in pre- lines are protected by a 'SCOPE' clause, tax profits through cost savings and in- a statement of Company intent, embodied creased load factors (4). CP Air, which in their collective agreement which out- has lost more than $60 million in the lines the entitlement of the pilots on the past two years has been afflicted by ser- system seniority list to all flying con- ious overcapacity that traces back to its ducted by the employer irrespective of 1969 decision to expand aggressively aircraft types, new services developed, [$1 billion over five years (5)] and to and subsidiaries established. compete for market share with Air Can- Some contracts in Canada have not ada. It had flourished until the recession- had a 'SCOPE' clause; such was the case ary period of the 1980's. CP Air's inter- within Quebecair. Quebecair, the holding 678 TRANSPORTATION RESEARCH FORUM

TABLE 2

EQUIPMENT DIFFERENCES BETWEEN CP AIR AND EASTERN PROVINCIAL AIRWAYS BOEING 737 AIRCRAFT Item CP Air Eastern Provincial 1. Age of Plane Most delivered in late Delivered in late 1960's, 1970's, early 1980's. early 1970's 2. Maximum Take-off Wt. 124,500 && 128,100 109,000 & 115,500 3. Maximum Landing Wt. 107,000 98,000 & 103,000 4. Seat Configuration 108 seats 113 seats 3 toilets 2 toilets Overhead bins Half the fleet has open bins 5. Life vests Yes None 6. Passenger Oxygen 2 115 ft3/passenger 115 ft3/ passenger 1 115 ft3/crew 115 ft3/crew (Because of crossing the Rockies) 7. Check lists Reflects CP operation Use Boeing check list 8. Altimeter Easier to read 9. SAT/TAS (Static Air Yes No Temp/True Air Speed) 10. Ground Proximity Voice Mark 2 unit No 11. Cockpit equipment Different from EPA Different from CP Air arrangement 12. Select calling Yes No arrangement 13. Communication sets 2 sets 3 sets 14. Automatic Direction Digital Frequency dial Finding 15. Radar color Color gradient (green, One color (red) yellow, orange, red)

company, owned and operated Quebec- clauses (9). Existing carriers in the air, flying jet aircraft, and Regionair, United States can establish small feeder flying equipment. The holding lines and take work away from existing company shifted flying from the jet com- operations. Such was the concern among pany to the prop company causing pilots that in 1981 United Air Line Pi- shrinkage in the former and growth in lots, the largest pilot body in the world, the latter. Pilots with six to seven years secured a commitment from their Com- seniority were laid off while pilots with pany for flying to be performed by pilots one to two years seniority kept their on the United Air Lines System Se- jobs (i.e., those with Regionair). For niority List. two years the pilots of Quebecair (jet) Whenever co-operation is proposed negotiated to merge the two pilot se- airline employees such as those in Can- niority lists and were on the verge of a ada will want job protection, usually strike before the issue was resolved in through the seniority list. When co- June 1982. operation is introduced there may be an The general counsel for the American advantage for the employees as co-oper- Air Line Pilots' Association stated that ation, by eliminating the duplication of the number one issue for pilots since de- services, will allow the airlines to reduce regulation in the U.S. has been 'SCOPE' losses and/or increase profits and thus A PRAGMATIC RESPONSE TO "DEREGULATION" 679 may stabilize employment by avoiding mendations of the Ministry of Transport layoffs. staff with those of the House of Com- mons Standing Committee on Transpor- the Committee On The Travelling tation. In April 1982 Public Transportation proposed a major dereg- There are advantages and disadvan- ulation of routes and fares. A second tages for the travelling public when air- reason was that a rationalization of lines enter into co-operation. There services on domestic routes, either Should be more through flights (direct) through co-operation or the integration to more destinations, although CP Air of regional carriers into national carri- has gone to a "hub and spoke" operation ers would create a different competitive centred at Toronto and Vancouver while environment. Proposed alliances between EPA has established one at Halifax. regional carriers and national carriers This arrangement certainly will be ad- would result in two groups dominating vantageous to passengers living in the the Canadian air line industry, one led hub cities. There will be fewer flights to by Air Canada, the other by CP Air. select from but these flights will provide This would be analogous to the rational- a greater choice of departure times. ization of the railways which occurred Competing airlines tend to have flights in 1919 when the Federal Government leaving at peak times. More non-price consolidated several railroads to form competition will exist as CP Air-EPA Canadian National Railways as a na- competes with Air Canada on an in- tional competitor for the then dominant flight service basis. The major disadvan- Canadian Pacific. The announcement of tage will be less price competition with a new air policy may well wait upon fewer carriers operating between origin whether or not the air carriers accom- and destination. Travellers with a strong modate each other. loyalty to one airline may be upset with The provincial governments must co-operation; others may be confused by also be considered as they are vitally the joint services. Some passengers liv- interested in the CP Air-EPA co-oper- ing near the U.S. border may elect to ation and any future rationalization of Journey south and utilize a low fare U.S. service. A reduction in flights would af- carrier to a point near their Canadian fect ease of travelling between and destination. within regions. This affect would be more pronounced for the Prairie Prov- Agencies and Governments inces and than for Brit- ish Columbia or Central Canada. The When CP Air and EPA announced number of flights in the former areas their intended co-operation the Canadian have been reduced as well because of Transport Commission was faced with economic conditions and the introduction several questions regarding aircraft cer- of "hub and spoke" operations. There is ification, route licensing, and tariff fil- a high degree of government ownership ing. Because co-operation reduces direct of airlines in Canada (Table 1). The CP competition there were also national air Air-EPA co-operation has evolved from policy implications for the venture. The two privately owned carriers although National Transportation Act of 1967 de- a pension agency of the Province of clared that "an economic, efficient and Quebec owns .9.3 percent of Canadian adequate transportation system is essen- Pacific Limited, the parent company of ital to protect the users of transporta- CP Air. To head off the threat of a pro- tion and to maintain the economic well vincial government owning and/or con- being of Canada . . ." The Act then trolling a transportation company in states that these objectives are most apt such a way as to harm the interests of to be realized in a competitive environ- another province the Federal Govern- ment (10). Given the current economic ment has proposed Bill S-31 to limit the environment the CTC may view the ade- provinces to owning no more than 10 quacy of service as the major criteria in percent of interprovincial transporta- approving co-operative services. The Air tion companies. The proposed legislation Canada takeover of Nordair and the re- does not apply to federal agencies and strictions on deep discount fares im- corporations in the transportation sec- posed by the CTC indicate the CTC is tor because they are already operating concerned about too much competition, in the "national interest." particularly competition that may be de- An "anticipatory exemption" from the structive. provisions of Bill S-31 was granted to Another consideration is the impend- Quebecair which will allow the Govern- ing statement on a new domestic air ment of Quebec to do whatever it feels policy in the fall of 1982 (11). One rea- necessary to make viable financially son for the delay was the uncertainty troubled Quebecair. Several plans have of how to reconcile the policy recom- been proposed to rationalize regional 680 TRANSPORTATION RESEARCH FORUM services in Quebec and Ontario. The tal, have called for the deregulation of Quebec Government became involved the Canadian airline industry. They in- with Quebecair in 1981 when it rejected clude the Economic Council of Canada a plan by Nordair, controlled by Air (12), the Ministry of Consumer and Cor- Canada, to buy Quebecair.. The province porate Affairs (13), the House of Com- started to invest money m the airline. mons Standing Committee on Transpor- In 1982 the Quebecair and Ontario gov- tation (14), and the Director of Investi- ernments agreed in principle to estab- gation and Research for the Combines lish a new regional air carrier in central Investigation Act (15). The reports and Canada that would have merged Nor(lair papers recently published from these and Quebecair. This was rejected by the agencies are based upon the experience federal Minister of Transport because of the airline industry in the United Air Canada only would have held 20 per- States immediately preceding deregula- cent of the equity of the combined com- tion and/or that following it. Jordan, pany and would not have had voting who studied federally regulated Cana- privileges. Hence, the Federal Govern- dian and U.S. airlines and intrastate ment proposed the formation of a new carriers from 1975 to 1978 for the Min airline, dubbed Quebecair 2, with owner- istry of Consumer and Corporate Af- ship split equally between Air Canada fairs, predicted that Canadian -airline and either the Quebec Government or performance would change under dereg- other Quebec interests that the province ulation, based on the U.S. intrastate might prefer. As a result of such a pro- carriers' performance, in the following posal, the debts of Quebecair would not ways: transferred to Quebecair 2 but re- be decrease by as much main with the shareholders and creditors 1) Prices would of Quebecair. as 50 percent from regulated fares. structure would become Lastly, the Government of Alberta is 2) The fare interested in selling Pacific Western much less complicated. Airlines. PWA had 3) Operating costs of successful car- previously discussed substantially re- co-operation with EPA and has dis- riers would be cussed co-operation with CP Air on duced. northern services. 4) Profits of successful airlines would the historical Consequently, a rationalization of be comparable to with levels of present day carriers. PWA CP Air, through either co- in- operation or purchase, and a rationaliza- 5) The number of airlines would tion of Quebecair with Air Canada- crease, with each being more spe- Nordair would leave Canada with two cialized than existing regulated major competing airline groups: CP Air- carriers. EPA-PWA which would be wholly or 6) Service quality would decline largely privately owned and Air Can- somewhat, with the elimination of ada-Nordair-Quebecair which essentially first class service, increases in seat would be publicly owned. This potential densities and increases in average rationalization in Canada would be in load factors (16). direct contrast to the experience of the Jordan's study found that analyses of deregulated U.S. airline industry. Dif- weather, population densities, and econ- ferences between the industries in the omies of scale could not explain the two countries could include: no new en- higher costs that are characteristic of trants in Canada, several entrants in the Canadian carriers (17). the U.S.; exit through co-operation or Lawson Hunter, Director of Investi- merger in Canada, exit through bank- gation and Research for the Combines ruptcy in the U.S.; and less freedom Investigation Act, argued that the vast- of pricing in Canada, greater freedom ness of the Canadian land should be a of pricing in the U.S. The recent move positive factor as far as fare tapers, to co-operation appears to have benefits costs per passenger mile, and contribu- for the air carriers in the existing en- tion to efficient airline operations are vironment. However, will this venture concerned (18). The 'service to the small and any other rationalization of the Ca- community would suffer' argument was nadian airline system merely be a short discounted on the basis that the national term solution or will it allow the exist- carriers serve very few small communi- ing carriers to accommodate each other ties and local regional carriers move in and ultimately reduce competition in the to take up the slack when national car- long run? riers withdraw service from small com- munities. It is better for management to THE CALL FOR DEREGULATION have the freedom to operate the equip- ment most appropriate for a particular During the last two years various route, thus larger aircraft should' be agencies and groups, mainly governmen- moved off less travelled, shorter routes. A PRAGMATIC RESPONSE TO "DEREGULATION" stll

The House of Commons Standing nopoly to administered competition 'o Committee on Transportation proposal regulated competition. The next stage on deregulation called for greater free- would be partial or full deregulation. dom in ratemaking, allowing regional , however, are ration- carriers to fly anywhere the national alizing their services by co-operation carriers do, allowing local carriers to and direct retienchinent. Given the eco- use jets, and for more decision-making nomic environment this may be nec6s- Power by the Canadian Transport Com- sary in the short run. However, if de- mission (19). regulation is -posfponed too long there The Economic Council of Canada be- are implications fOr Canadian airlines on lieves that with deregulation the airline domestic, transborder and international industry would reap many of the same routes. Regardless. of what may' be benefits as its U.S. counterpart. The re- forthcoming in a 'Pew domestic air poli- moval of economic regulations would cy ,the Canadian carriers will be affected encourage carriers to offer a wider range by the attitudes and behaviour of con- of prices, flight frequency, and quality of sumers, the deregulatory philosophy pf service than they do now. The Economic the United States, and their own 'Tier- Council found no evidence to support the formance and financial condition. view that the ensuing additional com- . In order to take advantage of lower petition would in any way be "destruc- fares on U.S. carriers Canadian passen- tive" in the sense that it would eliminate gers flying across the country may elect efficient ways of meeting the public need to travel by auto or bus to nearby U.S. for air service (20). Thus, the Economic cities and then 'fly across the U.S. to Council recommended that: another border *city pear their Canadian o destination. Similarly, Canadians, rather entry into the Canadian airline in- than using Canadian'airlines dustry be changed. for tranS • border flights. May travel to U.S. bor- entry into transborder or inter- der cities and fly (in U.S. airlines.. In national service be unrestricted for February 1983 'Montrealers could travel Canadian carriers, subject to the to Burlington, Vermont and fly to New constraints imposed by the United York or West Palm Beach for one-fifth States or by other national au- of the regular fare from Montreal (22). thorities. While deep discount fares offered by e all existing service restrictions be airlines may only be temporary the removed immediately. Similarly, lower regular fares of U.S. carriers will. all "accommodations" or informal probably result in an increasing inCi- understandings between carriers dence of Canadian travellers crossing that reduce competition am on g the border to travel on U.S. carriers. them should be prohibited. o Canadians may also utilize U.S. carriers abandonment of service to any for international flights.. This would con- point presently served by an air- cern Air Canada and CP Air as a Con- line be allowed, subject to certain siderable portion' of their revenue is conditions. from transborder` and international op- e national, regional, and local carri- erations: 40 percent. for Air Canada;. 58 ers be allowed to establish such percent for CP Air, (23). • fares as they see fit, provided they The deregulatory philosophy in the do not increase by more than an United States has affected the trans- annual rate established by the border and international operations Of CTC (21). Canadian carriers, as - shown by the Air The Economic Council foresaw that with Canada seat sale 'dispute. Early in 1983 unrestricted entry and only limited econ- Air 'Canada proposed a seat sale pro- omies of scale that the self-regulating gram on d o me sti c. and transborder effects of market forces would provide a routes, with reductions of up to 75 per- greater choice of fares and services for cent on fares. The Seats for the March consumers, increase pressure to keep through May weekehd travel sold out costs down, and provide or develop a immediately. The Civil Aeronautics greater pressure and opportunity for Board did not approve the seat sale on innovation. the transborder flights until the second The call for deregulation, either full weekend of travel because the U.S. or partial, by these agencies is quite wanted acceptance by Canada of an clear. Co-operation would not be allowed interline airfare which would allow Con- by the Economic Council proposal. tinental Airlines to carryCanadian Pas- sengers* from Los Angeles to , IMPLICATIONS Australia, after receiving them from an: other Carrier on the Vancouver-Los An- The regulatory philosophy in Canada geles route. The proposed interline fare has evolved through sanctioning a mo- would have been lower than CP Air's TRANSPORTATION RESEARCH FORUM

.Vancouver-Sydney fare. The issue was same period the United States airline in- further complicated by the fact that CP dustry adjusted to deregulation. How- Air has fifth freedom rights from Hono- ever, since the summer of 1982, compe- lu4i. to Australia. After two weeks of in- tition within the Canadian airline indus- 4nse negotiations by Canada and the try has contracted through CTC restric- US. the dispute was settled. .Canada tions on deep discount fares, by re- *agreed to allow Continental Airlines an trenchment and by co-operation. The dif- interline fare matching CP Air's lowest ference in the deregulation philosophy rare for a period of one year, limited to of the U.S. and the regulation philoso- a. maximum of 8,000 passengers .from phy of Canada is affecting the trans- 'Canada. • : border and international operations of The dispute could be indicative of Canadian carriers. Within Canada itself what lies ahead. One U.S. official has there is also a difference between exist- stated that "Washington's action ing governmental policy and the call for stemmed from a long-standing view that deregulation by several agencies and 'Canada is more protective of it's car- parties which is gaining momentum. riers than it either need or .-should The co-operation and retrenchment by be." (24) The Canadian airlines are con- Canadian airlines should be seen as a cern. ed about the precedent set by this response to the economic environment US.-Canada agreement. The Canadian and as a pause at the regulated competi- Transport Commission could expect oth- tion stage in the evolution of the regu- er U.S. airlines applying for. interlining latory philosophy from monopoly to one agreements similar to that of, Conti- of deregulation. To meet current and fu- nental Airlines, for example, from Mon- ture needs of both the carriers and the treal and Toronto through New York to public, a new pragmatic domestic and -. Fares might.be no lower than transborder air policy is required. Ini- those offered by Air Canada but 'because tially it should allow Canadian air car- go—many more destinations are served riers to restructure theinselveS and im- fOin New York, Air Canada could lose prove their financial position. Ultimate- •tOffic. Airlines of other countries serv- ly it should allow increased competition ing"Canada would also be -upset:as po- through partial or full deregulation. An Jential traffic could be bled off. to. U.S. anticipated statement by Canada on air carriers policy calling for a continued evolution ,Attempts have been made to renego- toward deregulation would have positive tiate the 1066 Canada-U.S. Air Trans- ramifications for transborder traffic. port Agreement, which has failed to, pre- Such •a statement definitely would en- clude disputes over routes and fares. courage the reconciliation of existing Concerns include the question of. equal differences between Canada and the access to the respective markets and United States. that the low marginal costs ,of, the U.S. carriers serving Canadian points would REFERENCES place the Canadian carriers at a, serious disadvantage. A major issue to. be dis- .1. Harris, Ralph H., ."Competition, cussed at the next round of transborder Monopoly, and Transportation Ef- negotiations is the desire of the T.T.S. to ficiency: Some Lessons from Cana- .have a fare formula that reflects, to a dian Airline Development," Pro- degree, the letter and spirit of dpregu- ceedings, Transportation. Research lation (25). •. Forum; XIX (1978), pp. 562-570. ..? Canadian air carriers may cOne. under 2. Smith, J. J., "Regulatory Moves in. increasing pressure from travsellers for Canadian Air Transport—Pragmat- law fares on domestic and transborder ists at Work," Proceedings, Tram- routes. The success of the deef,..discount portation Research Forum, XXII fares supports this view. Delaying de- .(1981), pp. 542-546. . regulation could result in the carriers 3. , Freight and having to adjust very quickly in the fu- Passenger Forecasts 1982, : ture and they would be at a competitive Minister of Supply and Services disadvantage with experienced U.S. car- Canada, 1982, p. 36. liers on transborder routes. , ; 4; Analysis of Newfoundland Capital Corporation, holding company of Eastern Provincial Airways, by CONCLUSIONS Burns Fry Limited, 'January 11, ,The Canadian airline industry ,entered 1983, p. 3. A.:period of regulated competition during 5. Lyon, J., "CP Air shifting strat- late 1970's and early 1980's'. Rcstric- egy," The Financial Post,. March 19, the pp. 1-2. Cons on CP Air were lifted, the, regional 1983, carriers expanded, and discount price 6. Watkins, L., "CP Air, EPA link competition was allowed. During, the shaping up for battle with Air Can- A PRAGMATIC RESPONSE TO "DEREGULATION" 683 ada," Report dress at Fredericton, N.B., Febru- on Business, September 11, 1982, p. ary 17, 1983.- • ••.• 1316. 16. 'Jordan, W. A., Op. cit., p. 18. 7. Ibid., p. B16. 17, Ibid., p. 2 (Summary). 8. Lyon, J., Op. cit. p. 2. 18. Hunter, L. A. W., Op. cit., p. 18. 9. Statement by Air. Henry Weiss, 19. House of Commons Standing Com- General Counsel for the American 'mittee on Transportation, Domestic Air Line Pilots' Association at a Air Carrier Policy, Ottawa: Minis- seminar presented by the Canadian ter of Supply and Services Canada, Air Line Pilots' Association, Toron- 1982. to, 1982. 20. Ibid., pp. 33-34. 10. Transport Canada, Canadian 22. Rusk, J., Interview with Member of Freight Transportation System Parliament Pierre Deniger, "Air Performance & Issues: A Discus- Transportation Policy is a failure, sion Paper. Circulated by Transport backbench Liberal tells Govein- Canada, August 1981, p. 76... ment," The Globeand Mail, Febiu- 11. Waddell, C., "New song in the air- ary 10, 1983, P. 92 togetherness," The Financial Post, 23. Jordan, W. A., Op. cit., p. 44. December 11, 1982. 24. Waddell, C., "Canada's airlines face 12. Economic Council of Canada, Re- harsh future," The Financial Post, forming Regulation, Ottawa, 1981. March 19, p. 21.. 13. Jordan, W. A., Performance of Reg- 25. Ibid., p. 26. ulated Canadian Airlines in Domes-- tic and Transborder Operations, Ot- FOOTNOTES tawa: Consumer and Corporate Af- 1 The interpretation of the policy implicat* fairs Canada, 1982. is that of the senior author.' 14. House of Commons Standing Com- 2 In early 1983 Eaitern, :Provincial Airwayi; laid off flight attendants,- customer service agents, mittee on Transportation, Domestic and ramp workers as a result of reduced flights Air Carrier Policy, Ottawa: Minis- caused by a lockout of ground workers, including ter of Supply and Services Canada, maintenance and office workers, in a dispute -Over wages and a strike by pilots in a dispute centered 1982. on working conditions. The airline operated abirct 15. Hunter, L. A. W., "Economic Reg- third of its scheduled routes with managemelit personnel, six pilots who were members of the ulation in Transportation and the striking Canadian Air Line Pilots Association, Growing Need for Change," Ad- and newly hired pilots. •:!

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