Air Canada Hates Canada?

As part of this blog’s new series on entrenched special interests and their adverse effects on social welfare, here is the first posting of the series …

One of the great national symbols of Canada was Air Canada. After the pioneering railways and the country binding arrival of the telephone air line travel was the next great medium of communication and transport that was to bind the country together. Until the 80′s Air Canada was seen with other institutions like the CBC, universal healthcare, the Canadian Pension Plan and equalization as a great federalist symbol. Behing the Canadian symbolism that Air Canada represents lays a disingenuous character. Air Canada has now been private for over 20 years but continus to benefit from its past as a crown corporation. This has been made more obvious by the recent Ministerial interventions into the corporations labor relations and past intervention into the company’s bankruptcy process.

It must be admitted that Air Canada’s legacy as a nation building symbol also represents certain business inconveniences. The law under which Air Canada operates does stimulate some relatively significant business impediments such as its stringent linguistic obligations, its obligation to keep its corporate headquarters in Montreal or even its obligation to keep some of its maintenance work in Canadian cities. While these constraints should be unacceptable in a liberal and open economy and presents the company with some competitive handicaps they do not excuse the benefits that are accrued to the airline.

The federal government has now intervened almost half a dozen times in the company’s labor disputes to block legal strikes by its unions and to abort planned lock-outs in the past few years. While the government’s rational for such moves were sensible they create an unfair negotiating environment skewed towards management. Air Canada is thus sheltered from a grounding of its fleet and disruption of service to its clients. How is this bad for Canadians one may ask, the answer is a little convoluted but quite important. Air Canada’s competitors cannot take advantage of labor disputes to advance their market share. Westjet and Porter are stellar exemples of Canadian corporate success. They offer competitive prices with competitive services but they cannot advance their market share because of Air Canada’s monopolistic caracter. Air Canada has the rights to a majority of landing rights at Canadian airports and so long as the company operates under the protection of the government these airport parking slotes aren’t up for purchase. If Air Canada employees want to strike let them do so, if they don’t want to work let their clients flock freely to their competitors.

Air Canada’s monopolistic behavior extends well beyond the local Canadian market, it extends to Canadian international travel as well. Canadians are inhibited from receiving better prices and offers by the company’s thinly veiled lobbying efforts when it comes to international travel. The most gruesome case of such crony capitalism is the government’s refusal to grant landing rights to the many emirate based carriers. Emirates Airlines and Etihad Airways have been refused landing rights at Toronto’s Pearson International Airport. The reasoning is that those airlines have committed the sin of being unfairly subsidized by their state, something Air Canada has never been guilty of! Not only has Air Canada lobbying efforts managed to abort the potential of having a foreign nation subsidize Canadians international travel it has quite simply reduced travellers flying choices and competition. Another costly consequence that Air Canada executives are certainly grieving about, was the Emirates’ closure of Canada’s secret military Airbase, a closure estimated to have cost Canadian taxpayers 300 million dollars.

If that were the only cost inflicted directly to Canadian taxpayers maybe we could forgive the company its bad corporate citizenship (…not), but when Air Canada went into bankruptcy protection in 2003 the company was loaned 250 million dollars to help induce foreign buyers to preserve the company’s employees’ lavish employment conditions. With the recent bankruptcy of Aveos it looks like Quebec City and Ottawa may be dishing out more taxpayer dollars to help float the former subsidiary.

All in all it seems clear that Air Canada benefits from a protective regulatory environment and government labor and financial aid. That Canadian consumers can be ripped off so flagrantly and the country’s international relations jeopardized so flamboyantly for the account of a profit seeking corporation is the definition proper of crony capitalism. Here’s hoping that the government will correct its aim on this file and finally let Air Canada go properly bankrupt so that Canadians can once again enjoy safe and quality travel at the reasonable prices they deserve!