Business Brief: Why we have no flight options

Air Canada says it is preparing for an “increasingly likely” strike or lockout as talks with the pilots' union show no sign of an agreement. The possibility of the country's largest airline halting flights for more than 110,000 passengers a day comes just three months after a strike at WestJet, Canada's smaller duopoly, left thousands stranded across the country. This morning, we look to the skies and ask ourselves: Why don't we have more choice? But first:

In the news

Tapped: To calm the group's nerves, the Liberals announced that former central banker Mark Carney would take on an official role in the party: he would chair a working group of party leaders on economic growth.

Caught: The European Union is caught between Chinese and American growth and urgently needs investment, warns Mario Draghi.

Undermine: Northvolt AB, the Swedish battery maker building a $7 billion factory in Quebec, said it would scale back its operations in Europe and cut jobs as a slowdown in demand for electric vehicles forced the company to rethink its plans.

Happening today

• Bank of Canada Governor Tiff Macklem speaks to the Canadian-British Chamber of Commerce in London on global trade and investment.
• Earnings include Montreal-based DavidsTea, Petco and Gamestop Corp.
• The US presidential debate is tonight. Are you watching? Email me: [email protected]

In focus

Two airlines, 80 percent of Canadian market share

First, the news at a glance:

Air Canada said it could announce a 72-hour strike or lockout as early as September 15. The airline will then begin reducing operations, a process that will be phased in over three days.

• To prevent customers, crew and aircraft from being stranded, flight bans will be imposed for some foreign travel and sun destinations as early as September 13th.
• In August, the union voted overwhelmingly to strike. Air Canada and the Air Line Pilots Association entered a three-week grace period on August 27 during which the union is not allowed to strike.
• If a strike were to occur, Air Canada and its low-cost subsidiary Air Canada Rouge would be affected.
• You can follow the latest developments for travelers here.

Why more planes aren’t taking off in Canada

If I wanted to fly from Toronto to my hometown of Fredericton and back this week, the cheapest options would be Air Transat, Porter and Air Canada (price range between about $1,050 and $1,200).

Those are my only options. For that price, I could take two round-trip flights to Punta Cana and still have enough left over for a few Mamajuanas.

How is it possible that consumers in this country have so little choice? This question is not a new one, but given that thousands of Canadians have already been stranded due to a strike at WestJet, the country's only other major airline, one wonders why this question is still being raised.

I spoke to traffic reporter Eric Atkins about the forces that keep the competition at bay.

Why don't we have more choice in Canada?

It's hard to break the duopoly of Air Canada and WestJet. But fierce competition, high airport costs and government fees also play a role. The airport improvement fees that passengers pay are about $35, and at some airports as much as $40. So if you're a family of four flying from Toronto to Montreal, that's $160 for a round trip to the airport. That doesn't leave much for an airline to charge.

So American airlines don't come here. Most of the small, low-cost American airlines like Frontier Airlines and Southwest don't fly here because they can't charge a $40 fare when the flight to the airport is $160, plus other things. Customs clearance is $25 per passenger. There are so many fees.

Why are there so many fees? What are they used for?

Canada has a user-funded system, which means that tax dollars are not used to modernize the airports. This makes sense if you don't fly a lot and don't want your tax dollars to go towards new glass ceilings or something like that. Every now and then the federal government will give grants to airlines or airports for one-off measures like, “Hey, modernize your security system,” or “Here's some money for the runway.” But generally it's a user-funded system, and it's a unique model in the world.

So I suspect the US model is different. And is their approach more common?

In the USA, airports are mostly state or municipally owned and therefore part of the tax system. They are financed through tax revenue.

In the UK and other European countries, some are allowed to bring in private investors. They then own a stake in Heathrow and Charles de Gaulle and can raise money that way so they don't have to charge $40 every time someone gets on a plane. They have investors who help them take on debt to pay for things. So their economy is kind of a hybrid. Most comparable economies are actually funded by taxpayers' money.

What role does geography play, apart from the financing models?

Canada is a big country with fewer people than the US, which means fewer consumers. Fewer consumers spread out over long distances. The low-cost airline model is partly based on short-haul routes, but there aren't many of those in Canada. In Europe, there are all sorts of smaller, cheaper airlines that fly London and Paris round trip, about an hour up and an hour down. The distance between Toronto, Calgary, Vancouver and Edmonton is not that short.

So the low-cost model doesn't work in that respect, but it also doesn't work because we're preventing airlines from coming into Canada and doing direct flights from here. They can fly in and out, but nothing purely domestic.

This was introduced to protect the Canadian aviation industry, but…

…restricts competition. Yes. But the Competition Bureau is looking into that, which would be interesting. Australia allows foreign ownership – you can be King Canada and own 51 percent – but the government can tell you which airports you fly to. So you could set up an Australian airline and fly within the country, but they won't let you fly between Perth and Sydney, for example. There are enough airlines there.

Mapped

Fertile valley, barren future

In British Columbia's Okanagan Valley, apple growers are struggling to keep up with large-scale fruit production. Inflation and rising production costs are threatening the future of the valley's fruit business, reports Kate Helmore.

Morning markets

Global markets were flat ahead of the release of U.S. inflation data tomorrow, which could influence the size of an expected Federal Reserve rate cut next week, while concerns about a weakening Chinese economy dampened market sentiment. Futures on Wall Street were little changed, while TSX futures pointed lower on falling crude oil prices.

Abroad, there were little changes in the pan-European STOXX 600 in morning trading. The British FTSE 100 lost 0.54 percent, the German DAX lost 0.3 percent and the French CAC 40 rose 0.23 percent.

In Asia, Japan's Nikkei closed 0.16 percent lower, while Hong Kong's Hang Seng rose 0.22 percent.

The Canadian dollar traded at 73.70 US cents.