Liberals have split personality on airlines
By MATHEW INGRAM
Globe and Mail Update
In the Farrelly brothers' comedy Me, Myself and Irene, Jim Carrey plays a man with a split personality who keeps waking up and discovering that his alter ego has caused all sorts of havoc, which he then has to try and fix. Federal Transport Minister David Collenette would get a terrible sense of deja vu watching this particular movie, because his reaction to the current state of the airline industry is remarkably similar.
"How did Air Canada's market share get so huge?" Mr. Collenette asks himself, upon waking up from a deep sleep. "That isn't right. Why doesn't someone do something? I'm going to have to take strong action to correct this outrageous situation." In reality, of course, it was the Transport Minister and his own government who created the situation that Mr. Collenette now describes as "untenable," by pushing Air Canada to merge with Canadian Airlines and then arranging things so the deal could proceed.
In particular, the Liberals — led by Mr. Collenette — effectively tied up the competition bureau and its commissioner, Konrad von Finckenstein, by suspending the federal Competition Act and preventing them from conducting a comprehensive review of the merger. Now, all of a sudden, Mr. Collenette is saying that firm action must be taken against Air Canada, and Industry Minister Brian Tobin is passing new competition laws that give the bureau more power to levy fines, impose cease-and-desist orders, and so on.
What happened to change Mr. Collenette's mind? Why, Air Canada has used its size, borrowing power and massive fleet to become a hydra-headed beast that competes with virtually every other airline out there. Running a charter like Canada 3000? Air Canada is in that business too, using its money-losing main routes and other operations to subsidize its new Tango unit. Running a discount airline like WestJet? Air Canada will soon be in that business too, doing pretty much the same thing with its new discount operation called Zip (named for how much money it will make, no doubt).
Perhaps Mr. Collenette was under the impression that when Air Canada merged with Canadian, the resulting entity would be subservient to Ottawa — competing just enough to keep prices low, but not enough to put other competitors out of business; flying to every little podunk town in the country, and employing thousands more people than it could afford to pay, but at the same time not raising ticket prices, or firing people in that inconvenient way that private companies do. Instead, this airline version of Frankenstein's monster wreaks havoc — sometimes without even meaning to.
The inconvenient fact is that corporations cannot be turned into instruments of public policy, no matter how much the government wishes they could be. That's what Crown corporations are for, which is why they so often fail by the traditional standards of the business world. Pushing Air Canada and Canadian together may have served all sorts of purposes from Ottawa's point of view, but it is ludicrous to set up such a situation and then expect the company you helped create to refrain from competing with whatever tools it has — which is essentially what Air Canada is trying to do.
Not surprisingly, Mr. Collenette now says he is considering virtually any option, including so-called "sixth freedom" rights that would allow U.S. carriers to pick up Canadian passengers and fly them to Canadian destinations (through a U.S. hub). But at the same time, he says the industry may have to be reregulated. What kind of solution would that be? Even now, conspiracy theorists are putting together the theory that the entire Air Canada/Canadian merger was just a way of making the industry so dysfunctional that Ottawa would have to step in and take the reins again.
Mr. Collenette and his Liberal counterparts are like children whose new puppy grows into a full-sized dog — frustrated that their pet won't do their bidding. Instead of trying the corporate equivalent of gene-splicing to create a company that would serve their purposes, the government should have let Canadian Airlines go under and then restructure itself through bankruptcy proceedings, a route which might have left a smaller, competitive carrier. Between that and WestJet, the market might be a whole lot less imbalanced (although Canada 3000's failure was largely its own doing).
Now, the government is reduced to threatening Air Canada with reregulation, pushing new competition legislation, and muttering about sixth freedoms and cabotage with the United States — as though its own policies had nothing to do with the mess that currently exists in the industry.