Canada is doing its part and its best to be competitive, as well as protect the better work conditions and civil liberties that we have at the same time. It costs a bit extra to be an Airline in a country like that. So, on scale we have to place a measure of protection. Air Canada cannot compete against the likes of Emirates that is state owned and largely has no unilateral labor laws and employs a massive virtual slave labor force, and for the most part doesn't have to have financial responsibility. Sure, its easy to take over the aviation world if your Daddy pays for it. Problem is Air Canada HAS to balance its books and doesn't have Daddy to pay the debts if it doesn't. Don't tell me the Gov't will bail out AC. If it would, then AC would not have been in Bankruptcy protection 2 times already.
Furthermore, there is a-lot more competition out there against Emirates flying to Toronto than just Air Canada. You mentioned a few already. Cathay serves the Indian market from Pearson and Vancouver. Air China doesn't have a direct to Toronto, but Air Canada does. Air China serves the Vancouver segment. Air China greatly serves the Indian market. Just go and look at their website. EVA and China Air and Singapore etc all greatly serve Asia and India. Emirates "virtual" 480 million increase in business to Canada is only an attempt at taking a piece of this market away from others. As your colleague correctly said, there is not enough end service market from Canada to UAE. It is mostly flow through to Asia and India. Therefore, Emirates increasing will only take capacity from others and put it on their books. The market is well served already and I believe should there be any spare capacity that Air Canada probably would want to serve it if at all possible.
Regarding the airlines you mentioned: Cathay is not Chinese. Its primarily British. Ie: Swire Group with a minority Chinese holding, mainly political due to the British rule handover. China Air and EVA are not Chinese, they are Taiwanese, but the differentiation from where we stand is similar. They serve India and SE Asia greatly and would also be competing against Emirates for this traffic.
Emirates and Etihad have a good frequency to Toronto already. They just want "more". I don't believe it should get it unless it can guarantee some mutual benefit. Not smoke an mirrors estimate of robbing other markets followed by veiled threats. That will never win you favor in the offices of the Canadian gov't. In fact it probably did quite the opposite and is actually very foolish in my opinion. 76driver doesn't see that. He professes to be on the Canadian side, but then supported that quite honestly stupid and unconciousable negotiating tactic. Perhaps the strategy should have been the opposite, lower rent on the Canadian base in return for an additional weekly flight? Now that would be mature negotiating and might have won the route along with worldly favor.
Just my 2 cents worth! It was your benefit to lose. You just had to come to the table with the right offer.