Just a few things I would like to point out....
How many airlines that used to fly into Australia either no longer fly there or have drastically reduced their flights since Emirates started flying "widebody's like taxicabs" into and out of Aus? It would appear that the consumer now have few choices than they used to have....
Porter is not making money out of YTZ. They have yet to turn a profit and have a load factor barely over %50.
There are several reasons it is cheaper to fly internationally. One is simply a matter of scale. You can put far more people in a 777 than in an EMB yet you still need ground support for both. (ramp support, gate support, catering etc etc.) Even taking into account the higher costs of operating the 777, the overall cost per pax, per mile will be less on a long overseas flight.
Second and in my mind the largest problem is the matter you already touched on, TAXES. Have you looked at the the landing fees in Canada? YYZ is the most expensive airport in the world to operate from. Have you looked at the NAVCANADA fees to operate in Canadian Airspace? Almost every airport in Canada has added its own AIF. In some cases it is as high as an extra $30 for every pax. Add in the already high government taxes and you have situations where the taxes and fees are more than the actual price of the ticket!
As for Air Canada's inflight service I will say you are not comparing apples to apples. Air Canada is heavily restricted by their union contracts and the labour laws in Canada. They can't fire their FA if they don't like the way they look, act, dress. They certainly can't fire them for being to old, to fat, unattractive or even for being to snarly to pax. Yes they may get a letter on their file, but in a union environment you would damn near have to kill someone to be fired. I'm not saying this is right or wrong, but it is a fact of working with an airline based in a country that actually has labour laws...
The IFE at Air Canada has a slightly smaller screen and no interactive games but I would hardly call it "seriously behind" its competion. It still has hours of movies, TV shows, and music all of which can be started, stopped, rewound to your hearts content.
As for you PIA comments.. They are not pushing for more slots in Canada and they certainly aren't resorting to the kind of political BS that is currently going on.
This is not about shutting Emirates out of Canada. This is about ensuring that there is enough capacity between Canada and Dubai to satisfy the point to point traffic. In the governments opinion there is. The fact that Emirates wants more access so they can get extra pax to Asia and beyond is not the Canadian governments problem...