Location: National
ISSUE/SOURCE: Competition in the Canadian air sector
DATE: May 2025
SUGGESTED RESPONSES
- The Government of Canada is committed to promoting a healthy and competitive air sector that is safe and provides quality services to Canadians at a reasonable cost.
- Under the Canada Transportation Act, the transportation sector is deregulated, and the market dictates supply and demand, and consequently airfares.
- In 2018, the Government of Canada took action to encourage competition in our air sector, including increasing foreign ownership limits to Canadian carriers, which led to the emergence of several Ultra-Low Cost Carriers, providing Canadians with more choice when it comes to their travel.
- The Competition Bureau is studying competition in Canada’s air sector; we look forward to their findings, which are set to be released soon.
If PRESSED
Ultra low-cost carriers
- Canada’s air travel market has witnessed growth and an increase in competitiveness over the past decade, including the entry of Flair and the expansion of Porter.
- The introduction of basic and ultrabasic fares by legacy Canadian carriers is a competitive response to the rise of Ultra Low-Cost Carriers and competition in the market.
- While the loss of some Ultra Low-Cost Carriers is regrettable, as the Canadian air transport market evolves, it is expected that other carriers will continue to grow their services and new entrants will emerge.
Taxes, fees and charges
- Canada’s air transport system is based on the user-pay model, which means that passengers ultimately pay the costs for the services they receive without passing those costs on to the taxpayer.
BACKGROUND INFORMATION
- A primary goal of the Canada Transportation Act is that the market dictates competition, innovation, and airfares.
- The creation of the Transportation Modernization Act, which received Royal Assent in 2018 allowed for an increase in foreign ownership limits in Canadian carriers.
- Foreign ownership limits were increased from 25% to 49% with a goal of encouraging additional investments to support new entrants, increasing competition, and providing a greater pool of capital for existing carriers to improve and expand product offerings and services and to innovate.
- The limit and safeguards were put in place to ensure no single foreign entity would control the economic behaviour of Canadian carriers.
- Recently, the competitive landscape of Canada’s air industry and Government policies that impact competition have been under scrutiny and there are increasing pressures for intervention to address competition, affordability, and connectivity in Canada’s air industry.
- Before Parliament’s dissolution in March 2025, the previous Standing Committee on Transport, Infrastructure and Communities initiated two separate studies on competition and connectivity.
- Last year, the Competition Bureau also launched their own market study on the issue and will soon be delivering a report. The Bureau is examining three key topics as part of its study: (1) the state of competition in Canada’s airline industry; (2) barriers to entry and expansion; and (3) impediments to informed customer choice. Stakeholders had the opportunity to provide their perspectives before publication of the final report.
Ultra-Low Cost Carriers
- In February 2024, Lynx Air, and August 2024, Canada Jetlines, new Canadian ultra low-cost carriers (ULCCs) announced their bankruptcies and ceased operations after less than two years in service.
- Lynx Air cited compounding financial pressures associated with inflation, fuel costs, exchange rates, cost of capital, regulatory costs and competitive tension in the Canadian market as reasons for their decision to cease operations. Canada Jetlines failed to obtain the financing required to continue operating.
- Ultra low-cost carriers Swoop (which started in 2018) was integrated into WestJet in October 2023, after a change in business strategy by their parent company, WestJet. With this integration, WestJet flights now offer UltraBasic fares on its flights instead of operating a standalone ultra low-cost carriers airline.
- In 2018, Air Canada introduced Basic fares to compete with ultra low-cost carriers. Basic fares provide travelers with no ticket flexibility and barebones options/services for passengers to pay for only what they need. In December 2024, Air Canada’s decision to match competitors’ offerings and charge for carry-on bags for passengers on basic fares as well caused public outcry, including questioning at the Standing Committee on Transport, Infrastructure and Communities committee hearings.
The exit of Swoop, Lynx and Canada Jetlines leaves Flair as the only remaining ultra low-cost carrier. Flair has faced their own financial challenges.
- In 2023, Porter Airlines expanded their business model, going from a local, regional carrier to one that serves the North American market. To date, they have 44 Embraer jets to complement their existing 29 regional bombardier planes, and plans to increase their Embraer fleet to 75.
Taxes, Fees and Charges
- Contributions from all users in the aviation ecosystem are necessary to help Canada’s air transportation system grow and develop to meet future challenges. The cost of air travel in Canada is influenced by several factors, including:
- The fees established by the Government of Canada including the cost of aviation security screening (e.g., through Air Travellers Security Charge Act ) and taxes (e.g., the Goods and Services Tax (GST) on an airline ticket, or excise tax specific to aviation fuel).
- The Government of Canada, being the landlord for the National Airport System airports, sets the amount of rent charged to airport authorities. While this is not a separate line item on an airline ticket, it is paid for from large airport authorities as a percentage of their gross revenues. The collection of airport rent ensures that taxpayers receive a fair return for the use of government property by the commercial air sector.
- Beyond these charges, Airport Improvement Fees are established by airport operators. They are collected by the airlines and remitted to the airport operator.
- Other key charges and fees include civil air navigation services provided by NAV CANADA, and airport facility charges (e.g., the cost to land an aircraft at a particular airport) that are determined through commercial arrangements between air carriers, NAV CANADA, and airport operators.