New foreign ownership regs shake up airline industry

Canada’s air transport industry faces a potentially massive shakeup in the aftermath of federal government confirmation of plans to legislate an increase in the foreign ownership cap to 49 per cent from 25 per cent for passenger carriers, but immediately exempt two startup ultra low-cost carriers (ULCC) from any caps.

The decision announced by Transport Minister Marc Garneau reflects recommendations in a review of the Canada Transportation Act initiated by the former Conservative government in 2014 and overseen by former cabinet minister David Emerson.

“Our goal is to see Canada join most other large aviation markets in allowing significant (but not full) foreign ownership of passenger air carriers, and become a leader in allowing full ownership for freight and specialty air service,” Emerson’s panel said in its report.

Garneau predicted that increased foreign ownership would reduce ticket costs and foster competition. “I expect that as new carriers come into the field, the measures announced today will allow that to happen,” he said. “This can bring down airfares but also provide more destinations and more choice to passengers.”

 

Almost immediately after Garneau’s announcement at a Montreal chamber of commerce function Nov. 3, one of the startups, charter operator Enerjet of Calgary, said it would partner with the Arizona-based airline investor, Indigo Partners, to get its ULCC off the ground. Enerjet chief commercial officer Darcy Morgan, noting that the company already has charter certification, said, “we’re probably 18 months ahead of anyone who would be starting from scratch.”

The other prospective ULCC is Canada Jetlines Inc. of Vancouver. Chief executive officer Jim Scott said the new rules would make it “a lot easier for us than it was before,” and once expressions of interest by “more than one party” have been assessed, service could begin next summer.

 

Shares in Air Canada and WestJet fell immediately and both said the biggest problem all carriers face is not ownership caps, but operating costs. Canada has some of the highest ticket taxes and airport fees in the world.

Westjet CEO Gregg Saretsky, said, “We are disappointed the government has not signalled more clearly a willingness to meaningfully review aviation taxation and cost structure.”

Chris Murray, Toronto-based managing director of diversified industries at AltaCorp Capital Inc., agreed. “Even with the exemptions, you still have to have the argument about what’s a viable business case for both Jetlines and Enerjet,” he said. “It’s still a difficult market and it’s still a competitive industry.”

Porter Airlines Inc. CEO Robert Deluce, who controls Canada’s third major carrier, told reporters there will be little impact on his operation because it has a solid balance sheet. As for the ULCCs, the government’s decision “might . . . give them a little more opportunity to access financing.”

Garneau also announced plans for a passenger bill of rights, which he said would specify carriers’ obligations to compensate or overbooking or lost luggage, as well as shortening airport security waiting lines.