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Airline industry: coordination agreements are good for consumers

Montreal, February 9, 2012 – The airline industry has been experiencing difficulties for a decade and the Competition Bureau’s intention to block the joint venture between United Continental and Air Canada, which employs 23,000 people in Canada, will not help the situation, according to the most recent publication of the Montreal Economic Institute (MEI). Indeed, studies show that coordination agreements between airline carriers are beneficial. They lead to ticket price reductions of up to 30% for flights involving connections, thanks to the pooling of resources.

More and more economists specializing in antitrust matters point out that the degree of competitiveness is not measured by the actual number of businesses in a market, but rather by the potential number. “The Competition Bureau is worried that Air Canada and United Continental will obtain a monopoly on the Toronto-Washington route, for example. However, the mere possibility that other carriers, like WestJet, might decide to enter the market keeps fares low. This is what happened in the United States when Southwest Airlines threatened to enter certain markets without actually doing so: prices fell by an average of 24%,” explains Yanick Labrie, the publication’s author.

“Although motivated by the laudable intention of promoting competition, the Competition Bureau’s position risks harming the very consumers it wants to help,” concludes Mr. Labrie.

The Viewpoint on The proposed alliance between Air Canada and United Continental, prepared by Yanick Labrie, economist at the MEI, can be consulted free of charge on our website.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its publications, media appearances and conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms. It does not accept any government funding.

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Information and interview requests: Ariane Gauthier, communications coordinator, Montreal Economic Institute / Tel.: 514 273-0969 ext. 2231 / Cell: 514 603-8746 / Email: agauthier@iedm.org

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