I recently took a flight from Porto to Rome. It lasted 2 hours 50 minutes (roughly the equivalent of a Montreal-Winnipeg flight). The plane was clean, the seats were reasonably comfortable, the staff was friendly. They served me a modest (but satisfactory) breakfast with unlimited coffee or tea. Now, the cost of the fare was… 21$. That's right: 21$! With taxes and airport fees, it amounted to a total of 75$. Still cheap.
Perhaps you flew off for holidays this summer. Compare any return flights between pairs of cities in Europe and in Canada, with roughly the same distance, and you'll notice a staggering difference in price.
Flying from an airport south of the border is cheaper, too. So much so that more than 5 million Canadians choose to drive to American airports each year to take advantage of cheaper flights, according to an Ottawa Senate committee. This "cross border leakage," writes the Committee, represents a growing amount of lost revenue for the Canadian industry and all levels of government.
Why are prices so high here? Is it because of taxes and fees? That's part of the answer, as the Committee points out in its report. But European travelers have enjoyed something you'll have a hard time finding up there in the Canadian sky: competition.
In the 1990s, Europe opened up its air travel market to competition. New airlines emerged, especially in markets once dominated by a single player. Competition forced carriers to cut their prices, and brought about the creation of new routes across Europe, along with more flights. From 1992 to 2000, the total number of routes within the European Union rose by 74 per cent. Domestic and international flights within the EU rose by 49% and 88% respectively. Most fares also went down. In real terms, taking into account the 19% inflation rate from 1992 to 2000, economy class fares went down by 29% and promotional fares by 4%.
Granted, some specific factors play favourably to Europe, like its particular geography and its population density. But airlines and airports compete for passengers, and the consumer ends up winning. Here in Canada, the arrival of low-cost carriers such as West Jet or Porter Airlines has brought some much-needed competition in the market. But the sky is still clouded by regulations.
Eliminating restrictions on cabotage for example — where a carrier from any country picks up and drop passengers at any airports, regardless of the airline's home country — or on foreign ownership, could bring on major benefits to the Canadian travellers and the airline industry. Raising the foreign ownership limit would also give Canadian carriers access to a broader capital market, help new competitors to enter the sector, and make it easier for smaller carriers seeking to expand or improve their fleets.
There are some really nice things to see in Europe and places to visit. But some basic ideas, like competition, are worth discovering there too.
Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute. The views reflected in this column are his own.