New airline compensation rules could threaten regional travel and push up ticket prices, warns the MEI

Montreal, November 20, 2025 – New passenger compensation rules under review could end up harming passengers as well as the country’s aviation sector by forcing airlines to pay for delays and cancellations beyond their control, warns a new report published this morning by the MEI.

“Air travel in Canada is already unaffordable and inaccessible,” says Gabriel Giguère, senior public policy analyst at the MEI. “New rules that force airlines to cover costs they can’t control would only make a bad situation worse.”

Introduced in 2023 by then-Transport Minister Omar Alghabra, the proposed amendment to the Air Passenger Protection Regulations would make airlines liable for compensation in all cases except those deemed “exceptional.” Under the current rules, compensation applies only when the airline is directly responsible for the disruption.

If adopted, the new framework would require Canadian airlines to pay at least $400 per passenger for any “unexceptional” cancellation or delay exceeding three hours, regardless of fault. Moreover, the definition of “exceptional circumstances” remains vague and incomplete, creating regulatory uncertainty.

“A presumed-guilty approach could upend airline operations,” notes Mr. Giguère. “Reversing the burden of proof introduces another layer of bureaucracy and litigation, which are costs that will inevitably be passed on to consumers.”

The Canadian Transportation Agency estimates that these changes would impose over $512 million in additional costs on the industry over ten years, leading to higher ticket prices and potentially reducing regional air service.

Canadians already pay some of the highest airfares in the world, largely due to government-imposed fees. Passengers directly cover the Air Travellers Security Charge—$9.94 per domestic flight and $34.42 per international flight—and indirectly pay airport rent through Airport Improvement Fees included on every ticket.

In 2024 alone, airport authorities remitted a record $494.8 million in rent to the federal government, $75.6 million more than the previous year and 68 per cent higher than a decade earlier.

“This new regulation risks being the final blow to regional air travel,” warns Mr. Giguère. “Routes connecting smaller communities will be the first to disappear as costs rise and they become less profitable.”

For instance, a three-hour and one minute delay on a Montreal–Saguenay flight with 85 passengers would cost an airline roughly $33,000 in compensation. It would take approximately 61 incident-free return flights to recoup that cost.

Regional air service has already declined by 34 per cent since 2019, and the added burden of this proposed regulation could further reduce connectivity within Canada. It would also hurt Canadian airlines’ competitiveness relative to U.S. carriers operating out of airports just south of the border, whose passengers already enjoy lower fares.

“If the federal government truly wants to make air travel more affordable,” says Mr. Giguère, “it should start by cutting its own excessive fees instead of scapegoating airlines for political gain.”

You can read the Economic Note here.

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The MEI is an independent public policy think tank with offices in Montreal, Ottawa, and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.

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