Air passenger rights in Canada: a case of misdirection, but the real issue is lack of competition

There are many instances in which private-market firms may fail to deliver a product or service quality as advertised. Restaurants mess up bookings, appliance retailers cancel deliveries, and tradespeople don’t show up. Yet, there are no regulations compelling such businesses to pay legislated cash compensation to customers for the inconvenience inflicted by such actions. Why not? Because we expect the forces of competition to do the job. Firms that disappoint drive their customers into the arms of their competitors, and this competitive discipline helps maintain standards of service quality. Canada’s air passenger rights regulations (Air Passenger Rights Regulations), following similar legislation in Europe, has sought to force regulatory discipline on an industry where competition is lacking. Recently, the government announced its intention to strengthen APRR in Canada, which could involve attempts to improve transparency in airline tariffs, tighter interpretations of exceptions that allow airlines to avoid paying compensation, and stricter enforcement if airlines refuse legitimate passenger compensation claims. But this focus on passenger rights misdirects our attention to the myriad of legal details in the regulations and their interpretation, while ignoring the real issue here: a lack of airline competition. Using APRR as a substitute for insufficient competition is a blunt tool which inadvertently leads to unintended distortions and creates a significant administrative burden for taxpayers. For example, the current APRR uses a two-tier compensation schedule in which ‘large’ airlines (Air Canada, WestJet) pay higher reparation amounts than ‘small’ airlines (Flair, Porter, Swoop, Air Transat, Sunwing). Unintentionally, this can create a barrier for low-cost carriers (LCCs) to attract passengers. Consider a business traveller booking a short-haul flight close to their departure date who could either book with a small LCC charging $150 or with a large established airline charging $300. If the trip is delayed for three hours, under current APRR, this passenger can expect compensation of $125 from the LCC, which amounts to a partial refund of the fare paid. If the large airline flight is delayed three hours, the passenger can expect compensation of $400, which represents a full refund plus $100 for inconvenience. Delay coverage thus appears better with the established airline. APRR regulations also create a new market for intermediaries who offer passengers aid in applying for compensation in return for a share in the reparation amount (25 per cent is not uncommon). This lowers the effective compensation received by passengers and diverts resources away from other productive uses. Finally, administering the APRR costs the Canadian taxpayer; the Canadian Transportation Agency, tasked with implementing APRR, received an additional $11-million for this purpose in the 2022 federal budget. In Europe, which led the way on APRR almost 20 years ago, currently proposed regulatory reform will weaken rather than strengthen their regulations. A concern in Europe has been that the APRR compensation amounts, which can be many times the paid fare, has hastened the exit of airlines from the market and thus has reduced competition and connectivity through route closures, adversely affecting regional economies. Research suggests that Europe’s APRR has resulted in about a five-minute reduction in delays on routes served by large, established hub-and-spoke airlines, but only where competition is lacking. It has had much less effect on delays where competition already exists. The impact of insufficient airline rivalry in Canada goes beyond service quality and passenger rights. For years, Canadian airports have lost millions of passengers annually to competing U.S. airports just south of the border. A popular explanation is that the ground rents paid by Canadian airports to the federal government have helped make our airports too expensive; however, research suggests that additional competition from low-cost airlines at U.S. airports is the most likely differentiating factor. In closing, it is worth stating that the problems created by cozy oligopolies and a lack of competition in Canada are not unique to air travel. Consumers in Canada pay far more for telecommunications than their counterparts in Australia, a country with similar geographic challenges and a similarly small population. The difference? Australia permits foreign competition. If the federal government truly wants better treatment for Canadian air passengers, it should focus on policies that increase and encourage airline competition. Bill Morrison is an associate professor of economics at the Lazaridis School of Business and Economics, Wilfrid Laurier University. He is research director at the Lazaridis Institute and associate editor of the Journal of Air Transport Management.

Air passenger rights in Canada: a case of misdirection, but the real issue is lack of competition

The federal government should focus on policies that increase and encourage airline competition.

Infrastructure woes among biggest challenges at airports heading into busy summer

Overhaul of passenger protections to include rail travel is ‘worthy area of focus,’ says NDP transport critic

Shared accountability is key to protecting passenger rights, says WestJet CEO

Infrastructure woes among biggest challenges at airports heading into busy summer

Russia: the least bad option?

What’s the plan for importing more nuclear waste into Canada?

The nuclear threat is real

We need a better plan for Wellington Street

How Canada can foster deeper ties with African continent

Shared accountability is key to protecting passenger rights, says WestJet CEO

Take advantage of real opportunities to improve the Airline Passenger Protection Regulations

Key steps Canada can take to ease air travel as demand surges

‘Massive reputational risk’: former Air Canada exec, strategists slam feds for sluggish response to expected travel surge in airports

Time for mandatory cooperation between northern airlines and mainline airlines in Canada

News

Get free news updates

Opinion

Submit a guest opinion article

resources

Advertise

subscribe

get help

Air passenger rights in Canada: a case of misdirection, but the real issue is lack of competition

The federal government should focus on policies that increase and encourage airline competition.

Get The Policy Briefings Newsletter