International Air Transport Policy Issues for Canada: Views from the Air Currents Conference of January 2004

Canadian Journal of Administrative Sciences, Mar 2005 by Janda, Richard, Flouris, Triant, Oum, Tae H

Abstract

In this paper, we describe several key international air policy issues discussed at the Air Currents: Building the Future of Canada's Air Transport Policy conference, jointly organized by Concordia University, McGill University, and University of British Columbia, and supported by a majority of government agencies involved in air transportation in Canada. These key issues are: (a) completing an Open Skies North American air transport market in the context of the NAFTA region; (b) Canada's approach to the proposed EU-U.S. Open Aviation Area; (c) foreign ownership limitations and a foreign airline's rights of establishment in Canada; (d) air cargo liberalization; and (e) problems arising from government-imposed fees on passengers, airports, and other air transport infrastructure providers. For each of these topics, we present background to the policy issues requiring decision, conference presenters' views, results of audience opinion polling, and our analysis and recommendations. Our most important recommendation is that Canada has reached the point where the focus of aviation policy, including its stance taken at bilateral and other international negotiations, should be shifted away from the protection of the air transport industry and carriers to the promotion of consumer welfare, business competitiveness, and the wider economic interests of the nation.

R�sum�

Dans le pr�sent article, nous examinons plusieurs questions de politique a�rienne internationale abord�es au cours du congr�s Air Currents: Building th� Future of Canada's Air Transport Policy. Le congr�s �tait conjointement organis� par l'Universit� Concordia, l'Universit� McGill, et l'Universit� de Colombie-Britannique et b�n�ficiait du soutien de la plupart des organismes gouvernementaux impliqu�s dans le transport a�rien au Canada. Les questions fondamentales abord�es ont trait �: (a) l'ach�vement du march� du transport a�rien dans le contexte g�ographique de l'ALENA dans le cadre du trait� � Ciel Ouvert �; (b) l'attitude du Canada vis-�-vis de la proposition am�ricano-europ�enne d'un espace a�rien ouvert; (c) les restrictions impos�es aux propri�t�s �trang�res et les droits d'�tablissement au Canada accord�s aux compagnies a�riennes �trang�res; (d) la lib�ralisation du fret a�rien; (e) les probl�mes li�s � l'imposition, par le gouvernement, des droits aux passagers, aux a�roports, et autres fournisseurs d'infrastructure de transport a�rien. Pour chacun de ces probl�mes, nous dressons un �tat des lieux actuel et pr�sentons les questions de strat�gie exigeant des d�cisions, des opinions exprim�es par les congressistes, des r�sultats des sondages d'opinions; nous cl�turons par une analysis et des recommandations. La recommandation la plus importante est que le Canada a atteint un niveau ou il doit passer de la protection de l'industrie et des compagnies a�riennes � la promotion du bien-�tre du consommateur, � la comp�titivit� de l'entreprise, et � l'int�r�t �conomique g�n�ral de la nation.

The world's air passenger traffic grew from 1.573 trillion revenue-passenger-kilometres (RPK) in 1985 to 3.394 trillion in 2000, a growth of 116% during the 15-year period. This represents an average compounded growth of 5.26% per year. Air freight traffic grew at a significantly faster rate than passenger traffic during the same period. Boeing's 2004 current market outlook forecasts an average annual growth of 5.2% for passengers and 6.2% for air cargo volume in the next 20 years (2004-2023). Airbus (2003) forecasts 5.0% annual growth in RPK for the same 20-year period. Both Airbus and Boeing forecast that air traffic will grow faster in the first 10-year period than the second 10-year period. Since, in the long run, levels of per-capita income and GDP are the main factors determining air passenger and freight volumes, it is not surprising to see that the long-term growth outlook for the air transport industry is excellent. Even in North America, where the airline markets (especially the United States and Canada) are saturated, passenger traffic is forecast to grow on average 4.5% per year in the next 20 years.

In the short run, however, the world's air transport industry is still recovering from a series of major challenges and catastrophic events since 2001. The dot-corn collapse and the subsequent slowdown of business travel beginning in 2001, the 9/11 terrorist attacks on the United States and the subsequent war on terrorism, the Afghanistan and Iraq wars, and the SARS outbreak are the key events that brought the world's airlines and the associated air transport industries to their knees. Together these events completely wiped out more than three years' worth of air traffic growth and produced a more than 15% reduction in air passenger volumes globally in the short run (see Figure 1). However, the International Air Transport Association's (IATA) recent traffic statistics show promise that the air traffic volumes for 2004 are likely to reach or even surpass the levels enjoyed in 2000, the last normal year of airline operations. For example, Table 1 shows that the level of international scheduled passenger traffic (in terms of RPK) for January-June 2004 was 8.4% higher than the same six-month period in 2000 while the international cargo traffic measured by freight tonne kilometres (FTK) for January-June 2004 was 16.2% higher than that of 2000. Over the January-June 2004 period, international passenger traffic in Asia Pacific, Europe, and North America was 12.2%, 2.3%, and 4.4% higher, respectively, than it was over the same period of 2000. In the absence of another catastrophic event, and if the recent extraordinary rise in fuel price subsides, global and North American airline traffic volumes are expected to reach or surpass the 2000 levels either in 2004 or 2005.1