Domestic Airlines Operation in Canada - Research Paper Example

Regulations and policies for domestic flights in Canada (airline industry in Canada)                                                    Introduction                       Instituting Airlines Regulations is one of the ways Canadian government has attempted to make the industry efficient and be highly competitive in this 21st Century. Some complaints about the activities of Canada’s domestic Airlines have grown in recent years, and the appropriate response helpful to stem the tide of these complaints is by making amendment of regulations for Canada’s Air Transport Act, as highlighted below:                                 Why is Domestic Airline’s Operation in Canada Regulated                There are several important factors why the Canadian government could decide to regulate the Domestic Airlines’ operations: the commonest ones include the need for transparency in airlines’ activities. The airlines are expected to be open and frank about their records, information systems and quality of services. This would assist the appropriate governmental agency to periodically investigate the level of conformity with Canada’s Air Transport Laws, in a bid to make the industry to be responsible towards the customers and the public in general (Reschenthaler et al 45). Another significant purpose for regulating the domestic airlines is the possibility of reducing the administrative burdens of the carriers: this means that cumbersome bureaucratic processes could increase the overhead cost of operations of the carriers, and this may lead to inefficiency and poor performance that could affect the activities of the airlines and make the customers discontented. If the Canadian government has failed to regulate the Domestic Airlines, the two important factors highlighted above may have caused unprecedented market failure and eventual collapse of Canada’s airline industry. Complaints have been mounting about some laxities in the operations of the Canada’s domestic carriers: and a close investigation of the complaints revealed that most problems are not unconnected to the inability to create transparency in operation of the carriers and cumbersome bureaucratic processes in the industry. The name of Domestic Airline Regulatory Agency in Canada The official agency saddled with the responsibility of regulating the activities of the domestic airlines in Canada is Canadian Transportation Agency, CTA. The agency primary responsibilities include handling and resolving all disputes connected with air transportation; improving the air transportation activities and, as a regulator, making helpful decisions about the operations in the air, rail and marine transportation (CTA 2009a). Canadian Transportation Agency got its legal regulatory powers from Canada’s Air Transportation Act (Air Transportation Regulations SOR/88-58). And this agency works by regulating the licensing of the airlines, monitoring the carriers’ activities and supervising the conformity to the statutes of the Air Transportation Act. The CTA regulatory actions are not necessarily rate-of-return kind of regulation: but the relationship between the carriers and the Agency is comparable to the one between a guardian and his/her foster child: CTA makes decisions about the accessibility and utilization of good air transport services; and in the course of this, settles countless disputes between the carriers and their array of customers. An order or a decision of CTA may be made an order from High Court or Supreme Court, and it may be enforced in a similar manner (CTA 2009b). Historical changes in the regulations of Canada’s Domestic Airlines The Air Transportation Regulations SOR 88-58 brings a new set of modalities for regulating the activities of Canada’s domestic airlines. A thorough analysis of the National Transportation Act of 1987 would reveal that there are some factors that had made efficient regulation of the Canada airline industry impossible. So, in 1988, recommendations were made to produce an amendment or annex of regulations respecting air transportation in Canada as put forward by Canadian Transportation Agency. This action had resulted in some portions of National Transportation Act 1987 being repealed in order to pave the way for better processes of airline regulation. Some of the previous contents of the Act that were repealed include: Back-to-back flight: The expression of the Act that encourages back-to-back flight within Canada airspace has been repealed in the new air regulations Annex (CanLII 2009). ABT/ITC charter: The new regulations don’t support advance booking charter (ABC) and inclusive tour charter (ITC). These sections of former Canada Transportation Act were subsequently repealed in order to make air transportation accessible to the general public (CanLII 2009). Common Purpose Charter (CPC): This part of the former Air regulation was repealed so as to make airplane charter easier for Canadians (CanLII 2009). The purpose for repealing these sections of the National Transportation Act of 1987 was that they posed some constraints on the accessibility to air transportation by ordinary Canadians. Comparisons between Airline Regulation in Canada and the United States It is often common to compare the air transportation regulatory processes in the United States with that of Canada, because these two countries have stiff competition on improving their domestic airline operations. In recent years, the domestic airline industry in America has experienced some strategic changes in the way they were regulated. The Agency in charge of U.S Air Transportation Regulations is Federal Aviation Administration (FAA); and its action has been supported by series of Special Federal Aviation Regulations, which include but not limited to the recent ones like SFAR 103, SFAR 106 and SFAR 92-5. Because of the size of U.S airline industry, there are definitely more Aviation Regulations for domestic airlines in the United States than in Canada. But they both aim at achieving the same purposes of establishing systems of greater efficiency for the airlines and increased accessibility to the air transportation by ordinary citizens. The Impacts of the Regulations in Canada’s Domestic Airline Industry Referring to Canada Gazette (2009), some of the projected positive impacts of regulating Canada’s domestic airline industry are highlighted as follows: (a) For cost-efficiency: It is believed that proper implementation of the regulations would help the carrier operators to minimize expenditures with the hope of maximizing incomes. The regulation is expected to immensely cut the overheard cost of administration as some cumbersome bureaucratic procedures had been cut away by the latest regulation SOR 88-58. (b) Efficient business practices: It is also believed that the airlines’ activities would become more efficient in order to withstand competition from all local rivals, as well as international airlines operating within Canada’s domestic airspace. (c) Customers’ satisfaction: One of the important aims of Canadian Transportation Agency regulating the domestic airlines in the country is to monitor the possibility of seeing ordinary Canadian customer having access and deriving absolute satisfaction in their flying experiences. Most of the activities that get CTA busy come from the complaints of customers or clients who felt they had been cheated by the carriers (CTA 2009b). (d) Possible Interaction between Domestic and International Carriers: Well-performing domestic airlines would definitely enhance the activities of the international carriers, as each section of this industry is inter-dependent on the other. The best example of how the National Transportation Act 1987 has helped Canadian Airlines to survive could be seen in Air Canada. The airline was struggling financially with huge debts before 1987. But as soon as the National Transportation Act 1987 was promulgated, it was believed that the airline industry in Canada was subsequently deregulated and the Canada’s air became open for airlines to operate. After that, Air Canada was able to sell 43% of its shares to the public; while the value of its shares increased correspondingly and the stiff competition with the other rivals gradually eased (Clarke and Pitelis 264). This is a clear example of how regulation could positively affect the operations of airlines in a country. Before this period, Air Canada’s drive for profitability and high customers’ level were hampered by competition and laws that technically reduced the airline’s freedom to operate, as it wanted. Aviation experts believed that the National Transportation Act of 1987 removed bottlenecks from the operations of airlines in Canada; therefore, liberalizing the sector for better performance, higher profitability and great customers’ satisfaction, which is the main target of Canadian Transportation Agency. Was the Regulation of Domestic Airlines in Canada Perfect? Whichever term one uses to describe it, regulation or deregulation of airline industry always has a certain expectation that must be fulfilled before it could be described as a “perfect regulation”. Some of these prerequisites include the following criteria: Increased accessibility to Air Transportation: This is very important for a country like Canada that aspired to create a condition of greater accessibility to air transportation for ordinary citizens. In theory, regulation works the best when any Canadian could have the opportunity to use the airline for any purposes, private or commercial. When only a small population of the country has access to the air transportation, this situation is often referred to as “privileged society”, where only the rich and the influential could enjoy all the necessary facilities that should be available to all. Reduction in Customers’ complaints: If for no other apparent reason, domestic airline is regulated to improve the different categories of services offered to the customers so as to reduce the number of complaints customers lodge at Canadian Transportation Agency. Increased efficiency and profitability: There is no doubt that regulation of the airline industry of any country is possible to produce certain effects of efficiency. And when the efficiency of the sector is guaranteed, carriers could expect to cash in on the improved performance of their operations. Prevention of hazards: Every regulation has its context the need to keep the airline industry safe and protective: some aspects of the National Transportation Act of 1987 have been repealed because they either made the industry unsafe or difficult to operate in. Hence, regulations tend to relieve the anxiety of the customers for their safety and offer solutions in the form of safety measures inserted into the regulations. Establishment of more corporate cooperation: Aviation experts could always point to the usefulness of regulation (deregulation) of the airline industry in Canada as it destroys stiff competition among the rival companies and eventually paved the way for mergers and acquisitions in the industry that have helped to solidify the financial base of airlines and increase the area of coverage for customers. In reality, it may be difficult to achieve a “perfect regulation” of any sector, but the attempts may yield some unexpected positive effects. Unintended Side-effects of Regulation of Canada’s Domestic Airline Industry There are, of course, some unintended side-effects of the regulation (deregulation) of airline industry sector in Canada, ably supported by the National Transportation Act of 1987. These negative side effects could be better studied by analyzing the performance status of Air Canada after the regulation. The most discouraging negative effect of this regulation is that it increased the debt portfolio of Air Canada. The company was able to borrow more money without a cap, and also raised capital by selling its shares to the public. Since the regulation had offered the opportunities to undertake business cooperation with the other airlines, Air Canada had opted to take over or merged with its rivals in the industry before the regulation. This corporate romance had created monopoly as the competition had been drastically reduced owing to the merging of former competitors (Clarke and Pitelis 264). Monopoly is a bad practice in any sector in the sense that it robs the customers the power to make the right choices of services they would have to enjoy. This same reasoning applicable to the airline sector in Canada. Other Kinds of Regulation in Canada that may Yield Similar Effects Canadian Transportation Agency also controls the activities of rail and marine transportation (CTA 2009a). There are corresponding regulations carried out in these sectors that are expected to produce similar results of customers’ satisfaction, profitability and safety for the ordinary Canadians. However, the regulation of airline industry stands out among the other alternatives because it specifically addressed the problem and offered strategic solutions to making the industry efficient, highly productive and easily accessible to all the citizens of Canada. Some Important Questions about the Regulation of Domestic Airline Industry in Canada 1. How could the Canadian Transportation Agency constantly remind the management of the carriers to constantly operate according to the rules and dictates of the National Transportation Act? 2. How could the public be aware of the context of the Air Transportation Regulation? 3. Wouldn’t be a wise investment for airline companies to be transparent in their dealings with the customers and the Canadian Transportation Agency?                        References 1.      Canada Gazette. 18 Feb. 2009. The Air Transportation Regulation SOR 88-58. 29 March 2009. 2.   Reschenthaler, G and Roberts, Bruce. Perspectives on Canadian Airline Regulation. New York: Butterworth for the Institute for Research on Public Policy, 1979 3. Canadian Transportation Agency. 22 Feb 2009a. About the Agency. 29 March 2009. 4. Canadian Transportation Agency. 22 Feb 2009b. Role and Structure. 29 March 2009. 5. Canada Legal Information Institute, Can LII. 12 Feb 2009. Air Transportation Regulations (SOR 88-58). 30 March 2009. 6. United States’ Federal Aviation Administration, FAA. 8 Feb 2009. Current Special Federal Aviation Regulations by Number. 30 March 2009 7. Clarke, Thomas and Pitelis, Christo. The Political Economy of Privatization. New York: Routledge, 1995   Read More