CHAOS, THEN CABOTAGE, I CAN'T WAIT
First we had the proposed merger of Canadian Airlines into Air Canada.
A mere skirmish in the minor leagues. To come, probably even before the
dust settles on the above transaction: cabotage... which permits foreign
carriers to enter Canada and transport passengers domestically. Cabotage
is coming and will be the pressure point that determines the future in
the air industry. The gambles will be immense. The payoff, or failure of
The winner (maybe not the right word) of the Air Canada/Canadian
merger has a decision: increase prices for profit or continue to lose
money. It is readily apparent the latter choice is not defendable. So
fares go up perhaps double what some, likely highly profitable foreign
carrier is charging to offer under a cabotage agreement. Even a
"national" airline really has limited choices. Compete and lose more
money, perhaps holding out to see who has the deeper pockets? Game lost.
The country could refuse cabotage although that may not be wise. Then
giant carriers may disallow connection discounts to Air Canada, saying
that an Air Canada flight, when terminated outside the country, is the
end of that ticket.
Passengers who want to travel further must purchase a new ticket, at
usually, a higher price. The problems? Maybe there aren't seats
available at that time, on that connecting flight, to that destination
or in your preferred seating class. The same could happen coming into
the country. You couldn't, except on a Canadian carrier that flies into
a near-border city. Confuse personal schedules a bit, don't you think?
Imagine the international airline industry as one big monopoly game,
with half-a-dozen large privately-owned airlines, providing better
service and lower fares aboard superior equipment. The public generally
would support them. Inefficient government-owned airlines couldn't
compete. Why do you think the Canadian government has sold out Air
Canada over the past four years. They sold 43 percent of the stock to
the public at $8 a share in September 1988. They unloaded the remaining
57 percent in July 1989 at $12 a share. It is now under $4 a share. Now
do you really expect these big boys, who know how to run an airline -like Cathay Pacific, that makes $500 million almost every year -- are
going to be the one that blinks (over the potential of a mere 27 million
Canadian passengers)! They will get an arrangement to their liking or
Canadians will have to travel to the U.S. to go elsewhere in the world.
In the big picture local travel within Canada isn't considered a major
Airports at Bellingham, Washington (a few miles South from Vancouver,
BC), Niagara Falls or Buffalo, New York (an hour from Toronto) or
Detroit, Michigan (near Windsor, Ontario) may offer fares within the
U.S., but also within commuting distance to major Canadian cities. Watch
the game change.
Would you drive to Bellingham, fly to Niagara Falls and take a free
bus ride to Toronto to save $250? Most would. Remember, the foreign
carriers will have the newest, fastest planes. How would a relatively
small carrier compete with that deal?
And, what about frequent flyer points good only within Canada? They
lose their appeal. But the other foreign airline offers you the world.
At their own resorts.
Who can offer the best deal? Take your pick. It's Kapuskasing or Kuala
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