North

Nunavut gov't shares concerns with Competition Bureau on airline merger

The president of the northern air carrier First Air says a merger between his airline and Canadian North will provide the companies stability and passengers more departure times, but the government of Nunavut isn't sure that will come to pass.

Airline experts support First Air/Canadian North claim that merger will increase efficiency

The two airlines have round trip flights from Ottawa to Iqaluit that arrive within minutes of each other. (David Gunn/CBC)

The president of the northern air carrier First Air says a merger between his airline and Canadian North will provide the companies stability and passengers more departure times, but the government of Nunavut isn't sure that will come to pass. 

"We know very confidently that merging the two airlines gives us the best structure to be able to provide the lowest possible cost to travellers," Chris Avery, president of First Air, told CBC. 

Avery said that both companies are 100 per cent Inuit-owned and therefore committed to providing the best service to their friends and family across the North.

First Air is owned by the Makivik Corporation, which represents Inuit in northern Quebec, and Canadian North is owned by the Inuvialuit Development Group, which represents Inuit in the Northwest Territories.

"We have double the infrastructure up North. We have double the aircrafts, double the flights. In fact, we have flights leaving within minutes of each other, and this inefficiency translates into higher costs," Avery said.

But in Nunavut's Legislative Assembly on Wednesday, the MLA from Pangnirtung was still concerned.

Margaret Nakashuk, MLA for Pangnirtung, asked the minister of transport about the airline merger in the Legislative Assembly. (Jordan Konek/CBC)

"I think it's important to note that Nunavut was not mentioned, even once in their announcement," said Margaret Nakashuk.

She asked David Akeeagok, the minister of economic development and transportation, to make public the technical and "higher" level reports the government of Nunavut is sending to the federal department.

He said he'd look into it and that the government shares some concerns with the Competition Bureau, including the risk of higher prices and lower flight frequency. 

"As a government of our own, we will have an opportunity to raise more of our concerns. The Makivik Corporation and Inuvialuit Development Group have their own say as well about their concerns, but I can say they will not represent us in any way," Akeeagok said in Inuktitut.

Makivik president Charlie Watt said in a statement Thursday the sole purpose of merging the airlines is sustainability.

"We have stated publicly that we want the Inuit organizations of Nunavut to join us to participate in the merged airline in order to create a pan-Arctic airline."

The next hurdle for the merger is a review by Transport Canada. The agency will look at the effect on employment, food and how easy it is for people and goods to travel between communities. The plan is to consult with customers and industry stakeholders.

First review of its kind

While the Competition Bureau usually makes the final decision on mergers, the airline industry in the North is required to go through a longer government process, according to Fred Lazar, an associate professor of economics at York University and a board member of Air North.

Because of the unique market factors, including its small size and barriers to competition,  northern airlines were exempt from the federal government's decision in the 1980s to stop regulating the industry.

So this is the first time the commissioner of the Competition Bureau has weighed in on national transportation to the minister of transport, according to the bureau.

Experts support airlines' position

Lazar says he supports the airlines' claim that a merger would increase efficiency in the North.

He says Air North doesn't compete with Canadian North and First Air on any routes because it can't.

Airline industry analyst Fred Lazar says he suspects neither airline is making money on the routes where they overlap. (Joe Fiorino/CBC)

"If we were to move into one of the routes and compete there would just be a war of attrition [until] one of us simply withdrew," Lazar said.

He says it's likely the same case for routes that both Canadian North and First Air fly.

"I suspect neither is making money. That probably both are losing money on those routes."

Ottawa to Iqaluit is the highest volume route for both airlines according to the report, but it's likely still too low volume to interest other airlines, Lazar said.

He says cargo is what helps the northern airlines break even or turn a profit, not passengers; therefore, the larger passenger planes of Air Canada or Westjet, don't make sense on the route.

As for the lack of price checks a monopoly might bring, he doesn't think prices can be raised much more — and that doing so isn't in the interest of the Inuit organizations that own the companies.

Instead, he sees how only needing one set of managers, finance and legal people could save money. One airline would also mean the planes would be used more, which would save money.

Money that could be used to buy better planes, that go "mechanical" less often, he suggested.

Robert Kokonis is the president and managing director of AirTrav Inc., an aviation consulting firm based in Toronto. (CBC)

Robert Kokonis agrees. He is the founder of the airline consulting business AirTrav.

"I would hope that the air policy people supporting Minister Garneau... will look at all the facts and and understand that in the long run allowing this merger to go ahead makes sense," he said.

He says since the airlines have tried and failed to merge in the past and experimented with the codeshare agreement, the merger is mutual decision.

"Both companies have been looking at this a long, long time and...I'm assuming they know better than anybody," Kokonis said.

With files from Jordan Konek

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