Ottawa has kept a watchful eye on Air Canada since the merger with Canadian Airlines was permitted in 2000, which was met with a wave of protests about competition.

A Transport Canada review of the country's airline industry, however, shows the overall picture has remained stable, although low-fare options account for 36% of seat-kilometres flown in 2002 compared to 1999's 16%. WestJet, a successful low-cost carrier, seems unhurt by either the merger or Air Canada's pushes into low-fare markets, increasing its market share to 14.2% in 2002 compared to 4.5% in 1999.

The November 2001 demise of low-fare operator Canada 3000 has prompted a number of start-up efforts, some of which may find their niche and become long-term players. Among them, Halifax-based CanJet is owned by IMP Group, the same company that owned an earlier version of CanJet before it was sold to Canada 3000. Vancouver-based HMY Airways, meanwhile, was given regulatory clearance in November to launch charter services to the USA and Mexico. Proposed start-up Canada West, however, has pushed back its planned launch to spring 2003.

Transport Canada continues to question the short- and long-term future of the industry. Among issues it is considering is a loosening of ownership rules, which say an airline must be 75% owned and controlled by Canadians.

Greater liberalisation of bilateral air agreements is also under consideration. Since 1995, the country has had an open skies agreement with the USA and during 2002 added agreements with the Czech Republic, Italy and Switzerland to similar existing deals.

Some would like to see liberalisation broadened further. Air Canada chief executive Robert Milton has called for a more closely integrated North American air services market he dubs "open skies version 2.0". In November, he told a Washington DC audience: "With the USA and Canada being free market innovators enjoying the world's largest bilateral trade and aviation relationship, our two countries should lead the world in air liberalisation. We should be shaping our future, not just responding to European Union rulings."

Source: Flight International