Montreal, March 29, 2003  /  No 122  
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Harry Valentine is a free-marketeer living in Eastern Ontario. He can be reached at
by Harry Valentine
          In recent days, reports have emerged suggested that major domestic airline carriers in both Canada and the USA may face a bleak and uncertain future. Many of these problems stem from the fall-out from the destruction of the World Trade Centre towers on 9-11. They include the cost of greater airline and airport security, as well as reduced airline passenger demand resulting from the general economic slowdown in the USA. 
          Canadian air travel demand has declined as a result of the high-tech meltdown, a decline compounded by airline travellers using Canadian "private" airports that are required to pay high tax rates to the federal transport department, taxes which in turn are collected from the airlines using the airport and their passengers who have to pay higher ticket prices. Transport Canada claims that they are acting in the best interests of airline travellers. 
          The present conflict in Iraq has the potential to cause major long-term economic upheavals in the airline industry, in both the USA and Canada. Large amounts of money are presently being reallocated away from new wealth creation, only to be malinvested in massive proportions to produce war-related equipment and fund war-related activities. This reallocation of funds could turn the present housing construction boom in Canada into a construction malinvestment boom, ending in a meltdown. Real economic recovery may be postponed for several years, reducing demand for services such as airline travel. Air Canada and several smaller domestic airlines face a bleak and uncertain future under present economic conditions. 
          Air Canada's troubles began shortly after the federal government privatized the nationally owned airline, then instituted a semblance of airline deregulation. Along with the central bank's loose money policy that fuelled the high-tech (malinvestment) boom, the airline "deregulation" provided a facade of economic security that enabled Air Canada to maintain its stock values by purchasing (malinvesting in) Canadian Airlines International, an airline which sunk economically as a result of the "deregulation." An unhampered free-market regime in commercial air transportation would have provided sufficient market discipline to have prevented Air Canada's malinvestment in Canadian Airlines, whose business plans were thwarted by economic regulations that were still in effect. Air Canada's malinvestment will not and cannot be liquidated as long as the federal transport department stands ready to bail them out and continue this deregulatory farce, a charade that is being administered for the purpose of ensuring the existence of a national airline.  
Expanding the debacle 
          Transport officials are not only committed to maintaining the deregulatory façade, they're expanding the debacle by introducing new rules and regulations for the transportation industry. The nearly bankrupt Air Canada will be required to exchange passengers with smaller domestic rivals, many of whom also face the threat of possible bankruptcy due to higher fuel prices, high airport fees and reduced passenger demand. To show its concern for airline travellers, the transport department will require airports to conduct customer satisfaction surveys (at airport user expense). The new transportation bill recently tabled in the House of Commons introduces new regulations and new restrictions pertaining to both the airline and rail industries. Under this new regime, the government claims that it wants to protect the public interest, preserve jobs and promote regional interests.  
          Ultimately, the federal transport department may have little choice but to nationalize or subsidize (bail out) Air Canada, some regional airlines and even some of the "privatized" airports. Any of these could file for bankrupcy as a result of Transport Canada's policies, which have been formulated in a way that almost ensures that during an economic downturn, the "privatized" airports and "deregulated" airlines will risk failing economically. The federal transport minister will quite likely declare that a free-market regime may be unworkable in Canada's air transport industry, since such a regime cannot ensure a national airline. Transport Canada could then re-nationalize the airports and a few airline carriers in the interest of maintaining a national airline. The new transport bill may in fact succeed in preserving jobs, right inside the federal transport department. 
     « Despite the dismal long-term failure of transport economic regulation in Canada, the federal transport department steadfastly refuses to deregulate areas of intercity passenger transportation where it has ultimate jurisdiction. »
          Outside of the commercial passenger air transport industry, the federal transport department's long-term record for protecting regional interests in passenger transportation is quite dismal. Every major policy ever enacted has consistently failed. The regulation of passenger trains was aimed at protecting regional and rural passenger rail services in Canada. Practically every regional and rural passenger train service that has operated in Canada is now extinct. Intercity bus services are federally regulated, with regulatory powers being delegated to the provinces for the purposes of preserving rural, local and regional services. Almost every rural, local and regional intercity bus service in Canada has also become extinct.  
          Despite the dismal long-term failure of transport economic regulation in Canada, the federal transport department steadfastly refuses to deregulate areas of intercity passenger transportation where it has ultimate jurisdiction. Instead, the economic regulations pertaining to intercity passenger transportation have become more intrusive, even totalitarian, serving only to protect the economic interests of a small group of politically well-connected players who complain about competition from cut-rate carriers. Within the past two years, Ontario acted to eliminate competition for the intercity bus industry, from intercity car-pooling and van-pooling services, by putting the Allo-Stop service out of business.  
          All the Allo-Stop service did for a small fee was to connect people offering rides to people wanting rides. This is nothing more that the right to freedom of association, as guaranteed in the Charter of Rights and Freedoms. Ads offering rides that appeared in Ontario ethnic newspapers and similiar ads posted on college and university ride boards in large Ontario centres were scrutinized to curtail for-revenue and cost-sharing intercity car-pooling and van-pooling. Allo-Stop still offers services in Quebec and without regulatory intrusion, as do similiar car-pooling and van-pooling services in British Columbia, proving that "equality before and under the law" as guaranteed in the Charter of Rights and Freedoms is not being upheld uniformly for all citizens across Canada.  
Too many favours owed 
          The federal transport department, which has ultimate responsibility for intercity passenger transportation in Canada, refuses to do anything to ensure that Ontario citizens have access to the same kinds of intercity transportation services as do citizens in other provinces. The only way to achieve such equality across Canada is by total economic deregulation of the intercity bus industry, which means closing down the regulatory tribunals. Except too many political allies may be owed too many favours for the federal government to let this happen. As a result, peak travel period intercity bus fares are higher than need be, to cover the costs of operating nearly empty off-peak intercity buses. 
          If the federal transport department were to repeal all economic regulations which pertain to intercity passenger train operations in Canada, long-distance travel costs along several routes could drop for both the consumer as well as the service provider. Back in the days of steam power, a 5-person crew was required if a steam locomotive pulled a single passenger carraige (driver, fireman, trainman, brakeman and a conductor). A suburban commuter train may be driven from a driving cab inside a passenger carriage, with the locomotive pushing from behind. Using this technology, a freight train could be driven from a cab in an empty passenger coach, placed ahead of the locomotives. As long as the coach is empty, no federal passenger staffing rules would apply, even if the train were driven from Halifax to Montreal, or from Vancouver to Prince George. 
          Under existing federal regulation, a 5-person crew will have to be on board a single front end passenger coach if revenue passengers are being carried. If the coach were at the front of a freight train from Halifax to Montreal (St. Lambert station), a minimum 10-person crew would have to be on board, because of the overnight journey exceeding the duration of one shift (only half of them would be on duty). The labour costs would rise to such ridiculous levels that viable operation of the passenger coach on this route would become impossible. Archaic, obsolete and irrelevant economic regulations are still in effect and still enforced across all modes of commercial intercity passenger transportation in Canada. Under the present regime, no change will occur any time soon, so an epidemic of private cars will instead proliferate on the nation's highways. 
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