Nunatsiaq News
COMMENTARY: Around the Arctic October 04, 2018 - 1:30 pm

Northern airline merger would be “disastrous” for northerners

“I hope federal regulators such as the Competition Bureau are watching”

SPECIAL TO NUNATSIAQ NEWS
Would a merger between First Air and Canadian North turn out to be a disaster for northern consumers and health-care providers? (FILE PHOTO)
Would a merger between First Air and Canadian North turn out to be a disaster for northern consumers and health-care providers? (FILE PHOTO)

TRACEY GALLOWAY

As Makivik Corp. and the Inuvialuit Corporate Group finalize the merger of northern Canada’s two largest commercial air carriers, First Air and Canadian North, let’s pause for a moment and think about the impact of the proposed merger on people who live in the North.

Obviously, passenger air service will be affected. Despite claims that the new airline will provide continuity of service, it is likely that neither prices nor service will improve in a monopoly environment.

The disastrous recent code-share experiment should be adequate proof that consumers benefit from greater, not less competition.

But the proposed merger will not only restrict options for people seeking passenger service. The vast majority of medical travel is provided by commercial carriers, who rely on that contracted service for a large portion of their revenues.

Governments will now bear the brunt of having limited options for non-emergent medical transport across much of the northern provinces and territories.

Medical travel is already the single largest cost borne by northern health departments. Governments simply cannot afford to pay more to transport people to the south for service.

Another consequence will be food costs. Both North West Co. and Arctic Co-operatives Ltd., Canada’s largest northern grocery retailers, have multi-year freight service agreements with First Air and Canadian North.

Though the terms of those agreements are undisclosed, their freight costs have typically been much lower than those charged to consumers shipping subsidized food by direct or personal orders.

Consumer freight costs may change substantially under the merged airline, and if retailers benefit unequally from the merger, the result will be a worsening of food cost inequities in communities.

Separately, each of these results from the merger would be disastrous for people living in northern communities. Taken together, they represent a spiralling toward greater isolation and hardship for northern people and their governments.

After three decades of deregulation under Conservative and Liberal federal governments, the federal policy environment is largely one in which corporations regulate their own activities.

Already burdened with the enormous challenge of providing services across vast, remote geographies, northern health and social service providers will now have to cope with the additional challenge of dealing with near-monopolies in both the transport and retail sectors.

I hope federal regulators such as the Competition Bureau are watching.

There is opportunity here to impose restrictions on the activities of corporations operating in limited markets.

The consequences of the proposed airline merger will be far-reaching. Due diligence now will prevent further hardship for northerners.

Tracey Galloway is a professor at the University of Toronto, Mississauga. Her research examines the impact of federal policies such as Nutrition North Canada on the health and well-being of Indigenous people.

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(12) Comments:

#1. Posted by Na on October 04, 2018

I hear you but it doesn’t make much sense to have two Jets flying the same East-West route same time same day at 1/4 capacity either.

#2. Posted by Wondering on October 04, 2018

I wonder if this will push governments to put standards of services in each community in par with the rest of Canadian communities. Push to develop roads, hospitals and courts. Will the corporations contribute 1:1 what the governments put in? If currently, governments are neglecting us ( I mean actual beneficiaries, not imports/ employees. The poor and neglected who cant even afford a one way trip ‘next door’ ), will this type of a ruccus finally bring Inuit into an acceptable standard? So many economic spin offs if the purcurment processes favor locals.

I might not make sense here but Im trying to think like I had adiquate western education.

#3. Posted by Frequent Flyer on October 04, 2018

I have never been so happy to have a second airline operating in the north before.Canadian North turned around after it couldn’t land in the community it was to visit before my community without even attempting to come here. I was able to jump on First Air to catch my connecting flight. I am afraid to ask, What will happen when we are bound by only one airline?!

#4. Posted by Gemini on October 04, 2018

North West Company is using a new airline already North Star Air Cargo seen them at least 3 times in one day bring in freight for the local Northern store(Northwest company)

#5. Posted by Watcher 07 on October 04, 2018

Wondering - there is zero chance this leads to roads, hospitals and courts. And this is by no means limited to benificaries, the “imports” Pay their full fare to travel, and many just go “next door” too, we need to stop just thinking about ourselves when issues have to do with our entire community, this is not a race thing.
Corporations will NEVER contribute 1:1 for projects that belong to our government, they don’t need to and it would be rediculous to ask. That’s what they pay tax for.
The only way we get corporate money is if we’re smarter about natural resources contracts and require the money from them to go to infrastructure. There’s a reason northern Quebec is well connected and parts of NWT have fiber optics while we’re on satellite and that begins with our leaders, not out companies and not our newer community members.

Gemini - my community doesn’t get northwest Co planes. The managers there say we won’t for years too. Their airline just isn’t big enough yet.

#6. Posted by Better on October 04, 2018

Those contracted rates that they keep undercutting each other on drive up ticket prices. If you were to order from a company that properly passes on the nutrition north subsidy you can figure out that in many communities the stores are actually making money as the subsidies on level 1 items are more then the cost of freight charged by the airlines.

Effciancies should drive down costs!

#7. Posted by Forecast on October 05, 2018

Makivik is slowly taking over the north

#8. Posted by No Kidding on October 05, 2018

Monopolies don’t work. Stomping out competition drives prices up and quality down, this is something well known all over the world. But here in Nunavut we don’t like to do it the right way right away… we need to look for cheaper airfare in fermented walrus meat first.

#9. Posted by Ex-Airline Guy on October 05, 2018

As a former airline employee with over 30 years experience in the north I disagree with Professor Galloway’s premise, namely that the merged airline will be responsible for reduced medical care and food insecurity.

The roots of the above issues are the GN policies, GN inefficiency, inadequate transfers from the federal government, and a poorly designed & implemented food subsidy program.

The airlines cannot continue to compete for Nunavut business and to do it below cost. The GN has adopted a policy of splitting it’s medical and business travel between the airlines to drive down it’s own cost, but neither airline can make any profit at these levels.

Likewise Northern & ACL play the two airlines off against each other while driving the cost below break even for the airline, and not all of these savings are passed onto the consumers. In a lot of cases the retailers likely make a profit on shipping food under the subsidy.

...2

#10. Posted by Ex-Airline Guy on October 05, 2018

Part 2

The airlines are not to blame for the GN not putting money into local and regional medical infrastructure, or it’s inability to train, hire and maintain qualified medical professionals to reduce it’s medical travel costs.

The airlines are not responsible for inadequate federal transfers for putting pressure on the GN to reduce it’s medical and business travel costs while requiring the highest level of services.

The airlines are not responsible for the food subsidy program virtually requiring that users deal with the Northern/ACL duopoly, giving the retailers leverage to drive down their costs and allowing them to make windfall profits from the subsidy program.

The airlines are responsible for allowing their competition to drive revenues down to where they are not sustainable. They are taking that only action possible, trying to substantially reducing their costs by merging.

...3

#11. Posted by Ex-Airline Guy on October 05, 2018

Part 3

For those worried about a monopoly take a look at what IDC and Makivik have done where they have a monopoly or a dominant position.

In IDC’s region Canadian North is stable and profitable, and beneficiaries have input through their representatives.

In Kuujjuaq First Air is stable and profitable, and beneficiaries have input through their representatives. Likewise for the Nunavik communities served by Makivik owned Air Inuit.

The problem is that both airlines have been blowing their brains out where they compete. That is about to end. The merged airline will reduce costs by millions, possibly tens of millions per year. This is necessary for them to continue to survive.

What is now needed is for the GN, or more likely the 3 Nunavut RIAs to get onboard and invest in the merged airline to ensure that they have a say in services, schedules, and cost to their beneficiaries.

#12. Posted by Flyer on October 10, 2018

Everyone remembers how awful codeshare was, terrible service and more expensive.

When the airline is operating at about 60% capacity east to west and with the cost of a seat equal to a business class seat to London or LA from Toronto how can they not be doing ok? I think the real issue here is how to increase the bottom line and make more money. Plain and simple.

It’s not about improving service, it’s not about he customers, it’s about the bottomline. People can not travel anymore in Nunavut if it’s not for work or medical travel. It’s just too expensive! Now with this monopoly it will be even more expensive. I think the board members and President of these airlines get used to their free travel and lost interest or the connection to ordinary people.

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