Merged Arctic airline will require vigilance, relentless scrutiny

“This is not government regulation. This is corporate self-regulation.”

All of the new merged airline’s aircraft will eventually use the brand name “Canadian North” and livery similar to First Air’s. (Photo by Brian Tattuinee)

By Jim Bell

The unpopular merger between First Air, owned by Makivik Corp., and Canadian North, owned by the Inuvialuit Development Corp., is now well underway.

One of the two airlines, Canadian North, has just won the latest Government of Nunavut medical and duty travel contract for the Qikiqtani and Kitikmeot regions, after a “competition” against its merger partner and a couple of other companies.

That was followed by the release of the new merged airline’s unified service schedule for flights serving Nunavut and the Northwest Territories. In case you haven’t heard already, the new airline will be called Canadian North.

In that announcement, the merger partners promise that the new Canadian North will generate “efficiencies,” which they say they’ll reinvest back into the merged company.

But it’s what they do not promise that’s significant. They do not promise lower air fares. Earlier this summer, following open-house events in Iqaluit and Yellowknife, the merger partners said their need for reinvestment is so great, all savings the merger will produce are likely to be ploughed back into the company—and not into lower air fares

So don’t expect lower air fares—which means northern consumers and governments cannot afford to be complacent and must continue to exercise vigilance.

That’s because the regulatory tool that the federal cabinet used to permit this merger last June is badly flawed.

To explain this, we have to backtrack a little. As readers may remember, Marc Garneau, the federal minister of transport, said yes to the Canadian North-First Air merger in June of this year.

Competition Bureau predicted higher prices

Garneau’s decision followed a report by the Competition Bureau, issued in February 2019, that found the merger would reduce flight schedules and lead to higher prices.

So to soften the impact of the merger on northern residents and businesses, Garneau announced a list of terms and conditions the new merged airline must follow for the next seven years.

Those terms and conditions are all listed in a special order issued by the Liberal cabinet, called an “order-in-council.” You can read it for yourself by clicking on this link.

Most of the terms and conditions look pretty reasonable. For example, Transport Canada says the new airline can’t raise fares on any route unless they can show operating costs on that route have also risen. And the new airline may only raise those fares to the same extent that costs have increased, and no more than that.

At the same time, if costs happen to fall on any given route, the merged airline must reduce fares to the same extent. The special Pivut and Ilak fares, available only to beneficiaries of land claim agreements, must remain where they stood on April 1, 2019, and may not be increased.

Mandatory Inuit training, hiring

And the federal government also requires the merged airline to set up an Inuit training and development program “with the aim to increase Inuit representation across all parts of the Merged Entity’s operation and management.”

As an aside, Makivik Corp. and the Inuvialuit Development Corp. ought to be deeply embarrassed that the big bad colonial government in Ottawa is ordering them to hire and train Inuit.

In any case, how will the merged airline’s compliance with these terms and conditions be enforced? Unfortunately, that’s where the federal cabinet’s approval order breaks down.

Toothless accountability and compliance measures

For starters, Makivik and the IDC must sign an implementation and monitoring agreement with Transport Canada. But you’ll never get a chance to see that agreement. That’s because it’s to be kept secret.

As the order-in-council states, in the bloated language of government: “The Confidential Implementation and Monitoring Agreement shall contain precise and specific methodology for each term and condition, the nature of which is commercially sensitive and confidential.”

The federal government also requires the creation of an independent advisory board, with representatives from Nunavut and the Northwest Territories, and one member from Transport Canada.

“The advisory board shall have the mandate to report to the Minister of Transport on any issues regarding compliance with any term or condition of this schedule, the Confidential Implementation and Monitoring Agreement, and any anticompetitive behaviour by the Merged Entity,” the cabinet order says.

But who will create this “independent advisory board”? Well, it’s the new airline that’s ordered to create it. And who will fund it? Again, it’s the new airline that’s supposed to put up the funding.

And how will the independent advisory board operate? That, too, is all secret.

“The confidential and commercially sensitive methodology for determining stakeholders, appointment, funding and operations of the advisory board shall be set out in the Confidential Implementation and Monitoring Agreement,” the cabinet order said.

This is not government regulation. This is corporate self-regulation.

Perhaps Transport Canada did the best they could with the limited regulatory tools now available to them. But the consumer protection measures they put in place simply can’t be trusted to protect vulnerable northerners. And the owners of this new airline simply cannot be trusted to regulate themselves.

Just look at their arrogant response last February to the rather unsurprising findings of the Competition Bureau. They refused to accept the Competition Bureau’s findings and seemed incapable of acknowledging the legitimate fears of consumers.

Also, neither of the two current ownership partners enjoy a strong track record of business success. Neither do they enjoy a strong record of transparency and openness.

This means publicly elected bodies like the Government of Nunavut, the Government of the Northwest Territories and others, including public municipal governments, must continue to keep a close eye on the merged airline. Holding its owners accountable will require relentless vigilance.

The Inuit organizations in Nunavut and Nunavik—especially now that Qikiqtaaluk Corp. and Kitikmeot Corp. are in talks about taking equity in the new airline—are in a conflict of interest on this issue. They can’t be expected to do any credible public advocacy.

That means the GN and GNWT should demand inclusion on the advisory panel and demand to see copies of the merged airline’s financial statements. And the executives of the new airlines should be brought before the legislatures of both territories at least once a year to explain themselves. JB

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(11) Comments:

  1. Posted by Head Shaker on

    This is so wrong! Please, God, send us another airline. Some company out there has to help us with decent prices for air travel. It should not cost what it does to get in and out of here.

    • Posted by Do It Yourself on

      Haven’t you had enough of waiting for divine intervention?
      THERE IS NO GOD.
      If you want something to happen, do it yourself.

  2. Posted by sounds about right on

    Good editorial JB. I think this sums up the frustration and helplessness that the average northerner has been feeling over the years. I’m not sure how we’ll ever get out of this rut.

    *Queue the comments from totally unbiased people who will defend the current airline monopoly with a flood of technical information*

    • Posted by The Old Trapper on

      Raises hand and waves.
      .
      To correct your statement (if it refers to me), I have never claimed to be unbiased and have indicated that I have 35+ years of experience working for northern airlines, all of which served Nunavut & NWT.
      .
      I no longer work for any of these airlines and I do not have any stake in whether they succeed or fail.
      .
      I comment because I have a somewhat unique viewpoint and I am at liberty to say things that I think need to be said. I also try to provide informed opinion and facts, things which are sometimes lacking in an open comments section.
      .
      I imagine that some (many) will not love what I have to say;
      .
      Many (most) of the passengers or cargo shippers paying high rates.
      .
      Northern & ACL for their playing one airline off against the other on every contract.
      .
      The GN when I call out their ludicrous policy of pitting one airline against another and including “social engineering” conditions in their contracts (minimum schedules, hot meals, free baggage allowances), not to mention forcing competition on unprofitable routes by splitting contracts between the airlines.
      .
      The Nunavut RIOs for ignoring the people they represent and spurning investment opportunities which would given them a seat and voice in decision making.
      .
      The airlines when I say that air transportation in Nunavut (and the north in general) needs to be run like an essential service or a quasi utility.
      .
      Nunatsiaq News for it’s slanted coverage, which I will cover in another comment.
      .
      And let’s not forget the federal government who’s rush to deregulate decades ago put the airlines, and Nunavut consumers in this position in the first place. And now they will allow the merger, but not allow any price increases except for increased costs. Of course one caveat that any decrease in costs means that the airline must decrease their prices. And does the merged airline have any protection from an Air Canada or WestJet or XYZ startup from cherry picking the profitable routes – like Air Canada, then WestJet did on Yellowknife, and Jazz tried to do on Iqaluit? Seven years of having your hands tied behind your back, your feet chained, and blindfolded, you have got to be freaking kidding.
      .
      I can just feel the love now!

  3. Posted by OMG on

    Think about the impact this will have on the economic partnerships between NU and southern markets/vendors, Good luck attracting more teachers, or even retaining those who are currently here when they realize they are paying $7000 to go for Xmas. I say let’s protest and boycott barring those who require medical or duty travel. How would a family every be able to fly out of NU ever again? Will Northern allowances increase to compensate for this? So many questions and so few answers. Maybe this is something that should be dealt with by our Cabinet and not their childish inter-political squabbling.

    • Posted by Israel MacArthur on

      Yes, it gets very tiring when you hear people talking about “blah blah rich southerners on good salaries…blah, blah, six return flights a year blah, blah”. The reality is that most people who go north to work, unless they are federal government of certain types, are responsible for their own flights, and the first time that they realize they pay 60% more than beneficiaries, and that it will take nearly 6 weeks of take home salary for many to visit southern family for a vacation, there is more than a bit of shock. It definitely makes recruiting more challenging in some of these (read not Iqaluit, Rankin or Cambridge) communities.

  4. Posted by The Old Trapper on

    JB, you have raised some good points, but omitted some as well.
    .
    Let’s start with Nunatsiaq News/Nortext’s stake in this matter. Because of the essential nature of air transportation your company cannot be unaffected. You must use the service, you really don’t have a choice. Every dollar less you have to spend on air fare or cargo benefits you personally and/or the company, and I’m thinking that NN doesn’t have a VTA (just guessing).
    .
    This does not mean that you can’t be unbiased, the best newspapers have very strict editorial board guidelines that separate the editorial board from the news department and the parent company.
    .
    Unfortunately I know that this line was crossed many years ago by NN/Nortext. I won’t go into the details and I’m not sure if you were around at the time, suffice to say that if a company drastically cuts their advertising in NN then articles, letters to the editor, and editorials criticizing the company’s services may just happen to appear in NN. One complaint letter was even written by a former editor of NN (this wasn’t disclosed to the reader). Pure coincidence I’m sure. Right. Let’s move on.
    .
    Let’s talk “efficiencies” and what you want as a promise to lower airfares. The “efficiencies” are real, at least a few million dollars a year real, maybe more. I could name area after area from the number of aircraft, spare parts, check-in counters, airport rents, call centres, almost every staffed position, likewise equipment, IT, etc.
    .
    Now if you think that this should immediately go to lowering prices you may want to talk to Makivik, IDC, and a few of Canada’s major banks first. Why do you think Norterra sold their share to IDC? Because Canadian North was losing money and they had to keep on pumping in money to keep the company afloat. Likewise Canadian North and First Air borrow money from the banks as well as their RIO owners when they had bad years. This has to be paid back!
    .
    Look at the airline industry, Wardair, Canadian Airlines, Air Canada have all gone bankrupt never mind the dozen start-ups that have come and gone. From the start of airline deregulation to now, carriers have lost more money than they have made (which is why there have been so many bankruptcies).
    .
    As far as guaranteeing that fares will go down, or not increase, remember when Canadian North pulled out of Iqaluit the first time?
    .
    Off topic – to this day I can remember Canadian’s POAD7F seat sale fare that they filed when they announced the pull out. Just figure out what POAD7F means and you will see they they were a little bit bitter.
    .
    When Canadian North first pulled out First Air announced that they would not raise prices for a year. This was during the oil crisis and prices kept going up and up to record highs over the next year. Air Canada raised their domestic fares 9 times in that one year period. First Air kept their word and did not raise their fare on Iqaluit – Ottawa, not one cent. Look it up.
    .
    If the new airline won’t guarantee that fares will be lower there might just be a good reason for that.
    .
    A major point. The federal government screwed up when they deregulated the north. The single protection that they created at the time is that the last carrier serving a market could not leave that market. Everything else in the whole country was fair game.
    .
    The federal government were (and still are) idiots when it comes to deregulation and air northern air policy. The GN are also idiots when it comes to northern air policy.
    .
    I won’t go into details on the whole history, Wardair being bought by CP Air, many of the smaller airlines (Transair, Nordair, Time Air, Air Atlantic) being bought by CP/Canadian Airlines International, Air Canada buying AirBC, Air Ontario, Air Nova, then Canadian Airlines failing and being bought by Air Canada. Never mind codeshares. It was a wild time.
    .
    The only problem was that the vertical north/south routes of Canadian North and NWT Air/First Air really did subsidize their northern route structures and made the companies profitable. Everyone knew that if you lowered your price too far you would lose money so they competed on service.
    .
    What happened? Air Canada went into Yellowknife and cherry picked the route from Canadian North (and a lesser extent First Air). This put pressure on Canadian North to make up the money elsewhere, therefore more competition against First Air. Then came WestJet and it became worse for Canadian North & First Air. Meanwhile Northern & ACL keep demanding lower and lower costs and played the two airlines off against each other to drive their costs down. Did you notice your grocery price go down? No? Probably because Northern & ACL’s profit went up instead. Foodmail contract – gone, now cargo is in the hands of Northern & ACL. Wonderful for them, not the airlines.
    .
    At the same time The GN is encouraging competition and lower fares (for them) on medical and duty travel contracts. It’s one way to stretch your budget when the feds don’t give you enough money in transfers and you have no tax base. The GN still needs premium service but will only pay the lowest bidder. But you now have to have dedicated reservations personnel for them, and hot meals on flights over 4 hours, and still 2 free bags at 70 lbs each. Meanwhile AC and WJ have gone to paying for meals, charging for bags, assigned seats, etc. The GN demands first class service at bargain basement rates. And they ensure competition by splitting the business between the airlines, instead of giving it all to the lowest overall bidder, or even by route. Every contract renewal. Airlines used to depend on on the government and business traveller to pay the largest share. With the GN the largest share is now the largest and cheapest.
    .
    JB I might agree with you that the federal and territorial governments should have some oversight (but municipalities? really?) if they had shown any understanding regarding airline economics, especially in the north but that is not the case. The feds and the GN got the airlines into this mess (and the Nunavut RIOs share blame as well).
    .
    Tell me in what other industry are you going to have your hands tied to compete against giants in the industry (AC/WJ) or even new entrants for 7 freaking years?
    .
    As for neither of the ownership groups having a strong record of success that may be true. But my understanding is that it’s going to be mostly airline people from First Air and Canadian North operating the airline, not Makivik or IDC/IRC. Remember Air Canada and Canadian Airlines both went bankrupt, First Air did not.
    .
    As for a conflict of interest if the Nunavut RIO’s buy into the airline – and get a voice on the board of directors BTW, what is the conflict? They are ensuring that they get the service their beneficiaries want at a reasonable price. Profits would go back to them to use for their beneficiaries.
    .
    As far as the GN having a seat at the table and access to all financial information – not a chance. Are you going to publish NN/Nortext financial information once a year – after all you do have a monopoly on the printed/internet news for Nunavut? How long do you think the financial information from the airline would stay confidential? I would give it no more than 24 hours – and any airline can come in to compete or any person/group can start their own airline as we saw with Sarvaq. A government keep a secret, such a sense of humour JB.
    .
    The airline industry in the north should never have been deregulated, and safeguards need to be put in place. It’s too late for a pan arctic northern airline with feeder routes north/south so the next best thing is for the RIO’s to all take an equity position in the merged airline, then they can look at buying Calm Air from EIF and the Kivalliq RIO can buy in.

    Last point, the feds need to subsidize the airline directly. It is the only way that will be fair to every user, and it will be the only way to lower the prices to an affordable level.
    .
    P.S. – JB how about fixing the line break in the comment section, the only way to get a “blank” line is to put in a period or some other character. Any blank line when writing is deleted when the comment is posted making paragraphs impossible. Thanks.
    TOT

  5. Posted by Disgruntled on

    This is all just another way of making the rich even richer. The Liberals are helping out their wealthy buddies by permitting this absolute monopoly over air travel, and northerners will suffer for it. It’s embarrassing that this “merger” was ever permitted to proceed. Look at a flight from Toronto to London, England. Significantly higher than any flight in or out of Nunavut, but it only costs $900-1000. This alone illustrates how this airline (and the founding airlines) are ripping northerners off. I work for the GN myself, and I’m lucky to have come up here with well over 100,000 Aeroplan points. However, if I run out of points, or if the new airline discontinues the use of Aeroplan, my resignation will follow soon afterwards. I simply cannot afford to pay $3500 for a round trip home. Good luck to the GN on retaining staff with this absurd monopoly in place.

    • Posted by The Old Trapper on

      I’ve commented before on the absurdity of comparing international air fares to northern air fares previously so I won’t go into that again, suffice to say that you might want to look at a more apt comparison, maybe Copenhagen – Nuuk and you will see that the fares are more in line.
      .
      As for the Aeroplan points you mentioned, yes a frequent flyer loyalty plan was at one time a useful tool for the northern airlines to gain customers. Decades ago Canadian North was in CP Plus and First Air was in Aeroplan. Both airlines had to pay their senior partner for the points accumulated by their passengers, and offer free seats to any member of the program. It was, and still is a large cost to the northern airlines.
      .
      When Air Canada bought the bankrupt Canadian Airlines International the federal government required Air Canada to offer their frequent flyer program to Canadian North. The marketing advantage First Air should have had was negated and participation in Aeroplan became strictly an additional cost with no advantage whatsoever as their main competitor was also allowed to use the same program.
      .
      Aeroplan has also become more of a rewards system than a frequent flyer loyalty system. Most points accumulated are now for purchases for non-airline services, and do nothing to benefit Canadian North or First Air. I would wager that this is the case with the majority of the 100,000 points you have accumulated.
      .
      From a cost/loyalty perspective it would make sense for the merged airline to operate their own loyalty program and not have to redeem points from the thousands of participants that have never have, and never will, pay for a flight on their services.
      .
      Your comments are a perfect illustration why the new airline should move ahead with their own loyalty program and get out of Aeroplan.

    • Posted by Israel MacArthur on

      Yes, and for the folks in the west who depend on Calm Air it is similar. There was a rumour a while back that Calm Air was going to stop taking Aeroplan points, at which time many folks were talking like you – far too expensive to stay in Nunavut at those airfares. Try getting from Kuugaruk or Gjoa to some of the major Canadian population centres on a term, ow-level GN employee’s salary. There is no option except Calm Air though.

  6. Posted by Northern Guy on

    The issue with the merger that I have noted before and will reiterate here is that industry self-regulation is a myth, an economically self interested party will always stack the system in its favour so this deeply flawed and naive decision by the Federal Government will inevitably lead to higher airfares. This is because the Cabinet-imposed regulatory check and balance system allows the merged airline to cook its books (with no oversight) to show increasing costs on every route it flies. Therefore it is only a matter of time before TC starts rubber stamping airfare hikes. The end result has already been noted elsewhere, where we revert to the bad old days of the Nordair monopoly and obscenely expensive airfares that will inhibit hiring and recruitment and cause a great many to leave the north.

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