An empirical analysis of Canadian international air policy: effects of dual carrier designation and partial liberalization

Abstract

This paper assesses the impact on air traffic of Canada's policy of allowing two Canadian flag carriers (dual-designation) to operate in select Canadian international markets. The secondary objective is to assess the effect of Canada's partially liberalized bilateral air services agreements. Using panel data covering Canada's 33 bilateral markets over the 1982–1994 period, we find the following results: (a) dual designation/operation of Canadian carriers in a country-pair market increases total traffic volumes in the market as well as increases the combined passenger volume and market share of Canadian carriers, and (b) Canada's partially liberalized bilateral air services agreements have significantly increased air traffic in those country-pair markets.Two policy implications follow from this research. First, Air Canada's recent merger with Canadian Airlines is expected to have a significant negative impact on total traffic volumes as well as on Canadian carrier traffic volumes and market shares on the country-pair markets both Air Canada and Canadian served previously. Second, not only the US style full liberal bilaterals or open skies, but also partial liberalization of bilateral markets Canada adopted appears to generate consumer welfare benefits.