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Airlines scoff at GN air transport report

Competition does lower fares, airlines say

JIM BELL

Worried that the heavy hand of government might ruin Nunavut's delicate network of air carrier services, most northern airline companies are greeting a new GN report on their industry with disbelief, distrust, and even outrage.

CLICK PHOTO TO ENLARGE
A First Air Boeing 727 combi-jet at Iqaluit's airport. The pioneering airline, along with other carriers, may soon have to deal with new Nunavut government air service policies. (PHOTO COURTESY OF FIRST AIR WEB SITE)

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The report, released late last month by Peter Kilabuk, Nunavut's minister of transportation, concludes that deregulated free market competition among air carriers has failed Nunavut.

The report writers, who work for an Ottawa consulting firm called LPS Aviation Inc., recommend more government intevention in Nunavut's airline industry to improve service and bring lower fares to Nunavummiut, especially those living in small, high-cost communities.

To that end, they're urging the Nunavut government to use its purchasing power -especially the issuance of contracts to preferred airlines - to encourage the eventual emergence of one dominant air carrier in the territory.

But airline companies say the report fails to look at how Nunavut residents have benefited from airline competition in key Nunavut airline markets.

Carmen Loberg, for example, president of the Inuit-owned Canadian North airline, disputes the finding that free market competition has failed in Nunavut, saying the LPS consultants never fully consulted the industry, and failed to look at the fare-reducing effects of competition in the Iqaluit-Ottawa market.

"Air fares on the Ottawa-Iqaluit route have dropped 25 per cent since we went back on that market, just for the regular rack-rate air fares," Loberg said in a telephone interview last week.

In 1998, Norterra - owned on a 50-50 basis by the Inuit of Nunavut and the Inuvialuit of the western Arctic - bought Canadian North. At that time, Norterra's Inuit board members, especially those from Baffin, had a mission: compete with First Air between Iqaluit and Ottawa.

First Air, owned 100 per cent by the Inuit of Nunavik through the Makivik Corporation, ended up with an unregulated monopoly on eastern north-south routes in the mid-1990s after they drove Canadian Airlines out of the Iqaluit-Kuujjuaq-Montreal market.

"We had just phenomenal pressure from people in the Baffin, and Nunavut residents in general, to get back into that north-south market to get some choices available to people and start working on a massive campaign for lowering air fares in the market," Loberg said.

Loberg says that wherever it faced competition, First Air was forced to respond with lower fares and more seat sales. And in areas where First Air has no competition, such as Nunavik, air fares remain comparitively higher.

"If you look at their behaviour in northern Quebec, where they're the sole carrier between Kuujjuaq and Montreal, they're something like 17 per cent higher, when you compare the mileage," Loberg said.

Loberg points out that Nunavut government officials are among the heaviest users of the Iqaluit-Ottawa route - and that competition on this route has saved them millions.

Iqaluit-Pangnirtung air travellers also enjoy lower fares because of competition, he said.

"First Air had a monopoly there for years, then Kenn Borek Air came in and air fares in Pang fell by half, exactly one-half, because Kenn Borek Air came in there with a lower price structure," Loberg said.

Nunatsiaq News made several attempts to contact Bob Davis, First Air's CEO, but we were unable to obtain his comments on issues of competition and government intervention before our deadline this week. First Air's office said Davis was travelling, which made communication with him difficult.

However, Bob May, a 35-year veteran of the northern airline business, says he believes neither First Air nor Canadian North are likely to support the use of territorial government purchasing power to produce a "dominant carrier."

May, the president and CEO of Keewatin Air, thinks neither airline wants to deal with the headache of having to invest in extra infrastructure, and feeder services, on unprofitable routes.

"I can't speak for either one of them. I'm not in their board rooms and I don't know what they're thinking, but what I'm hearing is that both of them would like that idea to go away. Being the dominant carrier, under this proposal, they would have to provide the feeder service and the infrastructure and I don't think it's something that either one of them really wants to do," May said.

May also says neither the government nor the public may understand that few operators are making a lot of money in the risky, high-cost northern airline business.

"I don't think people truly understand how little profit there is at the end of the day," May said.

It's no secret that some people in the government of Nunavut are already backing the idea of a government-induced "dominant carrier." The idea was first touted in December, 2000, when LPS Aviation, with the help of consultants from three other firms, wrote the GN's Nunavut Transportation Strategy.

When it came time to do a second study, focusing only on air transportation, the GN turned to LPS last year to do the work.

Jimi Onalik of Iqaluit, who runs one of Nunavut's newest and smallest air carriers, Unaalik Aviation, says his gut feeling is that even before GN bureaucrats asked LPS for a second report on air transport only, they had already decided on an interventionist air transport strategy.

"This report seems to be addressing a policy decision that the government has already made," said Onalik, who once worked for the Office of the Interim Commissioner and with Premier Paul Okalik's office.

The young entrepreneur says that, as it happens, the government of Nunavut's airline contracting policies are irrelevant to his business. Unlike the work done by larger carriers, less than 5 per cent of the charter work done by his small fleet of Twin Otters is for GN clients.

But he says Nunavut government officials don't seem to be fully aware of how their practices are affecting the airline industry now.

"The government needs to understand how they're influencing the market to begin with. A lot of what they're saying about a dominant carrier, they can exert that right now," he said.

And he says that with its limited capacity, the Nunavut government may not have the ability to carry out a major overhaul of Nunavut's air transportation system.

"This is a big thing to chew off and I don't know if they understand how much work and how much involvement would be required. You're going to have to do a good job of it, or else it's going to lead to worse service for everyone," Onalik said.

In an interview with Nunatsiaq News last week, Peter Kilabuk, Nunavut's transportation minister, said the government will take a slow, cautious approach to implementing the report.

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