The Competition Bureau has recommended that foreign ownership restrictions be removed to help make Canada’s air travel industry more competitive.

The recommendation is one of several in a new report, published Thursday, into the state of Canada’s airline industry. The report also suggests breaking up the high levels of concentration in the industry, where Air Canada and WestJet account for up to 78 per cent of domestic air passenger traffic.

The bureau says one of the ways to challenge the duopoly would be to further loosen current foreign ownership rules under the Canada Transportation Act, including creating a new class of licensee that would allow up to 100 per cent foreign ownership for airlines that only fly within Canada. “This may attract more foreign capital and expertise to increase competition,” the bureau said.

The bureau also suggests increasing the foreign ownership limit for any one investor—including foreign airlines—to 49 per cent from 25 per cent. Similar increases have shown a degree of success in Australia, the report says, with airlines like U.K.-based Virgin entering the market.

“Sheltering companies from competition does not create national champions,” said Brad Callaghan, associate deputy commissioner of the bureau’s policy, planning and advocacy directorate. “For trusted partner countries, Canada should relax its restrictions.” 

Some industry sources say that Canada’s 25 per cent foreign ownership cap has made it nearly impossible to get financing for an upstart airline in the country. The international ownership push may be complicated by the federal government’s increased scrutiny of foreign investment, as well as a cultural focus on domestic ownership and goods in the face of the U.S.-Canada trade war. Labour groups consulted for the report also strongly opposed any foreign ownership of more than 49 per cent. 

“You’ve got to be careful what you wish for,” said Geraint Harvey, aviation employment researcher and professor at Western University. Strikes from pilots to maintenance workers have dominated headlines in recent years, and, Harvey argued, airlines are always likely to cut labour costs to try and stay competitive.

In a statement, Porter Airlines communications director Brad Cicero said that the airline supports the bureau’s recommendation to increase the foreign ownership limit to 49 per cent, but any other changes—like 100 per cent foreign ownership of domestic-only carriers—will require “much greater scrutiny” as “allowing foreign airlines to operate domestic routes will further disadvantage smaller carriers.”

The bureau’s study also calls for the removal of the transport minister’s ability to override competition review processes for airline mergers. The last three airline mergers—WestJet and Sunwing, First Air and Canadian North, as well as Air Canada and Air Transat, the latter of which was called off—were approved despite the bureau’s “competition concerns.” 

Market concentration remains high, but decreased by 10 per cent between 2019 and 2023 due to the increasing presence of airlines like Porter and Flair. The study also found that Air Canada, WestJet and Porter lower their ticket prices by an average of nine per cent when faced with a competitor on a route.

Ticket prices themselves are also increasingly murky, the study found. Fees make up 30 cents of every dollar that passengers pay traditional airlines—a percentage that only goes up for budget carriers.

Maciej Wilk, interim CEO of Flair, said the airline commends the bureau’s report, and encourages the government to begin implementing its key recommendations immediately. Air Canada and WestJet did not respond to requests to comment before deadline. 

Add-ons to base fare, including carry-on baggage and seat selection, also muddy final prices and consumers’ ability to accurately compare costs, according to the study. To address this, the bureau recommends standardizing airfares, as well as more upfront disclosure of extra fees and options.

Update: This article has been updated with comments from the Competition Bureau, airlines and an aviation industry expert.