Thank you, Mr. Chair, for inviting me to speak to this committee today on a topic as important as air travel. I'd like to begin by acknowledging that the land on which we gather is the traditional unceded territory of the Algonquin Anishinabe people.

I welcome this opportunity to highlight key aspects of competition in Canada's air sector.

I am pleased to be joined today by Jennifer Little, the director general of air policy at Transport Canada.

The Canadian air sector is a key enabler of economic activity and is vital to connecting people, businesses and communities across Canada.

The economic framework for commercial air services was deregulated in the 1980s to permit market forces to drive innovation, supply and the price of air services. Competition is a key driver of efficiency and affordable airfares. Today, Canada's air sector consists of a number of domestic air carriers of various sizes that serve international, national and intraregional markets. In addition to the domestic carriers, the deregulated Canadian air services market is open to numerous players, such as many international carriers that can provide passenger services into and from Canada.

A key characteristic of air services in Canada, and a primary goal of the Canada Transportation Act, is that the market dictates supply and demand and ultimately the prices of airfares that carriers charge. Canadian air carriers, as private companies, are therefore able to make their own business decisions to remain viable and competitive. Within this overall framework, the government has taken further steps since deregulation to encourage competition and connectivity in our air sector.

One of the key policy initiatives for the air sector over the past few years was the creation of the Transportation Modernization Act, which received royal assent in 2018. This allowed for both an increase in foreign ownership limits in Canadian carriers and the establishment of a new process for the review and authorization of joint ventures in the industry.

Foreign ownership limits were increased from 25% to 49% with a goal of encouraging additional investments to support new entrants, including ultra-low-cost carriers, increasing competition and providing a greater pool of capital for existing carriers to improve and expand product offerings and services and to innovate.

This new flexibility led to the emergence of several ultra-low-cost carriers, including Flair, Canada Jetlines and Lynx. ULCCs offer positive impacts for Canadians by applying downward pressure on the airfares offered by larger carriers on popular routes and by catering to price-conscious travellers through low base fares.

The COVID-19 pandemic placed significant strain on the air sector in Canada and globally, testing the industry as a whole and creating significant financial challenges for carriers and airports. To address the most acute financial pressures during the pandemic, the government put in place important measures to protect air industry jobs and maintain services to communities throughout Canada. These include the Canada emergency wage subsidy, the waiving of airport rent at larger national airports system airports, and the remote air services program. These programs were integral to maintaining competition in the industry as air travel rebounded following the pandemic.

Nevertheless, as we emerge from the acute impacts of the pandemic and approach near full recovery, some operators continue to encounter operational and financial challenges. The exit of Lynx in February and some industry consolidation, including the merger between WestJet Airlines and Sunwing, indicate that the marketplace is continuing to go through a transformative period to better align supply with demand.

In addition, postpandemic, larger operators such as WestJet and Air Canada have reduced operations on regional routes in favour of longer-haul and international flights. While this shift has enabled smaller regional and niche carriers to pick up some of the routes that have been left behind by the legacy carriers, we know that regional connectivity remains challenging in certain parts of the country. As we get further away from the pandemic, we are seeing modest improvements in routes and airfares available regionally; however, Canadians travelling regionally are sometimes faced with limited choices and higher airfares.

As for Lynx, its loss is regrettable for the industry and those affected. Ultimately, Lynx accumulated heavy debt and could not secure further investments. We recognize that effective competition, including from ultra-low-cost carriers, brings more affordability to air travel. We also continue to study market dynamics and look for ways to encourage competition in the marketplace. To this end, we welcome suggestions from this committee. This committee's study comes at an opportune time, as Canada's air industry continues to recover, adjust and evolve from the heavy impacts of the pandemic.

That concludes my opening remarks. I'm happy to address questions from members of the committee.

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