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Monday, July 18, 2005

When Will P.E.I. offer subsidies to Air Canada?

Air Canada is upset that the gubmnt of PEI has offered subsidies to WestJet and Northwest to provide service to Charlottetown from Trono and Detroit, respectively.

"Despite numerous discussions and meetings with PEI officials, including the Premier, over the past few months, we were unable to come to an agreement that would have levelled the playing field and enabled Air Canada to maintain its year-round service between Charlottetown and Toronto," Air Canada spokeswoman Laura Cooke said.

Now that the gubmnt of PEI has begun subsidizing WestJet and Northwest, Air Canada wants to belly up to trough, too. I don't much blame them, especially since the provincial gubmnt is subsidizing their direct and indirect competition. Too bad the gubmnt of PEI didn't use some basic economics before offering the subsidies.

The likely outcome is the after negotiations, PEI will also offer subsidies to Air Canada. It could, of course, withdraw the subsidies from WestJet and Northwest.... [fat chance].

Posted by EclectEcon on July 18, 2005 in Travel | Permalink


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Actually scratch beneath the surface and it will likely turn out that AC was going to drop the route during its uncompetitive period in any event. Ever since the creation of Air Monopoly, AC has treated air service to and within the Atlantic region as a cash cow. Regular return fares between Fredericton, Sydney, Charlottetown, etc... and Toronto generally go in the $600-$700 range (outside of the summer, when charters are active). The exception to this is markets like Moncton & Halifax and to a lesser extent St. Johns. In these markets AC has to compete with Canjet and Westjet, the result is that fares for AC and others fall by hundreds of dolars. What is the cost difference flying from TO to Fredericton or Moncton? It is likely zero. But the fares differ by hundreds of dollars. So don't be so quick to disparage PEI. Tourism remains its second largest cash industry and trying make it easier for folks to fly in hardly seems radical. The whole concept of national flag carriers was based on this idea. The Adam Smiths of this world may not like it, but I don't think Adam Smith ever had to wait six hours at Dorval, nursing an over-priced drink, waiting for his connecting Dash-8 to arrive from Lord-knows-where.

Posted by: herringchoker | 2005-07-18 10:30:59 AM

Adam Smith would probably be puzzled by a few things about this issue. How much, he would ask you, is a sufficient subsidy to get tourists to come to PEI? Have you done extensive surveys, or read their minds and determined that with a $100 subsidy, they will cancel the campground reservation in Maine and book a B&B in Summerside? Or is a $110 subsidy just right? Or $50 subsidy, plus a renewable grant of $20 per guest per night, for each B&B in PEI, from June 1 until Sept 3? Or would it be more optimal for the subsidy to be from June 21 to August 31? Perhaps the government should instead subsidize the price of rental cars in PEI, or set price controls on auto insurance for out-of-province drivers. Or maybe the whole premise of subsidizing tourists is sub-optimal, and PEI would be better off paying farmers an extra $0.10 per potato? Or should they reduce the cost of college tuition, so that Islanders can get better jobs?

Unless you've studied every single one of the 10 billion possible ways of regulating, subsidizing and promoting the PEI economy, and you've interviewed exhaustively and/or read the mind of every single Islander and every single potential tourist and businessperson who might want to trade with the island, Adam Smith would probably suggest that you just take your hands out of other peoples' wallets, and show a little bit of respect for their intelligence and their ability to figure out what businesses to invest in, how much to allocate for capital/infrastructure/labour/etc.

That's what Adam Smith would probably be thinking.

But Justzumgai is thinking, that since politicians and bureaucrats are the ones who want to subsidize airplanes, and politicians and bureaucrats are the people who fly in and out of PEI far more than anyone else, this smells like they just want to use other people's money to ensure that they don't get too bored sitting around Dorval airport.

Posted by: Justzumgai | 2005-07-18 12:20:55 PM

Pat Binns knows that the half million is money well spent for re-election, it will assist many more residents to get their ten weeks employment ( or whatever it is these days in the maritimes) to qualify for EI.

PEI= Perpetual Employment Insurance (thanks Alberta)

Posted by: Cascadian | 2005-07-18 9:57:45 PM

Pat Binns made a big mistake on this one. Air service is terrible to the Atlantic, that is a certainity, but you don't piss off the only winter carrier. How long is the walk from Charlottetown to Moncton? Nike would be wise to offer a good sale on runners in PEI.

Posted by: Shaky | 2005-07-18 10:02:27 PM

It seems to me that two decades or so ago I flew out to BC to do some skiing on Spring Break. I'm fairly certain that I had some ridiculously low fare, like $250 from Halifax to Vancouver, thanks to a price war between our then national carriers. However, the sweetest part of the trip was after I deplaned in Vancouver. Handily dandily there was a bus waiting to take me, and others like me, up to Whistler. I can't remember if it was completely gratis, or whether or not I made a small contribution ($10) to the trip, but I remember thinking that I was about $50 ahead.

So who provided this conveyance of mercy? I really don't remember whether it was BC Tourism, the Whistler Board of Trade or the resorts themselves, but it did make the whole effort very convenient. As to the $50 I kept in my pocket that day, naturally I spent it on food or drink (along with a pile more), as the good burghers of Whistler had intended.

So, what's the moral of my tale? Well, in truth, there really isn't one, other than to say that there are plenty of collective arrangements which are not, in and of themselves, bad. BC at the time was run by the Bennett Socreds, and yet someone still came up with the idea of subsidizing my shuttle bus to Whistler. Basically every transit system in North America operates with a subsidy from one level of gov't or another. The social benefit of getting people to and from work without bankrupting them is deemed important enough. And, oh yes, lots of communities in the States use 'travel banks' (putting up the minimal chunk of cash that an airline meeds to make a route profitable) to attract carriers to their town. This is, essentially what PEI has done for Charlottetown. Put up a cool half-million. If Westjet makes that amount, they collect nothing. If they fall short, the province ponies up the difference.

The next time you pick up your AC Enroute magazine (or the Delta or American Airlines equivalent) look at all those small communities where the code-share regionals fly. Des Moines, Destin Fla, Bismark, Flagstaff. Odds are that most of them have some sort of travel bank arrangement via the Chamber of Commerce, knowing that without air servce, any hope of investment attraction is zilch. The only real difference is that PEI focused its travel bank to support its tourism industry. An industry subsidy? Sure is. But if they left it to AC or Westjet, there would be no service at all.

Justz...loved the line about politicians and bureaucrats at Dorval. You're right of course. Everyone else drives to Moncton during the winter to fly from a town with competition. It's only a two hour from any point on the island after all.

Posted by: herringchoker | 2005-07-19 9:44:54 AM

An Islander here, wanting to respond. Most people here on PEI that I know drive to Moncton or Halifax (which is an 1.5 hour or 3.5 hr drive respectively) to save on the ticket price. It seems that generally throughout Canada an hour and half is not at all a long drive to get to an airport. GTA-area residents probably travel this distance in traffic to get to Pearson....

Before jumping down the throats of our "gubmnt" (last time I checked there were regional accents used by every area of this country, btw), consider the subsidies given to keep this airport open. Adam Smith probably would have begun there, and the Charlottetown Airport would have felt the invisible hand of the free market push it out of business. He probably also would've mentioned that this is sweet revenge for Air Canada, who has benefitted from federal government subsidies and would have already been out of business without them. The gall of our provincial government is to promise a subsidy to a carrier other than AC.
I disagree with my provincial government giving my money to these airlines, but the point that no money is doled out unless WestJet and NorthWestern come up short is an important one.

I would agree, though, that politicians, bureaucrats and tourists use our highly-subsidized airport/airline system the most...while regular Islanders (who pay the subsidies) drive an hour and a half to Moncton.

Cascadian: While I am completely disgusted with the EI culture that exists on my fair isle and I am well aware of the economy-crushing and dependency-creating results....please do not call us "Perpetual Employment Insurance". The feds gave it to us and buy our neighbours' votes with it. Many of us envision a day when things are different...

Posted by: Charlotte | 2005-07-19 6:45:58 PM

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