AAL, LUV, DAL: Canada Considers Opening Skies to Foreign Airlines

Canada’s Competition Bureau is recommending that the government in Ottawa allow foreign airlines to operate domestic-only flights within the country in a bid to lower fares and improve customer service.

The Competition Bureau says it is time to open Canada’s skies to foreign airlines as competition has failed to emerge in the country’s “highly concentrated” aviation industry. In a new market study, the watchdog says a new class of airline is needed, one that operates only within Canada but has owners outside its borders.

The recommendation could potentially open the Canadian market to major U.S. carriers such as American Airlines (AAL), Southwest Airlines (LUV), and Delta Air Lines (DAL) operating subsidiaries that only fly from point-to-point within Canada. Canada currently has two national carriers, Montreal-based Air Canada (TSE:AC) and privately held Calgary-based WestJet.

Duopoly

Together, Air Canada and WestJet effectively have a duopoly over the country’s aviation industry. The two airlines are increasingly dividing routes between themselves, with Air Canada operating primarily in Eastern Canada and WestJet in the western part of the country. Critics say that the current situation has led to Canada having among the highest air fares and worst customer service in the world.

Air Canada and WestJet routinely rank dead last in global rankings of airlines based on fares, service, flight cancellations, and on-time arrivals. International flights out of Canada are often cheaper than flights within Canada, notes the Competition Bureau in its report. And Canada’s rural and remote communities, particularly in the North, are underserved by both Air Canada and WestJet, adds the Competition Bureau.

Despite efforts to increase competition, Canada is considered a wasteland for new airlines and budget carriers. Six new airlines founded in Canada between 1995 and 2015 failed, including Greyhound Air and Roots Air. In the last 20 months alone, four low-cost carriers have disappeared from Canada’s skies, raising the need to open the country to foreign airlines, says the Competition Bureau.

The stock of American Airlines, the world’s biggest carrier, is down 39% this year.

Is AAL Stock a Buy?

The stock of American Airlines has a consensus Moderate Buy rating among 12 Wall Street analysts. That rating is based on six Buy, five Hold, and one Sell recommendations issued in the last three months. The average AAL price target of $12.67 implies 18.30% upside from current levels.

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