Canadian North gets federal approval to reduce community service to 1 flight per week

The federal government has signed off on changes to the terms and conditions of Canadian North's 2019 merger with First Air, which now allows the airline to reduce service to northern communities to as little as one flight per week. It's a move the territory's senator describes as "totally shocking."

The changes, announced in a late-Friday afternoon press release, also open the door for the airline to hike passenger and cargo rates by up to 25 per cent per year, whereas under the previous merger conditions fares were locked in for seven years beyond those related to operating costs.

The move could have significant implications for Northerners, particularly in Nunavut where Canadian North is the only commercial passenger airline, connecting the territory's 25 fly-in communities to each other, and to southern hubs.

Today's iteration of Canadian North was born from a 2019 merger with First Air, which effectively created a monopoly on air travel in Nunavut. The company is 100 per cent Inuit owned between Inuit birthright organizations in Nunavik and the N.W.T.

In reviewing the proposed merger at the time, the federal Competition Bureau warned such a lack of competition would lead to price increases, reduced passenger and cargo capacity, and fewer flights.

The conditions imposed in approving the merger in 2019 were touted as safeguards to ensure costs would remain low while maintaining service levels to communities.

Canadian North will be required to adjust its schedules if demand on a particular route ramps up. But the threshold is an 85 per cent passenger load, on average, for six consecutive months.

Canadian North will also now be subject to a 10 per cent cap on profit margins (except for its Edmonton-Yellowknife and Montreal-Kuujjuaq routes), although it will be allowed to recoup past losses over a three-year period. It's unclear whether Transport Canada is allowing Canadian North to exceed the 10 per cent profit cap in order to recoup losses.

It's also unclear whether these new conditions supersede the previous ones from 2019, or are an extension or amendment of those. In particular, the previous conditions protected Ilak and Pivut fares for Inuit beneficiaries for seven years — although those fares in Nunavut are also protected under the conditions of the territorial government's medical and duty travel contract.

Canadian North refused CBC's request for an interview, deferring to the news release from Transport Canada.

The news release pointed to the impacts of the COVID-19 pandemic as the underlying reason behind the changes though it didn't elaborate on how exactly the airline continues to be affected.

The changes to the merger conditions come despite the government of Nunavut's request to keep the original conditions in place for service in Nunavut. Nunavut Transportation Minister David Akeeagok said he wrote to his federal counterpart earlier this year in the midst of negotiations between Ottawa and the airline, asking as much.

"The other impacts are out of our jurisdiction," Akeeagok said, adding he hadn't yet seen the full list of new merger conditions.

"Those terms and conditions were being applied equally to where there was competition, and that's what they were having difficulties with."

The 2019 merger with First Air effectively created a monopoly on air travel in Nunavut, where communities are only accessible by plane. In reviewing the proposed merger at the time, the federal Competition Bureau warned such a lack of competition would lead to price increases, reduced passenger and cargo capacity, and fewer flights.

The conditions imposed at the time were touted as safeguards to ensure costs would remain low while maintaining service levels to communities.

Fare increases 'not ideal' says federal minister

Transport Canada was unable to accommodate CBC's request for an interview, citing difficulties in securing a spokesperson because of the ongoing strike by federal public workers. The department also did not respond to a list of written questions by deadline.

Federal Transport Minister Omar Alghabra was also unavailable for an interview, as he announced proposed changes to the Air Passenger Protection Regulations on Monday.

Northern Affairs Minister Dan Vandal did make himself available for questions on Monday, carving out seven minutes of his schedule for an interview before heading into a meeting.

Though not his portfolio, Vandal said the changes were necessary to ensure the continuity and reliability of Canadian North's service.

"These were challenging times post-COVID. We realize that the importance was for the airlines to remain financially viable and sustainable," Vandal said, highlighting the $138 million Canadian North received in federal support during the pandemic.

"We realize the increases in fares are not ideal. We feel this is the fairest solution that offers that reliability in service that people need."

'Shocking, disturbing announcement'

Nunavut Senator Dennis Patterson called the announcement "totally shocking."

He questioned whether Transport Canada considered other measures before allowing Canadian North to cut service or hike rates, including internal cost-cutting within the airline, such as executive compensation.

"It's really disconcerting when we don't know the financial situation of the airline, and there was no voice for Nunavut in these negotiations," Patterson said.

"I was in the Kitikmeot last month and there are grave concerns there about reductions in air service. When it's our only link to the rest of Canada and our communities, this is a very shocking, disturbing announcement."

Patterson also criticized the lack of consultation with Nunavut stakeholders prior to Ottawa signing off on the changes.

"The unfair thing about this is Nunavut is the biggest customer for Canadian North. We have the highest volume of passengers and cargo usage in the whole network," Patterson said.

"So for there to have been no consultation with the government of Nunavut, as I understand it, or with parliamentarians like myself who rallied in support of Canadian North when they needed support, is really disturbing."