Oligopolies are bad for innovation and the economy, but especially for customers who have few alternatives.DUANE COLE/The Globe and Mail
Eugene Lang is the acting director of the School of Policy Studies at Queen’s University.
An estimated half a million Canadians – myself included – have just experienced the most egregious excesses of oligopoly in the Air Canada AC-T flight attendants’ strike.
I left Montréal-Trudeau International Airport on an Air Canada flight on Aug. 8 for a vacation with my son in England before he heads off to university. On Aug. 16, Air Canada flight attendants went on strike, shutting down the airline.
As of Aug. 19, I had yet to receive a single communication from Air Canada. It was as if it’s business as usual at Canada’s national air carrier, even though its 10,000 flight attendants had been off the job for three days, picketing airports and defying a Canada Industrial Relations Board back-to-work order.
Meanwhile, the airline’s customers are left completely in the dark about their fate, apart from what they read in the media.
Air Canada set to resume operations after flight attendants’ strike ends
Finally, one day before my scheduled return, Air Canada informed me my flight had been cancelled because of “labour disruptions” “outside of our control” and that they were searching for an alternative flight for me within three days. (The labour disruptions were of course not beyond Air Canada’s control – had the carrier settled with the union there would have been no strike.)
We were left scrambling to find a hotel in London. Air Canada also provided a phone number for further support for rebooking. We called the number, and the automated operator said that due to a high volume of calls we could not be connected, then hung up.
The airline and the union have now reached a deal. But pathetic and irresponsible does not begin to describe the “customer service” of Air Canada during this strike. It is the kind of service one should expect from the oligopolist.
“An oligopoly is a market structure where a small number of firms have significant control over market prices and output, often leading to limited competition and potential collusion among firms.” So says Investopedia.
Air Canada’s unionized flight attendants reached an agreement with the country’s largest carrier on Tuesday, ending the first strike by its cabin crew in 40 years.
Reuters
Basic economics teaches us that oligopolies are bad for consumers, innovation and the economy. With competition limited, the oligopolist has few concerns about customer service, because customers have few alternatives. The oligopolist also has little incentive to innovate because innovation comes principally from competitive pressures, which are weak in oligopolies.
Oligopolies, then, are only really good for oligopolists – which extract big profits – and their employees, who have secure jobs.
In Canada, our governments have a long history of tolerating, if not coddling, oligopolies – from railroads to telecommunications to banking to airlines.
Yet another example of typical behaviour from an oligopolist: The day the strike hit, we tried to book an alternative flight with Air Canada’s chief international market competitor, Air Transat. A few hours before the flight attendants’ strike officially took effect, Air Transat more than doubled the price of a one-way economy fare from London to Montreal, to more than $3,000. If that isn’t price gouging – taking full advantage of the exposed and desperate traveller – I don’t know what is.
But what about the underpaid and aggrieved Air Canada flight attendants? There are those who have great sympathy for them. I am not among them.
The flight attendants’ union chose the timing of this strike – at peak summer vacation time – to inflict maximum pain on the maximum number of Canadian travellers, in the expectation this would put unrelenting pressure on Air Canada management to capitulate to union demands. There was no concern whatsoever for the consumer’s interests in the union’s calculation.
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Only a union operating in an oligopolistic industry could behave so cynically, secure in the knowledge that regardless of how much disruption and pain they caused the customer, the airline would not lose market share – and flight attendants would not lose their jobs – because competition is so weak in Canada’s airline oligopoly.
Then there is Ottawa. The federal government asked for and received agreement from the Canada Industrial Relations Board to force the parties into binding arbitration to end the strike. The ball was thus conveniently hit into the customer-hostile oligopolist’s court to ensure that travellers, stranded all across Canada and around the world, are taken care of. Message to Ottawa: We are not being taken care of, we are being abused by the oligopolist, and you need to do something about it.
For a variety of reasons, commercial airlines tend to be oligopolies in most countries, so we are likely stuck with that market structure. But the lesson in this strike is that Ottawa needs to regulate this sector much more aggressively than it has to date to ensure the Canadian consumer is never again subject to the predations of this oligopolistic industry and its militant labour force.