The Carney government’s new support package for Canadian airlines is bad economics, bad timing, and a continuation of a decades-long dependency that has made the industry less competitive, according to industry analysts.
The package, announced June 8, has two components: the removal of the federal excise tax on jet fuel between Apr. 20 and Sept. 7, reducing costs by four cents per litre, and a new “Liquidity for Airline Sector Resilience” facility offering up to $150 million in repayable loans to eligible carriers facing financial pressure from the fuel spike.
Ian Lee, a professor at Sprott Business School at Carleton University, believes the decision will only impede more competition in the Canadian airline industry.
“This decision, I thought, was an appalling decision,” Lee told The Hub. “The Carney government gave us their excuse: ‘We want to make sure we’re going to stabilize prices.’ Well, this doesn’t change prices…No government can take an international commodity and say we’re going to change the price of the international commodity, whether it be oil or gas or aviation fuel or gold.”
Lee argued the intervention is wrong on four counts. First, it cannot actually lower prices. Second, it interferes with the price mechanism—the signal system that tells businesses and consumers how to respond to scarcity. Third, it is unfair to the more than one million incorporated businesses in Canada that face rising costs and receive nothing. And fourth, the conditions attached to the loans, restrictions on dividends, executive pay, and domestic sourcing requirements, drag the government into managing decisions it has no expertise or knowledge to make.
“The government does not have the competence or the knowledge of the industry at that granular level that the industry has from being in it day to day,” Lee said. “It is interference, and that interference leads to suboptimal management.”
Ottawa’s intervention likely already dated
The timing makes the policy look even more questionable. Fuel prices are already showing signs of easing. The U.S. Energy Information Administration’s June Short-Term Energy Outlook reported that crude oil spot prices dropped in May following reports of a possible U.S.-Iran agreement and falling global demand. The EIA projects prices could fall to an average of $79 USD per barrel in 2027 once the international shipping lane of the Strait of Hormuz resumes regular flows of traffic.
The deeper problem, Lee argued, is what repeated bailouts do to incentives. “If you know that the government’s going to bail you out, why should you bother looking for efficiencies in your operations? Why bother? That’s what’s so pernicious—it leads to less efficiency, it leads to lower competitiveness, it leads to reduced productivity, and ultimately the consumers end up paying higher prices, not lower prices.”
Those are not hypothetical concerns.
WestJet noted in its statement opposing the loans that, in 2025 alone, taxpayers lost around $400 million in COVID-19-related airline loans that were forgiven by the federal government. This marks the second time since the pandemic that Ottawa has reached out with aid packages for airlines, after Air Canada, Porter Airlines, and Air Transat all accepted support during COVID-19. Air Canada’s 2021 deal provided access to up to $5.9 billion in low-interest loans and equity financing.
The Hub editor-at-large Sean Speer, speaking on a recent Hub Hits podcast episode, traced the pattern further back.
“Governments have, over and over again, proactively dangled dollars in front of the sector,” Speer said, “But said: ‘In order to access them, we’re going to attach some strings’. And a lot of those strings have involved either restoring routes or preserving ones that, all things being equal, ought to be shed due to market dictates.”
The result, Speer argued, is a sector that has traded discipline for political dependency.
WestJet’s public refusal to participate drew praise from both Speer and Lee. Aviation observers note, however, that the airline’s stance may have a competitive dimension. WestJet may believe that without government support, at least one of its smaller rivals, Porter Airlines or Air Transat, could be on the verge of failing, an outcome that would benefit WestJet’s market position.
Lee’s prescription goes well beyond rejecting this particular loan. The structural problems in Canadian aviation, he argued, run through the entire system: airports controlled by Transport Canada and managed by unaccountable municipal non-profits, foreign ownership caps that suppress competition, and a regulatory culture that insulates the industry from market forces. “Most of the problems in the airline industry are due to bad government policy,” he said.
Until that changes, Ottawa will keep writing cheques—and Canadians will keep wondering why flying costs so much.
Speer, who previously worked as a senior economic adviser to former prime minister Stephen Harper, said the broader lesson cuts across party lines and extends well beyond aviation.
“Canada does protect and favour different parts of our economy at the expense of American competitors, and most importantly, at the expense of Canadian consumers. That needs to change as a matter of trade policy, and it ought to change as a matter of domestic economic policy as well.”
Graeme Gordon is The Hub’s Senior Editor and Podcast Producer. He has worked as a journalist contributing to a variety of publications, including CBC,…
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Industry analysts criticize Ottawa’s recent airline bailout package, arguing it will not lead to lower ticket prices for Canadian flyers and may hinder competition. The package includes a temporary removal of the federal excise tax on jet fuel and a liquidity facility offering repayable loans to struggling airlines. Critics, including Ian Lee from Carleton University, assert that government interventions disrupt market mechanisms and create dependency, ultimately leading to inefficiencies. The timing of the bailout is also questioned as fuel prices are already easing. Analysts call for structural reforms in the aviation sector to enhance competitiveness.