The granting to Pacific Western Airlines of its applications[203] to provide service on routes which would have been considered "transcontinental" years before, signified not only the end of the Regional Air Policy but a move in Canada towards a re-regulation of this country's commercial airline industry.

A) Early Indications

One of the first hints that Airline re-regulation would someday be a reality in Canada came in 1977 with the passage by Parliament of the Air Canada Act. [204] Essentially, this act changed the ground rules. The federal government's principal policy instrument in the field of aviation was declared to be no longer an agent of the crown,[205] and thereafter had to borrow in its own name.[206] Air Canada became like other federal Crown corporations; although the cabinet retained the power to appoint directors,[207] any government directives had to be tabled in Parliament and publicized in the Canada Gazette.[208] Air Canada's new relationship with its master is explained below:

"Looking at the system as laid down in the Act, one might get the impression that the Cabinet keeps Air Canada on a tight leash - which it could do if it asserted its authority to the letter. But in real life, the interplay between the corporation and its owners is flexible and informal, which suits both sides very well."[209]

The new act also repealed Art 16(7) of the Aeronautics Act [210] with the result that the Canadian Transport Commission no longer had to automatically grant licenses to Air Canada, which had to apply for a license and prove "Public Convenience and Necessity" like all other applicants. Although Air Canada was put in the same league as other carriers,[211] this has been largely symbolic until recently, because "Air Canada has not . . . applied for any new domestic licenses since the act came into force."[212]

In 1977, the federal government gave Canadian Pacific Air Lines permission to consolidate its domestic license,[213] and in 1979 the company was freed completely from restrictions on the transcontinental route.[214] But it would have been premature to suggest that the two major Canadian air carriers could, subsequent to 1979, "compete on an equal footing." as has been suggested by one writer.[215]

B) Reorganization of the Industry

At the time of passage of the Air Canada Act in 1977, Air Canada was bigger than all the other airlines in Canada combined,[216] but almost immediately thereafter, that situation began to remedy itself. Pacific Western Airlines bought control of financially troubled Transair and fully integrated that carrier into its system by August 1979.[217] Only three years later, following the Halifax battle between Canadian Pacific Air Lines and Eastern Provincial Airlines, these two companies signed a co-operative agreement whereby they agreed to a full interchange of aircraft through Toronto giving the Canadian travelling public for the first time ever, the possibility of flying from St. John's, Newfoundland to Vancouver, British Columbia without changing aircraft, on a carrier other than Air Canada.[218] Finally, on May 10, 1984, Transport Minister Lloyd Axworthy introduced a new policy reducing airline regulation and Canadian Pacific Air Lines seized the opportunity to start a process, which by August 31st of that year, left it as owner of Eastern Provincial Airways.[219]

"Following the purchase of Eastern Provincial Airways and Nordair, both of which use Terminal One at Toronto's Pearson International, Toronto became a true hub city in the U.S. sense of the word . . . [which] allowed Canadian Pacific to reduce its flight requirements by 10 percent, yet services from Vancouver and Toronto to Calgary, Edmonton and Winnipeg were increased by over 50 percent."[220]

Although at least one writer has alleged that the airlines had begun acting as though the restraints had already been lifted[221] prior to the passage of the new National Transportation Act , [222] it is difficult to know whether the airlines changed their behavior in the face of relaxed regulation, whether many of the actions were taken because of increased competition under deregulation,[223] or indeed, whether the new regulations merely serve to codify marketplace reality.

C) Legislative Changes

In 1982, the House of Commons Standing Committee on Transport reported that they were persuaded that "the prospect of competition is the principal inducement to efficient performance in the airline industry."[224] They were not alone in their assessment that the time had come for fundamental change in the manner in which Canada's airline industry is economically regulated:

"In our view deregulation has not gone far enough. Government controls on entry should be abolished and carriers allowed to set their own fares subject to the general competition policy constraints on predatory pricing. Let the market rather than the government regulate."[225]

The Canadian electorate, perceiving, perhaps incorrectly, that airline deregulation in the United States was giving the American consumer the benefit of deep-discount unrestricted fares, demanded the same, or better, in Canada. The Government's New Canadian Air Policy was introduced May 10, 1984, on the eve of an election, and permitted the minister in effect to "force the Canadian Transport Commission to do something about reducing air fares and allowing additional access to the market without going before Parliament for approval of doubtlessly controversial legislation."[226] Additionally, in an attempt to promote the use of Mirabel, he had signed an agreement with the United States in 1984,to the effect that C.T.C. regulations would be waived for carriers agreeing to serve Mirabel.[227] The agreement contained an implicit admission that economic regulation of air carriers was not really necessary or useful, and paved the way for Bill C-126, An Act respecting national transportation, which had its first reading in the Progressive-Conservative dominated House of Commons on June 26, 1986. The Bill was virtually identical to the new National Transportation Act,[228] which was later passed by Parliament and given Royal Assent on August 28th 1987.