November 3, 2016 / 12:22 PM / a year ago

UPDATE 4-Canada allows more foreign investment in airlines, wants competition

(Adds comments from low-cost startups, rewrites top)

By Allison Lampert

MONTREAL, Nov 3 (Reuters) - Canada will lift foreign investment limits for Canadian airlines to 49 percent from 25 percent, a change that should spur competition and lower fares by encouraging the launch of low-cost airlines, its transport minister said on Thursday.

Air Canada shares fell 3.2 percent while WestJet Airlines Ltd slipped 1.4 percent following the news, though analysts said a flood of new low-cost competitors is unlikely given the country’s high aviation taxes and charges.

Consumer advocates have long complained that limited competition, high fares and airport fees make Canada a comparatively expensive country for air travel.

“I expect fares to go down because of competition, and I expect more destination choices for Canadians,” Transport Minister Marc Garneau said in Montreal.

The rules still prohibit a foreign individual or single group of international investors from owning more than 25 percent of a Canadian carrier.

WestJet Chief Executive Gregg Saretsky said the airline was disappointed the Canadian government had not done more to review aviation taxation and aviation infrastructure costs. Air Canada also called on the government to address high Canadian ticket taxes and other fees.

Garneau told reporters he would look at airport rents and security fees but made no commitments.

STARTUPS WELCOME CHANGE

Although the new rules had not yet taken effect, Garneau will allow startups Canada Jetlines and Enerjet to seek additional foreign investment immediately.

Enerjet Chief Commercial Officer Darcy Morgan said this will help in its talks with Arizona-based Indigo Partners LLC, whose managing partner Bill Franke is considered one of the most influential investors in low-cost airlines.

Indigo was not immediately available for comment.

“Enerjet has just found the lift it needs to fly,” said aviation industry consultant Robert Mann.

Jim Scott, Chief Executive of B.C.-based Canada Jetlines, said the change will help his talks with Asian and European investors to attract an estimated C$50 million ($37.35 million)to start and expand airline service in 2017.

“Now we’re able to go back and engage with them seriously,” he said.

The startups, however, must still contend with the challenges of a higher-cost market in which many carriers have failed.

“The difficulty start-ups have had in getting off the ground is not for lack of capital but rather, concerns about the risks of a new ultra low-cost carrier business model,” wrote RBC Dominion analyst Walter Spracklin in a note to clients.

Delta Air Lines declined to comment on the changes. The U.S. airline has previously expressed interest in Canada, fueling speculation that it could take a stake in WestJet.

$1 = 1.3388 Canadian dollars Reporting by Allison Lampert in Montreal; Additional reporting by Jeffrey Dastin in New York; Additional writing by David Ljunggren in Ottawa; Editing by Jeffrey Benkoe, Lisa Von Ahn and Chris Reese

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