The federal competition bureau says a merger of northern airlines First Air and Canadian North would be significantly detrimental to residents.
In a report published on Monday, the bureau claimed the planned, merged airline "is likely to have the ability and incentive to materially raise prices and lower the quality of service" on all routes except Edmonton-Yellowknife.
Responding later on Tuesday, the Inuit organizations controlling the airlines said the report's findings were "of limited value and suggest a superficial understanding."
Last July, when announcing the merger, the two airlines said the move would "provide the best possible essential air services across the Arctic."
The airlines had initially hoped to merge by the end of 2018.
The bureau's report found that, on many northern routes, a merged airline would be unlikely to face any competition and would hold a monopoly.
"In particular, in the Kitikmeot region, the Qikiqtaaluk region, the Mackenzie Valley region, the Ottawa–Iqaluit route and the Trans–Arctic route, the parties are the only airlines offering scheduled service on the overlapping routes," the report reads.
"As a result, the proposed transaction represents a merger to monopoly on a significant number of overlapping origin-destination pairs.
"The effects of the transaction are likely to include reductions in passenger and cargo capacity, increases in price, and reductions in flight schedules."
However, the two airlines have long argued economic realities make it impossible for northern air travel to survive without changes to its current form.
In full: Read the competition bureau's report
“The world is changing and we need to adapt to new realities,” read remarks attributed to Charlie Watt Sr, president of First Air owner Makivik, in July last year.
First Air and Canadian North tried working together in a codeshare agreement, launched in 2015, but the agreement was scrapped within two years. At the time, First Air said the agreement was unpopular with its customers.
Codesharing had been seen as a way to combat what Canadian North called “extraordinarily high operating costs versus relatively low passenger and cargo volumes.”
The report states "the bureau did not find that business failure was probable," though the bureau focuses on issues affecting the prevention or lessening of competition – and does not analyze other factors, such as the airlines' claim that a merger will provide better schedules and improve efficiency.
"Our Inuit communities are surprised and extremely dismayed by the report," read a response from the Makivik Corporation and Inuvialuit Corporate Group, who together operate First Air and Canadian North.
"It is our sincere hope and expectation that the minister will pursue his mandate of reconciliation and acknowledge that the very organizations proposing this merger have a constitutional mandate to represent the rights and interests of Nunavik and the Inuvialuit Region.
"The bureau abandoned its usual practice of considering efficiencies associated with a merger of this nature. By neglecting to consider the overwhelming financial and non-financial benefits to northerners that will be generated, the bureau’s assessment fails to recognize that a merger is necessary to sustain air travel to the North and relieve the substantial financial burden currently shouldered by Inuit Land Claim Organization owners.
"This process is representative of southern-led institutions’ continued ignorance of northern businesses and we disagree with the bureau’s decision to ignore the overwhelming and substantial positive impacts this transaction would have for northerners."
Following the report's publication, Transport Canada has until April to make a recommendation on the merger.
The two airlines have the ability to address concerns in the bureau's report before cabinet makes a final decision on the merger later in the year.
"We are confident that the merger between First Air and Canadian North will emerge as utterly essential to the public interest," concluded the Inuit groups.