Air transportation as an industry, has progressed in no country without substantial government support. Most nations have subsidized their commercial air services to such an extent that full government control has finally resulted. In the national interest, airlines are deemed both desirable and essential, despite their non-capability of full self-support. Hence, with government aid mandatory, it is logical that legislative attempts should be made to keep such aid at the lowest possible level consistent with the provision of safe, efficient and reasonably modern air services. Where a single airline must of necessity be paid a subsidy it is manifestly uneconomic to permit the entrance of a competitor in the same field. By so doing, the total subsidy required would undoubtedly increase inasmuch as each operator would move more than doubly distant from achievement of lowest possible unit costs. This concept guided the Hon. CD. Howe in the drafting of the original Trans-Canada Air Dines Act in 1937. By that act, Trans-Canada was given monopoly transcontinental privileges. These privileges were not seriously challenged until 1941. In that year, Canadian Pacific Air lines was formed. This firm to proceeded progressively encroach upon the presumed domain of the government airline. By 1952, Canadian Pacific had acquired a patchwork coverage of the greater part of Canada, requiring only an east-west link to create a composite operation. To facilitate this final step, C.P.A. applied in November of 1952 for authority to operate an all-freight service between Montreal and Vancouver, The consequent Air Transport Board hearing and report to the Cabinet, and the ultimate Cabinet decision, provide the basic subject matter dealt with in this thesis. Before the Board, C.P.A. contended: 1. that all-cargo carriers in the U.S.A. had been most successful In their operations, 2. that adequate Canadian air freight traffic potential was readily available for diversion from such surface transport facilities as rail express, 3. that conditions in Canada were even more favourable than in the U.S. for air freight development, 4. that T.C.A. had knowingly neglected the air freight field, concentrating its efforts upon the more readily lucrative passenger and mail traffic, 5. that the pro-posed C.P.A. service would create new air business, would not divert traffic from T.C.A. to an extent detrimental to the latter's finances. Successive thesis chapters appraise, and in the opinion of the writer, totally negate these Canadian Pacific contentions. In its report to the Cabinet, the Air Transport Board leaned heavily, upon the evidence submitted by C.P.A. In essence, the Board report to the Cabinet recommended that the application be approved. The Cabinet chose to do otherwise. The application was denied. Apparently, the ministers had listened with conviction to the statements of T.C.A. President, Mr. McGregor and had given heed to the warnings of the economic witnesses, Professor Waines and Dr. Currie, as to the desirability of avoidance of the pitfalls which have beset Canadian railway experience. In the light of the data assembled within this thesis, the writer contends that the Cabinet decision was fully justified. T.C.A.'s slow approach to reduced rate air freight haulage was sound in all respects. Unfortunately, however, it is noted that the application, the hearing and the resultant publicity have pressured Trans-Canada into establishing presently uneconomic air freight services rather than further jeopardize the monopolistic status of the firm. / Arts, Faculty of / Vancouver School of Economics / Graduate