Jonah Prousky has covered the issue of why air travel is so expensive in Canada
in the media in some interesting pieces. It's apparently not a coincidence or even a factor of the country's size and density. One issue is the "user pays" model for running airports in Canada where travellers are expected to pay the operational costs of airport versus the government covering airport costs in the way it pays for roads.
The other issue is much more obscure but significant. Airlines are very capital-intensive businesses. Canada has apparently regulated airlines such that a significant portion of the capital for airlines operating within Canada has to come from Canadian sources. That makes it difficult for foreign investors to cover the costs of setting up and operating airlines in Canada.
My take is that the country's business community only has the appetite and capital to robustly invest in a small number of national airlines and only one or two international carriers. Beyond that, you're left with airlines operating on shaky capital and prone to going out of business. You essentially need foreign capital to make the Canadian market more price competitive, which will require changes to the regulations.