Commencement of a transcontinental railway within 2 years and completion within 10 years were conditions of British Columbia's entry into Confederation in 1871 (see Railway History). Competition for the lucrative contract for the railway was bitter, and disclosure of methods used by Sir Hugh Allan to secure the charter led to the defeat of Sir John A. Macdonald's government in 1873 (see Pacific Scandal).

Macdonald returned to power in 1878, with the completion of the railway as one facet of his National Policy, and the contract was finally awarded to interests led by Donald A. Smith, J.J. Hill and George Stephen. The Canadian Pacific Railway was incorporated on 16 February 1881. The difficulties of construction and demand for early completion of the line ensured generous provisions to the company, including $25 million in cash, 25 million acres (about 10 million ha) of land in a belt along the railway, the cost of surveys totalling $37 million, monopoly over transportation south to the US for 20 years, etc.

These terms were loudly denounced by opposing interests at the time and remained contentious with the development of the Prairie West. However, in the face of American expansion westward, Macdonald and the federal Conservatives considered completion of the railway a national imperative.

Western Expansion

Under the management of W.C. Van Horne, construction was rapidly pressed across the plains. Sandford Fleming had recommended a route through the Yellowhead Pass but a more southerly route through Kicking Horse Pass was decided upon late in 1881. Construction through the rock and muskeg of the Canadian Shield almost equalled in difficulty the engineering feats of construction through the mountains of BC. Extreme difficulties in obtaining an adequate work force in BC led to the controversial importation of thousands of Chinese.

At the height of the building activity on the Yale to Kamloops Lake section, more than two-thirds, or approximately 9000 workers, were Chinese. The line through to the Pacific coast was completed with the driving of the "Last Spike" at Craigellachie in Eagle Pass, BC, on 7 November 1885. The section from Callander to Port Arthur (Thunder Bay), Ont, was used to move troops westward during the North-West Rebellion, though it was not quite complete. The first through passenger train left Montréal 28 June 1886 and arrived at Port Moody, BC, July 4.

During construction the CPR became involved in the sale and settlement of land (1881), acquisition of the Dominion Express Co (1882) and the acceptance of commercial telegraph messages (1882). The company provided its own sleeping and dining cars on trains and constructed tourist hotels (eg, at Lake Louise, Alta) and dining halls along the route in the western mountains. This foothold on the tourist industry benefited the CPR later in its international development of hotels, steamships and airlines (see Hotel; Tourism).

Developing Business

Following construction, the greatest challenge facing the CPR was to develop business to make the line self-sustaining. Though settlement proceeded rapidly in the wake of the rail lines, population in western Canada was insufficient to sustain the line fully for many years. To increase business, the corporation became very active in promoting trade in the Pacific. Within days of the arrival of the first train on the west coast in 1886, sailing vessels chartered by the CPR began to arrive from Japan, bringing tea, silk and curios. By 1891 the company had secured a contract from the British government to carry the imperial mails from Hong Kong to Britain via Canada. The result was the purchase of 3 ocean passenger-cargo vessels, forerunners of the present-day fleet.

By 1900 the mountain hotel system had expanded into the major cities, led by the Hotel Vancouver (1887), Québec's Château Frontenac (1893) and Montréal's Place Viger (1898). Other services expanded simultaneously. A line was opened (1889) across northern Maine from Montréal to Saint John giving the CPR direct access to an all-weather Atlantic port. Attempts to capture traffic from the western American states were made with construction of a line to North Dakota (1893) and control (which remains today) of what is now the Soo Line Railroad Co in the US. Branch lines were greatly extended to feed traffic to the E-W main line. Rapid settlement followed construction of branches to southern Manitoba, from Regina to Prince Albert (1890) and from Calgary N to Strathcona (Edmonton) in 1891.

Expansion into the Kootenay mining region of southern BC (1898) involved the acquisition of a railway charter that included a smelter at Trail, BC. This was the nucleus of the CPR's involvement in mining and metallurgy, formalized by the formation of what is now Cominco Ltd (1906), a CP-controlled company. The Pacific fleet was improved and, in 1903, the CPR purchased the Beaver Line and opened service in the N Atlantic. In 1914-15, after the 1909 purchase of the long-established Allan Line, Canadian Pacific Ocean Services (after 1921 Canadian Pacific Steamships Ltd) was organized. The widespread expansion of the company, much of it under the presidency of T.G. Shaughnessy (1899-1918), placed a heavy drain on company resources, but continuance of the National Policy, with its substantial tariffs, meant continuing high rates in the West.

Attacks on these rates in 1896 had helped to bring about the defeat of the Conservatives. The Liberals reduced rates with the Crow's Nest Pass Agreement in 1897 and certain grievances were removed by the passing of the Manitoba Grain Act in 1900. Finally, charters were granted to the Canadian Northern Railway to develop the huge area of northern prairie left vacant by the CPR. Between 1899 and 1913, the CPR increased its trackage from approximately 11 200 km to 17 600 km. More than half of the new track was in the Prairie provinces, and it was intended both to provide branch lines into areas of need and to ensure that the CPR would remain competitive in relation to the developing transcontinental lines or the Canadian Northern Railway and the Grand Trunk Pacific Railway.

Competition

Consolidation and expansion in the 1920s and the Depression in the 1930s were major challenges, as was competition from the Canadian National Railway, formed by the government of Canada between 1917 and 1923. The CNR consolidated the failing Grand Trunk Pacific, Canadian Northern, Intercolonial and Canadian Government Railways, and competed with the CPR in hotels, telegraphs, steamships and express services as well as railway services. Despite this massive, government-supported competition, CPR survived as a commercial enterprise. In WWII it provided not only transportation, but also the production in its own main shops of armaments and materiel. During the conflict, much of its merchant fleet was commandeered for military transport purposes, resulting in the loss of 12 vessels.

Canadian Pacific Air Lines (later CP Air) was organized in 1942 with the purchase of Grant McConachie's Yukon Southern Air Transport and numerous other flying concerns. Under McConachie's leadership after 1947, CPA developed into an international carrier serving the Far East, Australasia, most of South America and several European countries (see Aviation). In 1987 CP Air was acquired by Pacific Western; the 2 companies began operations as Canadian Airlines International. It was later expanded with the purchase of Wardair. A rigorously competitive market and government regulation caused the significant changes to the airline industry in the 1990s. CAI was taken over by Air Canada in 2000.

Until the late 1950s CP's diverse interests were looked upon as ancillary to the rail system. Beginning at this time, management embraced a policy of full diversification by making each operation fully self-supporting. Thus, operations that had been handled traditionally by specific departments in the railway corporate structure were set up as enterprises in their own right; eg, Marathon Realty Co Ltd (1963), which took over the administration of real estate other than that required for railway use; CP Hotels Ltd (1965); and CP Oil & Gas Ltd (1958), which became PanCanadian Energy Corporation. Its merger with the Alberta Energy Company Limited in 2002 created EnCana, one of the world's leading independent oil companies.

Nontransportation interests were vested in a holding company, Canadian Pacific Enterprises Ltd, founded in 1962, leaving the railway, air, ship and highway transportation fields under the jurisdiction of the parent company. In 1968 a new corporate identity program gave the names CP Rail, CP Ships, CP Transport and CP Air to the various transportation modes. In 1971, to reflect the new and broader orientation of the company, its original name was altered to Canadian Pacific Ltd (CPL). In 1967 the communications wing was integrated, along with CN's parallel organization, into a new, jointly owned company known as CNCP Telecommunications Ltd. In 1990 CNP became Unitel Communications.