Cabotage works pretty well in the EU where it is allowed for EU carriers. A few European LCCs like Ryanair, easyJet and Vueling now fly domestic routes outside their home countries. Lufthansa was running an Italian domestic operation for a while, and of course it owns Austrian and Swiss.

Australia and New Zealand have a similar arrangement, and a couple of Australian airlines fly domestically within New Zealand.

But compared to these precedents, it would obviously be a big market game changer to have Canadian hubs competing with US hubs for domestic traffic and vice versa, let alone allowing full cabotage between the two countries...