I have also wondered why VIA Rail chose the CN route over the CP route for its remaining western service. I am thinking that it may have been for similar reasons Amtrak chose its former GN route over the more populated NP route across the west, because it served an area lacking a good highway and thru bus service as well as air service. Could be because VIA Rail was a creation of CN, and was staffed mainly by former CN officials. Could be for political reasons, as well...
Once you refer to the "
Order Varying Certain National Transportation Agency Orders Respecting Railway Companies" as the actual legislation mandating the 1990 cuts, your question becomes rather simple to answer:
Schedule III mandated that VIA abandons the entire CP route: "VIA Rail Canada Inc., CN and CP
shall discontinue the operation of the following passenger-train services effective January 15, 1990: [...] (c) the Montréal-Ottawa, Ottawa-North Bay, North Bay-Sudbury, Sudbury-White River, White River-Thunder Bay, Thunder Bay-Winnipeg, Winnipeg-Regina, Regina-Calgary, Calgary-Kamloops, and Kamloops-Vancouver segments of the Montréal/Toronto-Vancouver service."
At the same time, Schedule I mandated a
minimum frequency of 3 trains per weeks for the entire CN route, namely: Toronto-Barrie, Barrie-Washago, Washago-South Parry, South Parry-Capreol, Capreol-Hornepayne, Hornepayne-Nakina, Nakina-Armstrong, Armstrong-Sioux Lookout, Sioux Lookout-Farlane, Farlane-Winnipeg, Winnipeg-Saskatoon, Saskatoon-Edmonton, Edmonton-Jasper, Jasper-Kamloops Jct. and Kamloops Jct.-Vancouver.
***
Now, to understand why the government chose to axe the CP route and keep the CN route, I suggest to consider the context of these cuts,
as summarized by Tom Box on Groups.io:
Once we've established that the overarching objective stated by the government of that time was to minimize VIA's deficit, we know how to compare the two corridors. Granted, both corridors are virtually the same distance, so operating the same train over the same distance will cost roughly the same amount and generate similar deficits. Therefore, we need to consider the network effects of choosing either route:
Choosing the CN route allowed to have the Skeena connect with the Canadian in Jasper (with initially very good connections in all directions!) and to get rid of the Capreol-Winnipeg service (which generated a
direct loss of $6.7 million in 1988).
Conversely, choosing the CP route would have required an extension of the Skeena to Kamloops and to keep the Capreol-Winnipeg service, while getting rid of the Sudbury-White River service (which generated a much lower direct loss of $943,000 in 1988).
The above suggests that choosing the CN route over the CP route might have saved the federal government C$7.2 million in annual subsidies ($1.4 million* West of Winnipeg and $5.8 million East of Winnipeg), which translates to almost C$16 million today (or some US$12 million).
Despite all the conspiracy theories Canadian railfans will all too happily share, once we accept that the federal government wanted to reduce VIA's burden on its taxpayers while still maintaining some minimal service (as outlined in the legislation I quoted above), I find it impossible to argue that they ought to have kept the CP route and axed the CN route instead...
*calculation:
Deficit for Prince Rupert - Prince George - Jasper - Edmonton (1540 km): $6.6 million in 1988
Deficit assumed for Prince Rupert - Prince George - Jasper (1160 km): $5.0 million ($6.6 million / 1540 km * 1160 km)
Deficit assumed for Prince Rupert - Prince George - Kamloops (maybe 1490 km): $6.4 million ($6.6 million / 1540 km * 1490 km)
Incremental assumed deficit for choosing Kamloops as end point over Jasper: $1.4 million ($6.4 million - $5.0 million)