Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 15 - Evidence

OTTAWA, Monday, June 5, 2000

The Standing Senate Committee on Transport and Communications, to which was referred Bill C-26, to amend the Canada Transportation Act, the Competition Act, the Competition Tribunal Act and the Air Canada Public Participation Act and to amend another act in consequence, met this day at 6:30 p.m. to give consideration to the bill.

Senator Lise Bacon (Chairman) in the Chair.

[English]

The Chairman: Our next witness is Mr. Stephen Smith, President of WestJet.

Welcome again to our committee, Mr. Smith. We look forward to hearing your presentation. Please proceed.

Mr. Stephen C. Smith, President, WestJet: It is nice to be back, Madam Chair, especially since I had laryngitis the last time I appeared here. It is great to see Bill C-26 working its way through the chamber. I am pleased to provide input to the committee.

I should like to talk first about the WestJet story because it is important that we understand what WestJet does and is doing. Also, it is important to understand the impact of Bill C-26 on a company like WestJet. I will then talk about the current situation, following which I will talk about Bill C-26 in particular.

WestJet focused on several facets when it developed the airline. First, we felt that low air fares stimulate a marketplace. WestJet is not trying to exchange passengers with Air Canada, Canadian, Canada 3000 or Royal Airlines. We are stimulating the marketplace, and we do that through low fares.

Second, we focused on short haul transportation, not long haul transportation. We believe, and we know we are, stimulating the marketplace. We are taking people from their cars, from the buses and the trains, and attracting people who otherwise would have spent a weekend on the couch. We are creating a new market. We are not trying to exchange someone else's guests or customers.

Our average one-way fare in 1999 was $83. Obviously, this is a low fare in comparison to most airlines in the world. On that basis, analysts tell us that this year we will carry -- and I must say that because we are a publicly traded company -- over 3 million passengers. That is a fair number of people who, we believe, would not otherwise have flown. We are creating this new marketplace.

We do not believe that we are competition to Air Canada. Some people have tried to portray us as the new competition to Air Canada. Air Canada is 45 times our size. We are an alternative. We are an alternative to the family car, to the train, the bus, the couch, the restaurant meal, a good movie and, maybe in some cases, an alternative to Air Canada. However, we are not trying to say that we are competition to Air Canada or to Canadian.

We started out in February 29, 1996, with three aircraft. We currently operate 17 aircraft, and we have placed the single largest new aircraft order in Canadian aviation with our order for 70 new Boeing 737-700 aircraft.

Senator Spivak: How many?

Mr. Smith: Seventy. We currently serve 14 cities in Canada. This Thursday we will add our fifteenth city, which is Ottawa. We will be connected to the WestJet network from Hamilton.

We are creating employment. We started out with 220 people in our corporation; we now have well over 1,200. This year alone, we will add over 300 employees. We can project adding 300 employees each year for the foreseeable future. In addition, by having people travel, we obviously create employment in the rental car, hotel and restaurant industries.

From a financial perspective, WestJet is doing extremely well. Our 1999 profit was up 143 per cent over the previous year, to about $15.3 million. Our first quarter profit in the year 2000 was up 96 per cent over the first quarter of 1999. We came in at $4.2 million.

We went public in July of 1999, less than one year ago, selling at $10 a share. Taking into account that we did a three-for-two dilution of our stock, we are trading at the equivalent of about $36 a share right now. If one looked at the value of the corporation based upon multiplying shares and the value and number of the shares, WestJet is now worth half that of Air Canada, even though Air Canada has revenue 45 times greater than ours.

Senator Spivak: What is your P/E ratio?

Mr. Smith: Our P/E ration is currently about 50 times.

WestJet is a very good story from the public perspective. It is a good story from our employee perspective. The last time I appeared before your committee, I talked about our profit-sharing program. It is a good story from the investment perspective. It shows that you can make money in the airline industry if you find your niche and work on it.

The current situation, assuming that Air Canada and Canadian come together, is that we have one airline that controls 90 per cent of the revenue in the airline industry in Canada. We need, as a country, to create competition. Microsoft controls far less than 90 per cent of its market niche, and there are discussions that it should be broken up.

We are not saying to regulate. We do not we want any sort of regulation. We believe that the best regulation is competition.

We do not believe in cabotage. We believe that cabotage would be bad for WestJet and for Canadian aviation. About 20 per cent of routes normally generate about 80 per cent of profits. In most corporations, 20 per cent of the products generate 80 per cent of the profits. This is no different for WestJet.

If I were a U.S. carrier coming into Canada, with all due respect, I would not be targeting Grande Prairie. It would not be the first place at which I would look. I would look at some of the bread and butter routes on which WestJet makes its money.

I believe that we must allow the universe to unfold a little.

We have had a cataclysmic breakup and merger in the industry and, as a result, we must allow the Canadian aviation universe to unfold. Since then, we have had announcements from Sky Services about creating a business airline, from Canada 3000 about adding another four aircraft and going public, and from CanJet about creating something in Halifax. As well, Royal Airlines and Air Transat have added frequencies in the Golden Triangle -- Toronto-Ottawa-Montreal -- and WestJet has made changes here and there.

We have had a big merger. For us to try to artificially control the marketplace would be wrong. I think that we must allow the universe to unfold a little and we must believe in the entrepreneurial aspects of Canadians.

Having said that, we have a situation that has occurred in Moncton. I am sure those of you who have been reading the paper are familiar with this situation. We announced on February 29 of this year that we would start serving Hamilton to Moncton with fares starting as low as $129, but the fare had to be purchased 10 days in advance. However, the walk-up fare <#0107> walking up one minute to fly the next minute <#0107> would be $299.

We started service on April 19, and on April 10, Air Canada announced they would increase their capacity by 67 per cent after previously reducing it by 9 per cent. They indicated that they had reduced their capacity across Canada by about 15 per cent. On the Moncton flights, they reduced it by 9 per cent and then increased it by 67 per cent for Toronto-Moncton only. At that same time, they had a one-way fare of $605. They reduced that to $249, with no restrictions, to compete with our $299 fare. They actually went lower than our fare.

Montreal-Moncton remains at $517 versus the Toronto- Moncton fare of $249, and Halifax remains at $678, which is 50 miles further than Toronto-Moncton, versus the $249 for Toronto-Moncton.

It is obvious what Air Canada is trying to do and it is exactly what Bill C-26 is put into place to ensure does not happen -- that a dominant carrier, with 90 per cent of the market, cross-subsidizes. Losses on Toronto-Moncton would be absolutely lost in a rounding, if they incurred any losses, versus looking at other routes that they fly, such as international and some routes in the Golden Triangle.

In terms of Bill C-26 itself, the issue that I talked about is something called predation. There are two aspects of predation. First, there must be a cease and desist ability for the Competition Bureau to come in and stop this type of action because, obviously, predation can be costly to a start-up carrier. Second, there must be a test that should be against the fully allocated operating expenses of an airline and not on the incremental side. We say that because if a seat goes empty in the airline industry and you would have received $1 for that seat, it is $1 more than you otherwise would have received because there is little incremental cost in carrying another passenger. Full-service carriers use this as a way to indicate that they can have these low fares at the same time only on routes that are served by their low-fare competitors.

I believe that high fares in themselves will create competition. Nature and the type of society that we are in abhors a vacuum, and there is a vacuum right now. When there are high fares, a number of carriers come running in, which is what we are seeing right now. Again, we do not want to set fares and we do not want regulation because those high fares will create competition.

Bill C-26 should be put into place quickly. While WestJet is a strong carrier and we can survive the attack that Air Canada has placed on us in Moncton, we believe that other carriers may not be so fortunate. As a result, Bill C-26 will have to be in place sooner rather than later.

I support ATAC in terms of one of the issues that we will have once Bill C-26 is gone. That issue is the cost of operating an airline in Canada. Every dollar that our costs go up kicks a passenger off the back end of our airline, not literally but figuratively. For every dollar that the cost increases, people will say, "You know what? I will drive because I have a family of five and it is not worth it. I think I will drive." That is happening all the time. We see airports that increase the amount of dollars they are charging to airlines. We have seen NAV CANADA increase some of their charges. There is a lot of downloading of expenses from the government to airlines and that, in the long term, will reverse economic stimulation. Before you know it, we will end up back where we are right now.

The effectiveness of Bill C-26 will be measured by the ability of the new entrants to enter the market and provide new services, a competitive alternative and sustainable fare reductions across Canada. Success cannot be measured by temporary fare reductions and capacity increases instigated by the dominant carrier in order to swap those who might challenge their overwhelming dominance in the marketplace.

Senator Forrestall: Mr. Smith, I will ask you a question generally about airport costs and whether you are getting a fair deal wherever you are flying. Why did you reject Halifax?

Mr. Smith: I understand that this question made The Globe and Mail today as it was a question that came from a reporter. The reality is that at least 30 to 40 cities have written to us requesting air service from WestJet for the simple reason that we stimulate the marketplace and business and we allow people to fly who otherwise would not. Halifax came to us and said that they would like to see us provide service out of Halifax, but were unwilling to reduce the costs of operating at their airport. When we took a look at Moncton versus Halifax, Moncton, within a one-hour drive, services about 600,000 people when you include St. John and Halifax.

Senator Forrestall: No one drives from Moncton to Halifax in one hour.

Mr. Smith: I meant to say Saint John, Fredericton and Charlottetown -- those areas. Halifax has a catchment area of about 600,000 people as well. Air Canada provides about 2,000 seats a day between Toronto and Halifax and 150 seats a day between Toronto and Moncton. Being the smaller airline and the nimble airline, we do not go after the dominant carrier's strongest market; rather, we go after a market that is slightly different because, a lot of times, Air Canada will back-call you to go to Toronto, or to the Hamilton area. As a result, we felt that Moncton was a better decision.

Part of that decision was that the airport in Halifax was not flexible in terms of the costs that they would pass on to us. Having said that, I believe that they charge the same costs to everyone, where Moncton was willing to be much more flexible than Halifax. As a result, in terms of order -- because we may eventually end up in Halifax some day -- Moncton was a better opportunity for WestJet right now.

Senator Forrestall: Would you consider Fredericton, then, to be a catchment area?

Mr. Smith: Fredericton, right now, is a catchment area for Moncton, but in the long term, I believe we will provide service to Fredericton. Given that we serve cities like Grande Prairie, a city of 25,000 people, any city over 25,000 people is a potential WestJet city.

Senator Forrestall: Could you tell us a bit about what was different in the costing structures upon which negotiations were taking place with Moncton as opposed to Halifax? Was it slot rentals?

Mr. Smith: There are many different ways that an airport charges an airline, such as landing fees, terminal fees, security fees, parking fees, et cetera. There are a number of different ways. I prefer not to look at it that way. To me, it is the cost of a turnaround. I do not care what you call it. Some airports charge more for landing fees, less for terminal fees, more for security -- it is a bit of a shell game. When we looked at the total cost of operating in Halifax, it would have been the most expensive airport we operate in, only exceeded by St. John's. Every other airport in Canada costs less than those two, Moncton costing far less. As a result, we saw an opportunity to service a city like Moncton, which had a lot less capacity into it and, hopefully, the same type of catchment area. We find that for our type of fares, people will drive a fair way. In fact, we started servicing Thunder Bay and the number of people driving up to Thunder Bay from Toronto to take WestJet became embarrassing. We never thought that would happen, given the 14-hour drive. We never considered Toronto as a catchment area for Thunder Bay, but perhaps it is now.

Senator Forrestall: I have a vested interest here. To park at the Halifax International Airport, you must first compete with cars from New Brunswick. If you can get them all back into Moncton, then I should thank you. You might even see some cars from Nova Scotia. There is nothing wrong with people driving to Moncton from Amherst or Springhill, and all the North Shore.

I wish you well. I visited you a year or so ago with our safety committee. We were impressed with what you were doing.

You are moving into an area where I have a real concern, and that is safety. How large is your fleet?

Mr. Smith: We have 17 aircraft right now.

Senator Forrestall: Before you get grey, you are looking at 100 aircraft or more in your fleet. In the initial stages, how will you do your engineering, your inspection work and your overhauls? Will you continue to farm out major overhauls? Have you decided on the plane yet?

Mr. Smith: We decided on the Boeing 737-700. There is a dramatic difference between airlines that have a large number of different types of aircraft versus an airline that only has one type. If you only have one type, it makes things much easier, and having newer aircraft makes things much easier than having older aircraft. We will have 22 737-200s by the time we start getting the 700s. With the 700s, we will not see a heavy check for about five years. When that check finally does occur, at this point the thought is that we will continue to farm that work out. We will be responsible for what we call the AMB or the light checks, and then farm out the heavier checks.

Senator Forrestall: To whom would you farm them out?

Mr. Smith: Currently, we use Conair Group Inc. in Abbotsford, another great Canadian company. Again, it depends on the financial deal and how their work is at that time.

Senator Forrestall: Did you buy your aircraft or are you leasing them?

Mr. Smith: Of the first 30, 10 will be leased and 20 will be purchased and/or financed. Of the 70, another 10 will be leased and another 40 we purchased or financed. Even on those aircraft, we could do sale lease-backs. We are looking at an optimal schedule right now to ensure that we do not hinder our balance sheet, that we keep cash in the corporation, not blow up our debt-equity ratios, and keep our investors happy.

Senator Forrestall: We have a problem in the industry with a potential 1,100 or 1,200 flight attendants and other related workers. Will there be any work for that group in case they are left hanging out to dry?

Mr. Smith: We are expanding at over 300 people per year. There are always those opportunities.

Senator Forrestall: Where will you find your pilots?

Mr. Smith: We have an inventory now of about 500 resumes of qualified pilots for WestJet. There is definitely no shortage of pilots in Canada. The minimum we take is 5,000 hours. By the time people fly with us, they have flown at least 5,000 hours, and we have not had to abrogate that for one of our pilots thus far.

The 70 aircraft will come to us over a period of 8 to 10 years, not in a couple of years. We will be phasing out some of the older aircraft as we bring in the newer planes. Again, five, six, seven or eight new aircraft per year is not heady growth, but it is constant, consistent and manageable growth from a safety perspective, from our people perspective, and from the perspective of a maturation of the market.

Senator Forrestall: I wish you well. I wish you would have come to Halifax, but I can understand why you did not.

Senator Callbeck: Welcome, Mr. Smith. I want to return to the Moncton situation that you talked about. I live in Prince Edward Island. A lot of Islanders have taken advantage of WestJet going into Moncton.

You talked about Air Canada coming in there, reducing fares and increasing their capacity 67 per cent after reducing it by 9 per cent. Had this legislation been in effect, do you feel that it would have been strong enough for that type of situation?

Mr. Smith: Yes. As I have indicated, the cease and desist order envisioned in Bill C-26 would have been strong enough to get them to stop this practice and there would have been a test to ensure that. On an ongoing basis, this does not make financial sense for them. This is the definition of predation, as I have indicated to the media before, not an example of it.

Senator Callbeck: Does this situation happen to you in a lot of places, or in Moncton?

Mr. Smith: It happened in Western Canada way back when, but this is the first overt example of it. Back then you had Air Canada and Canadian, so it was a lot more difficult because both carriers were doing the same kind of thing. You now have just one carrier and a completely different situation when one carrier controls 90 per cent of the industry in Canada.

I am not trying to talk against them, but in order to get away from regulation we must create competition. You will not do it by allowing them to increase capacity and reduce fares below ours every time we start a new route. As I have said before, we do not have a problem with them matching us. We are pro-competition. That is how we were born, namely, though an era of competition. However, we do have a problem when they increase capacity and then drop fares below ours.

Senator Callbeck: You do not have any doubts about it; you are satisfied that this legislation is strong enough.

Mr. Smith: Yes, I believe so.

Senator Callbeck: You have indicated that you do not want regulation; you want competition. Are there things you would like to have seen the government either include or exclude in this bill that would create more competition?

Mr. Smith: If we were not so pro-competition, there would be a whole bunch of things. The reality is that we need a competitive marketplace out there. You cannot put handcuffs on one guy so that he has no hands to fly with, but, on the other side, you must ensure that he does not come in and squash the competition. You need to create a situation where carriers can expand.

One of the things we thought of -- but thus far it is not receiving a warm welcome -- is that when a non-dominant carrier such as ourselves starts a route, for example, Hamilton to Moncton, then Air Canada should not start a route on top of us. Why would they want to do that? If Air Canada had not been talking about starting a low-fare carrier in Hamilton, why would they do that now? WestJet is there. What is the purpose of that? The soul purpose is to drive us from the marketplace. For example, if a non-dominant carrier has a monopoly route that Air Canada does not serve -- and there are not many of those routes around -- why would Air Canada fly into Abbotsford after 50 years of Canadian, Air Canada and Air Transat not serving Abbotsford? That is a classic example. We started that route and have provided service there for four years. If they drop on top, we know why they are doing it. It is to hinder our ability to expand and grow. We would like to have had those unique routes remain unique for a period of two or three years so that Air Canada could not service them all of a sudden. That would be in a competitive vein to allow us to be linked up. Air Canada serves almost every city in Canada. Eventually, we will have to start expanding on routes that they serve. There will not be a lot of those unique routes left.

Senator Callbeck: That is not the only major thing, is it?

Mr. Smith: That is correct.

Senator Callbeck: This afternoon we heard a witness talking about a passenger bill of rights. What are your feelings on that?

Mr. Smith: The best passenger bill of rights is competition. To regulate the industry in terms of "you must do this or that" could, unintentionally and incorrectly, put handcuffs on the industry and raise our costs. Some of the things talked about are minimum seat pitch, and so on. The best minimum seat pitch is one where you do not fine the airline because it is too tight. The other side of that issue is that it increases your costs, as some of the charter carriers must have fewer seats per aircraft.

I understand the concept of a passenger bill of rights. Fundamentally, I have a problem with it. You should support the airlines that give you good customer service because you now have a reason for carriers to fly. You should not assume that you will be able to fly on only one dominant carrier from now to kingdom come.

Senator Adams: I am trying to understand your rate from Toronto to Moncton. Is it because you have more passengers from Toronto to Moncton that the price can be lower? Did you say that it costs $258 to fly from Hamilton to Moncton?

Mr. Smith: Right. We went in and matched Air Canada after they reduced their fares. Again, with all their increased capacity, we know they would have stolen the market on us. We could not be higher priced than Air Canada. They have frequent flyer programs, executive class, and all the bells and whistles, such as meals that WestJet does not have. Our biggest competitive weapon is our price.

Senator Adams: Even though the flight is longer, from Hamilton to Moncton, do you feel that the price charged is fair, even though it costs more to go to Ottawa from the same airport? How does the process work for seat selection in your aircraft?

Mr. Smith: I am not sure I understand the question.

Senator Adams: How do you schedule prices?

Mr. Smith: In order to stimulate the marketplace, we will sell X per cent at the lowest fare. When those seats fill up, we sell at the next price. There are advance purchase requirements. The last alternative is to hire a jet, which is expensive. Our walk-up fares are normally more expensive than the fares for people who plan 10 days in advance.

Senator Adams: If a flight is longer, is it necessarily more expensive than a shorter flight?

Mr. Smith: The more time spent in the air, the more fuel you are expending, the more pilot time and maintenance cost, and so on. Your cost per unit of production goes down, but the cost to actually fly the aircraft depends on the stage. The longer you fly, the more expensive it is, yes.

Senator Adams: I thought perhaps the price would be lower the longer the flight because you were fitting more passengers into the plane.

Do you carry any cargo?

Mr. Smith: Yes, we carry cargo.

Senator Adams: Do you have any regulations because your rate is cheaper? Do you have a rate for baggage and another for passengers? What is your connection with Air Canada?

Mr. Smith: Right now, we do not have any interline agreements with Air Canada. People can fly WestJet from Abbotsford to Calgary, but if they want to go from Calgary to Toronto on Air Canada, they would not have the same ticket. We are ticketless; Air Canada has a ticket. We do not have any baggage agreements or anything like that. Thus, one would be required to pick up one's bag.

Senator Adams: Do you not have baggage handling at the airport?

Mr. Smith: We do not have any interline agreements, no. We do not exchange baggage.

Senator Adams: If you have more business, will you do that in the future?

Mr. Smith: Again, that is a possibility, but it is not part of our game plan. We are not here to feed Air Canada. We are here to create our own network.

Having said that, we do have feeder agreements with Canada 3000 and Royal.

Senator Callbeck: Mr. Smith, you mentioned the Air Canada frequent flyer points. You are not involved in that program, are you?

Mr. Smith: No.

Senator Callbeck: Is that part of your game plan?

Mr. Smith: No, it is not. If you ask people if they would rather spend $10 and get a frequent flyer program or save $10 and have a cheaper flight, everyone tells us that they would rather have the cheaper flight. We do not plan to have a frequent flyer program.

Senator Roberge: Do you plan to fly to the province of Quebec eventually?

Mr. Smith: Yes. We have plans to fly to Montreal in the fall or late fall.

Senator Roberge: When will you be doing your hiring? Will you have bilingual service?

Mr. Smith: Absolutely, as we do in Moncton and Ottawa. All the ground staff in Ottawa are bilingual, other than our manager, who is a WestJet employee from Thunder Bay. Obviously, in Montreal, everyone will be bilingual.

Senator Roberge: Is this also your policy inside the cabin?

Mr. Smith: We will have at least one bilingual flight attendant. Up to now, people must appreciate that we have been a Western Canadian carrier. There has been no requirement for bilingual people. We have quickly expanded to the East, so we must catch up in terms of hiring. Everyone we hire from now on will be bilingual. We have a fair number of bilingual flight attendants. On every flight from Moncton, Ottawa and Montreal, we will ensure that at least one flight attendant is bilingual.

Senator Roberge: What is your problem with clause 64? What is the difference in your rationale between one month and four months?

Mr. Smith: Is that the clause in relation to cessation of services?

Senator Roberge: Yes.

Mr. Smith: Once someone understands that you will not serve an area any more, and you start to actually pull out, your bookings take a nose dive. The reason you want to pull out, normally, is that you are not doing very well in this area in the first place. To pick a ludicrous example, you may announce that you will no longer serve Val d'Or to Moncton. You tried and it does not work. If we had to remain after we made the announcement that we would not serve that area any more, that would be very costly. The primary reason we would pull out is because the area was not financially viable. Once you make that announcement, fewer people book with you and the entire thing falls down quickly.

Our concept was if we were to remain for four months, then my board would tell us not to try any risky services. The downside is too big. If you have been there for a year, you are probably making money. However, if you are just trying something, and it is going to take you four months to go out, then do not try it. Do not try Val d'Or to Moncton.

Senator Roberge: At present with Bill C-26, are you stuck with four months automatically?

Mr. Smith: It is my understanding that if you had been there less than one year, you could get out with one month's notice, and if you had been there over a year, it would require four months.

Senator Roberge: That is it?

Mr. Smith: It believe that is it, which I think is fair. Those were our thoughts.

Senator Forrestall: With respect to your bilingual hiring, will you hire francophones?

Mr. Smith: We normally will hire bilingual people. Unilingual French is a possibility depending upon our product-client mix.

Senator Forrestall: Not necessarily unilingual French, but bilingual Canadians from Quebec -- francophones.

Mr. Smith: Absolutely. All of our station staff will live in Montreal. Right now, our flight attendants and pilots domicile in Calgary. Anyone we hire flies out of Calgary. That may change over time. At that point, it might be easier for some people, but I have no problem with a francophone flight attendant or pilot if they want to live in Calgary. Our customer service agents in Montreal will live in Montreal; for Ottawa, they live in Ottawa, and so on.

Senator Forrestall: Will you be among the first to be seen as making that a priority in your personnel policy?

Mr. Smith: Yes.

Senator Forrestall: Where possible and the qualifications are equal, if there is a bilingual francophone, you will do the right thing.

Senator Perrault: I understand that the 737 has been a successful design. It has been around for a few years.

Mr. Smith: The 737 is the most popular airliner in the world. There are over 5,000 737 varieties in the world.

Senator Perrault: How many passengers fit onto one of these planes?

Mr. Smith: The 737-200, which is the aircraft we fly right now, seats 120. The 737-700 will seat 140.

Senator Perrault: That is quite a vote of confidence in Boeing. Some of those airplanes are manufactured in Winnipeg, Manitoba, I understand.

Mr. Smith: Boeing has a manufacturing subsidiary in Winnipeg. The fact that we are ordering 737-700s will have some spin-off effects on Winnipeg because of the Winnipeg plant.

Senator Spivak: That is great.

Senator Perrault: Mr. Smith and his associates are popular on the West Coast because they have that entrepreneurial spirit and people are right behind them. They have a good corporate image. I wish them every success in their endeavours.

Senator Spivak: You stated that you would not like Air Canada to come in on a unique situation, but do you think it is a good policy to allow someone who has 90 per cent dominance in the major market to also come into the discount market? Do you think it would be preferable for the sake of competition not to have Air Canada enter the discount market? What do you think about divestiture by Air Canada?

Mr. Smith: In terms of Air Canada starting a low-cost carrier, I do not believe it is the place of government or myself to say they cannot adopt a business practice that may help them. The low cost may help them in domestic Canada and in flights to the United States. My only concern is that when they fly on our particular routes, if Air Canada has a way of reducing their costs, I do not think it is for us to say they cannot. That would be a business decision of theirs. Again, we are pro-competition, so I am reluctant to say that you cannot allow them to start a low-cost carrier. Others are low cost, but they cannot be.

I understand the position. They are at 90 per cent in the market. That is why I am trying to look for ways around what Air Canada is doing and that is why I have come up with the unique route concept.

Senator Spivak: I suggest that this position is not anti- competitive because if you have a dominant airline with 90 per cent of the market, you are looking for ways to make the market more competitive. Therefore, if you do not allow them to dominate the discount market, that might be more competitive. I am giving you some rationale. Is that not a case that could be made? It seems to me that they have deep pockets.

Mr. Smith: Absolutely.

Senator Spivak: At the moment they are very interested in shareholder value, and they are naturally interested in the international market. Policy in the public interest might be to keep them out of the niche markets.

Mr. Smith: Again, I understand the comment. If Air Canada finds a way to reduce their costs, I am reluctant to say they cannot do that. I am a pro-business person. We take our products to the marketplace and we compete on the basis of customer service. It was mentioned earlier that WestJet has a renowned reputation for customer service, which I did not believe is matched elsewhere in the airline industry anywhere in Canada. We put that, along with our fares and our on-time performance, against any airline in Canada.

Senator Spivak: Many things in this legislation will happen by regulation, such as an increase in foreign ownership. Do you have any thoughts on the notion that many things that will be done by regulation are not in the legislation? Other things are covered by regulation, which are considered anti-competitive somewhere in this legislation.

Mr. Smith: You are right. They are saying that the following things are considered to be anti-competitive.

Senator Spivak: They are not specifying that, and I do not know why it should not be in the legislation. Are you concerned that many of the things will be done by regulation? Why should they not put what could be considered anti-competitive right in the legislation? What is your view on that, if any?

Mr. Smith: I am not sure that I do have a view. What is viewed as anti-competitive could be so broad that if you tried to limit it by saying that this is what it is, then you may not include something that eventually may come to be considered anti-competitive. You need a general definition in the bill and then allow the Competition Bureau to investigate.

Senator Spivak: Therefore, you are not concerned that many things will be done by regulation.

Mr. Smith: I hope they will not, no.

Senator Spivak: The last time that we met, we heard a great deal about the rents charged by the federal government.

Mr. Smith: Absolutely.

Senator Spivak: I do not think there is anything in this legislation about airport costs.

Mr. Smith: No.

Senator Spivak: Would you suggest that we recommend anything with regard to airport operation costs?

Mr. Smith: We are here to discuss Bill C-26 and the purpose behind Bill C-26, which is to ensure that we have competition in the airline industry in Canada. Airport costs are a separate discussion. They are part of the pie. The other part of the pie is the cost of operating an airport in Canada, in particular the airport costs, when the government takes $200 million per year out of the cost of infrastructure. That will quickly rise to $500 million. All of that money will be paid for by the passengers on the aircraft.

Senator Spivak: Do you not think that this is part of being competitive?

Mr. Smith: No, because most carriers are treated equally.

Senator Spivak: Except that some people can afford the cost better than others.

Mr. Smith: Good point.

Senator Adams: I read in the newspaper recently about the inspection agency of Transport Canada. They used to inspect aircraft in Calgary or Edmonton. Now you must come to Ottawa. Why did that happen?

Mr. Smith: We used to be governed by the western region in Edmonton. It takes a while for an airline to establish a rapport with the people who do the inspections. We have now established a good rapport. Because we now service further east, Transport Canada has come to us and said they want Ottawa to regulate us. We are saying that we like things the way they are now, and Transport Canada is saying, "Sorry, this is the way it will be." There was an insinuation that Air Canada had requested we be governed by Ottawa. We are basically asking of what interest that would be to Air Canada.

In terms of Ottawa versus Edmonton, we have established a rapport in Edmonton. It is working well, and we are saying, "If it ain't broken, don't fix it." Transport Canada would rather it came to Ottawa. At this point, we have had a discussion with them. We lost the argument. Transport Canada is a monopoly because they control over 90 per cent of the marketplace. They get to govern.

Senator Adams: Is your aircraft inspected in Ottawa?

Mr. Smith: The inspections are still done in Calgary, but the inspectors are based in Ottawa. Our whole issue is that on the inspection side it becomes a relationship. We do not do everything identical to the way Air Canada or Canadian do things. We need to have that rapport so we can say to the inspectors that this is the way we do things and we can explain why. That discussion is best carried on face to face rather than over the phone to Ottawa. We thought things would be handled better if we could hop on a plane and go to Edmonton versus going to Ottawa.

Senator Adams: If they grounded one of your airplanes here in Ottawa, you would need to get your parts from Edmonton or Calgary. That would be my concern.

Mr. Smith: No, it is not a concern for us. All the inspections would still be done in Calgary. Ottawa is where the inspectors are based.

Senator Forrestall: Will your two bases of operations be Calgary and Hamilton?

Mr. Smith: We now have only one base of operation, and that is Calgary. In the long term we could end up with another base. That other base may be Hamilton, but I would not want to speculate on that. For the time being we have only one base and that base is Calgary. All our pilots are domiciled in Calgary. Flight attendants are domiciled in Calgary.

Senator Forrestall: Will your planes all come back to Calgary before midnight?

Mr. Smith: No, no. In terms of base of operation, Calgary is where all the heavier maintenance is done. We have only line maintenance in Edmonton, Kelowna, Hamilton, and so on, where aircraft will stay overnight.

Senator Perrault: Was Hamilton to be the base for the discount airline?

Mr. Smith: That was for Air Canada's discount airline, but now it looks like they may be starting out of Vancouver, if you believe the press.

Senator Forrestall: You could tell me that you are not going head to head with Air Canada, but I will not believe you.

The Chairman: Honourable senators, our next guests are from the Consumers' Association of Canada.

Welcome to our committee, Ms Lacombe and Ms Hillard. Please proceed.

Ms Gail Lacombe, President, Consumers' Association of Canada: The Consumers' Association of Canada is a 52-year-old independent, not-for-profit, volunteer-based organization with a national office in Ottawa and provincial-territorial branches. Our mandate is to inform and educate consumers on marketplace issues, to advocate with consumers, with government and industry, and to work with government and industry to solve marketplace problems in beneficial ways.

We focus our work in the areas of food, health, trade, standards, financial services, communication services, and other marketplace issues as they emerge.

All CAC policies on specific issues are framed within a set of general consumer-oriented principles. Eight such principles govern consumer associations belonging to the worldwide federation of consumers groups, Consumers International. Among these principles are the right to choice, safety, information and a healthy environment.

[Translation]

The Consumers Association of Canada was created in 1947. It is an independent, not-for-profit organization whose operations depend in large part on its many volunteers active across the country. Its mandate is to inform and educate consumers on marketplace issues, to advocate for consumers with government and industry, and to work with government and industry to solve marketplace problems in beneficial ways.

The CAC focusses its activities on food, health, trade, standards, financial services, communications, industries and other issues that may emerge and that have an impact on consumers.

All CAC policies on specific issues are based on general principles that are all aimed at protecting consumers' interests and making their views heard when it is necessary. The associations that comprise the International Federation of Consumer Groups, better known as Consumers International, have set out eight basic principles, including the right of choice, the right to be heard and the right to receive satisfaction.

[English]

I would now like to present Jennifer Hillard, our vice-president of policy and issues.

Ms Jennifer Hillard, Vice-President, Issues and Policy, Consumers' Association of Canada: Honourable senators, although it is a great pleasure to appear before this committee again, the Consumer's Association of Canada would be more pleased if some alternative had been found to the Air Canada- Canadian merger. We would not have had to be here to comment on a bill to reimpose regulations on an industry where we originally argued for deregulation.

To repeat our statement to you last year, "there is nothing to replace the rigours of competition for the protection of consumers in the marketplace." While we recognize the role that smaller airlines like WestJet and Canada 3000 are playing in the marketplace, it will be some time, if ever, before they can be considered a viable alternative to Air Canada and its feeder lines for most consumers. We applaud the attempts of these companies to expand and challenge the dominance of Air Canada, but we support the need for some increased regulation of the activities of the dominant airline in the intervening period. We still believe that some legislative changes could be made to enable action to be taken by Transport Canada to increase competitive opportunities. The CAC is disappointed that these legislative amendments do not provide added authority for the agency to reacquire and reassign air terminal slots to facilitate greater competitive opportunities.

The CAC acknowledges that there are some excellent provisions in Bill C-26, but it will be difficult to assess how well they will work to deliver satisfactory service quality until we are able to review the regulations that will enable these provisions to be implemented. We suggest that draft regulations be subject to a public review process that receives input at a representative variety of open meetings in different community across Canada. Draft changes resulting from those meetings should in turn be subject to a review meeting in Ottawa at an appropriate hearing.

We are not convinced at this time that the provisions of this bill are sufficient to deliver to consumers of airline services the quality of service they wish to see maintained under the new near-monopoly regime. We have some specific section-by-section comments that we would like to make.

With respect to clauses 56.2 and 56.4, the CAC does not consider it essential that air transportation undertakings be Canadian. While we recognize the value of having Canadian ownership and control of a single dominant airline, such as Air Canada, we would be happy to see a foreign-owned airline operating in Canada if it restored realistic competition to the marketplace.

We see divestiture of assets more as a tool to control industry dominance than foreign ownership. Given the investment needed to enter competitively into the airline industry, we consider the fines identified in clause 56.7(1) to be ridiculously low. They can easily be absorbed as the cost of doing business.

If a person who is required to notify fails to do so, the rest of clauses 56.1 and 56.2 become meaningless. The CAC recommends that fines identified in this clause be in line with those in clause 56.7(2). The clauses that will replace subsections 64(2) and 64(3) of the act, as written in Item 3, are inadequate to protect the interests of consumers in less populated areas.

In particular, in paragraph 1.1, a notice of proposed reduction of service is only required if it will result in at least a 50 per cent reduction in year-round, non-stop scheduled air services. Is this a significant number? Air Canada has already reduced capacity on some routes by as much as 47 per cent.

The CAC would like to ask the Senate to recommend that this percentage be lowered and that notice be required if reduction is 30 per cent or more in any year. A series of smaller reductions, say 15 per cent each, must be captured by the regulation. However, seasonality of services and the provision of services by a small or informal air taxi provider should not be over-regulated, as this imposes unreasonable costs of operation.

Paragraphs 1.2 and 2 are also inadequate. While they provide an opportunity for local input to discussions on service reductions, that is all they do. The CAC recommends that this portion of Bill C-26 be amended to make local input more meaningful, specifying timing, rights and content.

The Senate could look at the recommendations for "community impact assessments" that were described in the McKay report on the future of the Canadian financial service industry in relation to the closing of local bank branches. Provisions similar to those described in the section on "public interest impact assessment" of the MacKay Report would provide more meaningful input from communities that will suffer from the negative impacts of service reduction. It should also offer the possibility of the airline being required to reverse or amend its decision to reduce service.

The value of clause 66 relies entirely on the definition of the terms "reasonable" and "unreasonable." For clause 66 to be effective in offering some protection against skyrocketing prices in remote areas and monopoly markets, it will be necessary to determine how these terms should be defined.

The CRTC is trying to meet the challenge of defining "affordability" in dealing with services to high-cost areas. The CAC would ask the Senate to recommend that a similar initiative be undertaken to determine "reasonableness" in terms of airfares or cargo rates.

For regulation to be effective, issues of affordability and cross-subsidization will need to be considered in establishing what is reasonable in terms of service costs to less populated regions. It is far better to address these issues by allowing competition wherever possible.

We believe it is also important to identify what will be acceptable as "historical data" for purposes of proposed subsection 66(3)(a). Will previous quotes, invoices and charges be acceptable evidence of the increase, or will the increases only be measured against published rates? The information to be supplied in clause 7 of the bill should also be more clearly defined to clarify whether only published prices would be considered or whether the agency would consider the actual prices charged. Also, airlines must be required to maintain raw or baseline data and not just summaries in case a different analysis is required.

The whole area of increases to fares and cargo rates is dependent upon those with which new rates are being compared. Predictions that the CAC made when we appeared before you last time have come into force, with unhappy consequences for the economy. We are already receiving reports that businesses that receive volume discounts have had those discounts reduced. This results in additional costs being passed through to consumers.

Reduction in the number of "sale" seats available also has the same impact as an increase in price. Will these negative consumer impacts be considered as price increases, or will increases only be measured by comparing listed prices from one period to another?

Volatility on the oil market currently provides ample justification for some price increases. How closely will these increases be linked to the actual costs and will they be expected to reduce them if the price of oil drops again? Who will be authorized to monitor the link between rising costs and fare increases, and how closely will costs and increases be linked? Will the data and analysis used be Canadian or will North American industry data be used? The CAC considers these questions to represent a major flaw in any system to regulate prices in the airline industry.

Proposed subsection 66(8) takes us into a topic with which the CAC is involved in several of our issue areas, that of confidential business information, or CBI. We know it is important for regulators to protect confidential information that could, if disclosed, cause serious financial loss or could prejudice the competitive position of the owner of the information. However, most national governments are much more precise than Canada's government in determining exactly what should fall into the category of CBI.

Given this lack of precision in the Canadian system, business generally opts to categorize more data with CBI than is strictly necessary. Once material is called CBI, the regulators are unable to disclose any of its contents. This defect explains the CAC's objection to regulatory capture. This results in a serious undermining of the transparency of the Canadian regulatory system. The CAC would like to see the Senate request that the regulations under this clause be very precise in the identification of which document is truly confidential. Consideration might also be given to allowing an appropriate oversight committee the right to review the confidentiality issues, rather than leave that to an internal, bureaucratic-driven process.

Proposed subsections 67.1 and 67.2 raise some concerns for the CAC. Air carriers frequently offer special deals -- maybe a discount to a business whose employees travel a lot, or a reduced cargo rate because a shipment is regular enough to assist with planning. Would this clause allow a business that does not receive such a discount to lodge a complaint because they found out that their competitor receives a charge not listed in a tariff?

Obviously, the section on the Air Travel Complaints Commissioner is a particular concern to the CAC. Despite our interests, it is difficult to make a lot of comments because the bill lacks details, and, as we all know, the devil is in the details. It is unlikely that the wealth of evidence on the success or failure of previous efforts throughout the world will be available to the Senate or to Parliament. The rules that establish the office of the commissioner are crucial, otherwise we will spend money on an inefficient façade, doing more harm than good. We will make some points and recommendations here that we hope will find their way into the regulations that are produced to implement this clause. Please refer as well to our earlier comments on the public review process of the draft regulations.

First, we would hope the Air Travel Complaints Commissioner would be independent and apolitical, and also a person with qualifications that fit the position. The CAC would like to be assured that the commissioner would have adequate resources to perform his duties and that he have the support of an independent, multi-stakeholder board. We would like to see this commission follow the U.K. model, and, needless to say, the CAC would be happy to participate in that.

The board must include members who represent all stakeholders, with emphasis on the complete community of users, including those from remote communities, business and personal travel, travel on short notice and with longer planning horizons, and the airfreight and package customers of the airlines. Those providing inputs of goods and services, including travel agents, must, of course, also be represented, but the representation of users must be a significant proportion of the membership, if not a majority. Therefore, the membership of the board, its access to appropriate and timely information, and its power to recommend or direct courses of action to the commissioner are all important and should be subject to further open discussion.

What is totally unclear from the bill is just what the commissioner will be able to do. Will he only respond to major complaints where the consumer requires an advocate or arbitration? These cases are important and have major impacts on those affected. Alternatively, will he collect complaint data on smaller aggravations and recommend corrective actions that produce smaller benefits but to a larger number of consumers? The CAC would recommend that he be authorized to do both because we see a need for both. We would also recommend that the complaint system be made simple and non-bureaucratic for the complainant, that it be well-publicized and that all documentation be clear, simple and easy to read in both official languages. We have more detailed recommendations on the sorts of things that should be included in the regulated powers of the commissioner. These are attached to the hard copy of our presentation.

The CAC pointed out that one certain outcome of the monopoly would be a decline in quality. Service levels have been lowered already, but we believe that more is to come. Under the new regime, it is no longer necessary for the merged enterprise to be sensitive to customer preferences on domestic routes. The need to establish service indicators is clear, but these are notoriously difficult to design.

In addition to complaint data, the CAC urges legislation that obliges the new monopolist to keep records specific to monopoly routes on the length of lines, service failures, waiting time for telephone or on-line response, cancelled flights, "bumped" passengers, et cetera.

Proposed subsection 29.1(2)(f) refers to data that will be collected by the commissioner, much of which will be from Canadian consumers. The CAC would like to see this proposed section offer personal confidential data, the same assurances of privacy protection as are given to confidential business information. We would like to know that all personal data will be handled in accordance with the provisions of Bill C-6.

We applaud proposed subsection 104.1, which allows the commissioner to issue a "cease and desist" order. This should be effective in curtailing harmful practices before they destroy competition. We trust that the regulations will not impose too many conditions on the use of this section.

With regard to the amendments to the Air Canada Public Participation Act, the CAC is not supportive of the restrictions on foreign ownership. There is little cultural content in air carriage. We believe that all airlines should be required to address customers in both official languages, but common rules will be enough. The harms from barriers to entry inflicted on Canadian businesses and consumers -- and on the efficiency of the economy -- are much larger than the gains to Air Canada's shareholders. It is particularly hard to defend the foreign ownership rules when the percentage limit is different from other sectors, such as banking and railways. If the Senate agrees with the need to limit foreign ownership in order to protect Air Canada from real competition, the CAC would hope that an attempt would be made in this bill to harmonize Canadian rules on foreign ownership by setting them at the same percentage level for all sectors.

Whether by an amendment to this act or by policy statement, we would like to see the government make it clear that it will vote its Air Canada shares to ensure that Air Canada acts in a responsible manner now that it has such dominance. We would be opposed to a reduction in the public ownership of Air Canada at this time.

To conclude, while we believe there is a need for additional regulations in a monopoly industry, Bill C-26 does not really provide all that is needed to ensure minimal customer service quality. We hope that the Senate will recommend some amendments to make this bill an effective tool for consumers. The CAC will need to wait for the regulations to provide the details on the complaints commissioner before we can pass judgment on the possible effectiveness of that position.

Senator Forrestall: I was left with the impression that you are trying to have it both ways. You do not want more regulation, yet that is what you are promoting throughout your detailed and well-written brief. That prompts me to ask the question: is there anything about the bill that you do like?

Ms Hillard: Absolutely. It is the framework for a sort of consumer oversight. Definitely, we like the cease and desist measure. We prefer competition to a large amount of regulation. We were one of the prime supporters of deregulation in the airline sector, and we really liked what we thought was beginning to happen in the Canadian airline sector, with lots of small local carriers coming into the market and providing within some of the less populated provinces local service that was comparatively affordable.

Our preference is always for competition over regulation. Given that we believe Air Canada has 80 per cent of the market -- we could be wrong, but that is the number that we have been given -- it is impossible not to reimpose some regulation. We would like to see the regulation be as meaningful to consumers as possible without hampering new entrants into the marketplace.

When you say we are looking for it both ways, I think you are probably right. If you make the regulation too difficult in order to control Air Canada, then you make it difficult for new entrants in the marketplace. There is a need to walk a fine line here.

Senator Forrestall: The minister proposes the development of a number of observers. It is unclear how many and what their duties would be other than to report once or twice a year on the implementation of this bill particularly and the health of the industry, I gather, generally. Have you any thoughts on that? Are you aware of these observer roles?

Ms Hillard: A consumer passenger board in the U.K. does that, and it also arbitrates for consumers. When there is a hearing on who should go into new routes and whether new entrants should come to the marketplace, this board represents the passengers at the hearing. A board of that nature, provided there is adequate stakeholder representation and it is independent, transparent and all those good things, would be useful through this interim period until we get some effective competition back.

Senator Forrestall: How would you like to see the complaints commissioner established? At this point there would appear to be a willingness to receive the reports and to relay either the reports or the subject matter of the reports to the Parliament of Canada. Will that be enough?

Ms Hillard: We believe that the commissioner needs an independent board behind him, and he or she must be adequately resourced. We would also like to know that it is an independent position. We are quite happy with the way in which the Canadian banking ombudsman operates at the moment. A similar sort of set-up with some expanded role would be useful.

Senator Forrestall: Does the banking ombudsman have a board?

Ms Hillard: Yes, he does, and we have a member on that board.

Senator Forrestall: Do you think that you should have a member on a board to back up the complaints commissioner?

Ms Hillard: Absolutely. We believe there is a need for passenger consumer representation, and since we are the only national group, we would obviously promote ourselves to be that representation.

Senator Forrestall: Do you see this as a full-time position?

Ms Hillard: The commissioner, yes, but the board, no.

Senator Forrestall: I meant the commissioner.

Ms Hillard: Absolutely.

Senator Forrestall: Would he report to the board monthly, or four or five times a year?

Ms Hillard: Whatever is necessary.

Senator Forrestall: How does the information he collects get out to the general public? Would that be through a representative that you would have on the board?

I am concerned about delays. If the commissioner gets a complaint and it is 14 months in adjudication, then it is useless.

Ms Hillard: I agree with you. That is why we said that we would like the commissioner to have the dual role of dealing with the big complaints, through to a collection of the small complaints. We are getting flooded now with the small complaints, such as complaints about waiting for service over the phone or standing in line at airports. We would like the commissioner to be open enough to receive those small complaints that do not require independent solutions, but maybe put them together and recommend some corrective action. It might be as simple as lowering the temperature in the airport, or having someone walk up and down the waiting line with a tray of cold water. There are many fairly simple solutions to the discomfort currently being imposed on the travelling public.

Senator Forrestall: Do you see the complaints commissioner being able to interface with airport management and airline management?

Ms Hillard: Absolutely.

Senator Forrestall: Literally, you believe that he should be able to pick up the phone and discuss issues.

Ms Hillard: Yes. The flexibility, the accessibility, the lack of rigid rules and the layers of bureaucracy are critical to making this work. Otherwise, there will be months of paper shuffling before anything ever happens.

Senator Forrestall: We have no detail. Would this be a small operation, perhaps a handful of people?

Ms Hillard: We do not believe in over-government. Yes, perhaps one person, a couple of staff people, and the board.

Senator Forrestall: How many people are in your office, for example?

Ms Hillard: Three full time and three part time.

Senator Forrestall: What do you handle?

Ms Hillard: Everything from soup to nuts and back again. We do have some staff in some of our provincial offices.

Senator Forrestall: Therefore, a reasonably active and knowledgeable small staff could handle such matters.

Ms Hillard: With good equipment.

Senator Forrestall: Would this be a permanent thing?

Ms Hillard: Until we get some realistic competition, I do not think we can operate without it. There are always airline complaints. It may need to be reduced once we get some competition back. We were lucky. We had high service quality in both Air Canada and Canadian so long as we had competition. Maybe we will get it back.

Senator Forrestall: I miss the old days when this was done on the floor of the House of Commons by pounding your desk, feigning great anger, and demanding something for your grievance.

This is an important issue. When I first learned of it, I wondered whether the minister was putting up a protective barrier around himself.

Ms Hillard: It is, in a way.

Senator Forrestall: I appreciate the work you have done on this issue. For our part, we must investigate. We have the difficulty of dealing with a matter that has now been approved in principle by the House of Commons; therefore, we must find unique ways of making views known, whether it is by way of amendment or whatever. Perhaps we will have a chance to read one day that these views have been communicated.

Ms Hillard: We have actually pulled our specific recommendations out of the text and put them at the back to make it a little easier for you.

Senator Callbeck: Welcome and thank you for coming. My first question is on the complaint process. If it is established, how do you propose that the public will become aware of it? You mentioned the banks having an ombudsman. What percentage of the public know about that?

Ms Hillard: Not enough. We have recommended that the communication on the process be very good and very thorough. There must be leaflets on every check-in desk and with every travel agent. Web sites must mention it. Information must be readable and clear in both languages, with 1-800 numbers that are answered by people and not by a series of buttons.

Senator Callbeck: That seems to be one of the biggest problems -- making the public aware of the resource.

Ms Hillard: I believe it is, but right now there is a huge advantage. The entire airline industry is under a microscope. We are getting consumer calls and media calls consistently.

All the problems with the airports are being blamed on the airlines. We are even starting to get complaints about the charters, which are totally unrealistic. Some call to say they paid only $300 for a ticket and yet want to know why the service is not the same as the $3,000 Air Canada ticket. It is sometimes difficult, as a consumer association, to tell the consumer that they are basically getting what they paid for and that they must pay more if they want more. We never had these kinds of complaints before.

Everyone is focused on the airlines. It is an ideal time to put something in place quickly and to tell the public about it while they are looking. If you wait six months, the issue may drop from the horizon and then we will have a huge problem in letting people know about the process.

Senator Callbeck: There is a lot of frustration out there. Many people have complaints.

I want to ask you about the passenger bill of rights. You did not mention that. Do you feel that competition will look after that and it is not necessary?

Ms Hillard: We prefer competition. There are some good points in the passenger bill of rights. You will notice that we are not members of that coalition. We were invited to join. We looked at the direction they were taking. We decided that we could not agree with everything they are targeting. We decided, therefore, not to be part of the coalition.

There are some good points in the passenger bill of rights, but we are not sure if it is exactly what we need in the current situation.

Senator Callbeck: With what would you disagree?

Ms Hillard: The group did not seem to be pro-competition. There seemed to be too much reliance on regulation. As I said, we are not into heavy regulation.

They did not seem as opposed to the monopoly in the first place. They seemed to be focusing on the passenger bill of rights, when we felt they should be focusing on keeping competition in the marketplace.

I must admit that I have not seen a recent draft, but in the first draft they were talking about substituting rail travel for airline travel. That may be fine in this part of the country, but I am from Winnipeg, where train travel is not really a viable alternative to flying anywhere.

The CAC just decided to go it alone. We have very broad representation across the country. We told you the last time we were here that we pulled in people from Nunavut to work on our committee regarding the airline industry issue.

We just cannot find enough common ground to go in with this group. If they get the bill of rights through, good. It will help people, but we did not want to focus all our efforts on the bill of rights.

Senator Spivak: I thought your translation of the community impact assessment in the MacKay report was very imaginative. The requirement in the act is that if carriers propose to withdraw or reduce service, they must provide an opportunity for local or elected officials to discuss the impacts, but that is a weak provision. What is "discussing"?

Perhaps you can refresh our memory. How exactly would those community impact assessments be carried out? That would probably mean looking at the total economic impact in many small communities that are also being assaulted with things like rail line abandonment, which is diminishing the quality of rural life in this country. Do you have any further ideas about this?

Ms Hillard: Because we are broad-based, we are able to pull in our experiences from all different areas. That was one feature of the MacKay report that we particularly liked. Before closing a bank, there was a waiting period of three months, I believe. The bank was also required to do a community impact assessment for economic and social impacts. Input from other people was to be gathered and a report prepared.

Senator Spivak: The alternatives must be included.

Ms Hillard: Yes, there may be alternatives included. It might be possible to get a grocery store to offer banking services. I am not sure what you would offer to replace an airline. You and I are from the same province. We have perimeter airlines, which perhaps could fly into Flin Flon if Air Canada pulled out. Maybe the community impact would open up doors for competition on some smaller routes.

Senator Spivak: That requirement from the MacKay report did not get into the legislation, did it?

Ms Hillard: Not yet, because Mr. Martin has not come back with the financial paper. We are all waiting for it on tenterhooks at the moment, but we hope it will.

Senator Adams: Where does your organization get its funding?

Ms Hillard: We have memberships. We have donations. We have project funding. We have no core funding from the government and we do not take money from industry.

Ms Lacombe: Ms Hillard has covered it all. Ms Hillard and I are volunteers. We give our time to the organization. The input that comes into our positions comes from our member experts across the country. There is a very small staff in the office.

Originally, most of our work was done with the Department of Consumer Affairs. We have now expanded. We do a lot of work with Agriculture Canada, with the Department of Finance and with Health Canada.

The only funding that we get from government is fee-for- service project funding. We do a project and we have a report to write.

Senator Adams: Are your members mostly business people or farmers or what? I want to find out a bit more. Presumably you listen to your members before you comment on a bill like Bill C-26. How do you find out what the public thinks of Bill C-26?

Ms Lacombe: We have members and volunteers from all walks of life. We have, from out West, people who do farming and even a plant pathologist. We have university professors and people from the economy.

Ms Hillard: If you are interested, senator, the committee that works on our airline report includes the dean of economics from the University of Waterloo, a retired person from Yellowknife, an Anglican minister from Iqaluit, a university professor from Edmonton, a consultant from southern Ontario, a nurse from Edmonton, a housewife from Winnipeg, and a full-time volunteer, which is myself, of course, from whichever hotel I happen to be in at the time.

That is the make-up of this particular committee. They all feed into this document.

Senator Adams: Since I have been on this committee, you have appeared before us three or four times. I know you.

Ms Hillard: We are hoping to be back again soon.

Senator Adams: The government pays a commissioner or an ombudsman, and we do not hear from them for six months or a year, yet you people find the issues and bring things to us very quickly. Can you explain to us what is happening with the industry.

Ms Hillard: We try to keep an eye on the marketplace on issues that impact Canadian consumers. We try to priorize everything. Among our members who self-select, we have volunteer committees that work on various issues. We put out a call to all our people on the Internet. We say that we are working on a certain issue and ask who wants to be on the committee. We make sure that we have good regional coverage and that we go ahead with our work.

Ms Lacombe: We are keeping our fingers crossed and hope that we will be back on the negative option bill that has gone through the House of Commons. We are hoping that it will come to this committee, where it has its rightful home. We are hoping that bill will make it here.

Senator Perrault: This is a search for information. Years ago we subscribed to the consumers' union magazine and later they added another magazine? Was that your project? I thought it was excellent.

Ms Lacombe: Yes, senator, we did have the Canadian Consumer magazine. Unfortunately, we lost it in 1993, but it is not ended there. Let us say that we are working toward bringing some type of English publication back for English Canada, and we are hoping to do it by working in close liaison with the French counterpart in Quebec. I am from Quebec.

I am keeping my fingers crossed that we will be able to achieve this and get an English consumers' magazine again. It is unfortunate that a country like Canada does not have one.

Senator Perrault: We saved every copy. Why are you not on the Internet? There is a consumer's channel on there now. We should have a Canadian presence there.

Ms Hillard: We do have an Internet site. It is not terribly active. Like everything else, it costs money and staff that we do not have. If we start some sort of English publication, it will have to be available electronically. We are moving very much away from paper.

Senator Perrault: That is a great brief that you presented tonight. I wish you success.

The Chairman: Thank you, witnesses.

The committee adjourned.