Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 13 - Evidence - May 9, 2007
OTTAWA, Wednesday, May 9, 2007
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-11, to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other acts, met this day at 6:17 p.m. to give consideration to the bill.
Senator Lise Bacon (Chairman) in the chair.
[English]
The Chairman: Tonight, we have on our agenda Bill C-11, to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other acts.
We have with us, from Air Canada, Joseph Galimberti, director of government relations. From WestJet, we have with us Mr. Mike McNaney, who is vice-president government relations. Welcome to our committee, gentlemen. We will hear from you first, and then I am sure honourable senators will have questions to ask you.
Mike McNaney, Vice-President, Government Relations, WestJet: Thank you for the opportunity to appear before you this evening. WestJet is the small, polite, western-based airline. Beside me is Joseph Galimberti from an airline, the name of which escapes me, but I think it is fairly well-known across the country.
We are here today to speak to you about clause 27 of Bill C-11. Clause 27 makes it mandatory for air carriers to include all the various taxes and fees in the advertised price of our airfare, the so-called all-in advertising provision. Our concerns about clause 27 stem from the unavoidable fact that the advertising of airplane tickets in this country falls under multiple jurisdictions. It involves federal and provincial governments, as well as international practice.
Because this is a multi-jurisdictional issue, a series of unintended consequences hat will occur if clause 27 is legislated as currently worded. These consequences will ensure the proposed legislation does not improve consumer protection and will place Canadian carriers at a disadvantage when selling seats on our own aircraft.
I shall focus my comments on the domestic situation, and Mr. Galimberti will cover off the broader implications. Both domestic and international implications of this clause apply to both carriers.
In Canada, there are basically two groups that advertise plane tickets — the airlines themselves and travel agents. The federal government regulates how the air carriers can advertise. We are currently allowed to advertise the base fare itself, that is, the actual dollar amount of cash we take in for providing a service. The provincial governments regulate how travel agents advertise plane tickets. Ontario and Quebec require travel agents in those provinces to undertake all- in advertising. In the other eight provinces, travel agents are allowed to advertise the same way that we currently advertise — that is, they are able to put the base fare in their advertisement. That means that currently federal practice is consistent with eight out of 10 provinces.
If Bill C-11 is passed, requiring all-in advertising by the airlines, federal law will become consistent with Ontario and Quebec but, by definition, will become inconsistent with the other provinces. In those other provinces, travel agents will continue to do base advertising. What this means for us is that, if Bill C-11 is passed with the current wording in clause 27, we will find ourselves in the unique situation where travel agents will be able to advertise seats on our aircraft at a lower price than we can legally advertise those exact same seats. That is a bit of a change in the commercial relationship that we currently have with travel agencies.
Airlines have spent billions of dollars in capital expenditure and investment over the past several years to provide the service, build up their fleet and bear the business risk that goes with operating an air carrier. In a broader context, passage of clause 27 will require the same airline to advertise at a higher price than a third-party intermediary.
Further complicating the situation is the fact that we do pay commissions to travel agents when they sell seats on our airplanes. Right now, for WestJet, that is a base commission of 9 per cent.
If the bill is passed, we will have carriers advertising at a higher price. When the travel agent makes the booking, in addition to their lower advertised sale price, we will also be paying a commission on each sale. It is turning one aspect of our business model completely on its head. To be blunt about it, it scares the heebie-jeebies out of us. I am not sure that ``heebie-jeebies'' is a phrase in legislative terms — and I apologize to the translators who are trying to figure it out. Nonetheless, it does change an aspect of our business model.
Of course, the justification that was given for clause 27 to read as it does was not so we will turn the business model of the air carriers on its head. The justification is primarily around consumer protection. However, the fact that we are in a multi-jurisdictional file, the real-world result of clause 27 is that it does turn our business model on its head.
In terms of the other arguments given from a consumer protection point of view, we do not believe that those consumer protection arguments hold up either, again as a result of the multi-jurisdictional nature of advertising air fares in this country. One argument that has been made is the need to address consumer confusion over the different ways travel agents and air carriers advertise. The perception exists that, by passing Bill C-11 and clause 27, this confusion will be rectified. I do not see how changing the federal statute so it is consistent with two provinces and, by definition, inconsistent with eight, brings clarity to the situation. We would argue, from a consumer protection point of view, it does not deliver.
The other argument given in support of the clause relates to the need to ensure that consumers have adequate information about the taxes and fees that are added on so that they can make informed choices. Again, it was certainly not the intent of the legislation, but because of the multi-jurisdictional nature of this file, that that argument also has some unintended consequences which undermine its usefulness.
Travel agents charge fees to their customers — which is a perfectly legitimate thing for them to do. It is a perfectly legitimate business practice. They are a for-profit entity, just as we are, and they work very hard to serve their customers. However, they do charge booking fees that range anywhere from $10 to $60. Because travel agents will be able to advertise a lower fare than the airlines, consumers will be drawn to book with travel agents. Hence, along with the taxes and fees, the consumer may also end up paying the $10 to $60 additional charge for the travel agent booking.
Again, that charge is a perfectly legitimate business practice. However, if one of the principal reasons, honourable senators, to pass this clause is to ensure that consumers have adequate information about these additional taxes, fees and charges, in order to make an informed decision, the multi-jurisdictional nature of this file will push consumers toward an option that imposes even more fees than would otherwise have been the case. This is a real-world consequence of the multi-jurisdictional nature of the file and is something that needs to be taken into account when examining the effectiveness of this bill and clause.
In summation, in terms of its domestic application, we do not believe clause 27, as it is currently worded, achieves what it purports to achieve in terms of consumer protection. We believe it makes the situation somewhat worse, more confusing, and are unnerved by the manner in which the clause has the potential to turn an element of our collective business models upside down and drive substantial costs into our operations.
I will turn to Mr. Galimberti to cover the broader international implications.
Joseph Galimberti, Director, Government Relations, Air Canada: Thank you for the opportunity to speak to you this evening; we appreciate the time. Mr. McNaney has pointed out some of the inconsistencies that Bill C-11 and clause 27 create in the domestic marketplace. Air Canada shares completely WestJet's concerns in that regard. I should say that again because it sounds odd coming from Air Canada: Air Canada shares completely WestJet's concerns.
We also have serious concerns as to how clause 27 will affect Air Canada as we seek to compete in the global marketplace. Our advertising practice is one presently in line with the accepted advertising practice of every single significant international market. At a time when we are actively seeking to drive consumer traffic to our website as the primary point of purchase, Bill C-11 and clause 27 will permanently hinder our competitive position on the World Wide Web as we will be required to include government-imposed taxes and fees on our front page fare display while our international competition continues the commonly accepted practice of displaying that price at point of purchase.
While Bill C-11 will indeed force foreign carriers to advertise all-in in Canadian media, the Government of Canada has absolutely no basis whatsoever on which to regulate the commercial activities of a foreign carrier on the World Wide Web. Thusly, the Government of Canada will place Canadian carriers at a permanent commercial disadvantage in the biggest single growth market for sales in our industry.
As a result, foreign carriers such as Air France, KLM and British Airways will in perpetuity be able to display lower fares on the front page of their websites for travel to and from Canadian destinations. The Government of Canada will also create an environment where our Star Alliance partner airlines, such as United, Lufthansa and British Midland, can display a lower fare for travel through a commercially essential and commonly used practice called ``code sharing'' on the flights of an Alliance partner than Air Canada can advertise for that same seat.
This proposed legislation comes at a critical juncture for Air Canada in terms of our global commercial aspirations. Last week, we accepted delivery of our second Boeing 777 wide-bodied aircraft; we have 15 more of those to come. We have recently announced that we are taking delivery of another 30 Boeing 787 wide-bodied aircraft, which will place our fleet of aircraft capable of significant distance travelled among the largest and most efficient in the world. Both of these acquisitions are, needless to say, significant capital investments, investments in assets that, by their very definition, will bring Canadian business to the world and bring the world's business to Canada.
On top of this, Transport Canada, under the stewardship of Minister Cannon, is aggressively seeking to open new markets for Canadian carriers by increasing Canada's portfolio of international route rights through continued implementation of the blue skies policy. This brings opportunity for us internationally and it brings competition for us domestically — competition that we welcome. In light of this government direction, it seems not only out of step with government policy but entirely counterproductive to permanently hinder the competitive ability of Canadian airlines at this critical juncture in international aviation.
The clause as amended by the House of Commons not only fails to consider the domestic imbalance it creates, but it also fails to consider the single largest sales tool of the 21st century — the Internet — and the commercial reality of having to advertise and do business in that environment.
With that in mind, Air Canada and WestJet would seek to jointly propose that this committee amend clause 27 to reflect the language of the original legislation. This will maintain consumer protection by allowing the minister the discretion to create advertising regulation should the situation warrant, but it also allows the flexibility to avoid creating the significant doing-business issues for airlines that Mr. McNaney and I have outlined today.
I would respectfully submit that it was not the intention of Parliament to create an amendment that furthers confusion about the nature of the domestic price regime — which clause 27 as is presently written unfortunately does — nor was it the intention of Parliament to create an amendment that drives Canadian consumers towards foreign air carriers, which, again, clause 27 unfortunately codifies in perpetuity. If ever there was a case where a sober and informed second thought on the consequences of proposed legislation was merited, I again respectfully submit that this is it.
We are more than happy to answer any questions that the honourable senators have.
The Chairman: I will leave clause 27 to my colleagues, but I have one question for both of you. I want to hear each of you on the current mechanism in place at your company to handle customer complaints. How many complaints do you receive on an annual basis? What kinds of resources, especially human resources, are allocated to complaint resolution? Also, with proposed new section 85.1, the position and office of the Air Travel Complaints Commissioner are eliminated and the functions are transferred to the transportation agency. The agency can choose to apply the informal complaints resolution process when appropriate. Again, what is your opinion of the new air travel complaints authority of the transportation agency, and do you see it as an improvement compared to the actual Air Travel Complaints Commissioner authority on these matters?
Mr. McNaney: In terms of WestJet, we have a customer care group, and continuous customer care efforts cut across every operational aspect that we examine. If we are looking at taking delivery of new aircraft and new destinations we will go to, whichever country they may be flying to, every aspect of the service to the guest is run through the metric of how we are ensuring we are giving that best service.
In terms of complaints, we have a variety of ways in which we receive the complaints. We have a website that has a portal on it for flagging complaints. Guests, of course, are quite encouraged to talk to anyone on the aircraft. Our flight attendants, our CSAs, customer service agents, the people who check you in, as well as on our call centre are empowered to take action if something occurs that should not have occurred. If that means giving a $100 voucher or working to remove a fee that has been imposed because of a booking problem, they have the authority to do that.
In terms of the CTA and its effectiveness in this area, I certainly think the CTA is doing a good job in terms of complaints that are put to it as it adjudicates through those things as a quasi-judicial body. I am not trying to be arrogant when I say it, but within WestJet our general view is that we have to be fast enough, quick enough, and empowered enough to solve a guest problem long before it has to make its way through a federal department or an agency of the federal government.
I am aware that there have been complaints about WestJet filed with the CTA. When I have done background checks to see where they stand, we have generally resolved them long before the complaint worked its way through the CTA process to actually get back to that guest, and by the time an official notice goes back to the guest we have fixed the situation.
That does not mean everyone is happy, but generally our view is that it is our job to resolve those things long before a branch of government has to wade its way through it.
The Chairman: Do you feel that the transportation agency can do the job?
Mr. McNaney: In terms of adjudicating, I have no read on the number of complaints that will flow to them. To a degree, I suppose this comes down to a resource issue, and I have no basis to make a decision on that.
Senator Merchant: On this question of complaints, what are the consequences of complaints to the CTA? Do you know what they do? For instance, if someone were to complain to the CRTC, the CRTC can take action. They can take someone's licence away or they can bring in new rules. How does the CTA work? What happens when they get complaints?
Mr. McNaney: It depends on the nature of the complaint.
Senator Merchant: Let us say they have lots of complaints. What do they do to work their way through those?
Mr. McNaney: I am afraid I do not have a clue how they operate.
Senator Merchant: How would you like them to operate? We are customers. When we complain, what do you think should happen? I know I will get $100, but if I complain too many times what do you think should be expected?
Mr. McNaney: It depends on the nature of the complaint. The complaints I am familiar with in terms of the CTA are generally fairly serious complaints about allegations of being denied reasonable access to an aircraft, and those complaints go across a variety of carriers. The complaints I am familiar with are quite serious ones with serious implications that will result in decisions being made that will either require an airline to pay back a certain fee of money to the individual or the complaint is dismissed outright and the CTA concludes that the carrier operated in fashion with its tariff and what it said it would do in the event of a problem.
I suppose at a general level you would want any institution of the federal government that is going to receive complaints about an industry to have the resources to be able to work its way through them relatively quickly. I have no idea what the CTA's budget is or whether the estimates were before the committee in the other place. I do not know if that was raised in terms of whether they have adequate resources to perform those tasks.
The Chairman: Mr. Galimberti, would you tell us about the resources that you have to handle the complaints?
Mr. Galimberti: We have a considerable human resource base to handle customer complaints, our customer solution department. Not dissimilar to WestJet, we do accept complaints through the website. You can fax them, you can call our customer service lines and we will accept complaints that way, again, not dissimilar to WestJet. We try to empower our employees at every step of the travel process to solve customer problems as they arise. It is an absolute last resort when it has to get to our website. Something generally catastrophic has occurred when a complaint makes its way to the CTA.
Air travel is a funny mechanism. There are instances where you cannot fly; there are mechanical, safety and weather concerns. Just the nature of operating an airline in Canada makes it exceedingly difficult. We do the best we can to manage those situations. In instances where the system breaks down for whatever reason, I believe we do a fairly good job in terms of recovery. We devote considerable resources to tracking our on-time performance; it is updated on a daily basis. We devote the same attention to tracking the number of complaints we receive and the number of bags we lose. Those are also tracked on a daily basis. We devote a fairly significant resource to customer service.
In terms of the CTA, you definitely have to view that as a last resort. Once a complaint has gone to the CTA, generally you have lost a customer; something fairly significant has occurred. Any complaint that makes it that far is certainly given the greatest possible attention. It is generally at that stage of the game not something that several thousand Aeroplan miles will fix. We take those matters very seriously.
Senator Tkachuk: How is the situation now handled in Quebec and Ontario as far as the travel agents are concerned? You mentioned, Mr. McNaney, the situation with travel agents having a fee of their own. In a province like Saskatchewan, they would be able to advertise at a lower limit, plus the fees, plus the consumer would be paying the extra $30 or $60 or whatever the travel agency charges. How is that situation handled in Ontario and Quebec now?
Mr. McNaney: With their all-in provisions, they have to incorporate all-in.
Senator Tkachuk: They would advertise a fee that would be larger than what Air Canada would be advertising?
Mr. McNaney: In terms of the taxes and fees they would add on to it, yes.
Senator Tkachuk: They would be adding on their own fee as well; is that not correct?
Mr. McNaney: I am not sure how they do it in Ontario and Quebec in terms of those additional fees, senator.
Mr. Galimberti: I think it depends on a travel agent to travel agent basis as to whether they incorporate their fees in the upfront price.
Senator Tkachuk: Do they not have to put in the upfront price in Ontario and Quebec?
Senator Tkachuk: When they are selling an airline ticket, regardless of the airline, travel agents in Ontario and Quebec are compelled to display or to upfront advertise all the government taxes and fees.
Senator Tkachuk: Do they have to put in their own fees as well, or just the government and airport fees and all the rest of it?
Mr. McNaney: My understanding is that it is just the mandated fees, the IAF, GST, PST, et cetera, as opposed to anything additional. Keep in mind that I am taking it from the perspective of Western Canada, where they advertise the same way we do. I would have to double-check for Ontario and Quebec. We can get back to you.
Senator Tkachuk: To go back to the question of fees, when I rent a car, for example, the airport fees, taxes and user fees drive me crazy. You would think they would learn from the government how to add charges on. When I go to a travel agent now and want to rent a car, I ask for all fees in. I ask what it is going to cost me flat-in, so I know what it will cost. That is the way I want the comparison done. Do you not think consumers would find that useful? Just from a point of view of advertising let us say outside of Ontario and Quebec and Saskatchewan, it seems to me that consumers would be happy to find out that the fee that is advertised is the actual price, not, ``Oh, by the way, that $99 fare will be $200.'' That would upset me. Common sense would tell me that the person who advertises the full fare would have a competitive advantage.
Mr. McNaney: In terms of the common sense notion of it, I think that consumers overall would like to see that final price they will pay, yes. The problem that presents for me, trying to run my business, is that because of decisions made when the Constitution was created all those many years ago, this falls into the dreaded field of federal-provincial division of responsibilities and the international component. I will give a perfect example.
Several weeks ago, we did an $11 promotional fare for marking the eleventh year of WestJet. The gentleman on my left's carrier matched it, of course, and to up the ante, they did it to us out in Western Canada, which we had to match. That is all fair in love and war and airline business.
From my perspective, we did an $11 fare that is good for the consumer. That very fare was used in an example in this committee last week of why I am a bad guy in terms of how I advertise. I collected $11 for me to provide that service, and I collected another $50 for Ottawa. There was a $50 tax on an $11 purchase.
If we are talking about the protection of the consumer and what the consumer really needs, and this is a broader issue than Bill C-11 and this particular clause, I would suggest it is to go after what is being collected on this end, the $50 that takes an $11 purchase and takes it up to a $62 final. If I am to quantify what I think consumers will be most happy about, it is that there was some strategic approach taken, as opposed to the past 10 or 15 years when a variety of different departments have stuck their fingers in the pie and added on $50. To me, that would rank higher for a consumer than the fact that I am holding up a bigger sign. I do not think forcing me for hold up a bigger sign protects the consumer, because the consumer does not need protection from me. To be blunt about it, he needs protection from Ottawa.
Mr. Galimberti: In answer to your question, I absolutely think that my customer is gravely concerned when they see a $99 fare turn into $140 in front of their very eyes. We go to great lengths at Air Canada on our website to describe exactly where those taxes and fees come from. I brought copies of the screen that shows the tabulation of where your fees go, along with the screen that explains to you exactly what those fees are. I am happy to table those for the committee to reference, if they would like.
I think we run a risk. Is it more simple to put out $140 and that is everything that is included in travel? Absolutely. Is it more clear? No. I think you are muddling the picture in terms of where the money is going for your consumer purchase.
Senator Tkachuk: Let me focus on international flights, say from Toronto. Maybe I am the only one who is not clear, but just so all members are clear, Air Canada's website is advertising a trip from Toronto to London or Paris or wherever in Europe. As well, of course, many other airlines are doing the same thing. You are saying that you will be compelled to advertise the fare with all the fees; meanwhile, if I go to the LOT airline site or the Austrian airline site — is it in English, by the way?
Mr. Galimberti: Absolutely.
Senator Tkachuk: They would be advertising the price without the charges, which may lead me to go in there and find out it will cost me the same amount of money, but nonetheless I am already there so I might as well book the ticket. That is your concern.
Mr. Galimberti: Without question, the front-page advertising on the website will definitely always be lower on foreign carriers.
Senator Tkachuk: It is like a free plasma TV, but you have to buy a million mattresses; right?
Mr. Galimberti: Exactly.
Senator Eyton: Thank you for being here tonight. I would like to ask you about the workings of the House of Commons Transport, infrastructure and Communities Committee. My notes tell me that your association appeared before the committee and really had no objection to any of the provisions in Bill C-11. They also say that no individual airline appeared before the Transport Committee, and so the result of that is Bill C-11. Is that accurate? If no one appeared, why not?
Mr. Galimberti: At the time, we were comfortable with the wording of Bill C-11. It was clause 27 as we are proposing to amend it back. It had ministerial discretion in it. We were not uncomfortable with Bill C-11 until it was amended by the House committee at clause by clause. As individual airlines, and I believe I can speak for the association, we were never canvassed as to the ramifications on our business plan of this particular amendment. The House committee acted, at least in our opinion, without full ability to consider what it was that they were proposing.
Senator Eyton: Is it fair to say you did not have the opportunity in the circumstances to make any representation?
Mr. McNaney: Yes. As all honourable senators are aware, in that mad rush leading up to Christmas break, with legislation trying to get pumped out of committees and back into the House and then dumped over here — that was the environment in which the bill at that time found itself. There was not a proper opportunity for us to get in front of that committee and explain what we are now doing in front of you.
Senator Eyton: Transat has filed a brief with the committee — I am not sure if you have seen it.
Mr. McNaney: We fight over the issue all the time amongst ourselves.
Senator Eyton: Transat recommends that Parliament lead the way by incorporating the following principles into Bill C-11 which would serve to not only achieve much needed harmonization with advanced jurisdictions such as Quebec and Ontario, but could also be used as a model and benchmark for other provinces which have not taken action in this field so far.
They then deal with four items. I will come back to the one we are talking about now, but they do talk of all- inclusive airline price advertising, a national traveller's compensation fund, an enhanced minimum financial requirement for new entrant air carriers, and finally trust accounting and financial guarantees as it applies to industry and the possible failure of carriers.
I want to come back to their representation regarding all-inclusive airline price advertising.
We have already talked about Quebec; it is just one way only and that is all-inclusive. Ontario, according to their notes, provides an option where you can either state all-inclusive or you can state the same price, but also show the breakdown, as they describe it, for taxes, fees and surcharges.
Then Transat in their brief states that they see no reason why federal legislators should not follow this trend, which provides maximum transparency for the consumer while ensuring a level playing field among all air carriers, Canadian or foreign, selling air services to consumers originating their journeys in Canada and regardless of the means of distribution involved.
Transat is wishing for uniform treatment everywhere and seem to think somehow that is possible.
Obviously, it is a very different representation than you have made here tonight. Is there any reason why Transat would be so different?
Mr. McNaney: Yes, but I have just one brief comment in terms of the federal government being a model for the other provinces.
I am not sure I want to be the mannequin for that model, because that gets to the point of our entire presentation, in how it is different across these other provinces, and by definition that will be placing us in a competitively difficult position for future advertising.
Transat is an extremely successful company. They have been doing very well for a number of years and we have a commercial relationship with them.
We strenuously disagree with their opinion on this particular issue. I am not completely sure of the legal stature of Transat and how it disseminates its tickets, but I believe it is designated as travel agency in how it advertises and not as an air carrier. It is a fully integrated corporation that is a travel advisory, travel booking entity, charter flights, et cetera, that also owns aircraft. They are coming at you from the same perspective as the travel agencies who appeared before you last week.
We represent about 95 per cent, approximately, of the Canadian domestic market. Transat does not fly within Canada, so saying that the federal government should be a model is fine for them to argue, but we are the ones who are flying back and forth across and within the country that have to deal with those different jurisdictions across the country. They are not.
On a broader level, to a degree, the notion of taking what has been passed in Ontario and making the federal statute consistent with it, you are then taking the issue that Transat and travel agents are facing in Ontario as a result of a unilateral action by the provincial government. The federal government is committing the same error, and you are being asked to create that same error, solve it in Ontario and Quebec by exporting it to the rest of the country and internationally.
That is basically saying, we are going to solve this problem by making it bigger; that is what that solution comes to. It addresses it in Ontario and Quebec, but makes it bigger and expands it to the rest of the country and internationally. We disagree with their overall assessment.
Senator Eyton: Thank you for your analysis. That reminds of my mother who told me that the world would not be so troubled if everyone were Anglican.
Mr. McNaney: I would change it to Irish Catholic, with my claddagh ring, but I will stick with Anglican.
Senator Eyton: What happens with a combined flight? Assuming we have clause 27 and it applies, and, for example, we have Air Canada and United, my understanding is that United would likely play by different rules than Air Canada, but the flight is the same and is a shared flight.
Mr. Galimberti: It is a shared flight.
Senator Eyton: In terms of advertising?
Mr. Galimberti: The advertising is normally separate. Presently, I am able, as Air Canada, to sell a Lufthansa seat as part of a ticket from, say, Frankfurt to Mumbai, India. Lufthansa has the same privilege to sell an Air Canada seat that flies from Toronto to Frankfurt.
The price in the end would be the same. The price on the front page of the website, the advertised price, would be different. Lufthansa would advertise under the German statute.
Senator Zimmer: Thank you for your presentation today and for sharing your concerns with us. It does appears that it is not a level playing field, but what I like to see is that both of you play nice. WestJet and Air Canada are cooperating on this.
Mr. Galimberti, you mentioned in your presentation that the Internet is an increasingly important sales tool. How much of your sales are currently being done through your website?
Mr. Galimberti: We have moved well beyond 50 per cent of total sales on the website. They are not necessarily domestic sales. You could easily buy a ticket on Air Canada in Hong Kong and fly from there to Toronto after purchasing the ticket over the Internet there. That gets to the heart of my concern, which is that we will always be at a disadvantage versus a competitor like Cathay.
Clause 27, as written, does a good job of considering the domestic media. It assumes that all airline advertising is done in a newspaper or on the radio or television spots domestically and that the seat sale pages are the totality of airline advertising.
The industry has been moving in the opposite direction for years now. The Internet is the most important sales tool we have. It will only grow. We will only move away from traditional advertising. That is the way we are going, so clause 27 is fundamentally out of step with the direction of the industry.
Senator Zimmer: Mr. McNaney, I have two questions, one of which is related to your contractual arrangements with your travel agents. In terms of the advertising practices by travel agents in other province who are not required by provincial law to advertise the all-in price, you have entered into a contractual agreement with these travel agents. Could you not put into the contract that in order to qualify for their commissions, they, too, need to advertise the all-in price? Could you not work that into your contract?
Mr. McNaney: We could look at that option, and certainly that is one of the things we have been kicking around as we look at this bill.
The problem is that we could not police it because there are thousands of travel agents. We would have to hire travel agent police to go around and walk past storefronts, making sure that the price written on the chalkboard out front is the all-in. We would have to go through newspaper clippings on the weekends. It would not be a feasible option for us.
Senator Zimmer: You mentioned that this bill would drive costs into your operation. I know you cannot get into specific business confidential numbers, but could you outline the parameters of what you would be dealing with in this area?
Mr. McNaney: You are correct, I cannot get into business confidential figures and specificity. However, if you look at an average WestJet return fare — which would be about $350 — when you add in the commission and other fees we would incur as part of processing that ticket if it were to go through a travel agency, the costs will come out to approximately 15 per cent. We are fine with 15 per cent; that is a cost of doing business. We cannot replicate what the travel agencies have built across this country in terms of their reach into various markets. We made a conscious business decision to use travel agents as part of our distribution network.
One of the unfortunate aspects of this debate is a perceived carriers versus the travel agents situation. I hope people understand that as a result of this proposed legislation impacting on commercial relationships, we would have to phrase it that way, but that is not the history of our business relationship with travel agencies across this country.
It will come to 15 per cent, and we are content with that. That is a cost of goods sold that shows up on your income statement. You cannot avoid that.
If the playing field changes so that it starts to lean upwards of 15 per cent, then the opportunity starts to rise for costs to start coming to us that, perhaps if we were advertising the same, our guests may have chosen us and gone to our website as opposed to a travel agent. Now they will see $100, Vancouver to Maui, and we will have $140 posted Vancouver to Maui. It will not take a great deal of shifting of consumers away from purchasing directly from WestJet to purchasing towards that 15 per cent cost — it will not take a great deal of shifting to drive costs potentially into the millions. That is the situation we face.
Senator Tkachuk: How will Expedia or Orbit affect you? If you are in Phoenix and go to the Expedia website and see these other airlines, your price will also have to be full-in. Is that right?
Mr. McNaney: Yes.
Senator Zimmer: It appears that you are the victims here. In the old days, you would get to the boarding gate, and you were almost accosted, arrested and stopped because they wanted $10 to get on the plane. People got annoyed with that, so the airport terminal charges among others were passed on to you. You are almost the victims here. You are the carriers, but you have to collect their money while you are trying to create a level playing field. It is difficult to do. You are almost the bad guys in this.
Do you have any idea who sets the fees for airport improvement, security, environmental and other related charges? How much do they make in a year? How do they spend it? Who monitors the spending of that? Do either of you have any idea?
Mr. McNaney: You have touched on a sensitive nerve for us. We think protecting the consumer is not about making me hold up the bigger sign but rather going after that $50 tax added to an $11 purchase. Your question actually sets us up for some future lobbying that we will do with this committee and some present lobbying I will do now.
As an industry, there is a need to get a handle on the questions you have just posed. If you look across the variety of organization imposing those fees, part of the problem is there is no one bad guy in Ottawa. The Department of Transport has mandates and responsibilities it fulfills — and I am cognizant of the fact there is a whole plethora of Transport officials here in this room. The Department of Finance, NAV CANADA and the airports themselves all have responsibilities which require fees or funds. This is in addition to security.
The end result is that all these different groups have a claim on the airline ticket. We are in the process of trying to get focus on the entire collectivity of organizations that play in this area and approach them directly with the questions that you are asking: Who is responsible? Who monitors this? Do we have an opportunity to take a cohesive and coherent approach so that we can attack this $50 tax on an $11 sale?
I would suggest to the committee that it dig its teeth into this issue. We would be happy as an industry to come back and have in-depth talks about it.
Mr. Galimberti: I will table for the committee today in both official languages an example of a round trip ticket from Ottawa to Toronto, $99 each way. On that ticket, there is a $24 NAV CANADA charge, $9.34 for CATSA — to be scanned — $35 in airport improvement fees to both Ottawa and Pearson airports, and $15.91 for GST and P.S.T. That does not include the $350 million or so that the government takes out annually in airport rents and the four-cents-a- litre federal government fuel excise tax for domestic flights. This provides a sense of the tax regime.
Airport improvement fees across the country vary in a phenomenal way. They are listed on the back page of my submission. We have no control over how airports spend their airport improvement fees. We have no say in how the security charge is set. NAV CANADA has set their fee arbitrarily. They keep a substantial reserve, in the millions of dollars, paid for by our passengers, and that reserve sits, in perpetuity, should there be an emergency when they can draw on that.
This goes to my earlier point about how I am sure my customer is deeply concerned when they watch a $99 fare turn into a $130. I am deeply concerned about it. It is a substantial problem.
Senator Zimmer: When I go into a hotel now, there is an $8 marketing fee added on. It is a marketing fee for the hotel to sell the room to me. I am paying a marketing fee to have the room sold to me. It is annoying what associations do now to exist. They add on these charges back to you to give them their money. I am sorry for you. You are placed in a very difficult situation.
Senator Dawson: I went on the Internet — Flightcenter.ca, Travelocity.ca, Airfare.com, Lowfares.com, FareCompare.com, Priceline.com, Expedia.com, et cetera. On every one of those sites, if I asked for a price, taking into consideration, Mr. Galimberti, you are co-chairing with United to go to United States, is it true that I will always find their price lower than yours?
Mr. Galimberti: I am less clear on how the fare aggregators work, the Expedias and Orbits of the world. That has more to do if you are on Expedia.ca or Orbit.ca. It then becomes a domestically regulated entity. I am far less clear on how they work it out internationally. It really seems to vary website to website.
Senator Dawson: Both Quebec and Ontario have to police the Internet on these prices, so if you are not respecting their regulations on these dozens of sites, how do they enforce these corporations that are international and are probably in the post office somewhere?
Mr. McNaney: My understanding of the aggregator sites is that they are headquartered in Ontario, so at this point they do the all-in.
We have seen in other policy areas such as health care where operations have been set up in provinces that have different jurisdictions, different legislation with respect to sale over the Internet. That does not mean that a move could not occur to a different jurisdiction that would not require all-in. However, I believe the search engines for the dot CAs, I may be mistaken but I believe they are headquartered in Ontario.
Senator Dawson: A lot are not dot CA, they are dot coms. You can buy through your credit card the ticket in an international forum, whatever it is, and you would be advertised as being more expensive than, in your case, United on Quebec-Florida; you can be on a United Airlines plane or on an Air Canada plane.
Mr. Galimberti: If you were to go to an aggregator that is European- or U.S.-based, irrespective of how that aggregator has its business practice set up now, the Canadian government will not be able to enforce or regulate that site. If lowfares.com decides that it wants to put in place a system where it does not include taxes and fees it will most likely include the taxes and fees for our flight.
Senator Dawson: What if the minister comes in front of us and says that he accepts the wording as it is now because he wants us to pass this bill? We are in a situation where, if we want to satisfy you and go back to the original wording that had been proposed by the Department of Transport six months ago, we risk sending the bill back to the House of Commons and to the House of Commons Transport Committee. It might be amended again and come back to us, and these bills that have been on the Order Paper now for in some cases four years will be delayed. You can understand our situation.
Had you been able to convince the Department of Transport that what had been done at the House of Commons committee — we would be in a situation where at least we would be telling the Department of Transport that we agree with you, we will amend the bill and send it back to the House of Commons, because we are trying to be a chamber of sober second thought and we are improving proposed legislation to be as responsible as it should be.
I am asking you — and I am also talking to the government side. If there is a reason that would justify sending the bill back to the House, is it possible that we might be able to get it back and get in third reading before the end of the summer? You have talked about the pressure of the December sittings in the House of Commons. We are in a situation now where we have perhaps four weeks if we want to get proposed legislation out before the end of the existing session. In the context of a mid-mandate, you can imagine that there may be prorogation, in which case this bill would die on the Order Paper once again.
We might have sympathy towards your recommendations, but do you think we could get it through here, amend it, back to the original wording, not invent new wording, and send it to the House and get it back here? Would you not be afraid that the other aspects of the bill that you agree with would die at the same time?
Mr. McNaney: What it comes down to for me — and I am assuming for Mr. Galimberti also — is that I understand that there are other provisions in this bill and I understand that the bill is incarnation number two or three of attempts to get this bill passed, but I do not think the frustration that exists in trying to get this legislation through in the timeline that is set because of a parliamentary recess during the summer is a get-out-of-pass-a-bad-clause card.
At the end of the day, if this clause is passed as it is currently worded, you will be making the following decision: You will be passing a bill that concludes that it is sound policy from Parliament to require the company and the companies that actually provide the service, and particularly in an industry like ours where if the industry as a whole has a 4 per cent profit margin everyone claps each other on the back for a job well done, in a ferociously capital- intensive and highly cyclical industry, you will be making the overt decision that it makes sound policy to require the service provider to advertise its product at a higher price than another entity that sells an element of that service.
I cannot for the life of me see how that makes economic sense in any industry — most certainly in an industry as capital intensive and as cyclical as ours. I understand those time constraints and those time demands. On bended knee, I would say to you, the committee, please consider the ramifications if you pass this bill because it has to get through because it is on its third attempt or the House will be rising shortly and you are facing a parliamentary crunch. We are the ones that will have to live with what comes out.
Senator Dawson: Mr. Galimberti, we would appreciate it if you would table the documents that you have.
Mr. Galimberti: I am happy to table the documents that I have referenced with the clerk at the conclusion of this hearing.
The Chairman: Are you concerned that your input into the regulation-making process will not result in advertising regulations you can live with? The bill is not specific about the wording of the regulations.
Mr. McNaney: In terms of WestJet, that is asking me to have hope that it will work its way through. Hope is a wonderful thing on Sunday when I am at church. On the other six days of the week, as a business strategy, it does not work. Could it work its way to actually potentially be not as damaging through regulation? That is possible. Could it work its way out to be even worse than I currently believe it might be through regulation? That is equally possible.
Mr. Galimberti: It is safe to say that we have a pretty high degree of confidence in our regulators. At the same time, it is impossible for us to business plan around high degrees of confidence.
Senator Mercer: I support the position of both Air Canada and WestJet at clause 27, that it needs to be changed. This is a tenuous industry. We have seen it worldwide. I do not think we should do anything to disadvantage our local carriers. I do not fly WestJet because WestJet does not fly where I go. I do fly Air Canada and it galls me that you talk about 777s and 787s when you cannot get your domestic market right. I do not really care about your international market because it is the domestic market that you continually screw up.
I go back to a question that the chair asked about the complaint process. You said that Air Canada handles complaints and that you have enough people to handle complaints. I do not buy it. Two weeks ago at the Ottawa airport, I could not get on the flight I was supposed to take to Toronto because the aircraft had changed. It really disadvantaged me. However, it really ticked off another passenger who had a very critical situation to get to on his trip. I have no idea whether it was business or personal; it did not matter to me.
What was the response of the clerk at the gate? Was it to sooth the man's way? Was it is to find him another way? Was it to walk him down to Porter Airlines and get him a ticket? No, it was to call security. I am sorry, but that is not good service. You continue to come here, and it just gals me every time I see someone from Air Canada before this committee. It gals me that you come here and ask for our help when you cannot provide good, common-courtesy service to customers in every airport across this country.
Mr. Galimberti: Many times, interactions with the customer are, by their very nature, individual interactions with individual staff. I know the amount of effort we put in and the tools that we provide and what it is we do to allow our people to help customers. It troubles me greatly every time I hear about an incident, and it happens, where that commitment to service is not met.
I cannot speak to the individual instance you witnessed. It certainly does not sound like it was a pleasant experience, not only for that passenger but for those around him. All I can say is that, from the management level down through the rest of the operation, I legitimately believe that we are trying in a very sincere way to address customer issues. I know that we track the metrics that we have at our disposal through actively surveying our customers and through actively monitoring the complaints that come in to address some of those concerns.
Senator Mercer: Mr. Galimberti, I am surveyed all the time. I am an elite or super-elite member, depending on which area I have to be in. Do you know what flights they call me about? They call me about the flight from Ottawa to Toronto. It is a 45-minute flight. What can go wrong, other than the fact that I got bumped off that one flight? They never call me about the bad service on the flight from Ottawa to Halifax that I take every week.
As I say, I will support you both; if I need to be the person who moves the amendment to the bill to support what both airlines want, I will.
Mr. McNaney may have the same problems, but I do not know because I do not fly that airline.
I do not know how much money Air Canada is spending on professional development of the staff at the gate, both at check-in and after you pass security at the gate. Back when Air Canada and Canadian Airlines merged, it was easy to tell the difference. The Canadian Airlines staff were the people who gave you good service, and the people who were ignorant to you were the people from Air Canada. Are you spending any money to fix this problem?
Mr. Galimberti: Yes, we are spending considerable amounts of money to address customer-service issues on an ongoing basis. I will commit to you personally and to this committee to get back any information that I can as to the nature of those programs that is not of a confidential nature.
Senator Merchant: I hate to pounce on you because you have just had a whipping here, but if airline complaints are more aligned with market share today than in 2000, then WestJet's complaints must be up and Air Canada's must be down — because your market share has been going up, Mr. McNaney.
Are you having more complaints, Mr. Galimberti, or are you having fewer complaints than in 2000?
Mr. Galimberti: Speaking from Air Canada, I think that our complaints are going down. Market share is one metric that one can look at. We are flying more passengers today than ever before. We are in something like our seventeenth consecutive month of record load factor. Although WestJet has certainly grown as a carrier in this country, we are flying far more people than we used to. We had 32 million passengers last year, which is an enormous amount.
Are complaints going down? I sincerely believe they are. Is the number of travellers going down? No, it is quite the opposite. The number of passengers is skyrocketing.
Mr. McNaney: We have not seen any appreciable increase based on increased frequency. Our view is that it is our responsibility to try to rectify whatever that complaint or problem may be long before it is necessary for an agency of government to spend its time trying to resolve it for us.
Senator Merchant: For what it might be worth, I fly both WestJet and Air Canada, because I live in Regina, and I hear many people saying that they prefer to fly WestJet. Deliberately, they will fly with WestJet. One reason might be that your planes are different. They are a little larger. Sometimes, when you go from Regina to Winnipeg, the Air Canada planes are small. However, I think it also has to do with the service. I am hearing that Air Canada is becoming arrogant and that WestJet is giving better service, for what it is worth.
Mr. Galimberti: I grew up in Regina, so I am especially sensitive to that particular market, as I go back there quite frequently; as well, my mother still flies out of there on a fairly regular basis. That does bother me in a way. I can only tell you that I personally am fairly aggressive in my department.
Government community relations is not limited to the federal level. I do provincial government relations and municipal government relations. We engage in an ongoing dialogue with our airport partners. We actively meet with local chambers of commerce. We have met with Mayor Fiacco of Regina on numerous occasions to detail for them the service we provide, the tourism dollars, the business dollars that we bring to communities across Canada. The fact is that we are a presence in communities across Canada. We have a great charitable program called Kids Horizons that donates millions of dollars and millions of air miles for free travel across this country over the course of a year.
Are we becoming arrogant? I sincerely hope we are not. I certainly can speak for myself and the broader corporate umbrella to tell you that we do just about everything we can to get out to communities and let them know that we are present.
Senator Merchant: I have a question on clause 19, which removes the agency's power to investigate monopoly conditions on domestic routes and rates on its own initiative. Again, I am a westerner, someone who lives in a city with a limited number of choices. Are your companies supportive of these provisions? Why should this right be taken away from the agency?
Mr. McNaney: In terms of WestJet, I can tell you that I am ostensibly focused on that one clause with respect to the all-in advertising, so I have not looked at the rationale behind that particular clause.
Mr. Galimberti: I do not think it is appropriate to compel a carrier with a business motive to fly a non-profitable route. The history of bankruptcies in the airline industry is well-told. The road is literally littered with discarded planes of airlines gone past. Am I comfortable with the CTA not having that jurisdiction? Quite frankly, I do not know how much it was employed in the first place. I do not know that it is particularly significant. I am fairly comfortable with the clause.
Senator Merchant: Finally, I would also like to be on the record about clause 27. I see this as ease of advertising versus knowledge. A few years ago, a certain flavour of government passed the GST because they said it would make it easier for the consumer to see the taxation. It seems to me that the opposite is applied in this case. I know that it makes people angry, but I do think there is a duty to have an informed public. The public ought to know what taxes are imposed by government. It may annoy them, but I do not think hiding things from the consumer serves the public interest. I support you in your concerns about this.
The Chairman: Thank you very much, Mr. McNaney and Mr. Galimberti, for your presence here tonight. We heard you and we will look into whatever we can do with the proposed legislation. We will do our best. We are always trying to reach our goals — that is, to protect the public while at the same time making things possible for the industry.
Our next witnesses are Mr. Cliff Mackey, who is with the Railway Association of Canada, and, from Canadian National Railway Company, Mr. Claude Mongeau and Mr. Jean Patenaude.
Cliff Mackey, President, Railway Association of Canada: The Railway Association of Canada — RAC — with over 60 members, represents virtually all railways operating in Canada — that is, the large class 1s, CPR and CN, short-line and regional railways, intercity passenger and commuter rail service providers, and tourist train operators across the country. As president of the RAC, I am pleased to have the opportunity to comment on Bill C-11.
To put it in context, honourable senators will remember that almost seven years ago there was a review of the Canadian Transportation Act. That panel reported, and we were active participants in that process and welcomed many of its recommendations. We see Bill C-11 as a partial response to that panel.
Today, I appear on behalf of the association. First, I want to say clearly that we fully support the intent of Bill C-11, and most of its provisions, but within it there is one specific provision that is of significant concern to the entire railway industry. I am referring to clause 95.1, dealing with noise and vibration caused by railway construction and operations.
I am sure you are aware that the House of Commons Standing Committee on Transport, Infrastructure and Communities amended the noise provision, removing the proposed reasonableness test found in the initial version of the bill and replacing it with an obligation on railway companies to:
. . . cause as little noise and vibration as possible, taking into account
(d) the potential impact on persons residing in properties adjacent to the railway.
The RAC is concerned that these specific wording changes could harm the railway industry, those who depend on reliable freight and passenger service and, in some cases, even the regulator. Like many industries in Canada, railways must, in some cases, operate 24 hours a day, 7 days a week, to move products essential to the economic and social well- being of our country. The economy and viability of shippers from coast to coast relies on efficient and reliable rail service. I am sure you have all seen in the recent past what even short-term interruptions in that service can do to us as an economy.
I should like to summarize some legal analysis that we have prepared that outlines some of the concerns we have about proposed section 95.1.
I should say at this point that my colleague Jean Patenaude is with us tonight. He is an expert on regulatory matters when it comes to transportation and he can speak in more detail if you wish.
Let me start by referring to 95.1 and its wording, which, in our view, is rarely used. The wording ``as little as possible'' is not commonly used to establish standards in federal legislation. Transport Canada itself conceded during its appearance before the House of Commons committee that these words were not frequently used. Words such as ``reasonable'' or ``unreasonable'' are established terminology that has been tested in law in the past. Departing from established terminology in our view will lead to challenges from various parties, including possibly federal regulators, thus requiring judicial interpretation and frankly more uncertainty in the system.
Some have suggested that the words ``as little as possible'' will import the concept of reasonableness. We have looked at this carefully and we disagree. Bill C-11 was introduced with the words ``shall not cause unreasonable noise'' and was changed to remove the reasonableness test and replaced by the words ``as little noise and vibration as possible.''
As such, it is our belief that the Canadian Transportation Agency, or any other party who may, in the future, file a noise complaint, can argue that the intent of Parliament was to replace the reasonableness test with one of a strict duty.
The second point I should like to make with regard to 95.1 is that it exceeds the requirements found in the law. Regarding the current noise complaints, a railway can generally raise, as a defence, that it is not at fault and that its operations do not exceed the inconveniences that would otherwise be accepted given the location of the residence of the person who is making the complaint. Again, this comes back to the concept of reasonable. Proposed section 95.1 would effectively impose a strict obligation on a railway and a duty exceeding that imposed on those who neighbour our operations.
The third point I should like to make is that 95.1 would, in our view, effectively eliminate the use of a statutory defence. As I am sure some of you know, a company is allowed by statute to engage in activities that are intended to benefit the public and the community at large, even though the activities could be considered a nuisance to some. The wording ``as little . . . as possible'' will make it nearly impossible, in our view, for a railway to successfully raise this as a defence in the event of a future dispute.
An ongoing point is that proposed section 95.1, in our view, obligates only the railway party in this relationship. There are no counterbalancing obligations on land developers to notify railways before building near-railway infrastructure. In addition, there are no provisions requiring community planning boards to set construction standards for developments near railways; and further there are no restrictions on the issuance of any municipal construction permits or similar kinds of documents.
I wish to point out to the committee that railways have made considerable accommodations to mitigate the impacts of their operations on local residents in the past We have gone so far as to move yards and operations out of the central parts of towns and cities across the country to industrially zoned areas, only to find, unfortunately, that some years later, residential units are now being developed in close proximity to those new operations, resulting again in having to deal with issues of noise and other related matters.
Recently, the RAC has been working closely with the Federation of Canadian Municipalities through a memorandum of understanding to improve community relations with FCM members and railways. The agreement is continuing to build on previous work to improve municipal planning guidelines and to develop new techniques and technologies to mitigate noise and vibrations caused by railway operations. We think this is the right approach and we think it is working very well.
Unfortunately, proposed new 95.1 does not recognize any of that activity. It simply links the obligation of a railway company to residents in the area and it makes no reference whatsoever to zoning or other municipal control matters.
Finally, 95.1, in our view, faces railways with a continuing obligation to respond to complaints even when it is poor community planning or others that caused the original problem. Further, the financial burden that such an obligation could impose on railways is not considered at all.
In conclusion, it is our view that both freight and passenger railways require assurance that they can maintain current and future operations in a stable manner. The railway industry has made tremendous efforts in the past to work with its communities — and I can tell you that we intend to do that in the future.
If freight railways, whether they are large class 1s or short-lines, small companies, are forced to restrict the duration of their operations, it would have an immediate and significant impact on manufacturer supply chains. Railways simply do not have the capacity to increase their traffic volumes at certain times of the day to meet community concerns and reduce it at other times of the day.
Further, as you know, many individuals rely on passenger rail to get to and from work every day and to travel between major cities in the country. Restricting passenger rail operations would negatively impact these commuter patterns and not only have an economic impact but in our view an environmental impact.
In conclusion, the RAC believes strongly that while we are fully in favour of the intent of Bill C-11, the bill, in its current form, fails to strike the appropriate balance between conflicting interests when it comes to the management of noise. As a result, it could harm the railway industry and those who rely on rail services. I respectfully submit that a more appropriate balance was reached in the original wording of the bill.
Claude Mongeau, Executive Vice-President and Chief Financial Officer, Canadian National Railway Company: I am pleased to be here. I wish to echo the comments Mr. Mackey made to you so eloquently. I should also like to give you a perspective on the practical issue and quite frankly plead with honourable senators to make the right choice in this instance, to come forward with a proposal to change that particular clause in the bill. We made our views known on Bill C-11 at the House, and we had many concerns, but in the end, we are at peace with the key elements that are contained in Bill C-11.
There is one fundamental exception — the noise level. We can understand — I am a practical man — why it came about. There has been a void in having a forum where people could have their concerns settled and mediated for many years. This bill reintroduces the role of the CTA to look at these issues with all the seriousness that the CTA can have and render decisions that are binding on the railway to address noise issues. That is very important and we support that.
We believe, however, that the CTA and the law should be anchored on the right policy framework. Quite frankly, this change to go from a standard of reasonableness to one where we are asking the railroads to make as little noise as possible is setting a situation where the standard has no bar. Does ``as little as possible,'' just to make an analogy, mean that railroads have to levitate?
The reality is railroads do make noise. We do have to operate 24 hours a day. We have been in areas where we have operated for a long time and we do have issues of cohabitation with our neighbouring communities. I will tell you from experience that our issues are largely in Quebec and in B.C., where there are more urban areas and no proper zoning mechanism.
In Ontario, the situation is vastly different. The Ontario process forces anyone who wants to build a new zoning change into a community to give proper notice, which allows the railway to be aware of a development residential or otherwise near its facilities. It allows the railway to go to an Ontario Municipal Board to make known its views. The OMB has criteria that states, for example, that a residential area should be 300 metres away from a rail yard and that construction of the houses should include proper soundproof materials and things of that nature. In the end, we avoid a lot of the problems.
In Quebec, residential developments are the sole purview of the municipality, and often we find that our facilities, overnight, have new residential neighbours located beside the yards. It is the hard reality of a railroad, steel on steel, that we do make noise.
Some people who initially might have been quite comfortable with the noise may go through a phase in their life — more stress or more difficulty sleeping — where suddenly they hear the train all night. It is human nature to be very mad at the railroad that is nearby. That is reality. To say that the new process or the new standard would call for railroads to have an obligation to have as little noise as possible is not the right standard.
The previous approach that was discussed with Transport Canada gave the railroad the ability to operate and restrained us from causing noise that was unreasonable. The proposed legislation obliges us to make as little noise as possible.
How little is little? It is impossible to judge. It is not necessary. The CTA has a role to play. There are regulations that will be written. Those regulations can be strict, but the test should be one of reasonableness. It is the only way to promote the proper handling of neighbouring issues for the long term while at the same time protecting this fundamental infrastructure, which is so important to our economy.
I am here as a senior executive of CN asking you to consider this one issue and make the right policy choice by coming to something that is more reasonable.
Senator Tkachuk: Were there regulations or was there a law previous to this bill that regulated noise, previous to proposed section 95.1?
Mr. Mackey: There was, but as a result of a court action a number of years ago those particular powers, which were then understood to be vested in the CTA from a regulatory point of view, were struck down by a court, creating a vacuum. One of the important reasons this bill needs to go forward is that we do need a regulatory framework that is reasonable so that in the future we have a proper recourse to resolve disputes with communities and others. It was struck down as a matter of a court decision.
Senator Tkachuk: What was it before?
Jean Patenaude, Assistant General Counsel, Canadian National Railway Company: It was a roundabout way of trying to get to noise. The Canadian Transportation Agency, through cases that had come before it, had interpreted it as giving itself jurisdiction over the regulation or the settlement of disputes between the two parties.
Senator Tkachuk: It was a regulation.
Mr. Patenaude: It was a provision in the legislation. It was a tenuous claim, but the CTA was trying to do the right thing to balance the interests of the two communities. The court came to a conclusion that that link was too tenuous and did not exist. We ended up with a void.
Senator Tkachuk: Did the unreasonable noise provision come about as a result of consultation with the department, your association, and others?
Mr. Mackey: Yes, a broad set of consultations took place. We were certainly involved and recommended that the approach to what the test should be was an appropriate approach.
Mr. Mongeau: It was through significant consultation with Transport Canada officials and other important officials on this file that we came to the test that was proposed in the initial wording of the bill.
Senator Tkachuk: I am always perplexed by people who buy a home by a railroad and then complain about noise. It is always confusing to me.
When we were on the West Coast, noise was a concern of many of the people who came before us, including the Mayor of Delta — which is a city by the railroad. They were very concerned about the noise and wanted us to do something about it. Maybe this bill regarding unreasonable noise will do it, but what caused the amendment to as little as noise as possible? What was the logic or the debate that went on that caused that twist? This is highly interpretive. As little noise as possible could be no noise.
Mr. Mackey: We were not party to those conversations. I have to be careful. What I can say is what I have been told caused it.
Senator Tkachuk: What do you lawyers say about it, because you raised a concern that you do not agree that this would be close to unreasonable noise. What did your counsel say?
Mr. Mackey: I just briefed you on what my counsel had advised. There was a discussion at the standing committee led by Bloc members, and they were eager, for whatever reasons, to make this appear very stringent. That was my understanding of what motivated the change at the committee level. The government, as you know, proposed a more reasonable test when they tabled the bill.
Senator Tkachuk: Was this reasonable test in previous incarnations of this bill?
Mr. Patenaude: It was the unreasonable test when Bill C-11 was tabled for the first time.
Mr. Mongeau: The bill introduced the power of the CTA to mediate and arbitrate those issues. We support that and agree that that should be done. The bill introduced the proper test, which is, railroads shall not cause unreasonable noise, which will eventually be backed up by regulation to help the CTA actually define what that means. We are fully supportive of that. We have worked with Transport Canada through every step of that bill to make sure that it was properly entered into the original Bill C-11.
If you were to ask me what happened at the committee — and perhaps I am too honest — when you have a minority government and you have local constituencies who have issues such as this one, mostly in Quebec and B.C., there is the potential for someone to say that that not enough, we would like to have more. The committee decided, because they have the ultimate ability to do so in a minority government, to introduce this change.
That is why we are here today to tell you that the power of the legislator is sovereign, but sometimes we have to step back and ask ourselves: Are we introducing the right policy choice? I am convinced that this is going too far. There is no way to judge how much ``as little . . . as possible'' is and it is not a good fit to the reality of a railroad operation. It is a steel-on-steel operation. As long as people are in residential areas too close to the railroad, there will be problems.
It is my own personal experience that there are people who at one time in their life were totally comfortable with the noise but because of circumstances, stress, family issue, sickness, whatever reason, have found themselves in the uncomfortable situation where they do not sleep at night. When you awake at night and hear the railroad, you will blame everything on the railroad. That is the reality. Finding the right balance requires the CTA, but to expect the railroad to be obliged to make as little noise as possible is not the right test.
Senator Zimmer: Thank you for your appearance today. Believe it or not, I am starting to use the rail system between Winnipeg and Saskatchewan. My honourable colleague, Senator Tkachuk, and I come from the same province and we ask complementary questions. I use the rail system because by the time you get to the airport, wait, get on and fly, it does not take that much difference in time.
I took a trip in the last couple of weeks and it is amazing how much research I can do for this committee talking to those attendants about the service and the problems that come from it. I have always welcomed the noise of the railway back in my little town. In times past, on a Saturday morning it used to lull me back to sleep — so I actually like the noise.
Mr. Mackey, you the concern about the usage of the words ``potential impact on persons residing in properties adjacent to the railway'' because you believe it will place ongoing obligations on railway companies as opposed to an obligation at a particular point in time.
Will you be satisfied with this provision if it is specified that consideration only applies to persons residing in properties adjacent to a railway before the railway company begins operating there?
Mr. Mackey: The short answer would be, yes, in the sense that in that context we would have the obligation anyway if we were developing a new line to make sure that the local community was on side with it. That would not change anything in that sense.
The key word in that phrase is the word ``potential.'' It is impossible to define potential, and yet it imposes an obligation. That is the most important word. However, from our point of view, we would rather have the whole concept of who is adjacent and who is not adjacent worked out through regulation and through adjudication and, if necessary, through rulings of the CTA. It is our view that to try to specify that in law is an extremely challenging thing to do. Depending on the geography of the place and the nature of operations, and a whole lot of other things, what could be reasonably defined as being adjacent to our operations will vary all over the country.
Senator Zimmer: With respect to noise and vibration caused by railway construction and operation, when Transport Canada officials appeared before this committee on April 25 we were told that the courts and the agency will have to determine by case law what is unreasonable versus what is reasonable. The statement is interesting on a couple of levels. First, the words used were ``reasonable'' and ``unreasonable'' even though the amended bill uses the term ``as little noise and vibration as possible.''
I do not wish to underestimate the importance of the wording in this bill, but does this suggest that the concept of reasonableness will continue to be the main consideration in reviewing noise and vibration complaints?
Mr. Mackey: This is why we made the point in the presentation that, in our view, they are not the same concepts. If you follow the development of the proposed legislation, clearly the intent of the House of Commons anyway was to change that definition of reasonableness, because that is exactly what they did in the development of the bill.
Mr. Patenaude: When the agency has to ask itself what did Parliament mean when they do that, they are entitled to look at the process before these committees. When they see that the bill used at the beginning the test of unreasonableness and that it was specifically changed to put the test ``as little noise and vibration as possible,'' they will have to read some meaning into that. Otherwise, they will be saying it was changed for nothing and that there is no meaning in the new words. I would beg to differ. I believe they would have to read some meaning into the change, and the change is a different test.
Mr. Mongeau: I would go even simpler matter than that. One should follow the ordinary meaning of the words. ``As little as possible'' means as little as possible. That is a bar that has no standard. It is as little as possible.
``Reasonable'' is a concept in law that means it has to be interpreted, and the interpretation is found a body, in a set of regulations, in jurisprudence, but the test is one that is known across many laws. ``As little as possible'' — those words are those words.
Senator Zimmer: ``As little as possible'' has no basement.
We were told that case law will be consulted during the review of such complaints. In your experience, have you had such complaints being dealt with historically?
Mr. Patenaude: Yes, we have had some complaints. There used to be complaints when the agency thought it had jurisdiction and ruled on them, so there is that case law, but the test has changed, as we know.
More important, though, there have been cases even during the void where there were complaints against railways and the agency had mediation services and we used the mediation services. In all the cases that I have been involved in with the agency when there was no test, it was not legislated, during mediation with the agency we came to a resolution of the issues between the parties. I believe it was a reasonableness test that did apply.
Senator Tkachuk: On that same question, following up, it has been pointed out to me that in the changes, it says that ``a railway company must cause as little noise and vibration as possible'' — which is 95.1 — but it also says ``taking into account'':
(a) its obligations under sections 113 and 114, if applicable.
What are sections 113 and 114?
Mr. Patenaude: These are level-of-service obligations that are imposed on railways. For example, there is an obligation on the railway to handle the traffic being offered to it for carriage. These are the level-of-service obligations of the act.
Senator Tkachuk: Does that mitigate it a bit?
Mr. Patenaude: It says you must take that into account, but the potential impact on residents must also be taken into account as well. That is a subsection that causes us a little heartburn, because potential impact means we do not know what they are and it may vary by resident. It is a potential impact and those could vary.
The problem with this aspect is that it relates the issue to individuals as opposed to relating it to a location, a zoning standard, for example. If you in an industrial area, you know that you can expect certain industrial activities, whereas here it does not really look at that. It just says what are the potential impacts on the people, and take that into account.
Senator Tkachuk: It also says ``the area where the construction or operation takes place.''
Mr. Patenaude: Yes. One would hope that next to a yard, one expects a standard, even if it is ``as little as possible,'' to be somewhat different, but it is still as little as possible because these are taken into account. It does not take away the test at the top, which is to do as little as possible.
[Translation]
Senator Dawson: I was an M.P. and I have lived with the problem of having a rail yard next to the Pont de Québec, a yard that has been there for 125 years. Housing developments were built really close by and people complained about the noise. I would tell them that the railway was already there when they bought their condos. The same problem arose with the airport in Ancienne-Lorette; people had bought their houses with planes flying over the roof.
I am a bit worried about the drafting which seems a little different in English and in French. The English says ``as little noise as possible'' while the French says ``le moins possible'' [the least possible]. It seems clear to me that the least possible would be to have no activity of any kind. My dilemma — which I mentioned to the witnesses from the aviation companies who appeared earlier — is that it has now been seven or eight years that you have been holding consultations on this bill. Since the consultations started, you are on your fourth minister. You agree with the bill, but you are asking us for a little change. If we agree — because we are the chamber of sober second thought and we do take the responsibility of amending it and sending it back to the House of Commons — we are at the end of a parliamentary sitting that may also be the end of a session because the government could decide to prorogue. We send it to the House of Commons, and, thanks to the Bloc Québécois and the NDP, they pass the same amendment and send it back to us. Certainly the bill would be passed, but the danger is that your bill would be lost. You are the first to say that you agree with most of the bill except these clauses.
Would you prefer to run the risk of having no bill at all and for a new Minister of Transport to come back in six months or a year with new legislation, and when that bill gets to the committee stage in the House of Commons, they perhaps ask for the same thing?
At a certain point, we can decide to chance making the amendment and sending it to the other place. But, on the way, they can put the bill back to its original form. We are confused: The Department of Transport tells us that it can live with the text as it stands. The department is your partner. The minister could have decided to pay us a visit here in the Senate to tell us that he found the amendment tabled in the House of Commons to be unreasonable — let's not mince words — and to ask us to change it. Instead, he came here and told us that he could live with the bill in its present form.
You are putting us in the position of taking a chance on the amendment, because you seem to have a reasonable case — and the situation might be worse in French. But to what extent are you prepared to take the chance of having no bill at all at the end of June?
Mr. Mongeau: I do not think that we would be here if we did not think that it was the right thing to do. Right at the start of my presentation, I appealed to the wisdom of the Senate and I feel that we are here with one single request. We are comfortable with Bill C-11 as a whole. We are convinced that this part is neither well drafted nor good policy. We think that the Senate in its wisdom, and ultimately the second consideration in the House of Commons, will result in the bill most certainly being passed when you send it back with the appropriate amendment. I think that this is the best thing to do under the circumstances.
Senator Dawson: My question was, given the timelines and the number of parliamentary sitting days between now and the middle of June, given the possibility of prorogation, whether you are perhaps saying to us: even if you like the bill, do not pass it. Because it is possible that there is not enough time to send it back and get it back ourselves. In other words, it is going to die on the Order Paper.
[English]
Mr. Cliff: I wish to make three points.
First, we intend, with or without the legislation, to continue to work with communities and others to deal with these issues. It is important to our business and to our relationships with communities. We will continue to use the kind of standards we have in the past even if we do not have a legislative framework. In that context, I do not think this would be in the category of what I call urgent.
Second, if we thought this were a minor issue, you are right that we would not want to interrupt the flow of this proposed legislation. In general, we believe a proper legislative framework for this matter is in everyone's interest. We take this seriously, and that is why we are here today.
Third, coming to your point about time, even if we were to say today that we will compromise or do the expedient thing and not ask you to look at an amendment, we sincerely believe that this standard will cause a multitude of problems in the future and will cause us to have to come back to Parliament to say, ``We just cannot live with this kind of approach to life.'' Our view is that even if we run some risk of the bill getting taken off the Order Paper again or the House being prorogued and it having to be reintroduced yet again, we have lived through the years of trying to get the legislation through and we think this is a serious enough issue that it is a risk worth taking.
Senator Dawson: You could not succeed in convincing the minister and the department that they should have been supportive of your request for an amendment?
Mr. Cliff: We are still trying. I think the discussions that went on between parties during consideration at the other place put the minister in a rather difficult position.
Senator Mercer: Mr. Mongeau's comment earlier about the minority government is a very real one. My understanding is that the amendment came from a New Democrat, with support of the Bloc members. We have Conservatives and Liberals around the table. Maybe if we get our act together, by the time it gets back to the House, our people will agree on the other committee to fix this. It does not make much sense to me. It reminds of the people who say, ``I want to move closer to the airport,'' so we will build a subdivision close to the airport, and as soon as they move in they start complaining about the noise from the planes. It is silly.
How many noise complaints do you receive annually?
Mr. Mongeau: I do not know the exact number, but I will tell you that the concentrations of issues or hot buttons are in Quebec and B.C. The reasons are understandable. In Quebec, residential developments are the single purview of municipalities, and we have seen encroachments and new housing developments right by our yard. From that point, it is an uphill battle with noise-level issues, et cetera. In most instances, we are the party that was there in the first place. Over time, residential development occurs nearer and nearer the yards and causes problem. We do not have anywhere near the same issues in Ontario because there are simple standards applied by the Ontario Municipal Board. They do not let residential units closer than 300 metres unless they have a specific housing construction requirement, thicker walls, windows that are better insulated to address the problem, or they have a servitude on the noise issue so people understand what they are getting into when they zone residential near a yard. If you do not have that kind of discipline, and that is the case in the B.C. and Quebec, the other two major urban areas where we have more of those neighbouring problem, you have creeping noise issues, which are becoming a problem.
Senator Mercer: When we were in British Columbia on another matter, we kept hearing complaints about the lack of good rail travel to and from container piers, until we talked to municipalities who complained about the plans for more rail travel from the container piers. I share your frustration.
You talked about Ontario and the rules in place there. Is there any advice you could give to the federal government? Is there a way we could take what you consider good rules in Ontario and incorporate them in the proposed legislation or another piece of legislation, to fix this problem? I know we will get into federal-provincial-municipal issues.
Mr. Mongeau: We are doing that without legislation, and my friend here is on the road every day with municipalities doing that, having common standards.
Mr. Cliff: We are doing that in developing our relationship with the Federation of Canadian Municipalities. One key reason for that undertaking was to find a way to work with municipalities to put in place better standards, planning standards, and procedures.
Coming back to the point that Senator Dawson made, I would be concerned to suggest that to you, because that would be a major departure from the existing structure of the legislation, and there are other acts out there. For example, I am sure you are familiar with the Aeronautics Act, where there are some powers vested in the federal minister when it comes to the planning of lands adjacent to airports. In practical terms, they have been rarely exercised.
Senator Mercer: We have not talked about the potential costs that could be incurred if we move from ``as little noise and vibration as possible'' to ``unreasonable noise.'' It seems to me that somewhere in the world somebody will invent a train that will somehow be quieter, and somebody who is living next to the tracks in Vancouver or Montreal will say, ``We should have that here.'' Somebody will interpret the rules to say, ``That is a good idea. Do that.''
What are the potential costs to the railroads and ultimately to the customers?
Mr. Mongeau: I am the CFO, so I can tell you that cost of moving a yard in an urban centre can vary anywhere from as little as $25 million to as much as $200 million, if it came to that. The costs involved where there are such issues in neighbouring yards are significant.
The worst fears are things like hours of service. Once you say, ``as little noise as possible,'' you are one step away from saying stop working from 9:00 at night to 7:00 in the morning. That sounds reasonable in one municipality, but the reality is that railroads are a 24-hour-a-day operation over 15,000 miles. Seven o'clock at night in Halifax is a couple of hours earlier somewhere else, and our trains move across the country. If we were to stop between 9:00 p.m. and 7:00 a.m. along the way every time, our trains would come to gridlock. We would have less capacity to serve customers and higher costs to operate, which in the end is not the right solution, when a better test, more sensible legislation, could address the problem without overreacting.
Mr. Mackey: Right now, we have a competitive advantage in trying to develop our traffic off the West Coast because of the geography and because we are developing, frankly, efficient rail systems. If we were faced with these kinds of restrictions, that competitive advantage would disappear overnight, and I can guarantee you that that freight would go to Long Beach, Portland, Seattle or somewhere else, and huge numbers of jobs would be lost.
Senator Mercer: Some would argue that Long Beach cannot handle more traffic.
Mr. Mackey: They will find a way.
Senator Merchant: You have laid your concerns out quite clearly. I understand them fully and I have a lot of sympathy.
One of the questions I had was to elaborate on the economic impact, and I think you just did that for Senator Mercer. You also spoke of environmental impact. Could you elaborate a little bit for us what you meant by that?
Mr. Mackey: Just to give you a couple of factoids, to put it in context. The railroads in Canada move 65 per cent of the surface freight in the country. If you look at our GHG footprint, the amount of GHG we produce in doing that, it is 3 per cent of the total greenhouse gas emissions from the transportation sector in the country. Rail transportation is highly advantageous from the point of view of the footprint we create.
If you impose, through this kind of legislation, further operational restrictions on the railways and reduce our productivity and ability to offer services to customers, it is inevitable that you will drive some of those services onto alternative modes, and there is no doubt that that will have a significant environmental impact.
Senator Zimmer: Mr. Mongeau, two questions: One in mergers and acquisitions; the second in railway police.
When the Canadian Bar Association appeared before this committee on May 1, they expressed several concerns regarding this bill's provisions concerning mergers and acquisitions. Amongst other issues, they noted that allowing the minister a 42-day window in which to determine the requirement for a public interest review could kill the proposed transaction. Could you please comment on your position on this provision and any other aspect of the mergers and acquisitions part of the bill?
Mr. Mongeau: This bill addresses broader transportation concerns than just the railway, so I can understand the concern. As far as railroads are concerned, the reality is that the process to approve mergers and acquisitions that are applicable in the U.S., for instance, has a very long time frame. There is no such process present in Canadian legislation. Having a similar public interest review process for railroads transactions is not an undue burden and is one that we face in transactions in the U.S.
This may be different for other modes of transport, where there are more transactions, and indeed the problem that you raised becomes one that is more detrimental to their business interest.
Senator Zimmer: On railway police, give us an appreciation of your company's involvement with the CTA with respect to railway police. Have you been apprised of any changes that would arise from the transfer of legislative arrangements for railway police from the CTA to the Railway Safety Act?
Mr. Mackey: As a result of my work with our own security committee, in general I can tell you that we have not received any expressions of concern with regard to that transfer.
Mr. Patenaude: I confirm that; to us, it was not an issue.
[Translation]
The Chairman: Gentlemen, thank you very much for being with us this evening. We are going to continue our deliberations as carefully as possible, and we hope to come to a consensus around this table.
Mr. Mongeau: We like your phrase ``as carefully as possible.''
[English]
The Chairman: Thank you very much, witnesses and senators.
The committee adjourned.