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Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 4 - Evidence, October 20, 2010

OTTAWA, Wednesday, October 20, 2010

The Standing Senate Committee on Transport and Communications met this day at 6:48 p.m. to study the emerging issues related to the Canadian airline industry.

Senator Dennis Dawson (Chair) in the chair.


The Chair: Welcome, Mr. Minister. Since I know that you have important votes in the House, we will try to make your life easier.

I call this meeting of the Standing Senate Committee on Transport and Communications to order and I would like to thank you all for being here today.

This evening, we are going to continue our study on emerging issues related to the Canadian airline industry, which was referred to us.


This evening, we are pleased to welcome before the committee the Honourable Chuck Strahl, Minister of Transport, Infrastructure and Communities. Accompanying the minister are his officials: Brigita Gravitis-Beck, Director General, Air Policy; Isabelle Trépanier, Director, National Air Services Policy; and Isabelle Desmartis, Director, Security Policy.

Colleagues, as we only have an hour with the minister, I would appreciate your cooperation in keeping your questions succinct.

Mr. Minister, I invite you to make opening remarks, after which we will have time for questions from senators.

Hon. Chuck Strahl, P.C., M.P., Minister of Transport, Infrastructure and Communities: Thank you, Mr. Chair. It is great to be back. I am sorry that I was a few minutes late, but we all know about votes. We were tied up there, but came straight over.

Thank you for inviting me to address the emerging issues in Canada's airline industry. I thank the department and acknowledge the work they have done and thank them for the presentation they made before this committee yesterday. I hope that detailed information will get you off to a good start. They will be cooperative as you go through this whole process.

I congratulate you on looking into this issue. It is important because Canada's aviation sector is strategically important, it helps to bind us together from coast to coast. We all have stories anecdotally about the importance of the airline industry. Your work is important to us as well.

Our aviation industry and our carriers in particular reflect Canada's unique features. We have a relatively thin population, mostly spread along the southern borders, in clusters, which means we ended up with a few key hubs in the aviation sector. We also have seasonal travel patterns, and we are all familiar with that. The flight south is not just for the birds; it is also for many Canadians who look for some relief down south.

Our northern communities and our remote communities, and I can speak from experience as Minister of Indian and Northern Affairs, would not be able to exist without a good aviation system in Canada. That network in the far north is important, as are regional air services.

Like so much of what we do, our proximity to the United States influences both what happens in our airline industry and the future of our airline industry.


As you examine the airline industry in Canada, this unique Canadian context should be an important consideration. The fortunes of the airline industry derive directly from the economy and the level of economic activity at any given time.


While this may seem obvious, it bears noting. It is easy to overlook when we wonder, for example, why a community may appear to be lacking in a certain type of air service or the quantity of air service or why pricing somehow seems out of line. The economic climate we experienced over the last two years has been a great test for the industry, and a difficult test. Though the recession may have technically ended, the fallout continues. Indeed, not long ago, the Minister of Finance acknowledged that the economy is still fragile, which means it remains to us to be vigilant on all fronts, in particular in industries like the airline industries that have gone through so much turmoil.

The airline industry has seen quite a bit in this last recession period and has acted rationally by limiting or paring back excess capacity so as not to flood the marketplace or drive down fares in a price war that further destabilizes the bottom line. Acting in an economically rational way is essential for survival, because the reality for the airline industry is that it is characterized by high costs and low margins. That is at the best of times, and the last couple of years have not been the best of times.

An aircraft, of course, is an expensive piece of technology. It costs a lot of money. Operating the aircraft safely requires people who have knowledge, skill, ability and training. That is also expensive. Ensuring the safe operation of that aircraft in a viable and profitable business costs a bunch more money. Of course, fuel, the largest single cost for the airline industry, is also expensive.

Notwithstanding the idea of hedging, fuel prices are not something the industry can ever fully control. If you throw in fuel costs, it is a high-cost, low margin industry. Then you add to this the challenges in paying for the facilities and services provided by Canada's airports and air navigation providers that, unlike some countries, are largely self-funded. We also have formidable climate issues, a vast territory, and people who in some ways have high expectations. They have been weaned on seat sales. They do not expect something for nothing, but they have seen the seat sales and they would like that to continue. All that added up means that it is a fact of life for Canada's airline industry. That is why everything that you will be researching is important to the strength of that industry in the long term.


The reliance on market forces is a strong underpinning of the current policy framework and, in today's global environment, where globalization drives our trade agenda and brings post-9/11 security costs closer to home, having a strong policy framework that empowers our industry and builds in flexibility is important, because it helps to strengthen Canada's place in the global economy.


Canada's place in the global economy is an important consideration. As a trading nation, it is increasingly important that our transportation system is able to support the movement of goods and people around the world. While our air transportation system connects our vast country and is often the only viable option in the remote parts of our country, it also connects us to our trading partners around the world. There is a need to be mindful about domestic and international perspectives when considering the existing policy framework. It is a made-in-Canada policy, but the impacts of it stretch around the world.

I have had this portfolio only a short while, but since I have been a member of Parliament, I have been struck by Canada's leadership over the period of time when we took some ambitious steps to modernize our aviation sector. We privatized Air Canada in the late 1980s. Our air navigation services were privatized in the 1990s with the creation of the private and not-for-profit NAV CANADA.

In that same time frame, we have moved to commercialized operations at major airports. That also included the creation of not-for-profit organizations and authorities that manage our largest airports in the context of our national airport system. There is a strong focus on local and regional development goals as well.


More recently, 9/11 brought about the Canadian Transportation Security Authority or "CATSA," the crown corporation responsible for delivering air travel security.


Together with the services provided by airlines, all these entities provide services that are, for the most part, paid for by air travellers. That is the system that has evolved here in Canada. Our air transportation system is largely self-funded and is not as reliant on federal subsidy as we see in many jurisdictions, especially our neighbour to the south. They have a completely different way of handling these fees. In part, you will be looking to see whether we can make improvements in our system, but it is enough to say that the system is quite different.

The effect of this devolution in Canada is that since 1987 the economics of air services within Canada have largely been deregulated and the industry has been operating guided largely by the discipline of competitive market forces. Those forces drive what and how air services are provided to Canadians.

I know you will be following up on the policy framework that underpins the transportation sector and defines the role of the various players in the airline business. Some of you have spoken to me about this. I think it is reasonable to ask whether Canada's aviation system, including the policy framework I spoke of, is serving Canadians well.

Canada's approach to privatization, commercialization and devolution was ahead of the curve of many other countries when we undertook these measures over the last 20 years. We were at the forefront on many of these initiatives. Our approach has resulted in major investments to renew the sector and has often encouraged innovations to allow the sector to survive and prosper in a challenging global environment. We have all seen the impacts globally on the airline industry. Ours has done relatively well.

As we look at other countries that still own or subsidize significant portions of their aviation industry, we have to remain vigilant in ensuring that our policy framework continues to promote an industry that can compete with players operating in a different regime. At the same time, we must strive, in negotiating agreements with international partners, to ensure fair competition for our industry.


I do not intend to speak at length on our airport policy because I believe this subject was noted in the comments by departmental officials yesterday. I would like to stress, however, that the majority of our major airports that operate as members of the national airport system have been able to refurbish their facilities and invest in new technologies under the model that was put in place in the nineties. They are more closely aligned with the needs of their respective communities.


The carrier/airport relationship is a symbiotic one. Both parties need each other. At the same time, there will be occasional complaints that airports pass on too many costs to the carriers that form their clientele.

In the course of your deliberations, you will hear about the rent payments to the government from the 21 airport authorities that form our national airport system. Under the rent policy that was put in place back in 2005, those rent levels were reduced considerably from earlier levels, but they will still be viewed by some as too high. You might want to look at the regime pre-2005 compared to today.

The rent represents the taxpayers' fair return on their investment, as well as the ongoing business opportunity transferred to the airport authority.


As you also heard yesterday, unlike air service within our borders, international air services around the world are governed by bilateral air transport agreements developed under the framework of the 1944 Chicago Convention.


Under Canada's Blue Sky international air policy, introduced by this government in 2006, Canada proactively pursues opportunities to negotiate more open agreements for international scheduled air transportation. Our aim is to have as open an international environment in air transportation as possible, but always with an eye to ensuring that Canada's national interest is safeguarded. We look for reciprocal benefits with partner countries, something that is a win-win for both sides. Unlike other countries such as the U.S., for example, the policy is not a one-size-fits-all. Again, this reflects in large part a recognition of Canada's deregulated system, which not all countries have, and the need to ensure fair competition for our industry.

I am pleased to report that, for the most part, we have successfully expanded air transport agreements with our largest partners to the maximum extent possible.

That is not to say that all of our agreements are open, but rather that we have the level of openness that both parties have accepted. In fact, in many agreements we have unused capacity and they could be expanded if either country wanted to pursue that.

To date the policy produced significant results that benefit all regions of the country. Canada has negotiated open, new or expanded air service agreements with more than 50 countries that collectively represent over 85 per cent of Canada's overall international passenger traffic. In particular, Canada now has open agreements with 38 countries representing almost 75 per cent of Canada's international passenger traffic.

In recent years our particular focus has been on countries and regions that offer opportunities to expand our economic reach. For example, in recognition of the growing importance of trade and tourism opportunities in the countries in the Asia Pacific region, my department has actively pursued expanded agreements with countries such as Japan, China and South Korea. I was in China just last week and I heard a number of expressions of interest in further expansion of what has proven to be very good bilateral air relations with China, now our second biggest trading partner. Now that the world economy is recovering, they continue to be excited about the access. As well, they are very excited about our approved destination status here in Canada that was announced recently, and I think that will be a boon to Canada. China is a growing market and we will look forward to further expansion there.

I understand that passenger rights has been a subject of interest to you as well. As air travel becomes more of a commodity, public expectations are evolving. I am a firm believer that aviation consumer protection rights are necessary. I also believe that Canada's complaints approach, which is embodied in the Canada Transportation Act, is fundamentally sound. It has been designed to ensure that passengers have recourse to remedies via complaints to the regulatory body, the Canadian Transportation Agency, which assumed the role that was carried out by the air travel complaints commissioner from 2000 to 2005.


While we actively follow developments globally, we should reflect on whether changes to the current regime would be appropriate to Canada — with our climate, extended domestic network and services to many small communities.

The appropriate balance between carrier accountability and costs — as well as safety in some instances — and increased benefits to passengers is a delicate one.


In my travels I hear comments about how we should be acting more like some other countries when it comes to aviation policy. Clearly, we must continually search for best practices wherever they can be found and adopt whatever makes sense for Canada. However, at the same time, no one else has our particular set of circumstances. We need to consider our aviation needs and those of our carriers from the perspective of our national interests as well.

I think your committee is particularly well suited for this. Like most committees in Parliament, you represent a cross section of regions and understanding of this. I am sure you have seen that someone will pound the table in Halifax and demand something while in Vancouver they will say, "Whatever you do, do not do that." You will have the role of Solomon in this. I am sure you will discover that our unique Canadian situation has to be considered. It is difficult to find another country that is just like Canada. In fact, there was not another one — because this is the best country. It is unique and this situation is unique as well.


So what might the future hold? I understand analysts are forecasting very modest economic growth for some time to come. For the airline industry, it means that in the near-term at least, the pricing and revenue climate may not be robust; and these factors need to be in place in order for growth to occur.


Cost containment and revenue generation will continue to be major industry preoccupations, with a view to assuring viability and possibly some growth. New costs may be on the horizon for the industry driven by international development such as security, climate change targets, and other global factors beyond our control.

I noted earlier that an important consideration was Canada's place in the global economy, and some experts believe that in the future, mergers and alliances could lead to only a few airports and airlines emerging as global powerhouses on each continent.

When I was in China, they made a big point of mentioning that Air China is part of Star Alliance. That is important to them. There are stand-alone airlines everywhere, but strategic alliances are necessary for companies large and small, including in this country.

If that is the case, do we need to change our current framework to ensure ongoing international success for just a few of our airports or for more of our airports? How might that proceed? What would be the implications for our airline industry of such a model? I am sure that you will hear pros and cons on that. Are we positioned for that kind of future? Those are questions that I hope you will ask and consider.

This is an aggressive environment, so how can we ensure that our policy framework can support those competitive forces while ensuring that our communities, particularly the distant and remote ones, have access to reasonable air services at reasonable prices?

There are many questions on this great subject upon which you are embarking. This is a fascinating part of the transport world at a pivotal time, so your report or reports will be eagerly anticipated. As I said earlier, you are especially and uniquely capable of giving us your advice, and it will be well received.

Senator Mercer: Minister, congratulations on your appointment to this important portfolio. I look forward to seeing you before this committee many times.

On Tuesday officials from your department appeared before us. They were very helpful and gave us a lot of materials and much to think about.

At the end of the meeting our chair asked Kristine Burr, Assistant Deputy Minister, Policy, the following:

I have a question about the United Arab Emirates negotiations. . .

Who deals with an issue like that? Where do negotiations start, and when they fail, how do they restart and who talks to whom?

Her response was:

The actual negotiation of air agreements is shared between Transport Canada and the Department of Foreign Affairs and International Trade. We have a chief air negotiator who is generally appointed from Foreign Affairs and International Trade, and he or she reports to both the deputies of DFAIT and Transport Canada but is supported by a team of policy advisers who are from the Department of Transport.

I took that at face value, but then I read Don Martin's column in this morning's National Post. It says:

The Prime Minister held a private chat with a senior UAE minister recently. . . It apparently lasted about five tense, unproductive minutes.

I am a little confused. I understand what the officials told us yesterday, but now it is reported in the paper that the Prime Minister is directly involved in this. So who does the negotiations? Is it the officials or is it political people such as the Prime Minister? If so, have you, as minister, been involved in these negotiations with the United Arab Emirates?

Mr. Strahl: Ms. Burr gave you the right answer, and she accurately described what we do in any negotiation.

The negotiation mandate is put together under the Blue Skies policy by the Minister of Transport working with the Minister of International Trade. However, there is a foreign affairs component in it as well.

I cannot speak for the Prime Minister. In a sense he has overview and oversight of everything in the government. He could be at any meeting at any time and be asked any question on any subject at a federal or international level. That is just the reality of being the Prime Minister. I cannot comment on Don Martin's article or the veracity of it. Mr. Martin always speaks the truth — as much as he knows — but he might not know everything in this case.

Part of your question from yesterday was how these things get started and then restarted if they fall off the rails. We have a Blue Sky policy as opposed to the Americans, who have an open sky policy; it is just carte blanche. That is their policy everywhere you go and they have the biggest airline industry in the world. They have everything from building the airlines to you-name-it. We do not have the same thing.

We have a Blue Sky policy, which means that we are moving toward more openness in the international air system, but we also keep our cards close to the chest. We have Canada's interests in mind as opposed to just saying sign this deal if you want it. If you sign on this deal, it is the same for everyone.

We do not that do that and our policy has been successful to date. As I mentioned, some 85 per cent of air travellers are now flying under an open skies type agreement. Those have been negotiated one at a time to make that possible.

If a company or a country wants to explore that, then they might approach us or we can approach them — either one. We see if there is an interest in that. If there is, we put together a negotiating mandate. The Minister of International Trade and I discuss it with one another what that might be. We have a chief air negotiator who puts offers on the table under instruction from the ministers. We see if we can come to an agreement that is a win-win for both countries.

Often we are successful, but sometimes we are not. Someone might say they do not want that, and sometimes our side of the table cannot accept something.

We have no negotiations ongoing with the UAE specifically right now. I cannot say there will not be because these things come and go. I will not name other countries, but even in the two months I have been here, I have been involved. Negotiations flare up and fall off and spring back and we drive it to conclusion. That may happen in the near future but right now there are no negotiations with the UAE.

Senator Mercer: I read "keeping cards close to our chest" as keeping a close eye on protecting Air Canada. However, I will change subjects in the interests of time.

I want to know how closely Transport Canada works with the Canadian Border Services Agency with respect to how passengers are treated as they arrive, either returning to or visiting Canada. I draw your attention to a number of articles, particularly an article recently in the Halifax Chronicle-Herald, which I am sure you read daily. Under an access to information request, the CBSA revealed the number of passengers who were complaining about rude treatment by the Canadian Border Services Agency employees at the Halifax Stanfield International Airport. It was to the extent that one agent asked a man and woman as they were being cleared through customs why she and her husband were travelling with two toothbrushes.

Mr. Strahl: We started talking about security issues but in the end, it kind of ended up as a Canadian Border Services Agency (CBSA) question. You may want to have some officials in from CBSA because it does not cross over into Transport Canada.

Senator Mercer: That is what I wanted to clarify, because I think we will need to have CBSA people in to talk about it, because it is about the treatment of passengers.

Mr. Strahl: I want to assure you there is a lot of coordination. We work closely with the airport authorities, CBSA, amongst ourselves, the carriers and so on; there is a lot of work on security issues and on trying to provide that service.

In the end, there is a complaint process under the Canadian Transportation Agency that can be followed through on things under our control. However, if there are concerns about CBSA, particularly, then they probably need to be followed up directly with that minister.

The Chair: I remind honourable senators we have about half an hour. I remind senators we are also being televised.

Senator Housakos: Thank you, minister, for being here today. Thanks for your keen interest and that of your department which made a helpful presentation to us yesterday. We are grateful. We are pleased that the timing of this report might be of service to your department.

One of my questions is in relation to cabotage rights. In your opinion, is the granting of cabotage rights to foreign carriers a realistic option in creating a more competitive environment in the industry, especially as you pointed out in your presentation that there has been an emergence of new strategic alliances the last few years on a global level? Are those strategic alliances making the cabotage rights issues less relevant?

Mr. Strahl: No, I do not think it is less relevant. It is an issue that all countries hold dear to their hearts for the most part. It is not something under active consideration by our government.

We are not suggesting that a foreign carrier can come to Canada and just cream off the best or most profitable of the routes and then leave on the next most profitable international route. If you want to have an air industry in Canada that serves domestic needs, I think you will find most witnesses say you will have to offer some degree of protection for in-Canada travel.

If you do not, you will see problems even with the States, which has a huge industry. Canadian sports teams that try to charter from one place to another are having difficulty getting permission, even in the United States. We have a reciprocal agreement to cover off sports teams, but even that is difficult. It is difficult to get cabotage-type rules in place, even just for a very specialized, unique charter, such as a sports charter.

It is difficult to imagine that would be broadly well received. It is not so much an issue domestically, but internationally that will be a problem.

Senator Housakos: Is the travelling public today better served, equally served or worse served, compared with the airline industry's approach to customer service 10 or 15 years ago? What areas do you think we should be focussing in, in terms of some of the weaknesses the industry might bring forward in providing better service, if that is true.

Mr. Strahl: That is a real opinion question, and I need to be careful.

Senator Housakos: I asked for your opinion.

Mr. Strahl: When I came here almost exactly 17 years ago, your options were greater; it was different. I feel like I am talking about when I was a boy. However, even when I came here 17 years ago, they used to come down the aisle and serve you a meal right off the hot plate. It was just a different world.

Then 9/11 happened in 2001. You can divide airline travel between pre- and post-9/11. It is almost impossible to compare today with what used to happen. Fifteen years ago, we used to arrive at the airport, kick the car door shut and almost walk right onto the plane. Now you cannot dare arrive late. You have to go through security. You cannot pack your shaving kit with you. It is just a different world. I do not know if it is better or worse, but it is just quite different.

The reality is that it is far more competitive. It is dog eat dog in this airline world. The new entities, like Porter and WestJet and others, have developed a business model that is particularly suited for that dog eat dog world. They have a model that works, and they pursue it relentlessly. They can do that because they are part of this new way of doing business in the post 9/11 world.

Senator Housakos: My other question is in relation to the airport authorities. We talked about it a bit with the people from your department yesterday. I want to zero in on a particular case. A few months back, when we had the volcanic activity in Iceland, the airline industry came to a halt around the world, especially in North America and Europe. I will talk about my hometown of Montreal. At the Trudeau airport, people were grounded there for a week in some cases.

The airport authorities have a mandate to administrate the airports, and obviously they are doing a heck of a job and they have made, as your department pointed out, great steps and leaps forward in making great commercial centres and centres of economic activity. Perhaps, though, they have not focussed enough on the customer service side. That kicks in when you have pregnant women and the elderly sleeping on the floors of airports in this country for three or four days. That was disturbing at the time, and I do not think a quick response was quite there on the part of the airport authorities.

I am wondering whether Transport Canada has had discussions with them in that regard. Have we reminded them that they are ultimately in the business of taking care of the Canadian public?

Mr. Strahl: I will ask officials here if they want to dive in. I hate to defer like this, but I was not the minister when that happened. Of course, we all saw that. The impacts were huge. To be fair overall to both the airport authorities and airlines generally, the size of the impact of that was almost unprecedented. When I was at the International Civil Aviation Organization (ICAO) conference a few weeks ago, they were still wrestling with the aftermath of that. When can you fly? How do we measure the particulate matter? This was all new.

I know what you mean about service to the public, but, in other ways, they are not like Tom Hanks. They cannot live there forever either. You are a customer to get on an airplane. It is not designed for you to be there for two weeks or a week, or even overnight.

It is a good question for the airport authorities, if I could defer, unless someone else wants to dive in. It seems to me you might want to ask them about that. They could also be tasked with that in another big security shut down, where suddenly you cannot fly for a couple of days because of some threat. What will they do?

The airlines know what they do. They shut down. They park the plane. That is it. The airport authorities might have an idea, and I suggest you talk to them. I do not know how you have bed and breakfast for 10,000 hungry people.

Senator Housakos: I was wondering whether Transport Canada has given them guidelines in extenuating circumstances where emergencies of this nature take place.

Brigita Gravitis-Beck, Director General, Air Policy, Transport Canada: All airports are required to have emergency plans. When circumstances arise like this, which are exceptional, everyone does their best under very difficult circumstances. In the aftermath, there is discussion with all of the parties, because, invariably, it implicates everyone. It implicates the carriers who are carrying the passengers because they have certain obligations under their terms and conditions of carriage. It implicates the airports who inherit these people, suddenly, out of the blue, unexpectedly, without the ability to look after them necessarily, as the minister was saying. In situations like the volcanic ash thing, there is also a role for NAV CANADA, who provides information about the likelihood that circumstances will shift and flights will be able to take off, some indication of probability of duration and those sorts of things. It really affects all of the partners when these things happen.

Accountability is always a difficult thing because they all probably have some degree of accountability for different stages and at different points. Again, there is sort of a core message of collaboration: They all need to talk about and think through this. Are there things we can learn from a bad experience when it happens, in terms of trying to deal with it better the next time? It is difficult to make major plans or investments for the exceptional things.

Senator Housakos: Minister, could you give us some guidance in terms of what priorities you think we should focus on that would be most helpful to the department and to you as we launch into this study?

Mr. Strahl: Thank you. Obviously the committee is master of its own destiny, but there are some questions. I mentioned some of them in my speech.

You may want to investigate whether Canada should revisit its approach that treats all of our national designated airports the same. We have 26 of these airports. Should they all be treated the same? Some of them are major in their regions, but they are not major like Toronto is major. Should they all be treated the same, or should we start thinking in terms of different treatment for different reasons? Some of them have major capital needs. Some of them have safety related issues. Some of them are more unique. Should we look at them differently or continue to try to lump them together?

I mentioned the question of whether we should have a few hubs that can compete globally or have as many international airports as we can? For example, when you deal with Israel, you have one airport. That is it. They can say, "I will roll out a big security program for one airport." We have 26. The traffic is light in many of them. You may want to examine whether the treatment should be different.

We have the consumer protection issue, which I think you have touched on in your round one questions with officials. What is the right balance between consumer protection and prices, accountability, transparency? It would be good to have a thorough airing of those kinds of things. The U.S. and the EU have consumer protection systems in place. You may want to look at that to see whether they are apropos for Canada. Canada is a unique situation, but why reinvent the wheel if we have good examples elsewhere?

The last thing that comes immediately to mind, and I think there will be a bunch of things that will come up ago you go through the examination, are the governance and accountability issues. When we privatized the airports and made them independent, not-for-profit, stand-alone organizations, there was a governance structure that came with that. Does that provide the quality of service that Canadians would expect? Is it transparent and accountable enough for this modern era? Are there public interest considerations that need to be part of that?

I am not suggesting there is anything wrong with what is there. It is just that I think you will hear that early in your conversations with different components of the industry. Someone said to me, for example, "At the port authority, I am a major player, and I get a seat at the port's board of directors to bring my case forward. When I go to the airport, there is an airport authority, and I do not get to sit there, so I just hear about it second hand." Does that need to be changed, or does it give a strength to the airport that they need?

It would be useful to have a thorough airing of the governance and accountability issues. You can do it in an independent way, more independent than I can, because I am always seen as directive. What we need is a full discussion and recommendations on that.

The Chair: Before I give the floor to Senator Zimmer, I want to repeat, minister: I know you can talk to some of your colleagues in your caucus, but if there are issues you think we should be addressing or that have been addressed and you think we could go deeper into, always feel comfortable to address me or your colleagues. We are here to cooperate. We want to do the best study possible, and we are trying so serve the same interests — those of the Canadian people.

Senator Zimmer: Thank you, minister, for your presentation, and congratulations on your appointment.

You mentioned the Blue Sky agreement in your speech. Senator Mercer touched on the first part of it, so I will not ask you to repeat the Blue Sky agreement and your description of the open sky.

Are you able to list the 15 countries that make up the new first-time and/or expanded agreements? With which country or countries is the government potentially interested in entering into such agreements in the future?

Mr. Strahl: Our expanded air services agreement includes the EU, which is a big group. Then there are Serbia, Croatia, Japan, Kuwait, Jordan, Iceland, New Zealand, Singapore, Mexico, Barbados, Panama, the Philippines, Dominican Republic, Costa Rica, Turkey, South Korea, South Africa, Cuba, Morocco, Ethiopia, Tunisia and El Salvador. It covers almost the gamut of the world.

Senator Zimmer: Could I have a copy of that sent to my office?

Mr. Strahl: Absolutely. I will make it available to everyone.

Senator Zimmer: Can you describe the development of competition over the past decade relating to routes serving major urban centres, as well as routes to less demanding centres, and whether you view the competition to be sufficient or limited?

Mr. Strahl: Again, I may ask officials to comment on this, because they have been at this longer than I have.

In essence, since deregulation, competition is driven by marketplace demand, for the most part. When I was dealing with Northern people, for example, they complained bitterly about the airfare from Iqaluit to Montreal or Ottawa. You can fly to Europe and back and around the world, for the price of a ticket coming from Iqaluit. WestJet is now planning to fly into Iqaluit. As soon as they said that was going to happen, the price of air tickets out of Iqaluit dropped by half. The best description is that it is market driven.

The other thing that is clear to me about the routes points back to the hub question. Airlines, in order to survive, have focused on several major hubs. Again, this is a change over the last number of years. There used to be a routine flight from Saskatoon to Ottawa, or Regina to Ottawa. Now, airlines want to go through a hub. That is just what they do in order to bring their costs in line.

Senator Zimmer: They even go backwards. They go from Saskatoon to Calgary and then over.

Mr. Strahl: Yes. Over the last number of years, that is another evolution that was different than when I started flying a lot here a number of years ago. In order to survive, airlines have to pack those planes to a certain percentage capacity; and to do that, they want to land in a hub and then move on. While often you can get a good price on that kind of flight, it is frustrating when you are backtracking to Calgary and then flying over where you started. No one likes that. However, this is to fill the airplanes and take advantage of those hubs that everyone feeds into. You fill up a bigger plane and away we go. That is just the reality. It is market driven, but it is also hub driven in many ways. I do not see that going away. The question that would be worth asking is whether that system will accelerate. Will there be more or less of that, and what can we really do about it? In a deregulated world, that is the new reality.

Senator Zimmer: We are all aware that the industry has changed dramatically since the terrorist attacks of September 2001, and it continues to do so, with the recent attempted attacks. Can you provide this committee with an overview of the main policy changes that followed and a rough estimate of the costs relating to the associated security changes?

Mr. Strahl: There were huge changes, as we all know, after 9/11, and some were driven by domestic concerns. Much of this was in response to international agreements, reciprocal agreements, and so on, and still is. We are still dealing with security issues, dealing with ICAO and other international bodies, in order to try to find consistency.

Post-9/11 brought the creation of CATSA in order to provide services. Services were put in place, including screening all passengers. There was all the regulatory work that went into putting the meat on the bones of that and what you can and cannot do. There was an increased number of restricted areas in terms of who could get into certain areas on airport grounds and the fencing that went up around them. I do not know whether there is a global figure for all the stuff that happened.

In the last budget, our government did a five-year funding for CATSA of $1.5 billion, in order to give them stable, long-term funding. That will not be the end of it, because it never stops evolving. CATSA is going through a review right now. Much of their equipment is approaching the end of its useful life. We are coming into that cycle, because it was 2001, and ten years later that old X-ray machine is starting to be held together with Band-Aids. The new equipment is much better. We bought 44 body scanners, and they are in place. This is part of a cycle of renewal.

In terms of the $1.5 billion, we will see what the CATSA review indicates, but the demand for increased security never stops. That $1.5 billion for CATSA is not everything. There are also one-time expenses for modernization. The underwear bomber does his thing, and all of a sudden there is a whole new series of measures and more expenses. The Air India report comes down and we have to respond to that. There is a series of initiatives and expenses in relation to that. I hate to speculate on how many billions of dollars have been spent.

Isabelle Desmartis, Director, Security Policy, Transport Canada: It is about $4 billion.

Mr. Strahl: It is over $4 billion since 9/11. I wish we could say we had a ramp-up and then we have been coasting, but it does not seem to be that way. There is never enough security. You can always do more. We also often have to respond to international pressures, especially American pressures. When Homeland Security says you cannot wear your shoes, you can say it is ridiculous, but that is the end of the discussion. If you want to fly in the United States, you will take off your shoes when you go through security. Security issues never stop. The $4 billion is a precursor of much more to be spent in the future.

Senator Zimmer: Pardon the pun, but it is a moving target.

Senator Martin: Thank you to you, minister, and to your officials for being here.

I was struck by one section that you presented in your opening remarks on page 28, which I think goes to one of the key challenges for not just the airline industry but for Transport Canada and for Canada. That is, determining what changes would be the best changes to this current regime, with each of these airport authorities having their unique, distinct needs. Minister, you alluded to the fact that what one airport authority wants, the other says is absolutely not right for them. The first question of whether there should be a different system for each authority is a good one.

I wonder how these authorities — all the stakeholders — understand the complexities and the diversity in our country. From a passenger point of view, we can say we want reliability and we want good fares. We can make a concrete list. However, for every airport authority and every airport, the needs go across the entire spectrum.

That is a good question for our committee, and it would be good to be able to hear from the different places. I was at the Yukon airport, and as soon as we arrived, the power failed. Everything stopped. It was my final destination, so I was not panicked or demanding, but I was supposed to get a car. Everything shut down and everyone went about his or her way. It was quiet. You could hear a pin drop. We cannot imagine these needs until we have been there. From your perspective, you must see and hear all that.

How well educated are the airport authorities and the other stakeholders when they come to the table with you to discuss what changes we need to improve what we have already?

Mr. Strahl: The people I speak to have a good understanding of their particular needs. If they are from Saskatoon, they are not paid to think about the needs in St. John's. Their authority and letters patent are to be concerned about their airport, their region and being an economic driver and a safe destination. They understand a bigger picture because they are all connected through the air system. However, they also have a priority, which is, in many ways, their local airport needs.

I am not sure where we will land on this. It is an interesting study. I do not know that we will go to having 24 different systems. However, with regard to some of the big international hubs, the graphs that we had yesterday in committee show there are trends. If 24 or 40 per cent of the traffic is handled in Toronto, its needs, expectations and what they will have to do in the future are similar to those of Vancouver and Montreal but different from those of Iqaluit and Whitehorse. That is a reality, but it is a good discussion. It may lead to other things you will examine.

There is a Canadian Airports Council that tries to find some of this happy medium as well. I would suggest you should have them as witnesses, and they will give some of that flavour of the big, the small and the medium.

In the end, you will even see proposals on security. A big airport like Toronto will tell you that maybe it should handle its own security. Okay, but we have a national system right now. Do we want to break it up into component parts by airport, or do we want national standards with a national body that administers them? The big airport will say, "We can do it cheaper and better because we are a big airport." You will hear that, and it is worth listening to them.

The beauty of a committee is you need to think of Canada. You are from Vancouver, but you cannot say, "What is good for Vancouver is good for everyone." It has to be something we can all live with. That is why a parliamentary committee is fine-tuned for this work.

Senator Martin: I absolutely agree.

With respect to the Blue Sky discussion, you mentioned China and the openness there for further expansion. With the other Blue Sky agreements that Canada has, what are you doing in terms of opening up and expanding those? Are there plans for that as well?

Mr. Strahl: Any agreement can be further opened up if both sides want to. In some cases, in some countries — I probably should not name anybody — they say they would love to have more access and a better reciprocal agreement. Other countries are not ready. The change is too rapid. They say, "I do not want to see 50 Air Canada planes in here." They are careful. We say let us start with a partially open system. Try it for a year. Maybe you will like it and let us open it up further.

Sometimes we have concerns. If you flood us with jets coming from that part of the world, it will be problematic for other reasons. Sometimes it is us; sometimes it is them. Our overall objective is to be as open as we can. In many cases, this is all new, all in the last four years, for the most part. They do not have an end date, but they will mature, and if this is working well, let us do more of it. More open is more better, if I can use that expression, and we will always be open to entertaining that, but there will always be a negotiation attached to it.

Senator Martin: With each one it is fluid; it is not revisiting within a year. Depending on the agreement, it may come from them or we may initiate.

Mr. Strahl: It comes up in conversations often. When I was in China last week, a vice-mayor, which is a significant position in some of those cities, said that when he was at an ICAO conference, the mayor of Montreal said he would like more connectivity to China. That is not ignored. They say if the mayor of Montreal would like to have that, maybe we should talk about. I say if you want to talk about that, maybe we should.

Some of it will just evolve, but they do not have a due date. They are in place. They work well. If they want it to be re-examined, either side can suggest that, and we can consider it.

Senator MacDonald: Mr. Minister, it is always a pleasure to see you.

Those of us who are frequent flyers appreciate the need for security. Even though it is frustrating for the public, we understand why it has to be done.

I have an observation I want to share with you. It is a recent experience. Coming back from the United States going to Toronto, heading to Nova Scotia, I observed that the airport in Chicago has a duty-free shop. One of the little pleasures of travelling for people has always been to pick up something at duty-free shop and bring it home.

You can buy alcohol in the duty-free shop in Chicago and bring it on the Air Canada plane to Toronto. Once you get to Toronto, if you want to connect to anywhere in Canada and you only have carry-on luggage, if you do not check that alcohol, put your carry-on luggage in the queue and make it non carry-on luggage, you have to dump that alcohol. I spoke to some of the officials there, and at the same time, there is a notice saying if you are bringing alcohol from Europe, and it is tagged and boxed in a European bag, you can take the alcohol through.

I do not understand what is going on with this system.

Mr. Strahl: How cheap was the alcohol in the first example?

Senator MacDonald: I do not think it is a matter of cost.

Mr. Strahl: It is not.

Senator MacDonald: It seems strange that you can take the alcohol on the plane in Chicago, but you cannot take it on in Toronto. If you are bringing it from Europe instead of the United States, you can take it through.

Mr. Strahl: I will not try to make sense of that, but maybe Ms. Desmartis has a partial answer.

Ms. Desmartis: We started to initiate the bags that you are talking about in some airports, and the technology is progressing. When the minister was talking about the investment in CATSA, you know that the liquids and gel restrictions happened in 2006.

Senator MacDonald: Yes.

Ms. Desmartis: This is a progression, and there is more and more technology.

Senator MacDonald: Is this being addressed?

Ms. Desmartis: It is being addressed.

Senator MacDonald: I spoke to the officials at the airport and they said: Please speak to somebody Ottawa. You would not believe the aggravation this is causing at the airport.

Ms. Desmartis: We are conscious of it, but we have to be careful how we address it.

Mr. Strahl: Lobster can still come on the airplane.

Senator MacDonald: If you go to Nova Scotia, you do not have to take lobster with you.

Mr. Strahl: The interesting part about the security issue is it never stops evolving. Some of the things that seemed most worrisome in the post 9/11 environment proved not to be as big a concern, and some things you did not think about turned out to be a bigger concern.

This is not free advertising, but I have a new iPad, so I am reading my books on the iPad now. I am coming in for final landing and they say you have to put it away. The guy beside me has an Encyclopedia Britannica, the thing weighs about 10 pounds and it would probably go right through the windshield if you had a problem, and I had a little iPad. This was not around in 9/11, so this is part of why it needs to evolve. I will personally follow up on that, senator.

Senator MacDonald: It was obvious to me that when we can bring it in securely from Europe we can bring it in securely from Chicago.

Mr. Strahl: That seems obvious, too.

The Chair: Thank you for your presence, Mr. Minister, and we might ask you to come back. As I said earlier, anytime you have recommendations for us, we would be pleased to hear from you.

Honourable senators, we will have the National Airlines Council of Canada Tuesday morning of next week.


Wednesday evening, we will be receiving the Air Transport Association of Canada. Have a good evening, ladies and gentlemen.

(The committee adjourned.)

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