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Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 4 - Evidence, October 26, 2010

OTTAWA, Tuesday October 26, 2010.

The Standing Committee on Transport and Communications met this day at 9:30 a.m. to continue its study on emerging issues related to the Canadian airline industry.

Senator Dennis Dawson (Chair) in the chair.


The Chair: Good morning. This is the fourth meeting of the Senate Standing Committee on Transport and Communications devoted to the study that we have been asked to undertake of the Canadian airline industry.

Our witnesses this morning represent the National Airlines Council of Canada.


Appearing on behalf of ATAC is George Petsikas, President; Laura Logan, Chair of the Security and Facilitation Subcommittee; and Lorne Mackenzie, Chair of the Service and Accessibility Subcommittee.

George Petsikas, President, National Airlines Council of Canada: Thank you. We very much appreciate your invitation this morning. One quick note, Chair: you mentioned that I am here representing ATAC. ATAC is a separate organization. We are a new organization, and I will tell you a bit about it. I believe you will hear from ATAC this week. John McKenna, President of the Air Transport Association of Canada, would be annoyed with me if I confirmed that I was here for ATAC.

The Chair: That was Wednesday night's introduction. Sorry for the mistake.

Mr. Petsikas: We will not hold that against you.

The future of air transport in Canada is of incredible interest for our membership, as you can imagine. We are pleased to be here. I am accompanied by Ms. Laura Logan, Chair of the Security and Facilitation Subcommittee at the National Airlines Council of Canada; and Mr. Lorne Mackenzie, Chair of the Service and Accessibility Subcommittee of our association. Both individuals are recognized by their peers as being leading experts in the Canadian airline industry in their respective fields of expertise. I am well accompanied here this morning. I hope that we will have an interesting round of questions together and help to add some value to your work.


First of all, allow me to briefly introduce our organization. The National Airlines Council of Canada is the corporate association representing the largest domestic and international passenger airlines in Canada, i.e. Air Canada, WestJet, Air Transat and Jazz Air.

The NACC promotes safe, environmentally responsible and competitive air travel for Canadians. Together, our member airlines carried in excess of 48 million passengers and directly employed close to 40,000 people in 2009. Overall revenue for the four carriers combined exceeded 14 billion dollars and their overall contribution to the economy has been assessed at 19.6 billion dollars.

Taking into account externalities and spin-off activities, we calculate that our members' business activities support paying jobs for over 85,000 Canadians from one end of the country to the other. Our role as the pivotal airlines of the Canadian domestic and international air travel network makes us drivers of domestic trade and economic activity as well as key stakeholders in the multi-billion dollar travel and tourism industry.


I would like to touch on four key challenges and issues facing our industry, as well as underline what we believe to be the necessary way forward in terms of possible solutions.

The first long-standing challenge is the current tax policy framework applicable to the industry. For many years, we have advocated for a comprehensive review of direct and indirect taxes, fees and charges imposed by various levels of government on our operations, and most notably on our passengers. These include airport ground rents, excise taxes on aviation fuel and the Air Travellers Security Charge. At this point, I would like to refer you to the analysis of this issue prepared for the NACC by Professor Fred Lazar, who is a well-known and respected economist at York University. A copy of this report has been provided to the committee. While I will not go through the findings in detail at this time, I invite you to review this comprehensive study at your convenience. I will take a few moments to emphasize some of its key points.

First, the federal government has pulled out almost $7 billion in the form of the aforementioned taxes and charges from our industry and our passengers over the last decade. However, unlike most other modes of transport, we pay completely for our infrastructure — airports, air traffic control services, security for pre-screening, et cetera. The question is why do we have this form of double taxation on a sector that pays its own way without taxpayer money and actively supports and helps create economic growth and tens of thousands of jobs? The established economic theory is clear: Where you have a sector producing such externalities or catalytic effects, taxation is the wrong policy and simply exacerbates the structural cost burden for industry. Moreover, the government's user pay policy applicable to critical aviation infrastructure is almost two decades old and has never been actively reviewed with respect to its impact on our sector's competitiveness and its continued ability to support overall economic growth. As we have demonstrated, the air transport system creates enormous value not only for its direct users but also for the economy and our society as a whole. Consequently, let us start talking about recovering costs from all those who benefit from such added value, not just from a specific subset in this regard, namely the user. Such a policy, in our view, is long overdue.


Second, we are of course acutely aware of the fiscal challenges currently facing our country. However, I think we should ask ourselves whether the short-term revenue gains these charges generate for Government will lead to more significant costs in terms of lost opportunities for improved long-term economic growth and international competitiveness. Professor Lazar believes that eliminating these costs has the potential to boost our industry's economic production by between 869 million and 3.3 billion dollars and to increase annual passenger loads by 2.1 to 2.7 million.

The Professor states clearly — and I quote:

. . . Changing the policy course from the current one where the air transport industry is viewed strictly from a fiscal position, to one where it is recognized as a key contributor to productivity growth requires cutting the costs faced by this industry.


Third, it is all about competitiveness. We do not want handouts, and we do not want subsidies. We just want to be able to compete on a global basis within a fiscal policy framework that supports our efforts at innovation and growth. The same goes for our airport colleagues who, in many cases, must deal with U.S. competitors. Those U.S. competitors are highly subsidized by local governments and operate from a far more advantageous input tax policy platform.

Our second issue is aviation security. As we all know, the world has changed since 9/11, and we are all well aware that without leading edge security systems and procedures, we will not be able to stay ahead of threats to national security and maintain the most secure travel network possible.

While we at the NACC continue to work actively with government in this regard, it is important to recall that we are businesses and that we are serving customers. Consequently, it is essential that frontline stakeholders such as the government, CATSA, airlines and airports are able to communicate and meaning any consult with each other on the challenges facing the effective and efficient delivery of screening services. Airlines that operate around the world, such as the NACC's member carriers, know a few things about best practices in this field. It is important that the government and CATSA work with us to add value to our efforts in this respect. Moreover, we are eager to engage in such initiatives and support such initiatives as trusted traveller, advance technologies and behavioural threat assessments.

Our third issue is passenger rights. There has been considerable legislative activity on this issue in the EU and the U.S. as well as an attempt through a private member's bill earlier this year to establish a similar framework in Canada. Bill C-310 was defeated not because it attempted to establish a compensation framework for passengers when travel does not always go as planned. It was defeated because it fundamentally misunderstood how the air transport system worked. It sought to blame airlines for circumstances under third party control and it imposed financial penalties indiscriminately, even when the carrier was simply trying to ensure the safe operation of the flight. While we would rather spend our time discussing how to improve the system in order to enhance the overall customer experience, we nevertheless understand that this issue may remain part of public policy debate going forward, in which case the NACC will be a full and willing partner for discussion, provided that three important principles are respected. First, efforts at ensuring maximum safety must not be subject to penalty. Second, compensation amounts must be proportional to price paid. Third, airlines must not be held responsible for the acts of others or for situations that are clearly beyond their control, commonly known as acts of God or force majeure.


The last issue, but certainly not the least important, I would like to deal with is the environment. Providing long-term growth and prosperity in such a way as to protect the environment is perhaps the most significant challenge facing our industry. Climate change, and more specifically, the role of airlines in generating greenhouse gas emissions have been at the heart of both the popular debate, and in some cases, of government policy development. I will not go through all the issues of the debate but I would like to leave you with a few thoughts.

Firstly, the environmental policy development process as it relates to the airline industry must be based on fact. Poorly thought out, unrealistic or inappropriate policies or targets could have disasterous consequences for the long-term viability of our industry. A whole range of false information has been put out about the contribution of the airline industry to global warming. From the very outset, the industry has recognized that improvements can be made to counter these bogus arguments. Rhetoric aside, one thing is clear. In response to resolutions at the recent annual general meeting of the International Civil Aviation Organization in Montreal, the airline industry is currently the first and only sector to have agreed specific targets for the stabilisation and eventual reduction of CO2 emissions.


The NACC's member airlines have been world leaders in their proactive efforts to reduce their GHG emissions. They are committed to working actively to mitigate the overall impacts of air travel on the environment through fuel efficiency improvements, emissions reductions and noise abatement.

We took the initiative in 2005, through our former association, to conclude the world's first voluntary agreement with government to reduce the growth of GHG emissions both domestically and internationally. The NACC's member airlines have consistently exceeded their reduction targets under this agreement by a wide margin and have realized an overall improvement of 28.6 per cent from the established baseline of 1990 GHG levels for the industry. We are not asleep at the switch on this issue.

Finally, while we support Canada's efforts for a global sector approach toward the establishment of a policy framework for international aviation, we would point out that any domestic framework needs to consider the absolutely critical role that Canada's air transport system plays in ensuring that all parts and regions of this vast nation stay connected. Furthermore, any potential approach based on harmonization with the U.S. must bear in mind the considerable investments in fleet renewal and resulting improvement in operating efficiencies made by Canadian industry thus far vis-à-vis their U.S. counterparts.

My colleagues and I would be pleased to take your questions.

Senator Cochrane: Thank you for coming. We are glad to have you, especially as it pertains to the airlines, because this is a contentious issue with everyone.

Last month the Government of British Columbia made a commitment to eliminate the provincial aviation fuel tax. What impact do you expect this will have on the air transportation sector in British Columbia? Is this something that other provinces and territories could do? What action would you like the provinces and territories to take to make air transportation more affordable? What action would you like the federal government to take? What are the priority airports and areas on this issue?

Mr. Petsikas: I will start with the provincial fuel tax in British Columbia. You are quite correct that B.C. chose to eliminate their fuel taxes on aviation about a month and a half ago. This was subject to what I believe to have been an excellent coming together of all stakeholders involved in the process — government, industry, airports and the community — asking themselves what they needed to do to stay competitive in their region. We know that Vancouver International Airport, specifically, which is the driver in this process, has dealt with considerable competition from airports south of the border such as Bellingham and Seattle. There was a huge reaction when cruise ships began to pull out of Vancouver because it was felt that the Vancouver airport did not have a competitive cost structure. Clearly this was very sensitive. Vancouver quite rightly sees itself as a major Asia-Pacific gateway. We at the NACC airlines fully support Vancouver's effort to become a great player in that important trans-Pacific market, and we vigorously applauded when the British Columbia government understood that by removing this tax the airport would be more competitive versus its rivals south of the border.

Other provinces could look at this model. For example, Ontario continues to maintain similar types of fuel excise taxes on aviation. Last year, I wrote to Mr. Duncan and some of his counterparts. We met with them and indicated to them that this tax was putting Ontario airports at a severe competitive disadvantage. Toronto is facing a great deal of competition from Buffalo and big hub airports such as Detroit, Minneapolis and Chicago. Unfortunately, the uptake was not what we had hoped. I think there is a focus on trying to come to the table with more of a business case, i.e., if you cut the tax on the front end for the Ontario taxpayer in terms of revenue what does he or she get on the back end in terms of benefits. That is not an unreasonable approach. In fact, that is what we attempted to do with our report prepared by Professor Fred Lazar at the federal level, which I can provide to you.

Ontario is obviously looking at the same issues as British Columbia in terms of cross-border traffic bleed, and they are not acting and have certainly not indicated to us that they are prepared to act, following B.C.'s initiative. We think that is unfortunate, because it is a clear win. There will obviously be more services. I invite you to ask the major carriers directly involved at Vancouver what they would like to do now in terms of new services. I believe Air Canada announced new trans-Pacific services shortly after the tax was announced. That is the good thing that you will see coming from that, and we strongly encourage Ontario to do the same thing.

Senator Cochrane: Is there a role for provincial and local governments in the provision of services to small and remote communities? Are consumers in small and remote communities entitled to some form of government assistance? Is monopoly carriage inevitable on such routes?

Mr. Petsikas: In response to your last question, no, I certainly hope monopoly carriage is not inevitable. These markets are, by definition, contestable. There are no barriers to entry as we had back in the good old days of regulation.

The challenges one has, as usual, is one has markets with thin volume structures in terms of how much capacity they can support in some situations. We have markets where we still have many of the same issues that we raised in our report by Professor Lazar in terms of the structural costs of doing business at some of these airports.

Is there a role for local and municipal governments to deal with those issues in order to attract carriers to them? I certainly think so. I think they can work with their local airport authority to create incentive programs, for example, joint marketing programs to come visit their region. They can partner with the airports in that respect, whatever airports have already done with respect to perhaps temporary incentives on landing fees for new entrants starting new services. We are already looking at these items in the larger airports in Canada. In fact, Pearson does that already, out of Toronto.

Those best practices can certainly be looked at in the context of smaller, more regional airports. I definitely hope we do not have to look at institutionalized monopolies on these routes, absolutely not.

Senator Mercer: Thank you, witnesses, for being here today. I have quite a few questions. One of the problems with this study is that those of us around the table are also frequent flyers. We sometimes see the good side of travelling, but we also see the bad side. We sometimes tend to concentrate on the bad.

Under aviation security, one of the systems being used for travel into the United States is the NEXUS system where one has pre-approval and it speeds up the process. Many people are reluctant to use it because of where the data is stored, which is in the United States and not in Canada.

Has the council given some thought to how we might be able to find an adaptation of that system for domestic travel in Canada? Could we develop a similar system for frequent flyers who stand in line and who know how to move through security quickly and to obey all the rules, of course? It would probably speed up the process if there was a system similar to NEXUS that would work with domestic travellers.

Laura Logan, Chair of the Security and Facilitation Subcommittee, National Airlines Council of Canada: Thank you for that question and for the opportunity to appear here this morning.

Yes, we definitely have ongoing discussions with the Canadian Air Transport Security Authority to try to optimize the CATSA experience for all of our passengers. One of the things they are looking at and have implemented within Toronto, Montreal and Ottawa on domestic travel is using the NEXUS card because you have information about the people; they are not unknown quantities. We can determine that those people are lower risk because they have passed certain checks within the NEXUS system that allow a more fluid and rapid processing through the customs formalities.

CATSA has accepted to work with that to allow a more fluid flow through the screening facilities. By definition, the people who get these cards are people who travel more often, they are familiar with the process and know how to divest properly and make things work. That process and product is in place in Montreal, Toronto and Ottawa. We are working with them to look at expansion to other airports.

The problem that we have with the expansion at this point is that the other screening points, in many of the other airports, are common between domestic travel and international travel. Transport Canada is in discussions with international governments to ensure that they do not have any concerns about differentiating the level of screening and the type of processing.

Separately from the NEXUS program, many airlines have priority lanes to recognize frequent flyers and others so that they can go through the process more quickly. You do know what you are doing and how to divest and move. Those processes are in place.

For everybody else, we are working with CATSA on an ongoing basis to address their throughput and productivity issues and find better ways to make all the other screening lines work better.

We have statistics from other countries, such as the BAA airports in Britain, including Heathrow. They are getting about 200 to 250 passengers per hour through a screening point. Frankfurt is up around 250 passengers at the current time, and they are aiming to go to about 350 passengers per hour. They are using basically the same technologies, but there are differences in the way the procedures and processes work. CATSA is currently averaging about 80 passengers per hour. There is a lot we can do in terms of procedural work in order to improve the efficiency, and we are actively involved with them to try to address that issue.

Senator Mercer: You did not address the issue of NEXUS with respect to where the data is stored on the individuals and the pre-clearance aspect of it. That is all very good, but many Canadians are not anxious for that data to be stored in the United States. They would rather it be stored with some agency here in Canada.

Ms. Logan: I fully understand and share those concerns. The issue with NEXUS is that it is a joint program between the Canadian and American government, and so the data is accessible to both countries. The way that CBSA and the U.S. Custom and Border Protection have chosen to set it up would include data storage being done in the U.S.

That is beyond the control of the airlines. We understand that makes all your data subject to the Patriot Act, but it is a choice that the people knowingly take when they participate in the NEXUS program. It is clearly stated that it is a joint program and the information is available to the U.S. government.

Senator Mercer: You have raised the other issue, which is that what happens in your travel experience, from the time you get out of the taxi, car or bus, until you get off the plane and leave the airport. Many other people are involved in the process other than the airline people.

Ms. Logan: That is right.

Senator Mercer: Sometimes the airlines take the blame, but sometimes the airports take the blame for bad service from the airline. There is a need for us, as we go through the study, to differentiate. There needs to be an understanding that the responsibility of the airline starts before the door of the aircraft.

Ms. Logan: Absolutely.

Senator Mercer: It does not end when you depart the aircraft, it goes right up until the time you successfully claim your luggage and are on your way out of the airport.

Does this council also talk about the other problems that complicate your life by poor airport management in some cases, some poor design of airports in other cases? I did not hear, in your presentation, recommendations on that side.

I could spend the rest of the session talking about the inadequacies with the Macdonald-Cartier Airport in Ottawa. However, it would be better if we had experts in one aspect of it and have to interact with the airports on a much more professional basis than I do, giving us some ideas of perhaps not being specific to airports but in general helping us to understand what some of the problems are that you observe.

Mr. Petsikas: First, the National Airlines Council of Canada has an airport affairs committee, which deals with the issues you have just raised in terms of operations at airports, financial impact costs, et cetera. Many members of that committee also participate in the local ACCs, airline consultative committees, with the airport management and AOCs, airlines operational committees. These are standing committees at each airport, which the airlines and the airports sit on, where we discuss the common issues that you raised. For example, issues of throughput, passenger customer services, costs, capital development and investment.

The airlines are fully engaged in that process in terms of trying to work with the airport authorities to get the best product for the customer. The airlines are trying to get a price that we can afford as principle users. It is not always easy to square that circle, as you know. We have invested a lot of money in capital expenditures in airports over the last 10 years, which was needed to rebuild lacking infrastructure. As you have indicated, it is a daily grind in terms of trying to find common solutions to some of the challenges.

I can tell you the NACC and its airport fares experts are leading the challenge here in Canada. We work with our friends from IATA, the International Air Transport Association, which represents foreign airlines coming into Canada. Sometimes we will not always have the best solutions, and we have to realize that airport authorities, as they are structured, have the last word on many of the key issues. We live with that, and we work to the best of our ability within that structure.

Senator Mercer: Out of those committees that you work with at the airports, is there a set of suggestions that you have used across the board? Is there a best practices and worst practices list that you compare across the board? That would be useful for us.

Mr. Petsikas: I used to chair the ACC in Toronto. I was quite up to date on many of the issues that were being discussed around best practices and that sort of thing. You will find that because the airlines, per se, are mobile, by definition, our representatives will cover more than one airport. They will be exposed to potential best practices at another airport. That dynamic allows us to go around to the ACCs across the country, for example, and say Regina could look at what they are doing in Winnipeg, and that might make sense for them. We are able to bring that sort of mobile expertise, if you will, to the table at each airport precisely because we cover the country. We are all over the place, as opposed to an airport authority, which is focused on its own land and its own operation. I do not know if there are any lists per se that are circulated around airports and airlines, but I do know that, generally, we will go and say, "If this is the challenge we are facing right now, let us see what happens around the world. Let us look at what happens in other airports in Canada and determine if we can make it work in a way that is cost beneficial for everyone."

Senator Housakos: Thank you for being here this morning. It has likely been 10 years since a parliamentary committee has studied the aviation industry. I want your perspective. Has the customer service improved over the last 20 years?

Mr. Petsikas: I believe we have made tremendous improvements in our ability to serve our travelling public. We have seen huge changes. Just over 20 years ago, Air Canada was a Crown corporation. It has transformed itself into a leading global network carrier, an anchor and a member of the Star Alliance. We have a world-class, low-cost carrier in the form of WestJet, which is among the top five LCCs in the world by revenue. Clearly, it has brought innovative new services to the scene here in Canada. We have the Transat A.T. group, which is in the top five of the world's largest integrated travel holiday companies, owner of Air Transat. There are many products out there in terms of leisure and international holiday travel. There are many more service options than 20 years ago.

Have the underlying policy framework and structural cost issues gotten better? The answer is no, they have gotten worse. As I said in my notes, we have done well, but we can do so much better if we start attacking some of the basic policy shortcomings that we believe exist in terms of how this industry is viewed essentially as a source of tax revenues as opposed to a facilitator of economic growth, productivity and competitiveness. We believe that is long overdue.

I mentioned before the user pay issue. We increased the security tax last February by 30 per cent to 50 per cent, depending on the sector. We said this is what it is and we have to finance this, and, by the way, the consumer will pay. It is a user fee. We are the only mode of transport that has to assume all our costs in that respect. I remind you that, in the United States, the TSA has almost 60 per cent of its budget for passenger screening at its airports provided by federal revenues. I am not saying necessarily that is what we have to do here, but I am pointing out that we have a serious disconnection in terms of what is going on in these critical infrastructure funding issues. We said 20 years ago, this is it and good luck to you, and we will check in on you occasionally and see how the industry is doing.

Senator Housakos: Please give us specific comparisons. Consider a traveller travelling from Chicago to Florida, going through two American airports, compared to someone flying from Montreal to Vancouver, going through two Canadian airports. Can you break down for us the percentage, dollar cost, to give us an idea of the difference to the traveller in terms of what that traveller is paying for in user fees? I heard, for example, that when someone walks into an airport and buys something in a store, a percentage of that sale goes back in terms of a transport tax.

Mr. Petsikas: Here in Canada?

Senator Housakos: Yes.

Mr. Petsikas: In one of the stores in the airport?

Senator Housakos: Yes.

Mr. Petsikas: Certainly, the merchant pays fees to the airport authorities. It is a percentage of their gross revenue.

Senator Housakos: If someone adds up all those fees and taxes, compared to an American airport, what would it be in dollar terms for a traveller?

Ms. Logan: I will let Mr. Petsikas answer about some of the other fees, but from a security fee perspective, the U.S. charges about $2.50 per leg, with a maximum of two legs. It does not matter how far you go; it is $5. For domestic passengers, within Canada, it is per leg no matter how many you have. It is just under $9 for each domestic, $17 for transporter legs and $25 for international legs. That adds up quickly as a direct cost to the passengers, on top of all the taxes and the airport improvement fees.

Mr. Petsikas: Let me give you an example, senator. Let us look at some segments here in Canada. One of the key things you have to remember is to think of this as a percentage of the fare you are paying. We control the fare, but we do not control passengers that have to be collected. If you look at a Toronto-Montreal segment and a base fare, a Tango fare at $159, you will pay, on that fare, an average of $77.31 in taxes and fees for a total of $236.31. That is 49 per cent of the base fare, or 33 per cent of the total. I can guarantee you that that is much more than what you would pay as a percentage of your fare between J.F. Kennedy airport and Chicago O'Hare. I do not have the figures in the U.S. here with me. I have the figures in Canada. That is one of the more egregious examples in terms of the base fare.

Senator Housakos: Could you get the American numbers for us so we can have a comparison on the record?

Mr. Petsikas: We would be pleased to.

Senator Housakos: I completely agree with you. I would just like to quantify it.

The Chair: Please send that information to the clerk of the committee and each member will get a copy.

Senator Housakos: I would like to have your perspective on the open skies agreements that we have engaged in over the last few years. Do you feel the airport authorities are accountable and transparent enough? Is there a balance between proper management and Transport Canada having some degree of influence?

Mr. Petsikas: I will begin with your first question, which is interesting and I thank you for it. With regard to open skies, Minister Cannon announced the Blue Sky policy in 2006. We believe this policy has been successful for Canada. We believe that Blue Sky recognizes the fact that liberalization has to be a fundamental objective in terms of going forward with air transport agreements. However, we will not undertake necessarily a cookie cutter open skies approach with all countries. I will come back to that point.

What have we done in the last few years? We have done an open agreement with the U.S. and the EU. The agreement with the EU was groundbreaking in many respects compared to the U.S. agreement because it includes a framework for liberalization on issues such as percentage of ownership, foreign investment, rights of establishment, et cetera, depending on whether you are phase 2 or 3. The government has negotiated open agreements with New Zealand and the Dominican Republic.

The NACC continues to support open agreements with major potential targets such as China, Japan, India, Brazil and Russia. Unfortunately, it takes two to tango in some of these markets.

Another market where we desperately need to make progress is Mexico — our third international market after the U.S. and the EU, which is mired in a 1960s-style protectionist agreement. I believe the Mexicans are coming north at the end of January, when we will give them another go. The government is trying hard on that, but we can make efforts in that respect.

In general, the system has worked well in terms of new agreements and new designations. Certainly, WestJet has greatly expanded its international presence during the last two or three years because of these new agreements; and Air Transat has entered new markets. There is a great deal of competition in the international arena because of this. I hope that is a pretty good overview in response to your first question.

The airport governance issue has been out there since airports were devolved and created as stand-alone, semi-commercialized airport authorities. We have had our concerns in the past with respect to their accountability to stakeholders, such as users, because the boards created unfortunately do not have, in all cases, what we feel to be a satisfactory representation from the user community. That includes the airlines, per se, that pay most of the landing fees and terminal fees, and consumer groups, et cetera. Can we look at improvements? Sure.

The fact of the matter is that a few years back, we used to be cats and dogs with the airports on these issues. When I took over at the NACC a couple of years ago, I suggested that the time had come to understand that we and airports have to work together to ensure the best, safest and most affordable aviation system in the country. There is no way we can do that unless we are all on the same page working together for the same objectives.

The NACC has shown in the last two years that we mean what we say. We have cut out the rhetoric on these issues; and we have worked locally with the airport authorities on where we can improve governance. For example, Pearson Airport has reduced its fees and charges over the last two or three years by 10 per cent each year. That happened because Pearson and the NACC knew they had to work together. It is a symbiotic relationship.

Unfortunately before that, there was a governance structure at Pearson with a gentleman, who is no longer there, who did not believe in that; and we got into trouble. We have good faith and understanding from our partners at the airports. We are working closely with the Canadian Airports Council. The NACC is involved in a travel and tourism coalition with the CAC, the Tourism Industry Association of Canada and the Hotel Association. This week we will announce a policy white paper in which we have come together to put forth policy recommendations to make Canada's travel and tourism industry, of which we are key components, among the best in the world again. Unfortunately, over the years we have seen some terrible trends in terms of our falling off the numbers of international arrivals in Canada. We sat down with our partners in the airports to determine how we could fix that; and we came up with common suggestions.

It is not perfect, senator. If I lived in a perfect world, I could write a law. We live in the real world, and we will work with our partners in the real world. I hope we all have the common goal of making ourselves the most competitive and productive air transport system in the world.

Senator Housakos: Do you have suggestions on how to make it more responsive and accountable?

Mr. Petsikas: Are you referring to legislative solutions?

Senator Housakos: They could be legislative or any sort of suggestions. The solutions do not have to be as extreme as legislation.

Lorne Mackenzie, Chair of the Service and Accessibility Subcommittee, National Airlines Council of Canada: The transparency factor, in particular with respect to the governance of airports, is the communication and consultation aspect. If you can build membership of aviation into those governance models, it would be extremely helpful.

Senator Kochhar: I have a supplementary to Senator Housakos' question on the vast difference in fares in the United States and Canada. You explained that the taxes are much greater in Canada than they are in the United States. The difference is so great; it must entail something more than just taxes. We are losing a lot of money because people are not flying directly from Canada to the United States. Instead, they drive to Buffalo or Windsor to catch their flights, which makes it inconvenient for the public and which creates lost revenue for the government. Can you tell us what other differences exist apart from government taxes?

Mr. Petsikas: The primary reason we see cross-border leakage, in our view is that it is cheaper for these airports to do business in terms of their overall structural costs and to be able to track traffic. Allow me to provide a classic example. Plattsburgh International Airport is just south of Montreal down Interstate 87. Plattsburgh calls itself "Montreal's second international airport," which is pretty ambitious to say. The Plattsburgh airport is located on a former U.S. Air Force Base. It has a 13,000-foot concrete runway that makes most flight operations people drool. It was built during the Cold War to accommodate B-52 bombers.

The U.S. Air Force basically abandoned that site and gave the keys to Clinton County officials and said, have fun; enjoy it. The airport site was free to the county. Clinton County, New York, had a runway so they built a terminal in Plattsburgh. Plattsburgh talks to the NACC, to Air Canada and to other airlines and says: Why land in Montreal when we can offer a landing fee that is one eighth the landing fee charged at its airport. Plattsburgh makes a pretty compelling case for many of these low-cost airlines to take off and land there. They actively market to Canadians coming out of Montreal who are happy to drive for an hour so they can lower their cost to fly.

Why is that the case? They have a policy in the U.S. to support the establishment of those small airports. They see an opportunity. There are higher costs in Canada because of the structural policy framework and approach. Get them to fly out of Plattsburgh.

Montreal is not more expensive because we cannot figure out how to run an airport in a cost-effective manner. Rather, it is more expensive because for the last 10 to 15 years Montreal has had to take an old dilapidated airport and turn it into a modern and user-friendly airport. The federal government gave the airport to Montreal in the early 1990s. That cost a lot of money. They have to recover those costs somehow, because no one else is paying for them.

This is what we are getting at when we are saying that if you want us to be competitive, you cannot simply close your eyes and say, "It's user pay, and good luck." Just south of the border, in our largest trading market, they are doing things that are clearly meant to eat our lunch. We must address those issues fundamentally with a long overdue policy review, as Senator Housakos said earlier. We must ask whether it makes sense for us to impose these input taxes. Professor Lazar talked about $7 billion drained from our customers us and over the last 10 years.

Does it makes sense to tell our airlines and airports to take care of it themselves, to figure it out, build it, and finance it because we are out of this game, and then charge them a monthly fee for things we do not do while crossing our fingers about how they will compete in that respect in the globalized world?

We must to look at some of those structural issues before we can really understand why it is cheaper in the U.S.

Senator Martin: I want to follow up on the question regarding the open skies agreement. What role does the NACC have at the table regarding these agreements?

Mr. Petsikas: The NACC does not have a role in the elaboration of the government's negotiating mandate for these agreements. The individual members of the NACC who operate international air services; for example, Air Canada, WestJet and Air Transat, are invited to submit views on a negotiating mandate, which the Minister of Transport then considers in the establishment of his mandate, in conjunction with his colleague the Minister of International Affairs. Thereafter, the government heads a delegation and invites, at the chief fare negotiator's discretion, observers from the airline industry who have indicated an interest in that particular market.

The government uses us as advisers and observers to give added value to the process through our practical views and our suggestions. The NACC does not do that because, as you can understand, there may be divergent commercial interests among our membership in certain markets, and it is a big no-no for us as a trade association to engage in that.

Senator Martin: Mr. Petsikas, you highlighted the importance of Vancouver International Airport as a competitive landing base for the Asia-Pacific gateway and spoke of the concern about cross-border traffic bleed, which has come up at previous committee meetings.

As a resident of Vancouver, I understand the important role of the airport and know that there is a desire and a growing demand to see increased services at the airport. I have heard British Columbian legislators talk about how there seems to be more openness and agreements for the Toronto airport than there are for the Vancouver airport.

Do you think that Canada should pursue more aggressive agreements with the Asian markets? How are we doing in that regard? Do you see that as an important step to take? What progress are we making on that front?

Mr. Petsikas: Thank you for the question. I think we are unanimous at the NACC in our view that Asia-Pacific, as a growth region, remains an absolute priority in terms of opening up our air services. We certainly support open air agreements with the major players in the region, as I mentioned before. I am pleased to say that we are getting there with Japan, although it is sort of baby steps. I hope that we will be able to break through and have a comprehensive blue sky open agreement with them shortly. The problem with Japan is the very congested airports of Tokyo Haneda and Narita. They have slot issues and are trying very hard to manage that problem. It is not always easy to break through those structural issues.

China, of course, is a no-brainer. We need to have as much access with China as possible, both for inbound into China and tourism travel out of China. The new ADS that was agreed upon between China and Canada means is a huge potential market for our tourism industry. The airline industry is delighted with that agreement and we want to ensure that it is successful.

I am sorry to repeat this, but we have capacity entitlements in China that are not being used right now. Air Canada has announced new services and has been very aggressive in the market in terms of building new services, but we are not seeing them come here as much.

From reading the newspapers in the last month or so one might think that Canada does not want access. In fact, we have access, but they are not coming. The same is true for South Korea. There are unused entitlements out of South Korea as well as out of India. Why are they not coming?

That goes to the bigger issue we are talking about in terms of how competitive we are as a destination, first with respect to our air transport network and second with respect to tourism infrastructure. I know that we are not here to talk about that, but that is one reason we set up our coalition. How do we get more Chinese to visit here? As I said, it may help if it were cheaper for Chinese carriers to land in Vancouver than in Seattle. We have to fix that. British Columbia took a step in that direction. We have more to do, especially at the federal level.

Other big ones for Vancouver are Korea and Australia. Australia, unfortunately, did not want to play ball with us when they could have. They balked on one of our provisions, but we came close to having an open blue sky agreement with them. We would absolutely love to have one.

There is no double-talk from the NACC on whether we want open agreements with Asia-Pacific. We agree that most of those target markets are key for us.

Senator Martin: You have pointed out we should explore the key issue of unused entitlement. Thank you very much.

Senator Zimmer: A study commissioned by the National Airlines Council of Canada recommends that the Canadian government eliminate ground rents for Canadian airports, the airport travellers security charge and federal excise tax on jet fuel. Are these taxes currently being charged to the consumer or do the airlines pay a portion of these taxes? If the government were to eliminate its expenses and taxes, would the benefit be seen by consumers via reduced rates?

Mr. Petsikas: Thank you for your question. With respect to your first question, airport rents are charged to airport authorities by the federal government for the use of the Crown land on which the airports sit. It is an expense charged to the airports, but the airports normally turn around and recover that expense through fees and charges to their users. Their biggest, most important users are the airlines. You will normally see a component — a significant component — of the airport rent charge, for example, to Pearson Airport, which has to be recovered from landing fees at the airport.

If you were to magically cut airport rents, and once we stop partying and drinking champagne, we could sit down and say, "What happens now?" As a rule, if we take that example, rents at Pearson represent approximately 15 per cent to 18 per cent of their overall budget that they must recover through their fee structure. If you remove that, technically, they could always say, "Great, we just have lower overall fees. We can reduce our fees." Or they could take the money and put it in the bank somewhere and let the interest grow and maybe buy a nice train to downtown one day.

Pearson, to their credit, has publicly committed to applying 100 per cent of any relief they get on airport rents to rates and charges. We applauded Pearson for that commitment. We basically have a commitment that says, if you reduce it by 20 per cent, you will get a 20 per cent decrease in your landing fees.

That is good for many of people. That is good, obviously, for the primary user who pays the landing fee, which is the airline, and eventually it will be good for our customers because that will allow us to reduce our available seat mile cost, which normally will translate into lower fares for our commuter.

The ATSC is a tax collected by the airline on behalf of the Crown. It is charged directly to the customer, the passenger. If you eliminate that the passenger will eliminate anywhere from $18 to $26 return fare, times a family of four going to Europe, you have saved $100 in your pocket, which you can now use to go see Euro Disney, or anything else, as opposed to paying it into the kitty. That gives you a portrait as to who gets what in terms of benefits.

I think you asked who will see them and how this benefit will be transferred. As I said, if you lower unit costs for air carriers, as a general rule you will be able to lower fares for consumers. That is our objective. If we can operate with a lower fare structure, there is no reason why we cannot go out there and charge lower fares. Essentially, if you move everything down from the margin, you now have a lower cost rate, the fare goes down and everyone is happy.

The benefits then flow within the economy at large. I know we are always sensitive to this, but they say that the airlines always show up and yell and scream about their tax breaks, give us our tax break. They want to put it in our pockets and go home and be happy.

We emphasize, and Professor Lazar, a respected academic, has demonstrated, that if you take these costs out of the system you will have a huge win-win for everyone. That is a win-win for not only a more competitive, cost-effective structure for airlines and their passengers to work in, but also our ability to better support economic activity, development, improved productivity here in Canada and make ourselves globally competitive. It is clear in Professor Lazar's report that it is a win-win for everyone, not just users of the system. That is our basic line.

If we can see our way through to revising these policies with that in mind, then, in the long term, we will go far in terms of placing ourselves among the leaders of the travel and tourism business and in terms of overall competitiveness.

Senator Zimmer: Do you know approximately how much you raise per year from all of these taxes? Is 100 per cent of it ploughed back into the infrastructure and the building of the airports or does any of it go to general revenue?

Mr. Petsikas: Are you talking about the airport rents, ATC and fuel excise tax?

Senator Zimmer: Yes.

Mr. Petsikas: We have estimated that it is about $800 million a year that the government is currently charging in these fees and taxes. All of that goes to general revenues. Nothing is earmarked for the aviation industry.

We suggested in the past that one of the roadblocks we run into is the Department of Finance with respect to airport rents. They tell us these are standard guidelines for the use of Crown properties. When someone uses a Crown property for his or her benefit they have to pay rent to the Crown. That is fair enough.

What we are saying, however, is that they pay rent to the Crown in order to ensure that fair return to the taxpayer for the use of those lands. There is no argument there. I am a taxpayer; I agree with that.

However, in the context of the air transport system, the taxpayer, over the last 10 to 15 years, has done well, I would suggest. Why? In the 1990s and the early part of this decade, the airports were devolved and set up under these authorities. We have conservatively estimated their taxpayer shareholder value at the time of those assets to be about $1.2 billion to $1.5 billion. In this decade alone we have paid, as an industry, and our customers, almost $3 billion in airport rents for those same assets that were worth $1.2 billion. Over the life of the airport leases as they are now, you will add another $5 billion to $6 billion to that amount for a $1.2 billion investment by the taxpayer. I would say the taxpayer has done pretty well.

We are saying let us stop there and review what it has done for the competitiveness and structural costs of this industry. Let us find a way to help this industry become more competitive and to better support economic development activity in Canada. Do you plough it back in and say, finances, we do not earmark any revenues? Give us the revenues and put them in the pot and then the government, in its discretion, decides where the money goes.

We said do you want to take $300 million at least and earmark it for things like security and infrastructure upgrades at the airport. We have suggested that, but have gotten nowhere.

We are open to all sorts of solutions to try to stop this — and I will not call it a bleed. Is that fair return for the taxpayer? I would call that a fair windfall for the taxpayer, to be frank.

Senator Zimmer: I was pleased to hear you comment about the open sky agreement. I am interested in the one with the United Arab Emirates and the nations around it. They are becoming a key hub in that part of the world. Currently, I believe both airlines operate three times a week directly to Montreal and Toronto. They are interested in doing that on a daily basis. What is the possibility of that happening? Apparently they do have the passengers.

Mr. Petsikas: The possibility is high. If they had the rights they could do that. The question is what traffic are they carrying? Fundamentally, is that consistent with what should be the overall interests of Canada under the Blue Sky agreement?

Again, the minister has, under Blue Sky, the discretion to decide. There are many stakeholders involved in these open skies agreements. There are the airlines, airports, communities, shippers, passengers, et cetera. The minister is charged under the policy to say that he wants to hear from everyone to get a good sense as to whether or not we have a good balance so that it is a win on a general basis.

One of the problems with what the UAE are proposing is that we know that the origin destination market between that and the UAE would not support daily wide-body or super wide-body service. As you know, they have a lot of super wide-bodies coming into their fleet.

We believe that the problem with the UAE is simple. They have given themselves the objective of building this monstrous hub in the middle of the desert, which they are almost finished building. They have given their carrier the ability, with financial backing, to go out there and buy huge numbers of these jumbo jets and super jumbos, for example, in Dubai, with a population base of 400 million people. That is to give you an idea.

In three or four years, the Emirates will have more than 200 wide-body aircraft for 300 million people. Deutsche Lufthansa, one of the largest international airlines in the world, is talking about maybe 110 or 120 to serve a market of 90 million people. That is 20 times more. Something does not add up there, and we know what is going on. They want to build this big hub. They want to make Canada one of their nice little spokes flowing into their hub.

Our position is simple at the National Airlines Council of Canada. Why do we not focus on building our hubs here in Canada? Why do we not focus on value-added agreements for all stakeholders in Canada?

Under the UAE scenario, you will have some winners, and some airports and communities will be happy, but some airports, communities, and airlines will not come out winners. In the end, the balance of probabilities does not work.

The minister has said this is not in Canada's overall interest. We support this position. It is not a question of protectionism. It is a question of saying that we prefer to build a strong industry here in Canada. We prefer to build strong airports here in Canada. If we see something that clearly is a threat to our ability to do that, we will have a second look. The UAE have a wonderful strategy, but it we do not want to buy into it as far as we are concerned. They have to fly the planes, and good luck to them, but it will not be at the expense of a strong base here in Canada for our transport.

Senator Zimmer: I want to give a bouquet to you and the transport committee. The new building in Winnipeg looks not only magnificent but functional and consumer friendly. We are looking forward to being able to get into it. It looks like a wonderful structure. Thank you. We needed it badly.

Mr. Petsikas: I am glad to hear that. We worked with the airport authority there, and we hope it will work well for our customers, for you and for everyone.

Senator MacDonald: Mr. Petsikas, thank you for coming here today. I have a question concerning the structure of your organization, the National Airlines Council of Canada. I noticed that Air Canada, WestJet, Air Transat and Jazz Air are all members. I noticed that Porter is not. I am curious why Porter Airlines is not a member. Will you clarify why Porter does not participate in the organization?

Mr. Petsikas: We are an organization that has bylaws that establish what type of airlines can join our association as full national members or as associate members. Full on national members, voting members, I believe, is a criteria that is open to everyone if you meet those criteria. I am working from memory here, but I think you must have a scheduled international, domestic licence, and you have to operate aircraft over a certain seat capacity, which is, I believe approximately 89 seats. I am saying that subject to the fact that I am working from memory here and I may be wrong. The point is that there are criteria. If you satisfy those objective criteria, you can ask for membership and, as a general rule, you will get membership in the NACC.

Porter Airlines has never asked for membership in our organization, either as a national carrier or as an affiliated associate member carrier. By the way, the associate member category is much broader in terms of the criteria. It is less prescriptive in terms of the criteria. Tomorrow, Porter could call us and say, "Listen, I would like to sit in and be an associate member of your group and follow what you are doing and maybe support you." However, we have never received that call. I will not put myself in Bob Deluce's shoes and determine if he should make that call. I believe Porter is a member of ATAC and sit on the board. It is quite possible that Porter is fully satisfied with how things are working on ATAC at this point.

Senator MacDonald: Are there any of those criteria that do not apply to them or that they do not satisfy?

Mr. Petsikas: Do you mean in terms of the national carrier?

Senator MacDonald: I mean in terms of the criteria for being a member of the organization.

Mr. Petsikas: I apologize because I do not have a copy of our bylaws with me. I will have to check. For sure, there would be no problem for them becoming an associate member. As to a full national voting member, with you permission, we will have to check. I am looking at our national operations director. She will be happy to send you a copy of those criteria in our bylaws. I know the type of operation that Porter has. Off the top of my head, I believe they could satisfy those, but we will send you the criteria.

Senator MacDonald: When the organization was set up initially, were invitations sent out to all of the airlines operating in Canada to become members or associate members? Were they invited? Were Air Transat and WestJet invited?

Mr. Petsikas: At the time, certain airlines indicated an interest — we were all members of ATAC — to perhaps explore a new initiative in terms of trade representation. Those airlines got together and formed the nucleus of what is today the NACC, the four founding members. We did not send out invitations to others.

One of the sensitivities we had is that we were not necessarily looking to poach and grab member airlines from ATAC, because it was not in our interest to weaken ATAC or to try to take over their membership.

We determined that ATAC had a corporate governance structure that was good for what they did. They have a wide representation at flight schools, small regional carriers, charter operators, et cetera, which is great. We decided we wanted an association focused primarily on the issues that affect the large domestic and international operators here in Canada. That is generally who you see before you in terms of the airlines represented here today. There was no attempt to exclude or say this is our little club. There was an attempt to say we think we need something with a better fit, and we want to dedicate more of our resources to dealing with our specific issues. At ATAC, it was more of a diversified approach in terms of the membership and their specific interest, which is perfectly legitimate. We wish them luck. They are doing well, and it is a perfectly legitimate operation and we have no problem with it.

Senator MacDonald: Would you not want to encourage a carrier like Porter to become part of your group? Would it not strengthen your group?

Mr. Petsikas: I will defer the question. You might want to ask that question of Mr. Deluce. I cannot speak to his interests. As I said, he may be very happy with the service and representation he has at ATAC. I cannot sit here today and say whether he should apply to the NACC for membership. I respectfully recommend you might want to ask him that question directly. If for any reason he feels that, no, he would like a change in his life as well, then, as I said, we would be happy to entertain any interests he may or may not have to join our group. I cannot tell you today that he should call us.

Senator MacDonald: I am not sure if my question was completely answered, but thank you.

Senator Frum: Thank you for your interesting presentation. When you send us the supplementary numbers that Senator Housakos asked for about domestic comparisons, I would also be interested in the example you gave about Beijing to Seattle versus Beijing to Vancouver costs. That is a big issue. You mentioned the trends on tourism. Do you see a direct link between the decline of tourists and the increase in landing fees? Can you chart that decline?

Mr. Petsikas: I am mot an expert on tourism trends in Canada. We work with the Tourism Industry Association of Canada. David Goldstein can give you a good idea as to why we are seeing numbers dropping in terms of inbound tourism. Let us be clear. A lot of that was due to the advantage we had with the Canadian dollar. A lot of the drop in aggregate numbers comes from cross-border, which is no longer there. We cannot blame it all on our landing fees issues.

We are working with TIAC to focus policy recommendations on aviation-related and aviation-based travel and tourism. We have identified the cost issue and the hassle factor, for example, in terms of customs border control security, et cetera. TIAC has identified issues such as the GST rebate for passengers whereby people from abroad used to be able to apply for rebate of their VAT, value added tax when they purchased items. It became a complicated process and was cancelled for a time, but it was brought back. I understand that it is a complicated thing to manage and many people do not bother. Visa and border control issues play a huge part as well. At times we have to tell our friends at TIAC to sit down and have a drink. What are they supposed to do? Mexico is a huge potential growth market, but Canada hit them with a visa issue two years ago because of a problem with asylum claims. We will have to figure out a way to better coordinate decisions taken in that respect by the Minister of Public Safety with other considerations. Clearly, we agree that we must protect our borders and ensure that people do not abuse our generous system. No one disagrees with that. However, it must be done in a way that mitigates the impact on our ability to attract tourists from these countries to Canada. They spend highly value-added tourism dollars in Canada.

Senator Frum: Landing fees will not be in the top 10 of the list of issues.

Mr. Petsikas: Our report will be coming out. If this meeting were a few days from now, I would have it with me to share with you.

Our report discusses many of the things that we have talked about today as top issues for aviation-based travel and tourism: Airport costs and fee structures, taxes, after-ticket taxes, and competitiveness in that respect. It is all in our report. It is not a detail.

Senator Frum: Taking the voluntary reduction in GHG emissions down to 28.6 per cent is extraordinary. Can you give me some detail on how that was accomplished?

Mr. Petsikas: I will begin the response but perhaps someone else will join in. The no-brainer is that we have invested a lot in fleet renewal in Canada, in particular Air Canada with its wide-body fleets; WestJet with its narrow body fleet, which is almost completely next generation 737s; and Air Transat is in the process over the next year and a half to transition to a much more efficient wide-body fleet. It is a simple case of investing in better cleaner burning technologies. We have worked at best practices in terms of the weight factor on planes. For example, we question what has to be on a plane and what does not have to be on a plane given that a heavier plane burns more fuel. That is particularly important when a barrel of oil costs $160. No one had to keep telling us about the environment because it was a matter of dollars and cents to try to pay the bills without going bankrupt.

Senator Frum: You seem to have some trepidation about harmonizing standards with the United States. It seems that much of the work has been done. What is your position on the desirability of a policy that harmonizes our standards to the American standards?

Mr. Petsikas: I believe that Prime Minister Harper has said several times on the broader issues of the economy and our GHGs that North America is an integrated economy. As such, there is no way we can do things in Canada without having a keen eye on what is happening in the U.S. in terms of GHG reduction policies. We do not disagree with that.

In terms of our specific sector, there is a bit of a problem. As I mentioned, we have been aggressive in Canada in terms of our major airlines' fleet renewal. That is not the case with many of the major U.S. network carriers, who are due for major fleet overhauls. Some of their average fleet ages are very high. By renewing their fleets, airline industries can reach their targets. Canada's airline industry is already there, but is being told that it has to go even further. That is a tough one because much of that stuff is beyond our control. We always talk about investing in new technologies, such as biofuels. We want a more efficient air traffic control system, and we are working with NAV Canada in that respect. They are doing a good job in that respect; but a much lesser job than they are doing in Europe. I will not go into that because I do not have my blood pressure medication with me. I believe that answers your question on the issue of harmonization of standards with the U.S.

Senator Johnson: It is nice to see you this morning.

I would like to elaborate on foreign ownership limits. It has been suggested by some in the industry that fostering competition in Canada's market should be done by raising foreign ownership limits. Do you consider this a viable option for increasing domestic competition?

Mr. Petsikas: The Government of Canada has initiated a process whereby we would raise the foreign ownership limit to 49.9 per cent to harmonize with our partners in the European Union. That process is ongoing, although I understand it is under review. I believe the committee recently heard from officials at Transport Canada, who could provide updates on that. The NACC has worked with the government and the Canadian Transportation Agency to determine how that would translate into a workable regulatory regime in Canada. One problem is that the major airlines — Air Canada, WestJet and Air Transat — are all publicly traded companies with variable voting share structures in order to satisfy the existing 25 per cent limit while not cutting off the flow of capital. When you increase to 49 per cent and add the fact of certain countries having access to it while others do not have access, which is what the government is talking about, it becomes a complex file. We are working towards that. We have no problem with increasing to 49.9 per cent if it will work.

Senator Johnson: Do competitors have to be Canadian owned to serve Canadians best?

Mr. Petsikas: Normally, our support for the 49.9 per cent ownership limit includes the fact that effective control remains firmly in Canadian hands. While we would be happy to support an increase in voting equity in foreign hands up to and including 49.9 per cent, it would have to come with strong controls in respect of effective ownership and control of the airline. That is the important quid pro quo on that file.

Senator Johnson: You talked about advocating for a comprehensive review of direct and indirect taxes, fees and charges imposed by the various governments on our passengers. You suggested that the question is why we have this double form of taxation in an area that pays its own way without taxpayer money and actively supports economic growth and tens of thousands of jobs. Will you elaborate on that for the committee's study?

Mr. Petsikas: There are two objectives in Professor Lazar's report. The first objective was to underline the fact that we are not in business only for ourselves. We are in business for Canada because we connect this great nation; and I will not cite any of the distance clichés.

Canada needs its air transport system, period. It is not a luxury. We are important to the system and we are major facilitators of other forms of economic activity and productivity. For example, a business person in Toronto can take a flight to Vancouver early in the morning, attend a meeting, have lunch, get back on an airplane and be back at home in time for bed in Toronto. That is a long and tiring day, but that person has been very productive as opposed to spending a long time transiting through various airports. We improve productivity as best we can under the current cost structure.

We are supporters and facilitators of trade and commerce and exports and imports of goods and services and people travelling. Our industry produces externalities or catalytic effects in the greater economy. In taxing that industry on top of everything else, you are shooting yourself in the foot because you are removing our ability to better support the development of economic activity, growth and competitiveness, which we need here in Canada. The competitiveness agenda is far up on the government's priority list.

Do not do that on the front end with input taxes. You can do it on the back end with greater consumption taxes because of the greater overall economic activity that is produced.

That should be the theory. I am not an economist; I just play one on TV. Economists like to use the "S" word, which gives us shivers. The "S" word is "subsidies." They say that, rather than taxing, the government should subsidize these industries. We are not saying that, but we are saying to stop the other drain in terms of the costs you are pulling out of the system. At least on the fiscal policy end it is cost neutral, and then we will go at it in terms of being better able to support development of the external effects that we are talking about

Senator Johnson: Our study is timely then.

Mr. Petsikas: It is very timely. I am pleased that the Minister of Transport will appear before you to look at some of these issues. We are pleased to hear that from him. We know it is not an easy sell in a time when you are facing serious fiscal challenges with major deficits. However, we are willing to promote this as a serious argument to be considered.

Ms. Logan: I will add something about the contribution that the airlines make in moving goods as well as people. We move a significant amount of goods around the country. There are huge rail and trucking networks in Canada, but the airlines have a particular role to play in moving perishable goods in a time sensitive manner. We make high-value shipments, including live animals. We take millions of kilograms of lobster from Atlantic Canada to the Asian and Europe markets. We carry vaccines. We carry fresh flowers from South America to North America. We carry a lot of produce.

An important aspect of the cargo market is done by the airlines, and that needs to be included in your study. It is a huge enabler of Canadian industries, as importers and exporters, as well as enabling Canadian consumers to sustain the standard of living to which we have become accustomed.

Senator Johnson: That is critical, especially the fresh flowers to Winnipeg in February.

Mr. MacKenzie: Going back to the earlier question about whether reducing costs would benefit the public in general, price is very inelastic. Our ability to raise and lower fares will directly impact load factors and yields, et cetera. Removing costs from the structure will result in more people travelling due to lower fares. In addition to generating a public benefit, the government will generate more taxes through more people travelling because lower fares are available. We would all generate value.

Senator Kochhar: Are cargo landing fees the same as passenger landing fees? If they are too high, cargo will become very expensive.

Mr. Petsikas: It depends on the airport. Pearson has made a conscientious effort in the last while to reduce cargo landing fees in order to stimulate cargo traffic at the airport. I am not sure of the success of that initiative, but that airport has made that effort to attract more cargo traffic. It is done on an airport-specific basis, but Pearson has said that we should make it more attractive for cargo to come here.

Senator Cochrane: Could they not do the same for passenger fees?

Mr. Petsikas: I would love them to lower fees for passengers. The question is their ability to do so. Using Pearson Airport as an example again, unfortunately Pearson has almost $7 billion of debt. I do not know what that comes to on a monthly or yearly basis, but these are high fixed costs. They have to pay almost $170 million of ground rent, and they have to recover that. They have payment in lieu of taxes to local municipalities as well as their O&M to run their operation.

We would all love them to take 20 per cent off of landing fees, but they would end up short and be unable to cover their costs. Unfortunately, they are a residual single-till operation and they have to recover every cent.

Senator Kochhar: Can high volume compensate for some of that?

Mr. Petsikas: Obviously the higher the volume the lower the overall unit cost. We are working with every airport in the country to explore ways to develop new traffic. It is in our interest to do so. This is why we are worried about cross-border leakage. We have built these infrastructures in Canada. We have spent our money as users of the system to build what are now world-class airports, and now 40 per cent of the licence plates parked at Buffalo airport are from Ontario.

Senator Johnson: The same is true in Minneapolis.

Mr. Petsikas: People will go to the trouble of driving two hours. I would understand if Pearson was a disaster that people hated to walk through. Pearson is a great airport. It is a magnificent structure and I love to go through it. However, people are voting with their feet on the basis that the cost is too high compared to what they can get elsewhere. We have to address those structural issues quickly.

Senator Cochrane: Unlike Canadian national ports, airport authorities do not have legislation to govern their operations. Rather, they are subject to ground leases that are audited by Transport Canada. In your opinion, would airports be better governed through legislation that clearly sets out the responsibilities of airport authorities?

Mr. Petsikas: The government tried that a few years ago with Bill C-20. Unfortunately, everyone found something they did not like about it, including the airports and the airlines.

In terms of a national comprehensive governance structure, I am not unsympathetic to what you are saying. However, it is something that must be done in a way that achieves our objectives. Obviously we want to have well-run airports that are accountable to users. Airports, on the other hand, do not want to be caught under a governance process that may or may not make their lives a hell of a lot more complicated and a lot more expensive in terms of administrative costs, which they rightly pointed out under Bill C-20 would be costly overhead for them. You have to do it in a balanced way.

I do not know if we have found that balance. We can always have that discussion. I am certainly not here to speak on behalf of the Canadian airports. I am sure their council would be happy to discuss that issue with this committee.

In terms of airlines, we are not looking to run airports. We are looking to work with airports, to have accessible, both physically and economically, affordable well-run airports that support our services, and obviously provide our passengers with the support and convenience that they need to get where they are going.

Other than that, we can talk in terms of what you may or may not like to see in some legislation. I cannot tell you what I can put in there because the airports will not agree. Again, I want to avoid a lot of the time we have wasted, which is essentially just battling it out on these sorts of things when, in the end, I would prefer to be more productive and work with our airport colleagues and focus on practical issues and problems. A good example of that is what we are doing with the cost structure, where we are all agreed that this is a problem for airports and it is a problem for airlines. We will work together to try to fix that problem.

Senator Cochrane: It is also a problem for passengers.

Mr. Petsikas: Absolutely, it is a problem for passengers.

Senator Housakos: In 2008, the Government of Canada announced the Flight Rights Canada program, in order to strengthen and protect passenger rights. Has that been working well? Has it been sufficient in protecting passenger rights, and how does it compare to the previous system, with an ombudsman or commissioner, in relation to passengers' rights?

Mr. Petsikas: Flight Rights Canada's guidelines worked well enough that we decided to adopt them and put them into our contracts of carriage as legally enforceable obligations. You are talking about voluntary guidelines that Minister Cannon, at the time, had introduced. As you may or may not know, last year we took the initiative, as the foreign NACC airlines, to say that we think these are reasonable in terms of their scope. We think they are reasonable in terms of the balance between the consumer interests and making sure that airlines are able to run the system, to the point where we said they are going into our contracts of carriage through our tariffs. They are legally enforceable by the CTA, and, as such, to my understanding, they have worked well. I do not have statistics for myself or certainly not for other carriers in terms of how many complaints they might sort out or how many times we have had to refer to the provisions, but my understanding is it is a good framework and has been used as a model.

I sit on an IATA industry affairs committee which brings together airlines from around the world. I can tell you, especially the European carriers, and of course, now the U.S. carriers that are looking at onerous passenger rights legislation, our approach was seen as a bit of a model. We said this is carriers taking responsibility; they are not being forced anywhere. They are basically coming to the plate and saying that we will make it right if it does not go as well as possible. If not, you will have recourse somewhere.

This as opposed to prescriptive, heavy-handed in some cases, legislation, which — take your pick — if that is the sort of thing you like, fine. We do not think it works particularly well. We think it is a flexible approach. You will forgive me if I say we like it.

Senator Housakos: Your answers have been informative this morning. I thank you very much.

Mr. Petsikas: I thank you.

The Chair: On behalf of the committee, Mr. Petsikas, I want to thank you. As you can see, there is strong interest in this subject. We chose the subject because we felt there was a need for it. Quite obviously, with the witnesses we have had so far, clearly there is a need.

We will have ATAC tomorrow night. We will be here in this same room at 6:45 p.m. Thank you very much.

If there is anything you want to add along the process that you think would be of interest to the members, the clerk will be happy to pass along whatever information you provide. You have already committed yourself to some numbers on cost comparisons between Canada and the U.S. We will be counting on you to follow our deliberations over the next few weeks.

Mr. Petsikas: Thank you for inviting us, and good luck with your work.

(The committee adjourned.)

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