Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 4 - Evidence, October 27, 2010
OTTAWA, Wednesday, October 27, 2010
The Standing Senate Committee on Transport and Communications met this day at 6:47 p.m. to continue its study of emerging issues related to the Canadian airline industry.
Senator Dennis Dawson (Chair) in the chair.
[Translation]
The Chair: Good evening. This is the fourth meeting of the Standing Senate Committee on Transport and Communications devoted to our study of emerging issues in the Canadian airline industry. Our witnesses this evening represent the Air Transport Association of Canada.
[English]
Appearing on behalf the Air Transport Association of Canada are John McKenna, President and Chief Executive Officer; Bill Boucher, Vice-President, Flight Operations; and Michael Skrobica, Vice-President, Industry Monetary Affairs.
[Translation]
I would like to remind you that this evening's proceedings are being televised.
Mister McKenna, please go ahead with your presentation, which will be followed by questions from Senators.
[English]
John McKenna, President and Chief Executive Officer, Air Transport Association of Canada: Good evening, ladies and gentlemen and members of the committee.
The Air Transport Association of Canada, ATAC, has represented Canada's commercial air transport industry for over 75 years. We have approximately 175 members engaged in commercial aviation, operating in every region of Canada and providing service to a large majority of the more than 600 airports in the country.
Our members include Air Georgian from Mississauga; Air North from Whitehorse; Air Tindi from Yellowknife; Alta Flights from Edmonton; Bearskin Airlines from Sioux Lookout; Buffalo Airways from Yellowknife; Calm Air International from Thompson; Canadian North from Yellowknife; Cargair from St-Hubert; First Air from Ottawa; Flair Airlines from Kelowna; Grondair from St-Frederic; KD Air from Port Alberni; Kelowna Flightcraft; London Air Services from Richmond, B.C.; National Helicopters from Kleinburg, Ontario; Nolinor Aviation from Mirabel; North Cariboo Flying Service from Fort St. John; Pacific Coastal Airlines from Richmond, B.C.; Porter Airlines from Toronto; Sunwing Airlines from Toronto; Transwest Air from Prince Albert, Saskatchewan; and Whistler Air Services, to name a few. Our membership also includes about 48 flight training organizations.
We appreciate the opportunity to appear before you today to address the important aspects of our industry that you have undertaken to study. Our industry has gone through heavy turbulence in the past decade, and we expect we are not quite yet out of the bad weather.
Air transport in Canada is entirely driven by the private sector, and its resilience is what has allowed it to struggle through these past few years. I should perhaps say that the most resourceful have managed to pull through. Canada 3000, Canada West Air, Canadian Airlines International, City Express, Greyhound Air, Jets Go, Harmony, Maestro, Nationair, Norontair, Pem Air, Roots Air, Royal Aviation, Torontair, Vista Jet, Sky Service Airlines, Zoom — all of these flight operators have gone under in the past 15 years.
Why has the Canadian aviation industry seen the loss of so many airlines? ATAC believes that Canadian air policy has played a significant role in their demise. We say this for many reasons.
First is government ground rent. Rent was imposed upon airport authorities privatized by Transport Canada in the mid-1990s. Although there has been a move by Transport Canada to reduce its take, Canadian airports currently pay in excess of $300 million each year in rent. With the exception of two Third World countries, Canada is unique in extracting money from its airports.
The next issue is taxes. This July a new form of sales tax, the HST, began to apply to airline tickets and added yet again to the cost of air transportation.
In 2008, ATAC conducted a survey to rank the 175 security fees charged by governments and airports worldwide. At that time, Canada's security charge was the second-highest in the world, second only to the Netherlands. Today, ATAC estimates that the Canadian government's Air Travellers Security Charge is the highest in the world by a significant amount. This tax was increased by 53 per cent in this year's federal budget. Our numbers indicate that the federal government now collects over $760 million each year from the Air Travellers Security Charge, way beyond Parliament's appropriation to the Canadian Air Transport Security Authority, CATSA, of $473 million. We have asked repeatedly where the surplus of nearly $300 million goes. There has not been an audit of that tax since 2004-05. We certainly feel that the paying public has the right to know what this money is being used for.
Fuel excise taxes continue to be levied at both the federal and the provincial levels, in spite of former Finance Minister Michael Wilson's promise years ago that this tax would be done away with after the introduction of the GST. Twenty years later, we are still paying the excise tax to the amount of $100 million a year.
Clearly, the airline industry in Canada is not being nurtured, as a United Arab Emirates official indicated was the case on behalf of its airline. On the contrary, the Canadian government has ensured that the airline industry pays more than its fair share. In fact, the Canadian government extracts more than $1 billion a year from air transport. In other words, not only do we have to be self-funded, but we are also required to support the federal budget. This adds to the cost of air travel, making it less competitive and hindering our ability to attract new customers and even retain our existing customers, who are attracted by the lower fares south of the border. There is little wonder so many Canadian airlines are casualties.
No other mode of transport is so burdened with taxes and charges. While the commercial air transport industry supports the Canadian government, the passenger rail industry is subsidized by taxes to the tune of tens of millions of dollars every year, yet we carry 25 times more passengers every day than does the highly subsidized rail industry.
[Translation]
The place of the Canadian airline industry also requires study. ATAC believes that air transport has played an important role in uniting Canadians through easy access to every corner of the country. It plays a major role in defending Canada's sovereignty in many remote regions of the far North.
With over 5,000 flights a day, the air transport industry of Canada plays a vital role in our well being as it provides a lifeline to many outlying regions with little or no access to the rest of Canada. It plays an indispensable role in our economic development given our landmass, regional disparities and often severe climate.
Consider also the business relationship the airline industry has with its passengers. Each passenger flight is based on a contractual obligation. That obligation is spelled out in the airlines' tariff, a document available at the air carrier's ticket counter, internet site or through the Canadian Transportation Agency. In addition, most Canadian air carriers subscribe to operating under Flight Rights Canada, a voluntary customer care standard.
There has been a lot of talk in the past year about legislating passenger rights and we rallied against the private member's bill tabled in the House. We are certainly not against passenger rights, but we are however, opposed to legislation which would place the rights of passengers before safety concerns, place all blame on airlines, treat all airports alike and offer compensation way above the price paid for the ticket.
[English]
In conclusion, the long-term viability of our industry depends a lot less on the changing global market than it does on a most needed change in attitude of the Canadian government toward air transport. We need the Canadian government to start seeing and treating our industry in light of the vital economic role it plays in Canada rather than targeting it as a source of funds for the government's general revenue. Only then will our industry stand a chance to be competitive and viable in the long term.
We will gladly answer your questions.
Senator Housakos: I have a question about market competition. I would like to know whether, in your opinion, in the current state of affairs, there is room for more competition in the marketplace. If there is, what steps can the government take to foster more competition?
Mr. McKenna: That depends on which market. Canada has many markets. It depends on which route and what regions you are talking about.
Senator Housakos: I understand you represent many airline companies that serve the far regions of the country — and I am curious to know your perspective on that — as well as the major centres where the three or four major competitors are in competition. I would break it down to two sections: regional service and national service.
Mr. McKenna: I will start, and Mr. Skrobica can complete my answer. Some segments of the market are very profitable, and many people attack those segments. If we look at the Far North, and any region, as with any mode of transportation there are routes that are well paying. These routes as a rule subsidize the less-paying routes. Carriers all gather and focus on these routes and will attack a market just to get a route between Calgary and Yellowknife, for example, because it is a busy route, not realizing that the carrier who does that route also is vital to every other part or every other less profitable route in that region.
There is certainly room in some markets for more competition. In certain areas, whenever one airline arrives, a price war ensues and then one or two of the airlines offering service pull away and after that there is a monopoly situation. It is very delicate.
Michael Skrobica, Vice-President, Industry Monetary Affairs, Air Transport Association of Canada: In 1983-84, the government introduced competition. Previous to that, the routes were structured essentially on a monopoly basis. The consumers of Canada have benefited from lower fares. We have a study that indicates that even with add-ins, for example the airport improvement fee and other charges, Canadian consumers have benefited.
As Mr. McKenna indicated, we would be concerned about a lowering of competitive hurdles that foreign airlines would have to clear. There may be a single profitable route in a route system, but in that route system a number of communities are served by that airline, and it is important that there is year-round rather than seasonal service and that the network has an opportunity to be served. It is not just commerce; a good deal of Canada's health system depends upon moving people from remote areas to areas that have the appropriate medical facilities.
With regard to open skies arrangements, we have indicated that we are not averse to more open skies, but we would want to ensure that these arrangements are reciprocal and not based on a city state where there are not many opportunities for Canadian carriers to exploit while on the other side a single airline would have access to multiple Canadian markets.
Senator Housakos: Is there also a lot of discrepancy right now between higher traffic routes and smaller traffic routes? Are some of the outer regions of the country getting equitable service in terms of pricing? Are they getting equitable service in terms of safety compared to some of the busier routes in some of the bigger urban centres?
Mr. McKenna: Those are two very different questions. I will reassure you on the safety issue. The question of whether the small airlines are safer, or not as safe or riskier has been mentioned a lot lately. Smaller airlines are not riskier. They are subject to the same regulations and rules. However, in many cases they do fly in remote regions, which are not as equipped as Toronto, Ottawa, Montreal and the other large airports; it is a different environment altogether.
As for prices, they are based on supply and demand. It is expensive to fly in certain remote regions of this country, but then again it is expensive to maintain an airline in these areas when you are talking about planes that will hold fewer than 40 people or 15 people. There is not much volume there to support lower costs.
Senator Housakos: I understand clearly from your presentation that you have identified the tax platform and the whole taxation system as being the biggest challenge to the airline industry. I agree with you that taxation and over-taxation in Canada has become the biggest challenge across the board.
What would you outline as the second or third biggest challenges after the fact that Transport Canada is putting a great financial burden on the aviation industry? Beyond taxation, what would be the close number two and number three problematic challenges?
Mr. McKenna: Security is a major concern, and the cost of security. It is still related to cost, mind you, but it is a concern.
Mr. Skrobica: I would point to a comparative analysis of the United States and Canada. In the United States, the airports are subsidized through the Airport Improvement Program, AIP. In Canada we do not have a similar program. In the United States, that applies to all airports. In Canada, the smallest airports require some sort of support. Those airports are not really sustainable, based upon the type of traffic flows they have and the various requirements that government regulation calls for in order to maintain an equitable level of safety. As a result, some sort of infrastructure funds are needed for that category of smallest Canadian airports.
The Airports Capital Assistance Program, ACAP, does invest about $35 million a year in safety-related items. However, terminals, fencing and so on fall outside the purview of this fund.
Senator Housakos: Finally, thinking about the airport authorities and their governance, in the view of your membership, your association and your experience thus far, do you find that the airport authorities across the country have been responsive to the needs of your members? Generally, what is the view of your association with regard to the governance of the airports with respect to their transparency and accountability? Do you feel that the structure that has been in place has been working well, both for your members and for the public at large?
Mr. McKenna: For the vast majority, I would say that has worked out. Some of them are aggressive in their development and therefore charge appropriately. As a rule, that has been a success.
Mr. Skrobica: There was an attempt a number of years ago to introduce a Canada airports act. Uniformly, both the airports and the airlines panned the proposal. We felt that it got government way too involved in the process.
I would estimate that we would be comfortable with about 98 per cent of the airports in Canada as they are currently set up. Just like in regular society, there will always be a small group that will be outliers. I will not use the word "outlaws" because there is no law on it, but they may take aggressive steps that do not have international comparisons, and as a result we would be concerned that possibly there should be some legislation to deal with their governance. However, we believe that this should be a cooperative process involving the airports, the airlines and other stakeholders.
Senator Mercer: Thank you, gentlemen, for your presentation.
I want to get a couple of things clear so that I understand who we are talking to. As I read the list of your members, I noticed that Air Canada and WestJet are not members. Were they members in the past?
Mr. McKenna: Yes, up until two or three years ago.
Senator Mercer: They are no longer members. The only larger airline I see would be Porter. Would that be the largest carrier?
Mr. McKenna: I do not think so. Porter is perhaps the best-known carrier but not the largest. Are you talking about volume or revenue?
Senator Mercer: Give me both.
Mr. Skrobica: Sunwing Airlines would probably carry more passengers.
Senator Mercer: That is the charter trips to Mexico, cetera?
Mr. McKenna: Yes, and many other destinations.
Senator Mercer: Is that in volume or in revenue?
Mr. McKenna: Both, I would say.
Senator Mercer: This is a tough industry; we know that. You listed all the people who have failed. As a matter of fact, I was just sharing with my colleague that a new airline is starting up in Atlantic Canada next week called East Coast Airways. It is a subsidiary of Integra Air from Alberta. Is Integra a member of your association?
Mr. McKenna: I do not know that airline. Some of these airlines are owned by other airlines.
Senator Mercer: I do understand that, because I have flown on other airlines on charter flights. I have always been interested that they were charters but subsidiaries of much larger airlines.
Mr. McKenna: You are probably talking about smaller planes.
Senator Mercer: Yes.
Mr. McKenna: About 600 companies in Canada are accredited by Transport Canada to do commercial flying. I think we represent the vast majority of the larger ones, or the more significant ones, but many out there are not members of any association. They are usually very small.
Senator Leo Housakos (Deputy Chair) in the chair.
Senator Mercer: I want to turn to your presentation on taxes, ground rent and other charges. You talked about $300 million going to Transport Canada. What do they do with the money? You may not have the answer to this question, but perhaps when Transport Canada comes back we should ask them.
You say in your presentation that the federal government now collects over $760 million each year for the Air Travellers Security Charge, way beyond Parliament's 2009-10 appropriations to CATSA of $473 million. I agree it is way beyond. What happens to the difference?
Then you mention the commitment made by the Mulroney government that once the GST came into effect, the excise tax would be dropped, and it is still there. You say that 20 years later we are still paying the excise tax in the amount of $100 million a year.
Is that $100 million on top of the $760 million?
Mr. McKenna: Yes, plus airport rents of now $300 million.
Senator Mercer: You have $760 million, $100 million, and $300 million for rent, so that is over $1 billion.
Mr. McKenna: That is what I claim.
Senator Mercer: Okay. We assume it just goes into general revenues and is not reallocated within Transport Canada for air travel purposes.
Mr. McKenna: We have asked Transport Canada repeatedly and the Minister of Finance to tell us where this money goes and what it is used for. We are told that it is all used for aviation security, but we are not given any details.
It is easy to get the CATSA appropriation because that is in the CATSA budget, but for the excess, we do not even have exact numbers for how much is collected. We gathered this from looking at CATSA data and Statistics Canada data. That is how we estimated that money, and we could be off by $50 million or $100 million. We are not sure, but a lot of money is being collected, and we have no indication as to how much is being collected and what it is being used for.
Senator Mercer: You and others have talked about the subsidies that are given to American airports in various forms. I know you will correct me if I am wrong, but it seems to me that while we may not be giving subsidies directly to airports today, when the Government of Canada was in the business of owning airports, we were subsidizing the industry pretty heavily by building these airports and providing the opportunity for airlines to use them. Yes, we were charging people to land there, but the capital cost was borne by the taxpayers, was it not?
Mr. Skrobica: The funding of the Canadian airports was done through the Air Transportation Tax, the ATT. It was in place up until the airports were privatized and NAV CANADA was devolved. It was to pay for both the operation of the airports, over and above the cost that was borne by landing fees and general terminal fees, and other charges at the specific airports.
Senator Mercer: So money did come out of the general revenue of the Government of Canada to support airports across the country. There was a subsidy, and the more important aspect I am trying to get at is that the subsidy was for capital costs. I fly in and out of the Halifax Stanfield International Airport weekly, and it was built with taxpayers' money. When it was built, it was first known as the Kelly Lake airport.
Mr. Skrobica: I would just add that it really came out of the air travellers' pockets because they paid the Air Transportation Tax that funded this.
Senator Mercer: However, that tax did not equal the capital costs of building airports.
Mr. Skrobica: It did not because deficits were run on those airports; and yes, there was a component of subsidy involved.
Senator Mercer: If we were to add those up — I mentioned the airport in Halifax, but we could mention Pearson; we could go to every place across the country from Williams Lake, British Columbia, to the Trudeau airport — billions of dollars of Canadian taxpayers' money have gone into providing the infrastructure that allows the industry to exist. I will not use the word "flourish" because we know the industry is not flourishing, but it allows the industry to operate.
Mr. Skrobica: We have a letter from Transport Canada that indicates that in 1997 the net book value of all the airports was $1.5 billion.
Since the imposition of the ground rents, the government has extracted several billion dollars. Clearly, not only did the airports pay for those previous investments, they have paid for much more. The taxpayers have benefited handsomely, some would say unjustly, from their previous investment.
Senator Mercer: I think I would probably get a new appraiser if he told me that the book value of the airports in 1997 was $1.5 billion. I would suggest that Pearson alone would probably be worth $1.5 billion. It is probably worth $10 billion today.
Mr. Skrobica: We are not talking about the market value. We are talking about what the investment was on a depreciated basis.
Senator Mercer: I would go back still and say just talk about Pearson alone and the investment that the Government of Canada made in building Terminals 1, 2 and 3 and rebuilding terminal 2. Did we rebuild Terminal 2? Whatever it was, four terminals were built in Toronto prior to the privatization of the airport, or maybe three.
Mr. Skrobica: There were three at that point in time.
Senator Mercer: I want to ensure that we, as a committee, are comparing apples to apples. We keep hearing people say that the American airports are subsidized, and we are not arguing that, but we do have to have some recognition of the fact that Canadian taxpayers have subsidized this industry significantly over the years.
Mr. Skrobica: Senator, I would not take exception to what you have said, except that for the last 15 years, that investment has been more than paid back to the Canadian taxpayers.
Mr. McKenna: Sir, I would like to remind you that these infrastructures, these airports still belong to the Canadian taxpayer. They are rented out on a long-term lease. The airport authorities do not own them; they rent them.
Mr. Skrobica: And they will get them with all of the improvements.
Mr. McKenna: They will return them at the end of the lease with all improvements included.
Senator Mercer: Any government that takes it back is crazy.
Senator Marshall: Mr. McKenna, in your opening remarks, you spoke about your members and then you talked about some of your former members that have gone under. Would you be familiar enough with your current members to know what kind of financial position they are in? Would most of them be struggling to keep afloat, or are they not in a very bad financial condition?
Mr. McKenna: Any industry that has profit margins of about 2 per cent is close to the edge at all times. You have to be very resilient and innovative to survive. I do not think anyone is comfortable at this point. I think all airlines are on their toes.
Senator Marshall: When you talked about subsidies in your opening remarks, were you talking about direct subsidies per se, such as a provincial or federal government offering subsidies or providing subsidies to individual airlines?
When you speak about subsidization, were you looking more toward addressing some of the issues around the ground rent and the taxes? What were you referring to? When you initially spoke of subsidization, I thought you were looking at direct subsidies, but your further discussion seemed to indicate otherwise.
Mr. McKenna: I was talking about the rail industry when I talked about the subsidization, not about the airline industry.
Senator Marshall: However, it seemed that because you raised that point, you were looking for subsidies.
Mr. McKenna: No, I am not looking for subsidies. I am saying we are not playing on a level playing field, and that is our concern. There is often talk about rail in this country, high-speed rail, and we look at VIA Rail's budget and how much they are subsidized. We are saying one mode of transportation is being treated differently than the other. That was our point.
Senator Marshall: Has your association taken a formal position on the issues you raised with regard to the taxes and the ground rents? Are you saying the ground rents should be eliminated or reduced? Are you saying the taxes should be eliminated or should be reduced to a certain extent? Do you formulate positions on these various issues?
Mr. McKenna: Every year the budget comes around, and in such forums we ask that the excise tax be lowered. There was a promise a few years ago that it would be cut in half, and that never happened.
We asked that airport rents be lowered. We have asked that repeatedly. These are all things that would help us be more competitive.
I heard the president of Air Canada read a speech today in which he indicated that it is costing him $1 billion a year to be in business here as compared to if he were operating the same business south of the border. These are all additional costs that are imposed on our industry.
Senator Marshall: Historically, from what you are saying, these costs are not going down, as you are advocating. Instead, they are going in the reverse direction.
Mr. McKenna: There are new costs all the time, yes.
Senator Marshall: That makes it a bit more of a challenge.
Mr. McKenna: Yes, it makes it a great challenge.
Senator Marshall: Thank you very much.
Senator Frum: Do many of your members perceive that they are in competition with U.S. carriers? It seems that they are mostly domestic carriers that do not have U.S. competition.
Mr. McKenna: Are you talking about people going south to fly?
Senator Frum: Exactly.
Mr. McKenna: Yes, that affects any carrier that does regional flying and transcontinental flying. Many of our carriers offer regular routes and are facing that.
Senator Frum: Looking at the list, it looked like the majority would be servicing a domestic market that would have exclusive markets just by geography.
Mr. Skrobica: Very few Canadian routes are monopolies without competition. Usually there is competition.
Let me give you one example. Ottawa to Iqaluit was the exclusive route of First Air for a number of years, and Canadian North was a competitor that went back onto that route a number of years ago, and just last spring Air Canada in the guise of Jazz began working on that route, and now I heard two days ago that WestJet is looking at going onto that route. There is competition on those types of routes.
Senator Frum: That is interesting.
Mr. McKenna: Were you talking more about the American competition?
Senator Frum: I was, but to me that begs the question on the 2 per cent margins. If three providers are fighting over that route, there must be profit in it.
Mr. Skrobica: It is not sustainable.
Senator Frum: What is going on there?
Mr. Skrobica: It is a nasty habit in the airline industry of the last man standing, and it is that airline that either has the financial capacity to take the losses or has a unique market entry barrier, for example, the infrastructure at those airports. In the North, you really need a hangar. If you do not have a hangar, it will be very difficult to de-ice planes at minus 40 and 50 degrees. The problem then is the last man standing obviously wants to recoup his losses, and the consumers will feel they are being ripped off. However, they did not take into account that they benefited from having four or three airlines on a particular route at any given time and benefited from unusually, non-sustainable low fares.
Senator Frum: However, you are not proposing that government policy should try to intervene in that very predatory practice?
Mr. Skrobica: No.
Senator Frum: A little bit along the lines of Senator Mercer's questioning about the infrastructure of airports in Canada, are you satisfied that our infrastructure is satisfactory?
Mr. Skrobica: If you look at the largest Canadian airports, we are in better shape than the United States. It is easier to build runways here than it is in the United States or in some other jurisdictions. In the U.K. there is a huge debate at Heathrow Airport about whether they will get a third runway. In Toronto alone I think we were up to seven runways, so from an infrastructure standpoint, the larger airports are in good shape. They have airport improvement fees helping to fund the capital expenditures. I have heard the complaint that many U.S. airports are like Third World airports in many places because they do not have the funding.
Where we are let down by way of infrastructure is at the very smallest level of airports. ATAC did a study five or six years ago, and we provided it to Transport Canada policy. We divided the Canadian airports into four tiers, starting with the eight or nine largest Canadian airports. Then depending on the various economic strengths of the airports, we indicated what would be required. At the very lowest level, those airports are not sustainable. They can barely put together the operations. They cannot positively sustain their capital.
Therefore, over time those airports will go out of service or out of operations or drastically reduce their level of service, and there will be consequences because some of those airports are remote and there are not many alternatives. If you want to buy any eggs in Puvirnituq, the plane will fly them in. There are no ice roads or shipping during eight months of the year. Basic necessities of life will be impacted.
Senator Frum: We do not think the $300 million a year the government is collecting in rent would be potentially used for that kind of infrastructure building?
Mr. Skrobica: Transport Canada has never offered to invest it.
Senator Frum: If CATSA only collected the $473 million that you are saying it spends on security, where would that put Canada in the ranking of security charges?
Mr. McKenna: First of all, CATSA does not collect the money. The airlines do and pay it directly to the Canadian government, which in turn allocates money to CATSA. The ranking we gave was on the charge per ticket and not on the total non-collected.
Senator Frum: Right, okay.
Mr. McKenna: There are three different charges. One is for domestic flight, one is for transborder flight to the United States, and one is international. They range from $11 to $25.
Senator Frum: I guess if it was collecting a third less or so, or half, then it would put us presumably in the middle of the pack?
Mr. McKenna: That is right.
Mr. Skrobica: That is right.
Senator Ogilvie: To clarify your answer to Senator Mercer on the 1997 book value, I believe you said it was the depreciated book value. Was the government using standard business accounting practices for capital depreciation, or does it have its own special government depreciation?
Mr. Skrobica: If I recall, and this was back in 1997 so my memory is a bit foggy, studies were prepared by a then Big Eight chartered accounting firm, so I would presume that it was done on the basis of generally accepted accounting principles and would have been depreciated on that basis.
Senator Ogilvie: Thank you. I have a couple of small questions. You mentioned in your opening remarks that Air Canada and WestJet are not members of your association. You may not want to speculate, if it is speculation, but is the reason for that their view that they are big enough to handle their own issues and do not need to be part of an association, or is there some publicly known reason that they do not belong to the association?
Mr. McKenna: You would have to ask them that, obviously.
Senator Ogilvie: I understand.
Mr. McKenna: However, my take, and I was not there, I have arrived since then, was that they had their own agenda and that they probably felt they needed to carry it out on their own.
Senator Ogilvie: I appreciate that. I just was not aware whether there was a publicly stated reason. If there was, then you would know what it was.
The second small question has to do with the service provided by airports. Are the gate crews provided by the airport authority as opposed to being managed by the individual airlines?
Mr. Skrobica: Exactly whom do you mean?
Senator Ogilvie: Right at the arrival of the airport, the gate crew that deals with putting the gate out, waving the plane in and so on — the ground personnel.
Mr. Skrobica: Generally that is done by the airlines' personnel. In some instances contract companies will do it at a particular airport on behalf of a number of different airlines.
Senator Ogilvie: The reason I ask is that I think they do a darn lousy job in general. I cannot fathom how it is possible that an airplane can be in the air for two hours or more and if it arrives a little bit early or late the ground crew seems to be incapable of being there. It is known when the plane left the departure site and whether it is roughly on time or not. When you see them emerging from their coffee shop, they are in no hurry at all. It is quite remarkable to watch the behaviour of Canadian ground crews servicing airlines. If we are in a competitive business and we want to deal with customer service, I would think that is one area that could easily be improved. I have been told by one airline that they did not control that; the airport authority controlled that. Obviously, based on your answer, they were passing the buck.
Mr. Skrobica: When you see the individual personnel at a gate, there could be other factors that are involved in the cause for delay. There are the air traffic controllers. There can be all kinds of delays with regards to the routing of the aircraft, even on the ground. Perhaps there is not an availability of gates, which is the purview of the airport authority. There is a potential for many other problems.
If it was, as you indicated through observation, the ramp personnel, then the responsibility falls on the shoulders of airline.
Senator Ogilvie: To follow up briefly, I do not want to go through the litany of examples that I have noticed. However, the one that stands out most is arriving at the gate on time and sitting there directly at the beginning of the painted line into the gate, with nothing else in the way, and waiting for the crew to emerge from the coffee shop, which is visible from the ramp area. This happens repeatedly. The plane has been in the air a minimum of an hour and a half to two and a half hours on the flights that I am on. I think it is terrible service.
Mr. McKenna: Am I wrong or is this somewhat related to your earlier question about membership in our association?
Senator Ogilvie: As you are not prepared to provide what you suspect is the answer to my question, I am not prepared to provide you with the information you are seeking.
Senator Mercer: I have always said that they did not know we were coming. No one told them.
I want to go back to a couple of points for clarification. In response to Senator Frum's question, you talked about the flights to Iqaluit and the fact that we may now have three airlines flying there. One of my complaints has always been that the largest airline engages in predatory pricing. When they appear before us I will be asking them the same question. This is why airlines like Canadian and others did not last in the game. They drove the price down so far that the other guys could not survive. They had the good flights that were making money. Is that what you are hinting at happening in a place like Iqaluit? That is, people who are flying back and forth may be getting a good deal now, but when there is only one airline, the price will go up?
Mr. Skrobica: That is one point, but I would like to make another. The Government of Canada intervened on behalf of one airline last year and provided a substantial loan.
Senator Mercer: To First Air or Air North?
Mr. Skrobica: Try Air Canada.
Mr. McKenna: Ask your colleague.
Mr. Skrobica: Try Air Canada. They were the recipient of $250 million, including a fairly strange transaction called the Canada Account, for $100 million. Interventions like that upset market dynamics. It gives courage to airlines that might not be in as good a financial position as would normally be the case and allows them to take risks that would not normally happen. Our association is on the record saying that we do not favour intervention for a single airline. However, if you are providing support, it should be for the industry as a whole.
Senator Mercer: I want to clarify one more thing. You provided us with a lot of interesting angles. I want to save some of these for when other witnesses come here, including those airlines who are not members of your association today and Transport Canada.
In the numbers that we went over before, when we came up with $1.16 billion — the $760 million, the $100 million and the $300 million — is that just for your members, or does it include WestJet and Air Canada?
Mr. Skrobica: It would be the industry as a whole.
Senator Mercer: So it does include WestJet and Air Canada. Thank you.
Senator MacDonald: Thank you, gentlemen, for coming here this evening. Yesterday, we had a presentation by the National Airlines Council of Canada. You are here tonight as the Air Transport Association of Canada. It appears to this layman that you are all from the same industry and are advocating the same positions. Why are there two organizations, and why is everyone not under the same umbrella?
I asked some questions last night with regard to the membership, and the answers were not very forthcoming. I would like to see if you can provide some clarification.
Mr. McKenna: We would welcome some of those members back if they decided to come back. The two associations do not work in opposition. As you have figured out by now, we have similar positions on a number of issues, so we do work together on a number of issues. Those people decided that they wanted to work in a smaller group of four rather than a group of 200, and that is what they decided to do. That is all I can say about that.
Senator MacDonald: They include most of the major carriers in the country, although I asked last might why Porter was not included because it is becoming more of a major carrier. I understand that your group has many small organizations; is that correct?
Mr. McKenna: Training organizations, of course.
Senator MacDonald: Flying clubs and things of that nature?
Mr. McKenna: Not too many. We are not talking about anything other than commercial aviation in our association: flying schools, regional operators, the ones that charter business aircraft, cargo and regional airlines.
Senator MacDonald: Will there be a solution to this split? Will they get back under the same umbrella? Are discussions being held to get everyone back into the same tent?
Mr. McKenna: I would be lying if I said that there were discussions at this point. They decided to move away, and we decided to regroup and reorganize accordingly. It has been pretty interesting for our association because many of the smaller members have since joined our association thinking that maybe now their concerns would also be heard. When you have three or four big organizations in your association, they carry a lot of weight.
Senator MacDonald: Yes, they would. I just wanted clarification on that.
Mr. McKenna: We would welcome them back, absolutely, but we are not knocking at their doors.
Senator MacDonald: Thank you.
Senator Marshall: I want to go back to the subsidies that I was asking about earlier. You used the term "intervention" when some financial assistance was provided to one particular airline. What other types of external financial assistance are provided to the members of your association? For example, do any or many of the airlines that fly into remote communities receive some sort of subsidy from a government?
Mr. Skrobica: Zero. There may be some local support, usually on a municipal basis, but to the best of my knowledge generally in Canada there is no subsidy.
The United States has the Essential Air Service program, which subsidizes regional airlines to fly into Grand Forks and such places that would not normally have the critical mass to support regular air service.
Senator Marshall: With the exception of the one intervention that you spoke about earlier, the airlines are really on their own?
Mr. McKenna: Yes. Every member of our association, save one, is a privately owned airline. Some of the northern airlines are owned in part by the Aboriginal people. That funding comes from the government, not necessarily to buy an airline, but for general well-being. All of these airlines are privately owned.
Senator Marshall: I know of one case a number of years ago where a privately owned airline was substantially subsidized by a provincial government. I was wondering whether that was an anomaly or a common thing. From what you are saying, that would have been an anomaly.
Mr. McKenna: A few years ago in the province of Quebec, Air Labrador, and before that Jazz, was subsidized to the tune of perhaps $1 million a year to offer services in remote regions where they would not normally go. Those are the only cases I know of where there have been subsidies to airlines. The government wanted to ensure that there would be service in an area where it would otherwise not be commercially viable.
I am aware of provincial governments subsidizing studies on whether it would be viable for an airline to operate in a given region. Those subsidies went to regional organizations that were trying to attract these services.
The Deputy Chair: Has the Flight Rights Canada program that was instituted a couple of years ago been sufficient to strengthen and protect passenger interests? What are some recommendations from your membership's point of view for improving the industry's service to the Canadian flying public?
Mr. McKenna: You have touched on one of Mr. Skrobica's favourite subjects, so he can answer that question.
Mr. Skrobica: Flight Rights Canada was introduced in the days prior to the past election. I do not believe that Canadian consumers have been adequately informed of the rights they have with regard to flights. I am aware that there is a page in the Transport Canada website, but if you have seen the Transport Canada website you will know that it is a giant bowl of spaghetti that makes it very difficult for people to find information like that.
A properly developed communications plan should be put forth to the consumers of Canada to inform them of Flight Rights Canada and of the fact that a variety of airlines have subscribed to it.
The Deputy Chair: From your perspective, is the structure of the program not efficient? Is the problem simply that it has not been properly disseminated to the public?
Mr. Skrobica: It has not been properly disseminated. A better communications program is required to inform consumers across Canada.
The Deputy Chair: How does it compare to the system that was previously in place?
Mr. Skrobica: We still have a mediation service run by the Canadian Transportation Agency. They try to reconcile passengers' grievances against airlines' contractual tariffs and arrive at a satisfactory resolution. If there was a wider dissemination of Flight Rights Canada, you might avoid even getting to that point. Consumers would have better knowledge of what they can expect from an airline.
The Deputy Chair: There being no further questions from members of the committee, I would like to thank the representatives of the Air Transport Association of Canada for being here this evening. You have been very helpful. If you have anything further to provide the committee as it progresses in its work, that would be welcome. You can send it to the clerk of the committee.
Thank you again for being here this evening.
Mr. McKenna: I will send the clerk a document showing how I have arrived at the figure I cited and how the number has progressed over the last years.
The Deputy Chair: Thank you.
(The committee adjourned.)