Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 3 - Evidence, November 15, 2011
OTTAWA, Tuesday, November 15, 2011
The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m. as part of its study on emerging issues related to the Canadian airline industry.
Senator Dennis Dawson (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I call this meeting of the Standing Senate Committee on Transport and Communications to order.
[English]
This morning, we are continuing our study on the Canadian airline industry. Appearing before us today are Mr. Lloyd McCoomb, President and Chief Executive Officer of Greater Toronto Airports Authority; and Mr. Toby Lennox, Vice-President, Corporate Affairs and Communications with the same organization.
Mr. McCoomb, you have the floor. Following your presentation we will proceed with questions.
Lloyd McCoomb, President and Chief Executive Officer, Greater Toronto Airports Authority: As the introduction indicated, I am Lloyd McCoomb, President and Chief Executive Officer of the Greater Toronto Airports Authority, and the operator of Toronto Pearson International Airport. With me today is Toby Lennox, Vice-President, Corporate Affairs and Communications. Let me first say how delighted we are to be here.
I welcome this opportunity to discuss with the members of the committee the current state of the aviation industry in Canada. Indeed, I would suggest that perhaps I am uniquely positioned at this particular point in my career to discuss these issues. First, as some of you may know, I am soon to retire from my position as President and CEO after a 30- year career in aviation. Perhaps what is more relevant to these discussions is that over the course of my career, I have worked in aviation both for the government and for the private sector.
For Transport Canada, I worked to develop the aviation forecasting and to do various technical capabilities in the 1980s. From 1994 to 1996, I was Transport Canada's airport general manager at Toronto Pearson. After the devolution of the airport in 1996 until I assumed my current position of CEO some five years ago, I was responsible for the design and redevelopment of the airport. I am sure you will have some specific questions about that.
Let me begin by stating unequivocally that it is my view that the devolution of airports in Canada is a true success story that deserves celebration. As a result of the transfer of the airports, Canada has among the world's best airport infrastructure. Today we have facilities that will meet the capacity demands for traffic in Canada for years to come, which benefits airlines and passengers alike. The range of facilities and amenities available to today's passengers far outshines the meagre offerings that the air passenger experienced only 15 years ago.
While the program has been a success, this morning I would like to focus on those aspects of the aviation policy that will best advance the strategic and economic objectives of the Government of Canada and the regions we serve. What we need today are deliberate policy decisions by government that do not treat all airports equally but recognize the unique role and value of each airport. This new policy framework, I would suggest, needs to be developed collaboratively by government and by the industry.
Let me first tell you a little bit about Toronto Pearson. Pearson is by far Canada's largest airport. In 2010 we served some 20 million passengers; and at the current rate of growth, we should hit 33.5 million by the end of this year. That is close to double the traffic at our closest rival, the second largest airport in Canada, which is Vancouver.
We handle about one third of Canada's air traffic on any given day, and close to half of the air cargo. To put that in context, more than 85,000 people pass through our doors every day. In fact, we are the fourth largest entry point into the continent. As a result, we are a huge enabler for economic activity.
There are some 38,000 people who work inside the wires, as I like to put it, at Toronto Pearson, and 185,000 people who can trace their employment one way or another directly to the airport. We generate millions of dollars in tax revenue, but more importantly, the national and international reach of Toronto Pearson contributes to attracting businesses and head offices to Toronto, as well as extending the global influence of Toronto's business, scientific and artistic communities.
We also act as an entry and connection point into Canada for millions of travellers. I am speaking of tourists, businessmen and women as well as immigrants who, via our airport, enter the country and then fan out across the nation. Because of our size, because of our location and especially because of our facilities, we play this role in a way that no other airport in Canada really can.
I have seen Toronto Pearson evolve into this role and I have seen government policies both lead and evolve with the airport. Prior to privatization and the introduction of the National Airports Policy, the government successfully developed a National Airports System that connected the country from coast to coast to coast. I am very proud to have been part of that. Unfortunately, the cost of operating and expanding that system proved to be prohibitively expensive, and political oversight of airport operations really did not allow the airports to take full advantage of the commercial opportunities locally.
The present system has many merits that have resulted in significant advantages to Canada and Canadians. The strengths include the fact that airports today are expressly mandated to operate in the best interests of the regions they serve and to be economic enablers within the communities.
I have heard comments made to this committee that airports are not accountable, and that the business model that has been chosen for the airports must be changed to better reflect the interests of particular groups. I would caution strongly against entertaining this type of discussion.
As CEO of Toronto Pearson, I believe I am accountable to five distinct groups. First, I have to answer on a daily basis to the needs and interests of the users of the airport — my passengers, or as we call them, our guests, and also the shipping community. We are continuously striving to meet and surpass the needs and expectations of our guests.
The second group I am accountable to is the operators, that is, the air carriers at Toronto Pearson. Just fewer than 70 airlines have chosen Toronto Pearson as the place to locate their operations. Each and every day, I am responsible to meet their needs and ensure that their operations run smoothly.
Third, I am accountable to those who are physically impacted by the airport, the people who live in the neighbourhoods around the airport. I am thinking of those who are impacted by noise, gaseous emissions, traffic congestion and so on.
As well, a fourth group — and a group I particularly feel I am accountable to —is those businesses that are functionally dependent upon the access and jobs generated by the airport. These are the hotels and the attractions in Toronto's tourism sector, as well as the companies that depend on moving their people around the globe — I am thinking particularly of the financial industry in Toronto — and those that are dependent on getting their goods to market, such as RIM, for example.
Finally, the fifth group I am accountable to is you — that is, the various levels of government who rightfully expect the airport to perform in a safe, secure and responsible fashion.
With all of these groups, we maintain a variety of mechanisms to solicit ideas, to seek out criticisms and to report on our activities. We do this through consultative committees, face-to-face meetings, publications and structured outreach. We can get into that possibly further in the question period if you wish.
Most importantly, it is not the role of the airport authority to advance the interests of any one of the groups I mentioned over another. It is my job to balance the interests of all of these groups to whom I am accountable in a responsible manner.
The second benefit of today's system, and one that I have already alluded to, relates to aviation infrastructure. Simply put, the National Airports Policy has led to the development of aviation infrastructure that is among the best in the world. Each and every day, airlines and passengers alike benefit from our modern, efficient facilities. Our infrastructure is poised not only to accommodate the demands of today but also to be able to accommodate the demands of travellers over the years to come.
However, do not take my word for it. The World Economic Forum recently found Canada's aviation infrastructure to be among the best in the world. For more evidence, I invite you also to look south of the border at the U.S.A., where communities are challenged with outdated and overcrowded facilities that really are not allowing them to meet the demand for travel. If you look at the current strategy of Airports Council International to move toward our model, I think it is further evidence of the strength of our model.
There have been suggestions that airports in Canada are overbuilt and that we have built beautiful buildings as opposed to paying adequate attention to the functional needs of the facilities. As someone who has invested the bulk of their career in the development of airports in this country, I can assure this committee that this is not the case.
By their very nature, airports are large — especially ours — complex and necessarily expensive pieces of infrastructure to build and operate. Development decisions made today must be made not only with a view toward current capacity demands but also the demands for traffic into the future.
Toronto Pearson is a good case in point. If viewed from the perspective of the traffic demand in 2004, when we first opened our new terminal, our critics were probably right. However, as demonstrated by the volume of traffic that we are currently handling today and the forecast of what is coming, we made the right decisions.
If you look at today's system from a financial perspective, there are also many benefits of the current airport model. This is my third point in support of that model. Toronto Pearson's infrastructure was developed through innovative, private sector financial instruments, not through government funding. Indeed, Toronto Pearson maintains a large capital program that has been very well received by the investment community, and, perhaps more importantly, the current financial model requires that revenues from the operation of the airport be reinvested in the development of the airport. Money generated by the airport is not siphoned off to shareholders or to offshore management companies. Those who use the airport pay for the airport, but they also get the benefits and returns to their communities from the airport.
Our track record, in sharing our returns, speaks for itself. In each of the past five years we have reduced our landing fees to our airlines. We have worked diligently to become more cost-effective. I was humbled in 2009 to be awarded the Most Improved Airport award by the International Air Transport Association. Receiving this vote of approval from our international airline customers validated for me that we are on the right track. After all, in my view, there can be no greater praise of an organization than to receive praise from its customers.
As the end result, we have a system that is modern, efficient and effective and more responsive to a wider variety of stakeholders and that provides a solid foundation for growth. Today's airports are able to raise their own capital, plan their own development and maximize commercial opportunities, as required, to meet community demands for aviation services.
I have looked at the past and the present of Canada's aviation industry. Is it all a good story? Not quite. We do have an expensive system. Unlike the United States, the Canadian model is user-pay and does not include any government grants or subsidies for capital or operating costs. In addition, we pay rent to the government as well as shouldering other costs. Indeed, from a cost perspective, today's structure does hamper our ability to compete effectively, particularly with close-by U.S. airports, for traffic.
With respect to the rent, and this is my view and not the view of my fellow CEOs across the country, I accept that the Canadian public deserves a fair return for the lands they have transferred, as well as the investments made by governments prior to transfer. What I object to strongly is the fact that the current system requires airport authorities to pay rent on investments made by the airport authorities themselves after transfer. Put another way, I do not think it is reasonable that the Canadian public should expect a return on an investment that they refuse to make.
Another challenge I see is the fact that Canada has no national strategy on how to maximize the benefits of this superb aviation infrastructure we have put in place. We have dealt with airports, to the extent we have in any way dealt with them, in a uniform approach that does not reflect the realities of the contribution that each airport can make to its region, the province it is in or to Canada.
In looking to the future, I would strongly encourage members of this committee and the Senate to look to a national aviation strategy, one that recognizes and harnesses the importance of aviation to our national economy, and one that sets a direction for years to come.
I am mindful that, in developing this strategy, there is a strong role to play for the private sector. With the privatization of airports and civil air navigation systems in the mid-1990s, the immediate expertise in the development and operation of airports and aviation was devolved to the private sector. I, myself, moved from the public to the private sector. We must harness both the expertise of those who operate the system and really understand it well and the expertise of those within government who oversee the system and understand public policy objectives. Airports stand ready and willing to collaborate with government in this regard.
This national strategy must explicitly recognize classes of airports, depending upon their size and role. Further, should there be any application of government spending or cost-cutting, it should be done with regard to the needs and roles of the airports specifically.
The board of directors of Toronto Pearson has set a new strategic direction for my airport. Our vision is to become nothing less than the premier gateway into North America. It is our view that there will be a few — maybe as few as one — pre-eminent gateways in North America, and we see this up for grabs and within our sights. My board is of the view that our strategy is the best one to fulfill the mandate of the GTAA, as an enabler of economic development for the community we serve.
A gateway airport is an airport that provides access to a large number of Canadian, U.S. and international destinations. In addition to serving passengers and cargo from the city of origin, the gateway airport attracts connecting traffic from around the globe and then connects people to a myriad of destinations. Gateway airports differ from regional or local airports, not simply in the number of destinations served but also in the number of passengers and amount of cargo handled. They are trade hubs, central to our country's commercial infrastructure.
Through a renewed focus on customer service, marketing, operational excellence and a continued and relentless focus on cost reduction, we believe that we can achieve this vision.
Who benefits from the vision? Our region benefits through increased employment, economic development and global reach. Our air carriers benefit through improved operational excellence and reduced costs. Our passengers benefit through better facilities and amenities that will encourage them to choose to fly through Toronto Pearson again and again. Most importantly, from your perspective, senators, Canada will benefit. When you put Toronto Pearson at the centre of the aviation map, you are putting Canada at the centre of the economic map.
We cannot do this alone. We have identified four areas where we need the assistance of government. Briefly put, we need improvements in security so that we not only can excel at providing secure facilities, but at the same time excel at providing quality service to our guests.
We need improvements to customs and immigration processes so that people can enter and connect through our airports with speed and service. We need to be able to preserve the capacity of our airports through policies that allow, in a responsive fashion, the accommodation of new traffic — I am thinking particularly of that from the Orient — that demands travel at non-traditional times. Last, we need to do all of this in a sustainable and responsible manner.
Finally, and in closing, while I am sure that it would be fascinating to entertain a discussion on airport governance, in my view such a discussion would not advance the strategic and economic interests of the country as a whole. It would not put one more passenger through my airport, not one more aircraft on my runways. Rather, better coordinated policies and the appropriate application of costs and revenues would improve the competitiveness of Canada's airports and aviation industry.
The Chair: We had, as you might know, accepted through your collaborators the fact we would be visiting your airport, but the committee must always prioritize legislation. We are going forward with legislation on the Railway Safety Act, but it is only a delay and we still have the intention of going. We do not know if you will still be there at that time, but we welcome the opportunity to recognize the fact that you are a big player.
Mr. McCoomb: Thank you very much. There is no substitute for standing on the ground and walking through the facility with me, or my successor, to get an impression of what it is all about and how important it is. You are very welcome at any time, and we are delighted that you have kept this on your agenda.
The Chair: We welcome the invitation and it is still on our agenda.
I will introduce my colleagues: Senator Zimmer from Manitoba; Senator Martin from Vancouver; Senator Verner from Quebec City; Senator Boisvenu from Sherbrooke, Quebec; Senator Eaton from Toronto; Senator Greene from Halifax; and Senator MacDonald from Cape Breton.
Senator Eaton: Mr. McCoomb, as someone who walks through Pearson Airport twice a week, and I do so with great pleasure, I congratulate you. I realized how pleasurable it was after spending a week in France and going through Charles DeGaulle Airport twice; it was absolutely appalling. That is another subject.
I am the one who is very concerned with airport governance, I think because we have heard many witnesses who are part of your stakeholders who always say, ``No, we do not want to be part of the governance'' but who complain nonetheless. You do not think a closer collaboration is a good thing. You were talking about being responsive and accountable to five stakeholders. The airlines who complain that the runways at Pearson are terrible, do not serve their purposes, slow up traffic; the security services, CATSA and customs and immigration, which are obviously siloed — you do not think having those five stakeholders around the board table when you bring up issues of debate would be a good thing?
Mr. McCoomb: I believe they are there. I am astounded that the comment would be that they are not there.
Senator Eaton: They are not part of your board of directors.
Mr. McCoomb: Let me explain what I mean by that. Let us take a group that has been vocal about this, which is the air carrier industry. The original board of directors of Pearson included Mr. Ron Dennis. He just retired as the head of operations for Air Canada. Sharon Moss was representing the labour side and was active in the Air Canada unions. As time has gone by, they have been active, but today we have as our chair Marilynne Day-Linton. She was high up in the financial organization of Wardair. Also we have Terry Nord, who was the president of DHL. Patrick Brigham has just left the board. He is the head of one of the charter air carriers. We have had representation.
Senator Eaton: They are all in the past.
Mr. McCoomb: I explained that Marilynne Day-Linton is current.
Senator Eaton: She was not sitting on the board?
Mr. McCoomb: No. The difficulty there is, as I indicated, that my challenge is to balance the interests.
Senator Eaton: I agree, but what if you had all five?
Mr. McCoomb: If you have representation from people who are currently active, believe me, this is a very competitive industry, and the notion that you are going to get someone who will be able to speak in a way that is objective is not going to happen. When people leave, they have the knowledge and interests of the industry at heart but are not driven by their current loyalties to whatever livery is on the tail.
Also, senator, the board is very, very disciplined, and the governance committee headed by Poonam Puri, the Associate Dean of Law of Osgoode, is very conscious of the balance. There is a matrix they maintain — we would be pleased to share it with you — where they ensure that on the board we have environmentalists; we have to represent those people, the ones I mentioned, who are physically impacted. We have a wide representation of those interests, law, engineering, planning, and I think they do a superb job of representing in a balanced objective fashion all those interest groups.
Senator Eaton: I disagree with you because if you look at some of the larger corporations, they have people on their boards who are in active roles in their own businesses. We will have to disagree on that point. I think it is just easier for you if you do not have people with ongoing agendas around your board table.
Mr. McCoomb: That is true. Anyone who has a significant agenda to favour airline A over airline B, it is not going to happen.
Senator Eaton: We have to disagree on that. My next question is a more practical one. We saw London airport closed down last year because of snow. I do not think that would happen in your airport — you are much too experienced and organized — but there are acts of God that none of us can predict. Do you have some kind of plan, if planes could not fly out of Pearson and it was two days before Christmas and you had 80,000 people in the airport waiting to take flights? If there was another 9/11, God forbid, and people were trapped in the hub, do you have backup plans for that?
Mr. McCoomb: We experienced that. You are looking at someone with the scars from that. Two winters ago at Christmas when the United States had the suicide bomber, we had thousands of people backed up.
Senator, again drawing from my experience, of course we have emergency plans. We just finished a tabletop exercise this week. We will run a big, full-blown exercise in May, with all the ambulance services and simulated casualties and so on. Those things that you routinely can anticipate can happen, we practise for. The scary thing is the one you have just mentioned, the one that comes out of the blue like this thing from the United States. What we do in that regard is to train our executives, and we work at actually three important elements and this is one of them; I am glad you raised it. We train on adaptive challenge; there are some problems that you cannot anticipate that are not in the book, are not in Airports 101, and you have to learn your way through it. You have to be disciplined about how you learn your way through it and work your way through the problem. That was a really good example of how the airport had to bring all the diverse elements that were scurrying all over the place, get them calmed down and start to deal with them step by step.
The second part of that, and the second thing we stress in my training program with my executives, and they push down to management below them, is informal leadership. We control a limited amount of the airport, when you look at it. We do not control security. We did not control that particular exercise. We could not dictate to CATSA what they had to do. We do not control customs and immigration or the police. What we stress in our training is informal leadership, working and training our executives. In fact, the great example of someone who exhibits this skill was the American hero.
Senator Eaton: Do you mean Rudy Giuliani in New York?
Mr. McCoomb: I mean the Black gentleman, Martin Luther King. No one elected this guy to anything, but he did wonderful things, seeing a problem. We train our executives in that technique.
The third thing we train on is that everything at the airport is connected to everything else. It is all a system. For example, when we were trying to solve that problem with the security people, the immediate decision was to cancel the baggage; if they do not have carry-on baggage we can speed up the whole process. We immediately caused another problem, a total meltdown in the baggage system. We must understand the interconnection, and the airport stands ready to be the centre of that web to make it sort it out.
Senator Eaton: The things that affect people, if you are stuck in an airport, are having enough food, having the bathrooms work, shelter. Those basic things I would think would fall under your mandate.
Mr. McCoomb: Absolutely. We have foam mattresses, cases of water on standby, we have a system to appeal to our staff to support it and so on. Absolutely, of course; that is fundamental to our guests. Where you get a chance to make a statement of whether you really love your customer is in one of these meltdown situations. There are those unique points in time when you really demonstrate whether you care or not.
Senator Zimmer: I apologize for being late, Mr. Chair.
Usually the question I ask is all about the fees, landing fees, environmental, but there is a pattern out there that of course you are put in a very difficult position because you just collect them. None of that money stays with you, does it?
Mr. McCoomb: With regard to landing fees, the money to operate the airport comes from a number of sources. One is fees to the airlines. We collect those and they are ours to use to deal with the cost of operating the airport. We have an airport improvement fee, which we charge directly to the passenger. That goes to retire or deal with our debt. The third source of revenue is all those what they call non-aeronautical fees, the money we get from parking, from the 128 stores and restaurants that we operate at the airport. All of that money is collected. If you can imagine, we have a whole pile of bills over here and that money is used to pay off the bills. If there is not quite enough money to pay the bills in the next year, then we have to raise our landing fees to make up the difference. If we collect more money in a particular year, then we reduce our landing fees in the subsequent year.
All the money that we have is recycled in the business. First, we have to pay our costs. We do maintain a reasonable reserve of funds for a rainy day, as any prudent business would. Finally, we return any surpluses to the airlines through landing fee reductions based on notion that the travelling public are our shareholders and that is the return to them.
Senator Zimmer: Let me go in another direction. What can we, as a federal government, do to help the GTAA, as far as asking for where the money is going to go specifically and how much will go towards specific projects? How can we help you?
Mr. McCoomb: I will probably have some nasty letters from my fellow CEOs, a number of whom feel we should not pay rent at all. I indicated to them that that is a bit of a stretch. It is unfair and distorts our business model to collect rent on the money that we have to invest in the facility. For example, as the largest airport, the rent is 12 per cent but it is actually 14 per cent because we have to pay rent on the rent.
For example, I made a $65-million investment in policing glycol. Again, I am responsible to my neighbours not to allow the airport to have a physical impact on them so we have to protect Etobicoke Creek. We spent $65 million to police the chemicals that we use to de-ice the airplane in the winter. Any other business that made such an investment would get a tax credit or get lauded. Instead, I have to pay the government 14 per cent. It distorts our business model. I think it is totally fair and reasonable that the public should get a return on the investment that they made in the past or for the land that we are given, but I do not think this is reasonable and it distorts our business practices. I am not encouraged to invest in the environment, but I should be — at least the government should not be discouraging me from doing that. I would really appreciate the government revisiting the rent model to back out the monies that the airport has had to spend.
It is particularly difficult for Toronto because every other airport was given their assets and then they started to operate. In Toronto, we were given two thirds of our assets. Terminal 3 had already been hived off to a private sector firm. To make the place work in a rational fashion, my boss at the time had to buy that back. We are paying on an investment that the Government of Canada chose not to make and hived off to someone else. That is why we are not as competitive and why we are not able, for example, to counter Buffalo as effectively as we could.
I ask you to be fair. I am not asking not to collect rent, but do not do it in a fashion that is illogical and distorts our business model.
Senator Zimmer: Thank you.
The Chair: Before giving the floor to Senator Martin, can you readdress the issue of rent paid on rent?
Mr. McCoomb: Yes. A number of you come from communities that have small airports. It is fair that the small airports pay less on rent than I do. There are economies of scale in Toronto. I can do it because I am bigger, but there are lots of extra costs in Toronto as well, which I will comment on if you are interested. However, in Toronto's case, I have to pay 12 per cent of the rent to the government. From where do I get that 12 per cent? I have to go to the airlines and the airlines have to go to the travelling public to get it. The travelling public have to ante up the money. I ask the airlines for 12 per cent. That comes in as revenue but I have to pay rent on the revenue. I have to pay rent on the 12 per cent. Do you understand what I am saying? I get it from them. This goofy formula for rent is based on revenue and I actually have to pay on the rent itself. When you compound that out, it comes to 14 per cent. I hope you followed the bouncing ball there.
Senator Martin: Last week, I was touring the Vancouver airport.
Mr. McCoomb: It is a beautiful facility, by the way.
Senator Martin: Yes. I spend a lot of time at Toronto as well. Some things came up that I thought were helpful to the study. I wanted to ask the same of you regarding your strategic vision and an overriding vision for the airport. In Vancouver, I was quite impressed to see the West Coast theme and how that guides all of the decisions that are made. It is a 50-year plan and there is a 30 per cent reduction in energy savings; the footprint is reduced. All of these things are cost savings that offset the costs that may be added to the customers' bill and help the diversification of the revenue sources within the airport.
I know Toronto is an important hub. As Senator Eaton said, it is a place we all spend time in. I am impressed with the diversity there, but would you speak to the vision and what guides that long-term vision, as well as the diversification of revenue sources and things that you do to help run the airport in the way that you do?
Mr. McCoomb: Certainly. Congratulations to Larry Berg and the Vancouver airport. They do a magnificent job. I am a little envious of the theme. When I look at Calgary, I am envious of the theme. When I look at Quebec or Montreal, I am envious the theme.
One of the challenges in Toronto — and we thought about this very thing — is that there should be a sense of presence or place about the airport. We used the same Vancouver firm, and Stanis Smith, to help us on this. We are looking at this at this very moment; that is, how do you do more to generate a sense of place? I am proud of Toronto. It is a fabulously diverse city. It is the world in a city, really. If you walk the streets, you are impressed with what an amazing place it is. We need to capture that and we are working on it.
This comes to your point about revenue generation because you can make it part of that whole experience. We look at our passengers in a variety of ways. In fact, we characterize them in five different groups. If I gave you the test, you would probably be called ``suits on the fly.'' Most of you, as you indicated, fly often. You are required to go through airports and you know them well. You want to get through quickly, use the lounge and have a quiet place to work. You are one segment that we need to deal with. Another group is ``the experientials'' — that is, people who love to wander around and use the shops. Maybe you are only travelling once or twice a year. Another group is ``the chillers.'' These are the kids with the ear buds who are sleeping on our benches all the time. They do not spend any money at the airport. They are traveling with a pack sack.
You need to understand that an airport like Toronto, which is huge, is dealing with a diverse set of needs. I hear anecdotal things about why do you not do this or that. The answer is that we are trying to appeal to everyone and needs are diverse.
In Toronto, over my tenure, we set up a commercial department. I hired Pamela Griffith-Jones as the chief commercial development officer. She came to me from Canadian Tire, with a strong background in retail. We are going through this thematic exercise to give this a sense of place. Do not make people dread going to the airport. It can be a fun experience done well. It can be done in a positive way in terms of the non-aeronautical revenues. As we make those revenues, they help to offset the landing fees, and the travelling public pays less if we get more from the shops and restaurants, and so on.
Again, I think Vancouver is exemplary of an airport that has done a great job. It is succeeding in its own way as a West Coast gateway and has done an excellent job.
Senator Martin: The other question is regarding the innovation that comes out of the airport. One of the things that they mentioned is the ABC, automated border clearance, technology that was piloted in Vancouver. Is that something that will be used or is currently used? I have not been through the international terminal.
Mr. McCoomb: What happens there is a wonderful example of the cooperation of government and the private sector. Larry's people came forward with a brilliant idea that you take your passport to a machine that reads it and does all the stuff that the customs agent would do, so by the time the person gets to the agent, it is done. You reduce the amount of time that the agent has to spend, and the airport benefits because it does not have to have as much space dedicated to that. Passengers benefit because they are expedited through. Customs and immigration benefit because their manpower is most effectively used. It is a win-win.
I have to say, unequivocally, that the Canada border protection people have been superb. You should put people like Luc Portelance and Cathy Monroe up as examples of the modern bureaucrats who really get it, who really understand they have a mission. We understand their mission. It is to protect their country. However, it can be done with a real service mentality, and God bless them, they were tremendously supportive of Larry. We will be following suit. We are now working with Montreal to propagate this across the country. Great idea and an exact example of how government and private sector working together can achieve amazing things for the benefit of all parties.
Senator Martin: There is a great opportunity for tourism there, and I am sure that you have had some good discussions with your stakeholders. I am curious about what the federal government can do to help connect those pieces to ensure that we can capitalize on the tourism potential that is there. Whether it is creating that sense of place because as people come through, it is the first impression of Canada, so what are some of the gaps that you have identified that could be addressed by the federal government specifically?
Mr. McCoomb: This notion of the first and last impression is so true. The first impression people get of this country is the Toronto airport and the Vancouver airport — together we are probably two thirds of the total — and it is the last impression that they will have, so we want a positive one.
If you travel internationally through Toronto, when you get off the airplane and come to the big meet or greet hall, look to your right and you will see a real dinosaur skeleton promoting the Royal Ontario Museum. I think Calgary does a superb job of promoting their attractions. We are instituting, as we speak, a museum store at the airport so that we can generate revenue but also promote the museums in Toronto. You will see that opening very soon. We can do all kinds of things in partnership. I will turn it over to my colleague Mr. Lennox to talk about the border issues.
Toby Lennox, Vice-President, Corporate Affairs and Communications, Greater Toronto Airports Authority: Thank you for your time.
One thing the Canadian government can do is promote the effectiveness of border processes even more.
Senator, you spoke of automation. We see that there is an enormous opportunity in technological developments to help speed people through. Certainly, with respect to tourism, by promoting the role of gateway airports, access to and from Canada for everyone else gets strengthened. For example, if you are connecting Beijing-Toronto, Toronto-São Paulo, that enables even more traffic to be carried on those routes, which also means that you start making Toronto and Canada even more of a destination.
A colleague of ours went to China with the Canadian Tourism Commission, and we met the tourism minister for Newfoundland. He said the following, which was interesting: ``I know I will not get many visitors from China, but if Toronto is not a gateway airport, I know I will not get any because people will not connect through New York or Chicago to get to Newfoundland.''
It is that role of a gateway airport, promoting that gateway through passenger facilitation and security. We will do our bit as much as we can, and the elements that Mr. McCoomb spoke about: theming, making it welcoming, giving that sense of space, making Toronto the place through which people want to connect. If we make it a gateway airport, then access to all parts of Canada gets augmented. I get concerned that, from a tourism perspective, we do not recognize that singular opportunity that we have.
[Translation]
Senator Boisvenu: Thank you very much for being here and welcome to the committee. I know very little about transport; I am a rookie on this committee. I am going to pick up on what Senator Martin said with respect to the vision of Canada's airport industry.
Correct me if I am wrong, but there are some important links that airports share with one another as far as development goes; airports form a network. I would like to hear your view of the Montreal experience. Montreal has gone through some rather tough times in recent years. You need only think of the whole Mirabel versus Montreal debate, which had some very negative repercussions. Many people question the political decision to build Mirabel, a decision that had a major impact on the social environment, including the extradition of farmers.
I would like to hear your view of the competition that emerged between Montreal and Toronto in terms of the parallel development of the two airports. A commonly held view of Montreal is that it suffered at the hands of Toronto and its development, thus explaining Montreal's stagnation, at least in part. I would like to hear your thoughts on that.
[English]
Mr. McCoomb: I think there is no question that Montreal did suffer because of the split in the two airports. The difficulty was that the decision was made to put international traffic at one airport, transborder and domestic at another, and the connecting traffic was awkward.
In Toronto, the intent was that this would also happen. The Pickering lands were acquired except the plans did not go ahead. The land was retained. The same social price was paid. It is still there. The decision making at Pearson stagnated for a long time, and then at the end of the 1980s the decision was finally made to retain the Pickering lands and proceed with the redevelopment of Pearson airport to the maximum extent that it could be developed. It was a unified facility, however, and connections were much easier than they were in Montreal, and, to Jim Cherry's great credit when he took over in Montreal, he made the difficult decision to consolidate operations and did a wonderful job of fixing the Dorval facilities to integrate properly the transborder. Now it is functioning very well. In fact, to Jim's great credit — and we are competitors — I am growing at 5 per cent and he is growing at 6 per cent. Good for him. I will do my best to catch up. It is now working very well. I think it is wonderful that Montreal still has Mirabel as an ace in the hole. At some point in time, it could well be that because of the physical impacts that airports have on the community around them a difficult decision in maybe 20 or 30 years will have to be made to rethink the Mirabel experience, just as we are convinced we may have to at some point look at the Pickering option. In this global world of ours, airports have become, over the last 20 years, unique instruments of economic ``enablement,'' as I call it.
[Translation]
Mr. Lennox: You are talking about the competition between the airports. But what is very important to understand is that our competitor is not necessarily Montreal, but rather North America's other gateway points such as Chicago, New York and Miami. That is the important thing to keep in mind.
[English]
It is important to recognize that my competition or our competition is not necessarily Montreal, Winnipeg, Timmins or Sudbury.
What we are trying to do, and what will drive most benefit for Canadians, is to be able to act and to defeat the competition that we are going to get from New York and Chicago.
Just as an example, I flew up from New Orleans on Sunday. The people in front of me were flying New Orleans- Toronto, Toronto-Frankfurt, Frankfurt-Naples. They were unaware, really, that they had chosen to fly through Toronto. It was just easier for them to make that connection. They were not going to fly through Miami because they were not going to make their connections. New York was too complicated for them. If that is what we are after, and Mr. McCoomb has spoken about the National Airports Policy having given us the benefit of infrastructure, so when we have this fantastic infrastructure, keep in mind that the Americans cannot keep up the investments that they have made, which have already been made in Canada. Now is the time to take advantage of the policies that have been put in place and the capacities we have. We need policy help from the government to do it, but we think there is an enormous opportunity sitting and waiting.
[Translation]
So the level of competition between Canada's airports depends on each airport's role within its own region or community.
[English]
Senator Eaton: Mr. Lennox, when you were talking to these people who were doing all these connections, have American security demands put people off going through American immigration, even in transit? Is the fact of going through Miami or New York difficult whereas Canada is a more welcoming place to fly through?
Mr. Lennox: Absolutely. There are a couple of other factors that you may not think about. The flying time between Asia and Latin America is shorter through Toronto than any other airport in North America. When airlines look at flying and operating times, they look for the shortest flying times, so the opportunity is there in Toronto. Certainly, the additional complications that the Americans have chosen to impose make other airports attractive.
I would say that the Americans have entirely their discretion and their right to deal with their borders as they see fit. Our view is it presents us with an opportunity. We are already the number one international destination for American cities that would surprise you. For example, we are the number one international destination out of Houston because they offer connections out.
Air Canada, by the way — we have to give credit to Air Canada — is offering service that is superb relative to what you are getting in the United States. They are an excellent airline, and we need to do what we can to support that airline.
However, I think you are right, senator. Let us look at those opportunities. Let us take advantage of them and the conversations we are having with CBSA and with Transport Canada. They have been very helpful in this regard.
[Translation]
Senator Boisvenu: You said basically that Canadian airports are competing not so much amongst themselves, but more so against American airports.
How do you see this partnership or complementary relationship among Canadian airports in order to deal with the competition from American airports? Should the federal government get involved in some way? My question may be too broad.
[English]
Mr. McCoomb: No, it is not too broad. There is a more immediate competition going on, and I am certainly speaking on behalf of my colleague Jim Cherry from Montreal, who faces two competitors, Burlington and Plattsburg, right at his door, one of which is advertising itself as ``Montreal's second airport.''
Maybe it is coming, but a question I anticipated you might be asking was the question of Buffalo for us or Plattsburg for Mr. Cherry or Bellingham in Vancouver's case.
The attractiveness of the Buffalo airport, in my case, and the competition we are getting there relates very much to the presence there of U.S. low-cost carriers. It has nothing to do with the Buffalo airport. My friend Bill runs a fine airport in Buffalo; do not misunderstand me. He runs an excellent operation. However, the people of Toronto are not going to the Buffalo airport because of the airport. They are going there because of JetBlue, Southwest and AirTran and the excellent service and prices they offer out of Buffalo — prices so low that it makes it worthwhile to drive all that distance, crossing the border and so on.
To be more competitive, my marketing department and I have approached the low-cost U.S. carriers and said, ``What is this all about? Why don't you come to Toronto?'' What they have told me is that their value proposition is based on not going head to head with Air Canada or United Airlines or American Airlines, the legacy carrier, but rather on stimulating traffic. They are looking to get people on their planes who would otherwise not make the trip or who would drive, and so they offer $95 to Florida from Buffalo, or whatever it is, or to New York for the weekend. They stimulate their traffic.
They said that to come to Toronto, because of the taxation situation — and you have heard all this, I know, because I have read the testimony you have had ad nauseam on the complaints about the tax structure — when they add all that on, they have to depart from their value proposition. I said to them — and we go down there with beautiful business cases, all bound, to show them — ``Guys, you will make money notwithstanding the tax situation.'' To their great credit, they are sticking to their knitting. They are disciplined companies. Their value proposition is central to their business strategy, as indeed ours is. In one case — I will not mention the airline — I went down to see them in the southern states. We got so close that I was having lunch with the staff that they were going to have in Toronto. They had the measuring tapes, were checking out the rooms in Toronto to move in, but, at the last moment, they decided they were not going to come, the argument being that it was too expensive. However, it showed me that maybe not that big a change has to occur to allow us to be more competitive there.
Again, what can government do? I would invite, as part of the policy review, a look at whether all these charges are serving the best interests of everyone. If they are, they are, but, certainly, they do seem to be standing in the way of our being able to attract back to our own communities that traffic, all the hotel rooms, jobs and taxis and all the things that are associated. I told you about the 138,000 people in Toronto who can trace their employment to the airport, in whole or in part, to keep that wealth in the Toronto area.
At the same time, I realize it is a competitive world, and you just heard me boasting about getting traffic from Houston through Toronto to France. It is a competitive world; it is what it is.
I think you asked what I would love to see, and, particularly, it is, again, to look at the fairness and reasonableness of this rent based on an investment that the public did not make.
The Chair: The answer was not a thesis, but it ate up some of your time, senator. I am giving the floor to Senator Greene.
Mr. McCoomb: My own Ph.D. thesis went to two volumes. You were lucky with that.
Senator Greene: I have a small, detailed question. When you set or reduce a fee or think up another fee, like an environmental one, do you have to ask anyone for approval?
Mr. McCoomb: We have a consultative committee with the airlines where we go through all the rates and charges. They can object and enforce a cooling-off period of nine months to a year. At the end of the day, it is left to the airport to make the decision and to suffer the consequences or reap the benefits. It is a competitive world out there. You abuse rates and charges to your great peril.
Mr. Lennox: One thing that complicates the question of fee setting is that we sell our bonds on the public debt market, so we are a reporting issuer for securities legislation. Our rating and, therefore, the amounts of debt and of interest that we pay are assessed by rating agencies all the time. The single strongest aspect of the rating of our bonds is the question of rate-setting autonomy. That means that it is very important to our investors, who then give us a very low rate of interest. We have been very successful in raising funding when others cannot. There is not a regulatory mechanism. You can go either way. There are many discussions you can have, but the issue we run into is that our bond holders, whom we turn to for debt, actually love the system that is in place. As a result, we get debt at a very advantageous position. At the bottom of the liquidity crisis in 2008-09, we were still able to get money at a favourable rate.
Mr. McCoomb: We have not had any objections to our fee structure because, in the last five years, we have reduced our fees. In one particular year, we did so by almost 10 per cent. As you can appreciate, we have not encountered that problem. I hope we never do.
Senator MacDonald: Good morning, gentlemen. I have a couple of questions. First, you were talking about the rents. I notice that, in 2010, there was a decrease, from 2009, of $20.3 million, because of a change in the formula. I think it is fair to say that Toronto airport is the Crown jewel of airports in the country. All these airports require volume to create revenue. The more volume, the more revenue, and you are by far the busiest airport. With that reduction in rent in 2010, you had revenue of $1.12 billion and expenses of $1.115 billion. With revenues of over a billion dollars, and with the reduction of $20 million in the rent, you still had an operating deficit of $3.8 million. I am curious, are operating deficits common? Are they the exception? Why would there be one this year?
Mr. McCoomb: Again, we are non-share, not-for-profit and, I like to stress, not-for-loss as well. With due respect, for an over $1.2 billion corporation to get within $3 million is pretty good.
Senator MacDonald: I appreciate that, but $1.1 billion is still a lot of money. I am just curious how often —
Mr. McCoomb: If you have undercharged, then you can adjust your charges in subsequent years if you want. You can get a surplus and allocate that surplus to reducing the charges in subsequent years. You need to see the full accounting approach to the debt to understand that it is rather like a mortgage, with the way we choose to discharge it over time.
Senator MacDonald: Were there any extenuating circumstances this year?
Mr. McCoomb: Not that I know of. Just as an aside, one of the great joys of moving from running Toronto as a government official to running it in the private sector was that we moved our year-end to December from April. The horror for an airport manager was working in government where your first three months were the winter, because winter is the crapshoot. It is about how much snow we will get and how bad it will be. It is incredibly costly. These snow events, for us, are millions of dollars. It was great when we moved our year-end to December 31 because I start off with the winter and I know where I stand for the rest of the year and whether or not I have to try to balance the books by cutting back expenditures over the next nine months.
To my knowledge, we have had reasonable winters. We generally have 12 big events. Nothing is jumping to mind that was terribly different about recent years.
Mr. Lennox: I think what you may be speaking about — and we have to be slightly careful here — is the question of the way that we have to report our accounts in accordance with GAPP. Therefore, through the combined effects of amortization and appreciation, we will start seeing an accounting loss on our books. Because we are a not-for-profit corporation and because we would charge the air carriers on a cash basis — revenue in, revenue out — you are seeing the effect of amortization and depreciation. I am a recovering lawyer, not a recovering accountant, so I am wading into deep waters, but you will see the airport authorities having losses because of the combination of being not-for-profit corporations and having amortization and depreciation.
Mr. McCoomb: We will not get into the accounting because my CFO would whack me over my head and remind me of my fiduciary responsibilty to keep my mouth shut about these things when we have the need to be a fair-to-all lending community. Again, the principle is non-share, not-for-profit. Excess monies go to reserves, to reducing the debt, or to fair rate reductions to the airlines. Again, moving the money through those three areas, we do try, every year, to break even over the long term.
Senator MacDonald: Really, it was not meant as a criticism. It was more meant to highlight the circumstances all the airports find themselves in. You are on top of the heap, but most airports in the system are not.
Mr. McCoomb: That is right. It becomes incredibly difficult, by the way, if you are a small airport. I have some latitude. I have 1, 100 staff. That applies to many other aspects of government policy. A point I should make, on behalf of my colleagues at the smaller airports who do yeomen service, is that, if you take something like safety management systems, it is a terrific idea. I can tell you the great things we do with that. I have staff to do that. I can afford to do that, but, for smaller airports, it becomes a greater and greater challenge to be able to do it when you have fewer and fewer people. You are quite right; it is a tougher job in some respects to run that smaller airport than it is to run Pearson.
Senator MacDonald: Would suggest any changes to the system as it sits now?
Mr. McCoomb: Again, I do not want to speak for my smaller colleagues, but there were advantages to the old transport system as well. I was part of that for many, many years. One of the things we were able to do there was to have a technical group in Ottawa that provided technical support to the small airports. We could take the people there and train them. You would put someone in Tuktoyaktuk; then you would move them to Yellowknife and then to Charlottetown, Saskatoon and so on. They would develop in their career, and they would be trained. Again, I do not want to speak for the smaller airports, but that sort of support for those kinds of activities that are doubly hard for smaller airports to do, due to their lack of scale, would probably be welcome. Good point.
Mr. Lennox: During the incident of the underwear bomber, a little while ago, I was speaking to our colleague, Bill Restall, the chair of the CAC. He operates Saskatoon, a fabulous airport. One of the things that we have to recognize is, again, the need to distinguish airports on the basis of size and role. He explained that the 25 or 30 people who work at the airport work very closely with CATSA. They know everyone. There are different advantages that they have than would exist at a large airport. When decisions are made, on a uniform basis, across the country, they have this distorting effect. He has the great advantage of being able to respond to a crisis or an emergency in a very different way than we are able to just by virtue of the scale and the size that he has.
Again, it goes to this question of saying that Pearson and Saskatoon are not the same, but Saskatoon and Prince Albert are not the same either. Sydney is not the same as Halifax. We have to be careful about where we define these things, but I expect that you will be able to take advantage of scale in some places and to compensate for certain issues.
The Chair: Thank you very much, Mr. McCoomb. Mr. Lennox, I want to thank you for your presentation.
I would like to remind the audience and the honourable senators that, tomorrow evening, the Standing Senate Committee on Transport and Communications will begin its examination of Bill S-4, the Safer Railways Act.
[Translation]
We will begin that study with the Honourable Denis Lebel, Minister of Transport, Infrastructure and Communities. He will be joined by two senior Transport Canada officials.
[English]
Please note that that meeting will start at 6:30, as we have the minister for half an hour.
(The committee adjourned.)