Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 12 - Evidence, November 6, 2012
OTTAWA, Tuesday, November 6, 2012
The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m., to continue its study of emerging issues related to the Canadian airline industry.
Senator Dennis Dawson (Chair) in the chair.
[Translation]
The Chair: 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.
[Translation]
Joining us today is Luc Savard, a professor at the University of Sherbrooke.
[English]
Also joining us today is Mr. Scott Clements, President and Chief Executive Officer of the Fort McMurray Airport Authority. Gentlemen, thank you for taking the time to speak with us.
Mr. Savard, you have the floor.
[Translation]
Luc Savard, Professor, University of Sherbrooke, as an individual: Thank you Mr. Chair. I am here to present an impact analysis study that I conducted with two colleagues.
The study was commissioned by the city of Sherbrooke and the University of Sherbooke, because there have been some serious concerns since the Sherbrooke airport stopped operating commercial flights. The study included three parts, which I will present to you today.
Part one of the study involved conducting an extensive literature review regarding regional airports and their economic impacts, and identifying the factors that support the development and success of these regional airports.
Part two of our study involved analyzing and looking at regional airports in cities that had characteristics similar to those of Sherbrooke. Therefore, we looked at cities with populations of 125,000 to 375,000 people and with airports that were 150 to 200 km from a major airport.
Part three provided an analysis of the regional economic impacts of the reopening of the regional airport in Sherbrooke.
In part one, according to the literature, regional airports play an important role in creating jobs and in stimulating skilled and unskilled jobs in the regions. This is also a factor that can make the region more attractive to foreign investors and help attract private investment to the region. Regional airports also generate induced economic impacts, which are referred to as the facilitating effect. This is generally true for airports but also for most infrastructure.
The addition of infrastructure, such as a regional airport, helps increase the productivity of factors in the different sectors of the economy. Regional airports have a significant impact in terms of complementarity, in particular with certain sectors. The most basic examples are the hotel and restaurant industries, which will benefit from an increase in the number of conferences and more tourism in the region. In general, the transportation sector will also grow at an increased rate with the presence of an airport. The presence of airports is also very beneficial for the manufacturing sector. It helps facilitate exports and imports of input and goods produced, and airports also help facilitate the import of technology.
The presence of an airport stimulates the growth of businesses in the research and development sector, more specifically in regions with universities. The presence of regional airports supports the establishment, retention and expansion of head offices. Studies have shown that this promotes demographic growth. There will be greater demographic growth in a city with an airport compared to similar cities that do not have regional airports.
In this part, we also looked at the very important characteristics of a functioning regional airport. Runway length is very important. In our literature review, we saw that airports that were functioning well had relatively long runways to allow some flexibility in attracting different types of clients. We saw that regional airports that had developed in the past 15 or so years had succeeded in attracting low-cost companies. There are several examples of airports like that in the literature.
It is also important to properly design the terminal to maximize commercial revenues in order to increase the airport's financial flexibility. It is also important to be competitive in terms of cost. If an airport wants to attract clients, both carriers and passengers, it must be competitive. Offering direct flights is one way of doing so. There are regional airports that have problems because they do not have enough regional flights, and passengers often prefer travelling a greater distance to avoid connections. Accessibility is a critical factor in terms of parking and highway access.
In the case we were looking at in our literature review, one of Sherbrooke's challenges is its low population density.
In part two of our study we identified five regional airports that had similar characteristics to Sherbrooke. In the beginning, we wanted to use European examples, but we realized that there were too many differences in terms of population density and infrastructure, in particular the fact that rail transportation is much more developed in Europe, which makes it difficult to compare.
We focused on five examples in North America. We analyzed the cities of Roanoke, Virginia; Montgomery, Alabama; Gainsville, Florida; Rochester, Minnesota; and Kingston, Ontario. The two cities most like Sherbrooke in terms of economic structure, population size and distance from a major city would probably be Roanoke and Rochester, Minnesota. What did we get out of these case studies? We compared the economic structure of these cities to see how they compared to the city and region of Sherbrooke. We highlighted the strengths and weaknesses of each airport and analyzed the economic impact studies that have been produced by these airports.
In short, what came out of these impact studies in the cities is that the average economic impact of the airports I mentioned is about $200 million a year. Obviously, these economic spinoffs are seen after several years of investment and development of an airport. We observed between 1,200 and 15,000 direct and indirect jobs, with a range of 200 to 500 direct jobs. We did not take into account the facilitating effect, such as increased productivity in other economic sectors as a result of the presence of a regional airport. The economic impact may be underestimated.
The other factor we saw in these studies was the importance of air cargo. Two of the airports analyzed, Rochester and Montgomery, based their development on attracting air cargo companies. These companies help generate significant revenues. In addition, when an air cargo company is present, this has an additional positive impact on the manufacturing sector in the region. Runway length is an important criterion. The airport in Kingston has problems, in particular because the runway is relatively short.
Another characteristic we noticed was that it was becoming increasingly difficult for people to get to the Montreal airport from Sherbrooke, because of congestion on the way to the Montreal airport and the cost of this travel.
You have the first look at our results, which we just finished yesterday. These results are not in the document I sent you because we finalized them yesterday.
For Sherbrooke, we had to make some hypotheses, because there are not currently any commercial flights. We did three different scenarios with a different number of passengers. We did simulations with 75,000; 200,000; and 325,000 passengers per year. We also had to make some hypotheses about the structure of jobs there would be, based on the number of passengers in the different cases.
We also made hypotheses on the number of visitors compared to the number of passengers. We had studies on that; it was pretty solid information. For visitor spending, we did not have information for the city of Sherbrooke, so we inferred the figures based on other cities. We made other hypotheses, but I will focus on these results.
In the impact analysis we conducted, we classified the types of impacts as follows: direct economic impacts, essentially tied to the creation of direct jobs at the airport, so the businesses that will operate directly at the airport; indirect jobs, which are the jobs that are generated through businesses that supply the active businesses at the airport. We also calculated the facilitating effect, the complementary effects, based on estimates made as part of another project for Quebec's finance department, which enabled us to make these calculations that had not been made in the other studies we saw in the literature.
In conclusion, this is what we found for our different scenarios. In our most pessimistic scenario, we saw the creation of 374 jobs, direct and indirect, including 150 direct jobs. There are indirect jobs that come from the increased number of tourists; there are also the indirect jobs I mentioned earlier. In terms of economic impact, we are talking about spinoffs of about $59 million a year — around $60 million.
In our most optimistic scenario, we would see economic spinoffs of $218 million a year and 1,625 direct and indirect jobs. So, our optimistic scenario shows economic spinoffs similar to those of the airports we analyzed, for which impact analyses were conducted.
In conclusion, the economic impact possibilities are very positive over the medium and short term for the reopening of the airport in Sherbrooke, with, as I said, spinoffs between $59 million and $218 million a year. On the other hand, we need criteria for success in order to ensure that the project provides social benefits: accessibility, runway length, diversity of airport revenues.
We must also be aware that the economic spinoffs do not come during the initial years after the reopening. In general, it takes a few years to see all of the economic spinoffs I mentioned.
The Chair: Thank you. Your presentation will certainly generate a lot of questions.
[English]
Mr. Clements, welcome back to our committee. You are wearing your Fort McMurray hat this time, so we will be happy to hear about the effects of airline policy on small- and medium-sized airports.
Scott Clements, President and Chief Executive Officer, Fort McMurray Airport Authority: Honourable senators, thank you very much for having me back. I would like to begin by explaining this rather scruffy-looking upper lip I have. I am in day six of the movement called Movember, which is a worldwide "growing" movement that raises funds to support male cancers. This is the first mustache I have ever had. It feels pretty bad, but I have my first donations.
The Chair: After 40 years, you get used to it.
Mr. Clements: I will read the 10 minutes or so of testimony and I look forward very much to exploring the points that I will be making.
I would like to thank you for accepting my request to provide testimony for the second time in only a few short months. I do believe that the work you are doing as part of this extensive study of the Canadian air sector is timely and important, and I very much appreciate your positive interest in our industry.
As you may recall, I have been in the aviation and airports industry for 52 years now and have learned a lot over that long period. Just as my last appearance before you, while my remarks today will be from my current perspective as president and CEO of Canada's fastest growing and currently the nation's fifteenth busy airport, in Fort McMurray, you will see from my background that I have the experience that would permit questions on the broader state of air transportation business in Canada.
I understand that your prime focus this time is on regional and northern airports. I would say that I did fly fairly extensively in the Far North during my military days and know how important that transportation infrastructure is to Canada for sovereignty, for defence and for business. Thank you for recognizing the need to bring some particular focus to the special issues and needs facing northern airports in Canada and communities served by them.
Further, I also appreciate your desire to hear from regional airports as well, and this will be my focus in this appearance, much as it was during our previous interaction.
I do believe that the regional airport tier in Canada has not been given sufficient recognition for the important role its members, including the Fort McMurray airport, play in the nation's overall airport system.
Hopefully, without repeating too much of what I brought to you in my last appearance, my remarks will speak to the vital regional networks that serve Canadians by feeding the hubs and the issues that many regional airports face in terms of support and competitiveness. Fort McMurray is a great example and there are many broader conclusions that may be drawn from looking at our region in Wood Buffalo, Alberta.
During these brief opening remarks, I will make comments related to four categories: governance and the airports system; funding of regional and smaller airports; the principal recommendations of a recent air transportation study in the Alberta oil sands region; and the special case of the Fort McMurray airport.
First, governance and the airports system: I talked about this before and I do not want to repeat a lot of the detail because it is a matter of record, but you will recall that I did recommend that the so-called National Airports System in Canada be redefined from its use as a construct for land management for the 26 leased airports in the system. In the redefinition, there should be clear parameters defined in the national system, including parameters for membership in a tiered system; obligations for both regulator and airports well defined; and benefits of memberships outlined.
The National Airports System thus defined would be a dynamic one and would have the ability to accommodate changes over time, changes such as have happened in Abbotsford, Fort McMurray and the city centre airport in Toronto, where tremendous growth in a short time frame has dramatically changed the nature and, indeed, the national importance of those airports.
As I mentioned the last time, Fort McMurray's airport is a particularly interesting example. Upon transfer from the federal government to the Regional Municipality of Wood Buffalo in 1999, there was in place a relatively new airport terminal designed to accommodate up to 250,000 passengers per year back when the flow of traffic in 1999 was 102,000. Since transfer, as you are well aware, there has been a dramatic increase in investment and activity in the Alberta oil sands, leading to great wealth generation for Albertans and Canadians. Largely as a result, the current flow through the airport is now 852,000 per year, an increase of over 830 per cent. Obviously, the current terminal and airport facilities are grossly overwhelmed, and the growth continues. In the first eight months of traffic flow this year, we are up a nation-leading 15 per cent.
In summarizing this point on governance, I put it to you that there should be an easy way to allow airports managed with a municipal governance model to convert to the airport authorities model with immediate clarity on equivalent and fair treatment in relation to other airports in a redefined National Airports System, including treatment in regard to federal taxation and access to other critical services. I also suggest it would be timely to restate the parameters of the National Airports System to allow for inclusion of airports on the basis of traffic volumes and service offerings.
In the case of Fort McMurray, we should be seen as having the status, trappings and obligations of the fifteenth busiest airport in the country.
My second issue relates to funding of regional and smaller airports. I accept that the airport authority model has, under normal circumstances and with the right things in place on transfer, all the tools it needs to be a going concern. In reality, these conditions vary dramatically from one airport to another.
You are aware that several exceptions have been made to the original concept of financial autonomy to accommodate growth and economic development situations in some communities by the granting of federal dollars for specific projects. For example, there has been special and material federal help for Quebec City, Halifax, Whitehorse and Prince George, amongst others. What I am emphasizing again, similar to my last appearance before your committee, is that this form of assistance should be put into an expanded, formal program, with long-term planning horizon and eligibility criteria that would allow more deserving regional airports to participate.
The help for special projects has been in addition to the Airports Capital Assistance Program, or ACAP, which has funded 678 projects at 171 airports, for a total of $556 million over its 17 years of existence. While very helpful, the $38 million per year ceiling nationally and low threshold for airport eligibility leave many airports without funding for critical projects. With the significant rent payments flowing into the federal purse from the larger airports, it would be in the public interest to materially increase ACAP funding so that the overall transportation system would benefit from the resource inputs from the industry. ACAP parameters are simply too restrictive in many ways. Airports that are too small or too large are not eligible. The qualifying projects are very restrictive, and the red tape is extensive.
I believe the real issue here is that airports are not looked at, as Professor Savard has just pointed out, as the broadly based economic generators that they indeed are. For instance, the ACAP funding would be regarded by many as a government subsidy rather than as a valuable investment in infrastructure. Significant public investments are made in every other mode of transportation, including roadways, railways and ports, and for the right reasons. We just ask that our national airport infrastructure, particularly the regional tier, be considered in a similar vein as other transportation modes.
Indeed, the federal government has an opportunity in front of it to recognize the importance of airports — the next part of the federal infrastructure funding being formulated for possible implementation in 2014, formally called the Building Canada Fund. I was part of a group to brief Minister Fletcher, in his roundtable, during a hearing in Edmonton in July. I made this point to him and to the many other decision makers from Alberta in the room. In the first round of the Building Canada plan, airports were excluded from consideration for funding in Alberta. This should definitely not be the case in the next round for a broad range of economic justifications.
You may recall that in my previous appearance I referred to a Government of Alberta study being done on air transportation, focused on the very special and perhaps even unique situation in the Alberta oil sands. This study is now complete and its recommendations are under consideration for implementation by several stakeholders. You will recall that I said that effective air transportation has become vital to the success of oil sands development but that it has developed in a somewhat ad hoc and, therefore, somewhat worrisome manner. In fact, there are 47 airports in our region of varying size and importance, this in a region where air transportation is largely in uncontrolled air space, using primarily private, uncertified airports and procedural processes to separate traffic. This study has discovered that the combined passenger traffic in and out of these airports would, as a system, be the ninth busiest in Canada, at over 1.5 million passengers per year and 100,000 aircraft movements annually. The good news is that the study has brought to light many issues that can and will be addressed to improve the safety and efficiency of air transportation.
The main recommendations are: first, that a regional advisory group be formed to act as a consultative body to coordinate and circulate information between airport operators, users, providers of aviation services and regulators; second, that there be greater co-use of private airstrips that allow use by multiple oil sands companies; third, that the provincial and federal governments should consider increasing the scale and scope of financial support to public and community airports in the region; and, fourth, that a formal review of the air medical evacuation service in the region should be conducted. The report also provides recommendations in relation to Transport Canada, NAV CANADA, the Department of National Defence and Alberta's Ministry of Environment and Sustainable Resource Development, recommendations that will lead to much improved communications, cooperation, safety and efficiency.
The study has referred to a program called the Comprehensive Regional Infrastructure Sustainability Plan for the region, or CRISP for short, a provincially approved, 35-year framework for transportation infrastructure development that will, in phases, be put in place to assist in fuelling and maximizing the generation of wealth for Canadians coming from the oil sands. This CRISP framework includes an air transportation component and is an excellent strategic vehicle for the federal government to participate in ensuring that the oil sands continue to deliver — on time and on target — a multitude of benefits to Canadians.
Here are a couple of issues specific to our airport authority at Fort McMurray. You may recall, in my last appearance, my concern that gaining international service capability at an airport like ours is very difficult. While this has been very true over the last couple of years, I am very pleased to report that, after all of this effort, we will have our first international flight leave for Mexico in December of this year, with weekly seasonal service to Puerto Vallarta. There is a high probability of new services being announced very soon for spring start-ups. That is the good news.
The continuing challenge for us at the airport authority and in the region is that we continue to require financial support to build the air terminal and related facilities required by the special circumstances at Fort McMurray. Requests have been made to all three levels of government. With the incredible growth at our airport, the amount of money to complete the full project is beyond the means of the airport authority. This has been acknowledged by the regional municipality with a public grant of just under 10 per cent of the overall $258 million cost of the project. We are actively engaged with both the provincial government and the federal government for similar support in making the Fort McMurray airport strategically what it needs to be to the critical growth of the wealth-generating activities and businesses in the oil sands region. I have left your staff with the updated copy of our project overview as part of the record.
In conclusion, honourable senators, I would summarize with similar words to my last appearance by saying that we should indeed have a true National Airports System, properly defined, one that would include a regional tier network whose importance to the overall system would be recognized in policies that promote the economic benefits that come from a robust and vibrant feeder network for our principal hubs in Canada. We should also recognize the special transportation needs of the oil sands region and how supporting and addressing those needs will only help to facilitate the production and export of Alberta oil sands products, an issue not just of regional but also of national relevance and importance.
The Chair: Thank you, Mr. Clements. As you know from our first report, we agree that the industry should be seen as something we should invest in and not as a source of revenue. The question now is, what about the other levels of government?
If we believe that we should be supporting both projects, whether it is Sherbrooke or Fort McMurray, or regional airports in general, how should that investment in the airline industry be shared between the federal government, the provinces and the regional financial authorities?
Mr. Clements: The ACAP system, of course, has been in place for some time, at $38 million per year. It has been very useful. It has generated a lot of fine infrastructure as investments. Quite frankly, it is very deficient in its breadth of consideration and excludes too many airports that just do not qualify. The first place I would go would be to re-examine the Airports Capital Assistance Program, broaden its application and increase the amount of funding.
[Translation]
Mr. Savard: That is a good question. In the study we did, we did not go as far as breaking down the benefits for each level of government. On the other hand, based on my experience in economic modelling, I can say with certainty that the three levels — and I would even add the regional level — have an interest in ensuring that a regional airport is run properly.
That said, the investment costs must be shared. Now, it is difficult to specify the specific amount of the contribution to come from each level of government, but I will say that each level must contribute. I know that, in the case of the Sherbrooke airport, the city has already committed to investing in the repair and renovation. The city has submitted its applications to the provincial government. The current government has already indicated its interest in supporting the city's expansion plan, and I think it would certainly be justified for the costs to be shared — not exactly balanced, perhaps — but for there to be a contribution from the different levels that benefit from the economic development associated with the reopening or the development of a regional airport.
Senator Verner: A question was already asked about how you would have the costs shared among the different levels of government. I will word my question differently, and I am asking Mr. Savard, but Mr. Clements may also have some ideas about this.
Have you looked at the differences between the investment programs of the Canadian government and those of the U.S. federal government regarding regional airports?
Mr. Savard: Honestly, no, we have not looked at that aspect of the issue. In the studies we had, we had information on the amounts invested in the different airports but not on the origin of this money, unfortunately. So we did not look at whether there was a difference between Canada and the United States in terms of the source of funding for investments in airports. Unfortunately I do not have that information.
[English]
Senator Verner: Mr. Clements, do you have some ideas on that?
Mr. Clements: As you are probably well aware, there is a big difference in the approach of the governments in the two countries. Indeed, the United States has a long record of recognizing the importance of investment in the aviation infrastructure in their country. The result of that long-term policy has been a significant difference, particularly near the border, in competitiveness between Canadian airports near the border and American airports near the border. You have heard about the 6 million or so passengers that drive across the border and take flights from nearby airports in the U.S. That is a fact. It is an issue that is well-known and, hopefully, will be addressed in the near term.
Senator Verner: We are talking about major differences in investments, even for regional airports?
Mr. Clements: Yes, and some would call that subsidies. I do not call it subsidies; it is an investment.
Senator Verner: Yes; that is what I said. We agree on that.
Mr. Clements: Yes, I think I am talking to the converted in this room.
[Translation]
Senator Verner: Mr. Savard, I would like to get back to your study. First of all, of the five airports you studied, only one was in Canada: the Kingston airport. Do you know whether the federal government invested in that airport?
Mr. Savard: That is a good question. I do not have the answer. It is clear that, in the cities we analyzed, the four American airports were functioning very well, with steady growth, while the Kingston airport was struggling a lot more. In the report we offered some explanations, particularly that this airport loses a lot of passenger traffic, which means that passengers could travel through Kingston, but will instead go through Ottawa, Toronto and Montreal. Kingston is at a disadvantage compared to other regions and it loses much more passenger traffic compared to what we see at other regional airports. There is also the issue of the runway. As for the origin of the funding, once again, I do not have that information for Kingston.
Senator Verner: You mentioned the loss of passenger traffic, and that brings me to my last question. In the study you did for an airport in Sherbrooke, you mentioned that travelling through Montreal was becoming increasingly difficult for several reasons, such as traffic and so on. In your study did you also take into account the loss of passengers who would go to Plattsburgh or Burlington?
Mr. Savard: The problems I brought up — and we do see this — mean that a lot of people in the region will now fly out of Burlington in particular, because the trip to Plattsburgh is much longer. Right now, other consultants in Sherbrooke have been commissioned. Some are studying the profitability of the airport, but others were analyzing the specific cases of Burlington and Plattsburgh, which have become alternatives for a lot of people. Even people from Montreal are going to Burlington and Plattsburgh. That is why we did not discuss them in our case study, because another consultant was looking at those issues.
One more thing we want to do is to calculate the cost of the financial losses for the different levels of government. The figure that the mayor gave me was that there are around 100,000 travellers who go through Burlington instead of using the airports in Sherbrooke or Montreal. We can do that; it is the last aspect of the part on the economic impact that we want to look at.
[English]
Senator Greene: I am very interested in your presentation, Mr. Savard, because it attempts to put some hard numbers around the whole concept of airport economic development, which we are lacking at this time. Under your Part 3 analysis of Sherbrooke, you have the multiplying effect of visitors at 1.56 from Tourisme Québec. I assume that is all visitors, not just visitors by air. Is that correct?
Mr. Savard: Yes, that is all visitors. That is a good question. In terms of the expenditure per visitor, the figure we had from Destination Sherbrooke, which is a tourism organization for the region, is $98 per day. In all the other studies the figures ranged from $400 to $450. One reason for that is the nature of the people coming to Sherbrooke. Most of the people are coming from Montreal and do not stay the night. On average, passengers who come by plane stay for a longer period of time. About 60 to 70 per cent stay the night. We adjusted our expenditure per visitor in the midrange between what the American studies showed and the figure of $400 from a Canadian study.
One of the difficulties of doing the impact analysis for Sherbrooke is that the airport is not functioning. In the other cases the airports are functioning, so we have more data. We had to make some assumptions based on certain hypotheses.
Senator Greene: Were you able to compare your own assumptions with hard data from other airports, or does that exist?
Mr. Savard: Every time we made assumptions, we looked at how people did in other airports. Most of our hypotheses were conservative. We never took the upper range; we always took the lower range to make our calculations.
Senator Greene: Just below that statement about Tourisme Québec, you say "jobs per visitor" and "1 million equals 10 jobs." What does that mean? It does not sound like a million visitors?
Mr. Savard: No, it is $1 million in expenditures by tourists. Basically you take the number of visitors and the expenditure per day, which gives you an amount, and convert that figure into employment. I think it was a figure from Tourisme Québec that made that calculation.
Senator Greene: On the chart that you have there are two things, including the economic impact of companies at the airport in a direct way compared with the indirect economic impact of companies. All these figures are in dollars, I guess?
Mr. Savard: It is in thousands of dollars.
Senator Greene: Is it fair to say that the multiplier effect is roughly about 1.5?
Mr. Savard: Yes. I did not realize you had the paper presentation. I thought that was for the interpreters. I changed some figures, namely the last line about economic impacts facilitating effects and complementary effects. When I did my calculations there was one figure where I assumed a value. After I sent the paper, I was able to find the value and correct my figures. The values are a fair amount higher, but the multiplier effect is about 1.5.
Senator Greene: That is what it looks like.
This is a tough question: Is it realistic to use your data for an airport that is not in existence for an airport in another part of Canada that would also not be in existence?
Mr. Savard: That is a good question. In fact, the specificity behind these figures is related to an input/output model. We did not have all the information for the region so we used the Quebec economic structure. The region is not that different from the Quebec structure. If you move to another region and the economic structure is much different, the figures would be adjusted. The figures depend on that economic structure. There is an input/output model behind them. You could not just take the multiplier.
However, when we looked in the literature, the multiplier effect — the range of the value — is between 1.3 and 1.7, so the lowest economic impact would be around 1.3 and the highest around 1.7. The range is not that large, but there is some specificity behind it related to the economic structure. In Alberta, natural resources are much more important and the structure of the economy is different from what we have in our region. The ranges are not that broad.
Senator Greene: From your point of view is it realistic to say that the multiplier effects for large airports would be greater than for a smaller airport?
Mr. Savard: That is a good question. The multiplier effect is not linear — I did not investigate the larger airports in the literature — and that is true not only for airports but all types of public infrastructure. It is not a linear relation. In general, the externalities or positive effects are much stronger with the initial investments. When you add more investment the returns are not as high, so you have a concave function; you get diminishing returns from your investments.
[Translation]
Senator Boisvenu: Mr. Savard, as you know, I have lived in the Sherbrooke region since 1988. So I am somewhat familiar with the airport that has been looking for a new direction since about the 1980s, when it was transferred to the municipality. This has been difficult. Your study shows that there are still important questions about the direction of the Sherbrooke airport.
You compared Sherbrooke to American cities, and we know that support from the American government is completely different, or at least the approach is different than what we see in Canada.
Have you compared the Sherbrooke airport to other airports in Quebec that are experiencing similar situations? I am thinking about Bromont or Rivière-du-Loup, which have similar sized airports and population bases.
Mr. Savard: That is a good question. In the literature, there were studies on regional airports. However, we felt that the other airports in Quebec had different characteristics, such as the Mont-Joli airport. These airports have a much greater distance. People in the Sherbrooke region have much different habits when it comes to air travel. That is why we focused on airports that had similar characteristics in terms of distance from a major airport and that had similar population density.
Indeed, the characteristics of funding for American airports are different, but we noted that the winning conditions in these cities were not impossible to achieve in Sherbooke. I spoke to a number of business leaders and many were pessimistic because of the many failures. The message I am trying to send to Sherbooke is that it must not repeat the same mistakes. If you have one flight a day to Toronto, which costs $700, it is destined for failure. The mayor and most of the stakeholders understood that. When I made my presentation to the municipal council, I was less convinced that everyone held that opinion. More needs to be done. There needs to be an air cargo company or a low-cost carrier, with direct flights to other destinations. My view is that there will have to be direct flights to Boston, New York and destinations where the people of Sherbrooke and business owners travel regularly. The Sherbrooke airport cannot reopen and be profitable if it goes backwards and puts in one flight a day to Toronto.
Senator Boisvenu: There were a lot of projects in Sherbrooke, including the direct flight to Toronto, which lasted four or five months, maybe a year. To see such a long period of uncertainty, would it not make more sense to invest in that infrastructure instead of turning to other types of infrastructure to transport people? I am thinking, among other things, of high-speed trains. It is the regional airports that are very dependent on airports that are close to cities such as Montreal. Often, those airports are used for transfers. Should we not invest in other modes of transportation such as high-speed trains?
Mr. Savard: That is one option. U.S. airports have become more than just airports for going to Montreal. They have gone further. That has to be the focus of the plan for taking things further. There are examples from the United States and Europe, which I did not get into, where towns with similar characteristics were able to work with budget airlines or air cargo companies.
Senator Boisvenu: Essentially, Canada's strategy with regard to airports has to be overhauled.
Mr. Savard: Possibly. When we look at Canada's experience, it is hard to find examples of infrastructure investment projects as something we try to develop. For example, we thought: a road is needed, there is distance, so therefore an airport is needed to transport people. Airports need to be viewed and designed as a tool for economic development with an economic centre. When I say that our estimates are conservative in some cases, in others, such as in Rochester, Minnesota, it should be noted that one of the reasons the Mayo clinic, which is a major clinic, is there, is the airports. The economic spinoffs for the Rochester area in Minnesota are much more significant than what was presented. It is possible to achieve. Of course some remain very skeptical, but there is no doubt that if $10 million is invested in revitalizing the airport, then that will also have an impact on the economic spinoffs.
Senator Boisvenu: You mentioned budget airlines. During your study, did you approach companies such as WestJet, for example, that would like to invest in the Sherbrooke airport?
Mr. Savard: I believe the other consultants, namely Pierre Harvey, are working on that. Contact was made. I know that at least two or three companies were approached.
Senator Boisvenu: To your knowledge, is there any interest?
Mr. Savard: As far as WestJet is concerned, Sherbrooke is currently on the list of new destinations that might be added. I have not talked to the mayor recently about the latest developments, but the companies are discussing it.
Senator Boisvenu: I have one last question for Mr. Clements. First, thank you very much for your presentation. It was very interesting. I have a simple question for you.
In terms of the economic context, you say that the Fort McMurray airport is the fastest growing airport in Canada. When it comes to supporting the structural development of this airport, should it be considered completely separately from all the other airports because the economic context is completely different in your sector, including because of the natural resources development? Should a separate approach be used for your airport instead of putting it on equal footing with the other airports?
[English]
Mr. Clements: Thank you for asking that question. I have been waiting to talk about the economic impact of the Fort McMurray airport. We, as part of the study that I referred to, asked a consultant well known for work in this area, Mr. Rick Erickson, to do an impact study for our airport. It turns out to be 1,700 jobs and $316 million per year, using the same methodology that he uses for Calgary, which he does fairly often, and Edmonton as well.
It is a bit of an inexact science, though. You and Mr. Erickson would probably have a good conversation about what is inside those numbers, but I accept that those numbers are large. It does talk about both direct and indirect benefits in both job generation and the economic value of $363 million. It does include all of the investment at the airport, not just by airlines but by everyone else involved with the airport and supporting the airport.
I suspect if you did a survey of 50 airports that you would find that most airports that have scheduled service would have a pretty good idea about the nature of the economic generation it produces for the region.
Yes, it is very special up in Fort McMurray. We are far enough north, the resource being exploited is far enough away from the city of Fort McMurray that we have 47 airports in operation, of which five are very busy with scheduled and chartered traffic. The economic impact of that for the airlines involved, for those supporting the airlines, selling fuel is very high.
Senator Mercer: Mr. Savard, this is an interesting report and an interesting study. It is done from a positive point of view of what could be. Have you done the other analysis of the economic impact of Sherbrooke not having a functioning airport? What is the downside? Sherbrooke is a university town. Are the universities having difficulty recruiting and retaining professors and students because of the lack of an airport locally and having to drive to Montreal instead of flying directly to Sherbrooke?
Mr. Savard: That is a very good question. We did not do that study, but I have been in Sherbrooke for nine years now. I have been on the recruitment committee for the last eight years. In fact, we recruit internationally. In economics, there is a central market for the whole world and everyone goes to the American Economic Association meetings in January. We exchange with our colleagues in Montreal. We clearly have a disadvantage compared to our colleagues because of the transportation question. It always comes to the surface.
We generally bring in about 10 to 12 candidates every year. It is a question that is raised and it is a constraint that is raised by most of the people who come from outside. It is a clear burden for the development of our city and of our region, but I do not have the figures for that.
My son plays football and another father of a player on the team is the boss of a relatively big company that has about 250 employees. For him, it is a big constraint. We exchange a lot on this issue. Most of the time he goes to Burlington to take the plane because going to Montreal and transiting through to Toronto often is cumbersome.
Measuring that, it is not an easy task. We did not do it in our study, but it would be interesting to make that effort.
The university co-funded this project because many people share this concern at the university. We have a harder time attracting major conferences, scientific conferences, because of that. There are many negative consequences, but we have not measured those, unfortunately.
Senator Mercer: I am aware that the University of Sherbrooke is very aggressive and innovative in many areas. For example, unbeknownst to many people in Atlantic Canada, the University of Sherbrooke Medical School operates a campus in Moncton, training francophone doctors in Atlantic Canada, which is important to us with our large francophone population.
It would seem to me that as you move forward and try to present this case to governments — I will not specify which ones — that the positive side is what you have presented — here is what happens if we do this; but there is a downside, too: here is what happens if we do not do it. I encourage you to do that.
You are close enough to the border; you mentioned the father of a football player; the bleeding will continue. Kingston has a similar problem with Syracuse.
Mr. Clements, you have a busy airport and a much busier airport than your terminals should be able to support. It was built for 250,000, if I recall correctly. You are now up to 852,000. That is just through your airport, not counting the other airports in the area.
This question is for both of you. In your calculations, have you built in an airport user fee on a per passenger basis, which in the case of Sherbrooke would be a revenue generator, one would assume, to help develop a process? In the case of Fort McMurray, those funds could be used in anticipation of expansion and modernization.
Mr. Clements: Yes. Probably the most important source of revenue for any airport authority that requires major infrastructure development is the ability to charge a user fee to each passenger leaving.
For us, unfortunately, we are at the highest in the country at $30. We do not want to be, but it is the nature of the circumstance that drove our board to decide to go there. Of course, we have borrowed as much money as we possibly can — $198 million — and all of that will be invested, by April 14, 2014, in a terminal five times the size of the current one and in international service and, with that, cargo service.
Senator Mercer: The interesting thing is that you are the highest in the country at $30 per passenger. I am guessing here — and I am hoping you will correct me if I am wrong — that you also have an extremely high percentage of passengers whose airfares are paid by their employers. Is that correct?
Mr. Clements: Yes, we have a very high proportion, as you would expect, of business traffic, people flying back and forth with their companies paying.
Senator Mercer: Many from my neck of the woods.
Mr. Savard: We looked at the importance of user fees when an airport starts and the importance of being competitive and of attracting passengers. In that respect, the airport in Sherbrooke would be quite different than in Fort McMurray because the proportion of passengers that would have their fees paid for would be much lower than in Fort McMurray.
We did not look into that aspect further than the importance of user fees in not only being competitive but also in generating sufficient income for the airport. There is another consultant working on that part of the study. We will investigate his findings once he is done and see how we need to adjust our results with respect to that.
Senator Mercer: Mr. Clements, my final question is about safety. There are 47 airports in your region, of varying sizes and importance in the region. Air traffic is in largely uncontrolled airspace. I want you to describe what "uncontrolled" is in the context of what we who travel mainly in the southern part of the country understand as control.
Mr. Clements: In most of Canada's airspace — remembering how large we are — you cannot see the aircraft. It is procedural control all through the North. It is absolutely safe, particularly at altitude. We have thousands of flights flying safely in uncontrolled air space.
The issue with Fort McMurray is that the crews are being changed with almost nose-to-tail 737s flying from Newfoundland, the East Coast, the West Coast and really from all over into these four airports that are privately owned. For the last couple of thousand feet, the aircraft cannot be seen. It has a clearance, and it is safely going in, controlled by the Edmonton centre. However, in the summertime, we often have fires. The visibility is down to a couple of miles, sometimes a mile. We have over 100 helicopters operating, often fighting those fires, mixing in with this other traffic coming in.
It worried me when I saw this happening. I raised the issue of safety and efficiency when I arrived there. The Government of Alberta and the Oil Sands Developers Group, whose members own and operate these airports, agreed that we ought to look at this and ought to work with NAV CANADA, which is accountable for keeping everyone safe, and with the regulator as well. The happy news of this is that the study's recommendations are seen by all users and all stakeholders as the right path forward in establishing a degree of safety that is better than what we have right now.
Senator Mercer: I will amend my question. We have 47 airports in and around Fort McMurray, and air traffic control is in Edmonton. Everyone agrees that you need to improve this. Has everyone agreed on a deadline for when they will improve the air traffic control aspect from a safety point of view?
Mr. Clements: I can say everyone agrees. I could not say that a year ago. The good news is that we have the understanding of the stakeholders, the owners of the airports and the accountable folks at NAV CANADA that there is now a plan to use technology to help make the airports both more efficient and safer.
Senator Mercer: Not necessarily locating NAV CANADA employees on site?
Mr. Clements: They have the largest region in the world to manage, and they manage it very safely from Edmonton. It is a matter of being able to talk to the aircraft and see them. For that, we use something called "multilateration." It is 35 towers in the region that allow the aircraft to be seen very accurately through triangulation. It is kind of the poor man's radar.
[Translation]
Senator Boisvenu: Mr. Savard, to your knowledge and according to the observations you made in the Roanoke and Rochester report, renovating an airport like the one in Sherbrooke by giving it a new purpose as your study suggests, takes how long? Are we talking about a decade or years?
Mr. Savard: That is a good question. I cannot answer with great accuracy, but after working on this for over a year now, I estimate that it would take at least five years to get to a certain level and to reach the right cruising speed to get the major economic spinoffs we were talking about. I think it would take more or less ten years. Taking on a project like this and expecting profitability within two years might be unrealistic.
Senator Boisvenu: In what condition were the U.S. airports that you observed compared to the Sherbrooke airport when renovations began?
Mr. Savard: That is a good question. I do not know.
Senator Boisvenu: You do not know if the starting point is the same, in terms of the condition they were in or if they had already been improved?
Mr. Savard: I do not remember. I have not read those reports in a long time.
Senator Boisvenu: Did your study look into the development of civil aviation such as SkyService?
Mr. Savard: Yes, we considered it superficially. Again, I do not remember all the details. It was not something that was deemed crucial and major with respect to what we saw.
Senator Boisvenu: Linking economic development to the economic activity of the region is truly the direction that is being taken. Is that truly the direction you are sticking with for Sherbrooke?
Mr. Savard: Exactly. We tried to look at the key factors that led to the success of the airports in the U.S.
The Chair: Mr. Clements and Mr. Savard, thank you very much.
[English]
I am sure you understand that we are heading towards our report. We really appreciate both of your presentations. We hope our second report will live up to the expectations that the first one created.
I would like to remind the audience and honourable senators that tomorrow evening we will begin our pre-study of Bill C-45, including Divisions 5, 12 and 20 of Part 4 of the bill.
[Translation]
Minister Denis Lebel will be here with officials from Transport Canada to talk to us about Divisions 5 and 20.
[English]
We will also hear from officials from the Canada Border Services Agency on Division 12 of the bill.
Thank you very much.
(The committee adjourned.)