Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 13 - Evidence, November 20, 2012

OTTAWA, Tuesday, November 20, 2012

The Standing Senate Committee on Transport and Communications met this day at 9:33 a.m. to continue its study on emerging issues related to the Canadian airline industry.

Senator Dennis Dawson (Chair) in the chair.


The Chair: Honourable Senators, I call this meeting of the Standing Senate Committee on Transport and Communications to order.


This morning we are continuing our study on the Canadian airline industry. Today the committee takes a pause from its focus on northern and regional issues in order to discuss new trends in the international aviation industry.


Joining us today is Narjess Teyssier, Chief of the Economic Analysis and Policy Section at the International Civil Aviation Organization.

Narjess Teyssier, Economic Analysis and Policy Section, International Civil Aviation Organization: Good morning, honourable senators.


Good morning, ladies and gentlemen. It is an honour for me to be here today to exchange views with you regarding how international air transport has evolved in the last 10 years and the changes we can expect for the next decade. I am happy to share all these views with you.

Before starting, I would like to share with you what exactly ICAO is. ICAO is a UN-specialized agency and a global forum for civil aviation. The mission of ICAO is to have safe, secure and sustainable development of civil aviation. This is made through the cooperation, of course, of its 191 member states.

Among the three pillars of safety, security and sustainability, I am in charge in the Economic Analysis and Policy Section of the sustainability part, which is much more related to the economic efficiency of the air transport system as a whole.

Let me start first by telling you how the value chain of air transport is moving. In fact, it is moving under the umbrella of the regulatory framework, which is made by the states. Then there is this value chain. We have several stakeholders: airlines, airports, of course, among the most famous, but also aircraft manufacturers, air navigation service providers, leasing companies, MROs, et cetera. The most important is the central part of this value chain, which is either the passenger or the piece of freight. Without them, there is no sustainable air transport development.

In terms of size of the civil aviation and the global picture as of the year 2011, we had 2.7 billion passengers carried by the airlines and more than 50 million tonnes of cargo. Just to give you an idea, it is a small amount compared to the whole cargo and the whole trade that is carried all over the world by other means of transport, but it represents value of 35 per cent.

The picture is also showing that more than 1,000 scheduled airlines, more than 4,000 airports, 62,000 aircraft in service, and 170 air navigation service providers are ensuring that these aircraft are flying safely in the sky.

For comparative purposes I have given the figures for the Canadian air traffic and air transport market. Compared to the 2.7 billion passengers carried in 2011, in Canada, Canadian airlines have carried 70 million passengers. They have had 1.3 million departures for the whole year and 124 billion passenger kilometres performed. This is the way we count traffic. Kilometres performed is the number of passengers multiplied by distance. We had 2 billion tonnes of freight performed. This is the same principle: the mass of the cargo multiplied by the kilometres flown.

In terms of growth in the last decade, at the world level, between 2000 and 2011, it was an average growth of about 4.6 per cent per year. If we compare that to the growth of Canadian traffic carried by Canadian airlines, it has been 5.3 per cent. It seems higher than the average, but we have to link that to the size of the country, of course, because people are flying much longer distances.

In terms of evolution of the business models, in 2000 the non-IATA airlines were carrying 7 per cent of the market share of the whole traffic, while now, in 2012, it is more than 20 per cent of this market share, which is carried mainly by the new business model of airlines called low-cost carriers. I will get back to that later on in my presentation.

In the case of Canada, the market share of the low-cost carriers is 15 per cent, but it is mainly devoted to domestic traffic, as is the case in many markets in the world.

At the world level, international traffic still represents the major part, more than 62 per cent of the world traffic, compared to the domestic segment. International traffic is dominated as of today by traffic carried by the European airlines, although we are expecting that in 20 years, in 2030, the international market will be dominated by the traffic carried by Asia-Pacific carriers.

For the specific case of Canadian airlines in this international segment, they lost 0.3 percentage points in terms of market share on international traffic between 2000 and 2011.

In terms of top 20 scheduled airlines in 2011, this is measured in terms of what is offered on the market. Should it be in terms of seats or even in capacity of cargo? Here we can see that Air Canada is among the top 20, at 16. You can see that an airline like Emirates has made substantial progress in their ranking in the last 10 years, and now Emirates is in fifth place.

As for the most important airports in terms of passengers, of course the first one is still Atlanta in the U.S. However, it is interesting to note the progression of the Beijing airport. Let us say 10 years ago, in 2000, Beijing was not among the top 20 airports, and as of today it ranks in second place. Here you have the ranking of these airports as of today compared to 2000. As I said, Beijing is in the second place, and Dubai is now also among the top 20.

As a comparison to how the Canadian airports have evolved, let us take the top three Canadian airports. For Toronto, in 2000, it was at the twenty-sixth ranking; now, in 2011, it is thirty-seventh. There is the same decreasing trend for Vancouver, coming from 50 in 2000 to 58 in 2011; and finally, the progression for the ranking of Montreal, coming from number 84 to number 63 at the international level. This is in terms of passengers carried. We have a different ranking in terms of movement and flight departures, and also a different ranking in terms of cargo, which is handled by airports.

The other major stakeholder of the air transport value chain is the aircraft manufacturers. Here I am showing the two big players, Boeing and Airbus. We can see that for the next five years there is a substantial backlog for both of them in terms of deliveries planned for the airlines. Sixty per cent of these orders are for traffic growth, so this will pose challenges, notably in terms of training of licensed personnel to operate these aircraft. Licensed personnel for us is pilots and mechanics, but also air traffic controllers. This is putting pressure in some parts of the world, although as of today our analysis shows that for North America, no issue is expected for the next 20 years to operate these aircraft.

What is important in the last trend for air transport and air traffic growth is the pace of liberalization. In 2003, ICAO had a major worldwide air transport conference, called ATConf/5, and the theme was challenges for liberalization. Among the outcomes of this conference was that in fact ICAO should assist states in their liberalization pace. This is what we have tried to do in the last 10 years, and I will show you part of what we have implemented in terms of assisting states in that progress toward liberalization.

Here we can see that in less than five years, when you look at the number of countries per route as a percentage of international scheduled services, it has evolved from 8 per cent in 1995 to about 32 per cent in 2009. The same trend has occurred for the number of frequencies as a percentage of international scheduled services, and it has evolved from 30 per cent to more than 55 per cent.

The pace of liberalization is accelerating. When we are talking about liberalization, of course, it is showing more competition. When you have more competition, you have more business models appearing on the market. The most famous one is, of course, the low-cost carriers.

In terms of the low-cost carriers, we can see that they have developed tremendously their market share in markets that are fully liberalized, for instance, the North American or European markets. As of today, the low-cost carriers in these markets represent more than 25 per cent in terms of market share. However, it is also evolving very quickly in the Asian part, where we have different levels of liberalization, but it is accelerating notably through the ASEAN states. It is also appearing in China, with some low-cost carriers appearing there. It is the same progress and trend for the Latin American carriers, whereas the development of these low-cost carriers is still very small and marginal in Africa and the Middle East.

Another important trend has been noticed in terms of air travel development. We know it is a cyclical industry, for sure, but between 1970 and 2000, let us say in 30 years, we have noticed four major crises that have impacted the development of air travel. However, between 2000 and 2010, we have noticed also the same number of crises, I would say with a higher impact on the development of air transport. This is due, of course, to globalization at the world level. We are expecting that there will be more and more crises, as it is a cyclical industry.

The good news behind that is that the airlines were previously not prepared to tackle such crises. Now they have learned lessons about what happened, and they are much more prepared — less capacity — and they are working much more efficiently. This is the good news behind that.

Another issue impacting the financial viability of the airline industry specifically is the cyclical nature and volatility of fuel prices. Behind the fuel price there is the oil price, but we can see that due to the crack spread, fuel price volatility is higher than oil price volatility. This is due in general to the refineries' capacity. There is not enough capacity to refine the oil into jet fuel.

This is impacting, of course, the financial viability of the airlines. We can see here that in the last 10 years the operating margin of the airlines is very low. On average, it is between 1.2 to 1.8 or 2.5. The maximum we see is for low-cost carriers, like Ryanair, for instance, which can reach 5, 8 or 10 per cent. However, this is due to the way they are tackling the business model, where they are adding ancillary revenues, which means that every passenger has to pay for additional service above the cost of the fare. Therefore, they are bringing in much more revenue. It is quite surprising because as of today more than 20 per cent of their revenue is coming from the ancillary part.

The good news again behind this financial instability for the airlines is that they have worked in a more efficient way. We can see that between 2000 and 2011, the load factor, which shows the efficient part of the operation of the airlines, has evolved from 70 to 78 per cent. In fact, there are fewer and fewer empty wide seats in the aircraft, and of course this is a more efficient way of working.

The other trend in the last 10 years is more consolidation. When you have more competition, you need to consolidate your market in order to avoid empty seats in the planes. We have noticed several mergers in North America, between Continental and United, Delta and Northwest, US Airways and American Airlines, not only on the part of the legacy carriers, but also on the part of the low-cost carriers, with the merger between Southwest and AirTran, two major low-cost carriers in the U.S.

The same trend exists in Europe, with consolidation and mergers between Air France and KLM, British Airways and Iberia, and also acquisitions made by Lufthansa, going through SWISS, bmi, et cetera. This is the trend.

One of the major trends is the development of the three major alliances: oneworld, Star Alliance and SkyTeam. All these are based on a transatlantic axis, in fact. Although this is the trend of the alliances, we still have very successful business models with non-aligned airlines, such as Emirates, Southwest or Ryanair.

Looking at the way the alliances have evolved since their implementation, in 1997 Star Alliance was formed between Air Canada and United for the North American part and between Lufthansa and SAS for the European part. It was really on this transatlantic axis. The same happened with oneworld between American and Canadian at this time, and British Airways in Europe and Cathay in Asia-Pacific. The same transatlantic axis was formed between Delta and Air France on SkyTeam.

What is happening for market share in all these alliances today? These alliances are shared 30 per cent by North American airlines, 30 per cent by European and 30 per cent by Asian carriers. This is the new picture, but the most important thing is that we have consolidation and concentration, because they are carrying more than 60 per cent of the worldwide scheduled traffic, and for that there is a need for safeguards to ensure fair competition and also to protect the consumer, who is at the heart of this system.

Looking at the link between the promoting factors of air traffic growth, first is improving technology at the level of the aircraft. When technology is improved, the airlines have lower costs. In parallel, the introduction of liberalized services brings competition. With competition, airlines are obliged to decrease fares in order to ensure that passengers board. Added to that you have economic growth which, at the end of the day, creates air traffic growth.

That is the process. However, above this process is the regulatory framework that is created through agreements signed between states. The development of "open skies" agreements has increased in the last 10 years. In fact, a great majority of the states have signed open skies agreements with both the U.S. and third countries. This is the biggest picture, in fact.

What is an open sky? It differs from the traditional bilateral air service agreement between two states in that it offers full flexibility for passengers and cargo. There is no restriction on capacity, frequency or aircraft type, and there is no restriction on non-scheduled operations. In the ranking of the top 10 states that have signed open skies agreements the United States is first, the United Arab Emirates is second, Singapore is third, and Canada is fifth with 19 agreements.

Looking in more detail at the agreements signed by Canada, there was a major open skies agreement signed with the U.S. regarding transborder, but there are also many open skies agreements signed with Latin American and Caribbean states as well as with Europe. The EU is considered as a whole due to the "single sky" policy of Europe.

Among the new air service agreements, one that may be of interest to you is that signed with Qatar, which enables Qatar Airways to fly from Montreal to Doha, and then from Doha throughout the world. The trend today is that the hubs are in the Middle East with flights departing from there to all parts of world.

In terms of air transport growth compared to economic growth, both passenger and cargo traffic are growing faster than economic growth. This means that factors other than economic growth are impacting and enabling air transport to continue to grow. Of course, fare reductions is one very important factor, but consumer confidence in deregulated markets such as the EU and the U.S. determines whether people are willing to travel, which is part of the equation for whether traffic will grow.

The current forecast that ICAO has issued shows growth of about 3 per cent per year for the next 20 years for North American air carriers. This is compared to 3.1 per cent in the last 20 years. It is expected that the market share of international traffic will increase in the next 20 years, going from 49 to 57 per cent.

The major international market in 20 years will still be intra-European, comprising 13 per cent of total market share. The next biggest market will be that between North America and Europe. Expanding markets will be between North America and Latin America, between Europe and Latin America, and between China and North America.

As I mentioned at the beginning of my remarks, after the worldwide conference of ICAO in 2003, we were requested to put in place a facility that will assist states in providing more liberalized services. We have started a facility called ICAN, which we hold every year in a different region of the world. This enables the states to save around $10 million because they can meet many states and sign many agreements without having to travel around the world for that purpose. The next one is planned for Jeddah in December, and Canada will be a participant for ICAO.

ICAO policies for airports are based on four principles: transparency, cost relatedness of the charges, consultation and users. Canada has fully implemented these policies for its airports.

I will conclude by highlighting the importance of air transport to the economy. In North America, it creates more than 3 million jobs, which are distributed among the airlines, the airports and all other stakeholders, including aerospace. In addition to being a vital engine for global economic growth, it is also a catalyst for tourism, foreign direct investment and international trade.

I await your questions. If you need any additional information, you can email me at the address provided.


Senator Rivard: Although you do not work for the Canadian government, I would still like to have your opinion on an issue. I trust your academic training, I see that you have worked in marketing, sales and research in the aviation industry, and you have a master's degree in economics.

In terms of retail gasoline, prices in Quebec are higher than in other provinces, because Quebec charges more taxes — which is what we call a "societal choice." However, the Outaouais region is an exception, because it is easy for someone from Gatineau to fill up in Ottawa, given a price difference of $0.10 or $0.15 per liter. So to protect its market, the government allows certain regions to have lower gas prices. Let me apply that example to aviation.

The Trudeau airport has to compete primarily with the Burlington and Plattsburgh airports. More and more people from Quebec fly from the U.S. because the taxes in Canada are much higher.

To protect its gasoline markets, our government agreed to keep its taxes lower. Could the same solution work for the aviation industry? The government should perhaps look at the possibility of lowering taxes. The GST and QST cannot be reduced. However, there are so many fixed security and airport fees. Do you think that it would be a good idea for the Canadian government to consider having a policy for airports, the way it does for gasoline retailing?

Ms. Teyssier: To answer your question, I mentioned airport charges as a problem just now. The ICAO has some very strict regulations. Airports and ANSPs are required to follow those polices because anything that they charge passengers has to be reinvested in the infrastructure.

Unfortunately, in terms of taxes — and we also have other tax policies —we do not have a lot of control, because the States can make their own decisions and they are sovereign, being able to do what they want. Let us take the UK for example; they added the air passenger duty tax. That tax is very harmful to some countries for their tourism development, among other things. And if we look at France, for example, they have a tax to fight AIDS. Those taxes are not beneficial for the development of air transportation. In fact, at our next Air Transport Conference, in March 2013, this issue will be one of the hot topics on the agenda. Once again, we are going to remind everyone that we have very strict policies.

The security tax that you are talking about is authorized because we know that this money, which is collected from passengers, will be reinvested in the sector. It is going to be used when we invest in scanners to screen passengers and to make sure that the flight runs smoothly. Anything that is not reinvested in the aerospace industry does not comply with ICAO policies, which govern all the states around the world.

Senator Boisvenu: Ms. Teyssier, thank you for appearing before us. I was wondering where your accent was from. When I saw that you were educated in Toulouse, it became clear. I am very familiar with Toulouse because I worked there; it is also renowned for its aviation industry.

I would first like to congratulate you for your very interesting and detailed brief. However, your brief does not mention how competitive airports are. It also does not talk about the tax burden on airports — an issue someone else raised — which creates some imbalance, as well as a migration passengers to some degree. Canada has this problem with nearby airports — just think of Buffalo, Plattsburgh and Burlington. Does your organization deal with that issue? I believe your office is in Montreal, correct?

Ms. Teyssier: Yes, absolutely.

Senator Boisvenu: Does your organization deal with that issue?

Ms. Teyssier: Your question raises a number of points. If passengers decide to go to Plattsburgh instead of getting a flight from Montreal, I do not think that it is a question of how competitive airports are, but rather a question of how competitive the airline prices are. Unfortunately, that is the way things work.

In terms of airport competitiveness, a number of issues come into play. Some airports have to continue to operate even if they are not competitive because of security reasons. They are what we call alternate airports. In Canada, which has a very large surface area, after all, if a plane has difficulties, it has to be within a certain distance to be able to land in the shortest time possible. But at the moment, this is an intractable problem to some extent, at least as far as ICAO is concerned. Those are known as non-viable airports. We are trying to find solutions, such as creating an airport conglomerate, where one airport that is very profitable will make it possible for another airport to survive, even if it means working with a minimum number of employees to guarantee service. That is what we are trying to set up.

Recently, we have conducted airport privatization studies, relying on case studies around the world, which provide various business models that we could use to help some airports survive with this type of heavy competition.

Senator Boisvenu: Your organization does not deal with any government charges, be they airport rents or taxes, in order to develop more balanced parameters and to encourage healthier competition. Those elements have an impact on airports close to the border.

Ms. Teyssier: We follow the policies and the guidelines. Any amount that passengers pay has to be reinvested. That is fundamental. We also have performance indicators for each airport. We ask them to demonstrate how efficient they are compared to other sites, which makes it possible to set those very guidelines. Obviously, when you are dealing with a private company — and that is what is happening more and more with some airports — we are not as successful with our regulations.

Also, the current trend for airports is to collect any revenue that comes from outside the aviation sector. You are now seeing airports that are practically supermarkets, with a lot of other possible revenues. Airports now tend to look for other revenues to increase their profits.

Senator Boisvenu: According to your report, Montreal has moved from 84th place to 63rd place.

Ms. Teyssier: Yes.

Senator Boisvenu: Is that because of the closure of Mirabel and because traffic moved to Dorval?

Ms. Teyssier: Yes, to some extent, and it is also because of migration being on the rise, thereby contributing to Montreal's development, especially with more and more French people coming to settle in Montreal. With the economic crisis in Europe, that is also a trend to consider.

Senator Boisvenu: You must be familiar with the saga of the Mirabel airport closure?

Ms. Teyssier: I am vaguely familiar.

Senator Boisvenu: You are anticipating a three per cent rate of air traffic growth per year.

Ms. Teyssier: Yes.

Senator Boisvenu: That is almost one additional per cent compared to the economic growth projections, which hover around 1.8 or 2 per cent. Are airports doomed because of this increase? I am thinking of Dorval, which is landlocked in a city and whose growth opportunities come from within. Should this factor not put Mirabel's closure back into perspective eventually? Is Dorval viable in the long run, with the growth that you are projecting? Where does Dorval fit in? Perhaps my question is not clear to you, but you see where I am going with this.

Ms. Teyssier: I see where you are going. Let me say that, when we make projections at this level of aggregation, we are talking about North America, which includes the U.S. These are unconstrained projections. However, we fully agree that we have to keep these constraints in mind because, at any rate, they are unavoidable, be they in North America or Europe. Yes, that could open the door to small airports that could only be used for low-cost flights, for example. That is what happened in Singapore, where they opened a terminal specifically for low- cost flights; that was also the case in Bordeaux and a number of other places. That is why we can talk about preventing traffic from being diverted to Plattsburgh, by having flights with low-cost airlines leaving from Mirabel.


Senator Mercer: Senator Boisvenu asked one of my questions, but I would like more clarification. Our witness could not give us a detailed explanation as to why two of our three large airports have dropped down the list. Toronto is down by 11 and Vancouver is down by 8, but Montreal moved up 21 spots. It might be interesting for us to know. If the witness cannot provide it, perhaps our researchers could do a little research on those numbers to give us a little background. It is a rather sudden reversal in Montreal's fortunes, which could be good from Montreal's point of view.

My questions are with respect to your challenges for the training of licensed personnel, and then you specifically referred to orders and deliveries by Boeing and Airbus. They are important world manufacturers of aircraft, but around here the most important manufacturer of aircraft is Bombardier. Did you look at numbers for Bombardier when you looked at this particular problem?

Ms. Teyssier: Yes. We have made a study at the world level, and it included all the aircraft manufacturers and all the types of pilots. Why? I am taking only the pilots because it is the most critical part in terms of training, because it takes more time and we have also seen — for instance when we had these accidents with the Air France flights over Rio and between Rio and Paris — that it was due to a lack of training of pilots.

When we are looking at the chain of the pilots, we are starting at the very low level of the pilots, what we call les pilotes d'aéroclub. This is the first step. We need to have the global picture and to say that if we have an issue when we are to operate an aircraft with a commercial operator, we can take this pépinière and make them grow at a faster pace than when we take someone from the streets.

That is why we have looked at the global picture. To answer your question, it also includes all the regional jets, turboprops and all the aircraft available.

Senator Mercer: When you looked at the development of low-cost carriers, you said it included WestJet and Sunwing. I would agree with Sunwing, but I am not sure I would call WestJet a low-cost carrier anymore. Did you also look at other smaller but growing regional carriers in Canada, such as Porter?

Ms. Teyssier: The definition of "low-cost carriers" is strange. If you take a German company like Air Berlin, some time ago it was just a charter airline and from one day to another, it decided to be a low-cost carrier. In ICAO we have made a classification by region, and we have decided on the basis of cost that this airline is a low-cost carrier and this airline is not. For us, as per today in our classification, Porter is not part of the low-cost carriers. That is why.

Senator Mercer: It is due to the definition. You talked about fuel price volatility and refinery capacity. This is an issue that goes beyond the airline industry, but I want to be specific because Senator Greene, Senator MacDonald and I come from a region where we have only one refinery, and it is for sale or closure in the next number of years. Are we in danger of not having enough fuel in the right places at the right time if this refinery capacity is not rectified?

Ms. Teyssier: I do not see the danger of not having fuel, but the danger of having fuel at a higher price, yes, for sure it is there. Even if we are developing alternative fuels, it is still at the very early stages, and you will never have alternative fuel at a very good price in the next 10 years.

I do not see any danger in terms of getting enough fuel, but it will impact the price of the ticket. As we see today, some airlines are adding a fuel surcharge, and when you travel to the United States you have to pay for your baggage with other airlines. This is not the case for all parts of the world. It is linked.

Senator Mercer: My final point is more of a point than a question. Your comment on the air transport industry in your summary was very important. It was regarding the value added by the air transport industry and those two points of a vital engine and catalyst for economic development. I think it is something we need to remember as we write our report.

Those are a couple of very good phrases we could quote from, Mr. Chair.


Senator Boisvenu: Thank you very much, Ms. Teyssier. I just have a few quick questions to make things clearer. On page 12, when you talk about the Open Skies Agreement, we see that Russia and China are pretty much out of the picture. Are those two countries not open to that type of agreement or is it simply a lack of information, especially for China?

Ms. Teyssier: We know that China signed an open skies agreement with Canada not too long ago. Some passengers complained because, with that agreement, you have two airlines serving Vancouver and Beijing, for example, and they code share, basically giving them a monopoly.

Senator Boisvenu: Your organization reviews the management of the entire aviation industry around the world. Have you compared the management models of airports? In Canada, the approach was to create non-profit organizations or NPOs; in other cases, municipalities are responsible. Have you done any comparative analyses between airport management models? Have you rated the performance of those administrations to be able to say that "here is the model that should be adopted, here is the most effective model, in our view"? Do you conduct that type of analysis?

Ms. Teyssier: Yes, we do that type of analysis, because airports do in fact have a number of management styles, including the single till, the dual till, and so on. Our job is not to say that "this approach is better than that approach." Each state will decide what works best for its national context. We offer a number of possibilities. We make it possible for a state to compare what is being done in other states and to look at performance. This is why performance indicators are useful; they make it possible to see the evolution. Afterwards, it is up to the state to determine whether it prefers one model over another, depending on its characteristics. But yes, we do those types of studies.

Senator Boisvenu: And based on your observations, which is the best model?

Ms. Teyssier: I would not know how to answer that.

Senator Boisvenu: That is a politician's answer.

Ms. Teyssier: No, not at all.

Senator Boisvenu: My last question has to do with the increase in people travelling by air. It seems we have recovered and even surpassed the number of customers we lost after September 11, 2001. When I look at the graphs, it seems that we have already gone over the number of passengers we had in the 2000s. In your view, what are the main factors for this growth? Does it primarily have to do with more retired people or tourists who use this type of transportation — which is faster, more efficient and safer — or is it a shift from other modes of transportation to aviation? One of the things I am thinking of is the fact that people may be using their cars less and flying more. Are there factors that make it possible to understand this significant increase in air travel?

Ms. Teyssier: To go back to the crises, the most significant crisis in terms of loss of traffic was the 2008-09 crisis, which started with an incredible increase in fuel prices in the first six months, from July to 2008. Then 2009 came. In 2008, everything started with the whole U.S. financial crisis that bled everywhere. That is when we lost a lot of traffic. Only in 2010 did we start to get back to the traffic level of 2007. So that is an important point to consider in terms of the crisis.

Right now, there was still a 6.5 per cent growth from 2010 to 2011. That is more than the 5 per cent or so that we are used to. There are a number of factors and it all depends on where you are in the world. One of the reasons is obviously the rising standard of living in China, the largest market in the world. That is one of the most significant factors.

China's domestic tourism is also growing. The Chinese domestic market is huge and is growing very quickly, although we do not think that, in 20 years, it will be at the same level as the American market, which will be predominant.

There are also specific situations. Take Europe for example. The growing popularity of the high-speed train, the TGV, has an impact on air traffic. But that is absolutely not the case here, in North America, not in Canada and not in the U.S. There is no carry-over. I would say that the only way to increase traffic is to do what Europe did with airlines like the high-end EasyJet. Those low-cost airlines started to create traffic at airports that had no activity. They decided to create Byarritz and Birmingham, which did not exist before. They are going to travel from smaller airports and create a demand.

We are not saying that they are creating the demand, but perhaps the demand was there, but the fares were too high for those people to be able to take those trips. But the way low-cost carriers operate in Europe, including France, is that they say that, for example, Ryanair has a direct flight Paris-Toulouse, but that is masking the reality a little because they do not exactly leave from Paris. They leave from Bovais, which is 60 kilometers away from Paris, and they do not land exactly in Toulouse. They land in Carcassonne, which is still 70 kilometers away from Toulouse.

Those flights are for a certain clientele that does not have time constraints, perhaps clients who are retired or students. So there is a host of things, not just one reason.

Senator Boisvenu: Thank you very much for sharing all your expertise. We really appreciate it.

Senator Robichaud: When I look at the piece that talks about operating margins and load factors, does that include the transportation of cargo? My understanding is that the idea is to have aircraft with full loads as much as possible. Does that have an impact on prices for passengers who travel with those airlines?

Ms. Teyssier: No, that has no impact. Right now, the cargo that goes on board passenger aircraft, is approximately 60 per cent of the total freight. The remaining 40 per cent goes with Whole Cargo Airlines. The trend will reverse over the next 20 years. We are expecting to see it at 50-50. But the price for transporting cargo compared to the prices of passenger tickets is pretty paltry. It really has no impact on the prices of passenger tickets.

Senator Robichaud: But are planes leaving with full loads?

Ms. Teyssier: In terms of cargo?

Senator Robichaud: Yes.

Ms. Teyssier: Not always, no. That is also not the case for passengers. It is very random. I do not actually want to get into too many technicalities, but there are people who monitor empty seats on planes day after day and, 10 days before the flight, they will check the number of passengers. Then, they will reduce prices to attract other people, because every empty seat is a dead loss.

The Chair: Madam, on behalf of the committee, I would like to thank you for your presentation. You are definitely going to see some of your comments in our report.


I would like to remind the audience and honourable senators that tomorrow evening we will continue to look at the international component of the airline study with Mr. Fabien Pelous, Vice-President and Director of Air France-KLM in Canada.

We will also return to our order of reference on Bill C-45, with Mr. David Bradley, President and Chief Executive Officer of the Canadian Trucking Alliance, who will appear on Divisions 5 and 12 of the bill.

(The committee adjourned.)

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