Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 15 - Evidence, February 6, 2013
OTTAWA, Wednesday, February 6, 2013
The Standing Senate Committee on Transport and Communications met this day, at 6:45 p.m., to study emerging issues related to the airline industry.
Senator Dennis Dawson (Chair) in the chair.
[English]
The Chair: This evening, the Standing Senate Committee on Transport and Communications concludes its study on the airline industry and should table a final report by the beginning of March.
[Translation]
This evening, we are pleased to welcome Mr. Éric Lippé, President and Chief Executive Officer of the Association québécoise du transport aérien.
Welcome, Mr. Lippé. Thank you for taking the time to come and be part of our discussion. We will hear your presentation and then there will be time for questions.
Éric Lippé, President and Chief Executive Officer, Association québécoise du transport aérien: The Association québécoise du transport aérien represents all the major stakeholders in the air transport industry in Quebec, including air carriers (airplanes and helicopters), flying schools, airports, maintenance and certification companies, and suppliers of goods and services related to aviation. The Association québécoise du transport aérien has spent 35 years protecting the interests of our 150 members and working to develop the aviation industry in Quebec.
[English]
On November 1, 2012, the Aéroport de Québec, referred to as ADQ, notified tenants of a new airport fee structure aimed at, among others, our member carriers, airplanes, helicopters and flying schools. The new fee structure came into effect January 1, 2013.
The vast majority of our members are not transborder or international carriers. They fly aircraft with less than 115 seats and sometimes as little as 9 seats. They focus on regional transport for our association in Quebec, but they go to Ontario, the Maritimes and sometimes out west, and operate aircraft for services other than carrying passengers. They have operated out of the Quebec City Airport for the past 50 years, paid their rent, their fees to NAV CANADA and already have some of the highest landing fees in Canada.
Among the new fees charged by the airport, the general aviation fee, or the GAF, has without a doubt raised the most objections amongst our members. Under the GAF rule, for any aircraft carrying more than four people, all passengers taking a flight from the Quebec City Airport must pay $27 each even if the aircraft does not use the main terminal. Airport activities take place mostly in the main terminal.
My association and my members use mostly fixed based operators, or FBOs. Almost all regional flights operate out of FBOs. Before January 1, 2013, passengers using an FBO rather than passing through the terminal did not have to pay such fees, so we went from zero to $27 in one swift move.
The general aviation fee is now identical to the airport improvement fee paid by the passengers who use the terminal and all of its facilities.
[Translation]
The general aviation fee was imposed with two months' notice, without consulting the operators or weighing the consequences for them. It is estimated that the economic impact of this fee on our industry will total $3 million. The cost cannot be assumed by our carriers and will have to be passed on to consumers.
The price of regional air transport in Quebec is already very high, and the addition of a fee such as this weakens our industry.
Ever since it was announced, the ADQ has consistently refused to negotiate with stakeholders and reconsider this excessive fee.
[English]
The airport authority has based its decision to charge this fee on the principle of equity that should exist among the various airport users. It seems that the large carriers are harmed by the competitive advantage of carriers using FBOs. In reality, the search for equity only creates a system of equality.
Passengers using the terminal also pay that $27, which is unfair because my regional carriers do not use the terminal or its facilities. I conclude that the general aviation fee is a flawed copy of the airport improvement fee. However, there are differences between the two.
The airport improvement fee is governed by an agreement between airports and carriers. It gives them certain latitude and there are contractual obligations to respect. The new general aviation fee charged by the Quebec City Airport has no such boundaries. We do not have any way of contesting this new fee and the way that it will be charged to our passengers. There are no guidelines; it is completely arbitrary right now.
[Translation]
The predominance of regional transport and the presence of numerous flying schools (for airplanes and helicopters) mean our carriers are responsible for most of the aircraft movements reported at Quebec City. Our carriers contribute much less in terms of landing fees because of the rate structure prescribed by ICAO (by weight) and the small size of their aircraft. Here again, the ADQ is claiming inequity and trying to remedy the situation with the general aviation fee.
ICAO stipulates that landing fees must be used to pay for runways, lights, access roads and police and fire services. ADQ has repeatedly claimed, with respect to the general aviation fee, that our industry must do its fair share to defray the costs of these facilities. What then is the purpose of the general aviation fee? Despite the claims of the ADQ, we are convinced the main terminal will benefit from all of the revenue generated by the general aviation fee and that there will be no advantage for our industry.
[English]
The airport authority surprised our industry when it announced the implementation of the general aviation fee. There was no prior consultation and no economic impact studies were conducted. Many companies in my industry have interpreted the fee as a formal eviction notice.
Despite our demands and our willingness to talk and negotiate with them, the airport has maintained its position.
We are not questioning the governance model of Canadian airports. Several studies have shown the advantages of private administration. However, we are openly criticizing the non-existence of control and verification mechanisms in the management of airport facilities.
We must never forget that these organizations manage public infrastructures for the common good of all Canadians. The members of AQTA who can conduct their activities at the airport do not have access to any other airport. Why should they leave when they have been there for almost half a century?
The Quebec City Airport has a dominant position because of the absence of competition and valid alternatives. Despite many demands to federal, provincial and municipal authorities, none have been able to end this serious injustice, given the absence of a mechanism to control the decisions of the airport authority. Faced with this inability to react, certain members have decided to take the dispute before the courts, unfortunately.
[Translation]
Aviation provides essential links for all Canadians. These links helped to build our great nation, but the companies that keep them strong are slowly being expelled from our airports to make room for more enticing activities. Regional carriers, flying schools and general aviation are the cornerstone upon which our national and international aviation system has been built.
[English]
We therefore believe that a mechanism similar to that proposed in Bill C-20 in 2007 should be put in place to protect the regional transport industry in Canada. The honourable members of this committee must understand that we are not talking about all-inclusive packages to sunny destinations, cultural stays in Europe or adventures in Nepal or Africa. Our industry serves Canadian citizens returning to visit family in their home towns, patients undergoing tests or surgeries in major hospitals in major Canadian cities, businesspeople seeking to develop large-scale products, technicians on their way to repairing communications towers and labourers travelling to their workplace from villages. There are some areas in Canada that are only accessible via aviation. This is Canadian aviation and that is what I am talking about tonight.
The AQTA, following everything that I have said, proposes the following recommendations:
[Translation]
The Airports Act must be revised to include consultation and appeal mechanisms for all decisions made by airport authorities leading to the imposition or increase of airport fees. The position of an aviation ombudsman must be created, with the mandate to apply the act and intervene when necessary. The importance of regional aviation in Canada for all citizens must be recognized. A national aviation policy must be established, with a view to fostering the development of the entire industry in Canada.
[English]
Senator Mercer: Thank you very much for your presentation. You have brought us new problems that we have not discussed before, and these are problems that have come into effect on January 1 this year.
I made a note when you said, "Many companies in my industry have interpreted the fees as a formal eviction notice." I may scribble it out and ask where you would go. I guess the Trois-Rivières/Shawinigan airport is too far away. Nothing else is closer going east. Therefore, between Quebec City and Montreal, Trois-Rivières is the next biggest but it is still too far away.
It amazes me that the airport would do this without consultation. Has it become a public issue? This is public; we are on television. Has it become a public issue in the Quebec City area?
Mr. Lippé: It has. The AQTA has met with many provincial and municipal leaders to make them understand that this is a serious problem for their airport. The airport in any city or any town belongs to the community.
We do understand that the airport authority has to make decisions. However, they also have to understand that their decisions will impact their area. An airport does not really belong to the airport authority; it belongs to the people. We have been trying since November 1, when these fees were made public to us, to try to make everyone understand that this is very serious.
You were talking about an alternative airport. Quebec north aviation — anything going up north — starts mostly from Quebec City. It is a major hub city for the Canadian North. Montreal will be fine because they do not have a problem. However, anyone going up north — Rouyn Noranda, Wabush, Amos, Sept-Îles — usually have to go through Quebec City.
Senator Mercer: I am glad you ended it there. Let us talk about those towns and cities where you go and provide a vital service, because many of them are isolated and you cannot get people in and out readily. Have you been able to engage them in speaking to the provincial government and Quebec City, having their municipal leaders put some pressure on governments to bring pressure to bear on the airport authority?
Mr. Lippé: We have made it very clear to the provincial authorities that this fee will mostly affect northern Quebec towns that use Quebec City Airport as a hub. They are aware. In the short time we have had, we have not been able to visit everyone, to talk to all these mayors in these communities, but they do understand that this fee will apply to people going back home and people going to Quebec City for any medical test.
Some of my carriers have told me that certain hospitals out east in Quebec that do go through Quebec City are very worried that they will not be able to pay that $27 when the patient is returning back. What do we do? That is where we are trying to make Quebec City Airport understand that this will affect not necessarily Quebec but the whole of the province.
Senator Mercer: If the local authority will not listen, the pressure has to come from those outside communities. The doctors and managers of hospitals and clinics around the province need to be brought to bear on this. This is not just a business decision. This is a very serious human services and, in many cases, a medical decision.
[Translation]
Senator Boisvenu: Your brief is very interesting. Could you tell us about the impact that this lack of control mechanisms is having? In your brief, it seemed to be a major point. Then could you tell us more about the commercialisation of airports overseas. Let me also thank you for your recommendations; they will help us a great deal to move forward in this debate.
Mr. Lippé: I have studied available airport governance models in depth. Actually, I come to the same conclusion as your committee, that the private model that we currently have in Canada is a good one in its ability to react well. But, given the significant economic power that airports have over their tenants, who, in some circumstances, have seen their rents go up two and three times in recent years — the increases have been enormous — questions have to be asked. The industry needs to find a way to appeal those decisions or at least to be consulted about them.
Clearly, if the Quebec City airport administration had taken the time to talk to us, they would have found out, as we have always told them, that our goal is not always to say no automatically. We want to work with them. We are conscious of the fact that an airport is very expensive to run, that there are a number of things to pay for. We want to be business partners. Unfortunately, that vision does not seem to be shared by the Quebec City airport administration, which stands by its position as a fair one. That being the case, we see no other possibility.
I have spoken to federal, municipal, provincial authorities, at least to make them aware of the importance of the airport for their region, but it seems that there is no official mechanism to change the position. Because of that, some of our members have begun court proceedings — which I find unfortunate because our industry is not a rich one. Our industry deals with regional transportation, so proceedings of that kind cost the industry significant sums of money.
Senator Boisvenu: You mentioned the unilateral approach of the Quebec City airport administration, in the sense that its decisions are made without consultation. Is the situation the same for other airports in the region you serve? You were talking about other provinces like New Brunswick and Ontario.
Mr. Lippé: The Quebec City airport is the most blatant example; I have to admit that most airports in Quebec — I do not want to tar them all with the same brush — have a great deal of respect for the users, the carriers and the tenants. They are very well aware that, if they continue to increase fees in that way, they will be killing the goose that lays the golden egg. Carriers will no longer want to go to their airports or passengers will no longer want to pay the prices.
We have to understand that it is always the passengers who end up paying the costs. Though carriers can slip the costs onto other bills quite easily, everyone is well aware of the impact it will have.
No, I do not want to generalize about all airports.
Senator Boisvenu: Are you affected by the exodus of travelers to the United States?
Mr. Lippé: Given where it is located, the Quebec City airport is more isolated than other Canadian airports. But people may well be willing to drive three or four hours to save $300 or $400, which is a decent sum of money. Quebecers like to drive. They love their road trips. But the location of the Quebec City airport means that it is less affected than other airports, such as Windsor or Montreal.
Senator Boisvenu: Your members have relatively small fleets. On average, how much do they pay in take-off and landing fees?
Mr. Lippé: Landing fees are based on weight. I have a complete list that shows those costs.
Senator Boisvenu: Take Propair, in Abitibi, for example. They are one of your members. How much is the landing fee when they are carrying 12 passengers?
Mr. Lippé: I do not think that it is more than $100. As I say in my report, we cannot compare ourselves with a 747 or an Airbus 380. Our aircraft carry 12 or 14 passengers who have to share those fees amongst themselves. That is more expensive than if the fees were shared between 300 or 350 passengers.
That is the reality of regional transportation. Our aircraft are smaller and so sharing costs has a greater impact.
Senator Boisvenu: What is the profit margin in your industry?
Mr. Lippé: Not more than 1 per cent, no greater than the big international carriers.
[English]
Senator Unger: Your information is very depressing, quite frankly.
Mr. Lippé: That was not my plan.
Senator Unger: We have heard about airport authorities before, but one of your core activities provides support to your members in negotiations with relevant government bodies such as Transport Canada, CTA and Transport Quebec. I assume you have appealed and re-appealed to all of these bodies and yet they do not have ears all of a sudden?
Mr. Lippé: I would not say they do not have ears. You are right that we have appealed to all those bodies, and we have had the same answer: "We do not have the authority."
I can accept that a provincial government gives me such an answer; I can accept that the municipal government, the mayor, gives me that assessment. It is difficult, though, when the federal government gives me that assessment considering that this property, especially the Quebec City Airport, is part of the 26 major Canadian airports. The land is still owned by the federal government. The federal government receives rents from the Quebec City Airport, yet it seems to be unable to act in this case. We have met with them, and that is basically the answer we were given.
Senator Unger: Your latest advocacy focused on the impact of the Government of Canada's introduction of the Safety Management System, SMS. Can you tell me more about your advocacy on that?
Mr. Lippé: I approve. I am always working with Transport Canada. My carriers are still not affected by any sort of law concerning SMS. We have to understand that SMS was implemented for airports. It was implemented for 705 carriers, which are the international, larger carriers.
SMS has still not been made mandatory for my carriers, but as president of an association, I definitely want my members to get onboard, and I do need the help of the federal government to do so. Our businesses are small. Usually the pilot is the owner, operator, accountant, and sometimes we have bigger industries, but to ask one person or a group of less than 15 people to do all of this is very time consuming and expensive.
I and my association do believe in SMS. We think it is a good thing. Safety starts with my members, and we do appreciate that Transport Canada has to do its regulatory role. It has to come and visit us and ensure we stay safe, but on a day-to-day scenario, the only way my carriers will stay safe is if they do it themselves and ensure they have systems in place to ensure safety.
[Translation]
Senator Maltais: Mr. Lippé, I come from the Côte-Nord. I spent almost 55 years of my life there, at least five of them in small airplanes.
One thing intrigues me. Twenty years ago, the carriers from Quebec City, Montreal, Baie-Comeau, Sept-Îles, Schefferville, Fermont and Gagnonville were using aircraft carrying 90 or 100 passengers. You remember the Quebecairs and the Fokkers. There was a market for small eight- or ten-passenger planes too. You remember Air Satellite, Northern Wings, Gulf Air and all those little companies.
These days, there is so much more traffic: Baie-Comeau, Sept-Îles, Havre-Saint-Pierre, Mingan, Schefferville and Fermont, but the planes are getting smaller and smaller. I am thinking about Air Canada Jazz, which, in my opinion, is more like a bird than a plane. You never know if you are going to leave and if you do, you do not know when you are going to come back. I have that experience quite often.
It intrigues me. I look at the Fermont workers leaving Quebec City on Sunday evening or Monday morning. Everyone knows that miners get a bit of time off now and then. I always see them flying in small planes. I have nothing against small planes, but I do not understand that even Air Canada Jazz, which has an open market, has reduced the size of its planes while the other small carriers have kept theirs more or less the same size. The market is bigger in terms of passengers and the planes keep getting smaller. That is something I do not understand.
Mr. Lippé: That is an extremely complex question: choosing an aircraft to meet specific needs. There are people a lot smarter than me who spend their whole day deciding the best aircraft for the task at hand. I cannot speak for Air Canada. They have business decisions to make and they are one company like any other member of my association.
When a plane takes off with half the seats empty, the carrier will certainly not be providing that service for very long. A plane taking off with half the seats empty is like a company making bicycles and, after making bicycles all day, they throw all the unsold ones into the garbage. In aviation, just like in the hotel industry, in fact, it is the same principle. Carriers are always going to try and look at the market demand and match it to a type of plane. One of our carriers has bought some ATA 42s. They are bigger planes. They are not Boeings, but there is a trend to bigger planes, so the demand is there. Clearly, the carrier is better off having more passengers on one plane than sending two or three planes separately on the same route.
Senator Maltais: I want to come back to the small carriers. Service was more regular a few years ago when I lived in Baie-Comeau. It was possible to do Baie-Comeau, Rimouski, Matane, Gaspé and then come back to Baie-Comeau on a small plane with 8 or 10 passengers. That is no longer possible today. But there is still a customer base, there are workers on both sides. When I go back to the Côte-Nord, people often tell me that it is a pity. Air Canada Jazz does not do it anymore. Most small aviation companies are based in Quebec City now. I remember that Air Satellite used to have two return flights per day and they had no problem making ends meet. I do not know why that cannot be done anymore.
Mr. Lippé: A carrier is never going to give up a service that makes a profit. That is how they make their money. A number of the companies you mentioned no longer exist today. Unfortunately, perhaps they tried routes that were not profitable or kept a service going too long when the planes were not at full capacity. When you are stretched in that way for too long, it becomes difficult to maintain your profit margins.
A lot of companies in the industry try experiments. They try to provide regular service. It is not very easy because transportation in northern Quebec is extremely costly. When travelling in the north of Quebec costs the same as an all- inclusive trip to the south, including airfare, you can understand why. Even though people are disappointed because they no longer have the service, and some may be able to pay for it, it is not an easy sell.
Aviation is a balance between the ability of carriers to take passengers, the demand from passengers, and their ability to pay. That is why we are asking questions about the Quebec City airport because all they have done is increase our costs. Passengers will have to decide whether they are going to continue to use our services. Clearly, what we want is to be able to get our facts together and explain to the Quebec City airport that any increase in fees is going to affect us adversely.
Senator Maltais: The highlight of the Quebec City airport is its one little restaurant — a Tim Horton's!
The Chair: That is not really relevant.
[English]
Senator Merchant: I come from Regina, so I am not terribly familiar with your airport. In Regina we have small carriers that will take you to Saskatoon, but we have very few flights. I think there is maybe one flight in the morning — and they hold maybe 12 people, maximum — and one at night. These are people who go up on business more than anything else.
With respect to your passengers, you explained that there is a medical need when people have to be flown, but are most of the passengers workers who are going to these towns that I am unfamiliar with?
Mr. Lippé: We have a lot. There is, of course, the Plan Nord in Quebec, which is developing the mining industry. We have a lot of mining employees and many business people going up there. It is part of my industry, yes, indeed.
Senator Merchant: Do they come back the same day or do they stay a week?
Mr. Lippé: Usually not. They usually go for a stint of a few weeks before the company lets them go back.
Senator Merchant: Have you had an increase in activity?
Mr. Lippé: That industry is going well. As I said, one of my carriers has purchased bigger aircraft, 42-seaters. It is an improvement over the smaller aircraft we have in our industry. There is movement there. We just want to ensure that this movement is not stopped by these increases. Even mining companies have their limits. We want to ensure we do not get too close to them.
Senator Merchant: This increase was dropped on you without any notice.
Mr. Lippé: That is correct.
Senator Merchant: Do you think they may be sensing that they are the only game in town and that you have no alternative but to pay the fees?
Mr. Lippé: That is correct. There is no valid alternative. My carriers have spent hundreds of thousands of dollars on their installations, not the main terminal but their nice little waiting rooms, nice installations, their own personal hangars so they can work on their aircraft. This is their investment. The airport never gave a penny for that. Even if there were an alternative, which there is not, you cannot move these buildings. These buildings are there. We are in the position where we cannot move and we are forced to pay.
Senator Merchant: Lastly, you are not using any of their services; you are not using their security. I know in Regina you just go into the hangar and you get on. You do not have to use any terminal.
Mr. Lippé: Correct. Of course, we are used to going to the main terminal — Tim Hortons is available, if not others — security gates, baggage carousels. We do not have any of that. We do not use those. We use our own installations.
We have to cater to our clientele. They seem to enjoy going through our services, and we find that great. Again, we just do not understand them being charged the same amount as the people going through the main terminal.
Senator Merchant: When I get back home, I have to find out how the fees work in Regina.
Senator Mercer: I have been reviewing the recommendations that you made. The only one I have a bit of difficulty with is probably with the first one that revised airports acts include consultation and appeal mechanisms for decisions made by airport authorities.
I gather that you might be suggesting putting the ball back in the court of the federal government. When we went through the devolution of airports, the object was to put control in the hands of local airport authorities. I do not disagree that there is a need for a mechanism. I would suggest that that is probably a little more difficult than other things because I do not know that we want the federal government being the arbiter of this. Can you give me an idea of how you would see providing the position of an aviation ombudsman whose mandate would be to apply the act and intervene when necessary? How do you see that working, and how would you see that person being appointed and funded?
Mr. Lippé: I am ready to take on the nomination if the committee so desires tonight.
Senator Mercer: You may be a bit biased.
Mr. Lippé: Maybe just a bit.
Aviation, like any other business, is a business of numbers. Now, it is not an exact science. When an airport tells any carrier that they will have to pay certain fees, there has to be something behind that. It cannot be arbitrary. I see there being, of course, consultation beforehand so that we understand what they are trying to do. It is all numbers. There are people much smarter than me who can probably crunch the numbers. I do not agree with the "build it and they will come" theory. It does not work in aviation. The demand has to be there for the passenger. If the passenger does not want to pay the price, whether or not you have the most glorious airport in the world, they will not go. That part is a bit more difficult to get your head around, but, if the carriers themselves are saying that they need more space because there is demand and we are bumping into each other at the gates because there is not enough room, carriers themselves will say, "We like your idea. Put on more gates. How much will that cost?" There is a way to amortize the whole thing. There has to be a way.
Again, we do not want it to be so arbitrary that it is a yes or no with no arguments. I think the numbers should speak for themselves, and the carriers should be the ones who are saying, "You know, this makes sense. We are making money at this airport. We want to keep making money, and the more passengers we have, the more service we can give and the lower the prices can be." Again, it is not a one-to-one ratio, but that is how I would see it.
Of course, I would not want to revert to the federal control of airports. That is not what we are proposing here. We are proposing that someone can look at the numbers of an airport and take into consideration the needs of the carriers, the needs of the passengers, the requests and where we can find the middle ground. There has to be a way of finding out what the magic number is.
[Translation]
Senator Boisvenu: How long have you been working in the aviation industry?
Mr. Lippé: A little more than a year.
Senator Boisvenu: You were not there in 2006?
Mr. Lippé: No, I was not.
Senator Boisvenu: The 2006 report reads as follows:
Although the Canadian model of airport commercialization avoids many of the problems that can arise from price regulation, the airports are in a position to abuse their market power, and their customers argue that some of them do. Bill C-20, Canada Airports Act, which was introduced in the House of Commons in June 2006, is expected to address some of the deficiencies in airport authority governance. . .
It also says, among other things:
. . .an opportunity for users to appeal, in certain circumstances, new or increased fees. . .
Have things changed since 2006?
Mr. Lippé: I would say that we are still in the same situation as we were in 2006. The debate is always the same. Once again, we accept the private airport governance model. We believe that the model is a dynamic one. But we still must be protected from abusive decision-making. We understand, of course, that, even with the best intentions, someone in a monopoly position can easily do what he wants in a situation like ours where, apparently, the industry has no recourse.
Far be it from me to say that airports are acting in bad faith. When you are in that situation, it is clearly natural to try to go a little further when you also know that no recourse is available.
What was said back then could equally well be said today. We are in the same situation.
The Chair: If there are no further questions, I will thank you, Mr. Lippé. As you know, you are our final witness.
[English]
I would like to remind the committee that next Wednesday night at 6:45 we will be meeting in camera to start discussions on the first draft of the final report. Between now and then, we will try to get to you at least the structure of what we want in the report and as much information as we can put in it.
[Translation]
We meet again on Wednesday evening, at 6:45 p.m. Thank you once more, Mr. Lippé, and good evening.
(The committee adjourned.)