Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 6 - Evidence, February 15, 2012
OTTAWA, Wednesday, February 15, 2012
The Standing Senate Committee on Transport and Communications met this day at 6:45 p.m. to study emerging issues related to the Canadian airline industry.
Senator Dennis Dawson (Chair) in the chair.
[Translation]
The Chair: Honourable senators, the Senate Standing Committee on Transport and Communications will come to order.
[English]
This evening, we are continuing our study on the Canadian airline industry. Appearing before us is Barry Rempel, President and CEO of the Winnipeg Airports Authority.
I would like to remind the audience and members of the committee that in the second hour of the meeting, we will hear from the Honourable Maxime Bernier, Minister of State, Small Business and Tourism, who has been delayed because of votes in the house.
Mr. Rempel, you have the floor, and following your presentation, we will proceed with questions.
Barry Rempel, President and CEO, Winnipeg Airports Authority: Mr. Chair and honourable senators, I have to tell you I am honoured to have this opportunity to appear before you today.
Before I get into it, I would like to take a brief moment to thank some of those senators from Manitoba, in particular one former committee member, Senator Plett, for some invigorating discussion over the last couple of years on some of the work going on as we were going through some of our new terminal construction.
I very much appreciate the opportunity to share some thoughts on what is, for me, certainly, and obviously for you, a most critical matter facing our collective future. For Canada to grow, for us to create the greatest possible opportunity for the next generation to succeed, we need to get the results of your efforts and we need to get them done right. I know that, in a sense, that is preaching to the converted somewhat, but a prosperous nation requires connectivity both with each other and, as we are not an island, with the global community. For Canada, a former leader in this, it has always been thus.
How we best achieve this is really at the heart of your deliberations. Where we focus is where we will end up. If we focus on what everyone says is wrong, we will miss what might be. It is always easy, but the urge to fix what the last person says is broken will not elevate us to the understanding of the needs of the people that we serve and how we can create the environment that best achieves our collective goal.
Perhaps you will indulge me a moment to explain where my thoughts are coming from, although I would prefer not to spend any time talking about myself. It is important that you understand where I am coming from and the potential biases you may be hearing in what I am saying.
Within our industry, there have been few to see the industry from so many vantage points. In fact, I often think, as it relates to airports and airlines, I am living an old Joni Mitchell song — I will not sing it for you, by the way. The lyrics go along the lines of "I've looked at life from both sides now, from win and lose and still somehow, it's life's illusions I recall. "
Back to my perspective, it is somewhat unique, and I feel that I have been truly blessed in my career. As you heard, I am the president and CEO of the Winnipeg Airports Authority. We are the eighth largest airport in Canada when measured, as most airports do, by passengers boarded. However, we are considerably larger than that when you look at our overall business. The model we follow includes the development of revenue diversification options and a focus on what is not well understood by many, and that is our inland port and, specifically, cargo development. Today, we have the third largest airport in Canada in terms of cargo movement and the first largest when measured in terms of frequency of dedicated freighter air craft.
In this process, and having been CEO for 10 years, I have often been asked how I got here. I have had the good fortune to be involved in this industry for 38 years, and 27 of those were on the air carrier side of the industry. I had the fortune to start in a very small company in maintenance, with a small, growing and profitable carrier in a regulated environment. I lived through being a marketing director at that company into what many thought would be the end of our industry as we deregulated the airline industry, to being the senior executive for a company called Canadian North. We operated 10 dedicated freighter aircraft or passenger combination aircraft into the High Arctic. As well I have been the senior executive of a global cargo operator and ending up as vice-president for Canada's largest carrier and, now, coming back to where I started my comment, of being the CEO in Winnipeg.
I would like to go back to that song for a moment. I like the words of that song for another reason, and that is because it fits so well with our industry. The song gives voice to a generation and industry that grew up with incredible change. We continue to live that change. It incorporates the voice of cynicism, the voice of tiredness, but, more importantly, it also incorporates the voice of hope, the struggle to reclaim a lost wonder. It is at once the voice of our defeat and the voice of our renewal.
To help us all understand the opportunity for renewal, we need, I believe, to start with understanding what air transportation really is. With that clear understanding, I will come back later to what the industry is not.
At its core, aviation is but a part of a supply chain of service delivery to a customer. It is an enabler, and it is about meeting a greater need. In listening to the many voices that you have listened to over the last period of time, each comes to you with a solution. It is a question of perspective and understanding the players' roles and the impact of each perspective.
Our industry has an incredibly interesting history. The development of this industry, more than most, is tied directly to government. Globally, aviation and aviation policy during my time in this industry have historically been treated as what I call a "tool of the empire. " In more cases than not, the airlines themselves have been the tools of their governments and protected by them. In Canada, that goes back to the formation and the history of direct ownership by the government in virtually the entire transportation supply chain.
I mentioned the legacy. Today's regulatory framework and the impact of that former ownership continue with unintended legacies of viewing airlines as somehow unique and requiring protection.
I have had the opportunity to read some of the previous testimony directed at this committee, and I have been amazed at how you have been able to keep track of the many numbers thrown at you by the various corporations and individuals regarding their contribution to the economy, and by what I will refer to as a narrow perspective of individual players in that supply chain.
As to the first matter, I will not re-till that ground but note only that whatever numbers you choose to believe in terms of economic impact, the reality remains that aviation plays a critical role in Canadian society and our future success. Its role in connecting and enabling goes well beyond any GDP or employment calculation you can come up with.
On the second issue, it should not come as a surprise to anyone on this committee that there is a supply chain tension and occasional conflict. For the interests of the consumer to be held paramount, a certain level of tension is required. It is important to remember in this, however, whom we serve.
No one waking up on a cold Canadian winter morning says, "I want to be in seat 13E on a particular carrier. " Similarly, they do not wake up and say, "I want to be in the security line at Winnipeg airport. " They do say they want to be somewhere. Right now in Winnipeg, the popular place is Cancun, by the way.
The same, however, can be said about any business person, and, I will add, the same can be said about any package or any product that needs to be moved.
The history of the aviation supply chain informs us of the differing needs of the partners, and it serves to remind us that many groups are required to ensure an effective supply chain. Let me be clear that supply chain tensions are good, at least in my opinion. They involve various partners. They evolve as these partners work together and even compete to meet the consumer demand. We similarly need to be clear that no single member of the supply chain owns the customer. Competition and choice provide the customer the power to require change.
Carriers' short-term objectives are driven by stock market valuation and ownership correctly imposing accountability and a requirement to show what they have done. With highly mobile assets and thin margins, they are able to adjust overnight where they serve.
Airports, on the other hand, are required to make decisions that are 40 years in nature. If something is not working, I can tell you I cannot simply move the asset to another place. Getting it wrong has severe consequences that are not as easily remedied.
Canada has chosen a unique model for this. The model has perhaps hamstrung airports in terms of global competitiveness, but it has absolutely accomplished the desires of the government of the day to find a way to provide critical infrastructure at a time when government did not have the wherewithal to invest themselves.
In the testimony you have heard to date, there have been numerous referrals to airports as monopolies. Looking at it simplistically and if you consider a particular city, perhaps an argument can made.
However, within the industry, nothing is further from the truth. The airport sector itself is highly competitive. Competition is for access to a carrier's resources in a way that enables our communities and companies to grow. Airports today are the remaining local community advocate, and the competition is with every other airport and its host community.
I might also add that no existing hub has the right to have some sort of regulation or legislation that puts its right to exist into policy, either. Were that the case, Winnipeg today would be the largest airport hub in the country, followed by Gander. I might add the same applies to every carrier and the suggested right for an individual carrier to exist.
What is the government's role in enabling our country's development? That is the question that you are looking to find.
In earlier remarks, I noted we should understand what aviation is not. You will note in my comments I have constantly referred to the industry as aviation. That is because the supply chain required to meet the customer and community aspirations is not fulfilled by any one sector. Viewed from the customer perspective, there is no airline industry. In fact, there is no airport industry. That is the first critical "not " in enabling an exciting future.
I would argue this committee will do Canada a great service by focusing on how to encourage the opportunity for Canadians to connect with each other and globally. To focus on the relationship between supply chain partners is like trying to ride a motorcycle by focusing on the holes in the road. Opening the skies, allowing carriers to have access to greater capital available in global markets and providing a globally competitive environment in which business can operate while ensuring policies or regulation are consumer-focused is required.
That leads me to the final "not. " The aviation industry is not a sin. It is not something that should be taxed or effectively regulated out of relevance in a globally competitive environment. It is a key enabler of strong communities and a strong country. It is not, as some have turned the phrase, a cash cow.
It must be treated in at least the same manner as other modes. Here I am not simply referring to taxation, some of the things you have heard already. There are many examples of those, security taxes, fuel taxes and airport revenue taxes. I am also referring to the hidden costs of government through requirements for airports to provide federal infrastructure at no cost to the Crown while those same services are provided free of charge to other modes.
I would like to come back to the positives of how we can together build our country by leveraging the existing assets and the willingness of others to invest in that future.
Safety and security are table stakes; reasonable regulation that assures those is fundamental. Please free members of the aviation supply chain to be diligent in meeting our customers' expectations. Some will win, some will fail, but the customer will eventually help in making that decision. In the process, jobs will be created, our communities will grow and once again Canada will be a leader.
Thank you for the opportunity to make those remarks. I know you have some questions, no doubt, and I am open to that.
The Chair: If I may, before going to questions I would like to introduce to you the members of the committee.
Senator Doyle is a new member of our committee; he is from Newfoundland and Labrador.
[Translation]
Senator Verner, who hails from beautiful Quebec City; Senator Maltais, who comes from eastern Quebec.
[English]
We have Senator Manning from Newfoundland and Labrador; Senator Eggleton from Toronto; Senator Mercer is from Nova Scotia; Senator Merchant from your neighbouring province of Saskatchewan; and finally, from Winnipeg, Senator Zimmer, who will be asking the first question.
My deputy chair is here, Senator Greene, from Nova Scotia. He does these entrances.
Senator Zimmer: Mr. Rempel, nice to see you again. I must take this opportunity to congratulate you on a wonderful, beautiful, needed airport in Winnipeg. You have really outdone yourselves, and we are proud of that.
Mr. Rempel: Thank you.
Senator Zimmer: It has been said that many people flying internationally are crossing the border to fly because of the lower costs of flights at United States airports. Do you feel this has an impact on traffic for the Winnipeg Airports Authority?
Mr. Rempel: Unquestionably it is having an impact.
I am amazed by the number of people at every event that I go to these days who apologize for having visited and used our neighbouring U.S. airports. I cannot say that I blame them, but I do not necessarily appreciate it. I wish that we could have them all here.
In Manitoba, for example, just shy of about 180,000 people last year used Grand Forks airport. To put that into perspective, these are people purely within our catchment basin that would, in the normal course, have used Richardson International Airport.
It is simple math to take 180,000 people and say there are 180 people to a flight. More typically, in Winnipeg's case, we average about 80 people per flight on those flights. You can divide that out to quickly understand that you are looking at in the neighbourhood of 2000 flights. Of those 2000 flights, each weekly flight in our community creates an additional 40 jobs.
It certainly has an impact. It is not something I view, at the moment, as critical to our success or failure, but it is something that, unless we address that particular issue, will be of considerably greater impact if we were having this consultation a year from now.
Senator Zimmer: In your opinion, what impact do airport rents and the fees have on the competitiveness and profitability of the Canadian airline industry?
I know that years ago, when you went to an airport, Transport Canada had somebody sitting there collecting $10. When they started to get heat, unfortunately they put them on the airlines, so they had to collect it. What impact do you think that has on the airline industry?
Mr. Rempel: Fees and charges are an important part of the industry. Canada chose a model of a user-pay process. I think the process behind that is actually a positive thing. I think airports on the sort of provision of infrastructure, which was what was required at that particular time, have done a tremendous job.
In fact, the World Economic Forum says Canada has the best aviation infrastructure in the world. This is cyclical, however. The investments are typically made at airports in 40-year cycles. All airports were last invested in Canada in the 1960s prior to the airport authorities coming into play. Guess what, in the 2000s suddenly we need new infrastructure, and we have it.
The process that is making Canada uncompetitive is in a couple of areas. One, I believe, is that the structure we have has non-share capital corporations running the airports. This means that today, tomorrow and future users have to pay for the infrastructure as opposed to an investor that seeks a return. That is certainly one area.
The other area is a little more diabolical, and that goes to my comment about Canada using the industry today as a cash cow. I have had former members of Transport Canada, some of them now retired, say to me that only rich people fly, therefore we can do this. That is not the case. Aviation is critical to our success, and it is not just for rich people.
Senator Zimmer: I am not sure what flight you are on tomorrow, but I am flying in at 6:30 so I get to see that beautiful airport again. It was great to see you again. Thank you.
Senator Eggleton: I want to follow up on Senator Zimmer's question. You talked about Grand Forks and all the people going over there, the loss of jobs and everything. It is happening all over the country where we are near the U.S. border. In Toronto, or around the Niagara region, people are shuffling off to Buffalo to get flights at ridiculously low prices compared to what they would pay here.
What is the solution to this, or what are some possible solutions to this?
Mr. Rempel: I do not believe, Senator Eggleton, that there is one problem causing this. I think there are a number of issues.
You look around Canada today, and I would argue that we actually do not have a low-cost carrier in the country. Why is that? We have them in Europe and all over the United States. It is because, in those jurisdictions, I believe we have opened the regulatory environment and the environment for investment. In Europe you can be an Italian carrier owned by the British; it does not matter. That has opened up access to capital and has opened up, along with the regulatory environment, options for any carrier, and any community to seek a carrier to serve them. It has really enhanced competition in those markets, something that we are not seeing to the same extent in Canada. We have just simply followed a different model.
I think many people are suggesting we should be looking towards the Australian model to see what that would have accomplished in our country. I am not as familiar with that model as I would like to be, but I understand that the communities are getting far better services today than what they were previously, although the ownership may not necessarily be an Australian company.
Senator Eggleton: Is volume not also a problem? We have a sparse population in this country, and in the United States they have the volumes that create the competition that keeps the prices down.
Mr. Rempel: Certainly, when compared to the United States, that is absolutely true. The United States has also chosen a different model, which is why I believe they have more success on the airport side. In the United States the government funds airports primarily, various levels of government, whether it is the navigation system, it depends what it is. They have chosen a different model. In many respects it appears to me they view the entire aviation supply chain as being critical infrastructure that requires that sort of investment for the country to be competitive.
We have chosen a user-based model. That is why I really look more to the Australian model as an example. They have sparse populations and huge distances, similar to us. They even have small towns very much based on mining and those sorts of things and very similar to ours. That is probably a better model for us to take a look at.
Senator Greene: I am interested in the area of airport rents, ground rents in particular. Some of the research we have been doing indicates that ground rents are a percentage of revenues, such that there is a null levy virtually on the first $5 million of gross revenue, 1 per cent on the next 5 million, 5 per cent on the next $15 million, all the way up to 12 per cent on any amount over $250 million. I wonder if you could comment on that. That does not sound like a rent; it sounds more like a commission. Could you explain to me whether that scale is unique to Winnipeg, or if all airports face that or something similar? How did that come about, and what is the impact of that kind of scale on your operating plans?
Mr. Rempel: That is a very good question. I had never heard it referred to as a commission, but that is very close to what it is. There are a number of things that I find problematic with the rent structure we have today. First, it does treat every airport as absolutely equal. The state of the various facilities and the value of the facilities that were turned over to airport authorities were incredibly different by airport. In one sense, I do not see that as a particularly fair way of doing things.
I will come back to your comment on commission because that is insightful. The issue with rent today is that it is indeed on all revenue that the airport authorities bring in. Just think about this for a moment: Because we are non- share capital corporations, we have no equity partners that would invest in whatever facility and just take a return. The return today all goes to the banks because it is debt.
When you have debt in that way and no other option, you actually, because of the rent formula, have to take more debt than what it would actually cost you to build. In our case, you have to pay the extra 8 per cent because everything is deemed revenue.
My personal view is that we should be paying rent on the assets that were transferred and the value thereof, at most, because that would be, I think, the basis of taxpayers' expectations. Instead, it has become a revenue generator on the basis of whatever revenue we can find. The more our debt, the more we have to bring in in revenue and the greater our rent.
It gets even deeper, and it is kind of a complicated formula, as you have alluded to. In the case of the Winnipeg Airports Authority, the carriers pay about 83 per cent of what it costs us to provide just the runways and those sorts of things. We have to maintain that because we have a policy to ensure that our rates and charges do not get out of line with those of other airports. That is a good policy. It is a competitiveness issue for us because we want our community to be treated as equals with others.
That means, however, that we have to find other ways of making money — a dividend or some other way — to make up for what is not paid for in our rates and charges. We have been very successful in Winnipeg at doing that. However, because we invest in these other companies — we have a couple of them and they are fully taxable corporations — when their revenue gets consolidated into the corporation's revenue, after they have already paid tax, we have to pay an additional 8 per cent because of the rent formula. These are things that just ought not to be in the way our return to government for a transferred asset is structured.
Senator Mercer: Thank you for being here, Mr. Rempel. Talking about the Australia model, they have a sparse population and huge landmass, but they also do not live next door to a country with 10 times the population. I am not sure that the comparison works as well.
You said 180,000 people a year are going to Grand Forks? That is your estimate?
Mr. Rempel: That was in the previous year, yes.
Senator Mercer: The obvious reasons that they are going to Grand Forks is that it is an easy drive and the price is lower. How do we address this? You talk about the cost of policing and security of $2.2 million payable to the City of Winnipeg, property taxes of $1.8 million, payroll taxes of $250,000, and Transport Canada rent of $5.9 million, but then you made a very interesting argument — one that is worth pursuing as we proceed with this study — that other modes of transportation do not have the same levies against them. If you operate a bus service or a transport service by road, you do not have to pay the kinds of fees that we do at an airport. The government builds the roads for truckers, and, similar to rail, trucking does not have the same kinds of levies.
How do we get around this? It has always puzzled me that the airport has to pay for policing. Other entities — other businesses in a community — that operate in downtown Halifax or Winnipeg, pay for their policing through their taxes.
Mr. Rempel: That is correct.
Senator Mercer: You have to pay separately for your policing. I find that curious. If you were able to remove some of those things, how do you then pass that savings on to the traveller? You now have a large debt that you have amortized over I do not know how many years. It would seem to me that, if tomorrow we could make a lot of these things go away, you would still have the debt to service. One of our objectives is to ensure that the passengers are getting the best deal possible. How do we do that?
Mr. Rempel: That is a great question. I look at these things and say, "Where is the charge going to pay that back? " You mentioned AIF as one of the issues, and also the fact that we have a large debt.
In our case, our airport improvement fee is entirely dedicated to paying off the debt on the new building. As a sidebar, you raised the matter of things not being treated equitably. About 30 per cent of the leasable space in our new terminal building, which is about a $600-million project, is given to free space for various government departments. Probably the best example would be Canada Border Services Agency, CBSA. We have a great relationship with CBSA, but CBSA pays for its own facilities at the road border. We have to provide it all free, including the electronics and everything behind it in the building. It is a reflection of the leases that were signed.
We are a non-share capital corporation. As our costs go down, those same benefits are passed back directly to whoever is paying for them. In our case, if it happens to be a reduction in cost in the terminal building, we take the entire cost of the terminal building, at the end of each year, and divide it equally between the carriers, on the basis upon which they use them. In our case, it is based on the number of seats departed. That is all sent back, gone over with the carriers, and that becomes the charge for the next year.
If we were getting rent on some of that 30 per cent space, as an example, that would be a direct offset to the carrier, and their charges would be directly reduced by that amount.
Senator Mercer: You talk about the Canada Border Services Agency. You are right that at border crossings that are on public crossings, on bridges and roads, CBSA has to pay for it.
The only private border crossing that I am aware of in the country is the busiest, the Ambassador Bridge in Windsor. I know from previous testimony before this committee that they also had to pay for the facilities that the CBSA occupies on a privately owned bridge. That is an aside.
It seems to me that airports across the country need to come up with a united plan so we are not just talking about Winnipeg, Toronto, Halifax, Montreal or Vancouver. We need to analyze the impact nationally. I keep feeling we are getting pieces of the pie, but no one has given us the whole story. I think the whole story is pretty dramatic when we add all of it together, if we break it down by regions how much the airports in St. John's and Gander and Deer Lake are costing in comparison to Halifax, Charlottetown and so on across the country.
It must be done in a way that goes back to reflecting on the ticket price to the consumer. You are right, it is not rich people who fly, it is people who need to get from one place to another who fly. Many of those people are not wealthy, certainly not in my neighbourhood.
How do we get that together collectively, not just at the Richardson airport but all the airports across the country?
Mr. Rempel: I agree with what you are saying. I would probably come back to my comment and say fees and charges, and the rates that are being charged in the aviation industry over all is something that the aviation industry, the hotels associations, the chambers of commerce across the country are all united on. This is not just about the airports in this context.
We have come together as an industry — not airlines, not airports but as an industry — in the last number of years to say we have a problem facing us. If we want to be a leader in a globally competitive environment, we need to do something differently.
You are absolutely right; the days of who could fly are long behind us in terms of a person's wealth. Nuclear families are spread across the globe today, not just across the country. We need to find a way to get our industry, Canadian industry, into a globally competitive environment.
We have to start in places that we can address right now. Some of those are around some of the taxes that I mentioned. We need to be thinking about the industry as an enabler.
Senator Mercer: I think we also need to say, if government were to remove some of these impediments, these taxes or levies, then government has to look at it from the other side as well: We are now missing this revenue. We need to be able to prove that by doing that those 880,000 people going to Grand Forks will now come to Winnipeg, and what that generates in terms of taxation through salaries and income taxes paid by the employees and all the revenue that spins off of that, and that the price will come down to the consumer.
Mr. Rempel: If we were able, at Richardson International, to provide the competitive pricing to — and I will name the carrier out of Grand Forks — Allegiant Air, a low-cost carrier, they would unequivocally, in my mind, rather fly into our airport if the price were right. We have to be competitive with what is going on. It is not just the United States; this is globally.
Canada's tourism sector is suffering relative to other countries, and has been for some years now.
The Chair: We will have the Minister of State for Tourism after you in a few minutes. We have about five or seven minutes left.
Senator Merchant: Perhaps I could put my question to you. First of all, I am from Regina, and I wish we could fly through Winnipeg all the time. I know that the times to make the connection to Ottawa or other places do not always jibe.
I noticed in the news the other day that yours will now be an airport where we can use our NEXUS cards. I am not sure whether that is a good thing or a bad thing for you. I know it makes the waiting line for me a little shorter, but I do not think it makes the process any quicker. Does that cost you some money? When you put in the full-body scanner was that a cost that you had to bear, and do you pass that on to the customer?
Mr. Rempel: When it comes to specific equipment type we work closely with CATSA, the Canadian Air Transport Security Authority. Some of the specific equipment they pay for, and we have to supply the infrastructure to make that all happen. That is roughly the way it is divided.
The NEXUS line, I believe, is actually an initiative that does speed processing. The NEXUS line takes people who are very familiar with travel out of the line where there are people who travel one or perhaps two times per year, and it moves them much more quickly.
Our experience in Winnipeg is the NEXUS line has helped get people through more quickly, and the good news there is that everybody benefits, even people who fly only one or two times a year and who do not go through that line because they get a chance with fewer people in line.
I appreciate your comment; we would love to have you come through Winnipeg more often. This did raise for me a moment of thought. That is something that we have not addressed in talking about how we fix things. That is our whole bilateral regime in Canada.
One of the reasons you cannot connect in Winnipeg as conveniently as you might like is that our bilaterals still today are not open skies in the true sense. I will use the Philippines as an example, because we have a very large Filipino community in Manitoba. Philippine Airlines is precluded from flying into Winnipeg because the bilaterals only allow them to fly to Vancouver or Toronto. If communities were freed to operate in a true open-skies environment, then the airport with the best and most convenient connection for you and the one that made you feel you were an important part of being there would be the place you would choose to go. Today we cannot do that.
The Chair: I have three more senators. Since the minister is waiting, I will ask them if they could ask the questions and Mr. Rempel if you could answer all three of them at the same time at the end.
Senator Greene: I have one question to follow up on my previous question on rents. I wonder if you could estimate for us, and if you cannot do it here I wonder if you could submit something, what you would have been paying under a traditional transfer of assets, versus what you are paying now according to the scale that we see.
Senator Doyle: I would like you to comment on part of your presentation here, which talked about the hidden cost of government through the requirement for airports to provide federal infrastructure in facilities at no cost to the government. Does government provide any of these capital costs to you in your facilities?
Senator Zimmer: This is a bit of a softball question, but if there is anything we could change or you could do, what is your major priority that would make your life even better in Winnipeg?
Mr. Rempel: First, to Senator Greene's question, I cannot give you a number at the moment, but I am happy to calculate that. I can tell you that the book value of the assets at the time of transfer were under $1 million, and we pay more than that every year in rent, but I will get you more information on that.
To Senator Doyle on the hidden cost of government, none of the capital costs are covered by any level of government. We receive no funding in any manner from any level of government for this.
There is one potential exception that I should highlight. I believe Quebec City airport and Halifax airport received some money under the federal infrastructure funding program that had nothing directly to do with their normal operations. It had to do, in Halifax's case, with being part of an Atlantic gateway and wanting to move things forward.
I am pleased for them. I am disappointed, however, in the same vein, because Winnipeg had applied under the infrastructure program for something for an inland port and was turned down because it was an airport authority, and we are not allowed to get any money from government.
I will look more closely at it and speak to Tom Ruth in Halifax to find out how that occurred. In Winnipeg's case, no dollars at any level.
The one thing that probably would have changed that is if we had a different model that allowed for equity partnership; the equity partner would have covered the cost of the facility, whatever it was, in a joint venture with us, for example. Instead of the requirement for an AIF, now, to get all that money back, we would have just been paying the value of the investment over time.
I think, Senator Zimmer, if I had one thing that would make life easier, I would have to go back to my plea at the end of my opening remarks, and that is, free the industry to do what is necessary for the customers, and let us focus on the customers' needs. Let us ensure customers get what they need, and they need connectivity, both locally and globally. That means a whole bunch of things behind that, and there are many implications to that comment, but I think that would probably take us forward into the new millennium and, more importantly, to have Canada become a true leader.
Use our advantage of geography sitting next to the largest market in the world. Let us find a way to free up the industry to meet the needs of the consumer and the things that follow with that.
The Chair: Mr. Rempel, thank you very much. I know you have been following our debates in the past. First of all, you have some answers that you would like to submit to the clerk. If along the way you see or follow this committee and you have comments on what has been said and you think that the information should be given to us, feel free to pass it on to us, and we will take it into consideration when we get to the report stage. Thank you very much.
For members, we will wait for the minister to come to the table,
[Translation]
During the second half of our meeting, we will have the pleasure of hearing from Industry Canada, represented by the Honourable Maxime Bernier, Minister of State, Small Business and Tourism, as well as Marie-Josée Thivierge, Assistant Deputy Minister, Small Business, Tourism and Marketplace Services.
Welcome. I would like to thank you for taking the time to come here in order to discuss the department's outlook, initiatives and concerns related to the airline industry.
[English]
We will begin with your opening remarks and then move to questions from members of the committee.
[Translation]
Hon. Maxime Bernier, P.C., M.P., Minister of State, Small Business and Tourism: I am very pleased to be here with you and would like to thank you for the invitation. I understand where you are going with your study and my testimony may have a minor impact on it since I am, as you know, the Minister of State for Small Business and Tourism. Indeed, the tourism sector does include airports, and from what I can gather, your primary concern is that Canadian airports be as competitive as possible.
This is a matter that comes more under the jurisdiction of my colleague Denis Lebel, Minister of Transportation; however I will be able to answer your questions once I obtain the information, otherwise I will ask Minister Lebel to address the issues. I intend to provide you with a more comprehensive portrait of the tourism sector and its impact on the Canadian economy.
Last October our government launched a tourism strategy. This is the first time in the history of the Government of Canada that we have developed a national tourism strategy. This strategy has been approved by all stakeholders. It is now up to us, the government, to implement it. This strategy comprises several components including a significant one, which may be of the greatest interest to you, namely, access, which means ensuring that more foreign visitors are able to travel to Canada.
The Minister of State for Small Business and Tourism works with the Canadian Tourism Commission to promote Canada abroad. The Canadian Tourism Commission has a budget that it manages independently, in consultation with the sector, and it chooses niche markets to promote our country. Under its current strategic plan, over the next few months the commission is going to be advertising more aggressively in emerging countries such as Brazil, China or India, but without neglecting traditional markets such as the United States or England.
The commission works with the tourism industry to promote Canada. A few months ago, I had an opportunity to go on tour with the commission for the first time. We travelled to China and South Korea. I was able to participate in some round tables with stakeholders from the local tourist sector. People from India were with us, as well as people from the Chinese and South Korean tourism sector.
They talked to us about the problem they are experiencing and their desire to ensure that more visitors can come to Canada.
The first problem is that, for some countries, Canada requires those individuals to obtain visas.
If a Brazilian wants to come to Canada, he or she must obtain a visa under a particular process. In cooperation with Jason Kenney, the Minister of Immigration, we are currently working on implementing a system to ensure a more effective and productive processing of visas.
For approximately the past year, you are no doubt aware that Canada has been a tourist destination approved by the Chinese government. Chinese nationals who want to travel in groups to Canada no longer need an exit permit but only our visa.
Our Prime Minister is currently in China to launch a new advertising campaign by the Canada Tourism Commission. The population of China is impressive and many visitors come to Canada, not only to Vancouver, but also to Toronto and the Quebec City region, among others. Consequently, we are working to promote our country. Furthermore, Minister Kenney announced recently, with regard to our national tourism strategy, the creation of new visa processing centres. If my memory serves me, our target is 150 visa offices in the countries targeted by the Canadian Tourism Commission. We currently have 60 of them. So, within the next few years, we will more than double the number of offices to attract new visitors to our country.
That said, we need to examine airport costs. In Canada, airport funding has been privatized. This is based on the user-pay principle. I raise my hat to the Liberal minister of the time who implemented that principle. I am using the term "privatized ", but these are independent boards of administration, that pay rent to the government to use the lands and their location. Also, the air control system has been privatized. So we are in an extremely different situation from the United States and various European countries that subsidize their airports with public funds, whereas we, on the other hand, ask private enterprises to be self-sufficient. When this principle was launched, the federal government was in a period of budgetary constraint and did not have the means to invest in infrastructure; therefore, it privatized and gave people who know better than a public servant in Ottawa the opportunity to operate an airport in Montreal, Toronto or Vancouver. It gave them the means to take responsibility.
In 2005, the government changed its rent collection model in order to decrease costs. The federal government collects approximately $250 million in rent from all airports across Canada. This represents approximately 1 per cent of the cost of airline tickets. This has an impact on the cost of plane tickets and on airports' ability to compete, although this is marginal. That is why I want to draw the attention of the government and the Minister of Transport to the recommendations that you will make.
I want to tell you that I am extremely proud to be a federal minister and to promote our country. People want to come to visit Canada. Furthermore, our brand, Keep Exploring Canada, was considered the best by a well-known independent group in the tourism industry called Future Brand. Canada's credibility abroad is not in doubt. Foreigners want to come to Canada and want to get to know our country. Why? For our natural resources, of course, but also due to the reputation of Canadians.
I am very proud to be Canadian, because we have a good reputation. Canadians are welcoming. The country has a great deal to offer. It is easy for me to promote Canada and Canadians. Canada has a well-known brand and all we need to do is advertise in countries that do not know us well to make all those people want to come and see our country.
In conclusion, I would like to give you some data on our tourism industry. Tourism accounted for $73.4 billion in revenue in 2006 and represents approximately 2 per cent of Canada's GDP. This is significant. International tourism accounted for $14.4 billion, approximately 23 per cent of Canada's international trade in services. Canada received approximately 24 million international travellers. Nearly 30 per cent of them arrived by air, over 60 per cent by land, and a little over 4 per cent by sea. Your study on airports is thus all the more important, since 30 per cent of foreigners coming to Canada arrive by plane.
Since we signed the agreement with the Chinese government to approve Canada as a destination, last year, arrivals by Chinese tourists increased by 24 per cent.
The industry is in good shape, but remains a challenge nevertheless. One of these challenges at present is the strength of the Canadian dollar. This situation means that fewer Americans want to come and visit us now than in the past. However, I am confident that entrepreneurs in our tourism industry will turn the situation around, and I am certain that the past will guarantee the future of this industry.
Thank you very much, Mr. Chair. I am now ready to respond to any questions.
The Chair: Thank you very much, Mr. Minister.
[English]
Senator Mercer: Welcome, minister. We appreciate your coming and we appreciate the fact that you are promoting tourism across the world. Being from Canada's ocean playground, I am anxious for more tourists to come and visit us in Nova Scotia.
This evening, we heard from Barry Rempel, President and CEO of the Winnipeg Airports Authority. You talked about your discussions with the Minister of Immigration and with the Prime Minister with respect to coordinating our efforts to maximize the return of getting people to come to visit us.
Mr. Rempel brought up an interesting problem, which is immediate because we just talked about it, but we could find other communities across the country that fit the same bill.
There is a large, vibrant and important Filipino community that participates in the Manitoba and the Winnipeg economies. The Philippine Airlines is allowed to fly only to Toronto or Vancouver. I would suggest that the Filipino community is more important in Winnipeg than in many other cities across the country.
Similarly, we all know the public fight about the United Arab Emirates and their interest in getting more frequent landing rights in Canada.
If we are to help tourism, we should be moving these restrictions out of the way. It is a phony story from Air Canada to tell us they are trying to protect the market. They are not servicing the market. They are forcing inconvenience on people who want to come to Canada and spend money here. They are forcing them to go through an airport that they do not want to go through. There is nothing wrong with Vancouver, but they do not want to go to Vancouver. They want to go to Winnipeg. We should make it easy for them to get to Winnipeg so that they get there, spend as much money as they can, and help us.
[Translation]
Mr. Bernier: You know that the priority is to negotiate open skies and blue sky agreements. This is a priority for the Minister of Transport. A number of countries are covered. You are correct in saying that it would be important to ensure that airlines, who want to do business in Canada, can come here. This is a priority. This was done with Brazil, where the government recently signed an economic freedom agreement, and this will be done with other countries.
With regard to the specific case of the Philippines, you are informing me of the situation today, and I can assure you that your concern will be referred to the Minister of Transport.
I would also like to tell you that, in 2006, blue sky policies covered 60 countries. There are still other countries that need to be covered. I believe in competition. I am in politics to ensure economic freedom, and competition is healthy.
You referred to Air Canada. Air Canada is a private company that must operate and be competitive like any other company. Personally, I have no preference for an airline; the important thing is that we can ensure the best possible services within Canada. The best way to do this and to ensure competition is through the signing of agreements. These blue sky policies usually give airlines the possibility to come and land in Toronto, Montreal or Vancouver. Under these agreements, typically, the number of flights that a company may make in Canada or vice versa are mentioned.
The challenge that we have is to sign even more agreements with more countries to bring more carriers who want to come to Canada. If they want to come, there will be more tourism and more business people and this is good news for the country. It is a challenge that we face and we are prepared to meet that challenge.
Thank you for your specific concern regarding the Philippines. I am going to share this case with the Minister of Transport so that he is well aware of it. I imagine that this may perhaps be among the recommendations in the report that you will table within the next few months.
Senator Boisvenu: Minister, congratulations on the brochure, it is of extremely high quality. I read it the way kids do, in that I first looked at the pictures. It really makes one want to revisit one's country; it is really a magnificent country.
In looking at the pictures, I read some figures. It states that 83 per cent of tourists come to Canada by air. This represents 95 per cent of air carriers' revenues. This is almost astronomical. Was the airline industry consulted regarding your strategy?
Mr. Bernier: Industry was consulted. When we made our strategy public, the industry told us that many improvements still needed to be made in Canada: visas, airport competitiveness, the need for greater access to our country, among other things. However, we do not have an answer to all these problems. We told the industry that we would create a forum. Tourism affects a number of departments, including Transport, Finance, and Citizenship and Immigration. We created a round table with the assistant deputy ministers and members of the tourism industry. The latter are happy with this. For the first time, we told them, "All the assistant deputy ministers with responsibility in the area of tourism will come before you and you will be able to ask them questions. "
I had a first meeting with these people last week, if my memory serves me, and the process has begun. It is going extremely well. Another thing the industry likes is that we said that we would make our plan of action public. So this forces politicians and public servants to find solutions to the industry's concerns. The tabling of our first annual report on our strategic plan is scheduled for 2013, unless I am mistaken. If consultations were held over a year, and if we found solutions and we present them in the report, clearly we will have the support of the tourism industry. However this puts pressure on colleagues around the table; healthy pressure, and one that will allow us to respond to the concerns of the tourism industry.
One of the responses is to ensure that more Canadians are able to come here since the tourism industry is an export industry. What I mean is that that money is coming here from abroad, which is good for the Canadian economy. We will work together to ensure that we can resolve the problems that they have been telling us about for several months now.
Senator Boisvenu: And which they have no doubt put before us here.
Mr. Bernier: Yes.
Senator Boisvenu: Another very recent, very hot file, and we must congratulate Prime Minister Harper on this, is the agreement with China; the openness that Canada has shown with regard to tourism from China. We are talking about a 50 per cent increase by 2015. That is enormous when we look at the size of China. I am doing a rough calculation that if we attract 0.01 per cent of the population of China, that equals 150,000 more tourists.
Will it force Canada to reach specific agreements to open up the territory to Chinese airlines?
Mr. Bernier: Good question. You are correct in saying that Chinese tourists who come here do not stay for just one or two days. They spend a lot of money when they come. Typically, they will want to visit all of Canada and tourist agents tell them that it might be a good idea to spend a lot of time in the Vancouver region, but that there are other places to see. Typically, these visitors don't stay in one region, they will travel and spend money. Ninety per cent of companies working in the tourism industry are small and medium-sized businesses. It is extremely healthy that we have so many, and these individuals from China spend a lot of money.
Canada has increased the number of flights to Canada. I was in Vancouver last September for the inaugural flight of a Chinese company that will provide service to Vancouver once a week on a regular basis. They are talking about going to Toronto. Yes, we are open and we are currently negotiating with the Chinese government to ensure that companies can provide service to major cities in China as well as major cities in Canada. We are open to more agreements with Chinese airlines. Furthermore, the capacity is not yet maxed out. When I talk about capacity, I mean that these companies can come to Toronto or Vancouver, but they haven't yet developed that possibility.
I think that, in the future, given that there will be increasing numbers of tourists from China, more Chinese airlines will provide service to Canada. The statistics you mentioned are in fact our predictions, and I think that they will become a reality.
Senator Boisvenu: The Chinese travel by train a great deal. There is the Paris-Beijing line, a rail line well-loved by the Europeans. I understand that you are not the Minister of Transport, but will you have a specific strategy to develop Via Rail services? Via provides service from coast to coast and it can represent a wonderful product, in my opinion, for Chinese tourists.
Mr. Bernier: That is a good point. As you have just said, this falls rather under the jurisdiction of Mr. Lebel, Minister of Transport. I know that VIA Rail provides Parliament with an annual report. I cannot remember their corporate priorities. But we want to ensure better service between major corridors such as Toronto-Montreal, and Montreal-Ottawa. This means that if service is better, it can also be used by tourists.
In order to specifically answer your question, I will undertake to get that information from Mr. Lebel.
Senator Merchant: Good evening, Mr. Minister, I apologize, I will be speaking to you in English because it is much easier for me to do so.
Mr. Bernier: But your French is excellent.
Senator Merchant: I understand French very well, but I don't speak it nearly well enough.
[English]
We have heard so many times during our study about the bleeding of passengers to American airports. I am wondering if there is something that the federal government can do to ameliorate or improve this problem.
[Translation]
Mr. Bernier: Yes, you are correct, it is true that people take the plane to Burlington, near Montreal, instead of to Montreal. We must ensure that airports are competitive. This is a challenge for airport managers in Canada.
As I explained earlier, the Department of Transportation policy on airports is one of no direct subsidies, but rather a policy based on the user-pay principle. This means that these companies must be able to grow themselves. Only Toronto and Montreal are able to spend a lot of money on runways, renovations and terminals. Unlike in other countries, this money does not come from government subsidies but rather private sector capital. There are interest fees, fees to be able to make these improvements, and they are passed on to the user. You are correct in saying that, ultimately, the individual must pay those fees and those fees become part of the cost of the ticket. This can mean that ticket prices are somewhat less competitive.
Regarding our control as a government, it is the airport rent I was talking about earlier, the fees for the security of air travellers, the fees people pay in their plane ticket for all the security systems in airports, the GST or the harmonized sales tax, and the federal excise tax on fuel. That directly affects the federal government; it is where we have a role to play.
Since September 11, 2011, the demand for security measures has increased. Security costs have increased and the government has implemented certain solutions. The Canadian Air Transport Security Authority was created after September 2011. Security fees for passengers have increased, but that allows us to have very highly-rated airports. If I remember correctly, Toronto and Vancouver won prizes last year and the year before for being the best-managed airports.
The amount paid for airport rent in 2010 was equivalent to $2.50 per passenger. To pay the fees that the federal government charges for rent, it is $2.50 per passenger. It is nothing new that Canadian airports must be competitive. In 2005, a review was started to look into this rent. This review allowed for a decrease in the rent paid by all airports in Canada from $13 billion to $5 billion over a longer period. You know these are long-term leases we sign with the airports. The government took action to decrease the cost of the rent. The rent does not go to the Department of Transport, but rather directly into the consolidated fund of the Government of Canada, the government's general fund. The direct way to lower and to help airports lower their costs would be to lower the rent and taxes, but these taxes also apply to all other industrial sectors, not only the airport or transport sector.
Currently, the Minister of Transport, along with all partners, municipalities and airport representatives, is looking at the big picture of how to be competitive in Canada not only for the air industry, but also for rail transport, bus transport, et cetera. It is a consultation because it is a municipal, provincial and federal jurisdiction, so we want to have everyone around the table. That is the goal. In the report you submit, there will surely be good ideas on how to improve the competitiveness of airports while keeping in mind that airports must continue with the same user-fee system. This system is proven, works well and allows us to believe in the managers of these airports. They have had to invest a lot recently, but it can be absorbed over a number of years. The industry and its airports should be more competitive in the future.
To correct what I said earlier, it was Ottawa that won first prize for North American airports and Halifax placed third. We can be proud of our airports and their managers.
Senator Verner: Good evening, Mr. Minister, and thank you for joining us tonight. I would like to talk more about tourism. My colleague, Senator Boisvenu, is right that it is a very nice brochure. It makes you want to travel the country, that is for sure.
On page 19 of your document, you observe that access and travel for tourists throughout the country is a very important criterion in a tourism strategy. I also understand that 83 per cent of visitors who come from outside the United States arrive by plane. In short, there are figures, and air travel is an important part of a tourism strategy.
I also understand that there have been consultations with the main players in the transportation industry. Have you consulted Canadian and foreign tourists, those who use air travel and those who engage in the tourism we dearly need, when you prepared this strategy? Is there a way to consult these tourists to know how they find our air travel when they come here?
Mr. Bernier: It was the responsibility of the Canadian Tourism Commission. When the Canadian Tourism Commission prepares its strategic plan to set out the amount of money it will spend in target markets, it does so with consultation groups. It takes care of looking at why people want to come visit Canada. They want to come visit Canada for the physical beauty of the country, but also for the tourism experiences. A few months ago, the commission launched its contest for Quebec and other Canadian small entrepreneurs, so that those who have an experience to offer abroad can do it through the Canadian Tourism Commission. If someone wants to go horseback riding in the Rockies, for example, there are small companies, small family businesses that offer packages with two or three days of riding with camping and everything. It is the type of experience that people want to have to explore Canada.
When the Canadian Tourism Commission promotes or advertises Canada, it also promotes and advertises these small businesses that offer different experiences, whether it is rafting in the Quebec City area or others. These people have an international showcase thanks to the Canadian Tourism Commission.
When I was in China, people told me that they wanted to explore Canada's beauty and have experiences. We know that because of studies by the Canadian Tourism Commission.
To answer your question, before preparing the strategic plan, we try to see what people are looking for. We know they are looking for beautiful scenery and new experiences. After that, the commission, along with the tourism industry, launched that collection of experiences that is on the commission's website and is used to promote Canada in different countries.
To date, this approach has been working. Canada's reputation, or the branding of the commission is: "Keep Exploring. " That is how the commission sells Canada, by using the slogan, "Keep Exploring. " God knows that there is a lot to explore in Canada. As Minister of Tourism, I visit a lot of tourist sites. I would like foreign visitors to be able to do so as well. With the commission, the marketing is good and things are going well.
Senator Boisvenu: A question occurred to me after the visit by the airport managers who came to present their complaints to us.
The American President announced a huge investment a few months ago. I am talking to you perhaps not as Minister of Tourism, but as a minister of the government of which I am a part. President Obama announced investments, through subsidies to airports, of $40 billion over the coming years to make the airports competitive. We know how much this initiative has hurt some airports in Canada, including those in Montreal and Toronto, given the proximity of American airports. Some airport managers, including Montreal's, told us that the big airports did not have access to government help to improve their equipment, whereas small airports have access to this government help.
Given that the majority of tourists come through the big airports, should the government not consider more economic support for the big airports so they can develop their infrastructure and be more competitive with their American rivals?
Mr. Bernier: You are right in saying that the American government and those of other countries in Europe subsidize their airports with staggering amounts.
We have not done that in several years for the big airports in Canada. That has not stopped them from modernizing. You are right in saying that under our economic stimulus program, which ended on March 31, 2011, amounts were allocated for small airports to lengthen or widen runways. These initiatives were taken in collaboration with the three levels of government. As you know, the program was shared with the municipality concerned — usually, these airports belong to small municipalities — with a third coming from the Government of Quebec and the other third from the Government of Canada.
Through the infrastructure stimulus plan to simulate the economy, which ended in 2011, it was possible for small airports to receive certain amounts. The national strategy of the Government of Canada for big airports is to not subsidize them directly, even though the Americans do. We do not want to start a subsidy war. We want to look at ways to lower costs with the industry. We did it with rent, as I said earlier. Other things like that could be done. I think the government will be willing to examine this committee's recommendations.
I met with the representatives of Canada's airports. Mr. Lebel also met with them. We are aware of the concerns they shared with you. These concerns are legitimate. However, in a context of budgetary restrictions, as you know, the budget must be balanced as soon as possible. The airports do not expect huge amounts to be allocated to them in the next budget as direct subsidies. They expect us to examine the model and ways to make them more competitive, and we are willing to do so, but without changing the actual basis of the Canadian model.
The Chair: Mr. Minister, I would like to thank you for your presence and your presentation. As you have seen, the members of the Senate Transport Committee are warm and welcoming. I would ask the minister, if he is available over the next weeks, to appear before our committee again. It would be a pleasure for us to have him again.
Mr. Bernier: I will take note of that. For my information, when will your committee finish its work?
The Chair: Our preliminary report on airports will be published in the coming months. However, a more comprehensive study on aviation in general may include the Far North and international competition. In the spring, a preliminary report will cover, among other things, the notion of airport governance and fees.
Mr. Bernier: By the spring, my colleague Mr. Lebel —
The Chair: We will certainly find time to have him, if he wishes. Minister, thank you once again.
[English]
I would like to remind our audience and honourable senators that our next meeting will be on the morning of Tuesday, February 28. We will hear from Mr. Garth Atkinson, President and Chief Executive Officer of the Calgary Airport Authority, and Mr. Larry Berg, President and CEO of the Vancouver Airport Authority.
(The committee adjourned.)