Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 7 - Evidence, March 13, 2012
OTTAWA, Tuesday, March 13, 2012
The Standing Senate Committee on Transport and Communications met this day, at 9:30 a.m., as part of its study on emerging issues related to the Canadian airline industry.
Senator Dennis Dawson (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I call to order this meeting of the Standing Senate Committee on Transport and Communications.
[English]
This morning, we are continuing our study on the Canadian airline industry.
We are pleased to welcome David Goldstein, President and Chief Executive Officer of the Tourism Industry Association of Canada, TIAC.
[Translation]
He is joined by Mr. Kevin Desjardins, Vice-President, Strategy and Public Affairs, and Ms. Adrienne Foster, Manager, Research and Policy.
[English]
Thank you for taking the time to talk to us, Mr. Goldstein. The floor is yours.
[Translation]
David Goldstein, President and Chief Executive Officer, Tourism Industry Association of Canada: Good morning, Mr. Chair and honourable senators. Thank you for the second opportunity to be part of your important study. As you know, the airline sector is extremely important for our industry.
[English]
The Tourism Industry Association of Canada is the only national organization that represents the full cross-section of the tourism and travel sector in Canada. Our members include those who are directly involved in the aviation sector, such as airlines and airports, but also include passenger rail, hotels, attractions, other modes of transportation, and destination marketing organizations.
This is, again, an important process for us. We appreciate the work that the committee has done in this study.
Since we appeared in the last Parliament, we have followed the proceedings closely. We know that you have had the opportunity to hear from many of our members and partners in Canada's tourism sector. We are coming to a clearer understanding, we hope, together with the committee, on what is happening with the aviation sector.
As such, and in order to spend as much time as possible on questions and answers this morning, I am hoping to be succinct.
Globally, tourism is the fourth fastest growing export sector in the world. It is an extraordinary economic opportunity for Canada. International travel is growing, and the competition for the traveller's dollar is evolving rapidly.
Within that context, let me make two essential points to underscore the importance of your study to Canada' s tourism sector.
First, our current air policy is woefully out-of-date. It is 15 years old and was created at a point in time when we had an open border with the United States and a 65-cent dollar. This is no longer the reality, and there are no indications that there will be any change in this reality anytime soon.
Second, Canada is increasingly a fly-to destination. All of the growth that we are seeing in arrivals is coming via air, even from the United States. The modest growth we are seeing in visits from the U.S. is entirely by aviation. The bottom line is that our outmoded aviation cost structure is choking off one of Canada's great economic opportunities. A coherent and cost-effective air transportation system is essential to our ability to grow the visitor economy and create jobs.
When we presented to this committee in the last Parliament, I made mention of our travel deficit, which is the difference between what we, as Canadians, spend outside of Canada versus what we take in. For 2009, that figure was $12.2 billion. Last month, we received new data from Statistics Canada for 2011, and we are now showing a travel deficit of $15.9 billion, or an increase of $1.6 billion, over that period.
Part of this is fueled by the remarkable growth of Canadian spending abroad, but our tourism receipts from travellers outside of Canada to Canada have stagnated over the past decade.
Why is the travel deficit so important? Because the goods and services are consumed here, it does not seem like an export sector, but it is. The international visitor who spends money on businesses in Canada has a meaningful impact on the economy and on revenue to the Crown.
Tourism demand is highly elastic. The higher the cost, the lower the demand. We know that for the majority of long- haul travellers the first point of purchasing contact that they have with a destination is their plane ticket. There is no place where the cost comparison between countries is so immediately evident to the traveller as the cost of airfare.
According to the World Economic Forum, our travel and tourism competitiveness ranking has fallen from fifth, in 2009, to ninth, in 2011. Our dismal scores on airline ticket taxes and airport charges, where we are 125 out of 139 countries, are the most significant contributors to this competitive challenge.
The aviation cost structure in Canada — what we refer to as the club sandwich of aviation taxes and fees — is having a negative impact on our ability to attract visitors. These include the fees visible to the consumer, including security and navigation user-fees added to their tickets. However, there are also fees that get buried in the cost of their seats, including Crown rents and excise taxes on jet fuel. These high taxes and fees are diverting overseas and American visitors away from Canada and toward more economical options. Moreover, we are increasingly seeing Canadians cross-border shopping for airline tickets. A recent survey showed that 15 per cent of Canadians have flown out of border airports like Buffalo, Plattsburgh, and Bellingham, to name a few.
Perhaps more importantly, this also means that low-cost carriers are choosing not to service Canadian airports. We know that Jet Blue has said publicly that they can service Canadian customers through their flights into Ogdensburg, Burlington, Buffalo and Bellingham. This practice ultimately erodes our load factors, leading to higher prices for both Canadians and potential visitors.
We have provided you, in today's presentation, with an ad from a Canadian trade paper in which Allegiant, another low-cost carrier, advertises their access to our market, without landing a plane on our soil.
What does it say about the state of our aviation sector when a destination like Orlando actively advertises that they want Canadians to visit, yet they know that they do not even need to fly to Canada to get us? The implications of what this means down the road are scary. Our airports are being rendered irrelevant. The Canadian Airports Council, I believe, is having a conference next week, in Toronto, entitled "Where is our missing airport?" Effectively, 15 per cent of Canadians, or the size of a mid-size airport in Canada, is being lost to the U.S. economy.
Not only are we stimulating travel to the U.S, but we are creating a barrier to growth for inbound tourism to Canada.
To that end, TIAC hopes that this committee will recommend a full review of the aviation cost structure, taking into consideration the negative impact of high taxes and fees on enticing visitors and encouraging domestic travel.
It bears noting that your colleagues in the other place, on the House of Commons Standing Committee on Finance, have also heard this issue and have also made a recommendation to that effect in their recent pre-budget consultation review.
Before I conclude, I want to quickly note that the government has done some fairly important work, since we last met, in supporting tourism.
The launch of the Federal Tourism Strategy, in October, was an important sign that the government sees tourism as a priority sector for the economy. Since the launch, we have already seen the government take tangible steps on a number of fronts, including the introduction of a new 10-year multi-entry visa for foreign visitors and the expansion of visa application centres that will help us to welcome visitors from emerging markets such as China, India, Brazil and Mexico. The government has also worked on easing leisure and business travel between Canada and the United States, through its action plan Perimeter Security and Economic Competitiveness, otherwise known as the Beyond the Borders Initiative.
All of these initiatives are appreciated by our members, and I hope they auger well for the future of our sector. This is where your study of the aviation cost structure is so vital. As I said, Canada is a fly-to destination. The future of our success depends on our ability to attract more international travellers who are coming by air.
Again, I am very pleased to be part of these proceedings, and I look forward to our conversation and discussions this morning.
Senator Zimmer: Thank you, Mr. Goldstein, for your presentation, and welcome. It is nice to see you.
I would imagine that the Canadian airline industry is important for tourism in Canada. How significantly important do you believe it is? Are the two industries working together? Do you feel there are any areas between the two industries that could be improved, and if so, what?
Mr. Goldstein: That is a good question, senator. Let me take it in two parts.
I think the entire aviation sector, not just the airlines but the airports and the service industries, has become far more intricately involved in the tourism sector. Far from being sort of a utility or a mover of people, we have seen them become extremely involved in the development of the Canadian tourism sector.
That has been a necessity for us because of the seismic shift we have had since 9/11. It is fair for us to discuss the elephant in the room, which is that Canada was largely a drive-to country before 9/11. We used to have 17 million U.S. overnight visits. We are now down to about 11.9 million. There has been a huge drop in visits to Canada. Where we make those visits back is from the U.S. and from emerging markets in Western Europe, from flight.
To answer your question, the aviation sector has been a big part of what has been a modest recovery in the tourism sector. Again, with hopes of modernizing the framework under which they are doing business, I think we have even greater opportunity to come.
Senator Zimmer: When you appeared before the committee before, you advocated in favour of a more equitable arrangement for airport rents. Can you elaborate on that briefly? What would that entail?
Mr. Goldstein: As I mentioned in our opening comments and as I have often mentioned, airport rents is a significant piece of the club sandwich of fees, taxes and levies. It is not particularly one issue but a layering of issues, and it bears note. This has been considered. For example, the British Columbia government, in their most recent provincial budget, repealed the aviation jet fuel charge, or surtax, which is just one of those layers. We are hoping Ontario will follow suit. Frankly, we are hoping the federal government will follow suit as well.
Rents are a significant piece because only two other countries in the world, Ecuador and Peru, charge airport rents. That is maybe a terrible bumper-sticker answer, but realistically, other jurisdictions have found another way to finance aviation cost structure so that they are more competitive than we are.
Senator Zimmer: Do you feel that more liberal air agreements with Asia and the United Emirate countries would increase the number of visitors to Canada from those regions?
Mr. Goldstein: That is a tough question. Thank you for that.
Let us start with who our customers are and where they are coming from. If we look at the United States, Western Europe and most of the emerging countries — Brazil, India and China — we actually have either totally liberalized or fairly liberalized air agreements with those countries, or we have unused slots from those countries. I will use India as an example.
Air India has several unused slots to Canada, to Vancouver and to Toronto. The biggest barrier is, frankly, the cost structure. Having more liberalized agreements is helpful. As you know, the Prime Minister just signed a liberalization agreement with Brazil last summer, which we have high hopes for because it is one of the fastest-growing outbound tourism markets in the hemisphere. However, air policy alone will not solve this issue. The cost structure that will bring competition to Canada from jurisdictions where we already have liberalized agreements is probably a bigger hindrance to our competitiveness right now.
Senator Eaton: Thank you for your interesting presentation.
We have been hearing a great deal about the lack of competition amongst Canadian airlines and with our open-sky policy.
I would like to take you to your presentation and, obviously, anecdotal evidence of seeing how other countries are developing their tourist brand. Taking the airline equation out of it, if you look at your graph, France has had a long history of a lot of tourism, obviously because of their cultural attractions and their history. You can look at all of these countries, many of them ahead of us — Turkey because of their climate and beaches; the U.K. because of their history, the queen's 60th birthday; Italy, obviously, again because of their history.
Say we deal with the airline problem in a significant way, or the minister does; we do not, but we recommend. Say the minister deals with the so-called airline problem. Obviously, being Canadian, we do not see the ads that you do abroad, the way we see Yucatan, Mexico: "Come and see our antiquities." We do not see what you are doing, other than airlines. How are you developing the Canadian brand abroad? Is it cultural? Is it landscape? How are we trying to sell ourselves?
Mr. Goldstein: That is an excellent question. There is a distinction. The Canadian Tourism Commission is the marketing agency for Canada, and does so in conjunction with many of our members, the provincial and local destination organizations. I actually do not think we have a brand problem.
Senator Eaton: What is our brand?
Mr. Goldstein: Our brand is several things: urban experiences next to nature; safety; I think our cultural diversity is extremely attractive, especially to emerging markets. If you are from Asia, for example, or from Southeast Asia, knowing that this is a fairly welcoming society and has a little piece of home here that you can —
Senator Eaton: Really? Is that why you travel, because the place is safe?
Mr. Goldstein: I think that in the minds of those consumers who have not travelled as extensively — remember that the biggest growth we are seeing in international travel now is from markets that, up until 10 or 15 years ago, they either could not afford to travel or they were not allowed to travel. For many of these consumers, this is their jumping- in point to North America or to the West. We are a fairly attractive destination for those reasons.
I would not want to speak on behalf of the Canadian Tourism Commission or places like Travel Alberta, who have done a tremendous amount of market research and specific and tailored campaigns, but I do not think we have a brand problem; I think we have an access problem. We have identified the real challenge. Marketing, access and product are the three biggest pieces.
Senator Eaton: I am sorry, but I can see that we have an access problem. However, if I am sitting in Hong Kong, France or the United States and I am thinking of where to spend my dollar, is the first thing on my mind safety and the second thing multiculturalism, or is it: What can I do that I cannot do at home? What would be fun for my children? How accessible is it when I get there? How easy is it to access those things? How good are their restaurants? What will I see or have that I cannot when I am at home?
This is why I am asking you this question. It is easy for tourism to blame airlines, when I think our problem is probably bigger than buying an airline ticket. All being equal, you are right; it is cost. However, not being equal?
Mr. Goldstein: All those things are true. We have to recognize that we are sitting right next to the United States, as a primary destination for global travel.
To address some of the issues you have raised, about a year ago, the Canadian Tourism Commission released what they called the Signature Experiences Collection campaign, which is a series of individual experiences — not companies — throughout Canada that will distinguish us from other destinations. I do not mean to gloss over that notion because long-haul, high-yield tourists are looking for experiences.
Senator Eaton: We all are when we travel.
Mr. Goldstein: Our concern is that we are number one when you poll people globally on their perception of the destination. For the last two years, we have been number one. We have always been in the top three or four. Unfortunately, when it comes to international arrivals, we are fifteenth. There is a conversion problem between the brand expectation and somewhere down the decision path to book that trip. That is where you get the access issues, whether it is difficulty getting a visa to come to Canada or something else.
Senator Eaton: For the U.S. it is difficult to get a visa. You could scratch the U.S. Why has the U.S. not fallen?
Mr. Goldstein: We have made significant progress in Canada over the last two years on both the granting of visas by getting rejection rates down. In the last few months, as part of the Federal Tourism Strategy, Minister Kenney has done a targeted job at ameliorating some of those issues. We are making competitive progress but not on the cost of the ticket to get here.
[Translation]
Senator Boisvenu: Thank you for your brief, which I would characterize as pessimistic. Do you really believe that Canadian tourism industry's offer is influenced by the value of the dollar?
Mr. Goldstein: The value of the dollar masks structural issues that arose before we were at parity with the U.S. dollar. The airline industry policy was created when the Canadian dollar was worth about US$0.65, and that changed the model benchmark of competitiveness.
The weakness of the Canadian dollar improved our country's competitiveness, but that only masked structural problems. Now that the dollar has become stronger, we are forced to look into those structural issues.
[English]
We have had a huge loss over the last year, but for most of that time we were under $1 parity model, we did not lose that much ground.
[Translation]
Senator Boisvenu: There are some very competitive countries in the area of tourism, including France. Since the euro was introduced, in 2002, tourism costs have increased considerably. However, despite that, France's tourism industry has remained at the head of the pack. I understand that the service offer structure is deficient and that the weakness of the dollar helped us a lot, even blinded us in terms of industry. However, despite the euro's strength, France never relinquished its top spot in tourism. Do they have a tourism-boosting strategy we lack?
[English]
Mr. Goldstein: Let me answer that in three parts. First, yes, they have had a strategy. Second, the currency has always been an issue, but not an overwhelming one; just one of the many issues. Third, as Senator Eaton outlined, they are sort of the gold standard when it comes to cultural product. They have a well-defined brand. The good news is that Canada does have a tourism strategy. We are addressing the issues that France, Germany and others have addressed. The currency will always be an issue one way or another, but it is one that we cannot impact. All we can do is ensure that public policy issues or structural issues that underlie the market are not being made worse by the potential swings in currency.
[Translation]
Senator Boisvenu: We are certainly noticing a decline in the tourism sector, but is that decline proportional to the investments made in the industry?
I have not seen any major investments in tourism, any major tourism projects, in Canada over the last ten years. Meanwhile, in France and in the U.S., major investments have been made in new-concept loss leaders. I understand that we can blame the government and the airline companies, but how much has the tourism industry itself invested over the past ten years into remaining competitive, as the automotive and manufacturing industries have done?
[English]
Mr. Goldstein: I would love to receive the assistance that the automobile industry received, but that is a facetious answer. The real answer is access to capital. Capital is portable and follows success. When investors see the types of numbers that we see, especially international investors —
Senator Boisvenu: They go away?
Mr. Goldstein: I do not mean to pick on a hotel company, but if you are Fairmont and you are building hotels around the world, you have to decide whether you will spend $50 million renovating your Canadian properties or $50 million in Malaysia or China. It is clear that the deployment of capital, unless we change the public policy circumstances, is better in those other markets. We are creating a self-fulfilling prophecy by creating a public policy and regulatory model that is not incenting the investment that we need to renew the product.
There are members of mine who are strong entrepreneurs bringing new product into the market. Senator Doyle and I were talking about some of those pieces that are happening in his province. The overall infrastructure requires an environment that makes capital attractive to Canada. That is what we are missing.
[Translation]
Senator Boisvenu: On page 8 of your document, you recommend a full review of the cost structure. Do you not think that initiative would downplay your industry's real problems? There is more to this issue than just cost structure. I do not think that reviewing the aviation industry's cost structure will fix all your problems. The industry has to make an effort, and so do the government and the airline companies, of course.
[English]
It is a huge problem.
Mr. Goldstein: Yes. We focused on this piece of the puzzle for this committee because of the nature of your study. The larger piece requires strengthening and marketing access and product. It is something that we have been working on with the minister and other various ministers. That plan is enunciated clearly in the Federal Tourism Strategy. Something senators may not appreciate but 15 different federal departments and agencies impact policy on our sector, such as Customs and Border Services Agency, Parks Canada and the Canada Revenue Agency as well as GST and HST. The importance of the Federal Tourism Strategy that has recently been presented by the government is to create a forum where all 15 departments are together at the same table so that, hopefully, we are not making policy in isolation any more.
You are right in that this is one piece or one piston, if you will, of the engine. I do not want senators to walk away from this table thinking that it is the only challenge we are facing.
[Translation]
The Chair: Thank you, Mr. Goldstein. I want to invite the committee members to participate in a tourism caucus that meets every other month, on average.
[English]
They are very interesting tourism caucus meetings that look at the overview. The minister responsible for tourism was a witness at the last meeting. I believe there is a meeting in two weeks. If members are interested, I can send you the information.
It is very important. They fall between the cracks because so many people are concerned with the industry and none of them have the unique capacity to help the industry.
Senator Eggleton: I joined this committee and its airline study only recently, but I understand you appeared here last year. Since then the Federal Tourism Strategy was published in October. How has the strategy changed? Is it addressing any of the issues that concern you about getting Canada back up the country list?
Mr. Goldstein: Even before the strategy was announced we started to see structural change in the federal government. The Prime Minister announced the framework for the Federal Tourism Strategy in 2009. There has been a convoy of ships leading up to the announcement.
As I mentioned earlier, our biggest challenge was getting the 15 departments and agencies to work together. There is no anti-tourism lobby. This is a fairly good news story and it impacts every riding across the country. Getting a whole- of-government approach instituted and having had two meetings of ADMs from across the government has been extremely helpful.
We have seen a cultural change at Immigration, for example. The visitor economy was not the primary issue facing Immigration Canada, but now those issues have jumped up the totem pole and there have been many progressive moves over the last year and a half on visitor visa application issues.
The best harbinger for the Federal Tourism Strategy, even before it was announced, was the two simultaneous announcements made last year when the Prime Minister went to Brazil. One was the air liberalization agreement and the other was the opening of visa centres.
Going back to marketing access and product, the Canadian Tourism Commission has started advertising in Brazil and started to drive demand, but it was hard to get visas and hard to find competitive airlift. It will take some time to get the competitive airlift now that we have a liberalized agreement, but the visa centres are extremely helpful. That is where we can see concrete examples of departments working together as part of the strategy, highlighting issues and cherry-picking the low-hanging fruit. Hopefully, some of the high-hanging fruit issues that are being discussed around this table will come to fruition in the next year or two.
In the months leading up to the announcement of the strategy and subsequently, we have seen some significant progress. To your colleague's point, there are still many issues that we need to address that go right across the federal government.
Senator Eggleton: This issue of the aviation cost structure and airport rents is yet to be addressed, but might be within that framework?
Mr. Goldstein: Yes, and, as I said earlier, your colleagues on the Finance Committee have recognized this as an issue. I believe the massive bleed of Canadians to U.S. airports is a demonstrable sign that there is a structural problem, and that is beginning to be addressed in public policy circles.
Senator Eggleton: Let me take your recommendation for a full review a step further. If a review concludes, as you have, that ground rents, which are not charged by too many countries, are a big cost factor that makes the industry non-competitive, what would the answer be? Would it be getting rid of the ground rents, capitalizing them over a period of time, as one airport has already suggested to us, or is it opening up the industry and allowing companies to come in from abroad and travel between Canadian cities, which would compete with Air Canada, WestJet and Porter?
Do you consider some options to be better than others?
Mr. Goldstein: Those are all options, but we have fairly liberalized agreements with the areas with which we do business: Western Europe, the U.S. and South America.
The best recent example I have is that about a year ago Virgin in the U.S. started flying L.A.-Toronto. That created competition and prices went down. Air Canada responded with more flights in the market, but Virgin discontinued that service because it was too expensive to land a plane. We are losing low-cost carrier opportunities in Canada because the landing structure is too expensive.
Senator Eggleton: A professor from the Rotman School of Management at the University of Toronto was here last week. He showed us some charts that illustrated that on additional taxes and security charges we are not that far off from those in the United States. The difference was the cost from the air transport companies into the ticket.
He could not break that down to determine how much of it is ground rent, which is where it would be. Do you have any better information? How much of this problem is ground rent?
Mr. Goldstein: Our issue is not only ground rent. Our issue is the layer upon layer of taxes and fees that get us to the cost of the ticket. If the treasury was flush and we decided to make this a competitive priority and waive all the taxes and fees, the difference would not be in the $7 or $8 decrease in a ticket, it would be in the incentive it would create for other carriers to fly here, to bring meaningful competition to the market, and therefore drive the real cost of tickets down. That is the disconnect right now. Carriers are stopping on the other side of the U.S. border for economic reasons. It is not because Bellingham is a beautiful airport. The only good news in this is that our airport infrastructure is ranked the highest in the world. The policy put in place 15 years ago did achieve that goal, but unfortunately the cost structure makes it prohibitive for competition to come to the marketplace.
We have seen this even on a limited basis within Canada. Using Newfoundland as an example, where you can create extra airlift you will drive competition. Now that WestJet and Porter are flying to St. John's there is beginning to be increased competition, as there is in northern Ontario with Porter flying to Sudbury and other places there. Competition creates lower prices. The question is how to incent more competition to come to Canada.
[Translation]
Senator Verner: On another note, I have with me a press release issued in 2010 by the National Travel and Tourism Coalition. You joined that coalition for a white paper that sets out a series of measures regarding international competition.
The backgrounder sets out a number of recommendations. Have you produced cost estimates for the various measures you are asking the government to implement? I am asking because our next budget will have to take into account considerable cuts and a fragile economic situation. Are there any monetary estimates for the many recommended measures?
Mr. Goldstein: I do not have that information with me, but I can send it to the committee.
[English]
Airport rents are effectively $300 million a year. We can outline the various input costs to the system. Some of them, we can change; some of them, we may not. Some of them are effectively a public policy issue of whether or not the federal government is prepared to participate in that activity or not.
The current policy basically moves all of the cost structure down to the end user or the consumer. Canada is the only G20 country that moves the entire security cost fee down to the consumer. In most other jurisdictions, the state sees that as part of the public good and therefore offsets some of that cost.
Effectively, that piece of cost structure or that public policy principle is what moves most of the cost structure down. It includes everything: our aviation navigation structure and the way NAVCAN is organized, which is a cost. I am not saying that NAVCAN is not doing a good job and that safety is not one of our primary responsibilities, but we have one of the highest cost structures for navigation in the world, and that all gets passed down through the airlines and airports to the consumer.
We will get back to the committee in writing with some of those cost elements. In the paper you are referring to, we did the analysis of what the costs were but also what the lost economic impact is to the Canadian economy because we are fifteenth in the world as opposed to being ninth, including the taxes. We did a fairly detailed analysis of the taxes lost to the federal treasury and provincial treasuries because of that loss of business.
[Translation]
Senator Verner: In a context where we should have options, what would be the two most important measures you would like to see implemented?
[English]
Mr. Goldstein: Within the aviation structure, or throughout the whole tourism piece?
Senator Verner: Yes.
Mr. Goldstein: Throughout the whole tourism piece, one of our two biggest challenges is that we are underfunding the Canadian Tourism Commission. We are twentieth in the world when it comes to our international marketing resources. To Senator Eaton's question, we are doing well given the money we are spending, but an under-sourced Canadian Tourism Commission and the marketing money is actually one of the biggest challenges. The second is the cost competitiveness issue. Within the aviation cost competitiveness issue, we would have to look at probably security fees and airport rents as the biggest chunk of that that goes directly to the consumer and goes directly to the ticket. I think everybody on this committee is familiar that even when you get a free ticket through Aeroplan, you have all those fees and taxes and your free ticket ends up being $150. That is the piece that we are trying to address.
Senator Eaton: You said first we have to work on our brand or vision, and I agree, and our marketing dollars, which is hugely important. Again, I am not trying to protect the airlines, because they are not as competitive as they should be, but yes, it is less expensive to fly to those countries, but those countries are more expensive once you get there. Having a breakfast in England is the price of dinner in Canada. We have to be very careful when we talk about the cost of access, because we know that once we get to those countries in the euro zone, they are certainly more expensive than this country
Mr. Goldstein: My board does not like it when I say this in public. When I decided to take my wife to Italy last year, I did not really care where the euro was trading. I wanted to take my wife to Italy. People make those decisions based on a series of factors.
Senator Eaton: You did not take your wife to Italy because the airports are wonderful or because it is safe.
Mr. Goldstein: No, but I will tell you an interesting story. This actually leads into more the competitive landscape that we live in. One of the reasons or decision points was the connectivity of flights. Ottawa airport right now has been working closely with Air Canada to create a daily flight to Frankfurt, which gives you many connection opportunities. As someone who lives in Ottawa, it gives you easy connection opportunities in Europe, which we did not have before. I would go to Montreal or Toronto or Plattsburgh or wherever.
In this world where, increasingly, the consumer is using online engines to book airfares or to book their flights, the algorithms used in those engines factor in connection times. It is creating a consumer path towards cheaper, faster and more convenient flights. If we are not aligning ourselves within those algorithms, and I was a political science major, not a math major, and if we are not seeing where the consumer path is, then that is where we are losing a lot of those consumers.
I am speaking at a conference in Nunavut next week, and Ms. Foster has been doing some analysis for me. For someone who is looking for a northern adventure, it is cheaper to go from Toronto to Reykjavík than it is to go to Nunavut. That is an airlift issue. I am not saying this piece would be the magic wand or the steel sword that eliminates all our challenges, but it is significant. Price is not the only thing that is significant.
Senator Merchant: I appreciate the last point that you made about connectivity because I live in Regina. When you fly from Toronto or Montreal, I do not think you appreciate the difference that it makes to someone coming from someplace like Regina or Saskatoon, because there is always the time that you spend at airports. Even to leave here on Thursday to go home to Regina, it does not matter what time I leave Ottawa because I cannot get a flight back to Regina until 10 o'clock at night. It means that I might have four or five hours at the airport. When you are travelling across the world, it makes a big difference.
We have touched this morning on the restructuring of the aviation industry. One thing that you mentioned is the competition for the price of the ticket, and the other was the restructuring of all the other fees that are added on to a ticket. I am wondering if you could pick some of the airports around the world that you think are good examples to make comparisons with Canadian airports. I am not sure if it is the airport in Hong Kong or Frankfurt or LAX or Pearson, but could you give us two or three different figures? One is the airport rents, because you mentioned that, and many other people have as well. I am wondering if we could have, first, the overall price per customer other than the price of the ticket itself to land at an airport, as a comparison. Second, perhaps we could have a different figure for the security piece, because we hear about security, but I am not exactly sure how that compares from airport to airport. Maybe, again, we could have the ground rents. If we are going to restructure, when we pool all these things together, we have to separate them to see where we can make changes.
Mr. Goldstein: I suspect it would be okay if we submitted some information to the committee in writing. I would just say that the other thing, and it is sort of a technical or nuanced piece, is that one size does not fit all. The challenges facing let us say Toronto or Montreal or Vancouver are not the challenges faced in Halifax or Ottawa or St. John's or Regina. Although our policy is currently scalable, in that there is a section for big airports and a section for much smaller, or very small, airports, any future policy must be somewhat scalable to the market realities of different sizes of airports.
I know I could be stepping into an issue with Senator Mercer in just a second, but I would say Ottawa is a fairly well-run Canadian airport. I am looking forward to your questions and comments, Senator Mercer. From a cost- structure perspective, I think they have done a relatively good job in the regime within which they are working. That is one of the reasons why they have been able to attract certain international flights that a secondary market would not necessarily attract.
We will get back to the committee with the breakdown of the cost structure and perhaps look at a couple of different sizes of airports because they are not all created equal.
Senator Merchant: Is there something to be learned from looking at other airports in other places, or is it again what you say about small and large airports? Maybe we cannot compare.
Mr. Goldstein: There are some non-democratic countries that treat airports differently than we do and do not have to decide between health care and the tourism economy. They are making a very deliberate play on the global tourism economy based on their own public policy reality. Therefore, it is no accident that you see most of the developed countries with Canada near the bottom of the scale. Unfortunately, we are near the very bottom of the scale, and so I do not think we will ever get to the same public policy space as some of those countries. However, at least within the G20 or the G8, we should be competitive. Hopefully our information will boil that down for you.
Senator Merchant: Some of the airports that I mentioned, like LAX, Kennedy, Heathrow or Frankfurt, are in comparable countries to ours. They are not in the other countries that you are talking about.
Mr. Goldstein: The public policy regime in the U.S. is very different to the one in Canada. In the U.S. they see their airports as economic sparkplugs, and we see them as toll booths. They have made a public policy decision to incent a different type of investment. One of the ways that the airports raise investment is through fees, so they have the rents. Then, on top of rents, they have airport improvement fees. LAX does not have the rent, and they have a different lending structure, whether it is municipal bonds or other lending mechanisms, so that they can go out and access capital to improve their infrastructure. It is a very different model than we have here. We would be happy to go away and do some comparative work for you.
Senator Doyle: Many factors go into the price of an airline ticket, factors that could deter tourists from travelling. I have heard the tourism associations talk about fees. Of course, last week, the CEO of the International Air Transport Association, who represents most of the world air carriers, talked critically about government and high taxes and what have you. Transport Canada came back saying that airport rent represents only about 1 per cent of the cost of an airline ticket. At the same time, you talked about the World Economic Forum ranking Canada number one in the world for the quality of infrastructure and what have you.
How do we maintain our reputation on the global stage? The high rents obviously do a lot to maintain the infrastructure, but, at the same time, we have to be cognizant of the problems that you have with respect to lowering fees. Is there a middle ground between the two?
Mr. Goldstein: Yes, senator, there is a middle ground. I think the point we are trying to make is that it is not the fees that are the biggest part of the price of the ticket. The lack of competition because of the fees is what leads to the higher cost of the ticket. Where we have seen competition induced into a marketplace, we have seen lowering of fares. To incent that kind of activity, we need to create an environment where other carriers are incented to serve those markets. That is particularly important for secondary markets in Canada because we are just now starting to see some meaningful competition, in some of those markets, from some of the domestic carriers.
By way of transparency, Air Canada, WestJet and Porter are members of our association. I think we are the only association that has all of them under the same roof, as well as the airports and the destination marketing organizations like those in Newfoundland and Labrador. That is where we are seeing a cooperative model. St. John's is a very good example, as I think you said earlier. You started to see some great progress with regard to access because the provincial government and the provincial industry have been working closely with air carriers — Air Canada, Jazz, Porter and WestJet — who are now all servicing St. John's. You have started to see a more equitable balance. However, we are still not seeing the low-cost carriers from Europe who should be landing in St. John's or Gander.
There will always be business travel. It was one of the areas that saw the least impact in the last recession. There was some impact, but the least amount was from those people who had to travel because they had to. People going to St. John's as part of the oil and gas business will make that trip almost irrespective of the price because the elasticity of demand is fairly low. It is leisure or things like conventions that do not take place because of price sensitivity. Those are the types of things that access helps.
Senator Doyle: Talking to some of the tourism people, I mentioned the airport boards and whether you are adequately represented on those boards. Are you?
Adrienne Foster, Manager, Research and Policy, Tourism Industry Association of Canada: The Canadian Airport Council has recently done a study looking at the membership of the boards. Actually, 40 per cent of the members have at one point worked for the airline industry. In terms of DMOs, we can get back to you on that.
Mr. Goldstein: We will get back to you on that, but I know that there are certain airports that have the heads of the local tourism authority and the local convention authority on the airport boards. Again, I cannot wait for Senator Mercer's comments because the Ottawa airport is a good example. The heads of the convention centre and the tourism authority and several other business people involved in tourism are all on the airport board. We feel that tourism has a voice on that board. As part of this study, it is probably valuable to look at the governance models and see if representation is adequate. We will get back to you with some firm numbers.
Senator MacDonald: Mr. Goldstein, good to see you again. As you can imagine, we have heard from many witnesses on airport rents and fees and how they affect cost and traffic. I certainly believe that will be the case in the tourism industry, but I would rather speak to you, this morning, about tourism since I have been in the business for 24 years.
I will ask you a couple of questions. First, what is the relationship between TIAC and the Canadian Tourism Commission? What sort of relationship do they have and how do they work together?
Mr. Goldstein: We work closely with the Canadian Tourism Commission. Not to be glib, but their job is to sell Canada to the world and my job is to sell Canada to Ottawa. We are the advocacy organization representing the private sector. We work closely together with them. We manage trade shows on their behalf. We are sort of a bridge between the CTC and the industry itself. We have a pretty cooperative relationship.
Senator MacDonald: What do you think of the idea over the last decade or so to have the Canadian Tourism Commission located in Vancouver? Is that a good place for it to be located? Should it be in the national capital? Does it have any effect on the operation?
Mr. Goldstein: Thank you for that easy question. I think it is probably healthy to have Crown corporations headquartered throughout Canada. However, in the decision to move a Crown corporation to a specific area, that probably should have been done with a view to what the role of the Crown corporation was.
I know that the argument was made at the time that the Olympics and Asia-Pacific were a key priority, so that perhaps our key marketing organization should be in Vancouver. I could have equally made the argument that since most of the advertising industry is in either Montreal or Toronto, our lead ad agency, being the CTC, would probably more appropriately fit in either of those cities.
Frankly, it is what it is. We lost about $25 million in the move, and I would not want to see another penny spent on moving the organization again, money that we believe did not go on the screen, did not go into direct advertising for Canada.
Senator MacDonald: One thing I am familiar with is traffic patterns and where traffic is coming from. In the 1990s, with the weak Canadian dollar, we had a lot of American visitors. I have noticed that of late, of course, American visitors have dropped substantially, but the truth is that European visitors, people who come in by air, are up slightly.
Even though I know airport rents are an issue, I do not see that it is a big problem with Canadian tourism. Our big problem in Canadian tourism is that we have lost the road traffic from the United States and we have not gotten it back. When you go from 20 million to 16 million people, those 4 million people were not flying in here; they were driving here. I wonder what the Canadian Tourism Commission and TIAC are doing to take our resources and put them toward that market, which should be the easiest market to get back.
Mr. Goldstein: You are right. I think there is a bifurcated problem. I agree with you that the traffic from the U.S. has been the biggest loss. Some of it has to do with the dollar, but a lot of it has to do with the different border situation post-9/11.
To your point, we have spent a lot of time working with the Beyond the Borders process. We were the first organization to do a bilateral submission with our U.S. counterpart, the U.S. Travel Association, as part of the Beyond the Borders process, because we think that anything and everything that gets the border situation with the U.S. re- normalized, if I can use that term, will have the biggest impact on tourism to Canada.
That said, we are an increasingly fly-to nation, both from European and from emerging markets. That is where our business is growing. Yes, we are up almost 2 per cent year over year, which should be good, respective to everything else that is going on in the economy. However, the global tourism numbers are up 6 per cent to 6.5 per cent this year. We are not getting the global share. I think we should get more than we deserve, but we are not getting the share that we deserve of the potential growth, and that is largely fly-to business. I think it is a bifurcated issue.
Our resources are trained squarely on trying to work with the government to find a border solution, and I think we are making incremental progress there.
Senator MacDonald: You mentioned earlier that in terms of the ad campaigns of the Canadian Tourism Commission, you thought they were good and effective, and yet we are down 4 million people in a decade. I am curious as to the criteria you apply to quantify this.
Mr. Goldstein: Their money is predominantly being spent in the emerging markets, and that is where we are seeing predominant growth. We saw a 24 per cent increase from China last year, and we saw big increases from Brazil. Unfortunately, with their limited budget, they have had to make a decision on whether they will continue to have a diluted, small amount of money in the U.S. or whether they will put the vast majority of their resources into the emerging markets. That is the strategy they have taken, and that is where we have seen results.
Where we have seen the provinces backfill — and I am thinking of Newfoundland, Alberta and other jurisdictions — where they are predominantly the brand leader, if you will, or the lead advertiser in the U.S., that is where we are starting to see that traffic. Traffic from the U.S. is flat, but traffic by air from the U.S. is up.
In a perfect world, we would have a competitively funded Canadian Tourism Commission. Australia spent $107 million last year on promoting Australia. We spent $84 million, and that does not take into account what we will potentially lose through the strategic review.
Senator MacDonald: It is hard to drive to Australia, though.
Mr. Goldstein: When you look at Greece, which is bankrupt, they spent $138 million last year because they know it is a quick convertor to economic growth. I am not expecting us to compete with France per se, or with some of those other leaders when it comes to spending; however, when you look at relative-size countries, we should be spending over $100 million a year on advertising in Canada, and we are not there.
Senator MacDonald: I want to finish up with one comment. It is good to know that the American markets are evolving, that we are getting more traffic from them and that air traffic is up slightly from the U.S. However, if we are putting most of our money into those markets and not into the road traffic market from the U.S., I do not think we are spending our money wisely; I really do not.
Mr. Goldstein: That is a tough question. Given the resources that the CTC had, they had to make a Solomon-like decision. If they were sitting as witnesses here before you, I do not think they would want to be in that position, either.
I think provinces and municipalities have done a pretty good job in advertising to the U.S. market. It is not perfect, senator. Again, if we had a competitively funded Canadian Tourism Commission that was vested in the U.S. market, I do think that we would see better results from the U.S. market. However, we cannot discount what the border has done to that traffic, and we cannot discount that of all the G20 countries, the Americans have the smallest percentage of passport ownership.
Until we can get to a situation much like the Europeans, where you have a perimeter situation and then you have fairly free travel between the two countries, effectively what we had pre-9/11 — which does not mean there are not customs facilities; you will have to police customs issues — until we can get back to that sort of regime, it will be hard to reclaim some of that business. Again, you layer on top the dollar, gas prices and all of those mitigating factors, but the structural problem is still the border.
Senator Merchant: Following the 2010 Vancouver Olympics, at that time we had high hopes that that was the best advertising we could have for Canada. Did you see a bump in the visitor or tourist industry, and has there been some residual left over from that?
Mr. Goldstein: In the international tourism polling I have seen, yes. We believe that is one of the reasons why we leapt from third or fourth in the world to number one in the world. From a reputational basis, the Olympics had a huge impact. It is tough to look at the actual numbers because you have to remember that we were still tailing through one of the worst economic crises in Western history. However, we still held our own, especially in terms of western arrivals, where we did fairly well. Have we done everything we can do to harness the afterglow, if you will, of the Olympics? There is probably some left to do. If you were to ask the folks at Whistler whether they saw a huge bump in their business, their answer is probably no. From a reputational basis, Canada had a huge benefit.
Senator Mercer: I was not going to speak this morning, but my friend, Mr. Goldstein, has prompted me to do so, and I would not want to disappoint him or Mr. Benoit at the Ottawa airport. The Ottawa airport has this reputation of being a great place, and I think the Ottawa airport looks wonderful. It is clean, bright, open and modern. However, we have talked today about the fact that Canada has some of the best infrastructure in the world at our airports. However, what we do not have is the best service model in the world; and that is the problem with the Ottawa airport. As a friend of mine would say, "big hat, no cattle." That is what it is. They have improved, I will comment, chair, since our visit to the Ottawa airport, when I continued to complain about the taxi service and long wait lines. That has improved dramatically. Mr. Benoit, if you are watching, you can take that as the only compliment.
I want to go back to the advertising. Senator MacDonald is right: The Nova Scotia tourism industry relies heavily on ground traffic. We did rely heavily on ferry traffic through Yarmouth. An entire part of our province has been decimated by the lack when the Yarmouth-Bar Harbour facility ended. We have tourism facilities closing, which were there through most of my lifetime, because of that. One of the solutions to this is advertising. I was not a big fan of moving the tourism office to Vancouver. I was a fan of moving it outside Ottawa, but I am always a fan of moving it east as opposed to west; that is my job here.
It is the advertising style that I think we need to work on. I do not think we need to look further than Newfoundland and Labrador. I do not know who those people are, but they are very good. Anyone who sees a Newfoundland and Labrador ad says, "This is really good." It makes you want to go back to Newfoundland and Labrador; and I have been many times.
How do we get people to focus on the need to attract more? We had a well-established market between us and the United States. They came here by car, by plane, by boat and, in some places, by train. We understand what happened after 9/11, particularly those of us who had airports with hundreds of planes sitting on the tarmac for a couple of days. We understand the issues. However, how do we refocus our effort? It seems to me that the toughest customer to get is a new customer. The easiest customer to get is an old customer. I really think we are not wasting time, but perhaps we should be going after both the new emerging markets and the old ones. We have to go back to the basics. Americans come to Canada and spend a lot of money. They come to Canada by car and, while we cannot force Americans to go off and apply for passports, we have to find a way to make it easier and more attractive for them to come across our border so that they can get here and spend their money. They spend well, and they have kept an awful lot of our small tourism industry afloat.
Mr. Goldstein: With regard to the Ottawa airport, they have either the benefit or the challenge of being the only airport in Canada that facilitates every single parliamentarian and key decision maker in the country. They face a level of scrutiny that most other airports may not get. They are doing a reasonably good job and getting better.
With regard to the American market, that advertising is an important piece, but access is the other one. The thickening of the border since 9/11 has changed generational patterns of travel. In your region of the country, senator, you will know that there are Americans who have had long-standing vacation properties there. The trek to Canada was almost a seasonal religious rite of passage. Both Americans and Canadians, for the longest period of time, felt they had some sort of God- given right to cross that border freely. That ended. We can go back and rewrite history as to what could or should have been done in the post-9/11 environment and what impact that had on the Canadian economy. That is fine.
Realistically, the hopeful stuff I see is what has emerged from the Beyond the Borders Initiative. For the first time, we are starting to talk about people and not just about products. There was a great deal of time and emphasis in the post-9/11 environment put into how we get goods across the border and probably not enough time on how to get people across the border. Whether it is trusted traveler programs, like NEXUS, creating a more robust program for NEXUS or some of the land stuff that CBSA is working on to facilitate those border crossings, President Obama and Prime Minister Harper came to the table and realized the trade issue between the two countries was being truncated. I did not think I would see that initiative until a decade and half past 9/11. We are starting to make progress there. However, until we get to a more normalized structure between the borders, it will be difficult to re-initiate those generational patterns of travel to Canada.
It is particularly frustrating for those in central northern Ontario, for example, where the fishing community was a huge beneficiary of that market — places like Deerhurst, in Muskoka. We also need to take a look at ourselves in terms of one of Senator Eaton's earlier points.
There is a bit of reinvestment in product that we will have to do to attract that. Simply hoping for the open border and the 65-cent dollar gave us a natural advantage, but not necessarily a good one because we were not dealing with the structural issues and reinvesting in the product. We are starting to see that, and that is why I would like to end with Newfoundland and Labrador because they are the poster boy, if you will, of what is going on in Canada right now.
Going back to the principles of marketing access and product, they deliberately went out to fix all three of those things. They doubled their marketing spending to $16 million. The campaigns are beautiful, but a beautiful campaign is only as good as the people who see it. The provincial government at the time made a decision that there were about 520,000 residents in Newfoundland and Labrador. Their target was to get more off-island visits than they have citizens. They wanted to surpass half a million off-island visits to Newfoundland and Labrador, and they surpassed that last year. Imagine if that was our target.
Senator Doyle: In spite of the weather.
Mr. Goldstein: They doubled their marketing budget and worked on access issues. There is a new ferry service and there are additional airlines. They negotiated with Porter, WestJet and others, who now fly there. They have been working on the product. They have been selling something other than the pubs on George Street. They have created a microcosm of a success story. If Canada could use that model and where we had 16.1 million international visits last year make our target 30 million international visits, we could easily be number five in the world again.
It is not just the air access issues that you guys are discussing today at the table but a whole series of other issues. The American issue is a border issue, and it is the one thing that keeps me up at night.
The Chair: I want to remind colleagues that tomorrow night we will be receiving Steve Desroches, the Deputy Mayor of Ottawa, and Scott Clements, President and Chief Executive Officer of the Fort McMurray Airport Authority.
The last word will go to Senator Unger.
Senator Unger: Where are international tourist arrivals trending into 2012?
Mr. Goldstein: Our Statistics Canada and UNWTO numbers should be coming out in the next couple of weeks, and I think they will be flat or just up. As a position on that chart, I think we will be where we are today, which is fifteenth.
I would like to think that we have stemmed the tide or are holding our own at this point. I know that being in the top 10 is a nice sound bite, but the number of arrivals is more interesting to me. Those numbers are based on an overnight stay rather than same-day traffic. It is more troubling that we have gone from 21 million overnight arrivals down to 16.1 million. Hopefully we have not slipped too far from that mark.
Senator Unger: Regarding this ad showing how Orlando is advertising in Canada, do our airlines advertise to any extent to Americans?
Mr. Goldstein: Of course they do. The purpose of the ad is to show that there are U.S. carriers that are marketing their Canadian jump-off points as actual American airports. The Plattsburgh airport refers to itself as Montreal- Plattsburgh. I was at an aviation conference in Montreal two months ago that was partly sponsored by the Plattsburg airport. I am sure that everyone knows someone who has driven across the border to use a U.S. airport. They are effectively using that as a mechanism to draw Canadians down south through their airports.
I understand that Canadians want to go to Orlando, but the reciprocal problem is that by not landing in Canada we are losing the load factor and therefore losing the competitive edge. If they were landing in Montreal, Toronto or Vancouver, they would be creating surplus seats that could be part of the inventory that brings down prices for other seats in Canada. These airlines are bypassing the Canadian market totally. They get to skim the cream of the Canadian marketplace, and they are make no investment and have no presence here in Canada, but are calling themselves "Canadian drop-offs."
The Chair: Thank you, witnesses, for your presence here. This was a very informative meeting.
(The committee adjourned.)