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Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 14 - Evidence


OTTAWA, Monday, June 5, 2000

The Standing Senate Committee on Transport and Communications, to which was referred Bill C-26, to amend the Canada Transportation Act, the Competition Act, the Competition Tribunal Act and the Air Canada Public Participation Act and to amend another act in consequence, met this day at 1:05 p.m. to give consideration to the bill.

Senator Lise Bacon (Chairman) in the Chair.

[English]

The Chairman: Before us today is Bill C-26.

My colleagues and I welcome you, Minister Collenette. I know you must leave around 2:00 p.m. We will be listening to you, and my colleagues will ask their questions. Welcome to our committee.

Hon. David Collenette, Minister of Transport: Honourable senators, it is a great pleasure to be here.

Much has happened since we met last fall. I apologize for not being able to spend much time with you today, but I do want to make a few remarks before answering some questions. I am quite prepared to come back later on in your deliberations, if today is not sufficient.

As you know, the bill is the government's legislative response to a process we began last summer. We chose to be proactive in the restructuring process because a sustainable and financially viable air transportation industry is essential to Canada's global economic success.

[Translation]

With Air Canada taking effective control of Canadian Airlines in January of this year, the two carriers have entered a phase of restructuring and consolidation. What is important for this government is that it is happening without any major services being terminated or involuntary job losses, and Canada now has the prospect of having an airline that ranks among the top ten in the world.

[English]

We think that Bill C-26 responds to the restructuring requirement. Its overriding objectives are to protect consumers and communities from abusive monopoly behaviour and to promote competition. Since the process began last August, I have sought advice from many sources on how the two objectives might be advanced if a dominant carrier were to emerge.

I would like to take this opportunity to thank formally the members of the committee for their deliberations last fall on the policy framework, particularly in view of the time constraints involved. I appreciate the conscientious and efficient manner in which you gathered the views of stakeholders and made your recommendations.

I should say as an aside that I realize that there were some doubting Thomases here as to the efficacy of the government using section 47 of the Canada Transportation Act because of the perceived crisis in the airline industry. Neither I nor my colleagues in the House were able to tell you at the time how dire that predicament was.

I can tell you categorically that when we transferred the route to Tokyo for a sum of money on December 20, 1999, that transaction was completed to keep Canadian Airlines solvent. There were two days of financial reserves left. There was a problem with meeting payroll the Friday before Christmas. That was a dire situation. We could not talk about it last year without exacerbating the situation even more. Thus, I understand why members of the committee had some scepticism in that regard.

As for the impact of restructuring, we know that there have been problems and that some consumers have been inconvenienced. We believe that these impacts are due to the challenges faced by Air Canada and Canadian Airlines as they make adjustments to operate co-operatively instead of as competitors.

We also believe that these impacts are temporary and that things have already begun to smooth themselves out. As you know, Air Canada announced that they are putting on more capacity. They have just changed their schedule again this weekend. The change of operations at Pearson airport went reasonably well.

I happened to be coming through from Windsor to Ottawa on Saturday and I dealt first-hand with some matters. I also walked through the airport and saw some of the line-ups at terminal 1, which the international passengers are now using. I think that problems there will be sorted out in the next few days or weeks. Certainly I believe that the reorganization of the terminals in Toronto will help scheduling throughout the country.

I think we are seeing also the emergence of a competitive response to the consolidation by other air carriers, who are seizing the unique opportunity to grow as the market demands new travel options.

I certainly recognize the fact that not only are the charter carriers expanding -- I have met with all of them, including Sky Service, which has very ambitious plans to offer full-service competition to Air Canada -- but the other charters are adding additional capacity and ordering new planes. WestJet, of course, will actually start service to Ottawa this week, to Montreal at the end of the summer, and they have already started service to Moncton. All of that is going extremely well.

Where WestJet has entered a market, for example on the Thunder Bay-Toronto route, Air Canada has lowered its prices and consumers are getting the benefit. In fact, I am glad that Senator Callbeck is here. I was delighted the other week to read the headline in The Charlottetown Guardian that "Price war hits P.E.I", because Royal Airlines is back this summer, Canada 3000 is operating from Moncton, and WestJet is also in Moncton. While there were some short-term capacity problems in Charlottetown, it looks like people in that region are getting the benefit of competition. This will continue as the weeks progress.

I am very happy that CanJet, established by Mr. Rowe from Halifax, will be getting off the ground by late August. This will necessitate Air Canada pushing back its plans for a discount carrier by one year. That means that there will be more choices offered in Atlantic Canada.

I am not neglecting Western Canada, as WestJet is already there, serving cities with frequencies that provide competition. I should also state that Canadian Regional, as part of the agreement that the Competition Bureau made with Air Canada, is being offered for sale. We expect that transaction to close some time early this fall. Thus there will be additional capacity available for others to enter the market.

I was encouraged by how much support this particular committee gave to our policy framework, and indeed your recommendations assured me that we could count on your support for the thrust and the details of the legislation. I think that most points in the bill address your concerns.

[Translation]

By way of explanation, let me just say that, of the 20 detailed elements in the Policy Framework, only six required legislative amendments. Implementation of the rest is done through existing legislation and regulatory authority and policy decisions.

New legislative authority is needed to cover change in the following areas:

the regulation of monopoly pricing and terms and conditions of carriage;

additional notice of exit provisions;

more detailed protection against predation;

the new mergers and acquisitions review process;

changes to the share limits (both individual and foreign) for Air Canada;

obligations respecting service in both official languages.

[English]

As for the 19 recommendations of the standing committee, I will summarize the government's response as follows: The undertakings negotiated between the Commissioner of Competition and Air Canada implement four of them; the commitments made to me by Air Canada implement two more; Bill C-26 not only makes the undertakings and commitments binding, it also implements three more of them; recent government initiatives address two of them.

For the remainder, the government has taken a different approach, although all the issues raised have been addressed.

I spoke about fostering competition, and under this broad heading are a number of subjects, including predation, monopoly pricing, travel agents' commissions, slots, computer reservation systems regulations, frequent flyer plans, interlining and code sharing, surplus aircraft, and international air policy.

[Translation]

Bill C-26 also incorporates by reference the undertakings and commitments made by Air Canada in order to make them legally binding and enforceable. Failure to honour any of them could result in the courts imposing penalties that parallel those in the Competition Act. These penalties underline the seriousness with which the government would view any breach.

[English]

Contrary to press reports, we are not singling out the executive offices of Air Canada for undue, cruel punishment should they infringe the provisions of the bill. The Competition Act already provides for penalties.

The provisions also recognize the need for quick action to prevent a dominant carrier from engaging in conduct that would damage competitors or exclude them from the market.

On this committee's recommendations to increase competition by allowing foreign participation in the domestic market, the government does not believe the time is right to consider such a measure, particularly on a unilateral basis. I have said this consistently since October 1999. While I do not rule it out in the long run, I prefer to give Canadian entrepreneurs like the ones I described earlier the ability to compete head-on with Air Canada. I think that that will occur over the coming months.

However, if that is not the case, then we always have the option of allowing foreign carriers to serve point-to-point within Canada.

I will discuss all of these matters, I am sure, with my U.S. counterpart, but I do not think that that meeting alone should entice people to believe that we are starting to negotiate cabotage with the United States. That is not the case. They raised it before in private meetings and I suspect that Mr. Slater will raise it again. I want to be up front with people and not give them any surprises. This is an issue that I expect to be raised, but our position is the one that I have articulated.

Our second goal is to protect consumers from abuse. In this regard, the amendment to Bill C-26 to establish an Air Travel Complaints Commissioner was made as a result of the hearings before the Transport Committee of the House of Commons. I think this is a significant and important addition to the bill. In naming a temporary member of the Canadian Transportation Agency to perform this function, we found a way to respond to the committee's view that there was a need for such a person without creating a new bureaucracy. Thus, as you know, the House committee called for the creation of an ombudsman. We think that this achieves the goal, because you have the statutory authority of powers now invested in the C.T.A. and the necessary bureaucracy, although obviously, additional resources will have to be provided.

[Translation]

Other measures that are being proposed to accomplish this goal cover the issues of fares on monopoly routes, new exit notice provisions which should help service to small communities, official languages and monitoring.

As part of the negotiations to obtain approval for its transactions, Air Canada made a legally binding commitment to me to continue to provide domestic service to communities already being served by it, by Canadian Airlines and their wholly-owned subsidiaries for a three-year period.

[English]

The government is also proposing to modify the existing notice-of-exit provisions in the Canada Transportation Act, or CTA. This comes in response to the concerns of air carriers that onerous exit provisions would stifle growth and experimentation. To the initial change to a 120-day notice period, there has been added, as an amendment put forward at the standing committee in the House, a shorter 30-day notice requirement for services of less than one year's duration.

The government is proposing to add a requirement that, if an air carrier with at least 50 per cent of the weekly passenger capacity on a route decides to discontinue service, it must also give notice, regardless of how many other carriers would remain on that route.

There is also a new requirement that carriers proposing to withdraw or reduce service will have to provide advance notice and give local elected officials the opportunity to discuss the impacts of that decision with the carrier.

The committee recommended that, under a dominant Canadian carrier scenario, certain applications of the Official Languages Act be strictly enforced. All operations by the carrier or its subsidiaries directly serving the public must be made subject to the Official Languages Act. The government is proposing to implement this recommendation by amending the Air Canada Public Participation Act to require that Air Canada ensure that its airline subsidiaries provide service to consumers in both official languages where there is significant demand.

Transition periods are provided for certain subsidiaries, depending on the area of Canada they serve, and Canadian Airlines will be given three years to meet the recommendation, with a possible fourth year on a case-by-case basis. However, in any case where another affiliate replaces a service formerly provided by Air Canada, there is an immediate obligation to meet the language requirements as if it were still Air Canada.

[Translation]

I am aware that certain concerns have been raised with regard to the fair representation of linguistic groups within Air Canada. I am sensitive to these concerns, but I do not believe that they should get in the way of the approval of Bill C-26 in its present form. Most of these concerns deal with the extent to which Air Canada is in conformity to its existing obligations under the Official Languages Act. This having been said, I intend to do my part in addressing these concerns.

As you are aware, last February 17, I announced my intention to appoint an observer or observers who will monitor and evaluate the impact of the airline industry restructuring over the next 18 to 24 months and report to Parliament through me.

Today, in light of the concerns expressed by parliamentarians and elected provincial officials as a result of representations made, most notably, by Les Gens de l'air, I am announcing my intention to include in the observer or observers' mandate a review of Air Canada's behaviour with respect to its linguistic obligations. Included in this will be the question of the representation of linguistic groups. Also, the observer or observers will be mandated to bring recommendations, as needed, to any problems that may be identified. In this regard, I expect they will work closely with the Commissioner of Official Languages and the Treasury Board, who both have mandates in this area.

In my opinion, Madam Chair, this is very important because I recognize the problem, given the proportion of francophones in Air Canada. It is very important for the country. As I have said, I am asking the observers to report to me exclusively on that question, to help us in the future.

[English]

On the 10 per cent limit on Air Canada share ownership, I believe that this committee recommended it be raised to 20 per cent. As part of the discussions with Air Canada, we agreed to 15 per cent. I do not think that that creates any controversy. It does put Air Canada shareholders on the same footing as single shareholders of Canadian National Railway when it was privatized five years ago.

On the recommendation regarding changes to ownership limits, the government is still not convinced that raising the current 25 per cent limit on foreign ownership in the industry is beneficial at this time, nor is it prepared to make changes for all other carriers besides Air Canada, as proposed. We are proposing an amendment, however, to the Air Canada Public Participation Act to allow Air Canada's foreign ownership limit to change at the same time as for other carriers, if and when the Governor in Council decides to increase the limit using the authority under section 55 of the Canada Transportation Act.

In its 18th recommendation, this committee called for a public accountability process involving the agency, the bureau, and the standing committees. At this time we are not contemplating so elaborate a process. However, that is not to say that there will not be significant monitoring. My department, the bureau, and the agency will all be active, and as I mentioned, we will be naming transition observers who will be asked to keep an eye on all aspects of the industry over the next 18 months. I expect them to report to me and I intend to share their findings with parliamentarians. In addition, there will be a semi-annual report from the Air Travel Complaints Commissioner.

I should just say, going back to the complaints commissioner, there have been some media reports that somehow this person will only make their findings known every six months. Therefore, people will have to wait six months for a problem to be resolved. That is not the case. The fact is the complaints commissioner will have the benefit of the law to subpoena documents, to request information from the airlines and other parties, and have the ability to refer these issues to the bureau, the agency, or even the courts, and so it will be very proactive. In fact, I suspect this commissioner's role will be largely that of a mediator, using the stick of the agency over Air Canada to ensure that the consumers are dealt with fairly.

[Translation]

Lastly, we are on the verge of launching a study of the Canada Transportation Act as stipulated within the legislation which will include another examination of the efficiency of the Act as it relates to air transport.

[English]

In conclusion, I believe you have before you a bill that is in line with what we said we would do last fall. Bill C-26 combines measures that safeguard the public interest and promote a viable Canadian airline industry. We have improved protection for consumers and communities, while creating conditions for our airlines to compete freely and vigorously at home and abroad.

I am now available for questions.

Senator Forrestall: Mr. minister, I will perhaps start out where you wound up, to get some overall concept as to how we will go about monitoring and whether it will be sufficient to meet your own requirements.

Do you have any idea how long this entire reconfiguration of the Canadian airline industry will take before we can expect a reasonable response to an in-depth review? We have been at it for approximately a year and a half. Is it a three-year process? Can we, at the end of five years of this process, really expect or hope that the existing and new carriers will have sorted themselves out, and that Canadians will be served by a competent, efficient, and competitive industry? Will it take that long, or can it be done more quickly?

Mr. Collenette: Madam Chair, I do not think Canadians would stand for a period of five years. I have said publicly that we want to look at the whole issue within 18 months to two years. I started talking about that on December 21; therefore we are six months underway already. Really it means that in the latter part of next year, we must come to a determination as to whether or not this is working to the satisfaction of the travelling public. I believe it will.

On the issue of competition, I am heartened, as I have said, by all the new entrants into the market, including from the area of Halifax-Dartmouth, where an experienced operator will be offering discount services. That kind of competition for Air Canada will be there. If it is not, then we will need to be in touch with our American friends to talk about allowing U.S. carriers to come in. Five years, no. I believe Canadians will expect some results by the end of next year.

Recently, despite the overall reorganization going reasonably well when you consider what had to be done -- integration of the various cultures, the large number of aircraft, the many destinations -- there have been problems. There have been capacity problems. There has been stress on some of the workers and the passengers have been impacted by that. I think Air Canada knows that unless these issues are addressed quickly, then people will start taking a dim view of the airline and they will flock to any competitor that enters the market.

Other than the fact that one should offer good service, it makes good business sense not to upset people unduly. All of that is working out. I am encouraged by some of Air Canada's responses in the last few weeks to the irritations expressed by many passengers across the country. Halifax International Airport has had some problems. I have had complaints from my own colleagues who have travelled through there, as with Toronto and Vancouver, where we have had lack of capacity and some disorganization. That is now being improved. With a promise to put on additional capacity, it seems there have been fewer complaints in the last couple of weeks.

Senator Forrestall: I did not necessarily want to become parochial here. WestJet will not come to Halifax now. I understand they were too expensive. They are now said to be going to Moncton. If that is the case, Moncton will rapidly become the Atlantic hub, because people will go where there is competition. Can you tell me about Sky Services, minister?

Mr. Collenette: It is a Toronto-based company that has been in business for many years. They are involved in general aviation and servicing and have a very good reputation. They run a small operation -- I believe it is for Sun Quest -- out of the U.K. They have five quite modern planes and have been a good carrier, as far as we are concerned.

Senator Forrestall: Will they operate out of Halifax?

Mr. Collenette: I do not believe they mentioned Halifax in their statement. Certainly CanJet will be operating there, and Canada 3000 is offering more scheduled services through Halifax, as is Royal Airlines. There is competition in Halifax. However, the Halifax Airport Authority negotiated with WestJet, but I guess Moncton gave them a better deal.

Senator Forrestall: Money always counts. Turning to Bill C-26, I see that you have gone to the same level as the Canadian National Railway limitation on the percentage to be held. I see no limitation on ownership in the current bill, which includes the changes. I was just wondering why. Was it to give flexibility in the event you had to call in outside help?

Mr. Collenette: As you know, we have statutory authority already to raise the foreign ownership quotient to 49 per cent. We do not need this bill for that. That can be done by Order in Council.

We have made Air Canada subject to the same rule in this bill. In other words, we can now allow Air Canada to have 25 per cent foreign equity, and ultimately go up to 49 per cent, as with the other carriers, so there is a level playing field.

The 10 per cent issue was often confused in the debate last year. That is the limit for any single shareholder. We have raised that from 10 to 15 per cent, which brings us in line with CN. Others would like it raised further. We agreed that that would not be wise. Subclause 17(1) deals with the 15 per cent aspect.

Senator Forrestall: You have the authority already, and I suppose the players will be very much aware of that, so that is not really a problem then?

Mr. Collenette: No.

Senator Forrestall: I thought you were hiding it.

Mr. Collenette: We never hide anything. The Liberal government is very open.

Senator Forrestall: Transparent.

Mr. Collenette: Transparent and accountable.

Senator Forrestall: Do you know how long your government considers "soon" to be? "Soon" or "immediately"?

Mr. Collenette: Not before too long.

Senator Forrestall: Sir, 4,819 days ago you told us that you would "soon" get a new helicopter to replace the Sea Kings.

The Chairman: That is another matter.

Mr. Collenette: I guarantee that it is sooner than when I first made the promise five years ago.

Senator Forrestall: I want to just touch briefly on the Competition Bureau and ask about the extent to which this bill may change or alter the authority of the tribunal to act in these capacities. Have you strengthened it somewhat? Do you contemplate an ever-increasing role for the bureau?

Mr. Collenette: Absolutely. The bureau here is given extraordinary powers -- in fact powers that they do not have when dealing with other issues, because of the nature of the monopoly that has been created by Air Canada's 80 per cent share of the market. Some say these powers are too drastic, but I can tell you that when I met with WestJet and the charter carriers, they absolutely required this. In fact I think they only came back into the market after they read this bill and saw that the commissioner would have "cease and desist" powers.

These are injunctive powers that Air Canada must obey. In other words, if the commissioner sees what he considers to be predatory behaviour, he can say, "Effective midnight tonight, you shall not do this or that". I suppose Air Canada could always challenge that decision, but it would take some time. Currently, the commissioner would say, "Well, that is predatory behaviour, and I will take you to court or to the competition tribunal." Months would go by. Passengers will have the protection of the bureau making that judgment immediately. These are drastic powers.

In fact, we introduced an amendment at the eleventh hour in committee in the House dealing with the issue raised by British Airways. They raised a number of issues, some valid, some not, but one dealt with the ability of foreign carriers to negotiate arrangements to integrate services on a comparable basis with Air Canada's Star Alliance partners. Thus, Air Canada cannot discriminate against a non-alliance partner on a route from Winnipeg to Toronto to London. The bureau and the commissioner will deal with that kind of behaviour on the grounds that it affects the rights of any Canadian passenger to choose Air Canada, or its partners, or someone else.

Senator Forrestall: The ultimate authority rests with you as minister. Does the bill give the Competition Bureau explicit authority to deal with predatory and anti-competitive behaviour in relation to international carriers?

Mr. Collenette: The reason you ask the question, obviously --

Senator Forrestall: I want to know what triggered your decision to intervene.

Mr. Collenette: It is the Competition Commissioner who has that authority, not I as Minister of Transport. Predatory behaviour does not exist outside Canada because there is so much competition.

Senator Forrestall: I do not think that is the way it will eventually play out.

Mr. Collenette: The point I raised earlier is that an international carrier operating in Canada on overseas services can complain, as in the example I gave with British Airways, and say, "Well, Air Canada is not negotiating in good faith with us. They are discriminating against us by taking passengers from Winnipeg to Toronto on an Air Canada flight and then changing to our British Airways flight." In other words, the deals must be comparable and fair.

Senator Callbeck: Minister, you mentioned the Atlantic area and the possibility or the potential for more competition there, and I certainly hope that that happens. However, I do want to talk about the current level of service. I am sure this is happening in many small communities, but I want to talk specifically about my own province because that is the one I know best.

The tourist industry is important in our province, bringing in many dollars and creating many jobs.

I am concerned that it will be affected this summer by what is happening in the airline industry. I want to be specific about this. For example, last year we had 79,756 seats coming into Prince Edward Island, which represented a load factor of 65 per cent.

This year, the number of seats has been cut back to 65,784. Therefore, we will have 13,972 seats less than last year. Now much of that reduction is due to losing InterCanadian, which had five flights from Charlottetown to Halifax. However, if we have the same number of visitors as we had last year -- and I certainly hope that the number will increase -- that gives us a load factor of 78 per cent.

I am told that in the airline industry, even at 70 per cent, people are getting bumped and left behind. I look at these figures and I am seriously concerned about what this will do to the tourist industry that we are trying to develop. I think we have been doing a pretty good job, not only with the tourist industry, but also with Islanders coming and going in the province.

Do you have any authority as minister to tell Air Canada that there must be more flights to Charlottetown, or to other regions that are in the same situation?

Mr. Collenette: The CTA -- that is, the old Canada transportation commission before 1987 -- had that authority. You do not need it in a deregulated environment. There is no question in my view that Air Canada underestimated the growth in passenger numbers across the country this spring because of the economy and cut back too much on capacity. That was obvious from the beginning and has been recognized by Air Canada. I believe that they brought in a new schedule this past weekend to address that in many markets across the country, re-deploying types of planes to use bigger ones in certain markets.

I accept what you are saying about Prince Edward Island. You said there was a 65 per cent load factor. Obviously, there were many planes flying out of there with empty seats and it was inefficient. Yes, a 78 per cent load factor means that invariably, there will be line-ups on some flights. The market will sort that out. Royal Airlines is flying to P.E.I. this summer, albeit with the charter seat pitch that gets more in a plane, but people have told us through the polls that price and safety are the determinants. Therefore, people have an alternative with Royal Airlines flying directly out of Charlottetown. They have an alternative with WestJet and Canada 3000 out of Moncton. There are alternatives.

There is a problem in the country with a lack of competition for the full fare and business class traveller -- that is, people who demand a certain standard. That is why Sky Services has announced that it is getting into that market. Also, Canadian Regional is being offered for sale, and 30 of its 53 planes are currently configured with business class seats. One hopes that someone will buy that and offer that kind of full service to various parts of the country. The market will determine the seat capacity.

Senator Callbeck: Royal Airlines is already included in the figures I gave you. However, we will still be short 13,972 seats as compared to last year. WestJet is coming into Moncton, but we are not too anxious to have people cross the link and go out on WestJet. What does that do to our airport in Charlottetown?

Mr. Collenette: Part of the problem is that we cannot have it both ways. If we go to a market-based system and develop the airports in local communities, it is up to the airport authorities to attract the carriers there. I just gave an example to Senator Forrestall, where Halifax "missed the plane" with WestJet going to Moncton. They have to be innovative in attracting these carriers if there is a market to be served.

Senator Callbeck: I fear for the tourism industry this year in the province because I think it will do tremendous damage. We will have many people trying to get flights who will be unable to do so. I have spoken to Air Canada about this and they say "If we need more planes, we will put them on." That is no good at the end of July, because most people have planned their vacations by then. You have answered my question. There is nothing you can do, but I think it will leave us in a real dilemma.

Mr. Collenette: Perhaps I could back up a bit. When you say there is nothing I can do, the fact is that the market will sort this out. Air Canada, as I told you previously, will put on additional flights if there is the demand. However, I have given you the example of the Moncton alternative, with Canada 3000 operating flights now through Moncton, Calgary, and Vancouver, among other places, and also Calgary-Toronto. These are large planes in some cases, A-330s with over 300 seats. There is seat capacity there for people to travel to P.E.I.

I get a little nervous when people say, "There are not enough seats for people to come to P.E.I. or Newfoundland." It often becomes a self-fulfilling prophesy, because people read in the newspapers how bad it is and say, "Well, why should we go there," without having checked with the airline. I am sure they could find seats. The question is, can you find seats at the time that you want to go, or do you have to take a flight later at night? Certainly Air Canada has said they will be putting on more seats, and I am not sure where CanJet will fly. They may fly to Charlottetown, but they will not be starting up until later in August.

Senator Callbeck: My understanding is that it will be in the fall. The dilemma I foresee for the province is really this summer.

On page 3 of your remarks, you mentioned that Air Canada made a legally binding commitment to continue to provide domestic services to communities already being served by Canadian Airlines and their wholly owned subsidiaries for a three-year period. What exactly does that commitment mean? If they had six flights, can they cut it back to three as long as there is still service?

Mr. Collenette: The community must be served for three years, although the level of service and capacity is not covered. In many cases, these communities had parallel flights leaving at about the same time, but which were only half full, or even less than that.

Again, this is something you can only regulate to a certain degree. If are you in business to make money, and Air Canada is, you will not provide, say, one Dash-8 with 50 seats to a market per day when you know that there is an average of 100 people wanting to travel. You will put on the capacity to match the demand. We have said that they cannot decide that a market is not sufficiently profitable and pull out of it altogether. They must serve those markets for three years.

Senator Callbeck: What happens if they do pull out after the three years?

Mr. Collenette: If Air Canada decides to do so, the exit provisions will ensure that someone else goes in. Even in Northern Canada, we have found that where carriers pull out of a market, invariably someone else goes in and can make money out of it.

Senator Callbeck: But if it is not really a money-making proposition, do you see the government offering incentives or subsidies?

Mr. Collenette: If it does not make sense for someone to serve a certain community, then alternatives must exist. Someone will go in and answer that need, even in small communities. It happens throughout Northern Canada right now.

It happens throughout Northern Canada right now. It happens with small airlines. You have Bearskin Airlines in Northern Ontario. Calm Air in Manitoba makes a lot of money. First Air, run by members of the aboriginal community, makes money. Someone will go in.

Senator Spivak: Minister, you sound very encouraged by the level of competition that seems to exist now and I want to ask you some questions about that. I was here when Air Canada was privatized and we were promised that there would be lower prices and an end to regulation. Of course, the wheel has come full circle, because we have higher prices and a lot more regulation. Also, when the Competition Commissioner was before us, he pointed out that the competition that charter airlines or smaller airlines can provide does not help the business community, which relies on the major carriers.

Do you think that, in this best of all possible worlds, Air Canada's prices will come down, both domestically and internationally? In addition, do you think that the dominant carrier will have less than 85 per cent of the market?

I have other questions about competition, but we will start with those.

Mr. Collenette: I am optimistic that Air Canada's market share will decline over the next two years, although I would not want to put a figure on it. We estimate it is currently approximately 80 per cent. Given the capacity the charters are putting on, the fact that Canadian Regional is up for sale, that CanJet is starting up and Sky Services will offer a full-service alternative, I suspect that that market share will start to decline. How much or how fast, I do not know. Will it hit 50-50? I doubt it, at least in the near to medium term. That would indicate that Air Canada has major problems. The key is to have more available competition and alternatives.

You put your finger on business class, but most small communities in the country did not have business class service even before Canadian Airlines was merged with Air Canada. If you were a businessman in Timmins, Ontario, you took an Air Ontario flight to Toronto and then took business class overseas to Europe or the U.S.

Senator Spivak: I was not referring to business class. I was referring to businessmen who cannot take charter airlines. They need flexibility.

Mr. Collenette: They need the convenience. The charters are increasingly becoming scheduled carriers. I met recently with all of them, and they are all putting on capacity. I believe Royal is offering four flights a day, each way, Toronto to Montreal, and doing well at it. They have two a day for Toronto-Ottawa, and they are doing well at it. Canada 3000 is now ordering four A319s and will increase their capacity by, I think, 16,000 seats, and they will all be on domestic runs. There will be schedules that business people can use outside of business class.

Senator Spivak: Do you think the level of competition will grow to a point where prices will come down?

Mr. Collenette: They already are. I should not be here flogging Royal Airlines, but if you look in the newspaper, you will see that you can fly Toronto-Montreal for as low as $129 each way. Compare that to a full-fare Air Canada ticket. It is the same with Toronto-Ottawa. If you fly business class from Toronto to Ottawa, you pay $850. It is scandalous. When airlines such as Sky Services start their service, Air Canada will have to reduce its prices. You are seeing this competition now. You have seen it already with Toronto-Thunder Bay, where WestJet, by virtue of offering Hamilton-Thunder Bay service, forced Air Canada to match its prices, and they are both doing well, with good loads. In fact the discount airlines have greater flexibility than Air Canada, because invariably they are non-union shops and have a lower cost structure.

Senator Spivak: That is my next question. What is the rationale for allowing Air Canada to compete in the discount service? Is it not enough that they have 85 per cent of the main service?

Mr. Collenette: That was part of an agreement negotiated between the commissioner and Air Canada under the auspices of the current Competition Act. In that failing-firm scenario, the commissioner got the best deal he could at the time. Do not forget that we were two days away from a bankruptcy, with the threat of having 16,000 people out on the street.

Senator Spivak: That was the free market that we were supposed to be enjoying?

Mr. Collenette: If you want to talk about free markets, I will talk about the wisdom of privatizing Air Canada and deregulating within 12 months. Historians will examine that to see how we got into this mess in the first place. We are trying to get out of it.

Senator Spivak: I understand. You are saying that the exigencies of the situation forced you to leave Air Canada in the discount business.

Mr. Collenette: The Competition Commissioner made a deal. The government accepted it, because if we had not, there was the likelihood of Canadian Airlines going bankrupt. However, he negotiated that if a discount operator establishes operations in Eastern Canada before September 1 this year -- other than WestJet, which was already in the discount business -- then Air Canada must wait a second year. We understand that CanJet is in the process of hiring staff and filing all the various approval requirements to begin operations some time in August.

Senator Spivak: The comparison of costs per mile to fly the same distance in the U.S. and Canada are, of course, available. Is it fuel costs that make the difference? What is your view of why those costs are so high at the moment?

Mr. Collenette: I would say that we have not had competition for over 12 years in this country. We have had a duopoly. We had Canadian Airlines and Air Canada bashing each other over the head, offering half-empty flights on some routes. There is also the factor of good service. I have been on American planes. None of us wants that kind of service in Canada. Canadian and Air Canada have offered, and continue to offer, first-class service. However, we must recognize that there was no competition, for whatever reason. Historians can look at that. Air Canada was privatized. It had a new fleet and a lot of money pumped in over the years, not unlike CN, so it was a great enterprise to privatize. Canadian Airlines was an amalgam of five or six different cultures. It was tough. They went through a lot of management problems. They had an old fleet, and some would argue that they were disadvantaged right from the beginning.

Senator Spivak: However, at that point, we had five or six airlines competing and they could not make it. I am just wondering whether that scenario will continue, and if it had not been for the near bankruptcy of Canadian Airlines, you would have preferred not to allow Air Canada into the discount business. That is my point. That would really give them a chance. If you have a dominant carrier like that, with that kind of clout, what is the future? We are not talking about 3 years; we are talking about 10 or 20.

Mr. Collenette: Air Canada has the authority under the present act to establish a discount carrier. They agreed to delay the start-up of that for at least a year if someone else came into the business.

Senator Spivak: I understand it was negotiated, but of course the government has the ability to legislate.

The Chairman: The minister must leave at 2 p.m.

Mr. Collenette: The senator is on a key point here.

The Chairman: I know.

Mr. Collenette: The deal between Air Canada and the bureau is part of this proposed legislation. The senator says we have the ability to legislate. That is fine. Let us assume that Parliament said, "Okay, forget about you, Mr. von Finckenstein, and the deal that you negotiated with Air Canada in good faith, and the government accepted in good faith. We will arbitrarily change the act". If that were to happen, Air Canada would say that they will fire a number of people and pull airplanes out of communities. There will be absolute chaos.

Senator Spivak: Is that not the tension between a public utility and free markets? Is the government not there for the public interest? I understand the difficulties, but if you do not have proper competition, will you not get improper service?

Mr. Collenette: Your first comment should have been made when the former government privatized Air Canada. I cannot cry over spilled milk, but I must deal with current reality. That reality dictates that we must do what we can to encourage competition, and we are.

Senator Forrestall: You would not change it though, would you?

Mr. Collenette: That is a hypothetical question.

The Chairman: It is two o'clock, minister, and I know you must be in the House for Question Period.

Mr. Collenette: I could take one more question. I am just getting wound up.

Senator Finestone: Mr. minister, I would like you to look into the situation in Newfoundland, please. They are very short of seats. I know people who have been trying to get flights for the end of July and the beginning of August, but there is nothing available. They started asking two weeks ago. I would like your staff to please find a process whereby they could improve the seat allocation in Newfoundland.

Mr. Collenette: I believe you are talking about seats on Air Canada. There are three other airlines that fly to Newfoundland.

Senator Finestone: My daughter-in-law wishes to travel there with my new grandchild. That is why I am concerned.

Mr. Collenette: Royal Airlines and Air Transat offer many services to St. John's and Stephenville, Deer Lake and Gander, over the summer period.

Senator Finestone: She wanted to go to St. John's. Is that okay with you? Thank you for looking into that.

I have questions about clause 66. It talks about the fact that you can have a complaint in writing, and who will review it.

I would like to know if there are any formal procedural requirements to make the public aware of what is going on with respect to a written complaint. Further, I would like to know whether or not the fare or cargo rate structure is fair.

I am familiar with the CRTC hearings and things of that nature. Where do you set up open hearings so that people know what is going on? How do you set up rate structures so that the population can see if there have been increases, and what the percentage increase was? Why, again, under clause 66, paragraph 3(c), do you limit the board in doing some research and other aspects of the work that they need to do? Why do they only hear input from the licensee on whether actions taken were reasonable in the circumstances?

I know that you were presented with these recommendations for amendments when this bill was in the other place, but they were rejected. I should like to know why.

Mr. Collenette: Madame Dufour will answer some of the detailed aspects of the question. My understanding is that the issue regarding the Complaints Commissioner stands to be corrected. The complaints board is subject to ATI, or full public disclosure. There is an annual report submitted to Parliament. The chair of the CTA comes before the committee during Estimates to answer to the report. Thus, if there were a question of methodology, or anything to do with a particular complaint, it would be made public.

Senator Finestone: There must be some way of establishing clarity in how you set up the process. You have determined that there will be clarity in international service, but you do not speak to domestic service. There was a recommendation that it be amended to make it clear that information may be provided by the licensee, including information provided under clause 83, or provided by any other person that may be relevant for the making of the findings under clause 1 or 2.

Certainly, when I read the observation, I felt that you would constrain the findings of the tribunal, court, or whoever is doing this work, by not allowing them independence of research and documentation. You say that you would need studies, measurements, or analysis of both the Canadian airline industry and the international airline industry in order to provide sources other than a licensee. The materials might involve the examination of cost levels, price outputs, cost allocation, and rate design that might be extremely relevant in considering reasonableness for the agency.

How will you clarify the word "reasonableness" under the terms of the agency as it is presently set up? If you do not mandate them to conduct independent studies and use outside sources to do independent research, only the licensee will be allowed to provide the needed information when the referral is to clause 83 under clause 66.

It did not make sense when I read it. Then I received some information, but it still does not make sense. Do you know what I am speaking about, Ms Dufour?

Ms Valérie Dufour, Director General, Air Policy and Programs Group, Transport Canada: To begin with, you must understand that this is work exclusively on monopoly routes. It does cover both domestic and international.

Senator Finestone: It does not say that here.

Ms Dufour: All you are seeing here is what needs to be added to the existing legislation. This is trying to create a "level playing field", if you like, in terms and conditions of carriage internationally.

This is an attempt to determine if rates are reasonable. It was clearly written to place the onus on the carrier, on the licensee, to demonstrate that the fees are reasonable. The proposed legislation does go on to say that the agency, in looking at the work, will look at historical data, information from other competitive services with equivalent characteristics, and the other modes of competition in the case of cargo. However, it is not a rate-setting process.

You have implied that you were looking for something that was never intended. It was never intended that the agency, in the process of obtaining new powers to look at monopoly rates, would become a rate setter.

Senator Finestone: Who is the rate setter?

Ms Dufour: The rate setter has been the carrier since 1988. The agency determines if the rate is unreasonable. In the case of an absence of rates in a monopoly, the agency decides whether additional rates should be offered. However, the agency will not set those rates.

Senator Finestone: I would like to ask you if the following example makes sense to you. If I buy a ticket to Newfoundland and make a reservation 14 days in advance, it will cost me about $620. If I call 13 days before, it will cost me $1,100. I find that an aberration. It is the same plane, same seat, same cost, same carriage, and same set fees. I will be paying almost double if I make my reservations 13 days before instead of 14. Minister, do you find that reasonable?

Mr. Collenette: I find all these fares reasonable because the air carriers have certain limits at certain times. More surety for the reservation and more flexibility for the customer must be paid for. The earlier you book, the more inconvenience you are willing to bear, and therefore the cheaper the fare. That has really been the basis of this.

Do you really want to return to pre-1987 with the CTA arbitrarily setting fares?

Senator Finestone: I do not want to pay $1,100 because I missed the deadline by a day.

My last question is about slots for overseas flights for British Airways and others. Would you comment on that, please?

Mr. Collenette: British Airways has been running around town lamenting the fact that Air Canada is not exercising all of the Canadian slots at Heathrow that it picked up in the deal this summer. My understanding is -- and I stand to be corrected by my officials -- that if those slots are not used for a second year, they go back into the pool and are available for bidding by all the other airlines.

We have no jurisdiction at Heathrow. We have told the competition commissioner that that is under British law. If there is a problem, then indeed you should apply your own law to that.

There is no slot problem here in Canada. The most congested airport is Pearson. Even this summer, there are slots available in peak times: 7:00 to 9:00, 5:00 to 8:00, Monday to Friday. The Minister of Transport for Canada only has jurisdiction under the Aeronautics Act for the allocation of slots within our own territory. There are no problems. British Airways has no problem. Some people have been misled into believing that foreign carriers cannot fly into Pearson airport when they want. That is absolutely false. There is capacity at Pearson.

Senator Finestone: That might answer some of the misinformation we have received.

Senator Roberge: I have a question on travel agent incentives. There is an undertaking by Air Canada to the Competition Bureau that requires that changes are directed at domestic volume only. I am referring to an Air Canada letter from May 18, which says that the undertakings specify that any domestic incentive payment be based on a straight line percentage applied to the domestic revenue volumes, and that domestic payment would only be made should the agency meet the U.S.A. program on international performance criteria.

They say that with the sales flow and revenue to the world, for all these nations, with the exception of Canada, their success will also trigger a reward in Air Canada revenue. That gives the feeling that we are creating an unfair competition to the international carriers, which also has the double effect of reducing the options for the consumer. Can you comment on that?

Ms Dufour: Honourable senators, I am not quite sure that will happen. The bureau has said you cannot use market share as the basis for providing the override commissions, which is the additional commission. The impact of that has been, as in any other country, that travel agent commissions on transport and international routes are based on market share, as they are with all other international carriers. On the contrary, they continue to be able to compete for foreign carriers and for foreign travel because they can continue to offer as much in terms of commissions for international and trans-border flights as their competitors.

The only impact of the bureau's activity was to ensure that in the purely domestic market, they would not be able to overwhelm competitors by paying out commissions on market share. However, that is on straight volume, which means that you get paid for what you sell, without receiving a bonus for having out-sold everyone else. However, on international and trans-border flights, to cut off their ability to do market shares would have cut off their ability to compete with foreign carriers.

Senator Roberge: Also, by basing the domestic payments on the volume of the foreign sales, you are creating a situation whereby the travel agencies will be forced to utilize Air Canada versus other carriers, thereby reducing the options for the consumer.

Ms Margaret Bloodworth, Deputy Minister, Transport Canada: Senator, I have also heard these allegations recently.

Senator Roberge: It is written in black and white.

Ms Bloodworth: The question is whether or not Air Canada is meeting the commitment it made to the Commissioner of Competition.

Senator Roberge: It is.

Ms Bloodworth: The commissioner looked at this issue, and indeed I believe people from his office are appearing before you, so I suggest you ask them as well. They looked carefully at the question, because the commissioner had raised the question of whether or not the commission system was giving Air Canada an undue advantage. In the end, they concluded that they got an undertaking only on the domestic traffic for the reasons that Ms Dufour has outlined. What is now alleged, I understand, by British Airways and perhaps others, is they are doing indirectly what they could not do directly. That is really a question for the Competition Bureau to determine. That is why I am being careful with my language in saying "alleged," because I do not know whether they are meeting the commitment or not.

That would be a determination for the commissioner to make.

Senator Roberge: We will raise the question with the commissioner.

The Chairman: They will be here tomorrow.

Senator Roberge: I do not know if you can answer these questions now that the minister has gone, but on the divestiture of Canadian Regional Airlines, the employees, of course, are extremely concerned that they will not be able to serve as a feeder to the main carriers, and will not have access to computer reservation service or the frequent flyer programs. If such a disposition takes place, do you intend to impose requirements for job security for the Regional employees?

Ms Bloodworth: The requirement to divest Canadian Regional Airlines was, again, part of the arrangement with the Competition Bureau. It is part of trying to foster competition. I realize some employees would prefer to remain part of the family of Air Canada, but it is a question of balancing the interests. If we want to encourage more competition, and obviously the Competition Bureau wants to do that, their conclusion, as experts in that area, was that it was necessary to have a divestiture of Canadian Regional.

Canadian Regional Airlines is currently up for sale, I believe as of June 1. It will be up for sale for a 60-day period, and under the best of all possible worlds from the competition point of view, someone else will buy it and compete with Air Canada on at least some of the routes.

Senator Roberge: What happens if you receive no offers?

Ms Bloodworth: Then it will not be sold.

Senator Roberge: Will it remain in Air Canada's family under the same terms and conditions as for the other employees?

Ms Bloodworth: The commitments we have are from Air Canada, not from any particular part of it. It is for all of the members.

Ms Dufour: Just to reassure the senator with respect to if it were sold, it would continue to carry out the commitments to serve communities. Therefore, it is not being sold to become smaller, but to maintain services. If it is bought by an air carrier, it will acquire, along with that, the CRS services -- the computer reservation systems capacity <#0107> and the marketing and sales systems of its new owner.

One of the attractions of selling it is the opportunity to create another possible global alliance. I have no idea who might want to buy it, but part of the idea of creating an independent carrier is to create a carrier outside the Air Canada family that could become a Canadian partner in another global alliance. Thus, the opportunities are perceived as more optimistic than negative.

Senator Roberge: If an American operator wanted to buy it, would they be entitled to do so?

Ms Dufour: They would be entitled to buy 25 per cent.

Senator Roberge: Only 25 per cent.

Senator Furey: At third reading debate in the House of Commons on this bill, the possibility of creating a passenger bill of rights was raised. I think that would be outside the scope of the bill, but nevertheless, there is a high degree of passenger dissatisfaction during this transitional period. I would have thought, and I hope I am right, that the establishment of a complaints commissioner in the bill would provide an avenue to more than adequately address that type of concern. Is that correct?

Ms Bloodworth: You are quite right, senator. The decision was made in drafting the bill to have a complaints commissioner who would deal with specific complaints, and hopefully resolve as many of them as possible. As well, there was a decision to have "airline observers", who will be able to provide advice directly to the minister. Hopefully, that will deal with the particular problems of service, which we expect to occur. There have been some problems, and there will continue to be more as the integration takes place.

If the airline observers, a year or 18 months down the road, were to say to the minister, "Well, we do not think you have done sufficient on the passenger side," that does not prevent the minister from doing something at that stage.

Senator Furey: My second question, Madam Chair, pertains to the issue that was just raised, concerning the workforce. We are hearing a number of complaints from employees about the rather thorny problem of trying to join the two workforces together, particularly with issues such as seniority. Can you give us some idea of how the actual melding of the two workforces is going?

Ms Dufour: Honourable senators, the minister has sought the commitment that he will not manage the process. The issue of seniority is normally resolved inside the unions, since there are common unions within the carriers. The Minister of Labour, without speaking on her behalf, has also said that these are internal issues and that the ministry will provide its normal facilitation processes to allow this to come about.

Senator Furey: However, commitments have resulted from the contract. For example, there is assurance that if redundancies are created, a full package will be given to those affected. Are such commitments guaranteed?

Ms Bloodworth: There is a guarantee. However, I think that Ms Dufour is talking about the fact that it is difficult to bring two large organizations together when there are different union contracts and different rules.

That will be resolved by the normal labour negotiation process. In fact I believe in the last couple of weeks, Mr. Milton has offered to pay for arbitration and mediation on that issue between the unions. It is a difficult issue and I have no doubt that we will hear further about it before it is finally resolved.

The Chairman: Is that a supplementary, Senator Callbeck?

Senator Callbeck: Yes. Ms Bloodworth, in your answer to Senator Furey, you mentioned the Air Travel Complaints Commission, but then you said "airline observers." Will you explain their role, please?

Ms Bloodworth: The Air Travel Complaints Commission will be part of the Canadian Transportation Commission according to an amendment added during the proceedings in the House. The minister has said all along, certainly going back to last fall, that he would be seeking the advice of one or two other people outside of the department -- outside of the CTA -- on how the restructuring has taken place over the first 18 months or so. It is not a legislative position -- someone who would provide some advice to the minister. Those people have not been named yet.

Senator Callbeck: Are they looking at the structure, the rates, and the level of service?

Ms Bloodworth: Terms of reference have not been specified yet, but I would expect them to be looking at the industry as a whole and how it is operating, including the government portions of that.

Senator Perrault: Ms Bloodworth, it is good of you to be with us today with your associates. Generally, I feel that Canadians have been served by two superb airlines when I compare them to the facilities in other parts of the world. I think both have won awards for the best in-cabin services in separate years.

I remember the last trip that I took aboard an American carrier -- it was like an Oklahoma cattle drive. There was total disorganization. Therefore, if we are building on that kind of foundation, I think we'll be in good shape.

I should like to talk a little more about competition. There was an article in the paper the other day that said, "Well, if you buy your ticket on Canadian Airlines in Seattle, you can save $200." When asked why, they said, "Well, it is competition." That causes me some concern.

I remember years ago, probably going back as far as anyone in this room, when I took my first flight aboard a Lockheed Lodestar plane in 1947. It crashed two weeks later with all hands lost, and they discovered the plane only a few months ago.

As well, I remember the box lunches you used to get aboard those early Air Canada flights -- cold ham sandwiches in a little box. As soon as competition arrived, those box lunches were never seen by man or beast again. We should have saved one, as it would have been a good exhibit.

Senator Forrestall: Do not tell the Canadian military that.

Senator Perrault: That was the end of the box lunches. It says something about the value of competition. I cannot understand -- perhaps you can explain it to me -- why it is possible to get a ticket to Manchester, England, from Vancouver for $560 return, but it costs $3,000 to travel executive class between Ottawa and Vancouver. There has to be an explanation for that, but I have yet to hear anything coherent and useful. Do you have any response to that?

Ms Bloodworth: I think it is as the minister said, that there is no question, under the system of deregulated air fares, that the more certainty, the more flexibility, and the higher the class of service you want, the more you pay. I can assure you that you cannot get a ticket to Manchester for $560 if you want to fly business class, because I flew business class recently, at least to Heathrow, and it came much closer to $3000.

Senator Perrault: It may have been one of the charter planes, but it was available.

Ms Bloodworth: You can get the fare, but not for a business class ticket that you can change at any moment. You are paying for the flexibility. If you want a ticket that allows you to fly business class, and to change it right up to the last minute, that is what you pay for. Indeed, even if you do not show up at the airport for the flight, you can still get all your money back, or you can apply it to another flight. Alternatively, you can purchase cheaper tickets, and indeed many Canadians do that because it allows them to travel. If you know that you will be travelling at a certain time, you are ready to book ahead, you are ready to give them your money, and accept that you will not get the money back if you miss that flight, you can get a much cheaper fare.

Senator Perrault: Perhaps that is an explanation. Are you suggesting that it is standing room only on some of these flights?

Ms Bloodworth: Our safety standards would not allow you to stand.

Senator Perrault: I received a letter from someone who worked for Canadian Airlines. It reads as follows:

To my knowledge, there has been little, if any, definitive statements or commitments from Air Canada regarding the retirees of Canadian Airlines and its predecessor companies such as CP Air, Pacific Western and Wardair. These people made great contributions to the growth and success of Canada's airline industry. Will their present status as retirees be retained and/or folded into the AC retiree program? Or will they be cut off? What is Air Canada's intention in this regard?

I was unable to answer the question and I wonder if you might respond.

Ms Bloodworth: I cannot answer it either, senator. I believe that Mr. Milton will appear before you and perhaps it would be best to ask him.

Senator Perrault: We will ask Mr. Milton. That is fine. I think, by and large, that these have been difficult days.

I have been in my share of line-ups since the so-called "takeover." They bumped five passengers from one flight and I think they offered them $100 and a hotel room. That is the first time I have ever seen that happen. We were held up at Ottawa airport three weeks ago, and they said there was a new flight coming in from England. There were 60 passengers aboard, and they would have to hold our flight to Vancouver in order to accommodate those passengers, who were late. That is the first time that has ever happened. Perhaps all these issues are being resolved, and if they are, that is great.

Ms Bloodworth: I would certainly hope that some of them are being resolved. I must say that the offering of money to be bumped is quite common in the U.S. I hope it does not get as common as that.

Having said that, it used to be -- and I must confess to being one who got very used to it myself -- that you could arrive 10 minutes before the flight left Ottawa airport and know your seat was there. That is no longer the case. I do not arrive 15 minutes before the flight; I arrive earlier than that because I know they may well give my seat away.

Yes, there have been some bumps along the road to bringing these two large organizations together. A good deal of that will be resolved, but there will be changes.

Senator Perrault: What period of time would you say represents a reasonable integration?

Ms Bloodworth: I think the minister spoke to that before. He said he would expect, and adhere to, 18 months, and he was going back to the beginning of the year. We should then be back into a normal situation.

Ms Dufour: Madam Chairman, for the purposes of reassuring the members here, one of the amendments in the bill is to return the authority to look at domestic terms and conditions of carriage to the CTA. That is the stuff that is written on the back of your ticket. That is the stuff that deals with bumping, lost baggage, denied boarding, and so on. When the bill comes into effect, passengers will have greater assurance that they have a tariff against which the behaviour of the airline is tested if they were to complain. Right now, there are no obligations with respect to domestic terms and conditions of carriage. Putting them back in will give more assurance to passengers and protect the way in which they want to be treated by the carrier, who will now have to follow the tariff as printed.

Senator Forrestall: Can you tell us how well Air Canada is doing to date with its commitments and undertakings to the government and the Canadian travelling public? Have they been living up to all these undertakings? Are they well on track? Where does it stand? Are they at 50 per cent, 100 per cent?

Ms Bloodworth: It is 100 per cent when it comes to the undertakings and commitments that Air Canada made as part of the exchange of letters that took place when the government agreed to approve the deal. They are living up to all those commitments.

With reference to service to communities, by error, when they made their first changes, they did leave out a few communities. As soon as that was brought to their attention, I must give them credit and say that they corrected it immediately. They have lived up to and are continuing to live up to the commitments they made to us as part of that negotiation.

Senator Forrestall: A question was asked at the time about the penalties or remedial action the minister might consider should there be a loss of service to these communities. Upsetting the balance north of 60 was one area, and it went on and on. What remedies does the government have in the back of its mind should Air Canada fail on some of these undertakings? I am thinking specifically of the competitiveness and the gouging capacity that they now have. Presumably, until you change some other ground rules, they will have a virtually uncontested monopoly on major domestic traffic.

I do not see Royal and those other airlines providing the type of competition where you can get a flight either at seven or nine. They are not going to change it from 9 to 10:30, as Air Canada did to me this morning, or change it from 10:00 to 11:00. When you drive 450 kilometres just to get to the airport, sometimes you are there at 10 to 9, not 10 to 10. What remedies can be imposed?

Ms Bloodworth: There are three categories of commitments that I consider when I look at the approval that the government gave before Christmas.

The first category is the commitments that Air Canada made, and that has to do with labour and service. Those are simply commitments to the government at this stage, which, as I say, Air Canada has lived up to. This bill will make them legal requirements with binding legal authority, and I will ask Ms Dufour to speak to the penalties under this proposed legislation. That is one category.

Another category of commitments was a series of undertakings they made to the Competition Bureau. The competition commissioner has legislation and those are binding under that legislation. He has all the remedies under that legislation now. In addition to that, he asked that they be made binding under this bill. There will be two ways of approaching those commitments: his existing legislation, or this bill once it is passed.

Senator Forrestall: Is there a priority? Which is the superior?

Ms Bloodworth:I think it is probably best to ask the Competition Bureau that. I assume that because they wanted this bill, they see some benefits to it, but they may have a more complete answer for you, senator.

The third category is not really commitments, but things that we chose to deal with by legislation. Pricing is a good example of that. This bill would give the agency the right to hear complaints and to roll back rates on monopoly routes. We chose not to ask for any commitment from Air Canada about pricing, but rather to go the route of saying, "There will be a continuing power within the government agency to deal with and enforce that."

When I said three categories, those are not really commitments, but they are powers that the government will have. This bill does speak to penalties, and perhaps Mr. Pigeon could speak on that.

Mr. Jacques E. Pigeon, General Counsel, Legal Services, Transport Canada: Under clause 19, those commitments are deemed to be terms and conditions of approval of an Order in Council passed under the new review process. Under the review process, proposed subsection 56.2(9) would trigger the statutory obligation. It says that every person subject to terms and conditions specified in an order shall comply with them.

If there is a breach of this statutory commitment, under 56.5(1), the commissioner or the minister, depending on whose commitment or undertaking is breached, can make application to a superior court for an order that would be in the nature of an injunctive remedy to force compliance.

Therefore, proposed section 56.5 is one means at our disposal to force compliance. In addition to that, it would constitute an offence, under proposed subsection 56.7(2), to fail to comply with a term or condition of an order.

That would constitute an offence, which would trigger the penalties referred to in proposed subsection 56.7(2), namely, $10-million or five years imprisonment, or both, depending on the person charged.

Ms Bloodworth: I wish to return to the example of service to the community. If, for example, Air Canada breaches a commitment some time in the next six months to serve a community that used to be served by Air Canada or by Canadian, and chooses not to respond to our enquiries, the government could seek an injunction from the courts that would order them to reinstate the service. In addition, if it were serious enough, the government could seek to have Air Canada punished by fines, again through the court system, which we would normally use.

Senator Forrestall: Senator Furey asked about the observers. I asked the minister when we might ordinarily expect to be able to undertake an in-depth review of all this. I am not a pessimist, but we did not just start this last fall. This has been with us now for over a year and a half, or two years. For those who knew, I guess it has been around for three years. I do not see us completing this in much less than three years from now. I do not know how you can get everything in place that quickly, sort out who will survive and who will fail, and look at a scenario where Canadians can begin to expect the best possible service under this restructuring.

Presumably the minister has some ongoing concern about this, so he wants someone else to look at it and give him timely and considered advice about how things are progressing. I gather that will be closely held. Does it involve reporting to the minister, or reporting to the public body?

Mrs. Bloodworth: It certainly will involve reporting to the minister. As I said before, the exact terms of reference for the airline observers have not been finalized yet.

Senator Forrestall: When can we expect that?

Mrs. Bloodworth: I would hope soon.

Senator Forrestall: I have heard that word before. You will not say "very soon," though?

Ms Bloodworth: I do not know, senator.

Ms Dufour: So that it is clear, lots of monitoring will be occurring. The Canadian Transportation Agency will be reporting annually in its normal way, and it will be reporting on all its activity generated by this transition. The Department of Transport does an annual picture of transportation in this country. It has always had an airline chapter, and it will continue to contain information. As this evolves, we will be doing our part. We just put out our 1999 information, and in a year we will be putting out the year 2000 information. In addition to what the agency has been doing, the Air Travel Complaints Commissioner has been asked to report, through the minister to Parliament, on a six-month basis, so that additional information on complaints will be received separately.

Senator Forrestall: How will he report to the minister? Will it be done through Parliament, or to Parliament through the minister?

Ms Dufour: To Parliament through the minister. There is a commitment in the bill that the information will be provided semi-annually to Parliament. In addition, the purpose of the observers is precisely to provide periodic reports -- that is, an independent look at the overall picture -- over the period of 18 to 24 months. The carriers have testified before this committee, and the other committee, that it will take them at least 18 months, in some cases, to buy aircraft, bring them on stream, and to actually enter the market. You are quite correct that the shake-out will take 18 months and more.

Senator Forrestall: I trust the minister believes that the Senate of Canada is part of Parliament. It is just that we would like to have the reports too.

Ms Bloodworth: I am sure he knows that.

Ms Dufour: It is Parliament.

Ms Bloodworth: "Parliament" includes both Houses.

Senator Forrestall: I am curious about the temporary nature of the complaints commissioner. Is that because we want someone in place quickly, so we will grab some unwitting soul and put him or her at the end of this mail bag rather than taking our time to find an airline ombudsman? How will this happen? Where do I send the 1,400 or 1,500 letters that I have received? Do you want them?

Ms Bloodworth: I probably have a good many of them myself. The agency already handles complaints. I have already referred people to them, and I urge others to do so. The Air Travel Complaints Commissioner is a permanent position. The minister has the ability to name what is called a "temporary member of the agency." It was to facilitate being able to name someone, but the position is a permanent part of the bill.

Senator Forrestall: What is his or her address?

Ms Bloodworth: It will be at the agency. I do not have that address with me, but I am sure we can get it for you.

Senator Forrestall: Can someone behind you get it so that we can put it on the record?

Ms Bloodworth: I think representatives from the agency are also appearing here, if I am not mistaken.

The Chairman: They will be here later. We will ask them for the address.

Senator Roberge: I imagine that you are hard at work on your regulations right now?

Ms Bloodworth: Right now, we are finishing the proposed legislation. We have already given some thought to the regulations.

Senator Roberge: When do you expect them to be completed?

Ms Dufour: The Competition Bureau is the lead department on the regulations dealing with anti-competitive acts, refusal to deal, and refusal to supply.

Senator Roberge: Jointly?

Ms Dufour: We are working together. An early draft has already been tabled. It became public on March 22. I believe that a more recent version will be brought to you by the competition commissioner. It is still a work in progress because regulation requires gazetting 1, formal consultation, and gazetting 2, none of which has any life until this bill confers the authority to make those regulations.

Senator Roberge: Can you tell us where those regulations also relate to areas of international travel?

Ms Dufour: You will not see the word "international" in the regulations. They state that when a person operating a domestic service refuses either to supply or to deal with an essential service or facility over which they have control, that is considered anti-competitive. The challenge, both for us and for the bureau, is to define what constitutes an essential facility or service. It is in that context that a foreign carrier seeking some form of support that they allege to be essential for their facility or service in Canada, is being denied. That is the approach to allow a foreign carrier who seeks service in Canada and cannot get it, to find redress.

Senator Spivak: On this question, if Air Canada, for example, triples the price for interlining, say, for British Airways -- that is, it was $300 and it becomes $1200, which is more than triple -- where is that considered? Is that under the competition commissioner's jurisdiction? That would make them unable to compete on the overseas route with Air Canada.

Ms Dufour: It would be up to the parties to complain to the bureau and have the bureau review it.

Senator Spivak: That is what I am asking you. Is the competition tribunal involved in this?

Ms Dufour: Yes.

Ms Bloodworth: Yes.

Senator Roberge: Out of curiosity, let me ask this. In the United States, they keep statistical information and data for each airline's performance as it pertains to lost luggage, delays, and what have you. I think it is good to have that sort of transparency. Is there an intention to put that sort of thing into the regulations for Canadian carriers?

Ms Bloodworth: I would expect the Air Travel Complaints Commissioner to deal with that. He or she must report every six months. We have not specified in detail what he or she will have to do, but that office will receive large numbers of complaints.

Senator Roberge: That is not a complaint, it is just a suggestion. It seems that we must always go to an ombudsman or what have you. It is just a suggestion. Do you plan on having some mechanism in the regulations for putting a suggestion in the box?

Ms Dufour: We are exploring that, but right now we do not have mechanisms in place to count heads or to sample the way the American carriers do, in order to produce the kind of information that you are talking about. It is an interesting concept, and we will be looking into it.

Senator Roberge: You could do it by phases. You could say, within the next year this must be done, and within two years that must be done.

Ms Bloodworth: That was my reason for referring to the Air Travel Complaints Commissioner, who will be reporting every six months. I see that as a way to start.

Senator Perrault: I remember a few years ago we appointed a new head of the CRTC, and he said, "I bring to my new and onerous responsibilities a completely open mind. I have no television set and I do not listen to the radio very often." It would be useful for us to meet with the complaints commissioner.

Senator Adams: My concern relates to Canadian North and the concept of having five different shareholders. How will that work? We have two airlines, First Air and Canadian North, flying from Edmonton to Yellowknife, and Iqaluit to Ottawa. With the merger of Canadian Airlines and Air Canada, what will happen to Canadian North?

Ms Dufour: Madam Chair, Canadian North is not considered a wholly owned subsidiary of Canadian or Canadian Regional. It is, however, subject to the commitment made by Air Canada, in taking over Canadian, that it will continue to provide support services in the same manner as to Calm Air and to Ontario Regional. Canadian North will decide how it will continue to operate in the future. It does have access to Canadian Airlines' frequent flyer points, bookings, and so on, for as long as Canadian Airlines continues to operate as a separate brand. It is an evolving situation, so long as Air Canada meets its commitment to provide the support services in the same manner as to the other not-100-per-cent-owned regionals, so they will not evaporate from lack of services as this restructuring takes place.

Senator Adams: If it is not in competition with Air Canada, but connected to Air Canada, how will that work?

Ms Dufour: It will be up to Air Canada in the future to decide what kind of a commercial relationship it wishes to have with an independent Canadian North, but that is down the road right now because Canadian North is still linked to Canadian Airlines, which still operates.

Senator Adams: We have spoken about the commissioner, and the ombudsman, and now we have the observer. How will these different positions function?

Ms Bloodworth: There are two different offices, senator. First is the Air Travel Complaints Commissioner, and that will be someone in the existing CTA. It is not a new organization. That person will deal with passenger complaints. When you travel on an airline, if they lose your luggage or bump you and so on, that is the kind of complaint with which he or she will deal.

The observers are more available to advise the minister as to the whole restructuring. I do not see them dealing with individual complaints, although they may have some comments on the number and volume of complaints or something like that. Those are the two separate functions.

Senator Adams: If we send in a complaint, we may not get the answer the same day. It could take three or four months. This person will report to the minister only every six months.

Ms Bloodworth: That person will submit a report to the minister every six months, but will deal with complaints every day. The report to the minister is not what he would do about a complaint. We expect that that office will operate a large part of the time as a mediator, trying to resolve things between airline and passenger, and that would not wait for any report to the minister. He or she will not need approval from the minister to do that.

Senator Adams: If I lost my luggage going up to Rankin Inlet, if I could not get it for three days, could that be delivered to my home today or tomorrow?

Ms Bloodworth: I know the agency has a 1-800 line now, and I suspect the complaints commissioner will have one as well. They can explain to you what they have in mind.

The Chairman: Thank you very much for appearing before us.

Our next witnesses are from the Canadian Association of Airline Passengers.

Mr. Michael Janigan, Executive Director, Public Interest, Advocacy Centre, Canadian Association of Airline Passengers: Madam Chair, generally, we are heartened by the legislative response of the government and the minister to the vexing problem of airline dominance.

We understand the problems facing the minister in designing the framework for the "brave new world" of airline services. The government seems to be guided by the twin goals of removing barriers to market entry in order to encourage the development of workable competition, and instituting consumer protection to prevent monopoly pricing or other consumer-unfriendly practices. The consumer protection rules should act, as much as possible, as a proxy for workable competition without unduly hampering the operations of the merged airlines.

Our focus today is on some of the problems that we see with respect to the text of the bill itself. These items, we believe, may pose some significant problems in the future if the bill goes forward in this fashion. To that end, we have circulated some speaking notes that contain the summary of amendments and policy changes that we seek.

The first item deals with proposed section 66(1), which provides that any individual may complain in writing to the agency. The agency may then order a remedy in accordance with the provisions of the bill. We are concerned that a procedure for the hearing of a complaint concerning unreasonable fares is nowhere to be found in the bill. It is unclear whether or not it provides for some minimal procedural requirements of at least audi alteram partem -- hearing both sides -- and the ability to respond to the complaints, or the responses of the licensing company.

We believe that minimal procedural requirements should be in place to ensure that the agency provides a full and fair hearing for any complaint concerning airline fares. At a minimum, the complainants and the interested parties should have a full exchange of information with the licensee and be able to respond to the same. Accordingly, we have suggested an amendment that includes the words "After hearing the complaint before ordering the remedy."

Dealing with proposed subsection 66(3)(c), we believe that it is important for the Canadian Transportation Agency to hear all relevant evidence. The subsection provides a definition of all of the evidence that is to be heard by the agency in considering the complaint, and this primarily refers to historical data.

I do not have the entire text of the relevant proposed section reproduced in our speaking notes, but I can refer to that. It may clarify that point. Proposed section 66 (3) says:

When making a finding under subsection (1) or (2) that a fare, cargo rate, or increase in a fare or cargo rate published or offered in respect of a domestic service between two points is unreasonable, or that a licensee is offering an inadequate range of fares or cargo rates in respect of domestic service between two points, the agency shall consider

(a) historical data respecting fares or cargo rates applicable to domestic services between those two points;

(b) Fares or cargo rates applicable to similar domestic services by the licensee and by one or more licensees, using similar aircraft, including terms and conditions of carriage and, in the case of fares, the number of seats available at those fares;

(b.1) the competition from other modes of transportation, if the finding in respect of a cargo rate, an increase in a cargo rate or a range of cargo rates; and

(c) any other information that may be provided by the licensee, including information that the licensee provides under section 83.

This sets out the evidence on which the agency may rule, and limits its ability to consider relevant evidence, including government and private studies, and university sources that may deal with cost allocation issues in the airline industry. All of those go for naught. All that can be considered is the historical data, the data from similar domestic services, or any other information that may be provided by the airline.

It is a very limited inquiry into what may be a reasonable rate. I can foresee circumstances in which you are looking at situations involving reasonable rates where you may want to have reference to U.S. or international sources, or studies in the industry that show applicable costs for particular routes.

Due to the way in which the bill is worded now, the agency will be severely limited in its ability to rule on whether a fare is reasonable based on the historical data. We are all aware that there has been dissatisfaction with the ability of the pre-existing duopoly to effectively discipline the market with respect to prices. Nobody, I think, can say at this time that some of the current basic fares on routes such as through the major urban centres are reasonable.

All of that information will be in the form of historical data, which will support a finding that the fare is reasonable rather than unreasonable. Data that may show that the fare currently is unreasonable will be precluded by the way this is drafted.

We have suggested an amendment to include a provision that allows the agency to look at other evidence. It should be provided in proposed section 66 (3) that the agency may look at information provided by any person that may be relevant for the making of a finding under subsection (1) or (2).

We also would like to draw the attention of the committee to proposed section 66 (5). It is rather unusual, in that it provides that the agency shall consider any representations that the licensee has made with respect to what is reasonable in the circumstances. One would ordinarily expect that the agency would consider submissions on unreasonableness, but would consider them from all parties that may be involved in the complaint process.

By implication, this proposed section provides that the agency is statutorily required to hear submissions only from the licensee company on reasonableness. We believe that that would be patently unfair.

We have suggested an amendment that would allow the agency to hear any representations with respect to what is reasonable in the circumstances. Certainly, that would remove the suggestion that the licensee is the only party that can make submissions as to reasonableness of fares.

We have also suggested that the agency itself should be responsible for approving all fare increases where the licensee is the only carrier providing domestic service between two points, within the meaning of the bill. We are guided by the principle that where an important public service is being operated in a monopoly fashion, it should not be up to passengers to obtain reasonable rates. It should be the responsibility of the regulatory agency. It may well subject existing fares to a complaint procedure, be we suggest that increases in fares should be subject to the approval of the agency before they are levied.

Proposed section 86 (1) of the bill authorizes the agency to take corrective measures with respect to problems involving conditions of carriage, lost luggage, et cetera. The government made this amendment with a view to importing a remedy to the agency to deal with these matters. We are at a loss to understand why this particular remedy is in a proposed section that only deals with international service.

I understand that the regulations themselves provide for the contents of the tariff. There is an argument that through the rather circuitous route of using regulations, one could find the remedy in the act. However, I must admit that it will take better minds than mine to figure out why the remedy would not be provided in the proposed legislation, especially since it addresses the very service that you are concerned to discipline.

We suggest that "domestic service" be inserted. We have set out the suggested wording to make it perfectly clear that the agency will have the ability to take corrective measures with respect to domestic service, as well as international service.

Those are our suggested amendments to address the problems that we see in the bill. Most of them are of a housekeeping variety. There certainly is, I suppose, a policy suggestion with respect to all increases in fares should be approved.

Primarily, we see some difficulties with the way in which the government intends this bill to work with the current amendments. I will be pleased to answer any questions on that.

Senator Forrestall: These are not things easily overlooked, they are very important principles. Why do you think that they were not dealt with in the bill? Do you have any view on that?

Mr. Janigan: There may be a different response to each of the issues. Perhaps it was intended that the complaint procedure with respect to fares should be restricted simply to looking at historical data or data from the company itself.

Senator Forrestall: That has been historically the case, of course.

Mr. Janigan: Yes. However, the main problem was that the previous section was inadequate for a variety of reasons, primarily because it dealt with basic fares. You could not deal with any other problems.

If you want a process, particularly in a monopoly circumstance, to ensure that rates are reasonable, historical data is useful. Data from the company is useful, but I do not think it is the only source of information when an agency is deciding whether charges are appropriate.

Senator Forrestall: You refer to other institutions, academic mainly. Are you suggesting here reasons for the development of centres of expertise? There are already a number of university professors who are keenly interested in this type of question and this type of process. Are you thinking of extending to them, through the proposed legislation, an incentive to spur them on to greater involvement?

Mr. Janigan: That may well be. Ordinarily, agencies themselves control the kind of relevant evidence that they want to hear. This is very unusual in a utility or quasi-utility format. Certainly, the agency, at its own behest, may wish to have expert testimony.

There are a number of outstanding academics who deal with the very vexing issues associated with cost allocation. Those experts can assist in making the kind of rulings that we would expect regarding reasonable rates. Certainly, we would like to see that happen, but we think it is precluded by this very restrictive evidentiary limitation.

Senator Forrestall: Have you raised these several points with the department?

Mr. Janigan: Yes, we have. We have circulated this as part of our previous brief to the House committee. We have received no response to our letters.

Senator Forrestall: Did the standing committee in the other place respond in a positive or negative way? Presumably these suggestions were put to them as well?

Mr. Janigan: Unfortunately, our attendance before the committee coincided with the fervour around the ombudsman and the complaints commissioner issue, which seemed to suck all the oxygen out of any other issues in the committee.

Senator Forrestall: Perhaps that is a reason to hear from the minister or the department again.

Senator Spivak: They are here. Why not ask them?

Senator Forrestall: It would be nice to have an answer to that. I have no objection.

In another context, I am interested in safety and security in the air business. The higher our standards of excellence, and the more people who are interested in such questions, the better the conditions will be. Why not apply that attitude toward the development of air fares? In the old days of secrecy, no one would breathe a word about the cost formulas, or how they were developed. Those days are gone. It is fairly easy now for anyone to add up the fixed and variable costs.

The Chairman: Those witnesses will be back.

Senator Callbeck: You say you talked to the department and you also made a presentation to the committee in the other place. Did you receive any response from the department?

Mr. Janigan: No, they did not respond to this package of amendments that were before the committee and circulated to the department before we attended before the committee.

Senator Callbeck: I, like Senator Forrestall, certainly would be interested in hearing their response.

You expressed a concern about how the public will be made officially aware of this complaint process. I think that is a problem.

Mr. Janigan: At a minimum, the licensing conditions would require airlines to be responsible for publicizing the complaint process, both in a ticket manifest form, as well as in pivotal locations where they deliver service in airports across Canada.

The complaints process itself should be well handled. For example, the competition commissioner offers a 1-800 number and a quick response with assistance in processing any complaints that may arise.

There must be public education about the existence of this avenue of help. It should not be left to the last airline staff person who speaks to the customers to tell them that, if they are not happy, they can go there. It should be approached in a very proactive fashion.

Access to the appropriate window for complaints should also be made available on the Internet, so that passengers can use the on-line complaints procedure when they get home.

Senator Callbeck: Have you had discussions with the department about this?

Mr. Janigan: We have not had discussions on that specific measure.

Senator Callbeck: You have spoken publicly in support of a passenger bill of rights. How would you see that enforced and monitored in Canada?

Mr. Janigan: It could be put in place for the conditions of carriage for every airline licensed to fly in Canada. It could be policed in the same way as the limited conditions are proposed to be policed in this particular bill.

When airlines fall below the standards required in the conditions of carriage, a remedy may be sought through the Canadian Transportation Agency. Whether the remedy is financial or injunctive would be up to the agency, but there would be something up front.

All passengers would be aware of the particular standards that airlines must respect and that are applicable across the board. You would not have a circumstance where a carrier such as Air Canada, which has traditionally provided high quality service over all, would be kept to a higher standard than some of its competitors, in particular some of its international charter competitors.

Senator Spivak: I am thinking particularly of proposed paragraph 86(1)(h), for example. Does the Competition Tribunal have different rules?

The distribution of powers among the three agencies makes the process difficult. Ultimately, many of the questions addressed to the Canadian Transportation Agency are on competition, so why are they not within the purview of that tribunal? What is the distinction for the distribution of powers? How do you assess it?

Mr. Janigan: Primarily, the competition commissioner is concerned with conduct on the part of an airline that tends to lessen competition or to remove a competitor from the market.

That conduct might take the form of reducing air fares, or attempting to squeeze access to key bottle-neck facilities, or misleading advertising. There is a whole host of ways in which the competition commissioner may act.

In these proposed sections, the agency is primarily geared to looking at whether or not a fare is reasonable from the standpoint of whether or not consumers are being gouged by the fact that there is no competitive service and the airline can charge whatever it pleases because it will not suffer a loss of market share.

Senator Spivak: Do you not feel this is a distinction without a difference? This says "traffic and tariffs, fares, rates, charges and terms and conditions of carriage" -- hopefully, it should be for domestic and international service. Those are issues of competition. Is the Competition Tribunal precluded from looking at this? I forget how those powers are triggered. Can they look at anything they choose?

Mr. Janigan: The commissioner is concerned with whether or not the actions of a dominant airline impede competitive entry or impede someone from competing. In this circumstance, the concern is based on the fact that with no competition, you might be charging a higher price than is reasonable. It may be that charging a higher price will encourage competitive entry, but it will be unfair to the customer. In that circumstance, the Canadian protection agency will step in to try to ensure that the price is lowered. For example, there may also be circumstances where the agency finds that the fare is reasonable but the competition commissioner finds that it is predatory pricing. It is a difficult fit.

Senator Spivak: What is the point of splitting these powers up? Obviously, there are issues of consumer protection involving loss of luggage, scheduling, and so on. However, when you are looking at fares, those are competitive issues. I do not understand it.

I agree with you. I cannot see why proposed paragraph 86(1)(h) does not include domestic traffic. We will ask that question again later. Could it be because this is covered in another area that we do not see here before us? That is an addition for international travel, and perhaps the domestic part is somewhere else in the act?

Mr. Janigan: The brief answer that I received when I made enquiries on this is that the regulations provide what may be contained within the tariffs. It is a tracing manoeuvre, where you go from the regulations back into the legislation in order to have the remedial measures contained here apply to domestic service. For the life of me, I cannot understand the legal argument where you would use regulations to import a remedy that is contained within the act itself to an entirely different circumstance. It may be that an explanation exists, but I have not found it yet. For the purpose of clarity, it seems to me, particularly as it has been announced several times, that this is what the agency will be doing. You should insert "domestic service" into this.

Senator Spivak: Speaking of regulation, I do not know what your interests are here in terms of consumers, but how do you view the ability in this bill of the minister or the Governor in Council to have the discretion, simply by regulation, to raise the foreign ownership of Air Canada to 49 per cent?

Mr. Janigan: Unfortunately, the foreign ownership issue is not one on which our coalition has come to a position, or studied in any empirical way so that our comments would be of assistance to the committee. You would best be guided by other minds on that subject.

Senator Furey: My question pertains to section 86(1). Like Senator Spivak, I am somewhat confused. I believe your concern is that the agency may not be able to regulate fares and tariffs for domestic service?

Mr. Janigan: No. The primary concern is with respect to the proposed section that involves corrective measures. That is the new section that has been put into the act that authorizes the agency to take corrective measures. That is the section that the minister said will deal with problems involving cancelled flights, loss of baggage. The agency will be able to deal with that in that fashion.

Those remedies are imported into clause 8, which, in its opening language, deals with international and not domestic service.

Senator Furey: Does it not go on in subparagraphs (i) and (ii) to include all service?

Mr. Janigan: No; I do not believe so.

Senator Furey: "...suspension by the Agency of any tariff, fare, rate or charge". It is the same thing again in "providing for the establishment and substitution by the Agency of any tariff, fare, rate or charge..." It is worded clumsily, but it seems to me that it would capture domestic as well as international service.

Mr. Janigan: I would be concerned that as it reads here, particularly the opening lines, it may not be worded as elegantly as possible.

Senator Furey: It is clumsily worded, but if you were to read it carefully, it would include international and domestic flights.

Mr. Janigan: I cannot pretend to be an expert on the precise provisions of this bill in terms of the application of the terms "tariff, fare, rate or charge," but it seems to me that there is some difficulty with the way it is worded in the remedial sections in applying that back to a domestic circumstance, particularly in the way "domestic service" is used throughout the act itself.

Senator Adams: I want further clarification. When you talk about an agency, are you talking about the CTA?

Mr. Janigan: The Canadian Transportation Agency.

Senator Adams: We have the CTA. I do not know how much influence Bill C-26 will have if it is passed. There is a policy whereby the airline is awarded anything that it requests -- for example, when rates rise or when another airline asks for permission to fly into other communities or to other cities. It is the CTA that approves these types of requests. Does the CTA also regulate how the airlines will operate? They have nothing to do with rates and freight costs, especially where I live, where you mostly travel with freight on a plane.

I do not know how the airline will go to the CTA to explain that the per kilogram rate from Ottawa to other places will be much more. If they hand it to the other company, and that airline hands it off to another company, that will be very expensive. How will that system work?

Are you concerned about what will happen to the rates for freight after we pass Bill C-26?

Mr. Janigan: I would defer this question to Michael Murphy, another member of our association.

Mr. Michael Murphy, President, Safety Interest, Advocacy Centre and member of the Canadian Association of Airline Passengers: Honourable senators, as I understand it, the safety aspects of flight that you are speaking about would be regulated by Transport Canada, whereas the freight fees would be regulated by the CTA.

Senator Adams: Up north it is usually cheaper to tell an airline that you will be shipping so much weight over a year, as opposed to per flight. In that way you tend to get a better price.

My concern is that if Bill C-26 is passed in its present form, rates may be increased significantly for the shipping of freight.

Mr. Janigan: I do not know if the bill or the commitments deal with that problem. Certainly it bears further scrutiny.

Senator Perrault: Are there other examples in the world today of nations that have gone through the process of converting a duopoly into a monopoly? In your research, did you draw from the experience of other jurisdictions?

Mr. Janigan: I am afraid we have not done that, senator, nor have we studied a specific example.

The Chairman: Mr. Janigan, Mr. Murphy, thank you both for appearing today.

Our next witnesses are Mr. Mackay and Mr. Everson. We will hear your presentation and then senators will ask questions.

Mr. J. Clifford Mackay, President and Chief Executive Officer, Air Transport Association of Canada: Honourable senators, first let me thank you for the opportunity to speak to you today. Let me say a little about the Air Transport Association of Canada. We represent commercial aviation in the country. Within our membership, we pretty much have all commercial airlines, of which there are approximately 60 in Canada that fly scheduled passengers of one kind or another.

We also represent many other commercial aviation operators, everything from helicopters to small charters to flight schools. We have a broad-ranging membership with regard to aviation in the country.

We are Canada's major civil aviation organization, and as such, we are also very involved with other international carriers, whether U.S., European, or Pacific-based. We work routinely with international organizations such as IATA and ICAO.

With the emergence of Air Canada as the owner of Canadian and the dominant carrier in the domestic market, the government felt obliged to create a legislative response to that situation. In addition to putting Air Canada's undertakings with regard to employees and services into legislation, the bill also strengthens the powers of the Canadian Transportation Agency and the Competition Bureau to guard against price gouging and predatory practices.

ATAC and its members do not oppose this bill. The enormous presence of Air Canada in the market clearly justifies some sort of response from government. Moreover, we believe that the regulatory clauses of the bill, notably proposed sections 66 for the CTA and 104 of the Competition Act have been carefully written and vetted to permit regulatory authorities to act only where there is the greatest likelihood of a problem. This was an issue of concern and we commend the drafters for doing a difficult job reasonably well.

We did seek some amendments before the standing committee in the House. Our proposed amendments all related to points where we thought the bill stepped over the "magic line" between sensible caution and unnecessary intrusion into the marketplace by a regulator.

For example, we urged the House committee to remove or amend the provision in proposed section 66, which allows for a complaint against an air freight monopoly. We argued that the provision ignored the real competition that exists between air freight and other forms of freight transportation, particularly trucking.

There are few locations in Canada where shippers do not have alternatives for freight. We are pleased to say that those representations seem to have been taken into account.

We also asked that changes that would have obliged a carrier to remain in the market for 120 days after a decision to withdraw be amended. We argued that this would deter carriers from commencing a new service into a community, and therefore would almost have the reverse effect of what was intended, which was to try to encourage and stabilize service into smaller communities.

The House of Commons committee agreed with this point of view and amendments were made accordingly, which we think achieves both ends. There is now much more flexibility to enter a market, and at the same time, some certainty for smaller communities about levels of service.

With these changes in Bill C-26, the government has provided stronger powers to the regulators to respond to problems, should they arise. It still provides freedom in a relative level playing field for other competitors. We believe that this is a crucial element to the bill, that it does not give up on the competition as the key agent for the development of the airline industry.

In its broader context, Bill C-26 should be understood basically as a defensive bill. It prepares the government to deal with bad news, whether it is predatory practices, price gouging, mass layoffs, or service reductions.

Bill C-26 does not do anything about stimulating good news in our industry. This bill does not address the need to support competition through changes in the domestic marketplace. We all realize that competition is the best solution to the problems of the airline sector. The best regulators in the world cannot force carriers to try new markets, experiment with new services, or fight each other on a fair and level playing field in the marketplace.

We believe strongly that the consumer's best friend is not the regulator, but the competition in the marketplace. The Minister of Transport has made it clear that he wishes to see more competition in the air carrier marketplace, and so do we. Wishing will not make it come true.

There needs to be a clear and deliberate effort to adjust policies to support competition. We have begun to identify an agenda of items that should be acted upon to finish the task started by Bill C-26.

I remind the committee of the structure of the industry. One CEO recently compared us to a barbell. Air Canada occupies one end of the bar, providing services of all kinds at almost all price levels. At the other end of the bar are a number of carriers such as WestJet, Canada 3000, Royal, and Transat. If you have been following this in the newspapers, you will be aware that two or three more carriers may emerge in the next few months. Most of the other carriers provide services of either a specific nature or at the low end of the price range.

As the president of WestJet is fond of saying, his competition is not the high-priced services, it is the family car. His fares must be cheap enough to lure people on to an airline instead of driving or staying home. That is true for most carriers I have listed.

Cost control is absolutely critical for ensuring the growth of small air carriers in Canada. Rising costs limit competition. If you want to entrench a monopoly, let the costs go up. That will be the result, because they will be the only ones able to provide the service.

The minister has made it clear that he does not anticipate a major change regarding access to Canada for foreign carriers. The only way to get the benefits of greater competition in the near future is to look for ways and means to promote more competition in the domestic marketplace.

ATAC has begun to urge the government to create an agenda for domestic competition. This agenda includes a variety of measures that would reduce carrier costs. As we have been discussing, a dollar saved by a small carrier has a greater impact than the same dollar saved by a larger carrier such as Air Canada.

Almost every province, with the notable exception of Ontario, has reduced fuel taxes, or is in the process of doing so. The U.S. government has begun to do the same. Economists almost universally condemn these taxes as inefficient and inappropriate.

The federal government has yet to reduce its tax of 4 cents a litre. This is not a major item for the federal government from a fiscal point of view. However, it is significant for small carriers in this country. Larger carriers are able to purchase fuel in low-tax jurisdictions. If the economics make sense, they even freight fuel. Small carriers do not have the option. These kinds of taxes are only hurting the small guy.

We have also been talking to the Department of Finance about some of the provisions under the GST for the purchase of aircraft and parts. The GST means smaller companies must finance an additional 7 per cent of the purchase, which would be in the millions of dollars. The company will get the GST credit back, but that takes from one to three months. In the meantime, they must take on the extra financing cost.

From a federal government point of view, there is no net fiscal benefit to the Crown. Yet, it is another impediment to smaller companies and their ability to grow and prosper. We believe the government should seriously look at these sorts of modest changes as a means of trying to improve competition.

The largest item on our agenda is the rising costs of airports. These costs are the fastest rising costs in operating statements. They are of serious concern to all our members, especially the very substantial funds that the federal government itself is extracting from airline passengers. Through the balance of this decade, the federal government will take $3.6 billion out of the national airport system in rents, for which it provides no significant services.

This year alone the government is expected to take in $228 million in revenue from the airport system. The best estimates are that revenue will be approaching half a billion dollars a year by the year 2010. This scenario is not sustainable for the industry, particularly for smaller users.

Through the devolution process, the government shifted the huge cost of airport maintenance from the taxpayer to the user. I hasten to say that we fundamentally agree with that policy. As a result, there has been an enormous explosion of capital projects.

There is approximately $8 billion of capital works underway in the airport system across Canada. In years past, that would have been financed by the taxpayer, or not at all. Today, it is the users who are shouldering the costs. To add additional billions in these costs to the users, while they are confronting other very large costs, would clearly disrupt the economics of the industry. In particular, it places a heavy load on the very carriers that the government should be trying to encourage. We need to have a look at rents and where those costs are going in the future.

I talked about how carriers such as WestJet need to keep costs low to make business plans work. The airport costs are particularly serious for low-fare carriers because they tend to cycle through their aircraft more often each day, and pay proportionately more for landing fees or other airport charges.

The government needs the powers of Bill C-26 to protect the consumer. However, it also needs an agenda to stimulate competition in the domestic industry.

We think the bill before you has done half the job, and there is another half to be done. We commend those other items to your consideration.

Senator Forrestall: I wish to start with the growing costs of airports. In your studies and in your work, is there any single element within the airport structure itself that really stands out as being the principal reason for increased costs? Or is it as you have said -- the whole costing structure of government not doing anything and the private sector having to run to catch up?

Mr. Mackay: I think that the primary cost pressure that we have seen in the last several years is a result of this massive expansion on the capital side. I am not arguing that that was not necessary, and will not continue to be necessary. However, it has imposed a very large cost burden on the airports and on the industry generally.

Notwithstanding that, new regulations, for example policing and complex new security screening for the detection of high-tech explosives, will increase costs. Those costs must be absorbed by the companies or travelling public, and usually, it is some combination of the two.

We are not arguing that that is not legitimate. We should be avoiding any costs that do not contribute legitimately to a more efficient and cost-effective airport structure. One area we suggest looking at is the way in which the government is recouping rents on the airports. The government owns the assets, but is not operating and maintaining them. They are being maintained and operated by airport authorities and being paid for by users. A balance needs to be found, and we are arguing that we are out of whack there a little.

Senator Forrestall: These are not small problems for organizations. Some uncharitable person suggested that the profit really lies in being the general manager of those massive businesses. They pay themselves reasonable well. I understand that the board members do also.

The problem with the soil at the Halifax International Airport, should that have been a capital matter for the taxpayers of Canada generally to share? Should it have come out of general revenues?

That is a legitimate argument to make. It follows the public policy argument that this is an essential service in Canada and that airports and the integrity of that infrastructure are important to the country broadly. The problem, obviously, was that the government did not have the money. This solution is a much better, long-term one, but we are living with some of the pressures that it has created. In general, my members would agree that this is a better solution than the classic government solution, because there is more dialogue today about the nature of the capital plan. As well, there are a number of financing mechanisms that can be used by an airport authority that would not be available to the government.

All airports are not equal in this country. There is a big difference in the kinds of issues that we are dealing with in the large national airports compared with what we are seeing in Sydney and other small communities, where there is the legitimate problem of the viability of the service. We have raised the issue and will do so more forcefully in the near future. There are some communities where, frankly, the marketplace may not work, simply because the traffic volume is not sufficient to warrant and cover all the costs associated with a facility. I do not have an answer, but that is a real problem.

Senator Forrestall: You mentioned your efforts on the GST. That is particularly difficult for us at home, where we harmonized the taxes. I did not see the rest of the country doing that. Perhaps they are a lot smarter.

How are you coping with that, for example, the fuel tax? I have a lot of empathy.

Mr. Warren Everson, Vice-President, Policy and Strategic Planning, Air Transport Association of Canada: I will begin with the fuel tax. ATAC sponsored a large study of the fuel tax issue a couple of years ago. We did our best to paper the washrooms around Ottawa with copies of the document. In that one, and in the GST item, we are saying that if government really wants to promote domestic competition, it needs to actually do some relatively inexpensive things.

It is impossible to read from the expressions of officials what they think about a proposal. However, we are hopeful about a couple, especially the GST proposal, because it is fiscally neutral to the federal government. It is simply an administration issue, and I believe the only concerns they have are with precedent and fairness for other people who have similar issues. We are working on a paper that we will submit in the fall.

Senator Forrestall: For example, if the 4 cents per litre were to stay, did you give some thought to turning that 4 cents per litre over to the airport, against the capital costs? If you did think about it, what is your feeling today?

Mr. Everson: We try to keep it clean and not complicate it with any values -- practically every jurisdiction has seen the merit of trying to ratchet down fuel tax. Even British Columbia has made substantial movements, and it is time for the federal government to consider doing so. There has been a series of reports recently that cited fuel and excise taxes as inefficient. Therefore, we are hoping we can get a reaction.

Mr. Mackay: We made that point you suggested specifically to the Minister of Finance, and he rejected it on the basis that the federal government does not directly tie taxes to individual items. That is their policy position to date.

Senator Forrestall: It may be a policy position, but you must find a way of redistributing the wealth. We pay high fuel taxes, and yet the condition of highways in Canada is lousy, to tell you the truth. Canada's highways are becoming unsafe. People shrug it off, but that happens to be the truth. You only need to drive from Halifax to Ottawa 10 or 12 times a year, making little notes, and it becomes a horror story.

I would like to see up to 8 or 10 cents, for a 10-year period, taken out of those taxes and spent on the highways. It seems to me that there is enough tax coming out of the airports, and out of the fuel, to go a long way towards offsetting, or to easing, the limited methods of fundraising available to airport management.

I suppose very shortly we will have airport user-fees in Halifax. We will have them at a time when the number of landings and cycles are way off. Everyone suffers in the municipalities, because tax revenue is down. Sources of building that revenue are simply not there and they cannot pay the taxes, as they could under the federal system.

I am not opposed to any of these things and I think we are going in the right direction. We have made mistakes, however, and once a mistake is recognized, it must be corrected. My own view is that we have enough surpluses building up, such that not a month goes by that the federal government does not indicate another major surplus with another province.

Major surpluses come about when people are overtaxed. That happens when there are far more regimes in place than are required. I am pleased to hear that you are looking at the question of transferring some of that money. I am sorry that you did not achieve that goal.

Senator Callbeck: I agree with many of the things that you say. It is important to stimulate competition, especially in developing the growth of the domestic carriers. There is no question that an increase of one dollar in expenditures is much harder on a small company than on a large one.

I agree that the federal government should look at the rents and where that is headed in the next few years. I know that in Charlottetown, Prince Edward Island, there is certainly one of the highest landing fees in Canada. I believe it is the second highest.

My question is about what can be done to help develop and promote smaller airlines, but I guess you have really answered that in your brief. However, I will ask one question on the charter airlines because your organization represents them also.

There were some changes in policy for charter airlines -- you can now get a single ticket. What were the other changes, and do you think they will be helpful?

Mr. Mackay: There were a number of changes and I will not go through them all. However, essentially, the changes put the charters pretty much on the same footing, if they choose to be, as a scheduled airline.

It used to be in the old days that, if you wanted to do a charter flight, you had to have a certain number of days prior to booking and there were many rules that made them quite different from scheduled airlines. Most of those rules have disappeared with the recent announcement of the changes in the charter policy. The one thing that you cannot do on a charter that you do on a scheduled carrier is buy your ticket directly from the company. If it is a charter flight, you still have to go through a third party, and that is called "third-party sales".

With that exception, pretty much everything on a charter mirrors the kind of flexibility that you have for scheduled airlines. Frankly, we welcome that change, because it is one more element in the system that will allow companies to make the choice of where they fly routes and, hopefully, improve competition.

As you have seen recently, a number of charter companies are either deciding to put on new charter flights or getting into the scheduled business directly. That is a step in the right direction.

Senator Callbeck: You must go through a third party?

Mr. Mackay: Yes, if you are flying on a charter. If you wish to take a charter flight from Halifax to Vancouver, you cannot call up Canada 3000 and say, "I want a ticket on your charter flight X to go to Vancouver." You simply call a travel agent and they arrange it. That is called third-party sales.

Senator Callbeck: I did not realize that. Royal Airlines comes into Prince Edward Island twice a week, but you cannot buy direct from the airline?

Mr. Mackay: I think that is a scheduled flight. The distinction is whether it is a scheduled flight, where they file their tariff; or a charter. Under "charter," you do not necessarily have to fly that flight. That is the big advantage of a charter flight. If you file the tariff and it is a scheduled flight, under the regulations in Canada, that flight must go, barring an act of God, and so on.

Senator Furey: You indicated that you had some concerns about the intrusive nature of the provisions of proposed section 66. What would they be?

Mr. Mackay: Our concern was with the detail and the approach of the regulator. With anything concerning price regulation, the devil is always in the detail. It is in the regulations and in the attitude that the regulator will take to try to ensure protection for the travelling public. Frankly, we have had some assurances that cause us to believe that they will take a sensible approach.

I will give you an example of what we were fearful about. On any one day in North America, in our industry, there are over 10,000 changed price offerings in the marketplace. That is in one day. You must understand the complexity of the pond into which you are proposing to dive.

Senator Furey: What gives rise to that?

Mr. Mackay: The concept is called "yield management." On a daily basis -- sometimes even more often than that -- airlines are trying to amend their capacity in their service offerings on individual routes and flights to maximize the use of the capital, because so much of our cost is fixed. That leads to these very rapid price changes. All major airlines now, for example on a weekly basis, do what they call "dump seats." You will see all of these last-minute seat sales on the Internet at outrageously low prices. The reason is they are trying to get one more person on the airplane because the airplane is going to its destination anyway. Your marginal benefit is 100 per cent. That is why pricing is a complex matter in our business. We were concerned that, if you really went too far into that morass, the regulator would be completely lost. However, we have received good assurance that they will take their job seriously, but within the realm of the "doable" and not get too carried away.

Senator Adams: My question may be a little different. The only way I can get home is on an airline, whereas my friend Senator Forrestall can drive home by car. It takes him about 14 hours to do so. Are you involved with airline pilots associations, for example, those in the North? I am talking about our major carriers in the North, namely, Canadian North and First Air.

Mr. Mackay: They are both members.

Senator Adams: Air Canada was about to put their rates up a couple of months ago because their rates for fuel increased. I know that different types of aircraft burn different types of fuel oil. Are the taxes raised the same per litre for all types of fuel? Does the government put the rates up for any aircraft charging an extra 4 cents a litre for fuel?

Mr. Mackay: I am not an expert on the fuel industry, but I will try to give you a general answer.

The 4 cents a litre to which I referred is for jet fuel, basically JP4. There is also a tax on other aviation fuel, which is for piston engines, and it is even higher. I believe it is 11 cents a litre. That tends to be related to the smaller airplanes that you will see in the North. Basically, the increase that Air Canada announced a few months ago, for 3.5 per cent, was related to the substantial increases in fuel costs that have taken place across the world.

Do they differentiate in terms of fuel costs between different kinds of aircraft? For the larger companies no, because they almost universally use the same fuel. For smaller companies with a mixed fleet, for example, with either piston or turbo prop aircraft, then you are into a complicated situation. Each company tries to manage their fuel strategy optimally because it is a significant cost for airline companies, no matter what their size.

Senator Adams: Since NAV CANADA took over all the airports, managing even some of the small communities, landing fees have increased on a yearly basis. How does that system work? Does it include ticket sales, the cost of the aircraft, and how many passengers are travelling on the aircraft? Some airlines that operate up North only transport 8 to 10 passengers; First Air can carry up to 100, as long as the plane is not carrying too much freight. How does that system work?

Mr. Mackay: I think you are referring to the air navigation fees.

Senator Adams: Yes, landing fees. They charge every aircraft runway charges, from landing a 180 Cessna up to the bigger planes.

Mr. Mackay: Not every airport does it in the same way, but generally speaking, there are two kinds of fees that airports charge. First, there is a terminal fee for the use of services in the terminal. The small operators do not use the terminal, so they do not pay those costs. They charge landing and take-off fees for the actual use of the runways, and so on. Generally, those fees are based on the class of aircraft on a weight basis. Depending on the airplane, you are charged accordingly.

Second, there are air navigation fees, which are different. They are for air traffic control, et cetera. Those fees are charged specifically on the type of aircraft that you are operating. You pay a different fee, for example, for a 747 than for a Beachcraft 1900 aircraft. Its based on the weight and nature of the aircraft.

Senator Adams: You talked about air traffic control. Some of the communities in the North do not have that system. You have to report to the local airport that you are taking off. Do you get clearance either from Montreal or before take-off as to how the system works?

Mr. Mackay: It depends on where you are in the North. You may clear at Edmonton. There is a major control centre there. There is another in Montreal.

If you are looking for local service or weather service, you may very well get that through the flight specialist in some other location like Yellowknife.

If you are looking for routing services for a long north-south trip, clearly your flight will be controlled by one of the major control centres in the country. There are five, if my memory serves me correctly.

Senator Adams: We worked on the automatic weather station issue in this committee five or six years ago. We were told rates would fall because we would not need to pay local operating staff. Is Transport Canada still charging the same rates to airlines for the weather forecasts?

Mr. Mackay: I cannot give you a specific answer, but it is now NAV CANADA, a private company, that is in charge. They are in the process of reorganizing flight services into a number of centres across the country and taking advantage of telecommunications to bring costs down. We can put you in touch with the people at NAV CANADA for a more full answer to that question.

Senator Spivak: We heard about the airport costs way back. I am wondering whether these are actually non-profit, local agencies. Are all their costs transparent? Do you get an estimate of how they are spending their money and whether it is justified?

Mr. Mackay: The principle is that costs are transparent. We have been somewhat concerned about the degree of transparency in some airports. Through the government's recent review of the airport policy, we have made a number of representations. We understand that the Minister of Transport has that input under active consideration as we speak. I do not know what his decisions will be. Our representations are being considered at a senior level this month.

We are hopeful that he will reinforce the rules for transparency in airport cost bases. We think that would be a step in the right direction. It is in everyone's interest to understand the costs faced by airports. Otherwise, we do not know where the problems are. Moving in that direction is in everyone's interest.

Senator Spivak: Are you confident that those costs will be transparent, that they will be audited by government auditors?

Mr. Mackay: Generally speaking, if the government moves as we expect, the answer is yes. We do not think there will be government auditors, though, and we would not advocate government auditors. Not-for-profit organizations are subject to regulations that require pricing by cost base and publishing of methodology and models. This is very similar to what NAV CANADA has done. NAV CANADA generally works well on this front.

You can find out what things cost in NAV CANADA. You can find out how they price. It does not require an army of government auditors to do so. The information is there.

If the information is not forthcoming, a user can go to the appeal process, which has some significant teeth. We are proposing that the government use that mechanism, rather than using auditors. We find that auditors just add to the cost.

Senator Spivak: In my own province, there have been horror stories about excessive cost in agencies and in government agencies. If there is less than severe accountability, the temptation is great to go into all kinds of things like airport expansion and building of hotels, et cetera.

Mr. Mackay: Let me explain how NAV CANADA works. The act to privatize NAV Canada includes a set of principles against which prices must be determined. A pricing methodology is defined in the act.

There is also provision to appeal. If we as users do not believe they have followed the rules of the game, we can appeal to the CTA. If we win the appeal, they do not get their price increase. They must start all over again. That is a significant commercial disincentive to a company.

We are proposing a similar kind of regulation for airports. We like the self-regulating nature and it is in the airport's best interests to follow the rules because of the significant consequences.

Senator Spivak: Accountability is also an important issue.

Mr. Mackay: Yes, it is.

Senator Spivak: I asked this question of the minister, too. Do you think that Air Canada, having 85 per cent of the market, should also be in the discount market?

What do you think about further divestiture of airlines? They still have all those regional airlines. What is your view on that in terms of competition and prices?

It seems to me that air fares have skyrocketed since privatization, rather than the other way around. Now we are in a monopoly situation, with regulation, which is where we were way back when. That is no substitute for competition.

Do you think the discounts and divestitures might improve the competitive atmosphere?

Mr. Mackay: On the discount issue, we already have WestJet. It looks like we will have CanJet, and we may have a third, Sky Services, which is a discount business service.

With that amount of play in the marketplace, why not let Air Canada enter too? Frankly, it is Air Canada's business decision. I find it difficult to believe that a full-service airline with all its overheads could compete in that market against a lean and mean company that is very focused. That is their business decision and not mine. They must do what is right for them.

With regard to divestitures, clearly the Competition Bureau felt that Canadian Regional needed to be examined. That process is going on. We do not see anything particularly wrong with that.

In the rest of the country, there is a real dilemma. A competitive regional carrier in Canada needs the ability to connect, through interlining, with a major hub and with the international community. Whether that is done through a Canadian/Air Canada regional or through other means, it must be done. I am not sure of the competitive advantage in one ownership structure versus the other.

We have not taken a strong view on that. We are interested in seeing how the world will look in the next 18 to 24 months. We are convinced that this period of change is certainly not over. A number of businessmen will make decisions that will again change the landscape out there.

For example, what will the Oneworld alliance do to ensure that they have a reasonable piece of the Canadian market? We do not know, but we are sure they will do something.

Senator Spivak: Star Alliance is a much bigger operation.

Mr. Mackay: Worldwide, there is not much to choose between the two.

Thank you, witnesses, for your presentations.

[Translation]

The Chair: Our next witness is Mr. Serge Martel, representative of the Association des gens de l'air du Québec. Mr. Martel, after having listened to your presentation, the senators will ask their questions.

Mr. Serge Martel, Pilot and Member of the Association des gens de l'air du Québec: First of all I would like to apologize. Because of the short notice we were given the English version of our brief was not received in time and we have only completed a portion of it.

The Chair: You do not have to apologize, this afternoon we have had presentations which were only in English.

Mr. Martel: Madam Chair, the reason for our presence before this committee is very simple. It stems directly from our categoric rejection of the amendments proposed to Bill C-26 last May 15 by Mr. David Collenette, Minister of Transport.

The adoption of this bill, in its current form, will only legalize the perpetual discrimination towards francophone working in the airline transportation industry in Canada. The legislator forgot to subject the moral persons described in section 10(3) of the Public Participation Act of Air Canada, Canadian International and regional carriers to Parts V and VI of the Official Languages Act.

These deal respectively with the language of work and the participation of francophone Canadians and anglophone Canadians. Yet, the amendments proposed by the Association des gens de l'air were only looking for some respect for the presence of francophones within the new national transportation company.

We have already indicated that it is clear to all that despite the legal obstacles separating our three entities, they are in reality but one. The privileges of a quasi-monopoly granted by the House of Commons to this entity should also impose the obligation to respect in total the Official Languages Act.

And this position is dealt with by Justice Michel Bastarache in his book entitled Linguistic Legislation in Canada. It states:

Linguistic equality of individuals requires that French be recognized as the language of work within federal institutions. It would be absurd to confer equal status to the two official languages if the use of one of them was then proscribed in the workplace.

The author continues further and describes the importance of Part VI of the Official Languages Act.

The statement in section 16(1) also covers another reality, that of fair representation or a proportional representation of the two groups of official languages within the federal apparatus. Implicitly, this declaration is based on the principle of equality of the two linguistic groups. This equality is not absolute, it sometimes requires an equitable number of individuals coming from each of the two groups to ensure representation.

This fair representation is needed for the right to work in one or the other language to be a reality and for services of equal levels of quality to be provided in both official languages.

The example of Belgium, a bilingual federation like Canada, indicates that our demands are realistic and can be applied, as we have been saying for a quarter of a century.

According to the data provided to the Association by Mr. Paul du Bois, Executive Vice-President and General Secretary of Sabena Airlines, the linguistic distribution of the staff respects that of the Kingdom of Belgium, namely 55 per cent of Dutch speakers and 45 per cent of francophones.

Even if there is no longer any legislation dealing with the use of language within Sabena, Mr. du Bois indicates that the spirit of trade and common sense are used to maintain the balance. He adds:

... managers must however be attentive to ensure that there is no major imbalance within their business whether it be public or private.

Such a statement contradicts the motives advanced by Minister Collenette last May 15. Moreover, he maintained:

The application of Parts V and VI could impose considerable obligations on private sector entities which are not currently and never have been subject to the Official Languages Act.

He also stated:

The government's position regarding changes is that they are not required or that they represent an unreasonable extension of the principles contained in the Official Languages Act.

Are we to fear that with such a statement, other principles of the Official Languages Act could also eventually be sidelined by our legislators?

The last 25 years are replete with motherhood statements and undertakings that were never followed up. The many promises in favour of francophone representation in the airline industry in Canada when never kept.

Back in 1981, Air Canada was already setting specific objectives. In response to the question from Senator Martial Asselin, member of the Joint Committee on Official Languages, Mr. Claude Taylor reiterated the undertaking of the corporation to reach a proportion of 25 per cent of francophones by 1986. The same statements were repeated in 1987 by Mr. Pierre Jeanniot before the same committee. The following illustration indicates that the reality was quite different. You can clearly see that within 20 years, the percentage of francophones within Air Canada, instead of increasing, fell in 1998 to a level which had previously been seen in 1978, namely 17 per cent.

The increase in the number of complaints indicates that Justice Michel Bastarache's statements are still current as we indicated earlier in the exempts we quoted.

By comparison, francophone representation in Via Rail and the Canada Post Corporation were respectively at 39.9 per cent and 23.8 per cent in 1997. Another significant fact is that among those institutions that report to Treasury Board, it is at Air Canada that we have the largest number of employees whose mother tongue is unknown, a finding that was mentioned by the Official Languages Commissioner in his annual reports of 1997 and 1998, and which did not seem to give rise to any concern within the Treasury Board Secretariat.

Francophones in the pilot group are also under-represented at Air Canada, despite the promising positions of two CEOs of the company when appearing before the Joint Standing Committee on Official Languages. The stated objective was to have 24 to 25 per cent of francophone pilots. We are far from that target.

In fact, between 1980 and today, the francophone staff has increased by only 5.8 per cent. At this rate, it would take Air Canada 32 years to reach the objective of 25 per cent. The way things are going, there may well be many who are called but few who are chosen among those francophones who would like to pursue this career.

With the exception of a very slow period between 1985 and 1990, a time when Mr. Jeanniot was CEO of Air Canada, the decline has been constant, as is demonstrated by the following illustration. The percentage dropped to 13 per cent in 1999. Given this radical decrease, the Association felt compelled to make a formal complaint to the Commissioner of Official Languages on January 14, 2000.

In 1979, the Official Languages Commissioner mentioned in his Annual Report that only 5 per cent of managers in airline operations were francophone. Does this mean that Air Canada foresees a demographic decrease of the number of francophones in the country? The percentage today is at 9 per cent, in other words six positions out of a total of 66 available positions.

The organizational chart which we have appended to our presentation clearly illustrates the place set aside for francophones within the hierarchy of airline operations and even at that level, they are in the minority, and they also have less senior positions.

Is there not a causal link between the over-representation of anglophones in decision-making positions and the under-representation of francophones in the cockpits? What are we to think today of what Mr. Claude Taylor said, and Mr. Pierre Jeanniot repeated during the fifth convention of the Association des Gens de l'air in April 1980:

In order to be a truly Canadian airline, we believe that the employees of Air Canada from the two official languages groups should reflect the community, the province and the country, by their numbers and by their representation within Air Canada.

As to Canadian International, that carrier was never subject to the Official Languages Act, with the exception of course of the obligations imposed by Transport Canada.

It is therefore not surprising that francophone representation among pilots has stagnated, as is indicated by this table. Furthermore, francophone pilots hired by the company since 1987 were only 4.1 per cent of new recruits. Since the company was not subject to the obligations under the Official Languages Act, we were therefore not able to obtain data as to the linguistic distribution of company staff. This major injustice towards francophones within Canadian International gives undeniable weight to Justice Bastarache's comments, namely:

Linguistic rights must be protected by legal guarantees. These guarantees exist only based on a legal recognition stemming from constitutional or legislative texts, of a resolution or of a well-established custom.

Obviously, based on the preceding, we must realize that we are still very far from such a well-established custom in the aviation industry in Canada. Worse yet, after having been subject to the Official Languages Act for 30 years, Air Canada has still not met the spirit of the Act. It is therefore difficult to understand the blindness demonstrated by Minister Collenette in this area, despite the facts which have been drawn to his attention.

Furthermore, the requests of the Association des gens de l'air have even received unsolicited support from Mr. Gerald Schwartz, back when Onex had its sights set on Air Canada. In fact, in correspondence dated September 16, 1999, and addressed to the Commissioner of Official Languages, Ms Dyane Adam, Mr. Schwartz's position is clear:

I can assure you that our proposal explicitly states that the new Air Canada will respect the Official Languages Act.

And he continued:

[...] that it should be obvious to the observers that the role of both official languages in the commercial airline sector in Canada would be reinforced once Canadian International will be subject to the same rigorous provisions of the Official Languages Act.

Il would be in the interest of Canadian unity if the federal Cabinet would draw inspiration from what he has said.

Before we conclude, we would like to draw to your attention this very eloquent table dealing with the presence of francophone pilots in the new Air Canada. As you can see, the overall percentage, once all companies will be joined under one umbrella, including Canadian Regional Airlines, will be 12.2 per cent.

This is only a partial picture since we do not have data only for pilots. As it has already been mentioned, Canadian International and regional carriers are not compelled to provide statistics to the Treasury Board Secretariat.

According to the old saying, the past foreshadows the future. Given what we have witnessed the Association des gens de l'air's concerns are fully justified, given the place reserved for francophones in the airline transport industry in Canada. It is therefore without reservation that we can state that this sector of economic activity has been and still remains very unwilling to apply the Official Languages Act.

All that we have said takes us very far from what was said in 1981 by Mr. Claude Taylor, and I quote:

Air Canada recognizes that it has a vital role to play in maintaining national unity. In its simplest form, that role consists in bringing Canadians together, providing opportunities for them to meet, to communicate, to get to know one another and to understand what it is to be Canadian. I believe that it is there we have been most successful, and it is those achievements of which we are most proud.

To my mind, that statement appears to be nothing more than persistent wishful thinking. Many generations of francophones have already paid the price for the persistent discrimination of Canadian airline companies' selection committees. Many young pilots have seen their hopes and dreams dashed because their applications were rejected out of hand.

Adopting Bill C-26 in its current form would be tantamount to giving full absolution for all the sins of omission which have for decades been committed against francophones wishing to work in the Canadian airline transportation industry.

We have the support of Quebec's National Assembly. On May 26, the National Assembly unanimously adopted -- as it did in 1976 -- a motion by Acadian Liberal MNA Yvan Bordeleau. Here is an excerpt of the motion:

... with respect to Bill C-26, the National Assembly of Quebec urges the federal government to take all requisite measures to ensure that the Canadian airline transportation industry maintains a linguistic balance representative of Canadian circumstances, both in its use and in its customer service, and ensures there is no systemic discrimination in hiring practices.

We are well aware that our presence here today is a last-ditch effort for French speakers to have Bill C-26 amended and wipe out the inequities of the past once and for all.

In conclusion, I would like to thank my boss, the chief pilot, Commander Tim Nikolai, who released me from my duties to appear before your committee today.

The Chair: We appreciate it enormously, Mr. Martel. Before me, I have figures on the number of airline pilot licences granted by Transport Canada for 1999. As you know, a pilot would need that licence to be hired by an airline. Among the 593 applicants who received an airliner licence, 506 stated that their preferred language was English, while 87 stated that their preferred language was French. Thus, less than 15 per cent of licences granted in 1999 went to francophone pilots.

In your view, are the figures for 1999 representative of other years? Is there a language requirement to get a licence? And how do you explain the fact that the percentage of francophones granted an airliner licence is only 15 per cent, which is below the percentage of francophones in Canada?

Mr. Martel: We also tried to obtain those statistics from Transport Canada. At the time, we were told the statistics were not available. I am glad to see you have them. Moreover, in 1975-76, in the middle of the battle to get French accepted for use in the air, very few francophones were in training to be pilots. The reason was very simple -- many of them did not speak English. The way things were then, French was not considered a language that could be used in aviation. It was an industry in which francophones were believed to have no place.

In 1975-76, French became the language of communication in Quebec. In the next few years, the number of airliner licences and courses available in aviation schools doubled, or even tripled. Ideally, of course, airline companies would have hired pilots graduating from those courses. However, they did not.

I also have statistics for the Chicoutimi CEGEP, for the past 10 years. I am sure you are familiar with them. Twenty-two percent of pilots graduating from the CEGEP changed careers, simply because there are no jobs or they cannot find a job. I have documents to support that statement. The study was carried out by the Chicoutimi CEGEP's alumni association.

The Chair: Can you provide us with a copy of that study?

Mr. Martel: Yes, of course.

The Chair: How do you explain the fact that the number of francophones granted airliner licences amount to only 15 per cent of all licence holders, well below the percentage of francophones in Canada?

Mr. Martel: To obtain an airliner licence, you need to put in the number of flying hours required. If there are no jobs allowing you go get those flying hours, how can you get an airliner licence? You have to log 1,500 flying hours. But for francophones in Quebec, where most of them find jobs, they probably cannot get ahead and that is very discouraging for those at the bottom of the line.

Senator Joyal: I see that there are other senators here who are permanent members of the committee, which I am not. If they wish to avail themselves of their right to speak before me, I would have no objection at all.

The Chair: Please, put your questions, Senator Joyal.

Senator Joyal: As far as I can tell, the witness did not answer your question. Must an applicant fulfil specific language requirements to obtain a pilot's licence? Please clear up that point for us. I believe it is an important issue.

Mr. Martel: There are no language prerequisites as such. In Canada, exams can be taken in French or English. However, the use of English is essential. If you want to be a brush pilot and stay in the brush in Quebec, then you do not need to speak English. But if you want to become an airliner pilot, then your work will obviously take you outside Quebec and you will have to speak English.

You asked me about hiring. In 1978, the Association des gens de l'air commissioned a study, whose conclusions I will now summarize for you. That was the only time the Gens de l'air had access to Air Canada files, to the resumes people sent in to Air Canada. Among 105 pilots hired between February and September of 1978, 86 were English-speaking and 19 were French-speaking. Conclusions on the pilots' qualifications were as follows: a) professional qualifications were roughly equivalent for francophones and anglophones at the time; b) the francophones had slightly more flying hours then the anglophones; c) on average, the francophones had 1.5 years more education han the anglophones; and d) the francophones were somewhat older at the time of hiring than the anglophones. But of course, all 86 anglophones hired were unilingual, while all 19 francophones hired were bilingual.

Senator Roberge: What is the percentage of bilingual graduates at the Chicoutimi CEGEP?

Mr. Martel: I do not have that figure, Senator.

Senator Roberge: It would be a useful statistic. If pilots cannot speak English, it is difficult for them to get a job as a pilot.

Mr. Martel: I imagine that those who direct their careers towards becoming airliner pilots -- and I know, because I have spoken to enough aircraft captains -- speak both French and English, every single one of them.

Senator Joyal: Mr. Martel, I am trying to understand the legal situation that will apply to Air Canada in its new form. At the time of your campaign in 1976, Air Canada was a federal Crown corporation, subject to all Official Languages Act provisions. There were no exemptions. When the courts interpreted the Official Languages Act, ruling that its provisions applied to all federal Crown corporations and particularly Air Canada -- we all know the ruling -- it forced Air Canada to comply with every single provision of the Act. That is exactly what Mr. Jeanniot and Mr. Taylor understood at the time.

But when Air Canada was privatized, what difference did that make to its language status? Was there a difference, or was there none? In other words, when Air Canada was privatized, to what provisions of the Official Languages Act was it still subject? Was it still subject to all provisions of the OLA, or only to some of them?

Now, we have a new Air Canada. Again, which OLA provisions will still apply? The company has already been through three different structures in the past few years. Can you help us understand the legal implications the change will have, and where we stand today?

Mr. Martel: In 1987, when Air Canada last appeared before the Standing Joint Committee on Official Languages, Pierre Jeanniot was its president. In answer to a question -- I believe by Senator Tremblay -- asking whether those provisions would be changed, and whether Air Canada's attitude, or approach, would remain the same, Mr. Jeanniot answered that Air Canada's approach would always remain the same: it would comply with the Official Languages Act to the letter. Under Section 10 of the bill privatizing Air Canada in 1988, we know that even after privatization, Air Canada remained subject to all Official Languages Act provisions. But one factor has changed a great deal, and is becoming very noticeable: in the past, Air Canada did not tend to contest the Official Languages Act. There was a difference in their approach when they appeared before the Joint Official Languages Committee in 1990, and then again in 1994. In 1990, they contested the interpretation of Section 30, which concerns communication, or advertising directed to linguistic minorities in minority language newspapers outside Quebec. In 1994, they contested Section 25 of the Act, intended to ensure that regional carriers remain subject to the Official Languages Act. Thus, we have seen Air Canada gradually shift its attitude to the Official Languages Act.

As for the new Air Canada, we know that in accordance with Bill C-26, the Air Canada we know today is still subject to all provisions of the Official Languages Act. That includes Parts IV, V and VI, as well as all other parts. The most important parts are IV, V and VI, however. Part IV covers communication within services to the public, Part V covers language of work, and Part VI covers equitable participation by both language groups. For air carriers, those are the three most important parts of the OLA.

Canadian International and the regional carriers will be subject only to Part IV of the Act, the provisions on communications within services to the public. They will not be subject to Part V, or to Part VI, which ensures equitable participation of English-speaking and French-speaking Canadians. So if the three organizations involved -- Air Canada, Canadian International and the regional carriers -- all have about the same number of employees, then automatically equitable representation would be 12.5 per cent francophones for the national carrier. Is that acceptable? No. We do not find that acceptable.

In spite of the legal barriers separating the three organizations, a Canadian who takes the plane in Quebec City, travels by regional carrier to Montreal, will then in Montreal get on a carrier required to comply in full with the OLA, from there to Vancouver. He then takes another flight to Hawaii, and on that leg is covered by another section of the Act. This is deplorable. We must never forget that the Official Languages Act is a quasi-constitutional law. Yet that law has been fragmented in Bill C-26. Do you see any legislation as important as the Official Languages Act being fragmented in other departments? I don't think so.

Are we fragmenting the Charter of Rights and Freedoms? No, we are not. But we have fragmented the Official Languages Act, and in Bill C-26 that is unacceptable. There is another problem too: it seriously limits access by francophones to jobs in the air industry.

Senator Joyal: When you say that Bill C-26 fragmented the Official Languages Act, could you be more specific? Am I to understand that when Air Canada was privatized it remained subject to all provisions of the OLA, but the merged organizations making up Canadian International -- including national, international and regional airlines -- are not subject to Parts V and VI of the OLA, which cover language of work and equitable participation?

Mr. Martel: That is absolutely correct. Parts V and VI, which cover language of work and equitable participation, will apply neither to Canadian International or to regional carriers. Neither will be subject to either Part V or Part VI of the Official Languages Act.

Senator Joyal: So am I to understand that, when Canadian International employees become Air Canada employees, they will be covered by different language provisions?

Mr. Martel: That is correct.

Senator Joyal: So even within a given corporation, employees of one or the other company will be covered by different language provisions? I am not talking about travellers here.

Mr. Martel: Employees moving from one company to the other will definitely be subject to different language provisions. However, according to the statistics, very few francophone employees of Canadian International will have to be transferred. The figure of 25 per cent, and the commitment of 25 per cent that Air Canada has made many times before Senate and House of Commons' committees has not been met; not only has it not been met in the 30 years that the Official Languages Act has been in existence, but it will also be very long in coming. We will have to wait a long time before we see compliance.

Senator Joyal: But even if Canadian International continued to hire people, it would not be subject to Part VI of the Official Languages Act, which covers equitable participation?

Mr. Martel: That is correct.

Senator Joyal: But in practice, did Bill 26 not settle the issue of Air Canada's regional subsidiaries?

Mr. Martel: The bill does settle the issue of Air Canada's regional subsidiaries, but that could probably have been settled a great deal sooner. When Senator Joyal was a member of the House of Commons in 1981, he spoke when Air Canada first appeared before the Official Languages Committee. I would like to outline what the circumstances were at the time. In fact, they are not very different today.

In his presentation before the Joint Official Languages Committee, Mr. Joyal cited an Air Canada report entitled "Official Languages Plan and Program". Air Canada noted that, in many institutions, agreements negotiated with the unions did not leave Air Canada the flexibility it needed to assign bilingual personnel to given positions. The Official Languages Commissioner confirmed those statements.

Mr. Joyal then suggested that the issue be referred to the Federal Court for a ruling on how section 10 was to be interpreted.

At the time, pursuant to section 10, every federal department, division and organization as well as every Crown corporation, was required to ensure that, upon termination of any service contract entered into by itself or on its behalf after September 7, 1969, the said services would be provided or offered in either official language.

If we now look at section 25 of the current Official Languages Act, we can see that it does not differ very much:

Every federal institution has the duty to ensure that, where services are provided or made available by another person or organization on its behalf, any member of the public in Canada or elsewhere can communicate with and obtain those services from that person or organization in either official language in any case where those services, if provided by the institution, would be required under this Part to be provided in either official language.

In 1996, the Official Languages Commissioner asked for a referral to the Federal Court, because Air Canada deemed that this provision did not apply to its regional subsidiaries. The problem could have been settled if we had listened to the Senate. In 1981, Mr. Dawson -- who was a member of the House of Commons at the time -- gave Senator Asselin an excellent answer when Senator Asselin said that a great deal of progress had been made in Ottawa in the past 10 years. Mr. Dawson replied that, in 20 years, if ever he found himself in the upper Chamber, he hoped no longer to hear that we had made a great deal of progress, but that we had no more progress to make because our goals had been reached. Yet, 20 years down the line, we are still far from reaching our goals. Luckily, Mr. Dawson is not here today.

The Chair: You said that Air Canada was subject to the Official Languages Act, but that Canadian International was not. However, if at some point Canadian International is to become a part of Air Canada, as Air Canada plans, will Canadian International employees not become subject to the Official Languages Act?

Mr. Martel: Yes, they will. At this point, everything points to a merger of the two companies. It is something we would like to see, because they would then become a single company. Let us not forget that, 20 years ago, commitments had been made but not fulfilled by Air Canada. That is why we are asking why we cannot immediately impose Parts V and VI, in an appropriate timeframe of course, as we did with Part IV. We do not require that the company achieve compliance overnight. We even suggest an appropriate timeframe in our recommendations. The timeframe is based on planned attrition within Air Canada and Canadian International over the next decade. However, to ensure that the two companies do not remain separate, though under the same roof, ideally Canadian International and the regional carriers should immediately be made subject to Parts V and VI, with an appropriate application timeframe. This is in our proposals.

We have to ensure that Canadian International and the regional carriers are immediately made subject to Parts V and VI, so that we do not have exactly the same problem five years from now. We would do better to solve the problem now and impose these provisions. It will facilitate the merger of the two companies down the line.

Senator Joyal: If I understand correctly, in 1996 the Official Languages Commissioner referred the case to the Federal Court. The case is still pending, because the current bill appears to solve the problem from a legal standpoint, by clarifying Air Canada's obligations with respect to the regional carriers?

Mr. Martel: Until such time as Bill C-26 receives Royal Assent, the case is still before the courts. However, the case has been before the courts for three years now, and it is a question of principle. If I were the Commissioner, I might with to take it all the way and have this provision interpreted once and for all.

Senator Joyal: Let us go back to the status of Canadian International now that it is a partner of Air Canada. The chair referred to a business, or merger, plan. Should the business plan not include linguistic objectives, just as it does accounting objectives, hiring policies, service availability in some regions and all kinds of other things?

Would it not be a good thing, even an essential thing, if the business plan were to contain linguistic integration objectives based on Air Canada's continued obligation to comply with the Official Languages Act?

Mr. Martel: The business plan should definitely contain linguistic objectives. Of course, we cannot train and hire 500 francophone pilots over night. Once Canadian International and Air Canada merge, they would need about 500 francophone pilots to reach the 25 per cent objective. But given past performance, the new carrier would obviously have to make a firm commitment in its language and hiring policies. After all, the new carrier will be flying the Canadian flag, something we must never forget. It must represent the linguistic duality of Canada, and this must be specified in the new business plan. It must be very clear that any new carrier formed by a merger with Air Canada must give higher priority to equitable participation than we see today.

Senator Joyal: So this is why you conclude that the bill should contain explicit provisions making Canadian International subject to Part V, which covers language of work, and Part VI, which covers equitable participation, and also that the bill should clearly set forth the obligations of Canadian International towards its subsidiaries?

Mr. Martel: Absolutely. In any case, it appears that the only Canadian International regional subsidiary to be sold will be Canadian Regional. Inter-Canadian has already declared bankruptcy. That leaves Canadian International and the regional carriers. Equitable participation is higher among regional carriers -- at least among the pilots -- than at Air Canada. For the regional carriers as a whole, including AirBC, Air Ontario and Air Nova, equitable participation is somewhere on the order of 18.5 per cent, while it is only 15.8 per cent at Air Canada and only 5.6 per cent at Canadian International.

If we want Canadian International to start doing something about this immediately, we have to make them subject to Parts V and VI so that the principle is both understood and accepted by the time the merger comes around. Canadian International managers are already set in their ways: the figures show that only 4.1 per cent of the people hired by Canadian International are francophones, so obviously they don't have the right attitude.

So making Canadian International subject to Parts V and VI will definitely be helpful when the merger comes around, if it comes around.

Senator Joyal: In your brief, you refer to the stance by the Honorable David Collenette, Minister of Transport. There is something I would like to point out: at the time of your challenge, Mr. Collenette was one of the few MPs from outside Quebec who told me -- we were both members of the House of Commons at the time -- that he supported the challenge by the Gens de l'air before the courts and before the Parliament of Canada. So I am a little uncomfortable by the comment in this brief implying that he is not receptive to or not aware of the issue.

I have known Mr. Collenette for 25 years at least, about as long as the Gens de l'air have been in existence. As a Canadian, I have always found him as extremely supportive of the concept of linguistic equality, and of the government's and Parliament's obligation to assume their language-related responsibilities.

Have you ever had an opportunity to meet with the minister, and to explain how you see the language implications of a merger between Air Canada and Canadian International, and what objectives he would like to achieve?

Mr. Martel: No, we have never had an opportunity to meet with Mr. Collenette. Our comments about Mr. Collenette were prompted by a statement he made on May 15, when motions put forward by the Bloc québécois were rejected. The minister briefly stated the government's position on the amendments: explaining they were either not required or would unreasonably prolong the principles contained in the Official Languages Act. Yet, we know full well that equitable participation is an essential component of any language legislation. We see it in Belgium. In any case, most federal institutions do have a representative number of francophones, except of course the regionally based federal institutions, like the National Grains Council, for example.

However, all federal departments and organizations, and all Crown corporations, recruit an equitable percentage of francophones. Why is that same percentage so difficult to achieve in the air industry? Because people are worried about it. Think back to the battles of 1975 and 1976. Nowadays, we know that the use of French is not hazardous in the air. We have also seen that one of Air Canada's directors sent Air France a letter congratulating them for using English in Paris for safety reasons. For the director of a national Canadian corporation, that is absolutely unacceptable.

However, we were a little shocked by what Mr. Collenette said when he claimed that it was an unreasonable extension of the Official Languages Act. In our view, fair participation is essential to Canadian unity, and I am sure you would agree with me. Only the airline industry has not abided by this principle, which led to a lot of commentary in the media at the time, but most Canadians today accept this principle, at least, I hope so.

Senator Joyal: This will be my final question, Madam Chair. You are asking us to make sure the principles are clearly laid out, on condition their implementation take into account the internal language reality of Canadian, as it stands at Canadian International right now, and on condition that the transition period take into account the particular needs which must be met during the integration process, namely staff mobility and the time it will take them to adapt to new or different positions.

You do not think we should impose a set deadline, just to ensure that the principle contained and clearly established in the bill be applied equally to both organizations, so that real results are ultimately achieved?

Mr. Martel: Yes. In 30 years, we have witnessed the fact that Air Canada has achieved real results. The figures we have on the total number of francophone employees with Air Canada are from Treasury Board. Our organization has not invented these figures; they were provided to us by Treasury Board. We arrived at this conclusion following an internal enquiry by the pilots.

In my view, the principles you have talked about should be included in Bill C-26, more specifically in the provision amending section 10 regarding public stock participation in Air Canada. We have nothing against imposing a deadline or an extension. We feel, however, that any extension should be specific and reasonable, but mostly specific.

Part VI of the Act is not specific, but it allows the moral entity which is subject to the Act to reach its goals. It seems that every federal organization which must abide by the Official Languages Act has succeeded in doing so -- at least the vast majority of them. Since Air Canada is a national organization, it is even more important that the new entity reflect the reality of Canadian society. It does not do so today.

Senator Joyal: Have you spoken with the Official Languages Commissioner about that matter? Did you both agree on what Canadian is all about and how hard it will be for Air Canada to eventually abide by the Act, since it was not part of Canadians' culture? Do you concede that the day both organizations are integrated, both vertically and horizontally, Air Canada will have a tough time applying the principle of the Act?

Mr. Martel: Yes, without a doubt. We have not spoken with the Language Commissioner herself, but we have spoken with her officials. We have often turned to them for information and advice. That is one of the reasons why, in view of Bill C-26, when we presented our recommendations, we suggested that seven years, for instance, would be fair. We proposed seven years. This figure was based on the rate at which pilots would retire. However, we could extend that period. We have no problem with extending it over 10 or 12 years, but there has to be some sort of deadline, since we do not want to wait another 30 years. As Mr. Dawson said, if he were here today -- and poor Mr. Dawson would probably be very discouraged -- we are back at square one.

The Chair: If I understood correctly, Mr. Martel, while the bill was under study in the House of Commons, you did not meet with any officials from the department nor with the minister?

Mr. Martel: No, we spoke before the committee.

The Chair: You did not have any contact with officials working on the Act within the department?

Mr. Martel: No.

The Chair: Did you ask to meet with them to explain your position?

Mr. Martel: We asked to speak before the House of Commons' Transportation Committee, in the belief that the committee would speak to the legislators. We did not know we could meet with the legislators.

The Chair: But discussions take place when someone has something to say about a bill. It is possible to meet with departmental officials. You did not have any discussions?

Mr. Martel: No, none whatsoever.

The Chair: This is done on a regular basis.

Senator Roberge: Unfortunately, Mr. Martel, I believe it is highly unlikely for the Transportation Department to agree to amending the bill. We have to be realistic, even if we would like there to be amendments based on your presentation and your recommendations.

I wonder if it might be helpful to send a letter to the minister before a merger takes place, asking him to provide assurances that provisions contained in Parts V and VI will apply. It would at least be a step in the right direction. But it is highly unlikely that we could get amendments passed at this stage.

Mr. Martel: If there is a merger, I think Mr. Schwartz's solution would apply. He wanted to merge both organisations. The new company's employees, whether they came from Canadian or Air Canada, would be able to provide service in both official languages. That was Mr. Schwartz's intention at the time, as stated in a letter he sent to the commissioner.

We are assuming there will be a merger. If so, I believe that section 10 on capital stock participation in Air Canada would automatically apply and the new Air Canada would fall under the Official Languages Act.

Senator Roberge: So you are referring to the period immediately preceding a merger.

Mr. Martel: Yes, that is right. There may be a merger. Perhaps you know things I don't. But for now, these are two separate companies. Both still fly the Canadian flag and represent Canadians abroad and within the country. It is our national air carrier, and even if we immediately subject the subsidiaries to the Act, the moral entities mentioned in section 10(3) of Bill C-26, the Gens de l'air believe that nothing will change in the case of a merger. It is already clear in fact that it would take some time before the Official Languages Act could be implemented within an organization. At least we hope so. However, it needs to be implemented immediately, so that if there is no merger, we can be sure at least that the Official Languages Act will still apply to Canadian International, if it remains a separate entity. Can you guarantee a merger and if so, when? We do not know.

Senator Roberge: No, that cannot be guaranteed, but perhaps senator Joyal could address your concern if you ask him whether an intervention on behalf of the minister could accelerate the process, since we know the government will not consider any more amendments. The government just wants to see the bill passed.

Senator Bolduc: Mr. Martel, what is your relationship with the department? Are you on good terms or is there still fall-out from what happened 20 years ago?

Mr. Martel: No, we have not had any business with the Department of Transport. Since I was elected as president, we have been in contact regarding other areas, such as NAVCAN and airport safety. We specifically focussed on service cutbacks in air traffic control operations, and for about the last year we have worked hard on the airline merger. We are working on a brief on the proportion of francophone employees. We have had to reveal most of our hand because of Bill C-26, but our relationship with the Department of Transport has never been a bad one.

Senator Bolduc: And with the minister's officials?

The Chair: It comes back to something I said earlier, Senator Bolduc. Did you meet with departmental officials to talk about your concerns before going before the committee? Some organizations asked to meet with departmental officials. So before they even make their concerns public, they hold meetings. If they feel they do not get satisfaction, they can always go public, but it is indeed possible to have meetings first where each party expresses his views. However, you never did this, is that right?

Mr. Martel: That is correct. But we did appear before the Transport Committee on November 23. On November 22, we heard about an article put out by the Association de la presse francophone which said that a Transport Deputy Minister -- whose name I forget -- had mentioned that the new regional entities would not be subject to the Official Languages Act. This had been reported by the Association de la presse francophone. We then asked to appear before the Transport Committee to demand that the new entity be bound by the Official Languages Act, since it would become our new national carrier and it therefore should respect the Official Languages Act. Apart from that issue, we have been on good terms with the officials.

The Chair: So you do not deal with the Department of Transport, is that correct?

Mr. Martel: Yes.

The Chair: When were you elected, Mr. Martel?

Mr. Martel: A year ago.

The Chair: You have never spoken with officials from the Federal Department of Transport?

Mr. Martel: No.

Senator Bolduc: I raise the issue because it is important for you to establish contact with the department and make it aware of your concerns before a bill is introduced in the House. That is the way it is done. I think it is normal to first speak with government members and officials before a bill is drafted in order to iron out potential wrinkles while a bill is still being drafted.

That does not mean appearing before a committee does not have an impact. That is not what I am saying. It complicates the process a little, because at the end of a session when the government wants to pass a bill, it is not always easy to amend it at the Senate stage and sent it back to the House of Commons for a second review. I must admit that I am surprised that you have not spoken with officials from the department. That is all for now, Madam Chair.

Senator Joyal: Madam Chair, I would still like to express my point of view. Everyone knows about Air Canada's situation in Canada's history. The issue has been going on for 25 years and we are still fighting morning, noon and night.

If there is a single Canadian government organization or service which receives more complaints than any other in the country, it is Air Canada. So I must say to both our colleagues and those people who will read today's proceedings, that people assume that the Transport Department knows it has a permanent, systemic and endemic problem with Air Canada. Mr. Martel has told us that the figures are increasing, not decreasing.

I do not want to give the impression that this is a new situation and that we do not know what it is all about. Every year, we get a report from the Official Languages Commissioner and I invite you to look at the list of complaints. Air Canada gets the most. I hope officials from the Department of Transport realize they are on the hot seat and that they do not have the benefit of the doubt.

It must be said at the outset. I wanted to make that clear. This in no way prevents anyone from making representations. We must put the representations in the context of a problem that has been left unresolved. That is obvious because you are back here today and because the Official Languages Commissioner reminds us of that fact every year.

That said, Mr. Martel, the comments made by Senator Roberge, in some way open the door, as Madam Chair said earlier, to various possibilities. One of these possibilities would involve the Senate considering amendments to the bill, which means that the bill would be returned to the House of Commons, and we do not know how long it would take in the other place for the amendments to be debated.

Moreover, I, as well as others, feel that the Minister of Transport could take into consideration the necessity to intervene quickly, and whether or not such an intervention is appropriate. I suppose the Official Languages Commissioner will appear before this committee. She will also be able to make suggestions. One of the possible suggestions would be to follow the approach adopted by the Senate for other bills of which I am aware, including Bill C-3 which established the DNA bank, and Bill C-2, given Royal Assent last week, which amends the Canada Elections Act. The Senate noted that there were defects in these bills, that is to say, omissions, and the respective ministers, the Solicitor General as well as the minister responsible for electoral reform, undertook to amend the bill at the first opportunity.

As Senator Roberge pointed out earlier, the Minister of Transport might have an opportunity when the Canada Transportation Act is reviewed, something that, I believe, will be happening within the next few months. I see that Madam Chair agrees with me. I am not a member of the committee, I am not familiar with its agenda, but it is possible, if not certain, that over the coming months Parliament will have to deal with amendments. The committee could ask the Minister to consider the possibility of a follow-up to your request after other witnesses have been heard. I would, of course, suggest that you follow the advice of Madam Chair, that is to contact the Minister to express your position, if that is the option that is decided upon.

I think that would be a way for the Senate to adopt the bill. Of course, I cannot presume what the Senate will do, but it would be one way to satisfy your representations without delaying the implementation of the bill. That is one of the options you might want to consider.

We can amend the bill. The senators in their wisdom can do so either in their report or at third reading. I think we must also consider how best to satisfy the objectives. With that in mind, we all have a responsibility as parliamentarians to keep a close eye on the corporation which, unfortunately -- and I take no pleasure in saying this -- has the worst record for complying with the Official Languages Act.

We must not forget that Canadians want Air Canada to respectits obligations. They were made aware of this through rather harsh methods some 25 years ago, and it remains, as you yourself have said, ingrained in ournational consciousness. For that reason, we have no other choice but to respect the principle of linguistic equality.

[English]

Senator Forrestall: First, I am somewhat confused this afternoon. I was here during the debate over 30 years ago now. I thought that I was quite clear with it but this afternoon, listening to you, I am not sure that I have ever been clear.

You have quoted Mr. Justice Bastarache and his comment about linguistic equality. Can you set my mind straight? The priority of Association des gens de l'air du Québec is not the language per se, it is the embracing of the francophone community within the body. In so doing, you must be careful to spell it out, because it misleads people. I share Senator Joyal's concern: I am quite amazed that this did not come out in the other place. However, now that it is out on the table it is important that we deal with the matter.

I offer the comment that we should be careful about the language we use. I have always thought that the goal was fluency of 25 per cent, and I always thought that was low. I am sure the francophone person sitting in the left or the right-hand seat of an aircraft is 100 per cent bilingual. The statistics in the wrong hands can be skilfully played with to create misunderstanding. I have one in the back of my mind.

Some of you will know that I get upset in the Internal Economy Committee about how we conduct committee hearings when we travel. You have heard me wonder aloud about that. We go "informally" to save money but, in so doing, we offend the morality of the law that we worked for and debated for so long. Here we have an example of it being offended again. The law does not have its champions. You are not alone in your fight, but, from time to time, we <#0107> myself in particular -- do not think in separation terms. I thought about it more in terms of the equality of people, not the equality derived from being from Quebec. I am from Nova Scotia, and I am the best Canadian in the world. That qualifies me for not very much of anything.

Having said that, be careful about the language, because one third of our nation was not around when we passed the law, and probably 40 per cent were not old enough to understand the debates. Indeed, the Canadian press generally did not do the best job in the world, outside of some notable exceptions where extraordinarily fine work was done. By and large, people from the extremes of the country did not have the privilege that I have had in sitting in the chamber during the debate. We must understand and remember that, when we find something wrong, a correction must be made. I agree. There are ways that private members' bills would support. Anything can be done. The House is the master of itself.

I would not invite you to expect anything next Friday, because all MPs want to go home, but that does not mean that by the end of the year we cannot have made significant progress towards establishment. I note and welcome your flexibility in terms of the length of time. I believe you were implying that more satisfactory progress should be seen to be made; that is, the type of progress that satisfies the law that we have in place because it is the law of the land.

I invite your response to my comment.

Mr. Martel: I should like to reply. You were talking about the time perspective. We have an example that was given to me by a manager at Bombardier. Bombardier bought a company in Belfast, Northern Ireland, in 1989. At the time, 6 per cent of the employees in that company, which is called Short Brothers, were Catholic. As of July 24, 1998, the percentage of Catholics in that company was at 14.8 per cent. They more than doubled in nine years. As you know, the political climate in Belfast is a bit different than ours.

Second, you told me to be careful when we talk about language. I would repeat one thing that was said by an MP when he was invited to one of our annual congresses a few years ago. He said that Association des gens de l'air du Québec recruits people from separatists to federalists, but the common denominator of the association is to promote francophone issues and to promote the use of French in aviation. That is the common denominator. It groups all those people together.

We are wrongly stuck with a label. We are being identified automatically to be on one side of the political arena, and that is wrong. In this country, you have the official language law. I wish that I did not need to be here. As Mr. Dawson was saying in 1981, we will be back here in 20 years. I do not want to repeat the phrase "We made progress." I do not wish to talk about it in 20 years. However, we are still talking. All those engagements were made in front of a Senate committee and a House of Commons committee.

Can we come over here and make all kinds of promises and get away with that? This is the highest chamber in the country. It was done. Why are we back to square one? Why are we back to 1978? We need teeth in the law. That is why I am here today. I will continue to fight for an equal representation of francophones. However, I hope the Senate will do something, because it is the last chance. After that, there will still be a debate that we want to avoid.

The Chairman: We will adjourn now and reconvene at 6:30.

The committee adjourned.