Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 5 - Evidence, November 17, 2010
OTTAWA, Wednesday November 17, 2010
The Standing Committee on Transport and Communications met this day at 6:50 p.m. in the context of its study about new issues related to the Canadian airline industry.
Senator Dennis Dawson (Chair) in the chair.
[Translation]
The Chair: Good evening, honourable senators. I call this session of the Standing Senate Committee on Transport and Communications in order.
This evening, we will continue our review of the Canadian airline industry study that has come before our committee. We are pleased to welcome from the Canadian Airports Council, Chairman Mr. William Restall, Vice- Chair Mr. Tom Ruth, and Member of the Board of Directors Mr. Lloyd McCoomb.
[English]
We also have Mr. Daniel-Robert Gooch, who is being discreet at the back.
Mr. Restall, I invite you to make opening remarks, after which we will have questions from the senators.
William Restall, Chair, Canadian Airports Council: Members of the committee, thank you for the opportunity to address you this evening on your timely study on emerging issues in the airline industry. We have followed the testimony over the past few weeks with great interest.
The Canadian Airports Council, CAC, represents the airports sector in Canada on common areas of industry concern. CAC member airports create in excess of $45 billion in economic activity in the communities they serve. More than 200,000 jobs are directly associated with CAC member airports, generating a payroll of more than $8 billion annually.
We are a very diverse group. Our membership includes 47 organizations that operate more than 200 airports throughout Canada, including all 26 National Airports System, NAS, airports. Our members operate the largest airports in the country. This includes airports with which you are undoubtedly very familiar, such the Toronto Pearson International Airport.
I am joined today by Mr. Lloyd McCoomb, who is the president and CEO of the Greater Toronto Airports Authority and the chair of our large airport caucus.
CAC includes all sizes of airports, such as the one in Saskatoon. In addition to being the chair of the CAC, I am also the president and CEO of the Saskatoon Airport Authority. Our membership includes all geographical areas of Canada, including the three territorial governments.
I am also joined by Mr. Tom Ruth, who is the vice-chair of CAC and who operates the Halifax Stanfield International Airport, an important airport in Atlantic Canada.
Airports agree that this is a very timely study of aviation in Canada. Aviation is a complex industry, and we are just one segment in the value chain that comes together to make up the traveller's experience from origin to destination. It is a role we take very seriously.
Airports across Canada are striving to be as competitive as possible to meet the needs of our local, provincial and national economies. When I speak about competitiveness, I mean more than just costs. To be truly competitive, airports need to be safe and secure; we need facilities that work; we need to have processes in place to effectively move people and goods; and we need to satisfy our customers with excellent customer service. Costs matter, but they are only part of the competitiveness story.
That is why airports in Canada have invested more than $14 billion in capital infrastructure commitments since the devolution of airports began in 1992. In fact, we rank first in the world in airport infrastructure according to the World Economic Forum's annual report on travel and tourism competitiveness. At a time when communities across this country find themselves challenged by transportation infrastructure deficits, Canada has a new, modern and effective airport system to support economic activity and extend Canada's global reach.
These investments have been financially funded, not by the government, but by air travellers through the airport improvement fees. This has an impact on the ticket costs. We also must remember that, like all transportation infrastructure, airports have continual capital investment needs. Our NAS airports pay rent to the federal government but have few, if any, federal funding opportunities under programs such as the recently high-profiled stimulus programs. This is not true of the other modes of transportation in Canada.
As governments, businesses and ordinary Canadians work to recover from the recent economic downturn, airports find themselves equally challenged to recover from drops in business activities that occurred in 2009. We operate like any other business, only with an obligation to reinvest any surpluses we generate back into the airport. However, I am pleased to report that aviation traffic across Canada is rebounding, and we have seen positive growth, especially in the international sectors.
Our industry has some particular challenges. As we saw our traffic numbers fall, we were also increasingly challenged to maintain vigilance to address security issues and deliver a high level of customer service to continue to attract passengers and airlines that have a multitude of choices of where to fly.
During these hearings, you have heard many questions about the passenger experience. Airports are keenly aware that travellers have high expectations. We are very focused on customer service and are working hard to satisfy the expectations of our customers.
When it takes a long time for a suitcase to reach a baggage carousel, the passenger does not care that it was an airline employee's responsibility to deliver that bag. She or he just cares that the bag was late at a particular airport. When a traveller faces a long line at customs or pre-board screening, he or she does not care about the government agency performing these roles, only that the lines were long at another particular airport.
Travellers care about the quality of the whole experience. That is one of the reasons we have made such capital investments in our facilities. We want our travellers to be proud of the airports in their communities, and we want them to be comfortable and entertained. We provide restaurants and retail options unmatched from just a few years ago. By providing these retail options that people are looking for, we also generate millions of dollars in revenue each year — revenue that goes to offset the cost of charges paid by the air carriers.
As you can imagine, many of the factors that impact the passenger experience are outside of our direct control. That does not mean we absolve ourselves of responsibility of our customers in these areas — far be it from that. We work closely with the air carriers and with the two federal agencies that significantly impact the passenger experience — the Canadian Air Transport Security Authority, CATSA; and the Canada Border Services Agency, CBSA.
Airports are international borders, and we work with CBSA on a host of programs to improve the passenger experience. We now have NEXUS terminals at eight of our largest airports and are seeking to have that network expanded. Vancouver Airport Authority and CBSA are working on a pilot initiative that allows most Canadian passport holders to re-enter Canada by submitting to an automated process that uses innovative technology.
These are great programs with a lot of potential to improve the passenger experience in the coming years.
Security can be a particular irritant to the passenger experience. In the post-9/11 environment, we have seen an ever- changing array of security measures put in place to keep us safe. Many of these take place behind the scenes and are never seen by the public. Many others, particularly those put in place following terrorist-related incidents in 2001, 2006 and last December, have a significant impact on the travel experience. As I said, we work closely with CATSA and the regulator, Transport Canada, to offer a safe and secure environment while mitigating the impact of these measures on the passenger experience as much as possible. The services provided by the airlines and the government agencies impact a traveller's experience, and we need to work collaboratively to ensure that processes are safe, effective and customer- oriented.
As I have said, CAC members operate a diverse network of airports across the country. What is right at Toronto Pearson International Airport will not be the same as what my community needs in Saskatoon. One size does not fit all. We need to look at how we treat our gateway airports so that these airports can not only thrive but also support and feed traffic to the other airports in the Canadian system. Similarly, we need to look at how we treat our medium and small airports to ensure that they are thriving. Together with the government, we can develop a new set of principles that will allow all of Canada's airports to better compete in the future. We recognize that such a solution needs to represent the right formula for the taxpayers as well.
We are working with the Minister of Transport to propose ways to improve the system. We recently participated in a review of CATSA by the Minister of State for Transport. One size does not fit all when it comes to the provision of aviation security. For Saskatoon, for example, the system works fairly well, while some larger airports seek significant reform.
My colleague Lloyd can speak to you in greater detail about how the events last December greatly impacted travellers through Toronto Pearson over the busy Christmas season.
Collectively, we need to do a better job at coordinating how changes in security or other processes are implemented at airports. Airport authorities have the right vantage point to play a leadership role in this regard. We need to be innovative and use new ways of thinking to address today's challenges.
Beyond offering excellent customer service, Canada's airports need to be able to compete on the basis of cost. We accept that airport authorities have a role to play in ensuring the cost competitiveness of the system. In the past number of years, we have been taking steps to do what we can to reduce cost. We will continue to work hard to improve our cost competitiveness.
Under the current airport model, the airport improvement fee, AIF, is the primary mechanism we have for paying for the airport infrastructure investments we have made. It is important to note that these investments have been made in complete consultation with the air carriers. Both locally and nationally, we work closely with our air carriers because we accept that we have a shared responsibility in serving our communities and our air travellers. With air carriers in particular, we enjoy a collaborative relationship. We do not always see eye to eye, but we work closely with our carrier representatives in our communities. We work with them nationally through the National Airlines Council of Canada, NACC; and the Air Transport Association of Canada, ATAC. We appreciate their supportive comments expressed during these hearings to date.
We know you have heard from our colleagues from the nation's air carriers who are losing passengers to airlines able to offer lower-cost tickets south of the border. We share their concerns. It is difficult to calculate the extent of the passenger leakage. We do not have the hard data, but we estimate it to be as high as 2 million Canadian passengers per year flying from airports such as Bangor, Plattsburg, Buffalo, Grand Forks, Minot, Bellingham and others. To put this into context, that is equal to an airport somewhere between the size of Halifax and Edmonton.
While airports can and will work diligently to reduce the costs within our control and seek new revenue streams, many of the costs facing airports are outside of our control. The air traveller security charge, airport rent, fuel taxes and harmonized sales tax add to the cost of the ticket, as does the airport improvement fee. We have costs that the Americans do not impose on travellers to the same extent, if at all. We need to work more closely with the government to ensure that these fees and charges are fair and reasonable and do not unduly hamper the economic activity that is required to pull Canada out of a recession and put us on the path to full economic recovery.
Finally, we have heard you ask questions about airport governance and accountability. The leases in place between the federal government and airports outline clear requirements in both of these areas. Airport leaders report to a board of directors with local representatives nominated by federal, provincial and municipal governments and local community- based groups. Our finances are published in annual reports. We have annual meetings and public meetings. We consult on changes to fees, capital investment programs and master planning and terminal design.
In Canada, we have been fortunate to have developed a modern system of airports without relying on public resources. Our airports policy is one that has served the purpose, but we think it is time to reassess our approach. It is time for the current successful airport model to evolve to the next stage.
Thank you once again for the opportunity to participate in this important and timely study on the aviation industry. We are pleased to answer any questions you might put to us tonight.
The Chair: Thank you. We will move to questions from senators.
Senator Housakos: My question pertains to governance of the airports. As you pointed out, airport authorities are not governed by legislation created by the Parliament of Canada. It has been a number of years since the federal government decided to create independent authorities and bodies to run the airports, unlike what happens with the ports across the country.
In your opinion, would clearer legislation be a better way of governing our airports or do you feel the current system is more than adequate in serving the public and operating the airports in an economically efficient manner?
Mr. Restall: I have worked for Transport Canada for 25 years and have managed airports for 37 years. I went to Saskatoon in 1985 and managed the airport for 14 years under Transport Canada. I will talk from two different perspectives.
The change from 1985 to 1999, and then since 1999, is like night and day. It has been a tremendous change for the betterment of the community. The community has taken ownership of the airport, and it has become a community asset. The airport has become responsive to the community. We have the right amount of linkage with the community. The decision making is done at the community level because of the board. That is my perspective.
I will put it in the perspective of my chair, Ms. Nancy Hopkins, who is conversant with governance and has a tremendous amount of experience. She has sat on boards of public companies, the board of the Saskatchewan government insurance and the boards of private companies. She sits on the board of Camaco and on community entities. She is the chair of the board of governors of the University of Saskatchewan. If she were here today, because governance is a board issue in the community, she would say that the 12 individuals on our board who represent Saskatoon and the surrounding community make the decisions, listen to the communities and are tremendously accountable to those communities. That model is working terrifically well just the way it is today.
Senator Housakos: From my little experience in looking at the various boards of the various airport authorities, I agree that there is large representation from the provincial and municipal levels, the local authority and boards of trade. Do you think that the federal government, given that these are federal assets, is adequately represented on these boards?
In your opinion from your experience, have the end users been properly represented on the various boards of the various airport authorities?
Lloyd McCoomb, Member, Board of Directors, Canadian Airports Council: On our board of directors, the federal government points to members of our 15-person board. In terms of the industry and our board, Marilynne E. Day- Linton comes from the air industry as former chief financial officer, CFO, of Wardair International; and Terry F. Nord was a former senior executive with Canadian Airlines International and the president of a large courier service that had major air interests; and Patrick Brigham headed a major tourism association and ran a tourist airline for years. We have a very good cross-section.
The board's governance has principles that seek to ensure that the board is adequately represented by a representative number of engineers, lawyers and people from the industry, who are not in conflict of interest and are able to speak knowledgeably about the industry and the industry's interests.
Mr. Restall: Most boards have a tremendous process of ensuring that the board brings in a broad spectrum of skill sets to ensure a balanced approach and good representation in all facets of the community.
Senator Housakos: In our testimony to date, we have heard that complaints of the airport authorities include the high fees paid to government for leasing arrangements and the municipal tax range that airport authorities have been forced to pay. The committee will investigate in depth the validity of those complaints. Being from Montreal, I looked at Pierre Elliott Trudeau International Airport, which is a significant airport in Canada, and learned that the airport authority pays about $38 million in municipal tax and about $30 million dollars in rental fees to Transport Canada for the use of the asset.
At first glance, the numbers are significant, but when you investigate further, you realize that the airport is sitting on prime real estate in the heart of the Island of Montreal. The $30-million fee is based on the value of the property, so it does not seem so high. The municipal property tax of $38 million is not that high either because if the land were developed fully, it would be worth hundreds of millions of dollars in revenue annually for the City of Montreal.
The government has an obligation to be fair with our airport authorities because they provide a public service. I know this question might not be totally fair, but perhaps you can help us come to a determination on this. If we eliminated those costs, such as $38 million in municipal tax and $30 million in fees for use of the asset, what would be the net saving per customer going through that gate at the end of the exercise? Would Canadian flyers save 20 per cent or 30 per cent?
I have friends who drive to Vermont and catch a flight to Florida for $69. I fly from Montreal's airport to Miami, and it costs me $900. I fail to see how that significant discrepancy in pricing comes from security charges, airport fees and taxes. There must be more to that equation.
I would like to know what would be the actual bottom-line cost if we eliminated that exorbitant amount of municipal tax and fees that the airports are complaining about. What would be the bottom-line saving to Canadian flyers?
Mr. Restall: That is a difficult question because it is different in each community, which makes it complicated. In terms of municipal taxes, in the case of Saskatoon, the board took a strong position from the start that we are part of the community. We want to be a responsible corporate entity and pay municipal taxes. It is important to the communities.
On the other side, when we met with city officials and went through it, they understood how important an asset to the community we were. Our value to the community goes way beyond the property value. It goes beyond what the airport generates in your community, what businesses come to your community because of a good airport. We cut a very businesslike relationship with our taxes, and we pay a substantial amount of taxes to the city, but it was an arrangement with which both parties were very happy.
On the rent, I can only speak for myself — and the other gentlemen can join in — but it bothers me because the money we pay in rent would go right back into the asset base. All the money made at the airport goes right back into the asset base. We have told the airlines emphatically that if the rent disappeared in Saskatoon, we would reduce the charges to them accordingly. We would expect them to pass that on to the customer, to their clients and to the people who fly in the community. That is how definitive we have been.
Mr. McCoomb: The senator asks a legitimate question; no doubt about it. On the competition we face in Buffalo with U.S. low-cost carriers, we have talked to these people extensively. I would love to have one of them as a customer, or better, two. However, they have told me that their value proposition comes from that very low fare you are talking about. They do not see themselves competing against the main legacy carriers. They are really making their business by getting people out of automobiles or getting people to make trips who otherwise would not because for $95 in Buffalo you can go to New York for the weekend.
You are right: Would elimination of the taxes, given that many of us in Toronto are carrying a large component on fees due to our investment costs in the airport, cause people to come to Toronto or cause people to stay in Toronto? I had the feeling that for a couple of them it is close. We courted them and had them doing measurements a couple of times. I do not know what it would take to push them over the line to offer those kinds of pricing options to citizens. However, you are quite right, their value proposition is, as I understand, based on this particular model.
With that said, though, I would like to make another comment. If you saw me looking at my shoes when Mr. Restall was talking about the 200,000 people working at airports — or the $40 billion — and looking uncomfortable, my professional background is that of a traffic and transportation engineer. This is the world I came from. I was taught to see transportation as overhead — a cost of doing business. The real end game is to get people to the attractions in Toronto. I want them to visit Niagara Falls and go to the Art Gallery of Ontario. To the extent that anything I do is adding to that cost, for me, I would be boasting if we had fewer employees and cost less money.
I am trying to say that this is really all about competition and competitiveness in the marketplace. Every dollar we take off this improves the competitiveness of our communities. I get up in the morning and go happily to work because I have a great job serving my community. I am trying to produce this product of getting air service to Toronto as efficiently and effectively as possible and, in that way, enabling and helping the Toronto economy. That is my role. Any help we receive to bring those costs down to make us more competitive is very welcome. We are in a competitive environment in air transportation, as you probably heard from our carrier colleagues.
Tom Ruth, Vice-Chair, Canadian Airports Council: To add to that, from our region in Atlantic Canada, airports are huge economic engines. Just as Mr. McCoomb and Mr. Restall have said, after safety and security our big mandate as board members and as management of airports is to create economic impact within the communities, which has a wonderful trickle-down effect for jobs and creates a vibrant community.
On the cost side, in addition to the aspects you point out about fees, we consider that the rent payments we make do not go back into the airport infrastructure. This fact combined with the fact that airports have not yet found a way to be eligible for many of the federal funding programs is a bit of a double whammy that adds to some of those cost- competitive issues.
Senator Mercer: To follow directly on that, as you know all politics is local, so I want to get a couple of local questions out of the way. I preface the question by saying that I think the Robert L. Stanfield International Airport in Halifax is one of the best run airports in the country. In my career, I have had to spend too many hours in airports, and I have never had too many unhappy moments in the Halifax airport.
My first question is a very picky one. Some of my English teacher friends, and my friends who are particular about grammar, would pick on the name of the airport. I am supportive of the name of the Robert L. Stanfield International Airport. Mr. Stanfield was a great guy to name the airport after. He was a good premier of the province. As you approach the airport — and I know this is not your responsibility, but you get to talk to the provincial Minister of Transportation quicker than I — the signage is so bad that it says, "Robert L Stanfield International Airport." There is a period missing after the L. My English teacher friends keep calling me and telling me to please find the period to put after the L. That is by way of comment; it is one of those things.
I have a more serious question: Recently we have had complaints about the service of the Canada Border Services Agency at the airport in Halifax. This is a concern since the airport in Halifax is an extremely important part of the gateway. The airport plays an important role in not just Halifax but in the Atlantic gateway and in the greater port of Halifax, which includes the arrival of the ships and trains.
How have you been able to counteract when we have had complaints of CBSA agents mistreating and poorly treating people, being ignorant to people arriving. In a couple of reported cases, these were not tourists but Canadian residents returning mainly from the United States?
Mr. Ruth: I will attempt to answer that on several levels. On the first level, any complaint that is about improper action is one too many. Any complaint that comes to the airport authority about that service is immediately taken to CBSA to investigate. On another level, if I were part of CBSA, I would acknowledge that they have a difficult job to do to protect our society, and at the same time, they have to do that with a very positive service outlook.
From the metrics point of view, being the next level, we participate in the Airport Service Quality program, the ASQ international service standards. In fact, Halifax has been ranked first in the world in our category for seven straight years. As part of that, they measure 30 different metrics throughout the entire airport, and one is customs. I will say from a metrics perspective, CBSA, the customs process in Halifax, ranks within the top 10 per cent in the world.
One isolated incident among the several that were mentioned is too many. We have been working with CBSA through the customs process in the last several months to see if there are things that we can do in cooperation with them to make improvements so that we protect the dignity of people who are coming into Canada.
Senator Mercer: Thank you for that. As I say, as a traveller in and out of our airport weekly, I do not have major complaints.
Mr. McCoomb, Toronto Pearson International Airport is the largest and busiest airport in the country. We received a letter this afternoon via the clerk from the Minister of Transport in response to a question that was asked a week ago about the possibility of passengers carrying liquids from one flight to another. In his response, he made a comment, which one of our colleagues had brought up several weeks ago. The minister was quick to point out that now if you fly in from Europe to Pearson International on a domestic flight, you can carry with you your duty-free products that you bought in London, Frankfurt or Paris, or wherever you may be coming from. The issue is that most of our international travel, of course, is not to London, Frankfurt or Paris. It is mostly to Washington, Chicago, Philadelphia, Miami, et cetera.
Would you acknowledge that this is a major design flaw at the new terminal at Pearson International? Passengers travelling strictly from the United States purchase a product inside the gate in any airport in the United States — Philadelphia, Chicago, et cetera — arrive at Pearson International and, because of a design flaw at the airport, when they exit to make a connection to Ottawa, Halifax or Saskatoon, they then have to stop and put that product into their checked baggage rather than doing what someone coming from Frankfurt does, which is carry it on the next flight? Can you acknowledge that is a design flaw? Have you talked about how to fix it?
Mr. McCoomb: Let me look at that. I will answer from my limited understanding of this question.
Until recently, we had real problems with duty-free liquor going to Europe, period, because it was not allowed. I will confirm this because I am a little shaky on my facts, but I believe what the European Union did was sell liquor in tamper-free pouches, which allows all these things to happen.
To my knowledge, I do not think the Americans have accepted that yet, so this is not us making the rules.
Senator Mercer: What about coming this way?
Mr. McCoomb: That is just it; you do not have this sealed bag coming from the United States.
Senator Mercer: Interestingly enough, if you fly from Kelowna, for example, after security — Kelowna is in the wine- producing part of British Columbia — you can buy wine inside the gate. If you are connecting through Toronto, you are staying inside the gate, so you never go outside of security; you can carry, in this case, wine, all the way to wherever your final destination is inside of Canada. However, if you are flying from California or wherever in the United States and land at Pearson International, you have to go outside of security to make your connection. As soon as you go outside of security, you have to put the liquor into your checked luggage.
Mr. McCoomb: Believe me, we really want to provide the smoothest connections and least hassle for our passengers. My suspicion is that this is a question of regulations that we have to conform to in terms of our regulators, our masters, but I will raise the question. We will see if anything can be done. I was certainly delighted when the European Union allowed us to offer the same connecting aspects for alcohol in that particular case.
Senator Mercer: My colleagues have heard this before, but my theory is that my flying experience starts at the curb when I get out of the cab and ends when I get into the cab wherever my destination is.
This question is for you all. Someone said that one size does not fit all, but good service does fit all. Do we have a measurement through the Canadian Airports Council that develops best practices and shares that through airports, whether it be in British Columbia or Halifax or Toronto?
Mr. Ruth: The ASQ formula that I mentioned earlier and the metrics are provided from Geneva, Switzerland; that is where they are headquartered. Almost all airports participate in these surveys. Thousands of surveys are done by passengers at each airport year-round. When we get the metrics and results, we are then measured on these elements and awards are given. We have been fortunate in Halifax to receive quite a few of these global awards, but that is not why airports do the surveys. They are done because it gives us a chance to measure our customer service performance and then to improve on that.
Another element of customer service at the airports is that we have a unique management role, in that we really do a lot of collaboration with many service providers in the airport.
Having said that, we would never divorce ourselves from that ultimate customer service offering. If baggage is coming late — and we get those complaints, maybe as much or more than the airlines in some cases — we will work with the airlines where we can to improve those experiences in all the different aspects of customer service.
We also collaborate with each other with best practices. We have several meetings a year where we talk about some of our service improvement initiatives.
Senator Frum: Thank you, gentlemen, for being here.
To continue a little with Senator Housakos' line of questioning, we understand the biggest burden or difficulty for airports are the federal rents. That is the testimony we have heard. Is there any sense that your municipal tax rates are tied to the rent and in the event that the rents were lifted, you would have to renegotiate with the municipalities? Are any of them giving you a break of any sort?
Mr. Restall: Not that I am aware. I am not aware of any other airport where they do not deal with their municipal taxes as a total separate entity from the other financial aspects of the airport.
Mr. McCoomb: They are totally decoupled in Toronto.
Mr. Ruth: They are decoupled in Halifax as well.
Senator Frum: Do you have figures on the percentage of travellers coming through Canadian airports that are tourists versus business?
Mr. Restall: Each airport will have a different part of that equation. That is part of the ASQ program actually, and it is why our community takes such an interest in it. We spread that information to our board. They want to hear it every quarter, you can appreciate because they want to know what is good for the airport. We spread it throughout the community. We watch it carefully.
It is interesting because we have seen a transition in Saskatoon. We have moved to a higher percentage of business travel than leisure travel, and that was unique to us. It changes our customer service expectations because their demands are different than the demands of leisure traffic. That is our number, but it will be different in each community and different almost by month because it depends on when summer begins and when spring break is, et cetera. It moves around.
Senator Frum: Do you have some sense of what the breakdown would look like, say, in Saskatoon?
Mr. Restall: It was 55 per cent business and 45 per cent leisure in the last quarter.
Senator Frum: What about at Pearson International?
Mr. Restall: It will be different in January, February and March because we have 18 flights a week to hot spots. There is something about leaving Saskatchewan in the winter. People want to be where it is warm. It changes the equation.
Senator Frum: When we worry about losing customers to the United States, are we worried about the business traveller? Is that an issue?
Mr. Restall: I want to reiterate what Mr. McCoomb said. It is a value equation issue, what they are able to offer in terms of price and the fact that they will intrigue people. There are two or three or four of them, and that is leisure traffic. If you did a value equation, and you valued your time, the cost of your car, and so on, then maybe it is not such a good deal. As consumers, we tend to ask what it costs in ready, hard cash. That is why people cross the border. The value equation we are seeing is leisure.
Is that fair, Mr. McCoomb?
Mr. McCoomb: Seemingly, it is now drifting in that direction.
Senator Frum: Is your position that there are policies in the United States that are predatory or inappropriate, or is there anything that might violate NAFTA agreements in the behaviour of the U.S. government, the airports you mentioned along the border?
Mr. Restall: Airports in the United States operate differently than airports in Canada. Typically, airports in the United States are run by the city or by the county, so they do not pay municipal taxes because they would be paying taxes to themselves. They do not pay rent. They all get Airport Improvement Program — AIP — money. Every airport gets AIP money.
If you were looking at Billings, Montana, which is south of Saskatoon, it runs about the same amount of traffic as Saskatoon. They have an entitlement of $4 million a year. That is what is given to them for capital, and that changes the equation.
However, on the other side, they have some limitations. They have regulations in some economic areas that make their business model different from ours. You are not comparing apples to apples. There is nothing I would say that is predatory in nature.
Mr. McCoomb: With respect to your question about tourists, we receive statistics from the government, particularly on aircraft and passenger activity, and particularly broken down by planed and deplaned passengers. This is useful for planning, but we conduct our own market research and look at the passengers because we are trying to satisfy people, and their needs and expectations are different.
In our case, we are dealing with at least five distinct sets. For example, we would characterize you in our market research as "suits on the fly." You want to use the lounge, you want to be left alone, and you want to plug in. We have another large group that we call "experience seekers." These people love to go into our stores. We measure that and track them because we are trying to ensure that the services we are offering meet everyone's expectations. One of the problems is that we hear certain complaints all the time, which are valid for one group but do not apply to another.
We have a group that we call "chillers." You may recognize them yourselves, probably your children travelling internationally. You can recognize them because they have earbuds in their ears, and they are sleeping in their chairs.
Each of those groups has needs. You have to see the population in terms of their needs and wants. If you want to satisfy these people, you need to ensure that each group gets what it wants. It is not homogeneous. Not only are airports not all the same, but even within a large airport such as Toronto Pearson International, handling 86,000 people a day, there are different needs, wants and expectations.
Senator Frum: Do you want to share all the categories with us? I am sure you are leaving out some of the more derogatory categories.
Mr. McCoomb: The point is that there are categories, and we are trying to understand these people and their particular needs and wants.
Mr. Ruth: We are a little over 40 per cent for business travellers, and we are in the upper 50 per cent for leisure travellers. Interestingly, in Nova Scotia — and this may be the case throughout the rest of the country; I am not sure — people who come to Nova Scotia by air spend about 40 per cent more than those who come by road, so they are leaving more dollars in the community.
Mr. Restall: One of the groups is called "groupers." They are groups. They could be leisure groups or business groups coming in for conventions. They have different demands among them, and they cycle through times. It is a dynamic environment, and you have to tailor to each piece of dynamics that happen.
Mr. McCoomb: We receive great statistics from Ontario Tourism, particularly arrivals by day, the period they are staying and what they are up to. This is useful information as well; I do not want to downplay it. However, we do our own extensive market research, which, by the way, you are all invited to join if you go through Pearson International regularly. The website is www.yourvoiceatpearson.com. We invite people to comment. Through your voice, we learn and try to improve our product. As frequent travellers, we welcome your input.
Senator Zimmer: Thank you for your presentation. I went to university in Saskatoon, so when we spoke about it, I had a flashback. I must confess that I also had hot flashes because in Las Vegas they say, "What happens in Vegas stays in Vegas," but they say, "What happens in Saskatoon never happened."
Senator Housakos keeps asking my questions about the fees. However, I will go further. I always wanted to ask these questions: Who sets the fees? How much is set? Where does the money go? Does it go into a black hole? Is the money held? Do the authorities hold the money? Who decides when and where they do the improvement? By the way, it is a very efficient, nice airport in Saskatoon.
What is the process? For months and years, I have objected to these fees, and I would like to know who makes those decisions.
Mr. Restall: By the way, the Saskatoon airport has no debt at the current time, and that is the way we would like to keep it. However, circumstances always dictate that you respond to your community, and the community actually drives what we are doing in terms of what they are looking for in a facility and a product. If the community is driving the air service because they are filling up the seats, and the airlines bring in more aircraft, then we have to facilitate them.
Fees are determined by the airport authority, based on the philosophy of the airport of reinvesting all the money. The money is held by the airport authority. It is a not-for-profit corporation. No money is paid out to anyone; it is all reinvested.
The fees are the result of consultation with the airline and the retail entities. We do market research on what the market price is for certain things. We tend not to be a leader in the market value but, rather, a close trailer. I use our parking fee structure as an example. We do not want to lead the marketplace in determining parking fees, but we will be close behind what the community is paying.
As I said, the money is held by the airport authority. The airport board then determines the priority. The board approves the budget, and the board presents annual reports to the public and to our nominators. We meet with our nominators. Each one of our nominators goes through our annual report, budgets and financial statements. Then we have an annual general meeting, to which we invite everyone in the community. We stand up there in a transparent fashion and explain how our rates got to be what they are, how the revenues were generated and spent, and why we spent them that way.
Senator Zimmer: Do you consider each airport a not-for-profit organization?
Mr. Restall: Absolutely.
Senator Zimmer: Is there any relationship between the airports with setting of fees, or do you operate as individual silos?
Mr. Restall: Individual silos, independently. Each airport decides what is appropriate for itself, what its capital needs are and what its revenue stream is.
I will use Saskatoon as an example. The initial board decided that we would be — and, I am not supposed to say "a cheap airport" — an affordable airport. We do everything in our power to be an affordable airport to our air carriers on the premise that that it is our marketing. We want the airlines to use our airport. We have an air service group. The mayor sits on the board, and it is chaired by the tourism association. We said that we will fill seats on planes and encourage the airlines to give us more. We will do that by making it affordable for them to operate in Saskatoon. In 12 years of operation at Saskatoon airport, we raised the major rates to carriers, which are landing fees and general terminal fees, twice, for a total of 6 per cent. I do not know any other businesses that can say that their major partners only had a 6 per cent increase in 12 years. We have done that in Saskatoon.
If you were to look at Regina or Winnipeg or Halifax or Toronto, they have a different philosophy. It is driven by what they need to do. It is also where you are in our life cycle. Mr. McCoomb will tell you that when they assumed the airport in Toronto, the life cycle required substantial investments. When they took over the airport in Thunder Bay, they got a brand new plant. Because they had brand new runways and a new terminal, they did not have to spend the money in their first 12 years of being an airport authority. Their time will come; it is a continuous process.
Senator Zimmer: A good example is Winnipeg.
Mr. Restall: Yes, they are at that point.
Senator Zimmer: They did a renovation in 1955. I must give them a bouquet on this. They are building a beautiful airport, but it looks extremely functional. Congratulations on that.
Senator Plett: I would not have normally done this, but I will give everyone little lesson in geography now. I am from Landmark, Manitoba. For the record, that is the geographical centre of Canada. My Main Street running north and south is the very centre of Canada. I live just on the west side of that Main Street; I have an office just on the east side of that Main Street. I travel from Western Canada to Eastern Canada many times a day when I am home. I am very proud of that. I travel out of the Winnipeg airport frequently, as does Senator Zimmer, although he wishes he was travelling out of the Saskatchewan airport. Hopefully, we will have a wonderful building there sometime. I drive by it a few times a week. We are hearing now that it might be a few more years before we are in it. That is not what we are discussing today, though.
First, I apologize for being late, and my question may not be relevant for this committee.
What involvement does your organization have in the security aspect? That is what my questions are based on. As I arrived here, you were talking about the NEXUS card, which is a wonderful card, even for domestic travel. I commend whoever started that card. I have it, and it has made my life easier.
My questions are about security. Do you have authority in that?
Mr. Restall: There is a value equation in security. We are all involved in it. Everyone in the airport is involved in security. We all have different roles and have to work collaboratively. It starts with the regulator, Transport Canada, who sets the rules; then moves to CATSA, who delivers those rules at pre-board screening; and then to the structure of the airport involved — that is, the physical aspects of security; then to the carriers and their need to maintain procedures and flow their passengers and their bags in such a fashion. The retail people have a responsibility in supply- chain management of their product as it moves in and out of security. I can keep going,down to the hangar line and all the people there and the small aircraft that fly, too.
It is a collaborative effort. We all have different roles in it. It is hard to say what specific role you are talking about and how we fit into that. We all work collaboratively and our primary motivation is to ensure that the travelling public has a safe and secure trip. If we can make it enjoyable, that is even better.
Senator Plett: I appreciate that. As Senator Mercer said, I think that my trip begins when I get out of the cab until I get into a cab at the other end. Many of these experiences are frustrating, but not all of them. I find it strange that there does not seem to be any consistency in what the people at security do. When I talk about security, I mean at the scanning machines and what they do, and what their mechanisms are for deciding who they want to give the treatment with the rod or the bar.
One day, supposedly I beeped when I walked through. They do everything short of a strip search. The next day when I walk through the scanner, I forget to take a watch off and nothing beeps. When they use the bar, one day they zip along and send you on your way. The next time they stick their fingers in your shoe and ask you to lean against a bench so that they can look at the bottom of the shoe. There does not seem to be any consistency in what they do.
I have a sinus problem so I carry one of these with me. I have it in my jacket pocket and never take it out. I throw my jacket in the basket. Seldom does it show up on the screen, but every now and again it does. They take it out of my pocket and put it in a little plastic bag and give it to me, and then I can walk through. I am not sure whether they think I will leave it in that plastic bag on the airplane, but if they put it in a plastic bag for me to walk 20 feet, there seems to be some degree of safety in this.
Who makes the rules that seem to be so inconsistent from one airport to another? I know you cannot specifically answer these questions, but who decides on that?
Mr. Restall: You are talking about the touch part. That is, where you, as the traveller, are touched. Typically, Transport Canada sets the rules for that, and CATSA is the entity that enforces those rules.
The rules come under Transport Canada, and the touch that you are talking about is delivered by CATSA. That is who you need to talk to in the areas that you just mentioned.
Senator Plett: Who is CATSA?
Mr. Restall: It is the Canadian Air Transport Security Authority. Kevin McGarr is the president and CEO. I am sure he would be delighted to talk to you about that.
Senator Plett: I am sure that we will have them here. In that case, I will not pursue that line of questioning. I will draw up a list of questions for them.
Mr. Restall: This goes back to an earlier question that I wanted to touch on.
A number of months ago, I sat on a panel at the Airports Council International, ACI, representing Canadian interests. There were people on the panel from the EU and from the United States. We brought in Kevin McGarr from CATSA for the Canadian perspective, a gentleman from the EU and a gentleman from the United States. These were very senior people. We talked to them about what you were talking to us about, namely, can we find a way to harmonize this and have consistency of application? You talked about the secure bags. We need that because people get confused about what is expected of them. We spent a lot of time talking about that to those three entities. If Canada, the United States and the EU showed leadership to move toward a more harmonized approach, it would help all of us in the equation, but it would help the travellers. Travellers want to see consistency of application and want to know what is expected of them.
Senator Plett: Thank you. I will save my questions for them. However, it must be frustrating for your people as well when these lines are slowed down. This Monday, coming from Winnipeg, I was on a 7:45 a.m. flight, which is usually the one I take. I have flown out of Winnipeg for dozens of years, but weekly for about the last seven.
When I got there at about 6:45 a.m., an hour ahead of my flight time, the lineup was worse than I have ever seen in seven years. I thought I would be two hours getting through. I called a concierge and said, "I am here. I hope I will not miss my flight." She said, "Yes, we have rules; we can only get you out of the line at a certain time, but I know you have checked in."
The strange thing is that it took 15 minutes for me to get from the back of the line all the way through to the scanner. Like I say, it was the worst lineup I had seen in seven years. Someone had given someone directions to move this along. Someone was paying attention, and it can be done. It must be a frustration for the airport council, the airport authority and the airlines when they have this happening and flights are delayed.
I will save my questions. Thank you very much.
Senator Merchant: You have presented us with an enticing business model wherein if we cancel the taxes and the rent, you would be able to run the airport so much better.
I am wondering, is that not a great business model? What business would not be envious of that situation? Every business runs within their parameters. No one will get a free ride.
Are you basing that on a model that you have observed somewhere else? Are there airports in the U.K., Japan, Great Britain and the U.S. that are run on a different business model that you are using as your indicator?
Mr. McCoomb: Absolutely, there are different business models. Business models vary around the world enormously, and that is a fact of life.
For example, in Asia, particularly, there is significant government investment. If you look at the beautiful airports in Singapore, that has been a national policy. It is a city state. It has to live by its wits. They have chosen to be a major focal point, and they support their airport enormously.
The United States has a different model where mostly the airports are municipal, and the federal government has been very involved in supporting the capital program, picking up the capital side.
In Canada, we have a different model.
I come back to the question that I think you are asking, namely that we should suck it up because this is how business is done, and is it not everywhere else?
I return to the point that, in this particular case, we are not-for-profit. We are overhead for everyone else's business, so every dollar that is put on top we have to pass through, and it goes on to the cost of visiting the art gallery or Niagara Falls. It is a burden. If it is an appropriate burden, fine. However, it has not been proven to me that this has been looked at to see if this is appropriate and whether we are really as competitive as we should be.
There are two aspects to rent. One is the quantum, the amount we pay, and the other is the nature of the structure of our rent. We pay on gross revenues.
That means, for example, if I had to invest $65 million in a major facility to treat glycol — the chemicals used to de- ice aircraft so they do not endanger the environment — which is an appropriate investment that any other company would be encouraged to do and rewarded for it, I am penalized. There is a 14 per cent markup on that taken by the government. I scratch my head on that one.
A fair comment was made by the senator about the value of the land. The public has made a huge investment. This is a very solid observation. I do not begrudge at all the Canadian public's right to have a return. That is fair and reasonable.
What is not fair and reasonable is if they get a markup. We have had to spend billions in Toronto to redo the terminals and provide all the facilities there. That was an investment the Canadian public was not willing to make. Had they made it, they would have continued to realize a profit from Toronto. However, that profit would have to have been after that cost was subtracted out. As it stands, they are realizing a gain on that, plus they are taking a markup on the capital investment. You talk about other businesses; no other businesses do that. Am I wrong? Any other business investing in its capital plant gets credit for it in their tax system.
I invite my colleagues to comment on their situation. It leads to some odd distortions of the way we do our business. I like your attitude that we should be free to do business in a businesslike fashion. However, this particular structure — not the quantum, but the way it is set up on this approach of total revenue — causes us to do strange things to try to sidestep this, not what I would consider often to be best business practices.
There are both aspects to that. There is the quantum, and I accept your point, but there is the structure as well that you should look at to see whether it is appropriate. If it is deemed appropriate, it is an appropriate overhead because we are passing it through to the bellhop in the Royal York Hotel because, at the end of the day, it is passed on to tourism or to the cost of shipping. Our idea is to be as competitive and productive as possible. We should not be burdening this unfairly. Therefore, if someone has made the case to you that this is fair, please share it with me. If you feel it is fair, fine, but understand that it is overhead. We are working hard to get those costs down, and if we had a partner to help us get those costs done, we think it would benefit our community.
Mr. Restall: We look at it in Saskatoon as flow-through. It flows and trickles down and costs our partners money. Ultimately, we have to recover that money. Does it sometimes have an adverse impact on decisions we make? Yes, it is one of those things you have to consider, and sometimes you shake your head and say, "Why is it even a consideration in the decision-making process?" It does get a play in that regard.
Mr. Ruth: On the capital side, I think back to the federal stimulus money that was available a while back, and I start to think about the competitive positioning of Canada in aviation and transportation. The transatlantic area, because that is an area near and dear to us in Halifax, is about 17 per cent of the world's global market. It is not that much smaller than the Pacific region's global reach; yet we lose much of that competitive advantage to Boston, New York and to others when, with a great infrastructure, we are geographically situated to be able to really make a run at some growth for Canada as the closest continental link in North America.
I am pleased that the Senate and the government are looking at this. It is even bigger than the airport issue. It comes down to what we want to spend our money on competitively for the long run.
Senator Merchant: While I do not have the perfect business model, I am asking you whether you have a model that you modelled your operations on. I do hear from many people. There are many unhappy people who feel they are paying a lot for travelling in Canada. Perhaps we could understand the breakdown of a ticket. I fly all the time, too. Maybe if we knew how this price was put together, it would make us more understanding.
I am not sure if I pay fees every time I fly in and out of an airport. I do not know if everyone pays the same fee, or whether you pay more if you fly Tango or Tango Plus, the different levels of tickets.
Perhaps if you really want some good feedback, maybe every time I travel, I should be getting a ballot that I can drop in to you. I do not know how you could manage all these ballots, but somehow you need to find a way to find out what is bothering the traveller.
Mr. Restall: I cannot speak to the price of the ticket, the airlines determine that. There are add-ons to that. I can tell you that when you look at the add-ons, you will find an airport improvement fee, the AIF. That varies by airport, based on what their board has decided they are required to spend in their capital program.
AIF money is used to fund our capital programs, and it is different. You pay departing the airport. If you leave Saskatoon, you pay in Saskatoon. My destination was Ottawa today, so when I return to Saskatoon, I will pay the Ottawa fee on the way out. That will be on my ticket.
In terms of what makes up the airline ticket, ignoring the AIF, typically the cost to an airline to operate in an airport is somewhere between 2 per cent and 3 per cent of their total cost. We are not a big contributor to the expenses of the airline operation.
Then they take it behind the magic door, run the numbers all together and decide how much they have to charge for the different classes of tickets to make a profit. They have shareholders, and they need to have a return on their investment.
Senator Merchant: With Regina and Saskatoon, there was a flight that went from Saskatoon to Ottawa non-stop; I think you had that for about a year and a half. In Regina, I think we had it from May until September or October. Can you tell me the proportion of business travel, and why that was stopped? I know you broke down the different levels of passengers.
Mr. Restall: I cannot tell you specifically for a specific flight. The airlines may be able to, but the research we do is on a collective basis. We do not target any specific flight, so I cannot tell you that specifically.
The fact that flight left the system for the winter was very frustrating from our perspective.
Senator Merchant: It was constantly full.
Mr. Restall: It was filled from my Saskatoon perspective too. Airlines make strategic decisions. They look at seasonal demand. For the time of the year that it flew in Saskatoon, it was full.
It was frustrating from our perspective because our philosophy in Saskatoon has been if we continue to fill the aircraft, the airlines will continue to give us improved service. When that was introduced, we went out of our way to ensure that we filled that aircraft and the community supported that. The airline strategically decided to take it away from us and said they will bring it back in the spring. That is the frustrating part of it.
I have talked to my board, the mayor and my MPs about it, as well as my community broadly. My only answer is to say, "The community is dissatisfied; give it back to us, and we will fill it up again. You can make money; please keep it." They have to make their corporate decisions. I think the use it or lose it rule does not apply in this case because we were using it and still lost it, and that is frustrating.
Senator Fox: You said that perhaps it is time evolve to the next stage. If you were to do that and to design it, how would it look?
Mr. Restall: Remember, I was in the system; we had a homogeneous group of airports, and they have changed. We put a box out there; we put a lease around the bigger ones and said off you go. They all went their own ways within that box and developed their own personal business models.
What I am talking about is we are living in the box, the lease, but we are saying the world we live in is changing. Transportation is changing. My father was a railroader; I am an aviation person, my kids fly. We have to expand the box a little bit. There will be a box, and that is okay. If we had 20 airports here, they would all say that they would go different ways in that box.
In terms of the model, give us the opportunity to expand the box so that we can ensure the system is sustainable in the long term. It has been very successful in where we have come to today. We just say to give the system a little more latitude so that we can sustain it and have the dynamics for the future.
We do not really know what is coming at us other than that aviation will be the backbone of the transportation infrastructure of Canada. We have to support that. We have to give it enough latitude to adapt to the change and be responsive so that we have a very good local, provincial and national economy. I am saying to let us work through that in terms of sustainability. Does that answer your question?
Senator Fox: Do you have any specific changes in mind that would be helpful to us and helpful to you when we write our report?
Mr. Restall: I think we have to enter into a much more collaborative relationship relative to how regulations come into the system. Regulations drive our costs. You heard a lot about runway end safety areas — or RESAs — and extensions to the runways. We just had three airports, Thunder Bay, Victoria and Kelowna, spend a lot of money to extend their runways — as far as possible in two of their cases — so they could bring better commercial service to their community. Now we are talking about RESAs and that will probably have operational impacts on those airports because they do not have the space to make RESAs work.
One suggestion would be to set up a better collaborative relationship in how regulations come forward so that we understand the dynamics and implications of each of those from an economic perspective.
The Chair: Along the way, if you have any recommendations that you think our final report should include, feel free, via the clerk, to contact us. If you want to be modest and say it verbally, you can phone some of the members, and they will give that information to the committee if you prefer.
Mr. McCoomb: I have a footnote to Senator Fox's question.
Jump in if I am out of line, gentlemen, but I think it is fair to say that for virtually all the airports, we favour being told what the problem is, and then being allowed to try to adapt. Locally, situations differ. Rather than prescriptive regulations, which can be really counterproductive, it is better to work with us and allow us to adapt.
If you tell us the end result that you want — be it security, safety or environment — we are very anxious to adapt. I think we are very well qualified because of our knowledge of the local conditions. We certainly favour that approach over rigid regulations that we have to follow blindly.
Senator Johnson: I am not from Landmark: I am from Winnipeg. There is an airport in Gimli. Having said that, I think one of our problems in our airports is the rent structure — and I have heard a lot about it, not just here. I know your membership wants an elimination of it.
Will you tell us what would be the best thing? You are saying that it puts our airports at a competitive disadvantage, especially with trade issues, and you want to have a revision to the formula used to calculate rent. That would exclude airport improvement fees and revenue raised to cover debt-servicing costs.
That information would be very helpful in our work with this committee.
Mr. McCoomb: Senator, on my point about how investments should be treated, we would certainly welcome backing out those investment costs, even if the quantum had to be adjusted. It is a distortion, this mark-up that occurs on an investment. First, the Canadian public was not willing to make the investment themselves, so is it fair that they are taking a reward from that? On the other parts of the business, absolutely, they should be getting a share of the non- aeronautical revenues.
We are somewhat at a disadvantage speaking for many airports. There are just three of us here, and there is a wide range of opinions. However, I think we would be unified on the fact that we would like to see the capital investment part separated out so that it is not penalized.
Senator Johnson: How are the smaller communities coping with this?
Mr. Restall: Only a certain number of airports pay rent.
Senator Johnson: That is good to know. How many would that be?
Mr. Restall: There are 26 airports in the national airport system. One size does not fit all.
Kelowna has a different deal. They were half owned by the city to start with, so Kelowna airport pays $1 a year. It sticks in my craw a little because they have a little more activity than me, and they have a slightly bigger base of revenue and pay $1 a year. The territorial airports are exempt, so it comes down to about 20 of us that will be paying rent.
Where it is really becoming more evident is where it was phased in based on the lease agreements. For example, the airports, such as London, that are much smaller airports, their rent kicks in in about 2015, 2016. I think Charlottetown is in the same boat. They are looking at limited revenue streams and suddenly will have this new cost.
Senator Johnson: Is there a revision to the formula happening now?
Mr. Restall: No.
Mr. Ruth: A revision was done to the formula in 2005 and 2006, and that provided some relief. However, since then what Mr. McCoomb mentioned about the rent formula and what you end up paying on it, which becomes an added penalty, is tough.
In Atlantic Canada many airports such as Charlottetown, Moncton and others, will be facing this issue in four or five years. It is a lot of money. In Halifax's case, it is roughly $10 a minute, every minute of the day. Mr. McCoomb is paying probably 30 times our rate.
Mr. McCoomb: It is $150 million a year.
Mr. Ruth: It is a significant amount to make up on the bottom line for a non-profit organization.
Senator Johnson: What is the story in United States airports in this context?
Mr. Restall: They do not pay rent. As was mentioned, they get AIP money. They have money given to them; they have an entitlement.
Senator Johnson: That is a huge disadvantage for us.
Mr. Restall: I always use the example of Billings, Montana, because it is south of where I am in terms of proximity. Their entitlement, I believe, is about $4 million a year plus discretionary entitlements. They are receiving money toward their capital program, and we are expending money.
It is an interesting equation because the lease we have says that we shall run a first-class airport. We say that if we were not paying the rent, we could reinvest that and ensure that we were running a first-class airport. At the very least, bring our rates down so that we could encourage air service. That is the other thing the community wants.
Senator Johnson: How competitive can Canada be in the airline industry in the global context? How competitive do you think we are? Are there specific issues that are reducing our ability to be competitive?
Mr. Restall: That is an interesting question. I think you have had NACC in to speak to that. They consult with us and tell us from their equation, but it would be better for them to speak to their business and what they think they need to be competitive and where they see their competition and where they see their strengths and weaknesses.
Senator Johnson: We are already at a disadvantage with the U.S., even with what you are telling us.
Mr. McCoomb: There are other elements in the United States, too. They enjoy a tax-free bond advantage because many airports are municipal and can to take advantage of that.
I do not want to leave the impression, though, that Transport Canada has been totally deaf to our appeals. For example, I am very grateful that one of the problems with the current lease is being dealt with. The lease is for a set period, and some of us we were not allowed to extend that lease for some period of time. The difficulty that presented for us, and certainly for the first airports that became privatized, is that you get into the shadow of the end of the lease. In other words, we need a 40-year period for someone to come in and build a hangar and amortize that. However, if we are inside that, if there are only 30 or 25 years left on the lease, then that becomes a problem.
The department has been very responsive in working with us to deal with that situation. Therefore, please do not get the impression that we are dealing with a department that is not responsive. They often understand.
Senator Johnson: With our study, it is important to have other models to look at when looking at ours.
Mr. Restall: We should understand that we are talking about 2005 and 2006 when they did the change. When we worked with them, the term used at the time was a "hockey stick" because they saw that the rents went up catastrophically. In certain airports, the term used was that certain airports would "fall off the cliff."
The department recognized that, sat down and retooled the lease agreements to take care of that and neutralized that part of the hockey stick. Life goes on, and we are all trying to be sustainable for the long term. There will always be changes and dynamics. It is a very dynamic business.
Senator Johnson: Your recommendation would be $1 a year, is that correct?
Mr. Restall: I like Kelowna's deal. We smile about it. If you put 20 airport managers up here, you would get 26 different ideas. Some of us are schizophrenic.
Senator Johnson: You would still all agree on $1 a year though.
Senator Housakos: I have a series of questions and observations to make. I go back to the original discussion. Earlier you were explaining how the various boards of various airport authorities are made up. I still find it perplexing that the federal government, in most cases, out of a representation of 15 board members, have only 2 members on the board. Again, this is just my observation, and I am curious to know your opinion. Would you say that the federal government and Transport Canada, over the last few years, has abandoned their responsibility and role in dealing with transportation?
On debt loads of the airport authorities, I am discovering that it ranges from airport authority to airport authority. I want to compliment the airport authority in Saskatoon for having an upgraded and beautiful airport, and for being fiscally responsible and doing that within budget.
In the cases of the Montreal's and Toronto's international airports, I have been fed figures that I find unbelievable. Can you comment on the debt load of the various airport authorities, especially the major ones in Canada? Why would some be more fiscally responsible and effective and others less so? Is it the makeup, the structure or different needs from region to region?
We all agree that in the last few years one thing that has come out of these airport authorities is that we have some of the most upgraded and aesthetically beautiful airports in the world. Some of the work that has been done has been extraordinary. Airports are welcoming and have become commercial centres and places you can go to have lunch and a meeting. Probably that is a result of the airport authorities and the makeup we have in them where they see themselves as independent businesses. Is it safe to say that they see themselves more as independent businesses rather than providing a public service?
I have wrapped up a bunch of questions in my two comments. What are your observations on my comments?
Mr. Restall: I will try to get them into order. Saskatoon has a board of 12 members. It varies from airport to airport. The federal entity nominates two. It is important to understand, though, that the responsibility of a board member is to the corporation, not to their nominator.
In our case, the board is responsible to the community, accountable to the community, and holds themselves up to be transparent in doing that. Really, the source of the nomination is not as important as having a good skill set on your board, people who can bring all the different skill sets you need, such as the aviation background you talked about earlier, legal background, engineering background and accounting background. The skill set is more important because their responsibility is to the community, plainly and simply. They are there representing the community in presenting and making decisions that drive the airport.
In Saskatoon — you talked about fiscal responsibility — we made a decision to be an affordable airport. That became one of our cornerstones. I grew up in Winnipeg and had to learn, after 25 years in Saskatchewan, that the money is buried in the back quarter, and you do not bring it out unless you have to. I had to learn that philosophy, and being of Scottish background, it was easy for me to figure it out. However, that does not mean you do not take on debt when you need to.
We are looking at a significant improvement at our airport because we have had tremendous growth there in the last five years. Saskatchewan has seen a boom in economy for the last five years, as you can appreciate. We are advancing a terminal project, a piece of our terminal. What we would have done in 2015 and 2016, we will be doing in 2011 and 2012 because it is good for the community. We need it for air service and to handle the peaks at the airport. Will we take on debt? Yes, we will. We expect to have debt for about three years, but we have worked out a fiscal plan to approach it.
Many factors come into play for the airports: where the airport is in its life cycle; what its traffic demographics are; what market it is serving; whether it has transborder service or U.S. pre-clearance; or whether it is international. Those things drive how big the terminal building is, how long the runways have to be. Other factors include the amount of wear and tear on the runways; the type of climate; and the quality of the gravel base. All those drive the equation, so certain airports had to come to decisions.
You mentioned Winnipeg. I was a duty manager in Winnipeg in the mid-1970s at that airport. It was a beautiful airport when I worked there. I was involved in the expansion in the early 1980s. It was time, and there is a cost of doing that; sometimes you have to accept some debt to do that. Those decisions are made collectively within the community, and the board does that. That is the real strength of the airport authority model right now. It is local decision making.
Did I catch all the questions?
Senator Housakos: Are there any particular airport authorities with an unmanageable debt load right now?
Mr. Restall: I cannot speak to that.
Senator Housakos: The one in particular I have in mind is Pearson International.
Mr. McCoomb: To answer your first question on the federal government, absolutely they have not abandoned us. To the contrary, they are great partners in terms of a regulator. Mr. Restall was speaking about RESAs — the Bible we live by is the document called TP 312 — Aerodromes Standards and Recommended Practices — and keeping on top of that. They are consummate professionals; they have not abandoned us.
On debt load, I really agree with Mr. Restall. It is somewhat situational or circumstantial. It depends on the date of privatization, the date we moved outside of Transport Canada and were transferred to local airport authorities. That date is very important. Some people are fortunate: I am thinking of my good colleague in Calgary who got a brand new terminal building in the mid 1980s. I was involved in that beautiful facility. In Thunder Bay, I think the paint just dried before we turned the key over there. Clearly they were fortunate, and God bless them. They were lucky folks to get those facilities.
In our case, we had two woefully inadequate buildings that had never anticipated modern aviation. Imagine in a round building trying to get people through security or accommodating the A380, which has an 80-metre wingspan. These buildings had to be replaced. I know because I ran the airport for Transport Canada with those facilities for the three years leading up to the transfer; they had to be replaced.
We had an extra burden when it came Toronto's turn, to be gifted with a new terminal. Unfortunately the government at the time was running a huge deficit and decided on build-operate-transfer financing, and we had to actually pay $1 billion to buy that facility back. Not only did we not get it, but we had to buy it back plus replace others. That resulted in us needing to make a significant investment in the airport, and we have a very sound plan to repay that. I am totally comfortable that we can manage that debt. We have gone through SARS and all kinds of bumps in our business and been able to handle it professionally and with ease. Our lenders, who are the key people here, believe that we have solid management and are doing an excellent job.
Mr. Restall: Because you touched on it, the lenders really drive it. Mr. Ruth went to the marketplace, and the scrutiny that an airport undergoes of its financial capacity, in getting the market to give us the money is phenomenal. He just went through that for Halifax.
Mr. Ruth: We did, and with an A-plus credit rating and fiscal responsibility. I agree with Mr. McCoomb. We take fiscal responsibility as an extremely important part of what we do, so going forward we will continue to do that. I will use Halifax as an example of the evolution and the life cycle you talked about. Right after the transfer, we spent hundreds of millions of dollars on upgrading facilities, close to $100 million just on runways and other parts of the facilities. Then as we have evolve over the last five years, we have spent more money on things that generate revenue such as U.S. pre-clearance, a parkade and efficiency things, such as a new building to be able to clear snow closer to the airfield.
Transport Canada has been quite helpful recently in being open-minded to looking at some of these things. Positioning-wise, this whole model of airports that transferred really is a model that has worked and been a good thing. However, things evolve, the aviation industry included, and we need to look at things in a new way to stay competitive worldwide.
The Chair: I have a short question based on what you said, Mr. Ruth. It has evolved, but why were we so right on the model of the board that we should not question it? The sense is that 10 years ago, we decided to have boards with two members from the federal government. I do not remember the mathematics of it, but after 10 years, is it not time to question ourselves? Is the three-year mandate a good idea, or how many renewals should be justified? There have been problems and criticism with some boards in the last 10 years. Should we not at this time, when we are making our study, look at the fact that maybe Transport Canada and the boards should sit down and consider whether improvements could be made in that governance structure?
Mr. McCoomb: In the case of my board, they have, I would say, kept up, if that is what you are saying. The structure that actually started December 2, 1996, was very different than the current board structure. As we have learned and gained experience as to how to strengthen governance, we have gone to the minister for, I think, two amendments to the board — most recently just this past year. We use now a search firm such as a headhunting firm, to help screen candidates and ensure we are getting really good people. You seem to be implying that it has been static. Toronto is significantly involved, and we would be very pleased to share with you how it has evolved and how I believe it has significantly improved over time.
The Chair: That has been brought up, including by the minister.
Mr. Restall: It is very dynamic. A lot of feedback occurs between the board and nominators. We meet with them regularly, and the feedback is constant. I can tell you that that process continues at the board level.
The Chair: We will be revisiting that.
Senator Mercer: I cannot avoid the advertisement that one of the reasons the Halifax airport has done so well is that it was under the chair of our colleague Senator Cowan when he was chairman of the board at the Halifax airport.
Senator Plett and I always talk about the curb service, when you are dropped off and picked up by a cab, and this is a particular problem. You work for three very well run airports. Within 20 minutes of here, you will come across the poorest run airport in Canada, the Macdonald-Cartier International Airport here in Ottawa. One of the real problems at this airport in Ottawa is the taxi service as you arrive, not as you leave the airport.
I know from airport to airport it varies. I know in Toronto and Halifax multiple companies service the airports, and the taxis have to buy a licensing fee. Here in Ottawa, it is a contract that goes to one company. I do not particularly blame the company for the poor management of the taxi service.
To give you an idea, because you do not come here that often, I was there last winter, or two winters ago, in temperatures of minus 35 degrees. I went out to get in line for a taxi as I was returning from Halifax to come to work. I told my wife to stay inside. I went out and counted the people in line. There were 85 people in line to get a taxi in temperatures of minus 35 degrees. That is a poorly run airport, a poorly run service.
You are the Canadian Airports Council. Have you developed an efficient standard of how to get ground transportation away from the airport in a country that has a very rough environment? It could be minus 35 degrees here, but that is mild in comparison to some temperatures in Winnipeg or Saskatoon.
Is there a standard that people should be following? Not everyone is following one. I have never had a problem getting a taxi in Toronto, Halifax or any of the other major airports in the country. By virtue of what we do, we end up in many airports other than this particular one.
Is there a standard that we can perhaps pass along to Mr. Benoit at the Ottawa International Airport?
Mr. Restall: An integral part of running an airport is the transportation to and from the airport. It is a component of a partnership that we do not have much control over. The licensing in Saskatchewan is done by the cities, and that determines how many taxis or limousine services are licensed by an entity other than us. Each airport has a different piece of the equation from which to work.
After 37 years of being in the airport business, if I could figure out how it would work and take it from airport to airport, I would not be sitting here today. I would be a rich man, selling that formula.
Each airport has a degree of ups and downs with the ground services. Airports work very hard at working with the ground transportation because the airport is the first and last impression you have of a city. How you are driven back and forth is an integral part of that.
We work very hard at it; Mr. Benoit does, as does everyone around this table. We all do. In some cases, we have a little more to work from than in other cases. However, you have to tailor it to the resources available and find the right formula in your community.
Senator Mercer: As I said, I know in Toronto and Halifax multiple companies service the airports, and each has a licence; I do not know about Saskatoon.
Having a single taxi company source such as they have at Ottawa Macdonald-Cartier International Airport is different than most other airports I know. Montreal Pierre Elliott Trudeau International Airport has multiple services, as well.
Mr. McCoomb: I am pleased you raised the issue. I realize your study is looking at the air industry, but for the airport, we are the quintessential intermodal facility: We only work if the ground transportation element works well. I would not comment on my colleagues' approach to that.
I can tell you, from time to time, we have the same circumstances. Storm events particularly delay planes, and many people can end up in an airport at 3 o'clock in the morning. In the middle of a snow storm in Toronto, it is a task to get the cab drivers to come back through Highway 427 with the congestion and so on. We work at it as best we can.
We call these situations irregular operations; many of the anecdotal stories you hear related to airports relate to irregular operations. The winds blow a certain way, and we get planes stacked up. These things happen; it is part of doing the business.
The question was asked about whether Transport Canada had abandoned us or not. They have not. A wonderful example is that with Transport Canada's leadership, and particularly now with the leadership of the Ontario government, we will have a train service right in the terminals at Pearson International Airport that goes right down to Union Station. Therefore, with an incident such as you mentioned, we can take the people to the cabs if the cabs cannot get to the airport; we can get the people to a more strategic location and also connect with the subway at Dundas Station.
A solution has to be one where we look at the airport as an intermodal facility, in that it all has to work together.
Senator Zimmer: This could be a lead. It is an excellent question.
I asked one of the managers who was calling the cabs why there are limited cabs. He said that the policy is that he can only allow five cabs there at a time. What type of policy is that? He kept telling them to get the cabs there because 100 people were in line. They take their time to come out, but they know the people are there.
There is a lead. The policies that are set at the airport — I do not know by whom — are stupid, and we wait for an hour in the cold, freezing. Maybe there is a lead there you can follow.
Senator Fox: We look at the flight experience and getting to the cab. However, before you get to the cab, you go through customs, CBSA, if you are coming into Canada. I was discussing this with Senator Plett. Many tourists come in and many Canadians are returning.
I do not know if you sit down with CBSA. I raise this with trepidation because I do not want to be singled out next time I go through there, but you cannot get a smile out of anyone from CBSA. I do not know if they have learned the phrase "Welcome back to Canada." It would not prevent them from doing their job; they can do all the checking they want. However, it seems to me it is part of the overall flight experience.
You put in a lot of effort and work to make that airport competitive and ensure the flight experience is great. While I do not want to be unfair to every employee at CBSA, my own experience has been that each and every employee I encountered had a long face, and I could not get them to smile or say, "Welcome back to Canada, sir."
Do you people sit down with CATSA and CBSA to try to get them to be a little more user-friendly?
Mr. Restall: Absolutely. We go beyond that, even. The example I used was with Vancouver. Vancouver works extensively with CBSA to develop and fund processes to help them expedite their service to the customer.
We met with them recently; Cathy Munroe invited us in. She is a vice-president of CBSA in Ottawa, and she invited the airport and airline industries to come and talk to her about it. All eight CEOs of the largest airports in Canada showed up at that meeting to talk strategically about how we work in partnership with them to provide better service. That is how committed we were, in that we had those level of people from our industry showing up to work on that issue.
Mr. McCoomb: CBSA has a standing forum to dialogue with us.
It is a really excellent cooperative environment. Vancouver's leadership was terrific on it. CBSA has a new processing solution called the Electronic Primary Inspection Line, E-PIL. You will be able to swipe your passport coming in and expedite the entire process.
Senator, if you are having problems, get a NEXUS card, and your problems will be dealt with.
Senator Fox: Will the agents smile at me if I have one?
Mr. McCoomb: You will have to smile at the machine, because it will look you in the eye. CBSA is doing everything it can. They have a wonderful ethic in trying to be ambassadors, and they are great partners.
Senator Frum: We have 26 internationally designated airports in this country. In a country this size does that make sense, or would it make more sense just to have three?
Mr. Restall: No, it would not make sense to have only three. For Saskatoon, I want it to have an international airport. My community deserves to have an international airport. We deserve to have traffic moving back and forth.
It is very important to our community. We worked hard, for example, and spent many years with only one gateway into the United States, which was Minneapolis. We worked with everyone in the community from the mayor to the tourism people to the chamber of commerce. Now we fly into Denver and Chicago, as well. It is important to our community.
We have 18 flights a week in the winter to Mexico and Caribbean countries. It is essential. If there are only 18 flights, I can tell you there are more lining up, wanting to make it 36 international airports. It is so important to the economic well- being of the community. If you talk to any community, they want that type of air service.
The Chair: I will only comment that Senator Frum is the only senator from Ontario, from Toronto, around the table. I do not think you should have a vote on that.
Thank you for being here. I would like to remind the audience that the committee is currently studying the emerging issues related to the Canadian airline industry and the airports.
Appearing before the committee were officials from the Canadian Airports Council. Thank you for having been here, Mr. Restall, Mr. Ruth and Mr. McCoomb. If you have further comments, we will be addressing the issue of airports, particularly, in our report.
I will remind the members that the next meeting of the committee will take place next Tuesday, November 23, at 9:30 a.m., when we will hear from Association québécoise du transport aérien.
(The committee adjourned.)