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Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 10 - Evidence, March 8, 2011


OTTAWA, Tuesday, March 8, 2011

The Standing Senate Committee on Transport and Communications met this day at 9:31 a.m. to study emerging issues related to the Canadian airline industry.

Senator Leo Housakos (Deputy Chair) in the chair.

[English]

The Deputy Chair: Honourable senators, I declare this meeting of the Standing Senate Committee on Transport and Communications in session. We are here to continue our study on the airline industry.

Appearing before us from the Regional Community Airports Coalition of Canada are Alvin Maier, Chief Executive Officer; and Todd Tripp, Vice-Chair of the RCAAC and Airport Manager of Sioux Lookout Municipal Airport.

Alvin Maier, Chief Executive Officer, Regional Community Airports Coalition of Canada: Members of the committee, on behalf of the members of the Regional Community Airports Coalition of Canada, I thank you for the opportunity to speak on the aviation industry in Canada. Joining me this morning is my colleague, Mr. Todd Tripp, Manager of Sioux Lookout Airport and Vice-Chair of the RCACC. Mr. Brian Grant was scheduled to join us this morning but was unable to attend.

The Regional Community Airports Coalition of Canada is a national organization of airports and associations representing airports across Canada. We are dedicated to promoting the viability of regional community airports. The RCACC was formed in 2003 to provide a national voice for communicating to the federal and provincial governments the economic, regulatory and operational issues affecting regional community airports across Canada. Our 34 member airports are non-National Airports System airports, non-NAS airports. They are regional and community certified airports that Transport Canada sold to local communities under the National Airports Policy, NAP.

Honourable senators, unlike our city cousins, — mainly the 26 National Airports System airports as defined under the NAP, Transport Canada sold our airports to communities. They sold these airports to most communities using three main points: First, communities were promised under the NAP:

. . . the government will introduce measures to increase the viability of regional/local airports by reducing the variance between costs and revenues at each site. This will be accomplished by increasing efficiency and revenues at the airports as well as by streamlining policies and regulations.

Second, the Airports Capital Assistance Program, ACAP, was included in the National Airports Policy to assist eligible applicants in financing capital projects related to safety, asset protection and operational cost reduction. The intent behind that program was to assist the airports that had been sold to local communities in maintaining safe and viable operations. Third, some communities were told that if they did not take over the operations of their airports, Transport Canada would close their airports. We know this did not happen with the ones that are still operated by Transport Canada, but the threat was real in the minds of many local municipal politicians and community leaders.

Let us look at what the past 14 years have brought us in respect of these points.

From a regulatory perspective and under the same government that was responsible for the NAP, and even while negotiations were ongoing with some of the last few to be transferred, Transport Canada was in the process of introducing regulations that would dramatically increase operational costs at regional airports. I use the example of changes to the applicability of Canadian Aviation Regulations 303, CARs, on airport firefighting. It was removed for most of these airports as part of the transfer program and was reintroduced onsite as first responder fire services at airports that just had the services removed.

Other regulations, such as bird and wildlife control, winter maintenance and most recently safety management systems, have increased operating costs for our member airports. We are not opposed to regulations that enhance safety at airports. Our concern has been that regulations must be beneficial and that the regulations must be designed to fit the size of the operation of the airport; a one-size-fits-all approach does not work and does not benefit our airports.

For example, the cost of implementation of safety management systems, SMS, over the past two years for our member airports ranged from $30,000 at smaller sites to well over $150,000 at larger sites. In some cases, this equates to over 10 per cent of their current operational expenses. Did it really change how we operate? In most cases, it did not. Were ACAP funds made available, as was indicated under the NAP? No, they were not made available.

I will leave the regulatory topic and move to ACAP. Funding for this program basically remains at 1996 levels. With some exceptions and fluctuations over the past 15 years, there has been little to no increase in the program fund allocation. The only exception is that the funds were made available to those airports that were captured under the changes in the firefighting regulation. During the same period, the combined rate of inflation was approximately 29 per cent. Our primary resources for projects under this program — petroleum based products and steel — have increased close to 300 per cent. The number of eligible airports has also increased. In 1997, there were just over 70 airports eligible for ACAP, and in 2010, this number has increased to over 200. In contrast, the Federal Aviation Administration's Airport Improvement Program in the United States increased during the same period by 62 per cent from $2.4 billion to $3.9 billion in funding allocation.

The funds allocated for ACAP can no longer meet the growing demand based on inflation and eligibility let alone meet the demand placed on the program by new and future safety related regulations. Every year we see new regulations designed to enhance safety and security at our airports — a priority we all endorse. However, it has become more and more prevalent that there is a serious disconnect between the regulatory side of Transport Canada and the programs branch at ACAP. New regulations such as bird and wildlife control, winter maintenance and low visibility operations, all trigger new and different equipment or infrastructure for airports. However, in most cases we have been told that these projects are not eligible for funding or that there is little to no funding available.

One month ago, this committee heard from a group of smaller NAS airports speaking on access to funding that smaller regional airports enjoy. It was interesting that they were looking for a funding model, such as ACAP, or access to ACAP itself. As you can see, the program cannot support the commitment it has under the National Airports Policy, let alone meet the needs of the smaller NAS airports.

I will clarify a point they made in their presentation regarding regional community airports access to the Building Canada Fund. This is not the case in most communities. Most communities that own or operate these airports cannot afford to have their airport access the Building Canada Fund because it competes with municipal infrastructure, such as pools, recreational centres and roads

Our member airports are vital to their communities. They vary in size and complexity, from airports such as Gimli, Manitoba, which handles no scheduled passengers but is essential for charter flights and life services, to the largest of our member airports, such as Grande Prairie Airport, where I am employed, which handles over 340,000 passengers per year and is a major hub of air transportation in the region. Regardless of the range of size, keeping these airports viable is no easy task. New regulations and continued stagnation of ACAP funding impacts our minimal ability to remain viable.

In 2010, 12 of our member airports received some level of direct municipal funding to make up for operational losses. This does not include capital works. In the case of these airports, it is not as simple as raising fees to offset these losses, as higher fees may result in the loss of scheduled air service.

We struggle to keep air service affordable for our customers. Canada's major airlines talk about keeping rates and fees reasonable, yet they and their regional commuter feeders have airfares in place that are so outrageous that it makes it attractive for our local residents to drive hours to larger airports, thus affecting our ability to retain air service.

For example, the airfare from Fort St. John, British Columbia, an airport that handles approximately 120,000 passengers a year, to Vancouver is $417, including taxes and fees, a distance of about 800 kilometres. The airfare from Vancouver to Toronto on the same airline is $374, including all taxes and fees, a distance of 3,200 kilometres, four times the distance. There is no justification for this difference. It is a captive market operated by a single airline. I can assure you that the cost of operations to the airline at Fort St. John is far less than it is at Pearson International Airport.

In a country as diverse and large as Canada, air transportation is not a luxury. In some cases, it is the only means of transportation for a community. In many cases, it is vital for life services, and in all regions of our country it is an economic driver. In spite of these facts, air transportation is treated by the government as a luxury. It is taxed like a luxury, with very few of the collected fees reinvested into this vital transportation mode.

In 2009, the government collected hundreds of millions of dollars of these fees and taxes through airport rents, the Air Travellers Security Charge, aviation fuel taxes and others, and invested less than an estimated 5 per cent, or $30 million, into airports through ACAP.

I wish to thank members of the committee once again for the opportunity to speak to you this morning. My colleague and I welcome your questions.

Senator Dennis Dawson (Chair) in the chair.

The Chair: Thank you for your presentation. I apologize for my tardiness. I was flying in from Quebec yesterday and was twice stranded at the airport because of snowstorms. The only flight I could get this morning brought me in late.

Senator Plett: Welcome, gentlemen, and thank you for your presentation.

In your presentation, you said that with some exceptions and fluctuations over the past 15 years there has been little or no increase to program fund allocation.

What amount of increases should there have been? You said there have been no increases, but I did not hear any real suggestions of what increases there should have been.

Mr. Maier: I included with our presentation a copy of the current ACAP program guidelines. There have been some changes over the past few years. There used to be four priorities for eligible projects. Priority 4 programs dealt with building reconstruction and roadways into airports. Priority 4 programs have been removed because any airport that applied over the past 15 years for a program that was below a priority 1 or priority 2 did not get the funding, because no funding was made available.

Our members estimate that in the past 10 years about $10 million in projects have been left aside because they were priority 4. They are no longer eligible under the program. We estimate that in the past 15 years there should have been about a 30 per cent increase in funding.

Senator Plett: Fortunately there are a few chairs between Senator Johnson and I, because I am sure that she will come at me when I suggest that Gimli, Manitoba is not as important to the world as you suggested it is. I live a little further away from Gimli than does my colleague but we are both from Manitoba and very passionate about our province.

There are a number of airports that could handle charter flights. St. Andrews is just down the road. It is quite a busy airport, and maybe it does handle charter flights; I am not sure. I know that it does training; I took my training there.

Why do we need the number of airports that we have in close proximity to Winnipeg? I am sure the situation is the same at other places. Please tell us more about the reasons why we need airports that do not take scheduled passenger traffic.

Todd Tripp, Vice-Chair, Regional Community Airports Coalition of Canada: I come from Sioux Lookout, which is very close to Winnipeg. We are always confused with being in Manitoba rather than Ontario because we are on central time.

Sioux Lookout has scheduled service, but it is with Bearskin Airlines, which is a very small regional carrier, and/or Wasaya Airways, First Nations' own carrier. We service 31 First Nations communities to the North, and without that service, those First Nations reserves would be without access to the real world most of the year. Until the winter roads come in and they can drive, we are the only contact they have with the real world, whether for food, medical services or whatever. That is the importance of the smaller airports, even without scheduled service. St. Andrews has a few charters and is well known for its training.

The smaller airports in Canada serve a great need for the communities they serve. They keep many people in touch and can get them to larger centres to which it takes them hours to drive.

As an example, yesterday, I drove from Sioux Lookout to Thunder Bay to catch a flight to Toronto and on to Ottawa. The drive took me four hours. Had I had waited for Bearskin, it would have cost me $1,100 round trip. My Air Canada fare to Ottawa was just over $400 round trip. By driving four hours from Sioux Lookout, I can do some shopping and fill up my truck with food, et cetera, and support that economy and drive back home. I would rather be able to support my local economy, but at $1,100 for a round trip, it is not viable.

Senator Plett: I appreciate that. I have flown Bearskin hundreds of time out of Sioux Lookout and generally drove from Winnipeg to Sioux Lookout rather than flying from Winnipeg to Sioux Lookout. However, my point is that I do not think we can use the airports that do not have scheduled traffic. Sioux Lookout is a very busy airport, even with just the two scheduled flights and the charter and freight flights.

Do not get me wrong; I am not advocating that we do away with small airports. We need the Sioux Lookouts of the world. However, Northern Manitoba is serviced from Winnipeg and not from Gimli. I could understand the argument if it was serviced from Gimli.

We heard from a witness who spoke about the cost of safety and security. Although those of us here who fly feel hard done by when we are scanned and screened and so on, we appreciate that everyone around us has to go through that process as well.

When airplanes go down, are hijacked or whatever the case may be, more people are killed on airplanes than are killed on the ground. If I never flew, my attitude toward this might be different. Many of people who never fly feel that they should not have to subsidize security at airports.

However, that is one of the factors that drives our costs up for airline tickets, although perhaps not the $1,100 Sioux Lookout flight, because I think in Sioux Lookout you can pretty much walk onto the airplane without a lot of security. Nevertheless, I would like to hear your feelings about non-travellers subsidizing, in many ways, the safety and security of the traveller.

Mr. Tripp: I would equate it to an education tax. Everyone pays education taxes. Although you may not have children in school, you still support the system. The non-travellers are supporting the safety of the country. I feel that is as important as the education tax.

Your point is that more people die in the airplane than on the ground, but still, you want the airplanes flying overhead to be safe. If I were a non-traveller, to use your example, I do not believe I would have an issue with paying that little bit of tax or payment. It keeps the airline safe, and it keeps the community around the airport safe. I will forgo a comment on Sioux Lookout, where you can say you can just walk onto the aircraft. It is not that easy, but it is close.

To that point, to have security at airports is prime, and we support that as a group. We do not advocate against it. I think it is important that people support safety in our committees, and that is part of it. It is like policing costs; you may never call the police in your lifetime, but it is nice to know they are there if you need them, and it is the same with security.

Mr. Maier: From the airports' perspective on security, 9/11 taught us that in most cases, more people on the aircraft die in these type of incidents. The incident at Lockerbie, Scotland was one example where it was probably a split between those on the ground and those in the aircraft on who actually perished on that day. However, 9/11 taught us that aircraft can actually do more damage to those on the ground, and the people that were in the towers and the Pentagon could probably argue that there were more people killed on the ground than in the aircraft.

The security of air travellers is part of a national, holistic security program, just like policing. Over the years, air traveller's security has been isolated by saying that is just to do with air travel. Really, it is not. We are protecting part of the nation's infrastructure when we are protecting those aircraft. It is no different from security at ports and at railheads, but there is no rail traveller's security charge and there is no port traveller's security charge. Only in the airport industry is there an Air Travellers Security Charge.

Not only is it just in the industry, but also up until a month ago, when we attended a meeting and a presentation by the Minister of State for Transportation to do with enhancements that he is doing with CATSA, we could not even get a straight answer on where the Air Travellers Security Charge goes. It goes into general revenue. There is no accounting of it. When we asked the minister for an accounting of it, he told us to get hold of Treasury Board.

The people who fly pay that fee. We expect, as an airport community, that that fee will go back into the airports for providing security, but it does not. It pays for CATSA, and then no one seems no know where the rest goes. Transport Canada used to provide funding for policing at the larger airports. The smaller airports have never received funding for policing, yet we are required to have police presence or police availability or on-ground security, but there is no funding made available for it. We assume the costs, and those costs are passed on to the airlines and the airlines pass it on to the person travelling. Not only is it being isolated out, but we actually are subsidizing general revenues through the Air Travellers Security Charge.

Senator Plett: Are you saying that the Sioux Lookouts of the world, the smaller airports, on a percentage basis, are paying the same type of security costs as the larger airports?

Mr. Maier: On a per passenger basis, we are probably paying similar to what the larger airports are paying, yes.

Senator Mercer: I hope I do not give the public the opinion that you can walk onto a plane in Sioux Lookout without any problems. Security varies from place to place. From my experience, the toughest security of any airport in the country was in Williams Lake, British Columbia, and that is not a huge airport.

I want to ask some specific questions about your presentation. You talked about CARs 303 with respect to airport firefighting. Who provides and pays for that service?

Mr. Maier: Depending on the size of the airports, for most of our member airports, with the exception of two, I believe, it is community based fire service, and that was put into place when the airports were transferred. The community pays for it, providing the community response time from the city fire hall, for lack of a better term, can meet the response times under our emergency response plans. We have to have those plans in place under our certification process. The community pays for it.

Senator Mercer: Almost all of those fire departments are volunteer, or mainly volunteer. Depending on the size of the community, they may have one or two full-time firemen. Generally speaking, airports are not close to the downtown of whatever size community it might be, which means that the fire station is somewhat removed from the airport.

Mr. Tripp: Yes.

Senator Mercer: Is there a safety factor that concerns you?

Mr. Tripp: Again, I will use a personal example. When I was in Fort St. John, British Columbia, an airport with good security, the fire department was five minutes from town, but, unfortunately, it had to cross a railway track. If there was a train shunting cars across, which happened on occasion, the fire department had to go out of town along the Alaska Highway and back in up through the other way, which added significant travel time.

In Sioux Lookout, to meet the CARs 303 requirement, we had to put in an extra emergency road that comes in through a backside of a subdivision to allow the fire department to come up from town and back across. The fire department establishes a stage across the runway where we have to meet them because they do not have the qualifications to cross the live runway, and of course, you do not want them to cross the live runway. We have to send a person over to meet them at the staging area, then guide them, and communicate with them at that point. In order to meet the CARs 303, we had to put this emergency road in at our cost, and we maintain it at our cost.

Senator Mercer: You send someone to meet with them at the same time as you are trying to handle what is obviously a crisis of some sort, or you would not have called them in the first place.

Mr. Tripp: That is correct.

Senator Mercer: You also told us about bird and wildlife control, winter maintenance, and most recently the safety management system. You gave us a number for the SMS, but you did not give us a total number of how much all of these additional regulations have cost. You said that the SMS has ranged from $30,000 to $150,000, depending on the size of the airport. Do you have a number for all of the extra regulations that have been added on?

Mr. Maier: I can give you an exact number from Grande Prairie airport's perspective. We are one of the largest members of the RCACC. We handle 340,000 passengers a year. The costs of implementing, including CARs 303, because we were one of the larger airports caught in the changes to the regulation, is about a 22 per cent increase in our operational costs over the past five years, and that equates to $4.10 per passenger departing out of that airport. The $4.10 of what we charge the airlines goes directly back to those regulations named in that document.

Senator Mercer: The $4.10 does not seem like a lot until you multiply it by the 340,000 passengers that go through Grande Prairie Airport.

We have had a lot of talk about ACAP, your comments on other airports, smaller airports in the system of the 26, looking for access to ACAP or ACAP funding is a point well made. Obviously, we will be putting this question to the department when we have them before the committee.

To your knowledge, have all budgeted ACAP funds been spent on an annual basis? Is there anything left on the table at the end of March each year?

Mr. Maier: For the past 10 years I would say, no. Normally, any amounts left on the table when a project does not start will be rolled over to the next fiscal year. That is why the funding spent in a given year will vary. Some projects have been left unfunded for the past five years. St. Andrews Airport in Winnipeg has been looking for $900,000 for the past eight years under the wildlife fencing regulations. They have been unsuccessful and were turned down again this year. Their project has been rolled over to the next fiscal year.

Senator Mercer: The need exists. You said that the number of eligible airports has increased from just over 70 in 1997 to over 200 today. We have not built that many new airports since 1997, so I assume that previously ineligible airports have become eligible. Can you give us a brief explanation of that increase in numbers?

Mr. Maier: Under the ACAP program, to be eligible for funding an airport must move a minimum number of passengers each year; and the funding varies depending on those numbers. The increase in eligible airports is due to the number of airports with scheduled service today that did not have it in 1995.

Senator Cochrane: Have any of these airports closed since they were turned over in 1997 due to lack of funding or for other reasons?

Mr. Maier: No, not that we are aware of.

Senator Cochrane: Have they grown?

Mr. Maier: Yes, the communities they serve have grown, in particular the more isolated areas where oil and gas, and mining industries have created growth.

Senator Housakos: Where are most of your 34 members located?

Mr. Maier: I included in our presentation a list of our member airports, which are pretty much right across the country. We hold an associate membership with the Québec Airport Council. When we created the Regional Community Airports Coalition of Canada, we were challenged bilingually; so we started to work directly with them to bring their airports into our association. Other than that, we are pretty much coast to coast.

Senator Housakos: Of your current members and the regional airports that you represent, what percentage of their business is tourism and leisure travel compared to business and essential services travel?

Mr. Maier: From a passenger handling perspective, most of our traffic in the smaller regional airports is 60 per cent business and 40 per cent leisure. However, that varies dramatically by airport. Grande Prairie Airport is probably 80 per cent business and 20 per cent leisure. Most of the smaller airports have life service flights in and out because they are located in small communities that do not have full hospital services. For example, someone with heart attack symptoms in Williams Lake, British Columbia, is put on a medevac plane and flown to a hospital in Vancouver or Kamloops. Every airport on that list is essential for life service flights. Most of our Ontario members are main operating bases for Ornge.

Senator Housakos: What more could we do with the airline industry to enhance tourism in some of these more remote regions of the country. I suspect there is potential for growth in that area.

Mr. Tripp: It is interesting that you ask that question because we have been discussing in our communities how we might expand tourism. When I was in British Columbia two years ago, we started a tourism committee for that precise reason. We decided that we have to promote Canada to Germany and other places in Europe much better than we do now. They are very good at promoting here, but we are not so good at it over there. We need to start better promotion in Europe; but it will take funding to do so. Municipal governments do not have the funding to do it on their own. We need to get communities to think outside the box. They have been focused very much on in-house issues. For example, we think about bringing in tourists from Manitoba because we are close to the Manitoba border; and Manitoba tries to bring the tourists from Northwestern Ontario to their area. We have to start thinking globally, and our smaller airports can be a part of that thinking. Lufthansa and other international flights land at the international airports and the small feeder flights can bring international visitors into our smaller communities.

A focused look at tourism is vital to the survival of our smaller airports. We have the business market, and in my market, we have the medical market, with the brand new hospital in Sioux Lookout to serve the needs of the First Nations communities. We have to look at tourism to develop that market, but it will take more funding than we have.

Mr. Maier: Some of our member airports have been successful in that. The two examples I am most familiar with are Kamloops and Cranbrook. Both developed partnerships with their area ski resorts to open up and lengthen their runways with infrastructure funding. They bring in direct flights from the United States for the ski resorts. The ski resorts, the communities and the airports invested a lot of money in the airports. Unfortunately, a smaller airport faces one major challenge in doing something similar: bringing the Canada Border Services Agency on board and into our airports. Currently, if we want them at our airports, we have to pay them up front.

You probably heard from the smaller NAS airports across the country that to bring in CBSA, you have to pay for it. They are not an essential service at our airports. For an airport the size of Kamloops, the cost of having CBSA for the winter season was about $150,000 per year. That cost is tacked directly onto the airlines and the air fares. You have to draw a very fine line to develop tourism traffic.

Mr. Tripp: Last year, it cost the Sioux Lookout Airport just over $11,000 to have CBSA for 120 days. Fifty-one aircraft came in during that time, of which 26 were cleared through CANPASS. The CBSA officer came out for 25 aircraft, or 49 per cent, which equates to about $420 per airplane. We were charging $15 per head to clear, and CBSA cleared 204 people. We took a loss of about $8,000, or we absorbed the cost in our operating budget, to have CBSA at our airport. Many smaller airports will eat the cost so that they have the convenience, in particular the ones with nearby resorts and camps that draw tourists.

Senator Meredith: On the East and West Coasts many small businesses depend on tourism traffic. Are you saying that there is no coordinated body working with the smaller airlines to ensure that they attract tourism traffic to the east or west coasts of Canada?

Mr. Tripp: That is correct. Our area is working with the Manitoba people to see what we can do about getting the airlines together to develop a plan and to come up with a strategy. We have funding dollars for the study to determine what is required. We are doing that in northwestern Ontario; we are sistering with some tourism and economic development people in Manitoba to do this. No one has come forward to us as a coordinating body.

Senator Cochrane: You said that when this was done in 1997, Transport Canada threatened, to use your word, local businesses, and you listed three examples. This threat is panning out, because you are just about broke every month with regard to maintenance and the other services that are needed to run an airport.

Where do you get the extra funding?

Mr. Maier: For the 12 of our members that lost money from the operations of their airport last year, those losses, which range from $100,000 to $1 million a year, will come directly from the municipality, because in most cases, if not all, the municipalities own the airports. They signed the deal with Transport Canada to take over the airports. Some have an airport manager that reports to the city manager. Some operate through a commission or a board.

The bottom line is that the tax base of the local municipality picks up the loss for the airport.

Senator Cochrane: Can all the municipalities do that?

Mr. Maier: No, they cannot, but they will because most municipalities believe that an airport is vital to them from the perspective of economic development. Williams Lake Airport actually lost money last year. The regional district taxation base subsidizes that airport.

For cities it has become the same as paying for road repairs, sidewalks and everything else; it is part of their infrastructure.

Senator Cochrane: Have you made submissions to the government on this concern?

Mr. Maier: We have not met with the current minister of transportation, but we have met with the parliamentary secretary to the minister of transport and the minister of state for transportation. We try to meet with them regularly to outline our concerns. They are very sympathetic, but our concerns never make it from those offices down to the bureaucratic level that makes the decisions through the programs branches.

Mr. Tripp: We have accessed the economic development officers in our communities to see if they can help us with funding, but their requests have fallen on deaf ears as well.

Senator Zimmer: Have you tried to access funding through tourism? A small town in the Yukon where there is great hunting and fishing is bringing in three 747s a week because of tourism, and they are thriving. Have you explored that route? Have you tried asking for funding from them rather than Transport?

Mr. Maier: Some of the airports have had great success going the tourism route. Whitehorse airport, which is not one of our members, had great success bringing in one of the largest tire manufacturers in Germany for hunting and fishing. Other airports have not had success. Most have tried the other route.

Tourism is local, and you need a private investor, such as Kamloops and Cranbrook did with ski hill owners and Whitehorse did with fishing and hunting lodges. When you have that traffic, you need customs capability because the majority of travellers are from Europe and Asia.

Senator Cochrane: You spoke about the cost disparity between going short distances and long distances. I have the same problem. We can drive nine hours to St. John's from where I live or pay about $450 to fly. I can sometimes get seat sales from St. John's to Toronto for the same amount. I sympathize with you because I am always complaining about the high-cost of fees.

In your submission to government, did you say that the reimbursement of fees and taxes would help you maintain your airports?

Mr. Maier: Yes, we have, on numerous occasions. Our presentation today contains extracts from follow-up letters to the ministers after our meetings with them. The government has seen the language in today's presentation on numerous occasions.

Senator Cochrane: At the end of this study, the committee will draft a report with recommendations. What key recommendations should be in that report?

Mr. Maier: Our key recommendation is that Canada should review what the 1995 National Airports Policy promised and should live up to those promises. They should look at their funding model, which is why I mentioned the AIP out of the FAA from United States. Under their funding model, the revenues they collect from taxes on aviation fuel and travellers taxes are reinvested in those airports. That applies not only to the small airports in the United States but right across the board.

In Canada, the rents we collect were supposed to be the primary reinvestment into the airport system. Barely 5 per cent of the rents are reinvested, and that does not meet the mark. The airports have become a revenue source for the Government of Canada. The fees that are being collected are not being reinvested into the transportation link of which it is part.

Mr. Tripp: The Chinese government has recently announced that they are going to invest significant funds to support smaller airports and to build new small airports to support their travel and tourism industry, as they see that tourism is the way to go in the future.

I support Mr. Maier's comments. To move forward with tourism, we will have to invest more funding in the smaller airports in smaller communities, which is where many tourists want to go.

Last summer, when I was on vacation just outside of Barrie, Ontario, I met a couple from Germany who had rented a motor home there for the third year in a row. The only place they knew of to arrive in Canada was Toronto and the only place they knew of to rent a motor home was this place near Barrie. They were going to drive to the East Coast of Canada from that location. That is the state of tourism here in Canada. We have to start investing in smaller locations

Senator Johnson: Airports are critical to our smaller communities. You said that the funding model has not changed for 15 years.

Mr. Maier: That is correct.

Senator Johnson: How long can you continue to grow with this model?

Mr. Maier: The Airports Capital Assistance Program does not allow for growth and expansion. Any program that is deemed to be expansionary is ineligible. For example, Kamloops Airport wanted to increase their runway by 2,000 feet, primarily to increase tourism traffic from the United States. However, they also want to attract the WestJets of the world that require longer runways. The airlines are being pressured to build longer runways for safety reasons. They need longer runways and increased runway end safety areas, RESA.

Runway expansions are not part of ACAP. ACAP only funds what you have. I guess the best analogy I could use is that in 1995, they sold us a Volkswagen car. They told us they would fund to keep that car running safe and operable, but that car is now 15 years old and the family has grown and I need a van instead of a Volkswagen. They will not fund the van, but they will buy us new tires for the Volkswagen until the Volkswagen cannot run any more. That is what they have done to us.

Senator Johnson: How are the communities reacting? Does it affect the municipal tax base when they have to pay out these large amounts of money? That will come to a screeching halt too, will it not? In Gimli, there are some issues in that respect.

Mr. Tripp: Municipal governments look after the smaller airports, for the most part, because of their ownership. They are starting to say, ``Raise your own fees.'' Where else can you go after fees? You can only go to the well so often before it becomes dry.

As smaller airports, we have to look at our fees, whether it is a regulatory fee, a flow-through fee, a recovery fee for your regulatory piece; whether it is extraordinarily high rates for parking because you are the only game in town, you use that for leverage. They are not appropriate or correct, but that is all we are left with. We do not have any other funding. With the recent municipal election, the new government has come in and everyone is looking to tighten up their bootstraps, and there is nowhere to go for funding. They just do not have it. As was pointed out, the municipalities need their funds for sewer and water and the aging infrastructure in many of these older communities.

Senator Johnson: It will fall on the users.

Mr. Tripp: That is correct. For the smaller users, the Bearskins and Wasayas, the passenger cannot stomach any more fees. You are looking at $1,100 to go Thunder Bay return. That is horrendous. If you talk about using it as a tourism dollar for a family of four to go on vacation, there is no way that we can compete or get the airline to grow. You can put four people in a van and drive to Thunder Bay for four hours for a lot less than $4,400. It would cost you $200 in fuel, return. You cannot compete with those dollars.

Senator Meredith: Mr. Tripp, you mentioned that the Chinese are investing in smaller airports. Other witnesses have discussed how Virgin Airlines has moved into Australia and has made great inroads into their smaller airports.

What plans have you put in place that would attract that private partner investment in small airports to help with infrastructure at these airports, and to minimize the bleed of traffic going across to the United States with respect to Canada trying to get cheaper flights?

Mr. Tripp: What have we put in place? We have not put much in place. We have tried to survive and keep what infrastructure we have up to a level that will allow us to compete and attract new business by keeping the existing infrastructure in place. For many small airports, growing is difficult to do. As was pointed out earlier with the ACAP project with terminal buildings and aging infrastructure, of the three airports I was familiar with, two of them had new terminal buildings only because they received dollars from the community, not from ACAP.

Senator Meredith: When you say the ``community,'' what do you mean?

Mr. Tripp: It was through the municipality. They got money through the municipality tax dollars. Terminal buildings are the mainstay of the airport in terms of attracting business. These building have expanded counter service for check-ins, a security area and an area for customs and immigration, if needed. That takes money, big dollars. Most recently, Kamloops, for example, was able to put in a large project to have that done. They are one of the very few airports that have been able to expand. The rest are just surviving. Expansion is a dirty word in our smaller airports. We cannot afford to expand.

Mr. Maier: For many municipalities, it is difficult to go into a triple-P type of funding program. The airports are owned by municipalities, so you are dealing with a government on a government issue. From a municipality's point of view, if they borrow $5 million through the municipal financing authority to rebuild a terminal building, or extend, or rebuild a runway, it hurts their borrowing power for other services within the community. It is a tough balancing act when you decide to spend $5 million on an airport terminal building or $5 million putting in a new pool or recreation centre because that is what the community requires. It is a tough balancing act.

Senator Mercer: We have heard from other witnesses about the difficulty of cargo flights landing at smaller airports because of the landing fees, et cetera. You have not mentioned that. The example we were given was Prince George Airport. There was an opportunity for larger cargo flights to stop there and off load, but also load, as they move on, particularly to the United States. Are we missing an opportunity?

We have 200 airports, 226 if you had the other 26, where we have some opportunities to provide through service on freight that might allow us to do some value added to production at the local level. It is often difficult in small rural communities to get the product out, but we could provide some sort of service to air cargo users to stop at these very good airports.

Mr. Maier: I will go back a little bit in my history to a previous life with the airlines and my work with cargo. Time sensitive products drive cargo stops, technical stops and cargo markets. I mean that if someone wants to ship 124 two-by- fours across Canada, because of their weight, unless they are gold-plated two-by-fours and they need them tomorrow, they will not ship them by air. I am aware of what Prince George Airport went through on their expansionary projects and what they are trying to capture.

From a long haul cargo perspective, and the same applies for passenger traffic in the last eight years with changes in aircraft, they no longer need to stop every five or six hours and fuel up. These aircraft are designed to run 18 or 19 hours without stopping to refuel. They want to be able to go directly from Toronto to Beijing, non-stop. Ten years ago, you could not do that. You had to go Toronto to Vancouver or Toronto to Anchorage, and then Beijing. Vancouver, Anchorage and Las Angeles all became Asian gateways because of the aircraft.

Cargo is not different. If the main cargo traffic is shipping lobsters from Halifax to Tokyo, the aircraft can now go non-stop. They do not need a technical stop somewhere along the way to fuel up unless there is a reason for them to stop there. Anchorage has become good at it because Anchorage has cargo that is time sensitive, and the aircraft can stop there, fuel up, and load and unload cargo.

Fort St. John British Columbia is on the same flight path as Prince George, with a lot of the cargo coming out of the eastern U.S. market going to Asia, because they go right over top of them. That was looked at. At one time, there was a desire, because the land was there and the airport owned the land, to extend the runways to 10,000 feet and bring in the cargo flights. The bottom line was that Fort St. John has nothing that is time sensitive to load onto those aircraft, nor do they have the marketplace to unload a 747 full of cargo. Unless that market is there, it is not viable.

In some of these airports, yes, maybe it is. Prince Rupert is a great example. It has a huge amount of time-sensitive seafood coming out. It is a good market, but smaller aircraft serve that market and they serve it directly into Vancouver into the large cargo hub. It happens at some of the smaller airports, but not to the same scale as in Anchorage or Vancouver.

Mr. Tripp: The other piece that we see is that we have a huge market out of our small airport going north to the communities with food, and it is time-sensitive. There is also a large freight distributor north of us in Pickle Lake. Wasaya Airways picks up out of there and they go north with the food.

Previously, when I worked for Nordair, we ran food up across the Arctic, across the DEW Line. I think it is still done today with Canadian North. There is still the need for small airports to service the more remote communities with food. You talk to anyone across the North; that was our lifeline. When I was up North, you were upset and gloomy if you did not see an airplane come in. It had your fresh food and vegetables. You could only have peanut oil for so long.

Senator Mercer: You talked about partnerships with respect to tourism and you mentioned Kamloops, and Kelowna, I believe.

Mr. Tripp: I mentioned Cranbrook.

Senator Mercer: How does the partnership with Kamloops, and I think you mentioned the ski hill, work? How is it financed?

Mr. Tripp: I was in Cranbrook when we set up the relationship with Delta Air Lines. The community got together, some of the key tourism people, the ski resort operators and lodge operators and so forth in Cranbrook and they backstopped the profit assurance for Delta. The revenue guarantee for Delta came through this group. It was called the Fly YXC Alliance. YXC is the Cranbrook Airport designator. That was set up to backstop the revenue guarantee that Delta requested when they came in. For the record, Delta is no longer coming in because the increase in the Canadian dollar killed that market.

It was very beneficial to both sides because it allowed people to fly up from the U.S. and experience skiing in Canada, and it also allowed the people from Canada to get down to some of the areas in the United States and experience skiing down there. It also opened up a huge gateway for people. Instead of going all the way into Vancouver, especially with the Olympic Games gearing up, it allowed people to exit Canada through a different gateway and still have the opportunity to fly to numerous locations within the U.S. through a more convenient gateway than Vancouver. That was because of the retrofit Vancouver was going through in preparation for the Olympic Games.

The Chair: We have heard the expression ``backstopping,'' where communities would guarantee one of the airlines a certain level of revenue. You say Delta is not going there any longer. How much did the community give to Delta in the guarantees or did they just arrive at an agreement that the market was not there any longer?

Mr. Tripp: They arrived at an agreement that the market no longer existed. In each community, the amount of backstop is different based on what they think their loads will be and what the airline figures their costs will be coming in there. In this case, it was a mutual agreement. They left on very good terms and they could come back in on a moment's notice.

Mr. Maier: What has happened in many of these cases is that the airlines will come into a community or the community will go to the airline and say that they want them to operate a service, and in the case of Kamloops, it was Kamloops to Seattle. The airline said they needed a 70 per cent load factor to break even. It was a 50-seat aircraft; they needed 35 people on that aircraft all the time. What the community will do at that point, and they have done this in the past, is guarantee it. If they sell 60 seats this week, the community will pick up the difference at whatever the airfare has been determined. The level funding can vary dramatically when you go into what we have called a ticket trust program or a guaranteed seat sale program for the airlines.

Senator Plett: Mr. Tripp, where did Sioux Lookout get the money to build its new terminal?

Mr. Tripp: That terminal was retrofitted back in 1992, and those dollars came from the municipality.

Senator Plett: Was it not done a little later than 1992 as well?

Mr. Tripp: No; 1986 and 1992 are the last two times.

Senator Plett: I want to check those numbers because I think I worked on it later than that. Anyway, we will check those numbers.

I hope that we will have the owners of Bearskin Air as witnesses in at some point and I will ask them the same question, but the Sioux Lookout operation, and I am sure there are others similar, in fact is not there to service Sioux Lookout and Thunder Bay, it is there to service the North.

Mr. Tripp: Correct.

Senator Plett: This is a situation where, since we are here, we will fly to Winnipeg and to Thunder Bay. Clearly, they must be filling up the airplanes at $1,100. I want you to understand that I am not supporting this. It is appalling that you have to pay $1,100, but it is not there to service that traffic; it is there to service the North.

Mr. Tripp: Bearskin is there to service Winnipeg and Thunder Bay. They gave up their rights to the North a few years back and sold them to Wasaya, which now has the pure rights for the North.

Senator Plett: Bearskin Air no longer flies into Bearskin Lake and Big Trout Lake.

Mr. Tripp: No, that is all done with First Nations-run Wasaya.

Senator Plett: Certainly, they used to.

Mr. Tripp: I agree with you, sir. Back when Wasaya was not in the picture, we had Bearskin and Voyageur. Voyageur ran Winnipeg and Thunder Bay, and Bearskin ran the North. It was true at that point. We just recently did a straw poll, a survey of customers going through the terminal building. We were amazed the number of people through for business that are going to points beyond Thunder Bay and Winnipeg, and that actually drive in from Kenora and Dryden to Sioux Lookout and then fly because they can go on Bearskin, for example, or into Thunder Bay and pick up Porter. Porter has been a godsend for people going into Toronto because they can get right down to the business district from the Island Airport. With the free shuttle across to the Royal York Hotel, you are there. Porter has been a saviour for that piece. I am not plugging Porter, though. I would love to see them at Sioux Lookout.

Sioux Lookout has Bearskin for Winnipeg and Thunder Bay. Having said that, I will say that they have been sold, if you are not aware.

Senator Plett: Yes, it was a Manitoba company.

Mr. Tripp: It was to a Manitoba company, which we are glad to see because this will maybe allow for greater expansion in through the EIC group with Calm Air and others they have. We might see greater expansion into our airport. Bearskin is predominantly the two destinations.

Senator Plett: I think Mr. Tripp made the observation that everyone is running out of money. The municipalities do not have the money; the provincial government does not have the money. The fact is that no government has any money, it is all our money, and when we say they do not have the money, the federal government has a $56 billion deficit. They made promises back in 1997, was it?

Mr. Maier: They made the promises in 1995.

Senator Plett: I support that we should as a government, as a country, keep those promises. You people need to continue to run very important airports and very important services. However, you say these other governments do not have the money. Maybe it is a revenue stream, but if they give up that revenue stream, how do you suggest they replace it?

I am not expecting an answer. If they take away that revenue stream, they do not have the money. It is your tax dollars and mine that will pay for it no matter what level of government increases it.

We need a concrete recommendation at the end of this report, as Senator Cochrane has said, but we also need to have a responsible recommendation.

Mr. Maier: Absolutely. From the airport's perspective, we have always advocated from an industry's perspective — user-pay. The issue we have is that the users are paying but they are not seeing the results of what they are paying. Whatever the users pay should be reinvested back into the system instead of used as another form of taxation. That is really what it has become.

The Chair: Mr. Maier, Mr. Tripp, thank you very much for your presentations. You could see that the interest of our members in your presentation. You will certainly see some of your comments come back in the form of your participation in our report.

(The committee adjourned.)