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Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 2 - Evidence, October 25, 2011


OTTAWA, Tuesday, October 25, 2011

The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m. to study new issues in the Canadian airline industry.

Senator Dennis Dawson (Chair) in the chair.

[Translation]

The Chair: I call this meeting of the Standing Senate Committee on Transport and Communications to order. Thank you for being here.

[English]

This morning we are continuing our study on the airline industry. Appearing before us today from Jazz Aviation LP are Joseph D. Randell, President and Chief Executive Officer; and Nathalie Megann, Director, Corporate Communications and Investor Relations.

Mr. Randell has advised me that he has to leave in about one hour and 10 minutes. I would ask that senators, with their legendary discipline, keep their questions short and to the point.

Mr. Randell, please proceed.

Joseph D. Randell, President and Chief Executive Officer, Jazz Aviation LP: Thank you and good morning. I appreciate the opportunity to appear before you today. As you mentioned, I am here on behalf of Jazz Aviation LP. I would like to provide a brief presentation, and then I look forward to discussion and questions.

I will tell you a little about Jazz. We are headquartered in Halifax, Nova Scotia. We are Canada's largest regional airline and second largest airline by fleet size. We employ over 5,000 people across Canada, and we serve more domestic destinations and have more flights within Canada than any other airline. We serve all 10 provinces and 2 territories. For many rural and remote communities, Jazz is the only option to access larger cities, and many small local airports depend on Jazz for employment.

We are truly Canada's airline as we fly over 800 flights a day to 56 cities in Canada and 27 destinations in the United States. We carry approximately 30,000 passengers on our flights every weekday, and last year we served just under 9 million passengers. Our operating revenue last year was $1.5 billion. We are certainly a vital component of Canada's transportation network by creating jobs, economic growth and enhancing the quality of life for Canadians from coast to coast.

Jazz is not a typical airline. We are principally a contract carrier that operates on behalf of others. This does cause some confusion. Jazz has been independently owned since February 2006, when it was spun out of ACE Aviation as the Jazz Air Income Fund. On January 4, 2011, we completed a corporate conversion to Chorus Aviation Inc., which is a dividend-paying holding company that owns Jazz Aviation LP. Chorus is 100 per cent publicly held, listed on the Toronto Stock Exchange and has been established to grow and diversify in the aviation business in Canada.

While Chorus is our holding company, the operational arm of our company is Jazz Aviation LP. Under the Jazz Aviation LP umbrella, there are three airline operations: first is the service that we provide on behalf of air Canada, which is now branded as Air Canada Express; second is our operations to sun destinations during the winter months, when we operate as Thomas Cook Canada using six Boeing 757s from various Canadian gateways; and third is our private charter division, from which we operate five dedicated aircraft. Most of our flying is done under contract for other companies. That means while our customers, especially Air Canada and Thomas Cook, determine the missions that we fly, they also assume much of the risk. Our primary source of revenue is the flying we do on behalf of Air Canada. I would like to take a moment to clarify our relationship with Air Canada as it is sometimes misunderstood.

As I mentioned earlier, Air Canada does not own Jazz, and there is no equity investment involved. We are independent companies that work together under a capacity purchase agreement, or CPA, that is in effect until 2020. Under the terms of this agreement, Air Canada is responsible for all the commercial aspects of the Air Canada Express operations and makes determinations such as scheduling, pricing, fares, et cetera. In return, our obligation is to operate the schedule that they require of us, and our priority is to do it safely while providing excellent customer service and on-time performance. Since becoming a public company in 2006, Jazz has consistently been profitable. We are extremely vigilant with respect to safety and cost management as we focus on new opportunities to grow and diversify.

With respect to the industry as a whole, aviation is not a business for the faint of heart but rather a passion for those of us who make our living in the skies, which is why we continue to do what we do. I have been in this industry since 1974, I am almost embarrassed to say. Over those 37 years, I have experienced continuous changes in the industry.

There are a number of challenges that currently face the aviation industry. Given that you have heard presentations from well over 20 other aviation-related organizations to this point in your study it, you are certainly well versed in some of these key issues and recurrent themes. While your study is focused on emerging issues related to the Canadian airline industry, I have to note that some of the significant issues faced by our sector have been around for a long time without resolution, which only emphasizes the need for action.

One of the most important things the government can do for the industry is to ensure that we compete on a level playing field with the U.S. and internationally so that we can continue to provide the standard of passenger service we are known for. We also need to ensure that we continue to deliver the capacity and employment opportunities and to contribute to the economic growth of the communities to which we fly and to the country as a whole. Unlike most other modes of transportation, we pay completely for our infrastructure and then some. A multitude of taxes and fees are imposed on our industry by various levels of government. The federal government has been solely responsible for three charges: airport ground rents, Air Travellers Security Charge and excise tax on jet fuel. The government's user- pay policy as applied to aviation infrastructure has now gone beyond its original purpose. It is almost two decades old and needs to be reviewed so that there is the necessary support for overall economic growth and competitiveness. We also need a comprehensive policy whereby all who benefit should share in the cost versus exclusively the direct users.

We need not look further than the Canada-U.S. border for a strong case to reduce taxes and fees. I realize you have heard this before but it is a big issue that has a significant impact on the domestic industry. Canadian carriers cannot compete effectively, as evidenced by the fact that the number of Canadians travelling to U.S. border airports has increased dramatically. According to the Hotel Association of Canada's 2010 Canadian Travel Intentions Survey, 21 per cent of Canadian leisure travellers took advantage of the considerably lower aviation taxes and fees in the U.S. by crossing the border to fly out of an American airport. We see this every day at Bellingham, Buffalo, Detroit, Plattsburgh, Burlington, Bangor and a number of other U.S. airports where there are significant numbers of Canadian licence plates. Of course, just yesterday we heard of the possibility of another charge being added to passengers as they cross the border.

While it is the consumer who ultimately decides what is palatable to them in terms of spending air travel dollars, whether for business or leisure, they do not necessarily understand the whys of a more expensive fare at home versus the fare a few miles away across the border. At the end of the day, cost is definitely a factor in choosing a brand of air transportation, especially for families. We believe that consistent and affordable air service is the backbone of small and medium-sized communities. Without affordable air service, businesses, academia and tourism industries cannot survive.

As you know, airlines in general lack pricing power and cannot continue to pass these cost increases on to passengers without negatively affecting demand, particularly in the current environment. This is particularly challenging for short haul carriers that must also compete with other modes of transportation, such as heavily subsidised VIA Rail. Many customers have been forced to the highways rather than fly from their local airports due to security delays and the high fees and charges. Let me give you an example to illustrate the significant shift in short-haul market demand on some routes.

In the late 1990s, Air Nova and Air Atlantic operated a total of 12 37-seat Dash 8 flights daily between Halifax and Saint John, New Brunswick. Today, the service on the route is down to four daily flights operated by Air Georgian on behalf of Air Canada with an 18-seat Beechcraft 1900. This is a seat reduction capacity of close to 84 per cent. The fees and charges have severely impacted the cost of short-haul air travel vis-à-vis our counterparts in the United States. In our opinion, this continues to place Canadian carriers at a disadvantage as compared to those in the U.S.

While there are a number of key and significant issues that need to be addressed at the federal level in Canada, in order for our industry to thrive and survive, primarily there is an overarching need for a national transportation vision and plan. There is a requirement for a new strategic aviation policy with an objective of stimulating growth, enhancing our competitive position to ensure a level playing field, and enabling us to compete in the global market.

We require a review of government policies to ensure that productivity growth in Canada is not negatively impacted. It is critical that the government undertake a comprehensive review of the aviation cost structure in Canada. I am going to quote from a report dated September of this year written by Dr. Fred Lazar of the Schulich School of Business, which speaks to the economic impacts of the four largest carriers in Canada:

During the past ten years, the federal government has collected directly and indirectly almost $7.3 billion from the air transport industry in Canada."

To break that down to the level of fares, Dr. Lazar also reviewed domestic fares at both Air Canada and WestJet, looking at 10 domestic routes for each airline in July of this year, and the cumulative effects of taxes and fees ranged between 16 and 40 per cent — significant percentages, which again speaks to the issues of competition and consumer dissatisfaction. While Jazz does not collect fares from customers directly, we do carry Air Canada passengers on board our flights and therefore the fees and charges applied to those fares ultimately impact us through our relationship with Air Canada.

Jazz is a member of the National Airlines Council of Canada, or NACC, along with Air Canada, WestJet and Air Transat. You heard from the president of NACC, George Petsikas, along with two of the subcommittee chairs in October of last year. Mr. Petsikas spoke to some of the key challenges that we, as the largest commercial carriers in Canada, are faced with, and he also talked about the opportunities for the industry in Canada. As chair of the NACC board, I work with Mr. Petsikas and others at the NACC to remain close to the issues that we face as we endeavour to run topnotch Canadian-based airlines and retain the reputations we independently and collectively are fortunate to have.

Again, I will reference the Lazar report to highlight the substantial economic benefits of eliminating the three taxes that I mentioned, not only for Jazz and the NACC members but the Canadian economy as a whole:

NACC members might experience an increase of 2.3 million to 2.9 million passengers each year if ground rents, the Air Travellers' Security Charge (ATSC) and the excise tax on jet fuel are eliminated, and Nav Canada is reimbursed for its annual costs for servicing the $1.5 billion debt it took on when it was privatized in 1996. Eliminating these taxes might lead to an additional economic output generated by the NACC members of between $952 million and $3.5 billion.

Despite the fact that aviation is a key player in the economic progress in this country, as carriers in Canada we have been talking to the government about the layers of taxes and charges for quite some time, without benefit of any movement on this front.

Another point of concern that I would like to touch on is in reference to Transport Canada. We have been seeing the loss of human resources and subsequent expertise as a result of attrition and retirement. We need to ensure that we maintain the necessary oversight and highest standards from the regulatory body for aviation in this country. I realize that you have had Transport Canada and the minister in to present to you and I trust that this issue is on the radar, as it is a concern from an airline perspective.

Looking ahead, these substantial challenges to our industry have no quick fixes. A cohesive transportation policy and a review of the aviation cost structure should help find a more balanced approach to managing the industry. The North American aviation industry is currently performing reasonably well given this high fuel cost environment. However, while many airlines that ended last year with a strong financial and operational performance, we are now seeing carriers posting a loss in 2011.

In taking a look at the industry overall, I refer you to a recent release from the International Air Transport Association, or IATA. Their forecast is for a rather gloomy 2012 for this industry, with sluggish results and weak profits. They are projecting profits to fall to $4.9 billion, versus $6.9 last year, on revenues of $632 billion, for a net margin in this industry of just 0.8 per cent.

On a positive note, we are very encouraged to see that Minister Bernier introduced a new federal tourism strategy earlier this month. We hope this is the first positive step to increase the focus on tourism, travel and aviation in this country.

In closing, I would like to emphasize the need to preserve and protect what we have today, but also the need to better position our industry to grow and become more competitive moving forward.

Jazz is a committed partner of the Government of Canada in ensuring the best quality of service for Canadians and to continuous improvement in all aspects of our aviation industry.

Thank you. I look forward to your questions.

The Chair: Thank you Mr. Randell. We have about 45 minutes for questions and answers. If we could limit ourselves to five minutes each, we might have a second round.

Senator Eaton: I have asked your colleagues the same question. They were very hesitant to want one or two or three seats on greater airport authority boards. How do you feel about that?

Mr. Randell: It is logistically difficult for the airlines to have seats on every single board, just because of the number of people and the amount of time that it takes to do that. However, I believe that under present regulations or rules it is not permitted that the industry have representatives on the board. I find that rather offensive. I believe that as an industry, like we do with NAV CANADA, we are able to nominate directors to the board, and in the case of NAV CANADA, the industry nominates four directors to the NAV CANADA board and it works very well.

The airports are far more fragmented. There are many airports. I believe that we need to have greater influence on those boards, either through accountability and reporting or to be able, if desired, for an industry association to ask for a member on a specific board.

Senator Eaton: I will tell you why I asked that. I am not thinking of representation on all boards, but you are headquartered in Halifax, certainly Montreal, Toronto, Calgary and Vancouver. NACC has gone to the minister; you have made your case to get rid of the three taxes, but I would think if you were at one with the airports, if you were at one with the GTA, for instance, in Toronto, or Halifax in your case, you might have greater influence. You would have to take responsibility a little bit for the way those airports operate. We have all seen cases where there is a snowstorm, an act of God, where people are left stranded in airports, and it is no one's fault. It is not your fault because you cannot fly them out and it is not the airport's fault.

Your position is weakened because you are not at one with the airports you fly out of. You are separate entities.

Mr. Randell: NACC does work very closely with the Canadian Airports Council. The Canadian Airports Council represents virtually all of the airports in Canada as being the voice of airports. I believe NACC and the Canadian Airports Council have been united in terms of their views on airport rents, et cetera. One of the problems that we have, though, with the airports in Canada right now is that, as they have devolved, they each have their own personalities and they each have their own approach to the business, some I would suggest far better than others. Once that is done, it is very difficult then to say that collectively there is an issue. We may have an issue with one airport but not necessarily the others. These airports are in fact monopolies.

Senator Eaton: They should be monopolies there to serve you and the public.

Mr. Randell: I agree. However, in terms of the input on the board or even the user committees, at these airports we have user committees that represent the airlines. In some cases these user committees are listened to; in other cases they are not. Again, in terms of the governance surrounding what the right conduct is for the airport itself, those things are left open to interpretation. Therein lies some of the problems, whereas in industry, it is sometimes very difficult for us to influence practices at any particular airport that we feel are not appropriate.

Senator Eaton: Would you recommend that we look at actual airport governance? I think we are doing that. Would you have suggestions for how Transport Canada should standardize airport governance so that it would be of greater accountability to you and to the public?

Mr. Randell: I have suggested that would be a very good thing to do. I remember when this happened in the 1990s. I have been in this industry for a long time. At that time, Mr. Young was the Minister of Transport, and the decision was moved ahead to divest of the airports and give them to the communities. At the time, I said to him, "I think greater community involvement and ownership in your airports is a great thing." I think things happened where if it was totally centralized would not have happened.

The devil can be in the detail as to whom that airport authority is accountable to, who is on the board of that airport authority and their knowledge and expertise in the business. Because as an industry we are not able to provide any suggestions for board members and things of that nature, we are essentially shut out even at that level.

My concern at the time was, while it was moving in the right direction, the governance was not there. Once you do something and it is not there, trying to get it in place later is a real challenge. I suggest that is where it needs to go. I do not think it is a simple solution by saying that we get to put one person on every board. I think it needs to be looked at more from the role of these airports in the country and the fact they are monopolies. If we want to serve Halifax, and I am not saying Halifax is a bad example of an airport authority at all, but if we want to serve a community, we have no choice but to pay whatever that airport decides.

The types of increases that we are seeing in airport improvement fees across the country now, while they only go from $5 to $10, that is a 100 per cent increase. I have seen a lot of these fees come into place, but no one talks about them ever going away.

Senator Mercer: It is always good to have people from corporate headquarters in Halifax, and we are looking forward to many more.

That $1.5 billion in operating revenue is no small piece of change, so it is a pretty important industry, not just to Halifax but to the country.

You said that your capacity purchase agreement with Air Canada runs out after 2020. This is almost 2012; the end of an arrangement of this importance to you is only eight years away. Have you started to negotiate with Air Canada, or perhaps with someone else, for a capacity purchase agreement post-2020?

Mr. Randell: We are in constant discussions with Air Canada about our agreement. For instance, we are currently adding new fleet and updating our existing fleet under our agreement with Air Canada. Those discussions will continue along as we move to 2020, but it is a contract, and that is why we are looking to grow and diversify our business in many other areas as well. We have no exclusivity in our contract with Air Canada; they have no exclusivity to us.

We have now launched a service for Thomas Cook, flying seasonally to Mexico and the Caribbean. We are looking at other opportunities to grow and diversify our business, and that is why we formed Chorus as a holding company, to take advantage of these various niches in the market. There are a number of synergies and commonalities in this business that you need to take advantage of as much as possible. We are always negotiating and always looking for opportunities to expand and grow.

Senator Mercer: As you rightfully point out in your report, airport ground rents, the Air Travellers Security Charge and the excise tax on jet fuel can contribute an awful lot to costs that are borne by the travelling public. Indeed, you make reference to a report that says $7.3 billion over 10 years has come from those levies.

At the risk of sounding like some of my colleagues on the other side, $7.3 billion is a lot of money, so if we were to take your advice, which I do like, and we were to remove those three levies, how does the government then find $7.3 billion over 10 years that will not otherwise be coming in? How do we offset that?

Mr. Randell: I am afraid that what has occurred over the last 10 years is that the industry has been seen as an easy take in terms of a hidden form of taxation. I understand the fiscal challenges of the government, but these taxes have crept higher and higher as time has gone on. Every time there is a crisis or change in the industry, it seems to be another reason for more money to be taken from the business. For instance, the Air Travellers Security Charge does not go to CATSA; it actually goes into general government revenues.

The business does not generally get a lot of sympathy from the travelling public because some people say, "It is the airline business; they can afford it," but look at what has happened to our industry. I used the Halifax-Saint John example earlier where people have been driven out of airplanes and onto the roads. We had to change our business. We were centred on the short-haul markets a number of years ago in the regional business, and those short-haul markets have diminished across Canada as a result of this.

I think our point here and the point I am trying to make is that while it is an easy take and an easy grab and it means that you do not have to put up some other tax, when you look at the actual economic impact it has on communities, on air travel and our competitiveness, our suggestion is that it is actually regressive. You are not going to be able to do this overnight.

When the GST was put in years ago, I was involved with another association, the Air Transport Association of Canada, ATAC, and we had the tax on fuel. We said, "If this is not consistent with removing input taxes" — and at that time, we could not afford to take it off. Here we are 15 or 20 years later, and we still have these taxes. As a matter of fact, they keep building and building. In discussions with people in finance over the years, they hear what we are saying, but it is a voice that gets lost because it is all about the general revenues.

Senator Mercer: It would seem to me that the business case of removing or proposing to remove these taxes is better if you do a comparison of apples to apples as opposed to apples to oranges and talk about how trucking — you also mentioned rail in your presentation — is indirectly subsidized because of how roads are paid for and how gas taxes are distributed or redistributed. It seems to me that this is the argument to make to the Canadian pubic instead of trying to simplify it. Ultimately, people around this table and around the cabinet table are sensitive to what the Canadian public is saying. If we are going to get to the point where removing these levies is the thing to do, then there has to be a way of marketing that properly to Canadians so they will understand.

There also needs to be a way for you to tell us, if we were to remove all of those levies, how that will benefit me as a traveler? Is my ticket price going to be directly reduced by the amount that is removed, or will it all go to the bottom line? Probably not for Jazz, but more likely for Air Canada.

Mr. Randell: We are in a competitive business, and I think that the fares these days in real dollars are substantially lower than they were years ago. I think we have seen a decrease in air fares in this country compared to what you would have paid 10 years ago, for example. I do not think the airlines will be absorbing it; at least that has not been the case anywhere else. We do not have any type of exorbitant profits accumulating for sure. I do not think we are guilty of that.

It is one thing to remove these fees and charges. There is a second concept here, which is to ensure that whatever is collected actually goes back into the industry, whereas right now it does not go back to the industry. The industry struggles in terms of CATSA being under constraints, or we hear where people need to charge us more because they were trying to provide some of the basic services and in the meantime the revenue goes out the door.

Senator Cochrane: You have done a great presentation, and I welcome you both here from Atlantic Canada.

I want to talk about this capacity purchase agreement. Is this a common thing? How has it really worked for you?

Mr. Randell: It is a very common thing. In the U.S. you find that virtually all the relationships between regional airlines and main line carriers are of this nature. When you are in Ottawa airport and you see American Eagle or Delta, the regional jets, et cetera, generally those carriers are flying for the major airlines under an agreement essentially the same as the one we fly under with Air Canada. It is very common.

Some of the regional airlines in the U.S. have diversified in different ways, some of them have some at-risk services themselves, and others actually have another arm, which is an operating and competitive airline. To answer your question, it is a very common arrangement.

Senator Cochrane: Air Canada determines the schedule.

Mr. Randell: Yes.

Senator Cochrane: The fares.

Mr. Randell: Yes.

Senator Cochrane: Advertising. Are you benefiting a lot from that?

Mr. Randell: We benefit from Air Canada's usage of our service because we charge Air Canada. We negotiate our costs every three years with Air Canada. We have a tough negotiation. They give us the schedule, we negotiate the charges and there is a markup that is applied. Many of our costs are actually passed through to Air Canada. We pass through fuel prices, airport fees, landing fees and air navigation charges. We are not directly affected by that but because of the economics of our services all those costs go on the route when Air Canada looks at profitability.

The way our arrangement is structured with Air Canada, it does not really matter whether we are landing in Whitehorse or in LaGuardia, we essentially get paid the same. We want Air Canada to be successful and we are interested in these markets and what the level of demand is because ultimately that affects the demand for us. However, Air Canada designs the network, determines the airfares and tells us where to fly. Our job is to do it safely, at a low cost and to do it professionally and on time.

Senator Cochrane: What will you do when this agreement runs out?

Mr. Randell: We have a lot of expertise in this business. We have a great cost structure and we have a strong company. There are alternatives in terms of alternative business models, just like right now we are flying for Thomas Cook with the six 757s. It is a Thomas Cook branded service and we are doing it. At some point we might consider certain degrees of risk in terms of getting back into the commercial market, but for now our relationship is more of a contract carrier.

Senator Cochrane: Are you planning to go into some of the airports that have been closed down?

Mr. Randell: We have no immediate plans for that.

Senator Cochrane: There is one in my area.

Mr. Randell: I think I know one. We have none immediately in mind. We are concerned about what has happened with the short-haul business and we are primarily a short-haul operator. With the level of demand, because of security and all the charges and fees, et cetera, people, as I said earlier, have been driven to the roads and that has had a major impact. We used to have an extensive route network in Newfoundland and Labrador, and over the years it attrited away and is very much influenced by that.

Senator Greene: You mentioned earlier the amount of money that leaks out of the system and goes back to the federal government in the form of taxes and fees, which the industry collects but never is able to use. What percentage of an average ticket would be in that category — an amount that would go into the treasury and be disbursed wherever it goes?

Mr. Randell: I do not have those exact numbers. I would refer you to the Lazar report, which is an excellent report on the status of this. I do know that in the case of airport rents there are hundreds of millions of dollars that have been paid in airport rents by the major airports in this country, none of which sees its way back into our industry.

A good part of the air transportation service security fee — and I am sorry, I do not have the percentage — does not go into airport security even though for most passengers, when they look at that, they assume that is paying for the security they enjoy. That is not the case. I do not see any of the excise tax on fuel going back into the industry.

When I look at the taxes and what is actually going back in, the only thing I would say is that when the airports collect the airport improvement fees they are staying at the airport. They are going into infrastructure, et cetera. We have seen such a huge increase in infrastructure over the last number of years. At some point we should be okay, hopefully before too long, because frankly these airports are collecting $20, $25 for every passenger going through their terminal.

Senator Greene: It would be a good thing if you could take a look at that issue for us, look at a typical Jazz ticket and send us some information on a percentage on a typical ticket. That would be helpful.

In relation to the new U.S. entrance fee of $5.50, what impact will that have on you, if anything?

Mr. Randell: I heard about this yesterday and I could not believe it, actually. We already have three charges that are applied to passengers by the U.S. We already have a U.S. transportation tax that is paid by every passenger entering the U.S.

Senator Greene: How much is that?

Mr. Randell: I can tell you what the total is because I did an analysis here, but it is normally around $16 or $17, plus we have a U.S. immigration fee, which is somewhere around $5 or $6, plus we even have a U.S. agricultural inspection tax that is charged to every Canadian or everybody who flies transborder.

I thought it would be interesting so I did a quick look this morning on a website and I compared a Montreal-Fort Lauderdale ticket. I went to November 16, and WestJet's lowest fare from Montreal to Fort Lauderdale was $189. On top of that, total taxes are almost $88, which is 46 per cent. Of the $88, almost $30 is already charged by the U.S., so not Canada. The remainder is charged by Canada. It is a $25 airport improvement fee, GST, QST and the security fee. The total taxes are $88. Then there is a navigation charge; NAV CANADA fee of $7.50.

In other words, you pay your $189 fare and you pay $88 in taxes. If you fly out of Burlington the same day on JetBlue, the fare is $177, so it is only $12 less. The total taxes, all in, on that fare, out of Burlington to Fort Lauderdale, are $21.40. That is a $60 difference in taxes alone. When you add another $5.50 to the U.S. side, this is death by 10,000 cuts because there are so many lines on the ticket about all these fees and charges. That is why someone needs to look at this industry and say that before too long people close to the border will not be flying out of Canadian airports.

Senator Greene: I appreciate that answer. My third question, and it is an unrelated one, is I was struck by the comparison that you gave that in the late 1990s Air Nova and Air Atlantic operated twelve 37-seat Dash 8s and now there are four 18-seaters operating between Halifax and Saint John. I was trying to think about whether the reason for the change is all in the price, or are there other factors? The only other factor I could think of is that we have four-lane highways connecting Halifax and Saint John now, and we did not before. Is there anything else?

Mr. Randell: There is no real answer, not a simple answer, because if it was simple it would probably be wrong. The influencing factors on the demand between Halifax and Saint John were the highway system improved, so the driving was faster. Also when you go through the security at airports, the amount of time that you have to leave beforehand now, because you never know how long the lines will be, how long it will take to get through, and you have to worry about your liquids and gels and this and that. There are good reasons for all of this, but nevertheless you look at it from a time point of view, and then if there is a delay. On top of that you add the fees and charges and high cost. It is a combination of those things and you say it is not worth it. I will get in the car, go and come when I please, and I can put whatever I want in my bag and I do not have to worry about anyone else, and you are on the highway.

The Chair: I have four more senators and 15 minutes, so I would ask senators to have a short question. I would ask Mr. Randell to give short answers and everybody will get through before the end.

Senator Merchant: Welcome and good morning. I live in Saskatchewan, so I will keep my questions related to that region. I know that we fly Jazz out of Regina. First, if you think of Regina and Saskatoon, we are far away from everything. We cannot drive to Toronto; we cannot even drive to Calgary because it is about eight hours; we cannot drive across the border to catch an American flight, especially if you are in Saskatoon. We do not have much air service; we have a flight in the morning, a flight at noon, and a flight in the evening, for instance, to Eastern Canada, and we cannot go anywhere without going through Toronto.

In the last couple of years they have put on a flight, I think it is from mid-May to mid-October, that for instance for me I can fly Regina-Ottawa without having to go through Toronto.

I think I have heard your answer that you have no control over flying that flight: It is Air Canada that decides the flights.

Mr. Randell: Yes.

Senator Merchant: Does the Regina airport have any say in the service they receive?

Mr. Randell: I know all the airports talk with the airlines about the schedules. Frankly, all the airports have been seeking new services, et cetera, on a continuous basis. We have not had any discussion because the nature of our service is we do what Air Canada schedules us to do. It happens that the airplane that we operate is well suited to the Regina- Ottawa route, seasonally. We also do Saskatoon-Ottawa as well.

Senator Merchant: That continues on to Montreal, I believe.

Mr. Randell: One continues on and I think the other connects.

Senator Merchant: I think both those flights were constantly full at that time of year.

Mr. Randell: I have not seen the load factors. We fly Saskatoon and Regina to Vancouver and Toronto — we do some of that — but it is Air Canada, primarily. We also fly to Calgary, and there is some service to Edmonton.

Senator Merchant: I know that we also fly WestJet a lot in Western Canada, but again we cannot come here directly. There seems to be much more happiness flying WestJet. People flying WestJet are much happier. I am speaking of the passengers.

You are not Air Canada and you can answer freely. Why is it that people find a difference in the service between Air Canada and WestJet?

For instance, there seem to be a lot more delays related to Air Canada. The other thing I have heard is that, if there is a delay, WestJet tries to rush things, to kind of catch up, make up the difference in time. I hear a lot of people saying, "I will not take Air Canada, I will only fly WestJet."

Mr. Randell: I cannot really speak on behalf of Air Canada. I can speak on behalf of Jazz. Our on-time performance has been better, has been the best of all three — WestJet, Air Canada and Jazz — in that Jazz's arrivals within 15 minutes have been consistently the best, despite the fact that our airplanes are very busy and up and down many times a day. I am very proud of our on-time performance and what we have done.

Jazz is a result of a merger of several carriers under very difficult circumstances in 2000, having been through a restructuring, et cetera. In some cases, when things are new, it is a little easier, frankly, for people to be a little more upbeat than when people have been there for a while.

I have been involved with companies that have started from scratch and people's priorities and the culture evolves and changes over time. We just got recognition last week with respect to being one of the top 10 admired corporate cultures in Quebec and Atlantic Canada at Jazz. We are up now for the national award. We are very pleased about that, and our focus is on providing good service to our customers, but also to Air Canada.

The Chair: We will have our on-time performance also.

[Translation]

Senator Boisvenu: First, I would like to thank you for your brief. It was really good. I would also like to congratulate your company. I am in the habit of using its services and, unlike my colleague to the right, I greatly appreciate the quality of your service. I also have friends who work for Jazz Aviation and they very much like your management.

Allow me to make a comment. When you were talking about reducing fees, to use the example of the Hygrade sausage, you say that basically, the more people eat it, the more they like it, and the more they like it, the more they eat. As for reducing fees, you are saying that the difference will be made up by an increase in customers. That is your basic principle, I think.

[English]

Mr. Randell: Yes. I think it is very helpful to have the right balance in terms of the costs. I think I agree.

[Translation]

Senator Boisvenu: To go back to your brief, two things caught my attention. On page 4 of the French version, you say that we need a comprehensive policy whereby all who benefit should share in the cost. Which parties are you referring to, apart from airlines?

[English]

Mr. Randell: I would suggest areas such as policing at airports is an example. Up until the last couple of years the policing at airports was provided as a service by the federal government. It was funded by general revenues and police were provided at airports like they are at other facilities, et cetera. There was a change that occurred, and now the airports themselves have to pay for the policing.

When it comes to security and some of the charges like that, I suggest they are for the greater good of society and not just necessarily for the customers that are using it.

It is very unfortunate that our industry has been the target of terrorists, but it has been severely penalized as a result of that. It has all been focused on recovering revenues from our industry and then some, rather than understanding that all of this has a negative effect on demand. It lowers the number of people who are flying; it is very short sighted.

It is seen as a quick source of revenue. Where can the revenue come from that the consumer is not immediately able to identify? It is all hidden here. Whether it is airport rents, security charges or excise, these are all hidden taxes.

[Translation]

Senator Boisvenu: The last thing that concerns me is Transport Canada. With regard to a warning message that you sent to the government recently, we saw all the infrastructure expertise that was lost to the Quebec department of transport. It was a major topic of discussion in recent months. The Government of Quebec just decided to inject 800 or 900 new resources, I think, and to reclaim the expertise that had been lost to the private sector. Do you fear this kind of situation at Transport Canada, losing expertise that could lead us toward a kind of — not a calamity, but a shock that could be costly for us in the future?

[English]

Can you tell me what kind of expertise we are losing now?

Mr. Randell: Transport Canada has changed significantly over the last number of years with the introduction of safety management systems, SMS. It is necessary for Transport Canada to change. As carriers, we are changing in terms of how we manage safety. I have to say that I agree with the policy changes that have been made.

I do not think that air travel generally as a result of SMS has been safer. I feel far more confident in terms of the way things are managed today, even though more of it is on us to do, I believe, and I support SMS.

What I am concerned about is that with all the budget cuts, we still need certain types of expertise in Transport Canada — people who are familiar with the industry and the technical aspects of it. As carriers, we need approvals for changes in procedures. Even if you want to use a cellphone on an aircraft, you have to go to the regulator to get it looked at and approved. In order to do that, you need to have enough people who are able to respond to the carriers and their needs, and to ensure that we are doing our job in increasing our vigilance over safety.

I am concerned about some of the constraints that Transport Canada has with respect to its budget. While I am certainly not advocating waste, I am advocating that we have sufficient expertise to properly liaise and manage with the industry. I think there is a concern there.

Senator Martin: Thank you very much for your presentation. I can appreciate this very complex industry and the constraints and challenges that you are facing.

Aside from the charges and fees and those other issues that we have heard of and addressed, I am curious about the sources of revenue for your company. As a contractor with Air Canada, I am curious about how you oversee your sponsorship dollars or increase sponsorship revenue.

I was thinking how in this day and age it is very hard to advertise to an audience; anyone can switch the channel and go to another website. However, you have a captive audience on the airplane, not that you want to inundate your passengers. In terms of the kind of revenue you might generate, what sort of contract are you under with Air Canada and how is that done? Perhaps it is a question for you, Ms. Megann.

Nathalie Megann, Director, Corporate Communications and Investor Relations, Jazz Aviation LP: I am not sure I understand your question.

Senator Martin: I am curious about how you generate revenues for your company. Is there sponsorship, or do you generate revenue through that kind of investment?

Ms. Megann: No, our revenues are driven only by flying on behalf of others.

Senator Martin: I was thinking about Air Canada, where there is a certain amount of advertisement done. I wondered whether you are able to do the same, or whether that is not something that you would consider.

Ms. Megann: We do not advertise our services, per se, because we are flying on behalf of others. It is our customers that manage all the commercial aspects.

Mr. Randell: On board the aircraft, Air Canada controls what is on the aircrafts. They even tell us what to put in the seat pockets. On our aircraft that have the in-flight audiovisual entertainment systems that you use from Regina to Ottawa, for instance, that is all Air Canada content. That is up to them to decide.

Ms. Megann: We are essentially a white label carrier; we will adopt the image, brand and product that our customer would like us to provide to their customers.

Senator Martin: I ask this because I am from Vancouver and I do not fly Jazz. It was just in seeing your role, Ms. Megann, that I was asking the question about opportunities to generate revenue for your company in that way. However, you are providing the service or the flight rather than anything else.

Mr. Randell: Our lifeline is flying the aircraft. That is really what we do.

Senator Zimmer: I apologize for being late. Your answers are probably the most direct and candid that we have heard about the fees. I think the senator really hit the jugular when he asked you and you responded.

My questions are facetious and intended to be — not at you, but further down the line. I am amazed that they have an entrance fee to the United States. What does that mean? Once you get over the border, is the air different? Who dreams these fees up, which then go into general revenue?

The second question is, once all the infrastructures are improved at the airports, do you think they will continue to charge these fees?

Mr. Randell: I agree about the charge just across the border; I think it is another hidden form of taxation, except in that case, it is a U.S. hidden form of taxation rather than a Canadian one.

I am sorry, what was your second question?

Senator Zimmer: Once the infrastructures are modern and up to date, do you think they will continue?

Mr. Randell: I have a very cynical view of that, I have to say. I do not see AIFs coming down. As a matter of fact, I see a lot of these airports now as having professional project managers and construction groups that are almost addicted to these revenues. It becomes how do we spend it rather than necessarily looking for the right returns. That is where the accountability is sadly lacking to ensure that these dollars are put to a meaningful and proper use.

We do not have an airport infrastructure problem in Canada anymore generally. As a matter of fact, if anything, we have got to be concerned about an airport infrastructure overbuild.

Senator Zimmer: I agree with that. We are doing one in Winnipeg right now that is gorgeous, but the question comes down to is it necessary or is it nice? You are absolutely right. It is angering and it is affecting your business.

With all these fees on, they do not get on the plane; they will drive there instead. You have hit it right on the jugular, and somehow we have to recommend in this report that we deal with these issues.

Mr. Randell: If I could add, in Toronto you have to pay a fee if you are a connecting passenger. Just to connect at the airport, the airport charges a connecting AIF.

Senator Zimmer: That is amazing.

The Chair: Thank you very much, Mr. Randell. As I mentioned before, our on-time service is pretty good too. I would like to tell senators that on Wednesday we will be hearing from the Air Canada Pilots Association.

With that, thank you very much.

(The committee adjourned.)