Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 5 - Evidence, November 30, 2011
OTTAWA, Wednesday, November 30, 2011
The Standing Senate Committee on Transport and Communications met this
day at 6:45 pm to study emerging issues related to the Canadian airline
Senator Dennis Dawson (Chair) in the chair.
The Chair: Honourable Senators, the Senate Standing Committee on
Transport and Communications will come to order.
This evening we are returning to our study on emerging issues related to
the Canadian airline industry.
Today we have before us Mr. Joseph Sparling, President from Air North;
and Mr. Stephen Nourse, Executive Director from the Northern Air Transport
Association. From the Air Line Pilots Association, we have Captain Dan
Adamus, President, Canada Board; Captain Brad Small, Vice President, Canada
Board; and Captain Sylvain Aubin, Master Executive Council Chairman, Air
Mr. Sparling, we will start with you. Following your presentation we will
take an opening statement from Captain Adamus and move on to questions from
the members. The shorter the questions, the longer the question period will
be. We will listen to you and I am sure we will enjoy whatever you are
saying. I will probably not interrupt you, but that will be for you to judge
and need to execute. Please proceed.
Joseph Sparling, President, Air North: Honourable senators, I will
talk about northern air carriers.
Northern air carriers are the primary providers of transportation within
the North and between the territorial capitals in the Southern gateways.
Northern air carriers not only provide vital services to, from and within
the territories, but they also are an integral and important component in
the northern economy.
During 2009, northern air carriers transported more than 830,000
passengers and almost 150 million pounds of cargo to, from or within the
North. Additionally, northern air carriers account for almost 1,700
territorial jobs, more than $76 million in annual territorial payroll, more
than $1 million in territorial property and business taxes, and more than
$50 million in annual non-payroll spending with hundreds of local businesses
in the three territories.
The direct economic impact of northern aviation also provides many
multiples of its value in indirect economic benefits to the territories,
including payroll and income taxes as well as consumer benefits.
Transportation is an integral and essential component of any economy. In
the North, air transportation is especially important because distances are
large and alternative modes are generally not available. While it is easy to
see how transportation facilitates economic growth and development, it is
also easy to overlook the fact that transportation can be part of economic
I believe that the role of northern aviation and northern air carriers
needs to be recognized and accounted for in federal and territorial policies
and strategies designed to strengthen the northern economy.
Just to put our operating area into perspective, here are some
geographical and economic statistics with respect to Canada's three
territories, our 10 provinces and also with respect to Alaska, our northern
neighbour. These have all been provided to you in a handout, but I will
The data shows that Yukon Territory, Northwest Territories and Nunavut
together make up almost four million square kilometres or about 40 per cent
of Canada's land mass. Their combined population is just over 100,000, which
is about one third of 1 per cent of Canada's population.
Alaska is less than half the size of the three Canadian territories but
has almost seven times the population. Canada's population density is 5.5
people per square kilometre in our provinces, 0.3 people per square
kilometre in Northern Canada and 0.42 people per square kilometre in Alaska.
There are approximately 65 communities in Northern Canada that receive
scheduled air service, but of these only eight are served by jet aircraft.
There are only 10 paved runways in all of Northern Canada. Alaska has 212
community airports, of which 61 have paved runways. Anchorage, Alaska, would
rank in the top 10 Canadian airports in terms of airport traffic and in the
top 20 Canadian cities with respect to population.
Total real GDP of all three territories combined is just over $6 billion
or about 0.5 per cent of Canada's GDP. Alaskan GDP is $41.7 billion.
A recent study by Oxford Economics indicates that, in Canada, airlines
directly account for about 0.5 per cent of GDP, and aviation, including
catalytic effects, accounts for about 2.8 per cent of GDP. The same study
indicates that airlines directly account for 0.5 per cent of jobs in Canada,
and aviation, including catalytic effects, accounts for about 3.3 per cent
of jobs in Canada. Northern carriers alone directly account for more than 2
per cent of territorial GDP and more than 3 per cent of territorial jobs,
all before secondary and catalytic effects.
The significance of northern air carriers may be illustrated by observing
that in Canada today there are just eight airlines providing scheduled
domestic passenger service with jet equipment, and five of those carriers
Air Canada, Jazz and WestJet — I will call those the mainline carriers —
are the largest carriers in Canada, and together they account for most of
Canada's domestic passenger traffic.
Air North, which is Yukon's Airline, Canadian North, First Air, Air
Inuit, and Calm Air, which I will call the northern carriers, are all
northern air carriers and, in combination, are only a fraction of the size
of the smallest mainline carrier, but they do share some common
In general, the primary routes for the northern carriers, in terms of
both traffic and revenue, are the north-south extra-territorial jet routes
between the territorial hubs and the southern gateway cities. These routes
are integrated with turboprop routes serving communities within the
territories. Freight is an important component of both route networks,
particularly the turboprop routes. Most turboprop operations and some of the
jet operations use combi- configured aircraft. All of the turboprops operate
onto gravel runways, and some jet operations are conducted onto gravel
runways as well.
The northern airlines need to be well equipped to meet the unique
seasonal weather and economic challenges that are found in the North. In
doing so, they provide significant employment in the North, and they are
required to make significant investments in northern infrastructure.
Four of the five air carriers described above are owned by northerners,
and their shareholders include more than four different First Nations.
The northern ownership aspect may be illustrated by using Air North as an
example. The following data shows that more than 1 in 15 Yukon residents has
an equity stake or an employment stake in Air North. That is about 6.6 per
cent of the population.
Recently, there has been increased interest in the economic aspects of
aviation in Canada, including the economic footprint of aviation, the cost
of aviation in Canada, the impact of increased competition on aviation in
Northern Canada, and the growth and development of northern economies.
Specific studies include the following: The Economic Impacts of the
Member Carriers of the National Airlines Council of Canada, by the
Schulich School of Business; The Implications of Competition in Canada's
Northern Air Transportation System, by InterVISTAS Consulting;
Canada's Not-So Friendly Skies, by the Frontier Centre for Public
Policy; High Arctic Transportation Cost Study, by LPS Avia
Consulting; The Economic Benefits from Air Transport in Canada, by
Oxford Economics; and Why Air Transport is a Critical Asset for Canada,
My read of the foregoing studies, with the exception of the InterVISTAS
study, which was not available, produced the following key observations:
First, aviation makes a significant contribution to any economic region
through jobs and spending involved with aviation and aviation support
activities. Second, secondary economic benefits are also significant and
they accrue through lower fairs and increased access. Third, fare
differences usually result from cost differences, and cost differences often
result from cost environment differences. Canada is a relatively high-cost
environment with respect to aviation. Fourth, regional economic benefits
will be maximized by the provision of affordable and efficient air
transportation from within the region rather than from outside of the
In the past, most northern communities were served as part of a
traditional airline hub-and-spoke route network, with the hub located in the
South. In this situation, economic benefits accruing to the North were very
limited as the entire transportation infrastructure and most of the
employees were based in the southern hubs.
By establishing transportation infrastructure hubs in the North, northern
air carriers have helped northern economies to grow by providing employment
and establishing infrastructure in the North. The net effect of this has
been to cause cash to stay in the North and to flow into the North rather
than flowing out of the North or bypassing the North. These efforts by
northern air carriers provide significant economic benefits to the
The economic benefits that accrue from a transportation infrastructure
hub are significant and indisputable and may be illustrated using the Yukon
market as an example. The establishment of a transportation infrastructure
hub in Whitehorse, by Air North, Yukon's Airline, in 2002, led to a more
than 2 per cent increase in private sector jobs in the Yukon. Air North
employees now represent almost 2.5 per cent of the private sector Yukon
workforce. Air North has 75 per cent of its employees located in and 85 per
cent of its payroll dollars earned in the Yukon. This includes pilots,
flight attendants, maintenance personnel, cargo, catering, ramp and
passenger services personnel, along with call centre, marketing,
administrative and management personnel.
Were the airline to relocate its operations hub to a southern city, it
would then have only about 60 Yukon employees or 25 per cent of the total
number, and only about 15 per cent of its payroll dollars would be earned by
Again, using the Yukon market as an example, it can be seen how lower
airfares can provide economic benefits by increasing travel. During 2010,
based upon our average yields, the average airfare in or out of the Yukon
was 29 per cent lower than it was in 2001.
Yukon airfares, including those within the Yukon, compare very well with
those found on similar routes in the South. Furthermore, since 2001,
domestic traffic has grown by 76 per cent. Almost all of the growth in
traffic was price-stimulated as people can afford to travel more often and
more people can afford to travel.
By bringing the cost of travel drown, Yukoners have had more money in
their pockets to spend on other goods and services and visitors have arrived
in the Yukon with more money to spend on goods and services while in the
The establishment of business infrastructure is particularly important to
northern economies, which are primarily resource-based. It is important to
ensure that when the resources are gone, there is more than tailing piles
left behind. A look at the downtown landscapes of Iqaluit, Yellowknife,
Whitehorse and Anchorage would illustrate the relative maturity of the
economies in each region.
While I would not likely get complete agreement from Yukoners that we
would like to see downtown Whitehorse look like downtown Anchorage, most
would probably support an increase in economic activity to support
improvements in health care, education and other publicly funded
The establishment of an airline infrastructure hub in the North goes
somewhat against the grain in terms of normal business practices. In the
North, costs are higher, infrastructure is limited, the labour pool is
limited and competitive opportunities are limited. These factors provide a
fair bit of incentive to locate your infrastructure in the South rather than
in the North and to focus on larger markets.
Alaska Airlines provides an interesting illustration. The airline was
founded in 1932 in Anchorage but eventually found it necessary to relocate
most of its infrastructure to Seattle in order to pursue growth
opportunities and to improve operating efficiencies.
Today, only 19 per cent of Alaska Airlines' traffic is within Alaska or
between Alaska and the lower 48 states. Alaska Airlines has much in common
with Canadian northern air carriers with the exception of local ownership.
It is the local ownership factor that tends to keep Canadian northern air
carriers focused on northern markets.
Stated quite simply, our shareholders are our customers. The significance
of this was illustrated to me at our AGM several years ago when, after
announcing a healthy profit for the year, one of our shareholders observed
that perhaps our airfares were too high.
At Air North we describe our corporate objectives as endeavouring to
operate safely and successfully while respecting the interests of our
customers, our employees and our shareholders in exactly that priority. This
means that growing much beyond the boundaries of our northern market is not
in the plans for us at this time. Instead, our objective is to be a
successful northern operator.
How do we define success? I would say that you are successful if your
customers are happy with your product, your employees enjoy working for you
and you are making money.
For airline consumers in our market, price seems to be the primary factor
influencing customer satisfaction. Convenience and service count also, but
they do not seem to be as important as price.
Technology has made the world smaller and more accessible for almost
everyone. Even in the North, most communities have television and many have
Internet and cell phone service as well. Northern airline consumers have
become more demanding in today's modern world and they have come to take for
granted low fares and plenty of flight choices, even in smaller, higher-cost
To meet the demands of today's northern air travelers, we need to provide
pricing that is comparable to pricing in other markets that are similar to
ours. If we are going to make any money, we also need to make sure that our
costs are in line with those of larger carriers operating in larger markets.
The cost-related challenges that we face as a small air carrier in a
small northern market may be generally categorized as either environmental
or market-specific. The environmental challenges are largely beyond our
control, while the market-specific challenges relate to our size and the
size of our market. We have had to develop strategies to deal with both.
Some of the aviation studies mentioned previously indicate that Canada is
a relatively high-cost environment with respect to aviation. Northern Canada
is also a high-cost environment relative to the rest of Canada with respect
to aviation. Environmental cost challenges specific to the North include
high fuel costs resulting from transportation costs incurred moving fuel
large distances from the refinery to northern markets; outdated and
inadequate airport infrastructure that precludes the use of more efficient
aircraft; a shortage of skilled labour to fill aviation jobs in the North;
inadequate navigational aids and weather reporting, which cause flight
turn-backs or diversions; and high construction and operating costs for
infrastructure in the North. Market-specific cost challenges are as a result
of limited and seasonal business volumes, which result in below-average
asset utilization and a limited revenue base to amortized fixed overhead
Some of our strategies to deal with both types of cost challenges include
increased cost over our entire supply chain. Using fuel as an example, we
purchase our jet fuel in the South, barge it up the coast, truck it to
Whitehorse, store it in our own tank farm and dispense it from our own
trucks. We operate our own flight kitchen and de-icing operations in
Whitehorse. We also do most of our own maintenance, including C-checks at
our Whitehorse facility. We endeavour to develop non-flying revenue streams
and profit centres. Next year we expect fuel sales and ground handling to
generate almost 10 per cent of our total revenues. We endeavour to increase
our aircraft utilization and revenues through charter flying activities. We
are working with local educational institutions to ensure a supply of
skilled labour. We try to increase our reach by seeking alliances with
mainline and other carriers so that northerners can have relatively seamless
access to domestic and international route networks. We engage in lobby
efforts to encourage the modernization of aviation infrastructure in the
North, and we take steps to ensure that we maintain a maximum market share
in our region. This particular strategy is clearly the most important one
for us and also the most difficult one to get the results that we want.
Stated quite simply, if we are going to keep our hub in the North, we need
to make sure that we own that hub.
The foregoing discussion was intended to briefly acquaint you with
northern air carriers in general and with some of the challenges that we
face in our markets in particular. From the discussion, it is pretty
apparent that most of our challenges are cost-driven and only partly within
While this discussion was about northern air carriers trying to achieve
success in the domestic market, it could just as well have been about
Canadian air carriers trying to achieve success in the global market.
Northern air carriers comprise only a small part of our domestic market,
just as Canadian air carriers comprise only a small part of the global
market, but northern air carriers are good for the North just as Canadian
air carriers are good for Canada. In order for either of us to maximize our
success and the associated regional benefits, we need to encourage the
development of federal, provincial and territorial policies that recognize
and support the role that aviation plays in Canada's economy.
Captain Dan Adamus, President, Canada Board, Air Line Pilots
Association: ALPA's nearly 3,000 members in Canada are the pilots who
fly for nine Canadian air carriers: Jazz, Air Transat, CanJet, Kelowna
Flightcraft, Calm Air, Bearskin, Wasaya, First Air and Canadian North. As
you can see, our membership covers all major types of operations in the
aviation industry in Canada from overseas carriers to cargo operators,
northern operators and regional carriers. They are based from coast to
coast. As front-line aviation employees, ALPA members have great expertise
and interests in all facets of the aviation industry in this country.
ALPA has followed with great interest the testimony that has been
presented before you. As pilots, we are service providers as well as service
users like you. We interact with many of the witnesses that you have heard
prior to us. For example, airlines are clients of the airports and the air
traffic system. We, as pilots or in our personal lives, use the airports and
the security providers such as CATSA and the Canada Border Services Agency.
In listening to those witnesses, we have noted common themes. Much of the
testimony has gone over well-tilled ground, including fuel excise tax,
airport rents, security, security fees, airport improvement fees and the
economic viability of the industry. Those issues are real and vexing. They
have been thought about, talked about and debated in numerous forums,
including this one. They are perennial, stubborn problems that plague this
industry. ALPA has strongly held views on all of those subjects, views that
we would like to share with you today. Like many of the witnesses who have
appeared before you, ALPA finds it deplorable that aviation is regarded as a
cash cow for federal coffers.
The add-on fuel excise tax is one more cost added to the air
transportation system in Canada. Like income tax, this was intended to be a
temporary tax. Simply put, it should be removed. With respect to airport
rents, many witnesses from the airport sector have decried the amount of
rent that is paid, again into the federal coffers. Of course, high rents get
passed to everyone else in the food chain. High rents mean high landing
fees. Toronto Pearson Airport's landing fees are among the highest in the
world. Landing fees are part of airline expenses that will eventually find
their way into the cost of a ticket.
Security fees are one of our favourites. ALPA views the security fee as
one more unwarranted tax on the aviation industry. We feel that aviation
security is no different than national security and, like national security,
should be funded from general revenues. The most infamous act of terrorism,
the tragedy of 9/11, is an excellent illustration. The harm done and deaths
suffered in the city of New York far exceeded those on the aircraft. The
aircraft was the tool; terrorism was the objective. Why, then, would only
aviation passengers fund this national security concern?
We are all familiar with airport improvement fees that are now added to
every ticket that you purchase. These fees raise money for capital
improvements to the airport. Most passengers view the airport as the
terminal, whereas flight crew members view the airport as the runways,
taxiways, manoeuvring areas and the supporting communication and flight
What gets improved when airport improvement fees are spent? We as flight
crew members would like to see a larger portion of the fees spent on
improving airport infrastructure. Some of you have queried the witnesses
about late flights and recurring delays. Some of these delays may be in part
because an airport has not been modernized or equipped with the latest or
best technology, although it may have a Taj Mahal terminal. Let me offer
Ottawa International Airport as an example. There is no Category II runway
in Ottawa. A Category II runway allows for landings and takeoffs in the
lowest visibility conditions.
Many terminals are now luxurious, containing shopping centres, boutiques,
mini spas and many other amenities on which a passenger can spend time, but
we think that the best terminal is the one in which you have to spend the
Security is of vital interest to our members. No other aviation workers
are more intimately involved than the flight crew when an aircraft is
targeted by terrorism. We have been generally pleased with the progress made
in this area, but we have suggestions for improvement. ALPA is a proponent
of streamlining security by the use of expedited screening for trusted
travelers. Trusted travelers would be those people who have had vigorous
security checks, such as the holders of Nexus cards or Restricted Area
Identity Cards, RAIC. We are also in favour of using behavioural recognition
techniques, that is, using our resources to look for people with evil intent
rather than to look for prohibited articles only.
On the economic viability of the industry, ALPA members are men and women
employed in the aviation industry and therefore have a vested interest in
the viability of the industry. Our livelihoods depend on it, so we want to
see the industry thrive.
Today, in keeping with your stated objective, I would like to also
address those issues that we think are the emerging issues related to the
airline industry. The emerging issues that we see look to the future of the
Canadian airline industry. To some degree, they are interconnected. I would
like to speak to the issue of foreign pilots in Canada, bilateral agreements
and pilot return, retention and recruitment.
There is a trend among some Canadian air carriers to augment their flight
crew contingent on a seasonal basis with foreign pilots. Foreign pilots have
been hired at Sunwing, CanJet and what was Skyservice. In some cases, the
foreign pilots fly the carriers' Canadian-registered aircraft; in others,
the Canadian carrier uses both foreign aircraft and crew.
Foreign workers require a permit to work in Canada. Employers wishing to
engage foreign workers can assist them in obtaining this permit by making an
application to HRSDC for a labour market opinion, or an LMO. The guidelines
for the foreign worker program stipulate that eligible foreign workers are
allowed to work in Canada for an authorized period if the employer can
demonstrate that they are unable to find suitable Canadians or permanent
residents to fill the jobs and that the entry of the workers will not have a
negative impact on the Canadian labour market. The employers in these cases
stipulate that the pilots must be type-rated, which is different than having
a licence, on a certain model of aircraft. Rather than hire non-rated pilots
and train them, the carrier applies to have foreign pilots fill the
positions on a seasonal members basis.
We are of the opinion that there is not currently a shortage of pilots in
Canada. Rather than utilizing the labour market opinion to fill genuine
personnel shortages, the program is being used to create economic advantages
as the carriers can eliminate training costs and hire a pilot only
May I give you an example of the testimony before you of Mr. Hugh
Dunleavy of WestJet? You may recall that he spoke of WestJet's growth to 100
aircraft, the same type of aircraft, Boeing 737NGs, for which some operators
say they are unable to hire pilots. He stated that over the next few years
they had another 38 aircraft on order. That is 38 aircraft. He made no
mention whatsoever of any problem recruiting pilots to fly WestJet's 737NG
Regarding the United Arab Emirates, ALPA is in agreement with the
government's decision to refuse to grant additional access to Canadian
markets. That decision is in keeping with the capacity clause of the
agreement, which states, in part, that the agreed services are to bear a
reasonable relationship to the requirements of the public for transportation
on the routes at a reasonable load factor.
Although Canada can and does benefit from certain Blue Skies agreements,
such as those with the United States and the European Union, if Canada is to
retain a viable Canadian airline industry, it must continue to negotiate
bilateral air agreement traffic rights that are based on reciprocity and
mutual benefit, where there is a fair and equal opportunity for both
For there to be a viable Canadian airline industry, it will need a
reliable source of high-quality pilots to fill the flight decks. That brings
to the fore a combination of emerging issues for the airline industry in
Canada, that of pilot retirement and retention, and training and
recruitment. We are all aware of the aging cohorts of baby boomers entering
or approaching the age of retirement. The new service brings us stories on
that looming problem almost every week. The problem is highly visible and
problematic in the airline industry as it, too, has a high proportion of
boomers within its ranks.
Did you know that there is no retirement age in Canada's aviation
regulations? Retirement age provisions are usually found in the collective
agreements between the air carrier and its pilots or in the policy documents
of carriers without collective agreements. Currently, at most of the ALPA
properties, the age has been 65. At Air Canada, it is still 60. The age 60
rule at Air Canada has been challenged before the Canadian Human Rights
Tribunal and is the subject of continued litigation. There is also a human
rights challenge to the age 65 rule at Jazz. These issues are as of yet
undecided by the tribunal.
The International Civil Aviation Organization, or ICAO, fairly recently
changed the international standard from 60 to 65. ALPA is in favour of a
mandatory retirement age that is freely bargained between the parties,
subject to those international provisions by ICAO.
Recruitment and training of airline personnel is another emerging issue
for your consideration. The higher number of people due to retire, combined
with an under-supply of youth entering the industry, will bring significant
challenges for the aviation industry in Canada. Several recent studies by
ICAO, IATA, Boeing and HRSDC predict that there will be a serious global
pilot shortage. There will only be an adequate supply of pilots if there are
sufficient applicants and graduates opting for a commercial pilot career.
Recent studies have found that what attracted students to the career was
the love of flying, followed by prestige and the opportunity to travel, but
many students do not complete training, citing financing and a low pay
structure for entry-level positions. A student may spend as much as $70,000
to obtain qualifications to find a starting salary in the $18,000 a year
There is minimal funding or financial assistance to student pilots. For
example, Canada Student Loans are available only to those students enrolled
in post-secondary degree or diploma programs. Many students opt for the more
traditional route of attending an independent flight school, where no loans
are available. Most often they are self- financed through parental support
or bank loans. The tax deduction for training varies, but generally one can
only claim flight training hours if the student is enrolled in a commercial
Without an appropriate number of students entering the industry, in
combination with the pending retirements, we may actually see the day when
air traffic in Canada will have to rely on foreign pilots.
Thank you for your time. I would be pleased to answer any questions.
The Chair: Thank you, Mr. Adamus. I will start by introducing my
colleagues from the Senate. Senator Zimmer is from Manitoba; Senator
MacDonald is from Cape Breton; Senator Mercer is from Halifax; Senator
Braley is from Ontario — he has some property in British Columbia, I heard
today in the Senate; Senator Greene is from Nova Scotia.
Senator Verner is from Quebec City; Senator Boisvenu is from the Province
Senator Martin, who will be asking the first question, is from British
Senator Martin: Thank you for your presentations. I thought you
really outlined the challenges as well as the opportunities in the North.
I was pleasantly surprised to hear that you have had a 76 per cent
increase in domestic travel since 2001. My first question is what increase
has there been from the international market? That leads me to my second
question regarding Blue Skies. Being on the West Coast, with the
Asia-Pacific Gateway, what increase have you seen in the international
Mr. Sparling: I can only tell you, anecdotally, on our flights, we
are seeing more and more international travelers. Certainly we do not have a
way to quantify where the passengers originate from other than that close to
half of our bookings originate from outside the Yukon Territory. That is one
statistic we do have. We probably could find statistics that indicate how
many passengers will book from outside of Canada. Again, anecdotally, we
seem to be seeing on our web bookings an increasing number of addresses that
are outside of the country. I do not know whether that is an increased
interest from international travellers or just we are getting the word out
and people are becoming more familiar with us so they know how to find us.
Senator Martin: I think it could be a combination of both. Looking
ahead, is there opportunity for the tourism market from, for example,
Asia-Pacific? It is such a unique experience to come to Canada. I know that
I am intrigued, as a West Coaster, by the advertisements for Newfoundland
and Labrador. The Yukon Territory and the territories themselves could, in
the future going forward, be potential tourism markets as well.
That is a question that leads into what you were talking about, Mr.
Adamus, regarding Blue Sky and having measured growth because we want that
reciprocity in there. I heard a recent presentation from B.C. regarding
wanting more Blue Sky or Open Skies agreements because the Asia-Pacific
Gateway presents a great opportunity.
Could both of you speak a bit regarding Blue Sky and, if it is negotiated
well, what that could mean for tourism — the increased traffic and
Mr. Sparling: I will make a quick comment on that and then turn it
over to Mr. Adamus.
First, before we get to negotiations and this sort of thing, let us talk
about the basic economics. The maximum benefit comes to Canada if the
service can be provided by a Canadian carrier. We could be talking about
Canadian or northern carriers, because the arguments are exactly the same.
If the local carrier is unable to deliver the product at an affordable
price, then it has the potential for stifling the economy. The challenge is
on the carrier to be able to provide a competitive product.
Bilaterals are another thing. If we were to go for a complete Open Skies
agreement, where anyone could fly any place they want, my suspicion is that
Canada would come up short because we are such a small piece of the puzzle.
Everyone that was buying an air ticket would be sending their cheque out of
For a foreign traveller coming to Canada travelling with a foreign
carrier, you do not see any benefit until their feet hit the ground in
Canada. When a foreign traveller comes to Canada travelling on a Canadian
carrier, economic benefits begin to accrue to our country when they first
buy their ticket. I think it is important that Canada be competitive as an
aviation environment. We want to ensure that Canadian carriers can be
Some of the research I have done between Canada and the United States,
and some of the studies that I have described here, indicate to me that an
average American carrier has at least a 10 per cent cost advantage over a
Canadian carrier. When you are talking about turboprop carriers or jet
carriers, their costs will vary depending on their size and the scope of
their operation. However, on average, an American carrier has about a 10 per
cent cost advantage over a Canadian carrier.
You have to ask yourself, why would that be? We are all flying the same
airplanes, they all burn gas, we all hire pilots and we all have to maintain
them. It is because of the cost structure in Canada relative to that of the
United States. We have to ensure that Canadian carriers are in a good
position to compete.
With respect to the bilaterals, normally what you do — as I understand
them — is you somehow decide in the bilateral negotiation that the Canadian
carrier will look after about half of the traffic and the foreign carrier
will look after the other half. Perhaps Mr. Adamus knows more about that
than I do; we have not been involved in that.
However, you want to negotiate some fairness in the agreement. You do not
want to give the foreign carrier more traffic, more ability to do business
than you do a Canadian carrier.
The Chair: Mr. Adamus, do you want to add a comment?
Mr. Adamus: Certainly. I agree a lot with what Mr. Sparling had to
say. There must be something in it for the Canadian carrier.
We have a bit of experience in this. We were lucky to be an official
observer during the Canada-EU Open Skies discussions. The Blue Sky document
spells it out fairly well. There must be reciprocity and equal sharing of
the traffic rights.
If you look at the United Arab Emirates situation, it is coming in one
direction. Air Canada has not even elected to fly over in that direction
because they say there is simply not enough traffic. Between Etihad Airways
and the Emirates, they offer three flights a week each, and our figures show
they are not even running at 65 per cent capacity. You must ask yourself:
Why do they want more access into Canada? We have a pretty good idea why,
but I think everyone should ask that question.
Senator Martin: I have another question concerning the North. I
understand that Canada's First Nations people have significant equity in the
largest of the northern-based air carriers, including Air North. What, if
any, influence does that ownership have on your commercial mandate?
My second question is: Is it oversaturated? You named quite a few of the
carriers in the North, but is there a demand for the service providers or is
the market saturated?
Mr. Sparling: First, with respect to the First Nations component,
speaking from our own airline standpoint, the Vuntut Gwitchin First Nation
has a 49 per cent interest in our airline.
The history behind their investment is that they achieved their land
claim settlement and basically put their money in the bank under what they
described as a self-imposed moratorium. They did do not want to start
investing until they felt they were ready to invest. When the time came to
invest, they approached us.
They began seeking strategic investments. They regarded an investment in
the airline that provides service to their community, since it has no road
access, as the first and most strategic investment they could make. At the
time, my co- founding partner was dying to get out of the business, so it
was fairly straightforward. They wanted to buy; he wanted to sell.
I think they are very happy with their investment. They started off
acquiring 20 per cent and they later acquired another 19 per cent. The
arrangement was they would make an initial investment and if they were happy
with it, they had an opportunity to complete the purchase. They completed
the purchase ahead of schedule, so I think it may be regarded as a very
successful First Nations investment. That was question one.
Senator Martin: Yes, question two was the market and the
Mr. Sparling: As northern carriers, when you put all your eggs in
one basket, you have to be protective of that basket. I think there has been
a lot of discussion; in fact, the InterVISTAS study dealt with increased
competition in the North, as the mainline carriers have begun to take an
interest in northern markets.
In our own particular market, Air Canada was the incumbent carrier; we
were the new entrant into the market. In the Yellowknife market, you first
saw Jazz and then WestJet enter the market. In Iqaluit, Jazz was in the
market for a little while.
I know that the northern carriers found it to be a problem when there
were new entrants into the market; it diluted their market share. In our own
market, if our market share was diluted, we would have to seek other markets
to fly; and the other opportunities are all in the South. If you have to
start flying in the South, what is the point in keeping your infrastructure
in the North? It is a real problem.
The other point that has been raised by the northern carriers is that
there is at least a bit of cross-subsidization between the jet routes into
the territory and the turboprop routes within the territory. We certainly
see it. The jet routes are the ones that produce all of the revenue and most
of the profit; the turboprop routes hold their own.
If we take a hit in traffic on the jet routes, it does have an impact on
our ability to provide cost-effective and efficient service on the regional
routes. I do not think the mainline carriers have any interest in flying the
regional routes within the North. Therefore, I think the role that the
northern carriers play in providing a completely integrated service needs to
be factored in as well.
Senator Mercer: Mr. Adamus, I have a couple of questions; the
first one is a practical question. In your opening comments, you told us who
your members were. Absent from the list are WestJet and Air Canada. Could
you give us an explanation of that?
Second, I am not surprised by the high number of people due to retire,
but I was surprised about the under-supply of youth entering the industry.
You say it will bring significant challenges for the aviation industry in
Canada. I am surprised, because the airline industry has always had that
sort of sex appeal, maybe not from a business point of view but from the
point of view of being a pilot or a flight attendant, because of some of the
perceived benefits of all of that. Perhaps you could elaborate on that and
tell me where I have gone wrong in my thinking.
Mr. Adamus: The Air Canada pilots have their own association. I
believe they spoke to this committee some time ago. The WestJet pilots are
not unionized. We would love to have both of those pilot groups in our
As for young pilots, I agree with your comment about the sex appeal. That
is probably why I got into this business almost 30 years ago. It was the
urge to fly. If you looked at the movies and read the papers, there was a
lot of money to be made. Unfortunately, that is not the case today. Pilots
have taken quite a hit in this industry over the last few years, especially
since 9/11. There have been many bankruptcies, and usually the first folks
to take the haircut after a bankruptcy are the employees. We are not even
close to where we were in the past, and we are working a lot more as well.
I also mentioned that the cost to get into flying is substantial. The
entry-level pay of $17,000 to $18,000 per year is tough to swallow.
My neighbour's son is a 19-year-old who wanted to get into aviation. He
spent a lot of time talking to me. After looking at the numbers, he is going
to become an electrician. He looked at it and said that with the cost of
becoming an electrician versus a pilot, and what he could potentially make,
he will go into the trades. That is the reality now.
Senator Mercer: He will make more than $18,000 per year even
before he gets all his papers as an electrician.
It seems to me that, as you referred to, many bankruptcies post-9/11
should leave, logically, many pilots available. If the airlines are no
longer flying and there is a reduction in the number of planes in the air,
that means that there should be a number of pilots flying those planes who
should be available. Where have they gone?
Mr. Adamus: That is a good question. There were a lot of
unemployed pilots in Canada, and there still are. A lot of them have gone
looking for work and a lot of them are over in the Middle East. Asia has
also picked up a number of our pilots.
I cannot give you actual numbers, but we had a couple of board meetings
in the last few days, and the question was asked: Does anyone here have a
friend or an acquaintance who is flying in the Middle East? Everyone does.
Everyone knows someone who is over there. Although it is a job and they are
providing for their families, they want to be back in Canada. There is no
better place in the world to live than Canada, and they want to be back
here, but there are no jobs.
Senator Mercer: Mr. Sparling, you talked about there being 10
paved runways in the North. We have heard copious quantities of testimony
about the high cost imposed on the industry by taxes and user fees. Who paid
for those runways initially?
Mr. Sparling: Mr. Nourse would probably have a more accurate
answer than I would.
Stephen Nourse, Executive Director, Northern Air Transport
Association: All of the paved runways that are currently in the Arctic
system, with the exception of Rankin Inlet, were actually all paved by the
federal government prior to devolution. The territorial governments have
done very well with their limited resources in maintaining the assets up
there, but they have just not had the capital funding available to do
anything in terms of paving any of the other airports.
Senator Mercer: Who paid for Rankin?
Mr. Nourse: A lot of that was paid for by the federal government
because it is now a forward operating base for the F-18s. They required it
to be paved.
Senator Mercer: The air force paid for it?
Mr. Nourse: There was a substantial contribution, yes.
Senator Zimmer: Before I ask my question, I would like to ask a
supplementary on Senator Mercer's second question about where all the pilots
have gone. Many of them go to private jets after that, do they not?
Mr. Adamus: I am not aware of any actual numbers on that. I think
most airline pilots would like to stay in the airline environment. There are
some decent jobs flying private jets, but for the most part you are on call
24/7, and a lot of pilots would like to have a bit more stable life.
Senator Zimmer: I will ask your permission if I can use your
speech and make quotes from it. You have hit every point I think I have made
in the last month: fuel tax, airport rents, landing fees, security fees and
aviation fees. I agree with you 100 per cent. Although you are much better
looking than I am, I thought I was speaking. I would like to use a lot of
your speech to ask the questions, if I can have your permission.
Mr. Adamus: Absolutely.
Senator Zimmer: What are the most significant challenges facing
Canadian air carriers in the coming years, and has the Air Line Pilots
Association, International made any recommendations to its airlines on steps
to address these challenges?
A lot of these air carriers are serving up North and it is a public
service. Are they receiving any federal funding to support the public
service they are providing?
Mr. Sparling: No, there are no subsidies for any of the airline
operations in the North.
Senator Zimmer: Absolutely nothing?
Mr. Sparling: No.
Senator Zimmer: Have you made any requests for federal funding?
Mr. Sparling: No. I do not believe that it requires a subsidy. I
think there are probably better ways to spend the money. Spend the money to
start paving runways, make sure the infrastructure is there, maybe recognize
the role that northern and Canadian air carriers play in the aviation
industry. I think it is a valuable part of our economy. Rather than giving
carriers a subsidy, I think we need to do something about the cost structure
of aviation in Northern Canada, and in Canada in general.
We face all the same generic problems that Mr. Adamus outlined, plus a
few more of our own because of where we are. If we want to see, in
particular, the northern economies strengthen, grow and develop, we have to
start paving runways and putting money into infrastructure in the North,
because you need the transportation system in order to have a healthy
economy. Aviation is the transportation system, since there are no roads.
Senator Zimmer: What influence does ALPA have on the plans for
future growth domestically and internationally? Do you have any plans to
Mr. Adamus: We, as the pilots, really do not get involved in the
airline's decision-making process on where or when they are going to fly. We
will certainly help out if we are asked, but for the most part we are flying
the aircraft, so we are not really involved in those decisions.
Senator MacDonald: Captain Adamus, I was intrigued by the
questions you raised about the number of certified pilots that are being
produced in the country.
What is the average cost of producing a pilot in this country? How many
certified flight schools are there in the country?
Mr. Adamus: The cost to become a pilot varies depending on which
route you go. You could go through a private school. The figure that we
used, from start to becoming a commercial pilot, is upwards of the $70,000
mark. If you went to an aviation college, you are paying college tuition
fees. For some colleges, depending on which province you are in, there is a
subsidy. The provincial government does subsidize a little bit, but that is
over a three- or four-year program, and you are probably looking well in
excess of $100,000 at that point.
How many flying schools are there in Canada? I do not have that actual
number, but as far as flight colleges, I am going to throw out a number of
fewer than 10.
Senator MacDonald: Would they be the equivalent of a community
college in terms of the structure?
Mr. Adamus: Some of them, yes. Some of them are actually a
university. The University of Western Ontario, in London, has an aviation
Senator MacDonald: The students would go and be eligible for
Mr. Adamus: In those programs, yes.
Senator MacDonald: I am just curious, because I have this in my
own family. What percentage of pilots would be ex- military people?
Mr. Adamus: I do not have the figure.
Senator MacDonald: Would it be substantial?
Mr. Adamus: No, definitely less than 50 per cent. Our military
just is not that big.
Senator MacDonald: I am just shocked that someone would start out
at $17,000. I would not feel comfortable with someone flying me around who
was being paid $17,000, quite frankly. That is a lot of responsibility.
Mr. Adamus: That is actually an improvement from many years ago. I
know of an airline where you could fly for free just to get your hours. They
would maybe give you the odd meal here and there, but they did not even pay
you. We have improved a little bit. That is the nature of this business.
On the subject of pilot salaries, we feel the airlines are simply not
charging enough for the ticket. However, they have a bit of an excuse
because a good percentage of that ticket is made up of these taxes and user
fees that I talked about. If we got rid of those, we could charge an amount
that the airline themselves can take a little bit more, pay the pilots
appropriately and everyone is better off. However, the government has to
step up to the plate, and enough of viewing the airline industry as a cash
The Chair: Mr. Sparling, the chair does not often ask questions,
but you mentioned you did not seek support for your funding. In the week
that American Airlines filed for bankruptcy protection, in the year when I
do not know how many companies both in Canada and North America have filed
for bankruptcy or gone bankrupt, in the 25-year cycle of so many companies,
including companies like Air Transat and many companies disappearing from
the airline industry, it is an industry in which investing does not seem to
be the most appealing and certainly has not appeared to be the most
We can go back to Pan Am, which used to be one of the great companies in
the world. They cannot even succeed as a television show. It is an industry
in which a person like you, who has decided to invest, I find that very
courageous, but the success stories of investors in the airline industry,
Liberia, national airlines for European countries have gone bankrupt, and
people like you still invest in a market like the North? I am just curious:
Do you know something we do not know?
Mr. Sparling: I co-founded the airline in 1977, and we have grown
very slowly and carefully. We have a very conservative business philosophy.
It is not a gold mine. It typically achieves a grocery store rate of return.
The airline industry has always had an excess of supply over demand in
terms of investors. People invest in the airline industry for more than just
economic return; they invest because they enjoy it. I am a pilot. I enjoy
the flying, I like the business. I probably could have found a more
profitable career for myself, but having said that, the company has been
profitable for all but a couple of the last 34 to 35 years. I enjoy going to
work every day.
The Chair: One senator whom I will not name said that it is
probably because you are more stubborn than some of the other people.
Senator Boisvenu: I have a few quick technical questions for you.
Earlier, Mr. Sparling, you stated that Americans have a 10 per cent
operating cost advantage over their Canadian counterparts, did I hear you
Mr. Sparling: I have done some research into the operating costs
of various Canadian and U.S. carriers, and I am finding for comparable
carriers there seems to be an average of at least a 10 per cent differential
in cost of operation.
If we might use WestJet as an example, they are perhaps the benchmark for
a lower-cost carrier in Canada. Their costs are 12 or 13 cents a seat mile.
There are many carriers in the United States that are 10 or 11 cents a seat
mile. That is a 10 per cent or better differential.
Senator Boisvenu: You have some experience in Northern Canada. Can
you tell us if there is a difference in costs between air transport in the
North and air transport in the South, for example, a flight from Montreal to
Toronto or from Toronto to Vancouver? Are maintenance costs higher in the
North, particularly with regards to runway upkeep, as you were saying?
Mr. Sparling: There are a number of reasons that our northern
operators' maintenance costs would be higher. One would be because of the
inadequacies of the runways, using the Boeing 737 as an example. That is one
of the few jet aircraft that is capable of operating onto gravel runways.
All of the northern carriers would love to upgrade their equipment to a
newer generation aircraft, but they do not make the newer generation
aircraft that are capable of operating on gravel. We are operating aircraft
that are more expensive to operate.
Another aspect to that question would be that gravel runways tend to
damage the aircraft. You will incur more maintenance costs. Even on our
turboprops, we incur a lot of rock damage on the propellers. Our propellers
seldom make it through their full life without having to go to the shop to
have some stone damage repaired.
The other aspect is the cost of building and operating a hangar in the
North. Your heating costs are huge compared to operating the same facility
in the South.
Senator Boisvenu: What portion of this 10 or 12 per cent
differential is due to our climate? I am from Northern Quebec, near James
Bay and I can assure you that we had to travel in snowy conditions six
months of the year. Costs related to severe winter conditions, such as
de-icing planes, and snow removal on runways, do these costs have anything
to do with the large differential between American and Canadian operating
costs? What percentage of the costs is due to Canadian winters?
Mr. Sparling: I would think not. The statistics that I have looked
at are basically the published statistics for the mainline carriers. I look
at Air Canada, WestJet and Jazz. In the U.S., I have looked at Southwest and
most of the mainline carriers in the U.S. I would not think that the cost
differential is climatic difference.
The typical fuel cost of a Canadian carrier is higher than a U.S.
carrier. The only thing I can attribute that to is the taxes that we pay on
our fuel that they do not pay on their fuel. Why else would our fuel be more
expensive than theirs, on average?
Senator Boisvenu: One of the issues that I am most interested in,
is the next generation of pilots. You have heard of the École nationale
d'aéronautique in Longueuil that trains a large number of air mechanics. The
school has partnership agreements with private sector companies such as Air
Canada and Boeing. These companies invest in technical training to ensure a
steady stream of trained technicians in the future.
Can your industry form some kind of association with aviation colleges,
perhaps going so far as to financing them in part, in order to have some
input in the training of tomorrow's pilots by lowering costs and by
associating with colleges and universities that train them?
Mr. Adamus: We have representatives that sit on some boards at
aviation colleges to give suggestions for the training curriculum. However,
funding the actual programs is not something we have looked at. I do not
think it is the role of a pilots' association to fund it straight out. I
cannot see the connection there.
Senator Boisvenu: Without saying that your association has some
responsibility in this matter, I am sure this issue is of concern to you.
Could you promote the idea with Air Canada and others — around ten aviation
companies operating in Canada have been identified — that they could work
together with colleges and universities in order to train pilots? I believe
that the École nationale d'aéronautique in Longueuil has been very
successful with regards to training, quality training of Quebec companies'
future manpower. Could you at least promote this idea with large companies
so that they invest in training? Formal training seems to be entirely in the
hands of learning institutions and companies do not seem to want to invest.
Mr. Adamus: Yes, our association does have what we call an
education committee. Representatives go to schools trying to promote the
aviation industry, to get youth interested in it. Again, we can only do so
much. If you do not mind, Mr. Aubin will answer that question.
Captain Sylvain Aubin, Master Executive Council Chairman, Air Transat,
Air Line Pilots Association: For example, Air Transat proposes a program
to hire a certain number of Chicoutimi CEGEP graduates As a company, we have
participated in the past and the Executive Council has encouraged this. Of
course, we also have to take into account the present practices surrounding
foreign pilots. This is also an issue. It is difficult for employers, given
the current economic setting, to subsidize initial training and on top of
that, to train pilots for the types of aircrafts that they fly, when other
companies hire foreign workers that are fully qualified and trained. This
creates a substantial gap as you can well imagine. But yes, it could perhaps
be an excellent idea.
Senator Boisvenu: I have a question concerning aircrafts and their
lifespan. Ten or fifteen years ago, we thought that the problems related to
the quality of equipment and air carriers would have been resolved by now.
You seem to be describing a rather dramatic situation requiring emergency
In your opinion, where are we now with respect to the day when we will
have to make substantial investments both in aircrafts and in
infrastructures if the situation remains the same over the next couple of
Mr. Sparling: If your question pertains to gravel runways, that
will need to be addressed relatively quickly. Mr. Nourse has been involved
in some of the aging aircraft working groups. Perhaps he can comment on
Mr. Nourse: Ten years ago would have been a good time to start.
The newer Boeing 737s are getting to be 30 years old. They can absolutely be
maintained safely, but that comes at a cost. As well, there are other
associated costs. They burn a lot more fuel; they produce a lot more
emissions. Their time has gone. We are probably a little late in getting
going on them, to be quite honest.
The Chair: Senator Mercer, the library analyst told me that he
would be finding you the numbers for the training facilities.
Our next meeting will take place on Tuesday, December 6 at 9:30. We will
hear from Douglas Lavin, Regional Vice President, North America, and Cyriel
Kronenburg, Director, Airport and Air Traffic Charges for North America from
the International Air Transport Association. Following that, we will have an
in camera meeting to consider future business of the committee when we
return in January.
Senator Zimmer: Can I ask one short question?
The Chair: Yes.
Senator Zimmer: You talked about the aging of the aircraft. The
skin of an aircraft expands and contracts with the altitude. About 20 years
ago, when a 737 was landing in Hawaii, a little boy sitting in first class
looked up and saw the skin peeling back at 12,000 or 15,000 feet. It peeled
right back to economy class. They lost one flight attendant, but the rest of
the people were pinned in. They brought the plane down to 10,000 so they
could breathe. Seven minutes later, they landed safely.
Is there a danger that, with too much expansion on the rivets, the skin
of aging Boeing 737s could peel back? Have these aircrafts now passed that
Mr. Nourse: Generally speaking, no. The Canadian fleet,
particularly the combi fleet, is considerably younger than that plane. That
particular aircraft was very high-cycle. In that environment they were
landing and taking off every 30 minutes. Because of the distances involved,
the average northern combi bird flies, in some cases, two to three hours per
cycle. We have been diligent in searching out younger air frames because of
maintenance costs. We are not to that point yet, which is why I say we can
definitely be safe.
Also, subsequent to that incident, a considerable number of airworthiness
directives came out. There have been many lap repairs, reinforcements and
increased inspections to ensure that we do not have another convertible.
Mr. Adamus: To come back to my comment about the airlines not
charging enough for a ticket, I have in front of me a ticket, which I can
provide photocopies of to the committee. The ticket is for a flight from
Toronto to Manchester for $49. Taxes on top of that would be $525. That is
an example of what I am talking about.
The Chair: You can provide that to the clerk. If you have further
examples, please provide them to the clerk and they will be passed on to