Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 15 - Evidence, February 5, 2013


OTTAWA, Tuesday, February 5, 2013

The Standing Senate Committee on Transport and Communications met this day, at 9:32 a.m., to study emerging issues related to the airline industry.

Senator Dennis Dawson (Chair) in the chair.

[English]

The Chair: Honourable senators, this morning we continue our study on the Canadian airline industry. Appearing before us today is John McKenna, President and Chief Executive Officer, Air Transport Association of Canada. He is accompanied by Michael Skrobica, Senior Vice-President and Chief Financial Officer. Gentlemen, it is a pleasure to welcome you again.

Mr. McKenna, the floor is yours.

John McKenna, President and Chief Executive Officer, Air Transport Association of Canada: Thank you and good morning. ATAC has represented Canada's commercial air transport industry for almost 80 years. We have approximately 170 members operating in every region of Canada that provide services to a majority of the more than 700 airports in the country.

[Translation]

We appeared before this committee in 2010 to talk to you about the long-term viability of the Canadian aviation industry. Our message was that a major change in the Canadian government's attitude towards air transport was needed. Your report clearly reflected our concerns and our desire for the Canadian government to start seeing our industry as a vital economic enabler, instead of simply as a revenue stream.

[English]

We appeared before you in 2012 to address specifically the issue of aviation in the Canadian North. Our main message to you then identified that the North requires special economic and political consideration and that the popular one-size-fits-all model simply cannot be applied to that region. We promoted three ideas we would like embedded in the Canadian policy affecting the North: First, the user-pay concept does not work in the North. Second, more infrastructure is needed in the way of paved runways and for improved navigation and communication aids. Third is the need for a support-the-North policy. We encourage you to include these ideas in your next report.

We are quite happy with the work accomplished by this committee so far. We feel this committee believes in aviation and the vital socio-economic role it plays.

Today we will speak to you about the need for greater supervision of airport governance and Transport Canada's responsibilities towards airports since the creation of the National Airports Policy.

Our intention is not to question the dedication and professionalism of Canadian airport authorities. It is to ensure that the Canadian people can rely on the fact not only that their assets are being managed properly but also that the Canadian government has mandated someone or some agency to oversee the governance of this important element of Canadian heritage.

[Translation]

In the 20 years since the management of airports was first privatized, governance standards have been reviewed in all major sectors of the Canadian economy. Banking, telecommunications and international trade have all had their standards in management and financial ethics reviewed to better reflect Canadians' changing expectations. Much like large Canadian corporations managing national resources, Canadian airport authorities must become more accountable to the public regarding their governance.

[English]

Airports are a key element of the Canadian transportation system, a vital economic tool, a lifeline to the North, a crucial link to the international community and a major Canadian asset. Your report supported that statement with solid, empirical evidence. From a financial point of view, the net book value of the top eight airports alone has gone from $1.2 billion in 1996 to $11.4 billion in 2011. This growth in value, resulting largely from continuous investment, has been paid for almost entirely by the travelling public.

Ever since the Canadian government divested itself from airports in the 1990s, Canada has retained only a safety and security mandate. No one answers the phone at Transport Canada when someone calls with a concern over airport management decisions. Airlines and other air operators — fixed base operators, and maintenance and cargo service providers, among others — signed long-term leases with the federal government dating back before the divestiture of airports. These companies rent land on the airport grounds and invest in buildings, equipment and other installations to operate their businesses.

When problems started arising a few years ago over the fact that some airport authorities were increasing rents by up to 200 per cent, tenants had no one to turn to but the courts to address their disputes. Tenants had been assured that it was going to be business as usual for them after the privatization. Unfortunately, that has not been the case. While the airport authorities took over the leases, Transport Canada is still the signatory on the deeds. However, tenants cannot speak to anyone of authority at Transport Canada on airport lease interpretation and other related matters. Under the National Airports Policy, NAP, the federal government maintains its role as regulator but has changed its role from airport owner and operator to that of owner and landlord.

The NAP states that the federal government will retain ownership of the 26 airports identified as part of the National Airports System. However, under the NAP they will be leased to Canadian airport authorities. These local operators will be responsible for financial and operational management.

The airport authorities do not own these national assets; the Canadian people do. The problem lies in the fact that many of the airport authorities do not feel accountable for their management decisions to the government, to the public or to the industry that is reliant upon them. The Canadian people have been asked to blindly trust the local airport authorities to manage these assets, as they see fit, for leases of up to 60 years. In accordance with the NAP, the operation, management and development of the 26 airports considered most essential to Canada's air transportation system and in forming the National Airports System were transferred under long-term lease agreements to Canadian airport authorities.

[Translation]

The privatization of Canadian airport management was meant to enhance the viability and competitiveness of airports by allowing them to operate in a more commercial and cost-effective manner, and to provide levels of service commensurate with local demands and resources.

[English]

While relinquishing its role as operator and financier of the National Airports System airports, Transport Canada retained its mandate to ensure that the certified airports continue to operate in a safe, secure and effective manner. In its role of safety regulator, the federal government continues to set safety and security standards for all airports. Airports in the National Airports System are governed by a board of directors who in turn appoint a president and a CEO. The National Airports Policy goes on to say that Canadian airport authorities must be not-for-profit corporations guided by a local board of governors, that the board members will be representative of the local community and will not include government employees or elected officials, and that there will be federal and provincial government representatives on the board of directors.

Unfortunately, there is very little air transport expertise on any of these airports' boards of directors. Community involvement is very important, but knowledge of the industry you serve is critical.

The National Airports Policy also says that the annual general meeting will be open to the public, that Canadian airport authorities must establish community consultative committees, and that the public will have access to Canadian airport authorities' key business documents.

The reality is that there is little or no transparency whatsoever in the management of airports. The Canadian airport authorities are currently managing these public assets for their own benefit. Other than a succinct annual general meeting, many of the CAAs do not exceed the minimum transparency requirements of the National Airports Policy.

[Translation]

All the administrators are required to do is submit audited financial statements at the annual general meeting. Information supporting the financial statements is hard, if not impossible, to access. For example, senior management salaries and travel expenses are not released. Investment projects are overseen only by the internal management team. The public is not consulted about major infrastructure projects but simply informed of them, although those projects are in large part funded through the airport improvement fees paid by the passengers.

[English]

The maintenance of infrastructure has to be financed by the operating budget of the airport. The greater the investment in infrastructure, the less efficient the airport becomes unless it can attract new traffic. This results in greatly increased landing fees, higher parking fees and higher rents for airport and terminal tenants. All of these budget items end up being paid for by the travelling public.

The National Airports Policy also requires that the Canadian airport authorities must have a performance review conducted by an outside reviewer at least once every five years. Our experience is that these reports are extremely difficult to obtain and are not available under the Access to Information Act as the CAAs are exempt from the law, being private corporations.

Although we are convinced that most airports are managed with high ethical standards, the fact remains that the government shies away from its responsibilities and now predominantly sees airports simply as a revenue stream.

This raises a problem particular to the Canadian North. While the government remains the owner of the National Airports System, it has given all of the airports in Nunavut, Yukon and the Northwest Territories to the territorial governments. These airports are essential to the very livelihood of the northern regions, yet they benefit little from financial support from the Canadian government. This means that the small communities and other airport users are the sole supporters of the northern airport system. Given that there are no other modes of transport, unlike in other provinces where the federal government supports the transport infrastructure, we strongly believe that the government should offer financial support to sustain the northern airports.

[Translation]

Another major concern is that many airports outside the national airport system are often key to their region and must be protected. These airports are often either satellite airports to larger airports, or strategic because of their mission or location. Ownership of these airports has been transferred to regional and municipal governments, local airport authorities, the private sector or other interests. These airports are often very valuable and offer great appeal to real estate developers or city administrators more interested in the tax potential than the economic potential of an airport. Short-term gain can lead to huge long-term economic losses.

[English]

ATAC proposes the following five recommendations.

First, the government should appoint a national supervisory body or person to oversee the long-term management decisions of the Canadian airport authorities.

Second, the Minister of Transport should hold a national summit or, at the very least, stakeholder consultations on airports to (a) review the privatization experience 20 years later, and (b) implement changes to the National Airports Policy in view of the foreseeable needs of Canadian airport authorities and of the airline industry for the next 20 years.

[Translation]

Third, any significant proposed change in the use of airport lands divested to local governments or other interests must be subjected to public consultation and subsequent approval by the federal government.

[English]

Fourth, there should be two representatives from the aviation industry on the board of directors of each of the 26 airports in the National Airports System, one appointed by each of the two national associations representing airlines: the Air Transport Association of Canada and the National Airlines Council of Canada.

The federal government should strike a better balance between airport expansion projects and the need to respect users' business models and offer financial support to sustain the operations of the northern airports.

I thank you for your attention. We would be happy to answer any questions you may have on this presentation or on any other aviation-related material. We look forward to reading your final report.

The Chair: Thank you, Mr. McKenna. So do we. We are hoping this will be one of the last public meetings before we get into the preparation of this report.

Because of that, I would welcome everyone to ask any questions they think have not been addressed so far that the association could address for us.

Mr. McKenna, I appreciate that you clearly made recommendations. That is our objective from witnesses — not only an analysis of the situation but some proposals for change.

Before giving the floor to Senator Doyle, I would like to introduce our colleague Senator MacDonald from Nova Scotia, more precisely Cape Breton.

[Translation]

Senator Léo Housakos from Montreal, Senator Eggleton from Toronto, Senator Merchant from Saskatchewan, Senator Mercer from Halifax, Senator Greene from Halifax and Senator Doyle from Labrador — I sometimes call him Senator Tremblay.

[English]

Senator Unger from Alberta.

[Translation]

Senator Maltais from the Quebec City region and Senator Boisvenu, who is joining us this morning.

[English]

Senator Doyle: Change it around; it is Newfoundland and Labrador.

The Chair: It is the same mistake as when I call you Tremblay.

Senator Doyle: Mr. McKenna, you made a submission a couple of years ago to the competition review panel in which you recommended the elimination of all industry-specific input taxes, fees and charges, which hurt investment. Instead, you said taxation probably should be limited to the output of business activity, profits and wages. Could you talk a little bit more about that and be more specific as to what you meant by that? I think it was the competition review panel back in 2008. I am going back to something I saw online.

Mr. McKenna: That predates my arrival. I will ask Mr. Skrobica to answer that question.

Michael Skrobica, Senior Vice-President and Chief Financial Officer, Air Transport Association of Canada: At that point in time we believed, and we still believe, that the taxation of inputs is inappropriate. It runs counter to the argument that led to the establishment of the goods and services tax. We believe that the goods and services tax is appropriate. It taxes the net increase in the service delivered to the consumer and is appropriate for the airline industry.

Let me give you some examples of taxes with regard to the taxation of inputs.

One of the key ones that we have is fuel excise taxes. These are charged on our fuel, and they are not a recoverable tax. They are paid, and on top of that you have other taxes: provincial sales taxes and provincial excise taxes. Again, those are not recoverable by the airlines. They are a tax paid and, as a consequence, they have a tendency, because they have to be recovered by for-profit enterprises, to be recovered from the public. This puts our operations at a disadvantage to other jurisdictions, most notably the United States of America.

Senator Doyle: Following up on that, do you think that the air transportation industry, for instance, maybe should be taxed on a more level playing field, say with bus or rail or maybe with its international counterparts?

Mr. Skrobica: From our perspective, we believe it really should be done vis-à-vis our international competitors. We have seen a major transfer of passengers in areas that border the United States to American airports because it is cheaper to travel from a border community, be it Buffalo or other communities that border Canada, to other communities inside the United States. It makes our industry less competitive.

Senator Doyle: I was just wondering about something. Regarding all of these airport fees, rents and what have you, how would you feel if government decided tomorrow to eliminate all of those industry costs and have them funded through general taxation, as they do, say, in Amsterdam? I think they do it that way there.

Mr. Skrobica: We were supporters of the GST, and presumably are of the HST as it continues to evolve across Canada. We felt that the GST was an appropriate means of taxing our industry. We feel that industry-specific types of taxes, such as the fuel excise taxes, discriminate against us vis-à-vis our international competitors.

Mr. McKenna: If I may add to that, it is something that would be very desirable, but we consider it probably unlikely, as the federal government takes in about a billion dollars a year from our industry, outside of GST and all of those things. It takes in about $100 million in excise tax, about $600 million in the Air Travellers Security Charge, and $350 million or $300 million from the airport rent. That is a billion dollars a year in the government's coffers, and I do not think the government will sort of let go of that revenue; we are being quite realistic in thinking that is not about to happen.

However, there are other ways the government could help us become more competitive, but we do not think that airport rents and all those things are very high on the government's agenda.

Senator Doyle: Okay. Thank you.

Senator Merchant: Good morning and thank you. Many of the things that you said this morning we have heard more than once. The chair introduced me as a senator from Saskatchewan. For places like Regina and Saskatoon, which are the two major centres, we do not really have very good service. Do you have some ideas as to how we could get better service? By that I mean that from Regina, for instance, which is the capital of our province, we cannot fly directly to very many places. We have to go through Toronto, Winnipeg or Calgary.

Non-stop flights are difficult to get. There is a flight that they added from Saskatoon and a different one from Regina, for instance, that flies directly to Ottawa and then, I think, carries on to Montreal. However, it is available only during the summer months — mid-May to mid-September — because those are when there are more travellers.

What is the solution for people like us and business people who are coming in and out of Regina? Our province has more activity because of all our resource industries. What are your suggestions? To whom can we appeal for better service?

Mr. Skrobica: You are right to note that you get more services as more people travel, and you have that generally in the summertime. Some of the things that we are talking about with regards to the reduction in the taxes would help lead to reductions in airfares. With that, the airline industry uses a rule of thumb that a 1 per cent reduction in airfares generally results in a 1 per cent increase in passenger traffic. With more travel, there will be more choices automatically because the airlines will serve their needs on that basis.

In the short term, without the reductions in the industry-specific taxes, I cannot offer you much hope for an immediate increase. The best that we can do is to see smaller-gauge or smaller aircraft serve more direct routes. We now do have small aircraft that can serve longer routes and, as a consequence, provide you with more direct service.

Mr. McKenna: You can console yourself with the fact that most of your colleagues around here, be they from Quebec or Newfoundland and Labrador — did I get that right?

Senator Doyle: Yes.

Mr. McKenna: — are in the same situation. Ask the senators flying out of Quebec City; there are very few direct flights out of there to any other major airports in Canada, other than Montreal, of course. It is very difficult for the airlines to balance that. You are not alone in that situation.

Senator Merchant: I understand that, but Canada is a vast country, as you know. Therefore I do not feel so bad for people who live in the triangle because the distances are smaller. Even if they have to make a change, I still think they have more frequent flights. However, I think there are only two or three flights a day out of Regina, one in the morning and one in the evening.

It takes longer to get here. Sometimes it takes six or seven hours to get from Regina to Ottawa. I do not think it would take six or seven hours for my colleague from Quebec City to get to Ottawa. You could drive it, as well.

We are farther away. It is frustrating. We complain a lot, but we do not know to whom we should complain; we just complain to each other. Thank you very much.

Senator Mercer: As the chair has mentioned, if this is not the last hearing we will have then it is one of the last hearings, but it was worth waiting for. I want to thank you for one of the best reports and best presentations that we have seen. You have given us five very serious and very doable recommendations. Perhaps when the government considers your recommendation no. 2 — that the Minister of Transport hold a national summit or at least stakeholder consultations — the minister might even consider charging this committee with that responsibility sometime in the future, since we are already halfway down the road and familiar with the topic.

Now I will ask my questions. It strikes me that airport governance is a bit of a shell game; it talks about moving the blame around, but the blame never rests with them. I notice that certain airports — one of which might be within 10 kilometres of where we sit — have signs up now in the baggage areas that baggage delivery is the airline's responsibility. Everything is somebody else's responsibility other than the airport authority's. I would suggest that the running of the airport is the airport's responsibility, whether it be from the time I come in the front door or from when I come in at a gate. The airlines are a part of that, but I find that very curious.

You talked about AGMs, and this is the first time we have talked about this in this report. They are supposed to be open to the public. I try to pay attention to what is happening, and I do not remember seeing a notice in my community to attend the annual meeting of the Halifax International Airport Authority. Are AGMs supposed to be published? Are airport authorities supposed to invite people?

Mr. Skrobica: Generally, the airports publish it in the newspapers in advance of an annual general meeting, and generally they are public. I can speak to the Ottawa airport, which regularly publishes it in both of the two major local papers.

The unfortunate fact of the matter is that very few people attend these meetings.

Mr. McKenna: If I may add to that, I have seen too many instances where notices were published 48 hours before the AGM. In other words, "We are telling you to be there but we do not want you to be there."

Senator Mercer: I think this goes to your other point that the National Airports Policy says that the Canadian airport authorities must have a performance review conducted by an outside reviewer at least every five years. Then you go on to say that you cannot get copies of these reviews. It is a bit silly to have the review if the major stakeholder, or two of the major stakeholders, do not have access to that. The principal stakeholder is the public, who are paying in that they are either paying through their ticket price or through their taxes.

It should be a definite recommendation that we make that these reports be made public in due course, though not necessarily immediately as they are presented. Would that sit well with you?

Mr. McKenna: Not all airports have the same policy towards those things. Some people are much more open and transparent than others. However, these reports are paid for by the federal government. Therefore, they should be available through the ATIP process, but there is a dispute there. If you try to speak to the Transport Canada people about that, they draw a blank. They refer back to the airport, and the airport says they are not atypical, so take a long walk off a short pier, basically.

Senator Mercer: As an opposition member, it would be easy to say that the government should get rid of the fees, but as a realist, and as this is the Senate, not the House of Commons, we are supposed to think about things with a little more detail. If the government were to remove some of these burdens on airports, airlines and thus air travellers to generate extra travel that we know is going south of the border, do you have any idea where we could supplement that income? The government, as you said in your own presentation, cannot give away $1 billion worth of income without knowing that in some form there will be $1 billion generated in taxation somewhere else to offset it. The government is running a huge deficit as it is.

Mr. Skrobica: There is one area that we could look to. There are approximately 4.5 million to 5 million passengers that travel from south of the border. If we could encourage those people to travel from Canada, all of those tickets are eligible for GST or HST, and that would make up a large chunk of the revenues foregone by eliminating some of the direct taxes and would make the pain of giving up, for example, a fuel excise tax more palatable to the government.

Mr. McKenna: The Canadian Airports Council claims it is closer to 7 million people who cross the border. The problem lies in the fact that the government does not believe that any of those savings will be passed on to the passengers should it cancel airport rent. That is a viable fear. One can be afraid of that. If you do that, you must have a mechanism to ensure that the savings are transferred to the passengers. It is easy to say it will not be transferred and therefore we are not doing it. However, the mechanism can be set to ensure that it is transferred.

Senator Mercer: I think you are right on. One of the issues is that we talk about removing these things but without any guarantees that the consumer gets a cheaper ticket price in the end. Whatever we do, we have to address that issue, and that is where I come from, ensuring that consumers have an opportunity to have a reduced price so they can travel more and at a more economic rate.

[Translation]

Senator Boisvenu: Mr. McKenna, Mr. Skrobica, thank you both for your report and brief, which were very thought- provoking.

In your report, the words "lack of transparency" come up often. The complexity of the issue lies in the fact that municipal or provincial organizations are managing airports, but they are doing so as if they were private. I feel that the situation is somewhat contradictory. Our municipal or provincial governments are managing taxpayers' money, and they usually do that in a very transparent manner. Canadians want to know where their taxes are going.

When it comes to airports, since a large amount of tax is involved, Canadians obviously want to know where that money is going. Have I understood your brief correctly?

Mr. McKenna: Of the 700 Canadian airports, 26 are still the property of the federal government, the airport management system. The government is still the sole owner of those airports. We are talking about leases of 60 years and over, whose management is being transferred to regional entities. Other airports, such as the Saint-Hubert airport in Quebec and northern airports, have been transferred either to municipal governments, private companies or commercial corporations.

In the case of the Saint-Hubert airport, for instance, the government included a clause whereby the owners must use it as an airport for ten years. After that, they can do whatever they want with the land. That ten-year period is ending next year, and I am willing to bet that, in three or four years' time, the Saint-Hubert airport will have been sold off to entrepreneurs and will no longer exist. That is one of my concerns. I have written several articles on the topic and would gladly send them to you. The government has washed its hands of those airports, and I am saying that someone should be held accountable. Those airports are actually managed by municipal or other entities.

The 26 national system airports I identified earlier are subject to the regulations, the board of directors and public general meetings. Those airports, which serve over 200,000 passengers a year, are the most strategic ones.

So we are concerned about them because they are key airports. Other airports are also a source of concern for us because some of them are strategic and important to regional development. We do not want a municipal administration — which does not believe in aviation — to suddenly want a specific sector of its region to develop more and to decide to get rid of that airport because, once the airport is gone, it will be too late. So those are our concerns.

Senator Boisvenu: Do you suggest any particular model when it comes to airport management, regardless of who is charge? Are you more inclined toward a privatization approach or a public-private partnership?

Mr. McKenna: The administration of the 26 national system airports was privatized. Those airports remain the property of Canadians. The government clearly has a responsibility to ensure their sound management. The situation should be monitored more closely.

Regarding other airports, the government could simply establish some guidelines, set the course to follow, without necessarily getting involved in the management.

Senator Boisvenu: Billions of dollars are being spent at airports, especially at those 26. For instance, the amount of money spent at the Montreal airport is huge. Perhaps infrastructure was built that cannot be maintained.

Mr. McKenna: Exactly.

Senator Boisvenu: That places tremendous pressure on ticket sales and makes those airports unable to compete with American airports. We must break this vicious cycle, where a great many Canadians go to the United States to fly. That puts even more pressure on Canadian airports.

Mr. McKenna: The model must be reviewed. Most of the time, an airport's biggest source of revenue is its improvement fee. Airports, especially those in the national system, are all not-for-profit; they cannot make profit and must therefore reinvest money. That is an amazing source of revenue. Those people are investing more and more. However, the revenue from those airport improvement fees cannot be used to support operations, but it can be used for capital investments. The problem is that large airports, which are expensive to maintain, end up increasing other fees, thus becoming uncompetitive.

Senator Boisvenu: You say that the government has delegated airport management to private organizations that are not accountable to Canadians. They must ensure that the investments made are in line with travellers' ability to pay without constantly increasing the gap between ticket costs for Canadian and American travellers. How do we find a way out of this?

Mr. McKenna: In our brief, we say that the government must assume some of those responsibilities.

[English]

Senator Greene: Thank you very much for coming. I have been enjoying your presentation. With regard to your first recommendation, that the government appoint a national supervisory body or person to oversee the long-term management decisions of the Canadian airport authorities, I like your intent very much. I agree with Senator Boisvenu that these are mainly provincial or municipal businesses, and it seems to me they are more like public utilities in a way. Your recommendation would lead to a little more bureaucracy. What are your thoughts regarding having provincial utility review boards manage them?

Mr. McKenna: Regardless of how it is done, our first intent is to ensure that these assets, which belong to the Canadian public as far as the 26 major airports are concerned, are protected. The government needs to ensure that.

As for those airports that have been transferred to other authorities and other interests, guidelines could be established for how this management could be done without necessarily getting involved in the management. However, if a city, for example, that owns an airport decides they do not need this airport anymore because they make more money by selling off the land and building complexes, that is an important asset to that region; that is one sacrifice that is gone for good.

We are saying that the government should establish some kind of a supervisory role or a process by which this decision can be made and approved by the federal government. I am not telling the federal government, by any means, certainly not Transport Canada, that it should get involved in any of the management of these things. We have problems enough as it is. All I am saying is that these people should be told, "We have given you an asset to manage or to own, but we expect you to do so in the proper manner, and if you are going to change the mandate or the mission of that territory, you just cannot do it overnight; it must go through a process."

Senator Greene: Would you think that provincial utility review boards would be equipped to handle that?

Mr. Skrobica: They would be, in the case of airports that are not Canadian airport authorities. Canadian airport authorities are still owned by the federal government. There is a role for the federal government to play, obviously, with respect to those 26 airports.

For the smaller ones that have been transferred to provincial control or municipal control, yes, an oversight mechanism that is administered by the provincial government would be entirely appropriate.

The Chair: I have a supplementary.

[Translation]

The Chair: Mr. McKenna, Quebec has no board in the pan-Canadian sense of the term. If you have a problem with a Montreal airport and one of your members has a problem with the airport's manager, where will you go to appeal in the case of an impasse, where negotiation is not an option?

Mr. McKenna: Before the courts.

The Chair: There is no system either at Transport Canada or at the Quebec department of transportation. So your members automatically have to go before the courts.

McKenna: That was the example I gave earlier. A number of airport authorities increased their rent by up to 200 per cent. People knocked on Transport Canada's door and were told that the department was closed. Those people had to turn to the courts or arbitrators to try to resolve the issues. No authority deals specifically with airports.

[English]

Senator Unger: My questions have been already asked. Thank you, gentlemen.

[Translation]

Senator Maltais: Mr. McKenna, you said earlier that many Canadians go to the U.S. to fly. It is clear that this is a matter of cost for them. However, Canada collects a tax passengers are uncomfortable with. I refer to it as "prisoner's tax."

When we get off the airplane and enter the airport, we are asked for $25 or $30 for airport improvement. I went to Vancouver, and I thought the airport was very nice. I did not see why I had to pay, but I did not have any choice if I wanted to come back to Montreal. Once in Montreal, I had to pay again. I am thinking that, if they do not have the means to maintain an airport, they should tell us, so that we can take the train.

That tax is difficult to swallow because, when we buy a ticket, we are not told about it. It is the little things that anger consumers. They are informed once they are already in the funnel and cannot turn back. When travelling to Cuba, we are told that we must pay a tax to exit the country; that is clearly indicated by travel agencies. However, when we travel in Canada, we are trapped. Consumers tell themselves that, if Canada steals from them, next time, they will use American companies. That is one of your problems because the "prisoner's tax" is hurting you.

If you cannot afford airport repairs, tell us, so that we can launch a fundraising campaign and make the repairs or not, but at least we will know in advance. There is nothing worse than falling into this trap.

Mr. McKenna: You are referring to airport improvement fees, which should normally be included in the price of your ticket. It may not be specified, but those fees are included in the price you pay for your ticket. You are not supposed to be asked to pay an additional fee at the airport for that. However, if that is the case, you are being had for a second time.

When you buy your ticket, the airport improvement fees are automatically added, and the amounts vary from airport to airport. The airport decides what the amount will be. It may vary between $15 and $30, each way, depending on the Canadian airport.

Senator Maltais: How many consumers know that they are paying that notorious tax? I cannot grasp the fact that the company you are flying with not only collects other taxes, surcharges, a counter tax and baggage fees, but also collects an airport improvement fee. I should not be paying to improve the Vancouver airport if I go there once.

[English]

Mr. Skrobica: You are referring to not just the airport improvement fee but also all the other ancillary charges. Recently, the Canadian Transportation Agency promulgated new regulations with regard to airfare advertising. All airlines that operate in Canada are now obliged to include not just the airfare but also the ancillary charges. If you purchase your ticket by way of the Internet, you will get a breakdown, generally, of the various charges before you press the button to purchase your ticket.

With regard to the airport at Vancouver, they undertook two series of very extensive additions and renovations at that airport. They borrowed significant amounts of money. We are talking hundreds and possibly a billion dollars overall. That will be paid off over time and it will be paid by way of the airport improvement fee.

If you travel in the United States, there are similar charges to the airport improvement fee. It is called a PFC in the United States, a passenger facility charge. It is less, and it is less because the American government invests in their airports, whereas in Canada the Canadian government takes more than $300 million out from the airports. There is a consequence to that, and it is your prisoners' tax.

[Translation]

Senator Maltais: You should advertise to explain this to Canadians. You should tell them what the real cost of a plane ticket consists of. Canadians may prefer to use the services of Canadian airlines. Currently, Canadians compare the prices between the United States and Canada and do not really care about improving your airport. What matters to them is what is left in their pockets. You have a duty to inform Canadians of what the cost of a plane ticket includes. Taxes, costs, improvements, glasses of water paid between Montreal and Washington must be accounted for. Those types of things discourage Canadians.

Mr. McKenna: We agree with that.

Senator Boisvenu: Does the migration of Canadian travellers to American airports result in greater economic losses than what the federal government receives in taxes?

Mr. McKenna: That is difficult to gauge. But we do feel that, by becoming more competitive, Canada's aviation industry will attract more travelers. We think that, in the medium term, the government will compensate with a more viable and profitable industry that will generate more revenue for the government in taxpayer dollars. However, I could not tell you whether there is an automatic one-to-one cost.

Senator Boisvenu: Has your industry calculated the cost of Canadian travellers migrating to American airports? I ask because, if we mean to convince policy makers to reduce taxes imposed on travellers, we will need real figures to determine what kind of losses are stemming from the current taxes. Without that information, we could end up working with undocumented hypotheses.

[English]

Mr. Skrobica: We have not conducted an economic study on the loss of passengers who go south of the border to travel. However, the Canadian Airports Council has a study with numbers on the economic loss to Canada. That would provide support to any Senate recommendations dealing with this issue.

[Translation]

The Chair: I asked the clerk to contact the association to ask that it provide us with the current figures on the number of transborder passengers.

I do have another question. We know that the reason passengers cross the border is not the service or the desire to go to the United States. They do it because they expect to save money. But when four million passengers have gotten used to crossing the border — going to Burlington, Plattsburg, Buffalo or Bellingham — even if the taxes are abolished and airport fees reduced, do you think all those passengers will easily come back to Canada?

Mr. McKenna: It is easier for someone living in Windsor, Ontario, to cross the border than to get to Toronto to catch a flight. Certainly, we will not be able to regain all those passengers, but on the flip side, there are Americans who cross the border to take direct flights, and we have few statistics on that category of passengers.

Last year, the Canadian Airports Council released a study on a so-called missing Canadian airport. According to the report, Canada's lost passenger traffic was equivalent to an average-sized Canadian airport. The Council released a slew of figures that you can consult. I just cannot remember them off the top of my head.

The Chair: The example they used was that the 4 million passengers in lost traffic — and this was 18 months ago — represented the volume of an airport the size of Ottawa's. Canada's fifth largest airport is across the border. And what bothers me about the introduction of these airport service fees and rental fees is the fact that they are all for minor things. When the dollar was at US$1.35, people did not cross the border because there was no parity. But now, with the dollar at par, people have every reason to cross-border shop.

The government has to find a way to capture the fact that it is encouraging Canadian passengers to cross the border and that, eventually, those passengers will not come back. We will not be looking at a temporary financial loss, but a permanent one, and I have to tell you that worries me.

[English]

There are no further questions. We will have our final meeting tomorrow night with Éric Lippé, President and Chief Executive Officer of the Association québécoise du transport aérien. We have no other requests for witnesses, so that will probably be our last meeting with witnesses. After that we will begin preparing our report.

Senator Greene, if between now and tomorrow night the Minister of Transport would make good on his acceptance to appear before the committee, we would be more than happy to have him as a witness before writing the report. However, since we have not had an answer, I leave that in your hands, as my capable deputy chair. I believe it would be better to have him here, but if not we will have to go forward with preparing our report, which I hope we can do in the next two or three weeks.

On another subject, Bill C-52, which deals with railways, is presently in the House of Commons and will be sent to the Senate in the next few weeks. We will deal with that before working on our report.

Senator Segal has requested a study on Radio Canada International and that has been referred to this committee. I will be conferring with Senator Segal today on the options for dates. I will talk with the steering committee about when we will have our first meeting on a draft interim report and about developing a timetable for making it public.

Senator Mercer: Over the break I emailed the chair about a news story that I think raises an issue of great concern to the Canadian economy and that falls directly under the purview of this committee, and that is the water level in the Great Lakes and the effect that will have on transport from Western Canada, Central Canada and through the Port of Montreal. I would ask that the steering committee have a look at this issue for a potential study. I do not know that it would require as lengthy a study as our airport study has been, but it is an economic issue with effects today as opposed to in the long term. Water levels have dropped significantly. If something does not happen soon, we will have problems with getting ships to the canals let alone getting them through the canals. This will affect the economies of Western Canada, Ontario and Quebec. It is important that we address that.

The Chair: The steering committee will be more than happy to study all recommendations on further studies.

Mr. McKenna and Mr. Skrobica, thank you very much for your testimony.

Mr. McKenna: If you do a study on the railways, you will likely get a request from us to appear before you in order to plead for a level playing field among the modes of transport in Canada.

(The committee adjourned.)