THE STANDING SENATE COMMITTEE ON TRANSPORT AND COMMUNICATIONS
EVIDENCE
OTTAWA, Tuesday, June 2, 2026
The Standing Senate Committee on Transport and Communications met this day at 9 a.m. [ET] to examine and report on such issues as may arise from time to time relating to transport and communications generally; and, in camera, for consideration of a draft agenda (future business); and, in camera, to examine and report on the local services provided by the CBC/Radio-Canada to consider a draft report; and, in camera, to examine and report on maintenance of activities or essential services in the federally regulated rail and marine sectors in the case of labour disruptions to consider a draft report.
Senator David M. Wells (Chair) in the chair.
[English]
The Chair: Good morning, everyone. My name is David Wells. I am a senator from Newfoundland and Labrador. I ask my colleagues to introduce themselves.
Senator Simons: Good morning. I’m Senator Paula Simons. I come from Alberta, and I live in Treaty 6 territory.
Senator Wilson: Good morning. Duncan Wilson, British Columbia.
Senator Mohamed: Good morning. Farah Mohamed, Ontario.
[Translation]
Senator Quinn: I am Jim Quinn from New Brunswick.
Senator Cormier: Good morning and welcome. I am René Cormier from New Brunswick.
Senator Arnold: I am Dawn Arnold also from New Brunswick.
[English]
Senator Lewis: Todd Lewis from Saskatchewan.
[Translation]
Senator Aucoin: I am Réjean Aucoin from Nova Scotia.
[English]
The Chair: Thank you, colleagues. I would like to welcome everyone with us today, as well as those listening online. I’d also like to welcome a special guest today, 11-year-old Zachary Fathally.
Hi, Zachary. Welcome to the committee and to the Senate of Canada. Zachary is shadowing Senator Mohamed for the day. Senator Mohamed, would you like to give us an introduction on what Zachary is doing with you today?
Senator Mohamed: Sure. Zachary and I met when he was lobbying for the online harms act, and I was very impressed. He wants to become a senator, so today he will be joining me in committee and going to a stakeholder meeting with me. He will then be coming to the Senate and be recognized by the Speaker. And if he still has some fire in him, we are going to put him through the drill and get him to give us some feedback on what he saw today. So, Zachary, you are spending the day with me.
The Chair: It is very special to have you here, Zachary. Thank you.
Colleagues, we are meeting today to discuss the impact on airfares of temporarily suspending the federal fuel excise tax on aviation fuels. With that, I would like to introduce our witnesses for today: from Air Canada, we have David Rheault, Vice President, Government and Community Relations; from the National Airlines Council of Canada, Jeff Morrison, President and Chief Executive Officer; from the Air Transport Association of Canada, Julie Mailhot, President and Chief Executive Officer; and, from the Canadian Council for Sustainable Aviation Fuels, Geoff Tauvette, Executive Director. Thank you for joining us today.
Witnesses will provide opening remarks of approximately five minutes, which will be followed by questions from senators. I invite Mr. Rheault to give his opening remarks, followed by Mr. Morrison, Ms. Mailhot and Mr. Tauvette. The floor is yours, Mr. Rheault.
[Translation]
David Rheault, Vice-President, Government and Community Relations, Air Canada: Thank you very much, Mr. Chair.
Good morning, honourable senators.
[English]
Most importantly, good morning, Zachary. It is a pleasure to have you with us today.
[Translation]
Air Canada is the largest airline in the country and operates the largest global network connecting Canada to every inhabited continent. In total, we serve more than 180 airports worldwide, including 50 in Canada, and are present in nearly 60 countries.
[English]
We are proud to connect Canada to the world and of the important role we play for the economy. Air Canada directly employs over 40,000 people in Canada and, through our activities, supports over 260,000 jobs, including in spinoff industries.
In 2025, we welcomed more than 40 million passengers, and I would like to sincerely thank them for flying with us.
With our regional airline partners, we operate a fleet that includes over 350 aircraft. The fuel used throughout our global operations cost around $5 billion last year, representing about 25% of operating expenses.
[Translation]
The sharp increase in global fuel prices in recent months is a significant external shock to our industry. It places considerable financial pressure on carriers, who must adjust to protect their liquid assets in an uncertain and unpredictable context.
This industry-wide challenge influences how carriers look at capacity, pricing and risk management. In this context, we seek to mitigate as much as possible the impacts on our schedule and protect our cash flow and balance sheet.
To put this in perspective, Air Canada projected a fuel price of about $0.90 per litre this year. However, at the height of the crisis, prices rose to $1.80 a litre. Given the volumes of fuel we use, every one-cent increase in the price of fuel results in an additional annualized cost of $50 million. Depending on how long this crisis lasts, the additional costs will be in the billions.
[English]
Air Canada is working hard to mitigate the impact of these increased costs on our schedule and passengers to the extent that is possible.
[Translation]
At the end of April, when we disclosed our quarterly results, we estimated being able to offset between 50% and 60% of this cost increase in part by reviewing our capacity and increasing prices. As a result, we have reduced the offer period of some seasonal routes and adjusted capacity on others. To be more specific, higher fuel prices have affected some less profitable routes.
[English]
The federal government’s suspension of the fuel excise tax is a welcome step in the right direction and sends a positive signal. However, the excise tax is 4 cents per litre and applies to fuel used on domestic flights. For us, the value of the reduction represents about 0.5% of our total fuel cost last year.
With respect to fuel supply, which I know has been widely questioned in the media, I would like to underline that we are very confident in the supply in Canada and abroad. In Canada, we have significant infrastructure and inventory, and we count on strong supply fluidity.
In other countries, we communicate with our suppliers daily to ensure the reliability of their capacity and supply chains. We continue to monitor the global environment but remain highly confident in the consistent supply for our operations.
[Translation]
This situation highlights the impact global geopolitical challenges have on our industry as well as the direct impact they have on our operations. Only airlines with strong balance sheets and real global competitiveness can face such headwinds.
In this regard, we note that this Senate committee published a comprehensive report in 2012 entitled The Future of Canadian Air Travel —toll booth or spark plug?: report on the future growth and global competitiveness of Canada’s airports. This report made a number of recommendations to strengthen the industry while denouncing what it called a “club sandwich” of taxes and fees paid by Canadian travellers.
It has now been 14 years since it was published, and no major changes have been made to review our industry’s competitiveness. Other reports published since have made similar recommendations.
This is the best way for the government to ensure air carriers can continue to provide the connectivity that is essential to our communities, our economy and, more broadly, to Canadians.
Thank you.
[English]
Of course, I will be available for your questions.
The Chair: Thank you, Mr. Rheault.
Mr. Morrison.
Jeff Morrison, President and Chief Executive Officer, National Airlines Council of Canada: Good morning.
[Translation]
Thank you, everyone.
[English]
For those unfamiliar with the National Airlines Council of Canada, or NACC, we are the trade association representing Canada’s largest passenger airlines: Air Canada, Air Transat, Jazz Aviation LP and WestJet.
Thank you for inviting us to discuss fuel price increases and the temporary suspension of the federal aviation fuel surtax.
[Translation]
I will say upfront that NACC strictly adheres to federal Competition Act guidelines which prohibits discussion of commercial pricing strategies or practices amongst members, which imposes limits on what I can discuss.
Over the past few months, Canada’s aviation system has witnessed a number of geopolitical shocks that have had significant implications on Canada’s airlines. The oil embargo of Cuba has shuttered travel to that country. Softening in U.S. travel demand has required schedule modifications. There remains a ban on Russian overflights due to the continuing war in Ukraine.
[English]
And, of course, military action in Iran has had unprecedented impacts on oil and jet fuel markets. All these examples are putting significant operational and financial pressures on airlines.
Regarding jet fuel prices, according to the International Air Transport Association, or IATA, for the week ending May 15, 2026, the global average jet fuel price rose 80.5% compared to the previous year. All of that increase has been registered since the start of military action in Iran in late February.
Throughout March and April 2026, that figure was well over 100%; in other words, jet fuel prices had more than doubled. Furthermore, given that jet fuel is more complex and expensive to refine than other fuels, jet fuel’s refining costs have tripled, far surpassing other fuels as far as increased prices, which is why aviation is being hit harder than other sectors.
For airlines in Canada and globally, fuel typically represents the highest or second-highest budget line item. On average, fuel represents between roughly 25% and 30% of an airline’s expenses. When that one line item doubles in cost, the financial impacts are obvious and significant. For example, a few weeks ago, one of NACC’s members publicly reported $70 million in added costs due to increased aviation fuel prices, which was a 75% increase compared to a year prior.
The temporary removal on April 14 of the 4-cent federal surtax on aviation fuel, which is the fuel used by NACC carriers, was, as Mr. Rheault mentioned, certainly welcome. It was an acknowledgement by the federal government of the challenges facing aviation due to this unprecedented increase, and it has helped to “soften the blow.” However, in the absence of other measures, its impact on fares is minimal.
A rough estimate, as my colleague Ms. Mailhot mentioned, is that the savings of that measure have equated to roughly anywhere from $1.50 to $2 per passenger. Although any saving is welcome, the scale of that relief was negligible relative to the magnitude of rising fuel costs and, therefore, could not materially offset the need for price adjustments, particularly when fuel costs remain extremely volatile. In addition, the federal surtax did not apply to international flights, only domestic; therefore, the suspension of the surtax will have no impact on international flights.
In terms of airfares, although most airlines in Canada and around the world have implemented temporary surcharges, fare increases or have adjusted routes in response to the dramatic rise in fuel costs, these adjustments are continually being re‑evaluated in light of global developments.
[Translation]
It is in an airlines’ best interest to offer the lowest possible prices, as they all compete for the same clients and markets, and we know from public opinion polling that cost is the top motivating factor for passengers. More affordable air travel is a top NACC priority.
[English]
On behalf of NACC’s commitment to improve affordability, in February 2026, NACC released a study undertaken by the renowned economic firm Oxera that measured the impact of lower federal fees and charges using different models and the impacts on such things as airfares, government revenue, GDP and employment. The report emphasizes that the Canadian model of high charges, fees and regulations is one of the most costly in the world. There are ways in which costs to the passenger can be lowered.
We’d be pleased to provide a copy of the study to the committee, and I’d be happy to discuss the findings of the report in more detail.
Lastly, this current fuel crisis demonstrates the need for greater energy independence while also considering climate change implications. In aviation, the answer to both these issues is sustainable aviation fuel, or SAF, which is a low-emitting alternative fuel. I’m sure my colleague Mr. Tauvette will discuss SAF more, but as the co-chair of Canada’s Sustainable Aviation Task Force, I’d certainly welcome a discussion on SAF’s potential.
[Translation]
Thank you, honourable senators. I look forward to your questions.
[English]
The Chair: Thank you, Mr. Morrison.
I now invite Ms. Mailhot to give her opening remarks.
[Translation]
Julie Mailhot, President and Chief Executive Officer, Air Transport Association of Canada: Good morning, Mr. Chair, honourable senators, and Mr. Zachary.
Thank you for inviting me to appear today.
My name is Julie Mailhot, and I am the President and Chief Executive Officer of the Air Transport Association of Canada, or ATAC.
ATAC represents a wide range of commercial air transportation operators across the country, including regional and national airlines, many of which provide essential services to remote and northern communities, as well as flight training units.
I want to begin by expressing our appreciation to the Government of Canada for its decision to temporarily suspend the federal excise tax on aviation fuel. It is a welcome and timely measure that recognizes the significant cost pressures the aviation sector is facing.
However, it is important to fully understand the tangible impact of this measure. The federal excise tax represents only a small portion of the overall cost of aviation fuel. In reality, this measure results in modest savings when broken down by passenger.
[English]
Based on input from our members, the 4-cent-per-litre relief translates into savings ranging from approximately $0.51 per passenger on shorter flights up to $2.37 on longer domestic flights. It is important to note that even these estimates can vary, as it is difficult to calculate a precise per-passenger amount. This is because fuel burn, and therefore total fuel cost, varies based on aircraft type, weight, distance, routing, weather and temperature, making overall fuel expenses inherently variable and difficult to predict.
Fuel prices have been highly volatile. Because fuel is typically priced in U.S. dollars, operators are exposed not only to global market fluctuations but also to foreign exchange risk, adding further cost uncertainty. Prices can also vary significantly by airport, including differences driven by airport fees and provincial taxes.
While any relief is appreciated, this level of savings does not materially offset the sharp increase in fuel costs. Jet fuel prices have risen significantly in recent months and remain unpredictable. Fuel is the largest operating expense for many airlines, and these increases are placing real pressure across the system.
I would also like to highlight an important issue related to aviation gasoline, or AVGAS. Some aircraft, particularly those used by smaller operators serving rural, remote or northern communities, use AVGAS rather than Jet A fuel. As initially drafted, the suspension did not include leaded AVGAS, which raised concerns about unequal treatment across the sector.
The government has since indicated its intention to address this, which we welcome. However, until this is fully implemented, not all operators are benefitting equally from the relief. For many smaller and community-based operators, fuel costs represent an even greater share of operating expenses, and access to relief measures is particularly important to maintaining service.
This highlights the importance of ensuring that policy measures reflect the full diversity of Canada’s aviation sector, especially for operators that provide essential connectivity in regions with few or no transportation alternatives. In this context, while the suspension helps to moderate some cost pressures, it does not translate into meaningful reductions in airfares. Airline pricing reflects multiple factors, including fuel, labour, maintenance and regulatory requirements. At present, these pressures continue to outweigh the modest relief provided.
We have also seen a gap between expectations and reality. Some travellers anticipated lower fares or the elimination of fuel surcharges. In the current environment, however, that is not possible.
Airlines across Canada continue to face difficult decisions. Some are adjusting their networks, including reducing service or suspending routes that are no longer financially sustainable. This has real consequences, particularly for remote and northern communities that depend on reliable air services for access to health care, education and economic opportunities.
While the excise tax suspension is a positive step, it is not sufficient on its own to ensure the long-term sustainability of Canada’s air transport sector. Canada remains a high-cost aviation environment, with a cumulative burden of fees, taxes and regulatory requirements that are ultimately borne by the passenger.
In closing, the suspension has provided modest but welcome relief during a challenging period. However, it is only one part of a broader affordability and sustainability issue. The volatility in global fuel markets, combined with exchange rate pressures, also highlights the importance of strengthening domestic capacity for sustainable aviation fuel. Doing so could improve fuel security and support a more resilient and self-sufficient aviation sector in Canada.
We appreciate the committee’s attention to this issue, and I look forward to your questions in English or in French. Thank you.
The Chair: Thank you very much for that, Ms. Mailhot.
Mr. Tauvette, the floor is yours.
Geoff Tauvette, Executive Director, Canadian Council for Sustainable Aviation Fuels: Senators and Zachary, good morning. Thank you for the invitation to appear in front of the committee today to discuss aviation fuel supply in Canada.
[Translation]
As mentioned, my name is Geoff Tauvette, and I am the executive director of the Canadian Council for Sustainable Aviation Fuels, or C-SAF.
[English]
C-SAF was created by leaders from over 60 airlines operating in Canada seeking to bring together key industry stakeholders and government to accelerate the commercial production and use of Canadian-made, low-carbon and sustainable aviation fuels in Canada. We work collaboratively with the entire SAF value chain to advance SAF production in Canada, from canola farmers and crushers in Saskatchewan to refiners in Alberta, Ontario and Newfoundland to technology and biofuels developers and, finally, the airlines that will ultimately use the fuel.
C-SAF’s mission is for Canada to develop and build this critical industry to not only reduce aviation emissions but also enhance our domestic energy security and provide some protection from geopolitical uncertainty that affects the price of commodities like aviation fuel.
Sustainable aviation fuel is a liquid, drop-in fuel that is safe to use on planes and also reduces greenhouse gas emissions. SAF is made from renewable feedstocks, like canola and wood chips, that meet domestic and international sustainability guidelines.
SAF is critical to the future of low-carbon aviation and is the only technology that can be readily scaled to meet the industry’s needs. In 2023, C-SAF launched Canada’s first SAF roadmap, a plan to build a feedstocks-to-fuels SAF supply chain in Canada.
This plan sets a target of 1 billion litres of SAF being produced in Canada by 2030, which represents about 10% of total jet fuel demand.
Today, however, Canada still does not produce any SAF. We lag in terms of support offered to our SAF producers, especially when compared to the United States. The U.S. accelerated SAF starting in 2022 under the Inflation Reduction Act, where producers received the highest biofuels tax credit of $1.75 a gallon, recognizing that SAF is more expensive to produce than other biofuels.
Furthermore, various states offered stackable procurement incentives, thereby committing to the build-out of the entire SAF supply chain. These incentives resulted in SAF facilities being built in the U.S., which helped support domestic clean energy security for the U.S. while driving home massive opportunities for the agriculture and biofuel sectors across America.
Accordingly, C-SAF has advocated for measures to develop our SAF industry, including, one, an enhanced multiplier for SAF under the Clean Fuel Regulations; two, creation of an investment incentive program to help shovel-ready SAF projects to proceed to final investment decisions; and three, the implementation of a national SAF strategy that includes a competitive incentive package. By doing this, the government will enhance Canada’s domestic energy security and help protect the aviation industry from future shocks.
It is important to note that, today, about a third of Canada’s aviation fuel supply is reliant on international imports, the vast majority from the U.S. and Asia. With no SAF production here, it is a missed opportunity for Canada to onshore domestic energy supply for such a critical industry.
The aviation industry contributes well over $112 billion to Canada’s GDP, supporting over 810,000 jobs across the country when you consider the impact of aviation, associated supply chains and tourism. Without reliable access to a domestic supply of SAF, these benefits will stay grounded in the future.
These were the findings from our impact assessment conducted last year, which I am happy to share with the committee through the clerk.
SAF needs to be a part of Canada’s energy mix to better protect our aviation industry from sudden global shocks, which in turn affect airfares. Unlike other industries, aviation is also bound by international pressures from organizations like the International Civil Aviation Organization, or ICAO, which sets goals and targets for the industry, like the 5% reduction in CO2 emissions by 2030.
As stated earlier, SAF is the only pathway to achieving these reductions, and the sooner Canada starts producing it, the better it will be for our aviation sector. However, the only way to stand up SAF production in Canada is through the use of incentives. Rather than simply extracting raw materials and shipping them abroad to be processed and then sent back to Canada at a higher price, SAF is one of those products where we can keep the entire supply chain domestic, reducing costs and greenhouse gas emissions in the process. Our aviation industry will benefit when Canada has a reliable source of homegrown sustainable aviation fuels.
I once again thank the committee for the invitation, and I look forward to answering your questions.
The Chair: Thank you very much, Mr. Tauvette and all the panel.
We will now move to questions from senators. I advise senators we have approximately five minutes each in the first round, and if we have time, we will go to a second round.
Senator Quinn: Thank you so much for being here today and for the excellent testimony.
When we thought about having this session, it was to do with the temporary fuel charge that was put in place. Air Canada’s was $50; WestJet, $60; Air Transat, $25; Porter Airlines, $40; and Sunwing, $50.
I am trying to get to the number of passengers who have paid that increase. How much has been collected to this point in time? Do you have any idea what that would be? Or, if we look at the period that the tax reduction is in place from April 1 to September, how many passengers would you expect to travel, and how much is forecasted to be collected?
Mr. Rheault: Thank you for the question, Senator Quinn. I want to make sure I understand. You want to know how many passengers will travel during the period when the tax —
Senator Quinn: How many are estimated to travel, yes.
Mr. Rheault: So that would be from May until after Labour Day?
Senator Quinn: April 1 to after Labour Day, roughly, because it was backdated to April 1. I will tell you why I am asking this. I’m trying to get an idea of how much has been collected.
Mr. Rheault: I would have to check, but I would think that, from an Air Canada perspective, it should be somewhere between 20 million and 25 million passengers if the period is five months. We carry about 45 million people per year, but that includes the summer peak. More people travel in the summer. So I would say around 20 million to 25 million. I can check. Obviously, we don’t know until the period is over.
Senator Quinn: Right. Exactly. That’s why I am asking for an estimate. The industry is facing pressures in a number of areas. You mentioned taxes, fees, regulatory costs and salaries, et cetera.
When the government announced this, it was because of the surge in jet fuel costs, so it was very specific. It created a revenue stream to offset fuel costs. The surcharges came in because of fuel.
Right away, I thought: Has there been a reduction of any sort in that $60, $50 and so on in recognition of a new revenue stream for the industry? Yet, this morning, I’m understanding that there are other cost factors that are driving prices, which makes me think that the industry, which is under all kinds of cost pressures, should increase the basic cost per ticket per passenger, rather than having a special fee.
The public, I would think, expects that that collection is to offset fuel costs, not any other costs. We just had settlements of salaries and other costs. I appreciate everything you said there, but the appearance was that it was for fuel. We have done it in shipping and trucking over the years. It has happened before in all sectors.
How do you deal with that? As a member of the public — and we all fly a lot — the fuel tax suspension didn’t necessarily reduce costs. Costs creep up because of all those other factors. Did the government simply give another revenue stream to, yes, offset fuel but also to assist with other things?
Mr. Rheault: The reduction in the fuel excise tax or the — I don’t know how to say that.
[Translation]
I’m talking about the four-month cancellation.
[English]
I’m still working on my English, senator.
Senator Quinn: [Technical difficulties].
[Translation]
Mr. Rheault: Thank you.
Actually, it relieves pressure on air carriers at a time when costs, particularly fuel costs, are increasing very quickly.
[English]
So, for us, we expect to be able to recover between 50% and 60% of these cost increases in just fuel. The suspension of the excise fuel tax decreased pressure on this extra cost, which was sudden and we had to deal with, basically.
Senator Quinn: Mr. Morrison, please.
Mr. Morrison: Thank you for the question. It’s important to put it into the context of what we saw, which was, frankly, an unprecedented increase. We’ve never seen such an increase in fuel prices, not just aviation fuel but, as you know, gasoline fuel prices. Essentially, in March and April, they had more than doubled compared to where they were in, say, mid-February.
As a result, airlines took different strategies in terms of how to deal with that, and, frankly, that was before the suspension of the federal tax. In some cases, routes were cut. In some cases, surcharges were added, as you know. Some airlines in Canada and around the world have absorbed some of those costs as well. And I question the term “revenue stream” in dealing with the suspension because, really, at the end of the day, it was a relatively small offset for what was a very large increase in costs.
As I mentioned in my remarks, that one cost represents approximately 25% to 30% of an airline’s input costs. For any business, if you had to suddenly double 25% of your input costs, that would have a significant impact on your overall budget.
Senator Quinn: As fuel prices come down — we are expecting that, when the Strait of Hormuz gets resolved, et cetera, likely oil could go back to where those prices had been at $75 or $80, whatever it was — will the surcharges be dropped?
Mr. Rheault: Thanks for the question, senator.
When and if the fuel goes down — we all hope it is going to go down. First, that is tough to answer because we have no certainty or visibility on this.
The challenge we have is that it’s a bit of a reverse effect from when the price went up. We sell a lot of tickets in advance. When the fuel price goes up abruptly, it is difficult for us to offset that because many passengers purchased their tickets factoring in a price of fuel that was much lower. We cannot increase fares at the same pace as the fuel increases.
The same is also true when the fuel goes down. We don’t know how long it is going to take to go down and at what pace. Of course, it creates pressure on the industry to reduce pricing. And because we’re in a competitive environment, obviously, you can expect an effect on price, but it is going to take time because the industry will still need to absorb the shock it had in the previous months.
The Chair: Thank you. I have to go on to the next question because we have a timeline that I have already exceeded.
[Translation]
Senator Cormier: This is my concern: How can we ensure savings generated by the temporary measure truly benefit travellers and communities that depend on transportation, while maintaining the impact on decarbonization?
Ms. Mailhot, you talked about two types of fuel for smaller companies and highlighted the government’s openness to this. To fully understand the scope of this measure, could you tell us how the government plans to operationalize this distinction to support these businesses?
Ms. Mailhot: Minister MacKinnon’s announcement on the $0.04-per-litre suspension included the word “unleaded”. The Department of Finance didn’t know that, in aviation, there are still fuels that contain little lead, such as low-lead fuels or Avgas. Therefore, they weren’t included.
Since then, we’ve gone back to the Department of Finance. In the last CRA update, I saw they would now be included. We’re talking about $0.10 per litre, which will make a major difference, particularly for smaller carriers, especially those using propeller aircraft to serve the North.
Senator Cormier: Are there any specific regions that would be affected by this measure if it were adopted?
Ms. Mailhot: This applies to everything in the North or all destinations served by small aircraft, so remote regions or communities that depend on one or two propeller aircraft flights a day.
Senator Cormier: Thank you.
Mr. Rheault, you talked about a reduction in trips. What routes have been cut, particularly for Air Canada? What was the impact on remote routes, at least where Air Canada continues to fly?
Mr. Rheault: Thank you for your question.
Overall, Air Canada has reduced its capacity by about 3% to 4%. However, in the Canadian market, that reduction is more around 1% to 2%.
We’ve reduced frequency on routes where profitability was more precarious and those weakened by this sudden increase in prices. That’s the case for somewhat more secondary routes in the U.S., such as Toronto-Salt Lake City or Toronto-Sacramento, as well as Montréal-New York (JFK), a more incidental airport that we serve in the greater New York region.
In terms of the domestic market, we’ve mostly reduced frequency on some transcontinental routes. They’re longer, so they require more fuel. As an example, for the Halifax-Vancouver and Quebec-Vancouver routes, we’ve maintained connections while reducing frequency. That said, we suspended some routes, such as Vancouver-Fort McMurray and Toronto-Yellowknife, because the distance travelled made it more difficult for those routes to be profitable.
In terms of the Toronto-Yellowknife connection, we’re keeping that route until the end of the summer. Afterwards, to compensate for the reduction, we’ll increase capacity in Edmonton, so the community will still have access to seats. This strategy allows us to offset the situation with a slightly shorter and more profitable flight.
We’ve reached out to communities. I spoke to the ministers representing those areas as well as the mayors, and we informed them of the upcoming change so they could understand the reason for that decision.
Senator Cormier: Obviously, this can have an impact on these regions’ economy. If route frequencies are reduced, it has a major impact on the region’s economy.
Mr. Tauvette, you talked about C-SAF. I’d like to clearly understand what incentives the government should put in place to ensure that reduction doesn’t prevent sustainable development as well as the emergence of new ways of supplying aircraft. Perhaps you’ve already talked about this, but I’d like to hear your thoughts on that.
[English]
Mr. Tauvette: Thank you for the question. Canada has all of the right ingredients to be a world leader in terms of SAF production. We are lucky, compared to other countries, as we have the feedstock and technology to be able to process it into SAF. We have the users, of course, international airlines flying in.
What we don’t have is a national strategy to make it happen. Our focus is that we want to use Canadian feedstock to make SAF; we want to build it here. What is missing is the production incentives in order to help these facilities stand up.
It is more expensive. Obviously, we’re creating a new market. What we’ve been asking for is the government’s help to de-risk these projects, to be able to get financing from the —
Senator Cormier: Is the government closer to that?
Mr. Tauvette: We have been working on it for three years, but we haven’t heard a strategy yet.
We understand, as part of the Clean Fuel Regulations discussions currently ongoing, that there is consideration around differentiating SAF from other fuels, for example. This is why we’ve asked for a higher multiplier under that consultation compared to other renewable fuels.
If we do not differentiate it, people will not make SAF because there is an additional investment and it is a little bit more expensive to make than others. We cannot get to scale unless we have help for production, and getting to scale means that we have volume, a market and cost competitiveness at the same time.
Senator Simons: I have two questions. I hope that you can answer the first one quickly so that I can get to the second.
I make my own flight bookings because I have control issues, so I’m very keenly aware of the price of my air flights. I have been pleasantly surprised that I haven’t seen a huge escalation in prices on the flights I’m booking.
Mr. Morrison, you said that airlines are absorbing some of those costs. As the Strait of Hormuz continues to be closed, is there going to be a point where airlines simply can’t absorb all of these costs and we may see a big spike in prices later this summer or early this fall?
Mr. Morrison: Thank you, senator, for the question. First of all, I can’t, of course, speak to the individual pricing strategies of any particular airline; that would violate competition guidelines.
What I can say is that, of course, the future is extremely uncertain. We don’t know when the situation in Iran will subside. We don’t know when the Strait of Hormuz will reopen. What we can say, as I mentioned in my remarks, is that it is in airlines’ best interests to make sure they have price competitiveness.
So when and if prices will fluctuate is to be seen, but certainly it is in our interests to ensure prices are competitive. And, frankly, it is not just Canadian airlines competing with one another; we are, of course, competing with airlines globally.
To respond to a question asked prior about when we might see some relief in this, I will add that by the time the strait does reopen — again, we don’t know when that will be — there will still be a lag period. Some have estimated roughly six months in order for refining capacity to come back on stream — there has been a lot of damage done to refining capacity, especially in the Gulf — and for supply to move forward. Even if, for example, the strait were to reopen tomorrow, we would still see a lag time period for that to be reflected in the global price for aviation fuel.
Senator Simons: You said that we’re lucky in Canada that we have the capacity to create our own fuel and that you haven’t seen any shortages in this market. But, of course, Air Canada, WestJet and Air Transat are flying internationally. So if you have a flight that goes to Rome and you have to get it back again, you’re having to buy the fuel. You obviously don’t take enough fuel to go there and back. You are refuelling in Europe, Asia or wherever your flights are coming back from.
How worried are you about capacity at international airports? Is there a concern that, whereas we have domestic supply, the international supply is going to run out at a certain point?
Mr. Rheault: Thank you for your question. We are in constant discussion with airports where we operate and our suppliers of fuel in Canada and abroad. We are very confident in our operation for this summer. We are very confident that we have the supply necessary to operate our schedule.
Senator Simons: One more question. I book flights every week, and the prices have remained remarkably stable. I suspect that, for many people who are making their summer vacation plans, they are going to assume that prices are going to go up.
Do you see a pattern either of people booking now for flights in the fall, because they want to lock in their prices, or are you concerned that people may decide pre-emptively that they are not going to fly this summer because they assume that prices are going to be high and that the markets will be softer?
Mr. Rheault: First, thanks for booking flights every week. It is important for us.
Senator Simons: Alas, I can no longer fly to Edmonton from here, so I have not flown Air Canada for two years in any way because you have stripped the Edmonton airport of service. But, yes, I am booking on Porter Airlines every week.
Mr. Rheault: Well, it is good for the industry that people fly.
To return to your question regarding fares, of course, there is pressure to augment the price because of the current fuel price, but carriers also have to take into account the demand factor.
If you increase the price by too much, you will impact the demand, and this is something we don’t want to do because we’re also looking at the long term. It is always a balanced decision how you increase fares versus how you are going to impact the market. That is the approach we’re taking at Air Canada.
Senator Mohamed: First, thank you very much. I didn’t know anything about SAF. I appreciate the learning curve on this.
There’s a lot of blame to go around. People like to blame companies and the government.
One thing that sticks out in my mind is that Canadians want to understand why they are paying more than peer countries. Obviously, we have a challenge around geography. We have a challenge around a number of things. As a senator, I’m sitting here thinking: What can Parliament and the government do to help address that competitiveness factor?
It is cheaper for me to fly to Europe sometimes than it is for me to fly across the country. In a time when we want people to spend more time in the country, that becomes a real challenge for people. Help me understand, from your point of view, what the government can do that will help with the competitiveness factor.
You said that it was between $0.53 and $2.37 per passenger where the break in the tax has actually had an impact. That is not going to dramatically change the cost of airfare. That is just math.
How do we better understand this competitiveness factor? I think it is unsustainable to ask people to travel the way we want to travel to build relationships across the world, either personal or professional, and not be competitive with air travel.
Help me understand what we can do better. I would appreciate an answer. I understand the SAF one; we are not anywhere close to 2030 and 1 billion litres. But if we could understand the structural challenges we could address, that would be great.
Mr. Morrison: Thank you, Senator Mohamed. That still seems odd to say that. Senator Mohamed and I used to work together. That is a bit odd.
Senator Mohamed: He is not passing judgment on my senator appointment.
Mr. Morrison: No, that is from having worked in the same office.
That’s a question we’ve been asking ourselves as well. How do we better enhance the competitiveness of the Canadian air travel system? It is in everyone’s best interests to have a more competitive system.
I will give two quick examples. As both Ms. Mailhot and I mentioned, the Canadian system is one of the costliest systems in the world, in part because we have a user-pay system that puts an extreme amount of costs on the backs of passengers compared to globally, where there is a more balanced approach.
We did a study in February that asked: if we were to adopt other countries’ models of fees, taxes and regulations, what impact could that have on Canadian airfares, GDP, employment and so on?
As one example, we found that if we were to adopt the American model of fees and taxes — to essentially have a similar level of fees and taxes as them — airfares in Canada were estimated to drop 14%. If we adopted a Swedish model, it would be a drop of about 11%.
As well, we looked at one particular regulation, the Canadian Air Passenger Protection Regulations, or APPR, which is one of the costliest systems in the world. We estimated that if the APPR were to be revised, that would also see a reduction in airfare and gains in employment, GDP and so on because the Canadian system is so costly.
There are things that the federal government could do, such as revising the user-pay approach to a more balanced system where passengers are not being asked to bear the brunt of so many costs.
I should add, when I talk about user pay, that in Canada we don’t actually have user pay. “User pay” suggests or implies that every dollar going into the system is reinvested back into the system. That is not the case.
In the case of, for example, rents that airports pay to the federal government, the federal government takes more money than they put into the system. The same could be said for the security charge that you pay when you buy your ticket.
Let’s rebalance that system. Let’s look at some of the regulations that are overly costly, and, that way, we can start putting Canada on a more competitive footing.
Mr. Rheault: To add to what Mr. Morrison mentioned in his opening remarks, the National Airlines Council of Canada did a study that compared costs of flying in Canada versus other countries.
One of the metrics we asked them to look at is the percentages of taxes and fees on what we call economy entry tickets. This is the price you put in the market to stimulate demand. Canada, among dozens of jurisdictions, had the highest proportion — about 33% — of taxes, fees and charges on the total price of a ticket. In the U.S., it is about 18%.
The difference, though, in the U.S. is that all taxes and fees paid on a ticket are put in a trust fund that is reinvested in the infrastructure. In Canada, large parts of these amounts are not reinvested. They go to the government’s general revenue.
To Mr. Morrison’s point, if we talk about the user-pay model, at least all of the amounts collected from tickets should be reinvested in infrastructure. Year after year, that makes a huge difference.
Senator Mohamed: I will give up my time because I think we are running out of time, but who pays is fascinating to me.
Mr. Rheault: We have had appearances and discussions about this with numerous committees and government officials, but I still believe that the taxation system for aviation is based on the premise that aviation is for wealthy people, so therefore it is correct to impose high taxes and fees. Maybe that was the case in the 1970s or 1980s, when we thought that about our system, but this is no longer the case.
Communities need aviation to develop their economies, for immigration and more business exports. It is no longer a mode of transportation for wealthy people. More than ever, it is a mode of transportation to develop our communities and economy, especially at a time when we are looking for trade diversification.
Senator Wilson: Recently, I was reading an article from an interview with, I believe, the CEO of easyJet. I think it was in the Financial Times. He was talking about how they are, very effectively, using price hedging to protect against the volatility in fuel costs.
In his case, they bought forward contracts for fuel for quite some period of time. Obviously, when those run out — and negotiating those kinds of agreements now is not going to be anywhere near those prices — there is a day of reckoning that is coming.
My question is probably for Mr. Rheault and potentially for Mr. Morrison and others who might have an answer. To what extent do Air Canada and Canadian airlines use that tool to protect against volatility in the market, and if you are using it, how much runway do we have, so to speak?
Mr. Rheault: That is a good question. We do hedging. Air Canada had hedging in place when the crisis happened. This helped us to absorb part of the costs, especially in the short term.
To give you a sense of scale, when we issued our financial results for the first quarter, we assessed that, for the second quarter, our average price of oil would be $1.28 a litre. It was down by $0.21 because of the fuel hedging we did before. That helped us for the period when we bought fuel at the higher price and had already sold part of the ticket. It helped us for the transition period.
That said, there is a cost to hedged fuel. We’ve been through many analyses, and if you hedge fuel too much in advance, on average, you are going to lose. For us, we are hedging to absorb costs in a short term, and that helped us for Q2. Now, for the remaining quarters of the year, we have very little hedging, so we will rely more on the ability to adapt to the new market reality.
The highest peak price was about $1.80 a litre. We had hedging in place at that time to protect us from that increase in price.
[Translation]
It’s basically for the transition.
[English]
Senator Wilson: It is safe to assume that we will hit that wall this year. You will be confronted with having to manage that higher fuel cost, and that will have to be reflected in airfares, I’m assuming.
Mr. Rheault: All of this is progressive. We had good hedging at the beginning to help us to absorb the shock while prices were gradually increasing in that kind of transition period. Now we’ve seen the price in the market. We rely on this to be able to continue to offset about 50% or 60% of the costs.
Senator Wilson: Thank you.
Senator Lewis: On sustainable aviation fuel, as we sit today, how much of it is used by Air Canada, for instance? When you go to the States, are you buying it? Are you buying it out of the States, or are you using very much SAF?
Mr. Rheault: For 2025, we consumed 80 million litres of sustainable aviation fuel, which represents 1.6% of our consumption, but almost none of it was produced in Canada because we don’t have domestic supply.
Senator Lewis: Right. When you go to Europe, for instance, and you’re going to get aviation fuel, does it have a standard amount of SAF in it currently, or do you have to ask for it specifically?
Mr. Tauvette: In Europe, it is mandated. There’s a certain percentage of SAF that needs to be sold for jet fuel at the airport. It increases every year.
Senator Lewis: So a mandatory commitment in Canada would certainly help the industry, wouldn’t it, if it were available?
Mr. Rheault: It is tough to be mandated to buy something that is not produced here. Otherwise, you have to import it.
British Columbia is looking at imposing a regulation with respect to volumetric mandates and also the carbon-intensity reduction of fuel, which will force airlines to import sustainable aviation fuel from other countries at a much higher price.
When you compete with a jurisdiction like the U.S., where they took the opposite approach — they have an incentive, not a mandate. They have an incentive to stimulate supply and production and no mandate to enforce it. The right approach is to find a balance.
Ms. Mailhot: Can I add something very important?
A mandate before availability in Canada would kill the small airline because, right now, SAF is about three times the cost of the fuel.
If they are forced to uptake it, even if it is 1% or 2%, before it is actually available in Canada at the right price — we need to ensure we have it. That is why Mr. Morrison talked about the strategy and a plan. We need to have it first. Right now, it is quite expensive.
It is great that Air Canada and other airlines use it, but we cannot use it as a smaller carrier.
Mr. Tauvette: Our impact assessment showed that the competitiveness level of the industry in Canada makes it very difficult to add yet another cost, which is why we have been asking for the incentives.
Different from other jurisdictions, we have the feedstock here. We believe that we should be focused on producing it first, and then we can talk about targets for demand once we see a supply chain being established.
Senator Lewis: You mentioned the fees and so on that we pay, which go into general revenue. Would that money be better spent on putting it towards SAF production?
Mr. Rheault: One hundred percent. NACC made the recommendation a couple of years ago that a part of the money collected from airport rent, which is about $600 million this year, be allocated to develop a new supply of sustainable aviation fuel in the country.
Mr. Morrison: To point out, I know that policy-makers sometimes roll their eyes when industry comes and says that they need an incentive or some help. For most nascent clean energies, there have been catalytic investments made in order to ramp them up and bring them to scale. That is simply what we’re asking for.
As Mr. Tauvette pointed out, Canada could be a world leader in the production. Frankly, almost every airline in the world has committed to being carbon neutral by 2050; therefore, there will absolutely be a demand for this.
If the Prime Minister says that we want to be an energy superpower, this is a clear example of where we could be. There is a market for it. We have everything we need to do it. We just need a bit of that catalytic investment to get it going. Frankly, once prices come down, as they do for most new technologies over time, the need for incentives will be diminished.
Mr. Tauvette: As I said, we import about 30% of our jet fuel requirements currently, so a supply of SAF would actually help for a sovereign supply for increased domestic use.
Of course, we’re looking at diversification for some of these other feedstock uses. For example, this would be a local market for canola, which could be used to make stuff here in Canada as opposed to what has been happening with the effects of the tariffs from China.
Forestry is another area. We’re looking at some of the impacts they’re feeling. We can use some of that feedstock to turn it into something.
We feel like there is an opportunity to share all of those diversification benefits and make SAF a real supply chain market.
[Translation]
Senator Aucoin: Thank you for your answers to Senator Wilson’s questions. You answered my questions about this more environmentally friendly fuel.
You said the U.S. was paying about 14% less, but you didn’t say why it can’t be implemented in Canada or why the U.S. pays 14% less. Can you elaborate on that?
Mr. Rheault: The difference between Canada and the U.S. is that, in Canada, passengers pay for everything related to aviation.
In addition to the security fee, there’s an airport improvement fee. This is a tax passengers pay to use the infrastructures. These fees are added to the airfare and can be as high as $45 per flight, or about $90 for a round-trip, and they are taxable, so we’re talking approximately $100.
Also, airports have to pay rent to the government. That doesn’t exist in the U.S. Large airports have to pay municipal taxes. In the U.S., airports are owned by municipalities, so there are no municipal taxes.
In Canada, the fees charged to passengers represent about 30% of the price of an economy ticket.
Sales taxes are higher here than south of the border. In the U.S., some fees and taxes are applied, including fees for the use of airport infrastructure. The cost is about US$5, which is much lower than the $40 in Canada. Why? Because airports have access to infrastructure development funds which allow them to invest without flipping the bill to passengers.
The same is true for air traffic operations. In the U.S., fees and taxes added to airline tickets are also used to fund air traffic control services, whereas in Canada, airlines are entirely responsible for this service. We have a user-pay system, but we commonly call it user-pay plus, because Canadian travellers not only pay for everything, they contribute to the government’s consolidated revenue fund, but that money’s not being reinvested in the system. That’s why.
Air Canada did a comparative study of the average fare between the U.S. and Canada for a domestic flight. The price differential was about $10. When you add the currency conversion rate, taxes and fees, the difference between the two countries is striking.
Senator Aucoin: Has the report been sent to the government? Is that one of the things you’d like to see or that could be recommended to the government to reduce prices that could increase in the short term?
Mr. Morrison: Absolutely. We shared these recommendations with the government. In fact, they’re in line with your committee’s 2012 recommendations. Since then, House of Commons committees have made similar recommendations.
The latest report on this was commissioned by the NACC, and it was also forwarded to the government.
[English]
The government’s response to recommendations to the House of Commons Standing Committee on Transport, Infrastructure and Communities, in which I recommended that the federal government review its framework of fees, taxes and charges, was that they do intend to do this. We don’t know the timing of that. We don’t know what that review process will look like, but we do understand something is forthcoming. Yes, the data has certainly caught their attention.
I have one quick example of the comparison with the United States that Mr. Rheault was mentioning. It was referenced to us, I believe two years ago, from our American counterpart that American Airlines had reduced their flights to non-hub airports within Canada by about 40% post-pandemic because of the higher cost-and-fee regime within Canada compared to the U.S. Certainly, Americans have recognized the situation in terms of the higher cost environment within Canada.
Back to Senator Mohamed’s point as to what the federal government can do, it is certainly a message that we’ve been delivering. We need a more competitive system, not just domestically but in order to compete with other global entities.
[Translation]
Senator Aucoin: Mr. Tauvette, since the crisis in Iran began, do you feel the federal government is more open to investing in this new fuel, which would be much more carbon neutral?
Mr. Tauvette: I think so, yes.
[English]
Supply sovereignty is much more important, and we’ve seen a lot more interest from the government in terms of making sure that we have a different supply source that’s not fossil-based. That will form part of very important discussions. We have been, for example, in discussion with the Department of National Defence, or DND, as well as they have increased their market requirements for fuels. This would be an interesting opportunity for them as well. Definitely, there is a little bit more interest.
SAF is a liquid fuel that will be around for a very long time. Unfortunately, aviation does not have a lot of options for decarbonization; therefore, this liquid fuel will be in place for a very long time. Compared to other modes of transport that have other options and other opportunities for changing energy sources, aviation does not. We see any investment we make as only growing in the future.
The Chair: Thank you, senators, for those questions.
I want to thank our witnesses. We are out of time. In fact, we are over time, so I thank you for your indulgence to spend a few more minutes. I know some of you have a hard stop.
We will continue our study next week with a final witness from WestJet, and then we will issue a report.
(The committee continued in camera.)