Transport Committee on May 7th, 2024

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Hutton.

Thank you, Mr. Barsalou‑Duval.

Next we have Mr. Bachrach.

Mr. Bachrach, the floor is yours. You have six minutes, sir.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Thank you, Mr. Chair, and thank you to our witnesses.

I'll follow the same line of questioning that Mr. Barsalou-Duval did.

The region I represent in northwest B.C. includes more than three airports with daily scheduled service, but these are small airports flying to Vancouver mostly. The region has seen a real lack of competition, and as a result, the cost of flying from northern B.C. to Vancouver can be as much as flying from Toronto to Europe. This is an issue that affects a lot of families. We lost the Greyhound service, and the passenger train isn't reliable enough to serve as regular transportation for a lot of people.

Many people approach me and ask me why the air service to the region is so expensive. Since the deregulation in the 1980s, competition was supposed to be a panacea for driving down prices, yet many of these markets are simply not large enough to support multiple carriers. We see what looks like price gouging to a lot of people, but essentially the airlines can charge whatever they think the market will bear. People have to travel. There are many non-optional reasons for travel.

Maybe I'll start with the question on the 1980s. They were a long time ago; we're talking 40 years. What did the regulations at that time look like, and how did they affect these more remote regional markets?

[Craig Hutton]

The question of regional connectivity is an important one, as I mentioned earlier, that we've been studying carefully to see the dynamics at play. There's no doubt that it's expensive to be travelling intraregionally, or trying to fly to your nearest hub airport, where maybe you're able to fly onward to another destination. That is a concern for travellers, there's no question about it, and the price differential has been a feature in Canada for quite some time.

There are a number of things behind that, including the cost of operating small air services. Of course, you're not spreading the cost of providing those services over a wide base based on the number of passengers you might be carrying. You have the price of operating the aircraft. Fuel charges today are very high, and that's a very difficult cost to manage for airlines. At the same time, you're spreading the costs of a pilot, staffing the plane and maintenance over a much smaller base of passengers, so there are a number of factors at play in the ticket price.

Certainly, competition does help where we see competition—

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

What I'm getting at is, what regulations were in place up until the 1980s that ensured affordable prices and adequate service delivery in rural regions? You mentioned deregulation and the emphasis on competition, but this was 40 years ago, before my time. What did those regulations look like at the time and how did they protect regional markets?

[Craig Hutton]

As you're alluding to, there was a regulated market in the past, and we ended up seeing that certain routes had to be provided, given that it was a regulated market. At the same time, in that regulated market, we saw there was a lack of innovation. Also, in terms of providing a guarantee of service, there wasn't necessarily competition either, because it was a regulated market where one service provider was able to use a route as a result of it being regulated.

Certainly we can provide the committee with a bit more information on what that regulated market looked like specifically, and to your point, we can also provide information with respect to the dynamics of regional markets, to the extent that we know that today.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Is the only option that the government step in and essentially subsidize these carriers to provide service, as in the example of Quebec? It seems that in the case of both Greyhound and the regulated air sector prior to the 1980s, there was a bit of a social contract whereby companies got access to the very profitable larger volume routes in exchange for providing basic service to communities with very small markets. Certainly, that was the case with bus service in this country, but the government has moved away from that interventionist approach towards this idea that competition is going to save us all.

It seems like the big loser here in both cases is rural Canada, because rural Canada's small markets aren't as profitable, and when there are decisions to be made—and we saw this during the pandemic—theirs are the first routes to get cut. How does the government intervene on behalf of rural Canada to say, no, this is an important part of the fabric of our country and we're going to stand up for rural people and ensure they have affordable basic transportation? I would say that right now, people have worse passenger transportation in northern B.C. than they have had in 70 years.

[Craig Hutton]

The dynamics you're pointing to in the small markets are difficult for small players. As I mentioned earlier, that cost base is much smaller. Demand has not returned to the levels that we saw prepandemic. Labour has become more of a challenge, I think, not only for the air industry but for many sectors of the economy. All these dynamics are playing out and are featured in the way that the member is referring to.

The model I referred to of what Quebec is doing is instructive for us. That's one way that perhaps has results, and we'll have to see what the ultimate conclusion of their actions is in subsidizing the price of a ticket. Others around the world may subsidize a route to get a route guarantee. I was recently in Lithuania, for example, where certain routes into other areas of Europe are paid for by the government to inject—

[The Chair, Liberal, Peter Schiefke]

I'm sorry, Mr. Hutton. I'm going to have to cut you off there. Mr. Bachrach does have another round, so perhaps he'll want to follow up on that and allow you to explain a little further, but I do have to go on to our second round.

For that, I will begin with Mr. Muys.

Mr. Muys, the floor is yours. You have five minutes, sir.

[Dan Muys, Conservative, Flamborough—Glanbrook, ON]

Thank you, Mr. Chair.

Thank you to the witnesses as well.

The government's plan is to show all fees and taxes on airline tickets, for transparency to Canadians. Will that include notation of the carbon tax as well?

[Craig Hutton]

In terms of what would be featured on a particular ticket, the carrier would provide a notation of whatever fees they want to demonstrate are making up the ticket, so that question would be better directed at carriers.

What the budget recently mentioned was to ensure that whatever charges are being charged by a carrier separately, for things like seat selection, meals or extra baggage, there's visibility for each of them.

[Dan Muys, Conservative, Flamborough—Glanbrook, ON]

The department obviously implements the policy, and your branch in particular, so I imagine that you should have an answer to that question.

We heard from airport witnesses at the last meeting about the high fees and high costs here overall, which are up to seven times the fees and taxes they're seeing in the U.S. Let me read a quote from one of the witnesses: “Canada has a high and uncompetitive tax and regulatory environment, with high mandatory third party fees.”

I just want to understand that. Is this justifiable? Is there a plan to reduce them and therefore reduce the cost to Canadians?

[Craig Hutton]

Certainly, affordability is something we are quite concerned about and seized with. At the same time, the system in Canada is a user-based pay system, and those who are using the system cover the costs for the running of the system. That particular policy change was made by the government of the day and continues to today. Some of the fees you see, whether they're for infrastructure and terminal development or the provision of security services, are borne by the user of the system.

[Dan Muys, Conservative, Flamborough—Glanbrook, ON]

Are all of the fees and taxes going back into the air ecosystem and none to general revenue?

[Craig Hutton]

It would depend on the specific fee you're referring to. On the security side, security charges go towards offsetting the fees associated with, for example, providing the services of CATSA, but other fees would be mirrored to.... For example, terminal development would be mirrored to the development of terminals, wherever an airport—

[Dan Muys, Conservative, Flamborough—Glanbrook, ON]

Would you agree with the witnesses that this environment is making Canadian air travel uncompetitive compared to other jurisdictions? In fact, a witness went on to say that a lot of U.S. carriers will situate themselves at border airports so they can service the Canadian market, because we're a “low-margin, high-tax” environment with a high regulatory burden.

Regulatory burden is a federal responsibility. They're federally regulated airports, and we're hearing from airlines—the reason we're having this study is that we've seen airlines fail—that this burden is an impediment to the choices Canadians are receiving.

[Craig Hutton]

That's an important question around affordability.

First, being a user-pay system, it relies on those using the system to cover the cost of the system, and second, I would say Canada is not alone in having a fee system to offset costs. Indeed, this is also part of and a feature of the U.S. system, where fees and charges do apply.

[Dan Muys, Conservative, Flamborough—Glanbrook, ON]

I have a minute left. Let me ask one more question.

In the greater Toronto-Hamilton area, two airports are shutting down: Buttonville and Downsview. We have an underutilized airport in Hamilton, which is in my constituency, and the greater Golden Horseshoe is going to increase in population to 15 million people. We have a market there, but what action, if any, has been taken by Transport Canada to ensure the viability of these airports, these secondary airports, so that there are actually more choices for Canadians and therefore lower fees and options?

[Craig Hutton]

I'm very familiar with the member's region, as I'm from Hamilton myself and have been a user of the Hamilton airport. There's a very successful cargo operation there, for example. It fits into a nice niche with Pearson in that it allows around-the-clock flight services. Cargo operations benefit from that, but indeed, as the member is indicating, there is capacity in Hamilton. Anything that helps with regional capacity for the future as the population increases will be important.

I'd also note that in Kitchener-Waterloo, there's expansion, with Flair Airlines, for example, making some significant moves and continuing to see that as an important hub as well.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Hutton. Unfortunately, I'll have to cut you off there. We have no time left.

Next we have Mr. Iacono.

The floor is yours for five minutes, sir.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Thank you, Mr. Chair.

I'd like to thank the witnesses from Transport Canada for being with us this morning.

Mr. Hutton, we've heard witnesses say that Transport Canada favours the large airlines over their smaller competitors.

Can you elaborate on that?

[Craig Hutton]

My apologies. I'm not sure I understand the full context of that question, but if I were to take it at face value, there's not—

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

The large airlines are apparently favoured at the expense of the smaller ones.

Can you elaborate on that?

[Craig Hutton]

On the question of whether we favour larger carriers, the answer would be no. In fact, one of the features that we have to consider broadly in supporting a healthy ecosystem in Canada is that small and large carriers have to be successful to serve these intraregional markets and the larger national markets. You also need airport infrastructure within each of these regions. That's why we look to ensure that the categories of small and large are officially recognized for things like the air protection regime. We also look at large and small airports and their needs. For example, for small airports, we ensure they have funding available to them for safety improvements through our airports capital assistance program.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Is there favouritism, yes or no?

[Craig Hutton]

No.