Transport Committee on May 7th, 2024

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

Thank you very much for that answer.

Mr. Morrison, we've talked about a lot of things that might lead to better competition. I'm more interested in recommendations from you and from the other witnesses who come to the committee. How do we do things that are realistic and pragmatic to increase competition across the country? We know that for rural and regional areas like the one I live in, in eastern Canada, competition is a challenge. Access is a challenge. The cost of airfares is a challenge because of the small populations and so on. This is despite the fact that government has invested significant dollars in the airport industry and the airline industry over the years through NTC funds.

What do you recommend we do to try to grow competition within the airline industry in Canada?

[Jeff Morrison]

I would refer to some of the recommendations I made in my notes, but to your particular question regarding regional and remote communities, which I know your riding is very emblematic of, I would say two things.

One, I would go back to the point that Mr. Strahl and I were just discussing. I used to work in the health care sector. In health care, the first principle is always “first, do no harm to the patient”. At a time when we're discussing competition for rural and smaller communities, the one thing I would say is let's not make the problem worse by introducing onerous APP regulations, which your premier, other premiers, unions and small airports have all suggested would harm regional connectivity. That would be the first thing.

Second, I believe it was Madam Koutrakis who mentioned that there's also a role for foreign carriers in this. Unfortunately, we've heard from our American counterparts at Airlines for America that due to the high cost of the fee system within Canada, since the pandemic there's been a roughly 50% reduction in the number of American carriers that are flying to non-hub or smaller Canadian airports. That's a reduction in access that we don't want to see.

Overall, I would suggest that we create a more competitive system in which all airlines have the potential to succeed. That's our vision for air travel in Canada. I think that would benefit smaller and regional communities, and to your point, it's also something that would benefit us all.

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

I think it was Mr. Bachrach who made a comment earlier in the meeting about subsidies. Is that something we should consider? I read about WestJet flying from St. John's to London with a guarantee from the provincial government that a certain amount of revenue would accrue to the company for direct flights to Europe, which are critically important to the province and its tourism industry as well as the business community. Is that something we should be considering for other rural parts of the country?

[Jeff Morrison]

You bring up the term “subsidies”, but just to be clear, some of our recommendations are not subsidies, per se, in order to rebalance the user-pay system. Our first recommendation, for instance, to reinvest the $400 million more that the federal government takes in airport rents than it reinvests in the system is not a subsidy; it's simply keeping the money in the system where it was paid. That would benefit all airports. In fact, recent studies suggest that approximately 12% of airport budgets are spent on rent to the federal government, which essentially does nothing for the system.

On the other point about subsidies, again, we're not necessarily calling for subsidies. What we are calling for is a rebalancing of the user-pay system. We don't oppose user-pay.

We look forward to more discussions on this.

[The Chair, Liberal, Peter Schiefke]

Thank you, Mr. Morrison and Mr. Rogers.

Mr. Barsalou‑Duval, you have the floor for five minutes.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Thank you, Mr. Chair.

My thanks to the witnesses for joining us today.

Over the past few meetings, and even during today's meeting, many witnesses have shared their concerns about the financial burden that could come with enhancing passenger rights. That also concerns me, of course, but if we remember the years before the pandemic, in my opinion, we had a problematic system because passengers' rights were not being respected in a clear and consistent manner.

According to a number of witnesses, enhancing passenger rights could reduce competition and lead to higher prices. In addition, we're often told that the European passenger rights model should not be replicated. That makes me wonder, since European air travel seems to be one of the markets held up as an example when it comes to competitiveness and competition.

Mr. Lukács, could you elaborate on that?

Do you think that providing more protection to travellers is an obstacle, or an issue, for competition?

[Jeff Morrison]

I will answer your question in English.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

The question was for Mr. Lukács, but you can answer it as well.

[Jeff Morrison]

Okay. Thank you.

[Dr. Gábor Lukács]

In Europe, we have the gold standard of passenger protection, and we also have substantially lower fares and more competition than is happening in Canada. They don't have to chose one or the other.

In my view, passenger protection actually stimulates competition because it creates a level playing field, if it's properly enforced, that all carriers have to meet, and it fosters innovation to meet a common level playing field.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Mr. Morrison, I understand you want to answer the question as well. I'll turn it over to you.

[Jeff Morrison]

Thank you for the question.

I think one of the challenges we have when dealing either with user-pay or with this question of passenger rights is that oftentimes the discussion becomes very binary—either you support it or you don't. The reality is that with both passenger rights and user-pay, the answers lie somewhere in between.

With respect to passenger rights and the APPR, we don't oppose the APPR regime. What we have very deep concerns about are the proposals that were submitted by the CTA in July 2023, which we believe are not as balanced as they need to be. They do not put safety within the framework, and as a result, the estimates we have seen suggest that the cost to administer under that proposed regime would be so exorbitant that they would have an impact on competitiveness and, as Atlantic premiers and other unions have suggested, would have an impact on prices.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Thank you, gentlemen.

Mr. Lukács, you mentioned that one element could help increase competition in the air sector, namely, promoting an approach that I might call surgical in terms of how certain routes would be subsidized to promote competition, among other things.

I didn't hear you talk about “small player” versus “large player” or “new player” versus “old player”. I'd like you to clarify that.

I wonder if we shouldn't decide to subsidize players like Air Canada to get them to serve certain regions. It's precisely Air Canada that's been widely described as a company that advocates exorbitant fares and abusive business practices in the regions.

What do you think?

[Dr. Gábor Lukács]

Certainly one would hope that those subsidies, if they were implemented, would go to creating new routes, not existing routes, and to airports. However, if we would like to genuinely implement competition and a competition-based airline sector, we have to be blind to which airline is going to take a particular route. If there's a given amount of subsidy, whichever airline can operate a given route in the most profitable manner should be able to operate that route. Hopefully this would generate competition for routes that are currently not profitable.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

If I give you a concrete example, it might help you.

Let's take the case where a regional destination is served by a small player and a large player.

There used to be a program that subsidized all carriers for the price of a ticket for a regional flight by paying the difference between $500 and the total cost of the ticket.

A microbusiness or a very large business could provide flights, because we thought that would help regional air transportation.

In the end, it wasn't the small players who saw an increase in volume, but rather the large players.

In your opinion, should the federal government adopt this type of policy?

[Dr. Gábor Lukács]

Whether it's going to help more large carriers than small is an economic question that requires research and verification by numbers, not just my guesses or anybody's guesses. However, as a matter of general economic policy, I would strongly favour a neutrality toward which carrier is operating the line, as long as no one carrier engages in unfair competition or anti-competitive practices and is selling below cost or using other types of measures.

[The Chair, Liberal, Peter Schiefke]

Thank you, Dr. Lukács.

Next we have Mr. Bachrach.

The floor is yours. You have five minutes, sir.

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

Thank you, Mr. Chair.

Thank you to this panel of witnesses for being here for our questions.

I'll start with Dr. Lukács. You mentioned in your opening remarks that in other jurisdictions, there's a greater amount of data produced on competition. The airlines have to share that data with the government, which then provides it publicly. It reminded me of the testimony the committee heard on people with disabilities and the accessibility of the air transportation sector, and the fact that in the United States, there's more data about complaints that the airlines have to make available to the federal regulator.

Is this a more general trend that we see when we're comparing Canada's air sector to those of our peer countries around the world? Is there less data made available by the airlines on which we can base policy?

[Dr. Gábor Lukács]

Unfortunately, that's very true. This secretiveness around airline data seems to be a Canadian problem, both in the area of disabilities and in other economic activities. What I would add is that it would be in the public interest to have a greater level of transparency, because if all that information was public, it would enable businesses to make calculations and do economic planning, not just at the government level, but also at provincial, municipal and local levels.

To give you an idea of how bad the situation is right now, if I want to know how many passengers or cargo were moved between Toronto and Newark, I have to go to the U.S. websites—the U.S. Department of Transportation or the transportation statistics website—and get the data from there. From Stats Canada, I have no way of getting it.

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

I believe you listened in on the last panel. We heard from Transport Canada that there are certain statistics they look at when measuring competition in the Canadian air sector, particularly those established by ICAO.

Are you familiar with that methodology? How does it compare to the one you've recommended?

[Dr. Gábor Lukács]

I'm not sure which exact methodology they are referring to. It would be helpful to see it. I'm hesitant to comment on it without seeing it.

What I can tell you is that on-time performance, in my view, is not a methodology for measuring competitiveness or market concentration. What you need to look at is how many firms are serving a given market. You need to look at the global market and you need to look at per-route fragmentation in this sense. There are models and complicated statistical methods to calculate quantities of how strong or weak competition is, which you don't do based just on on-time performance. I can assure you of that.

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

Thank you for that.

Turning now to Mr. Morrison, I find the issue of airport rent an interesting one. You've said you support the user-pay philosophy. Other witnesses we've had have been less supportive.

If you support the user-pay philosophy, isn't paying for rent part of that? The airports are set up as stand-alone financial entities. The land doesn't belong to the airport authority, so if the land was to be provided for free or if the money was going to be given back, to me, that looks like a public subsidy.

[Jeff Morrison]

There are two points. On airport rents, we believe that a $400-million subsidization of airports and passengers by the federal government for land that was transferred is unacceptable. In the last panel, you discussed slots and the concerns about airport capacity and how it's unable to grow. We feel the time is right for those monies to be returned.

Going back to my point about user-pay, interestingly, a couple of weeks ago, one of my neighbours said, “I don't have kids. Why should I pay education taxes?” I don't have kids either, but my answer was that an educated population benefits us all. I would say the same thing about subsidies. Although we're not calling directly for subsidies per se, what we are saying is we need a rebalancing of the user-pay system because of the impact that air travel has on all of us, not just people who fly.

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

My question was less about whether we should subsidize airports. I think that's a separate policy consideration. The question was whether free rent or reinvesting the rent amount back in airports constitutes a subsidy. In my view, it does because the land is owned by the federal government and the airports are tenants. I believe this committee has voted, if I recall correctly, on a recommendation to support reinvesting those rents back into airports, so really it's more about the philosophy of the user pays.

I take this with a grain of salt because at the same time, we're trying to invest in a larger passenger transportation infrastructure in this country. We heard from WestJet, and they said that the days of the bus and the train are behind us. It's all about airplanes now. That's where the subsidy should be going. A lot of Canadians don't see it that way, so I guess the question before the committee is how we balance out public investment in transportation.

There's no denying that airports and air travel are an important part of our country and our economy, but you're asking for regulatory modernization, which in my view is usually a euphemism for fewer regulations, lower fees, the rent to be invested back and no protections for air passengers or weaker protections for air passengers.

It seems like a lot. Is there anything else on the list?

[The Chair, Liberal, Peter Schiefke]

I wanted to let Mr. Bachrach conclude his thoughts. We don't have time for a response.

Colleagues, in order to meet our one o'clock hard stop, I'm going to be providing two and a half minutes to all members for the second round.

We'll begin with Mr. Williams.

The floor is yours, sir.