International Trade Committee on Feb. 16th, 2015

[Chrystia Freeland, Liberal, Toronto Centre, ON]

Can we say thank you?

[The Chair, Conservative, Randy Hoback]

You definitely can.

[Chrystia Freeland, Liberal, Toronto Centre, ON]

Thank you, gentlemen. They were great presentations even though the time was limited.

[Stephan Poirier]

You are more than welcome.

[The Chair, Conservative, Randy Hoback]

Again, witnesses, I do apologize for this. I do thank you for your time and effort in this. We appreciate the information you've given us.

Colleagues, the meeting is suspended.

[The Chair, Conservative, Randy Hoback]

We'll continue.

From Air Canada we have Derek Vanstone, vice president of corporate strategy, industry and government affairs, and David Waugh, director of international regulatory affairs and facilitation.

From Sunwing Airlines we have Mark Williams, president.

We'll start off with you, Mr. Vanstone. You'll have a chance to give your presentation.

Before you get started, I just want to apologize because due to votes, the meeting is going to be a little shorter than normal, but we definitely appreciate and look forward to hearing what you have to say.

[Derek Vanstone, Vice President, Corporate Strategy, Industry and Government Affairs, Air Canada]

Thank you very much, Mr. Chairman, for having us here today.

It is a pleasure for me to address you today.

I am joined today by David Waugh, as you mentioned, who is our director of international regulatory affairs, and Fitti Lourenco, our director of federal government affairs.

I'm very pleased to see the committee's focus on international global trade growth. At Air Canada we see ourselves as a global Canadian-based company, and we recognize that a substantial portion of our future growth is going to be international. Moreover, we believe that a strong airline sector and effective air links to our key trading partners are key building blocks for Canada as we seek to grow international trade.

I'll tell you a little about Air Canada.

We're Canada's largest airline. We're the largest provider of scheduled passenger services in the Canadian market, the Canada-U.S. market, and the international market to and from Canada. We're also the 15th largest airline in the world.

In 2014, Air Canada, with our 27,000 employees, carried 38.5 million passengers. We offered direct passenger service to 186 destinations on five continents, which included 61 Canadian cities, 50 U.S. destinations, and a total of 75 cities in Europe, the Middle East, Asia, Australia, the Caribbean, Mexico, and South America.

We're the only international network carrier in North America to receive a four star ranking from the independent U.K. research firm, Skytrax. Last year, for the fourth year in a row, we were selected best airline in North America in a worldwide Skytrax survey of more than 18 million airline passengers.

We recognize that our customers are looking for global access to accommodate this. In 1997, we joined the Star Alliance. We're one of the founding members of that alliance. It's a global network partnered to seamlessly serve our customers. In addition, we have joint venture agreements with the U.S.-based United Airlines and the Lufthansa group of airlines over the Atlantic Ocean, anti-trust immunity to pursue a joint venture with United Airlines on the U.S. transborder market, and we intend to enter into a joint venture with Air China over the Pacific Ocean.

We are expanding our fleets with announcements to acquire additional Boeing 777 and 787 aircraft. This will allow for further expansion in the coming years, including our recently launched routes to Panama City and Rio de Janeiro, and our recently announced service to Amsterdam, Delhi, and Dubai.

We fully support the objectives of the global markets action plan, and we agree that the approach set out in that plan is appropriate. When you look at the regions set out in that plan, these closely match our current and future route ambitions. Markets that are identified as established constitute a significant portion of our route network with 1,657 weekly flights to every region, except New Zealand, which we operate via code share via Vancouver on Air New Zealand. If you include code-share services to these established nations, it's almost 18,849 flights per week. In the markets where there are broad Canadian interests, we fly to all but four of the listed countries with 133 weekly flights operated by Air Canada, which grows to 951 flights if you include Air Canada code shares.

Whenever we seek to serve a new international destination, the first things that must fall into place are the bilateral air rights that are negotiated by the Government of Canada. These are done through bilateral air transport agreements, ATAs. As a result, these agreements on traffic rights are in some small way not unlike trade agreements with other countries. Other countries certainly view air traffic negotiations as a means to benefit their own airlines and their aviation industry, including in some cases government-owned airlines.

The Government of Canada's blue sky policy was adopted in November 2006, and is an approach to bilateral air negotiations, which seeks to grow in a balanced manner and in consideration of the interests of all stakeholders, and avoids a one-size-fits-all approach. We strongly support the continued promotion of the government's blue sky policy, and note that it has brought significant growth to Canadian airlines and airports, resulting in better services to all Canadian communities. Specifically, Air Canada has consistently pushed for improved bilateral access to large and important markets, such as the European Union, Brazil, Japan, and China, asking for increased capacity, frequencies, access to new destinations, and access to new code-sharing opportunities, among other benefits.

Through the increasing liberalization of our air industry, our country has made a number of achievements since 2006. Canada has concluded air transport agreements with over 80 countries, and the number of bilateral partners has gone from 72 to 112. We have open skies-type agreements with close to 50 countries, such as the United States, the countries of the European Union, as well as Brazil, New Zealand, Jamaica, and South Korea. We also have expanded agreements with 20 countries, which include China, India, Japan, Colombia, Peru, Turkey, Egypt, Singapore, and Mexico. We have first-time agreements with 21 countries, such as Equador, Uruguay, Bangladesh, and Ethiopia.

As a result, over 70% of the traffic to and from Canada is with a country that has an open skies agreement with Canada. This rate climbs to well over 90% when you factor in bilateral arrangements where capacity is available but Canadian and foreign airlines have not yet fully used the available capacity.

The blue sky policy and these agreements are why the World Economic Forum has ranked Canada within the top 10% of the 144 countries surveyed when it comes to air access.

Despite the success of the blue sky policy, some continue to advocate for greater liberalization. We believe that an across-the-board one-size-fits-all approach to the negotiation of open skies would have detrimental effects. Without ensuring that these agreements are based on a level playing field and that they will have balanced benefits for both countries, it is clear that local airline services and passengers will be negatively impacted.

In conclusion, I'll leave you with three constraints to future growth that I would ask the committee to give some consideration to.

First, while we are in the top 10% when it comes to air access, the same study by the World Economic Forum found that we are 135th of 144 countries when it comes to taxes and fees. I know this isn't the committee's primary focus, but it is a significant barrier to competitiveness and growth in the aviation sector not only for Air Canada, but for other international airlines seeking to serve Canada. The user-pay model that the government has pursued since the 1990s is simply not in line with international standards. It is in effect a tax on international trade and it needs to change.

Second, an issue that's more directly in the committee's wheelhouse is visas. Whether it's a Brazilian businesswoman who needs to come to Vancouver for meetings, or a Chinese businessman who needs to get to Cleveland and is considering connecting over Toronto, the time and inconvenience of obtaining a Canadian visa is a significant barrier. If Canada supports Canadian airports becoming international connection points and Canadian airlines becoming international network carriers—which is certainly our ambition—and Canadian businesses benefiting from increased trade opportunities, then Canada must recognize that the current visa framework stifles such opportunities and imposes a significant competitive disadvantage vis-à-vis other hubs, such as the UAE, Singapore, Amsterdam, and Panama City.

Finally, going back to my remarks on the bilateral air agreements, we urge you to continue to support the approach found in the blue sky policy. Many state-subsidized foreign airlines would love to have unmetered access to the Canadian hubs, and they would be able to point to short-term benefits in their arguments for further access. However, we have to recognize that this would damage Canadian air access in the long term, and that is a reality that Australia is now facing.

Merci. Thank you, Mr. Chairman.

[The Chair, Conservative, Randy Hoback]

Thank you, Mr. Vanstone.

I'll turn the floor over to you, Mr. Williams.

[Mark Williams, President, Sunwing Airlines]

Thank you very much, Mr. Chair.

Good afternoon, ladies and gentlemen and members of the committee.

My name is Mark Williams. I'm the president and chief executive officer of Sunwing Airlines. Sunwing Airlines is part of the Sunwing Travel Group, which is a proud family-owned Canadian company and a true Canadian success story.

The Sunwing Travel Group is also a company that has clearly benefited from the opportunities presented by the global markets action plan and the liberalization of air transport agreements. We have grown our business and increased employment opportunities in Canada as a direct result of these programs.

In 10 short years, the Sunwing Travel Group has morphed from a small tour operator with around 70 employees in Toronto and less than $100 million in annual revenues to become the largest vertically integrated travel company in North America, with over 2,000 Canadian employees, over $1.8 billion in revenues, and operations that span coast to coast.

Our Canadian operations include SellOffVacations, an online and retail travel agency chain; tour operations Sunwing Vacations and Signature Vacations; LUXE Destination Weddings, a destination wedding company; and Sunwing Airlines. In addition, Sunwing has over 15,000 employees working at our 21 Blue Diamond Hotel properties, and NexusTours, our destination management company in Mexico and the Caribbean. The senior executives of all of these businesses are based in Toronto. We also own a U.S. tour operator called Vacation Express.

Thanks to the Canada-U.S. open skies agreement, Sunwing Airlines flies U.S. customers to our southern hotels with Canadian-registered aircraft and Canadian crew.

And we continue to grow. Sunwing Airlines is adding five aircraft this year, including three new deliveries from the Boeing factory in Seattle, which will ensure that Sunwing will continue to have the youngest fleet and the lowest CO₂ emissions per passenger of any airline in Canada.

In December we opened two new hotels: an 840-room hotel in Cancun called the Royalton Riviera Cancun, and a 320-room hotel in Punta Cana called CHIC Punta Cana. These hotel projects benefit our business in Canada, as we have proven that product-led growth in the Caribbean increases our passenger traffic out of Canada.

There's a good example of this in Jamaica, where Sunwing has been operating hotels since 2011. With the benefit of our own hotel product in Jamaica, Sunwing has grown its passenger traffic out of Canada from 52,000 passengers per year to over 150,000 passengers in just under four years. This summer we're significantly expanding our two Jamaican hotels, which we believe will lead to further expansion of our Canadian business next winter. Without open markets and liberal bilateral air agreements between Canada and the countries we operate to, none of this would be possible.

While Sunwing would not be considered by most to be a business that relies on international trade, our business is essentially all based on international trade. Of the almost three million passengers we carry annually, all but 45,000 are international. Of the five streams identified in the global markets action plan, Sunwing relies heavily on three: access to key global markets; access to capital; and access to talent.

Sunwing benefits from access to markets as afforded by the government's blue sky policy. The opening of bilateral agreements with Mexico and Cuba has provided Sunwing with the biggest benefits to date. Sunwing is now the largest air carrier in the world to Cuba, with over 1.2 million passengers carried in our last fiscal year. The Cuban government recognizes Sunwing's contribution to its economy, and has awarded us the opportunity to manage 11 hotels in Cuba, with over 6,700 rooms. One of those hotels, the Royalton Cayo Santa Maria, was voted the best all-inclusive resort in the world by TripAdvisor this year.

Access to foreign capital allowed Sunwing to complete a large equity transaction in 2010 with TUI Travel PLC, a company based in the U.K., which purchased a 49% economic interest in Sunwing, with 25% voting shares and 24% non-voting shares. We also fund 100% of our Caribbean and Mexican hotel properties through foreign banks, as Canadian banks have been reluctant to fund these projects.

Also, our rapid growth would not have been possible without the access to foreign talent allowed by the temporary foreign worker program. Sunwing does not use foreign pilots in the winter to save money. The TFW program mandates that foreign workers must make at least as much as their Canadian counterparts. In addition, Sunwing pays housing, car, and living allowances to these foreign workers that are roughly equal to the wages we pay to these pilots. That means a foreign pilot costs Sunwing almost twice as much as a Canadian pilot. Sunwing uses temporary foreign worker pilots as a last resort as training bottlenecks limit the number of Canadian pilots it can hire and train for these highly skilled jobs.

Over the last three years, Sunwing has almost doubled its employment of Canadian pilots, from 150 in 2012 to 267 in 2015, and has reduced its reliance on temporary foreign worker pilots, going from 164 in 2012 to 110 in 2015. The ratio of temporary foreign workers to Canadian pilots has dropped from 1.1 to 0.4 over this time period.

Some people have suggested that the use of foreign workers takes away from Canadian employment. In this case, nothing could be further from the truth. Sunwing has used the TFW program to deal with the skill shortage. Every TFW pilot that Sunwing employs creates more than five Canadian jobs as we hire cabin crew, maintenance, airport, and office staff to support our growing fleet. Sunwing is reducing its reliance on foreign workers by hiring and training Canadian workers to replace the foreign workers as it is able to. That is what the program is designed for.

The business of taking Canadians to warm destinations in the south is very seasonal. Looking around Ottawa today, I think you can understand why people might want to hop on one of our non-stop flights to Mexico or Cuba. In July and August, demand drops dramatically. As a business, we need to match capacity to the demand of consumers. In winter, Sunwing brings planes and pilots from Europe to help meet the demand of Canadian consumers. In the summer, Sunwing sends its planes and pilots to Europe to meet the demands of European consumers because they take their vacations in the summer. This arrangement provides consumers on both sides of the Atlantic the opportunity to take a vacation when they want to, at a price they can afford. It also provides companies in Canada and in Europe an opportunity to provide full-time year-round employment to their staff, rather than having to lay off their staff during their respective low seasons.

Government policy should be formulated with the best interests of Canada, Canadian citizens, and Canadian business in mind. From Sunwing's perspective, open trade agreements that allow Canadian companies to compete on a level playing field with businesses around the world are in the best interests of our country. Sunwing encourages the government to continue to pursue its global markets action plan and the liberalization of air transport agreements through the blue sky policy. Sunwing is a great example of how these government policies can provide increased job opportunities for Canadian employees, and lower prices and more choices for Canadian consumers.

Thank you very much.

[The Chair, Conservative, Randy Hoback]

Thank you, Mr. Williams.

We'll get onto our questioning here.

Ms. Liu.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

I thank the witnesses for their participation. Unfortunately, we have less time for questions, but I think your testimony has been greatly appreciated.

Mr. Vanstone, in your presentation you raised the issue of visas and the problems they pose for travellers who are transiting through Canada. You referred to a few models, particularly that of Singapore and Amsterdam.

Could give us a bit more detail on those models and the systems that these countries or hubs have put in place for visas?

[Derek Vanstone]

Absolutely, I'd love to, and thank you for the question.

Visas are, especially with respect to transit passengers who are a key model for us and for the major hub airports in Canada, the key way we will expand our growth. If you look at the hub airports I mentioned—the UAE, Singapore, and the Netherlands—each of those countries really doesn't require a transit visa at all. Even in the United States there has been a debate about whether they might develop what's called a transit visa, to have something a little bit simpler than what's currently in place. With that, the Chinese traveller I used as an example might be transiting through Toronto to get to Cleveland. Right now he would need to apply for an American visa, and then he would need to apply for a Canadian visa. For each of those processes, he would have to leave his passport at an embassy, wait a certain amount of time, and then get the visa

We need to move at the speed of business. If a businessman is going to a meeting, having to apply for two visas takes simply too long. We need to find ways to avoid that. Whether we develop a scheme that would allow transit visas or we use a system like the eTA, the electronic travel authorization which the government is looking to impose, and apply that for transit customers, something that makes it easier is what we would be looking for.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

That is a recommendation that deserves further study.

Two weeks ago the committee also heard testimony from Mr. Ian Smith, President of the Air Canada Pilots Association. He said Air Canada was at a disadvantage compared to Emirates airline. I imagine you are aware of that issue. Emirates airline is said to be receiving large subsidies from its government.

Are there other companies like Emirates who are receiving substantial assistance from their government?

[Derek Vanstone]

Emirates and the Gulf airlines are all privately held, essentially state-owned companies. They are all funded by their governments, and they all operate in a non-transparent manner. None of them are publicly listed and none of them release any financial reporting. It is our best estimate that each of those—if you look at the Gulf airlines such as Emirates, Etihad, and Qatar—is significantly financed by their respective governments.

One example is we have some documents that were published in an Australian newspaper that pointed to some of the benefits Etihad Airways was receiving from its government. It was to the tune of billions of dollars. The sponsorships of the soccer teams in the U.K. that have Etihad AIrways on them were actually being paid for by their government. That's something which Air Canada as a public corporation that is fully transparent and receives no subsidy from government really has a tough time competing with. In this regard, that's one of the factors we believe needs to go into the considerations for air transport agreements and bilaterals, and it's one of the factors we think the government has taken into account with the blue sky policy.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

In my opinion, these agreements contain provisions that prevent intervention or excessive funding from governments.

Do the ATAs already contain clauses that—

[Derek Vanstone]

No. The ATAs don't specifically contain clauses, but it is a question of access. The Gulf airlines are always seeking increased access to Canada, so what our position at Air Canada is, is that we have to look at airlines like Emirates and Etihad and the Gulf carriers and really tie the level of access that they receive and the number of customers who are travelling between a country like Canada and the UAE. If the capacity that they're allowed to fly matches the passenger growth between the two destinations, then you don't have a situation where they're going to dump capacity into Canada, and really try to get transit customers to transit through Dubai instead of a Canadian hub like Toronto, Vancouver, Montreal, or Calgary. It's not so much about putting conditions within the ATAs; it's about restricting the access that these foreign airlines will get to Canada, and tying that to the commercially appropriate level of service that can be matched by customer demand.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

I think I have a minute and a half left. I'd like to allow my colleague to take the last few minutes.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Mr. Vanstone, in listening to the presentations, I realized something, which is that the problems with visas or international agreements with other countries and other airlines are not the only ones. There are concrete problems such as service bottlenecks in airports, at customs, and security; there is insufficient staff in many places.

Do you think that is compatible with the growth of your industry?

[Derek Vanstone]

Thank you for the question.

No, it's a serious problem. If we don't have the facilitation in place to transit customers or welcome customers to Canada, that can become a serious issue for us, and it can become a barrier to further growth. Proper funding of agencies such as CATSA and CBSA is absolutely vital. The lines that we see at CATSA and CBSA checkpoints are of concern to us.

[The Chair, Conservative, Randy Hoback]

You have about 15 seconds at the most.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

I thank Mr. Vanstone, since my time has expired.

[The Chair, Conservative, Randy Hoback]

Thank you.

Mr. Cannan.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thanks, gentlemen, for being here as witnesses to our international trade committee study on the global markets action plan and air transport agreements.

I congratulate you, Mr. Williams, on your success and the great Canadian success story. You said you had 150,000 passengers last year with 15,000 employees.

[Mark Williams]

We have 2,000 employees in Canada this year—

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I mean internationally.