Finance Committee on April 15th, 2021

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Very well, Mr. Chair.

I heard a radio commentator in Montreal raise the question, should the government introduce insurance for the cancellation and refund of all tickets and make it mandatory for all travellers?

What do you think about that idea?

[Dr. Gábor Lukács]

It's an interesting idea, but it would, again, make consumers pay for what should be the airlines' responsibility. I would much prefer to see the system that already exists in Quebec's Consumer Protection Act. Section 256 says that for any kind of future service being paid for by consumers, the monies paid by consumers have to be kept in a trust account, and the airline is deemed to be the trustee. This law, in our position, would already apply to Air Canada, although they would probably disagree with that. What it would mean, in situations like this when somehow the airline says that it doesn't have the money, is that owners would actually become liable for refunding passengers, and possibly personally, because they are not simply a business but are acting in a trustee capacity.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thank you.

Next is Mr. Masse, followed by Ms. Jansen.

Brian, welcome to the finance committee. The floor is yours.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair, and it's good to see you, as always.

Thank you to our witnesses.

Mr. Lukács, I want to start with your take on Nav Canada. I don't know if you noticed, but it finally ceased its studies on the closure of airports. It's something I have been pushing for, and I have a private member's bill on it. It will be interesting to see what will take place in the budget or the upcoming deal with Nav Canada, because in testimony at other committees I've been to, Mr. Bohn, the CEO of Nav Canada, has said that they would not consider removing bonuses if they got public funds as part of a package to deal with Nav Canada. We'll see what comes out in the details.

What is your response to those who are now concerned about the process of dealing with Expedia and other parts of the complications of getting refunds? I'm concerned that it may not even be equal. You've pointed out some major problems in the deal, but one thing that I don't think gets a lot of attention is the complications for consumers going through third parties to try to recover their money.

[Dr. Gábor Lukács]

Passengers do experience significant problems, given that they're getting refunds from Air Canada directly. For example, when passengers used their vouchers to try to get a ticket, and the second ticket was cheaper, we have reports that passengers are being told that they are only going to refund their cheaper ticket but not the difference between the two tickets.

In terms of third party providers, there are significant concerns. Expedia.... FlightHub is a particularly bad offender as far as we can see so far. In some cases, travel agents are asking passengers to pay an extra fee for getting their refunds, even though travel agents can keep their commission from the airline.

The solution and the answer to this would be—and is—that ultimately it is Air Canada's responsibility and the airline's responsibility to refund the money the airline has. They cannot pass the buck to the various travel agents. This is another significant flaw in the deal and something Air Canada has been pushing very hard for, but legally we have doubts about its validity. We are aware of a prior court decision that confirms that regardless of which intermediary is involved, the airline still has the same responsibilities.

[Brian Masse, NDP, Windsor West, ON]

Without addressing that, the end reality for the consumer is that a phantom product was purchased, and they're still going to have to pay out of pocket for that.

Also, aren't there benefits to the airlines and the third party providers in making money off consumers for the use of that service? It seems kind of unfair that when this happens, they pay a second time for that. There's a benefit for the structure they have in place. Perhaps you can talk about that benefit.

[Dr. Gábor Lukács]

Passengers are not supposed to be paying any extra fees for getting their refunds. Those demands by travel agents are legally unfounded.

The potential benefit for Air Canada of giving refunds to travel agents is that in some cases there are deals whereby some of the commission is being paid in one way or another. It's an arrangement that makes passengers' access to the refunds harder and the accounting for Air Canada easier.

[Brian Masse, NDP, Windsor West, ON]

You mentioned the quick action that was taken in the European Union, and also in the United States, although to a lesser degree and later.

I know you have a lot of experience. You've been to the Supreme Court of Canada and you've litigated a number of different cases. I'm not sure how familiar you are with the competition laws in Canada. We have been studying that aspect at the industry committee. Something I've been working on is that the Competition Bureau doesn't have the tools it needs. Also, our competition law is outdated. Do you have any comments about that? I don't know if you're familiar with all of that aspect.

I know for sure that this seems to be part of the problem. I've been a big proponent for a real airline bill of rights, but we've run into major problems with the Competition Act, which is very antiquated.

[Dr. Gábor Lukács]

I don't purport to be an expert in competition law; however, I am aware of how some of its aspects affect passengers and airlines.

My understanding is that the Competition Bureau doesn't have the tools to deal with, for example, predatory pricing, which happens when a large airline tries to effectively strangle a small airline by engaging in undercutting prices, even below cost. By the time a court order and an injunction are issued, it is maybe too late for the small airline; it would be out of business.

I agree to the extent that I see, from an airline perspective and passenger rights' perspective, that a significant overhaul would be necessary for faster remedies for anti-competitive behaviour of this nature. Whether one should give more powers to a government body raises some questions. Generally we believe that independent decision-makers—and I'm referring to independent of government, such as courts and judges who have tenure of office—should be making significant decisions.

Certainly the laws could and should be updated to ensure that access to injunctions in such situations—and, more generally, access to some interlocutory injunctions—would be easier. It's a matter we came across last year in the context of refunds. The federal courts are interpreting the legal test for interlocutory injunctions very narrowly, in such a way that in many cases they are virtually impossible to get, not only in competition matters but also in cases of trademarks and intellectual property aspects.

[The Chair, Liberal, Wayne Easter]

We will have to end that round there.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

You'll have another in a little bit, Brian.

We're turning to Ms. Jansen followed by Ms. Dzerowicz. Tamara, it's a five-minute round.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Thank you very much.

Mr. Lukács, I really appreciate the perspective you're coming from, in that you're looking to ensure that taxpayers are getting good bang for their buck. It's very much appreciated.

I can't tell you how terrible this was in the very beginning when we were repatriating constituents. There were families who were buying tickets, and then the flight would be cancelled. They'd buy another ticket, and the flight would be cancelled. They'd buy a third ticket, and the flight would be cancelled. They never received a refund. It was absolutely shocking.

You basically said that had the government taken quick action against the airlines for doing this, as other countries did, it could have had a bigger impact on what the deal looks like today.

[Dr. Gábor Lukács]

Currently, people are very upset. The experience described by your constituents is not a one-off, unique, isolated incident; it is an experience that we estimated millions of passengers have experienced. Any kind of bailout to the corporation, any kind of financial support, is facing very significant social opposition, not only because it's not necessarily good use of taxpayers' money but also because the airline and travel industry has squandered the public goodwill and consumer confidence.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Yes, absolutely.

We were hoping you had an idea of how many refunds were issued and how many are still left standing. Do you know the dollar figure?

[Dr. Gábor Lukács]

Knowing how many refunds have been issued is more difficult.

When we appeared before the transport committee in December, our very conservative estimate was that there were about $3.89 billion worth of refunds among the Canadian airlines owing to 3.89 million passengers. As with every other estimate, this is based on data that we interpolate, because you may remember that Air Canada outright refused to provide numbers when they were asked by another House of Commons committee. Initially there was a lack of transparency, which is troubling on the one hand. Those airlines are seeking help from the public purse, yet we have not seen clear numbers and clear data on how much money they owe to passengers or how many passengers are affected.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Were some airlines better than others when it came to refunds? I thought some had different policies.

[Dr. Gábor Lukács]

First, let me take a step back. Airline policies don't matter, because they can't override the law. The law has been that you have to refund passengers, full stop. Unfortunately, the federal government failed to enforce that law.

In terms of policies, in some ways Air Canada was the worst offender, in that they made a false proposition that if you bought a so-called non-refundable ticket, then they can just pocket your money and give you no service in return. That's nonsense. That's absurd.

In November 2020, WestJet made some statements that they would gradually refund passengers whose flights were cancelled by WestJet. We are seeing some progress with that, although in many cases what passengers are doing and what helps them to get money back is doing a statutory chargeback under provincial statutes if they made a purchase with a credit card.

With respect to Sunwing, probably they are also among the worst offenders. They first promised passengers a refund, as they should have, and then said they were sorry, but they didn't have enough money. Air Transat is also in with that. They have also been refusing to provide refunds.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Could you do me a favour? Could you explain one more time how the deal is set up and how it's bad for the taxpayer?

[Dr. Gábor Lukács]

I don't have the exact figures in front of me, but I can give you what I remember.

I don't remember the number of refunds. As I understand it, the refunds are going to be funded from a $1.4-billion unsecured loan at an interest rate of 1.211%.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

When you mention unsecured loans, you're talking about the fact that they're saying they have no assets, so therefore they'll just do their best to pay it back, but the government has absolutely no surety that it will be paid back.

[Dr. Gábor Lukács]

That's right. There are no assets that could be seized if those amounts are not paid back.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Do you expect they would default on their loans?

[Dr. Gábor Lukács]

It's hard to predict. We are not through this pandemic yet. What we have seen historically is that unsecured loans tend to become grants. I could easily see that once the public outrage over the $6-billion bailout to Air Canada subsides, once it's no longer in the news headlines, the government may quietly just write it off, so having some form of legislation that states these loans cannot be written off certainly would help to alleviate those concerns.