Industry Committee on June 17th, 2008

[The Chair, Conservative, James Rajotte]

I call the 47th meeting of the Standing Committee on Industry, Science and Technology to order.

Members, before we go to our witnesses, I have about five minutes of committee business. We had a subcommittee meeting last night, where we agreed to three items. So I will go through those three items.

As well, I do need someone to move the travel budget request for the committee to go to Waterloo, Toronto, Montreal, Sydney, and perhaps to Halifax, Boston, and Washington, with respect to our study on science and technology. You should all have a copy of the budget in front of you. The subcommittee did agree to it. So I do need someone here at the main committee to move it.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

I so move, Mr. Chair.

[The Chair, Conservative, James Rajotte]

So moved by Mr. Eyking.

(Motion agreed to [See Minutes of Proceedings])

[The Chair, Conservative, James Rajotte]

Thank you.

I'll just go through the three items that the subcommittee agreed to. It was agreed that the committee travel to Toronto, Waterloo, Montreal, Sydney, Boston, and Washington; and we will try to go Halifax, and to Sydney for sure. It's for the period, September 15 to 19, 2008, for the purposes of visiting sites and hearing testimony related to the study of science and technology in Canada.

As for the second item, it was agreed that the committee hold meetings for the purpose of receiving testimony relating to Bill C-454 at meetings scheduled for October 7, 9, 21, and 23, 2008.

In the third and final item, it was agreed that the Subcommittee on Oil and Gas and Other Energy Pricing meet on Wednesday, August 27, for two separate two-hour panels, and that possible additional meetings be scheduled as required.

Is the subcommittee report agreed to?

(Motion agreed to [See Minutes of Proceedings])

[The Chair, Conservative, James Rajotte]

D'accord. Thank you, members.

We will now go to the orders of today, pursuant to Standing Order 108(2), a study of the current state of the Canadian tourism industry.

We have with us here today three organizations, two in person and one by video conference. First of all, from the Canadian Airports Council, we have the president and CEO, Mr. Jim Facette. We have also the director of communications, Mr. Daniel-Robert Gooch. Secondly, from the Canadian Tourism Commission, we have Michele McKenzie, the president and CEO; and we have Steve Allan, chairperson of the board of directors and the executive committee.

Are you in Vancouver?

[Steve Allan, Chairperson of the Board of Directors and the Executive Committee, Canadian Tourism Commission]

No, we're in Toronto.

[The Chair, Conservative, James Rajotte]

The third organization with us today is the Tourism Industry Association of Canada. We have Mr. Randy Williams, the president and CEO. Welcome, and thank you for coming back. And we also have Mr. Christopher Jones, vice-president of public affairs.

I do want to mention to all of you that I know we were supposed to have this meeting last week. There were some votes that unexpectedly happened, so I want to thank you for making yourselves available again today.

We do have a full two-hour session until 1 p.m., so we'll start with the Canadian Airports Council. Each organization has up to five minutes for an opening presentation, and then we'll go to questions from members.

Mr. Facette, do you want to begin?

[Jim Facette, President and Chief Executive Officer, Canadian Airports Council]

Thank you, Mr. Chairman, and good morning. Thank you for the opportunity to speak with you today as part of your study on the current state of the Canadian tourism industry. Mindful of time, I will be brief.

The Canadian Airports Council is the voice of Canada's airports. Our members handle 95% of the passenger traffic and 100% of the cargo traffic. You can see why the tourism business is important to Canada's airports. As gateways to the communities they serve, Canada's airports have an integral role in promoting tourism in this country. We are a key part of Canada's tourism value chain. Our airports are the front door to Canada and to the communities in which they serve. We are a significant part of the tourists' Canadian experience.

For Canada to be competitive in the tourism business, each link in the value chain must be competitive, efficiently operated, and customer focused. As an airport community, our competitiveness depends on three key areas: cost competitiveness, air access, and border facilitation. Canada's airports need a competitive business climate to compete.

This morning Air Canada announced a 7% reduction in its capacity for the coming winter months. Air Canada notes that in addition to record high fuel prices, Canadian carriers must contend with federal and provincial fuel excise taxes, security fees, and high airport charges, charges that are largely the result of an airport rent policy that has outlived its usefulness.

To operate in a cost-competitive business climate and provide a competitive product, we need the federal government to view aviation as an economic generator and not as an industry to be taxed at will. Canada's airports have invested more than $9.5 billion to upgrade airport infrastructure since the transfer of airports to local operating authorities. Our members pay nearly $300 million a year in rent. Since transfer rent payments to the federal government have totalled more than our airports' initial asset value, CAC members have paid in excess of $2.5 billion in rent. The revamped rent formula in 2005 did reduce the expected rent that was to be paid by nine airports in Canada; however, it did not go far enough. The new formula takes a percentage of gross revenue on a graduated scale, regardless of the size of the airport. To put this in context, the Greater Toronto Airport Authority will pay 12% rent on each dollar of revenue over $250 million. The GTAA is a $1.1 billion corporation. You do the math.

The elimination of airport rent would help everyone. Airports generate income for the federal treasury through job creation, both direct and indirect, and they attract tourists and investment. Airports in Canada are committed to passing along any savings from rent relief to their users, be it the airlines or the passengers.

Another important pillar of competitiveness is air access. Air access is a simple concept. If they can't get here from there, everyone suffers. For airports, it means that Canada needs better air service agreements. We define “better” as open skies agreements. Open skies means unfettered access of carriers between two states. The current EU talks are vital to growing our tourist base in Europe.

Few things will leave as bad an impression for tourists as long lineups at border facilitation halls. Border facilitation and the availability of customs officers is crucial. Currently we do not have enough border officers to meet the demand at Canada's airports. Whether for small airports or Toronto, Canada needs more officers at airports. We are using Nexus, and it has been a great boost, but tourists are not always members of trusted traveller programs. Making airports pay for services outside of core hours only adds costs to the business of any given airport.

Working with their local and provincial tourism sectors, Canada's airports today are actively promoting their communities in the United States and abroad. They attend air service trade shows, they are meeting with air carriers from around the world, and they are making the case for Canada as a tourist destination. We need federal policies that encourage more tourists, not ones that will result in a less competitive business.

In closing, we urge this committee to recommend elimination of airport rent, more open sky air service agreements, and greater investment in border officers at airports.

Mr. Chairman, thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Facette.

We'll go now to Ms. McKenzie. Will you be presenting on behalf of the Tourism Commission?

[Michele McKenzie, President and Chief Executive Officer, Canadian Tourism Commission]

Mr. Allan will be.

[Steve Allan]

Thank you. Good morning.

The Canadian Tourism Commission's role is to market and sell Canada as a tourism destination in nine countries around the world. By marketing Canada in a way that differentiates us from our competitors, the CTC works to support the competitiveness of Canada's tourism industry.

Our focus is on attracting international visitors, while our ultimate goal is to keep increasing the amount of foreign money flowing into the country. We work with provincial and territorial marketing organizations, and tourism industry and federal government partners--for example, Parks Canada and Foreign Affairs and International Trade--so that we can do this under a single banner known as Canada's tourism brand. This collective voice concentrates our efforts and makes sure tourists around the world get a consistent and convincing idea of what awaits them on a vacation in Canada.

Only by working together can we overcome the greatest obstacle facing Canada as a travel destination--international competition. Let me explain. Air travel, once the domain of the wealthy and privileged, is today a form of mass transport, with over four billion passengers annually. Air access has spread the tourism base around and encouraged more countries than ever to get involved in the destination marketing game. In 1950, the top 15 countries held 97% of the world's market share. Today the top 15 countries hold only 57% of the total market share, and that percentage continues to drop. Once second in the world for arrivals, Canada doesn't even figure in the top 10 anymore.

The forecast doesn't look much better for the world's traditional destinations, Canada being among them. By 2020, Europe and the Americas together are expected to barely crest a billion international arrivals. Asia, Africa, and the Middle East together will hit 1.6 billion. This fact doesn't daunt us; it's fuelling our ambition.

Canada competed very hard for its share of the $800 billion that global consumers spent on travel last year. This effort saw Canada's tourism industry generate $70.2 billion in revenues in 2007. Nearly a quarter of these revenues--about $16.6 billion--came from international tourists bringing new money into the economy. This puts Canada in 11th place globally for the amount of total international travel spending our country generates.

In the face of so many competitive pressures and market complexities, Canada is fortunate to have a Secretary of State for Small Business and Tourism and a national tourism marketing organization. The government's decision to identify a Secretary of State for Small Business and Tourism demonstrates the importance the tourism sector holds for Canada and its economic growth. We were pleased with this appointment and see it as a positive sign for the future of tourism in Canada.

We recently held a board retreat to review the CTC's marketing strategy. We examined the competitiveness challenges we are facing and discussed the declines we are seeing from some of our international markets. Similar to the findings of the TIAC report, the board identified global competition and air access as risks.

To continue to be competitive globally, we need to have a strong collective Canadian presence and we need to be nimble enough to react to a rapidly changing global environment. We believe that the Canadian Tourism Commission has the right strategy in place not only to ensure that Canada remains a global contender now and into the future, but also to make sure our share of this foreign exchange continues to grow. We're making sure that Canada is relevant to consumers and that it stands out as a unique and different place to visit.

We're focused on making sure we get the best possible return for every marketing dollar we invest. We're focusing on countries that have a larger base of those consumers who will stay longer and spend more money in Canada. Our strategy has strong partner support, and there are signs our collective approach is working. Spending from overseas target markets is up $200 million to $7.1 billion in 2007. Traveller spending rose to $122 per night last year, up from $113 in 2006. Last year the CTC won a coveted spot on the list of Canada's top 10 marketers.

In terms of partner support, our marketing programs were fully subscribed to last year. Total partnership contributions reached $89.6 million.

Finally, visitor arrivals are up in seven out of the nine international markets that we do business in. Unfortunately, the two markets doing poorly are two of our biggest, Japan and the United States. Japan's visitor volume fell 14.6% to 310,400 visitors last year, but it's still by far our highest-yield overseas market.

The CTC has taken important steps to retool our approach there and influence a recovery--a recovery, I should note, that so far has eluded our competitors as well. This is likely to remain a common challenge as long as the decline in Japanese purchasing power continues to drive the market toward closer destinations, much to the benefit of countries like Thailand that have seen Japanese arrivals surge by nearly 100%.

The U.S. story is more complicated since visitors can both fly and drive into the country. The latest statistics for this year show that the U.S. market is down 3.5%. Last year, the market overall for the year was down 3.7%. We recognize that it is a difficult time for those in our industry who rely heavily on U.S. visitors. Although we continue to perform very well in many other markets, the U.S. continues to be our most important international market. The U.S. accounts for about 54% of the revenue Canada gets from all international markets.

Since our partner provinces and territories already market heavily to U.S. states along the border, the CTC focuses on attracting more affluent Americans who tend to fly into Canada. From this vantage point, U.S. leisure spending in Canada has actually grown since 1996 from $3.9 billion to $5.5 billion last year. That number swells to $7.1 billion if you add in the performance of the meetings, conventions, and the incentive travel market to Canada from the United States.

The number of overnight air leisure travellers to Canada has increased by almost 788,000 since 1996, while overnight automobile travellers declined by 398,000 over the same period. Reasons for the decline in the drive market are varied. Chief among them would be the recent economic uncertainty that has driven consumer confidence to a 30-year low, and of course the weaker American dollar is having a strong impact on U.S. visitors who drive into Canada.

[The Chair, Conservative, James Rajotte]

I'm sorry, Mr. Allan, could we have you conclude? We're over our time.

[Steve Allan]

I'll be about one more minute.

Other reasons for the decline include, obviously, the cost of fuel and lingering confusion about the official documents required for U.S. entry. Passports, economic uncertainty, high fuel prices and declining purchasing power all make for powerful reasons why Americans are staying home rather than flying to Canada.

The U.S. consumers whom the CTC targets pay less attention to these factors. One issue that is of concern to all markets, not only Japan or the U.S., is air service. For an overseas destination like Canada, the right flight at the right price is critical in order to compete. On this front, Canada has not been doing well. For example, direct flights between South Korea and Canada are at capacity in the peak season. In Australia, we need to keep up the seat capacity secured by our competitors. Out of Japan, Canada is seeing tighter direct seat availability in the busy spring and summer months. Again, this is a market where competition is aggressively growing its air capacity.

In conclusion, I would offer that the CTC has the right strategy and the right partners to ensure that our country is marketed and sold effectively in nine countries that span the globe. However, there are indeed competitiveness challenges and policy issues that make marketing Canada to the world an increasingly difficult challenge.

If some of these issues were addressed, it would increase our ability to compete globally. Collectively, we need to work to ensure that the CTC and Canada's tourism industry are equipped to compete in the competitive global environment that exists today.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Allan.

We'll go to Mr. Williams, please.

[Randy Williams, President and Chief Executive Officer, Tourism Industry Association of Canada]

Thank you, Mr. Chair and honourable members of the committee.

With me today is our vice-president of public affairs, Christopher Jones.

First let me thank the committee for the opportunity to appear before you to share our views on the current state of Canada's tourism industry. As you may know, TIAC released a report on Canada's tourism competitiveness on June 2, and I believe you have been provided with a copy of this report. We state in that document that the issues facing the industry are urgent and profound, so we are deeply appreciative of the committee's willingness to convene this meeting and look into these issues without delay.

Globally, tourism is one of the most significant economic engines, with close to $800 billion being spent annually on worldwide personal travel. But while tourism receipts in the rest of the world are growing at roughly 4% to 6% annually, Canada's growth rate lags far behind, at about 2% to 3%. Moreover, Canada's travel deficit--the difference between the amount foreign visitors spend here versus what Canadians spend abroad--reached an historic high of more than negative $10 billion for 2007, with a further significant deterioration of that in the first quarter of 2008.

We're also seeing historic declines in inbound visitation from the United States. Traditionally, more than 80% of our visitors in a given year come from the United States, but last year the number of Americans visiting Canada reached its lowest point in the 35 years that these numbers have been kept. Other markets, such as Japan, are also stagnating, while growth elsewhere has been modest at best.

When external challenges such as 9/11 put a stranglehold on our border, when fear of a SARS pandemic disrupts global travel, when the strength of the Canadian dollar increases the price of our tourism products by 30% in two years, or when fuel prices rise to record highs, there is only so much government can do to mitigate these individual events.

Let me be clear about the issues we are facing. The low Canadian dollar and cheap fuel prices of the past hid many of the underlying structural challenges to our competitiveness as a world-class destination. A higher dollar, higher fuel prices, and a weakening U.S. economy expose the sector's weaknesses. It is my contention that the focus on and reaction to headline-grabbing but isolated events have diverted our attention from the fundamental issues we face as an industry.

Tourism is a $70 billion industry in Canada, and 1.6 million Canadians depend on tourism for their livelihood, but our industry has traditionally been neglected by governments. We have tended to regard tourism as a source of taxation dollars, burdening our businesses with structural costs and compliance measures that impede its price competitiveness. For example, the continuing insistence on charging airport rents, airport security fees, and excise tax on aviation fuel; and the abrupt cancellation of the visitor rebate program and its replacement by the onerous and burdensome foreign convention and tour incentive program are illustrative of the problem. In aviation alone, we estimate the federal government is imposing at least $800 million in punitive levies a year on that industry.

In our report we single out two fundamental areas of concern: accessing Canada, and product animation. Under the heading of access to Canada, we state that visitors need to be able to reach Canada with ease, cross our border efficiently, and then be able to travel within Canada as seamlessly as possible. They also need to be able to find options for travelling to and within Canada that are cost-effective and competitive with other destinations around the world. One example of competing on an uneven playing field is the lack of an agreement on approved destination status with China, the fastest-growing outbound travel market in the world.

In addition to improving access to Canada, we need to ensure that there are persuasive and compelling reasons to visit our country. A concerted effort on the part of both the private and public sectors is required to make sure that new products are introduced and the products we currently offer are world-class. Products must be enhanced continually to meet changing market trends and the standards of today's discerning travellers. We need to do more to animate federally owned assets, such as the national park system and museums, to make them engaging and worthy of repeat visits.

Other countries are recognizing the incredible potential for tourism to be an economic force in their country, and they are investing the time, energy, and funds into ensuring that they are attractive and inspiring destinations. We can no longer rest on the advantages of a lower dollar, low fuel prices, and a strong U.S. economy, concealing some of our deeper issues. Canada has a remarkable opportunity to capitalize on our positive image in the global marketplace by promoting itself as a clean and safe destination that is socially and geographically diverse. Unfortunately, we have thus far failed to recognize and seize the economic opportunities that are afforded to us by this essential sector, which is equivalent in size to fisheries, agriculture, and forestry combined.

I invite you to examine in more detail the seven policy areas we have identified in our report that merit urgent attention. The challenges the tourism sector in Canada faces are profound, but they are not insurmountable. However, if we are to ensure that we remain competitive as a destination, we need a concerted and united effort on the part of leaders in the public and private sectors to address these competitive challenges now, or it will be too late.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Williams.

We will go to questions from members.

Mr. Eyking, you have six minutes for the opening round.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Thank you, Mr. Chair.

I'd like to thank the guests for coming here today. I'm sorry about last week.

I have two questions. The first is for the tourist association.

I've done some round tables across this country and have gotten very similar results to those in your report, especially dealing with the problem of air access, border restrictions, approved destination status, and also availability of foreign workers, and the marketing was a big issue. All those challenges are from different departments. There are probably four or five departments involved with the challenges you're facing. There is Transport, Immigration, Foreign Affairs, and Industry.

Would be it be advisable for this government or your group to sit down with the different departments in a room and have a multi-department approach to this, so that the left hand knows what the right is doing? Often we find these departments and ministers work in silos. Especially given the timing right now and how important this is to our GDP, as you mentioned, and the slippery slope we are on, does this intervention need to happen right now?

If you can, give me a couple of minutes, because I have another question.

[Randy Williams]

I would support that recommendation wholeheartedly. We've been asking for a national tourism strategy. There is a document that exists, a framework document for building a national strategy. It hasn't been authorized or authenticated or supported by all other departments, but we'd like to see a national tourism strategy developed that is supported by all departments of government and is the full government strategy and has the support of all departments.

You have identified, right on the head of the nail, the challenge here: there are so many departments touching on tourism—and they are working in silos—that it is a huge challenge for us.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Thank you very much.

My second question deals with the airport situation. I'm going to give you an example. When we were in Vancouver, the biggest complaint, or what they were seeing, was the comparison between Vancouver and Seattle. When you look at the situation, especially the numbers in the report...and there was an article in the The Economist about the emerging economy and how there is a growing industry in tourism coming out of Southeast Asia as their economies grow, especially China's.

It the future, when Asian travellers want to go to western North America and are looking at how to get there and where they are going, what we were shown in Vancouver is that, first of all, there are a lot more airlines allowed to go to Seattle. They seem to have an open door to flights coming in.

I have another report in front of me on the airport landing fees. In Vancouver, for a B747, they're $2,400; in Seattle they're $1,700. My question is, when you see those comparisons, if something doesn't change, what's going to happen with that potentially vibrant tourist industry that we could be taking advantage of, if we don't change our airport strategy?

It's not only there. You would probably see the same thing in Toronto airport, that people are landing in Buffalo. I think it is the same right across the country. How is that going to translate over the next few years, when we're not picking up U.S. tourists, but we see all these potential Asian tourists?

[Jim Facette]

That's an excellent question. Thank you very much for it.

If we don't change the way we do business as a government in terms of policy on airports, we're going to lose potential. The reason Seattle has more international flights to either Asia or elsewhere is that the United States has 91 open skies agreements. That includes the countries in the European Union. Canada has five agreements. If you're keeping score, it's 91 to five. I'm not sure if it's a basket ball game or something else, but it's a high score. That's number one.

Number two, on the landing fee issue, the business model for airports in Canada is very different from that in the United States, and it is unique around the world. We're not asking for government subsidies to build capacity in terms of building structures, runways, and buildings, but the airports in the United States are operated by levels of government, and they are highly subsidized.

Canadian airports have invested $9.5 billion of their own money in airports. It's a very, very different business model in the United States as compared with what we have in Canada. If we don't get more air service agreements and we don't deal with the cost structure of airports, we're going to lose a great amount of potential.

It's a short drive from Seattle to Vancouver; it's not that far. And it's not just Seattle. It's as far as Buffalo is from Toronto. And Montreal is competing with our friends in the United States as well.

[The Chair, Conservative, James Rajotte]

You have 30 seconds, maximum, Mr. Eyking, if you have a very short question.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

No, I'll pass on it.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Madame Brunelle, please.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Good day, ladies and gentlemen. Thank you for being here.

My first question goes to Mr. Allan and Mr. Williams. I was reading in the documents that were submitted by your respective groups that Canada used to be second in the world as regards arrivals. However, now it is only somewhere in the top 10. Also, Canada ranks 11^th concerning total spending by international travellers in our country. So we can see that there are problems. These are only two elements among many.

In addition, according to the Tourism Industry Association of Canada, the government states that it invests $400 million per year in tourism, but we can see that is done with no overall strategy or overarching action framework. You referred to this earlier with the previous member.

You stated that the federal government has only recently recognized the importance of tourism by promising to collaborate with other partners and to explore the numerous opportunities for public-private partnerships.

You said that the government states that it invests $400 million. But does it really do so? We see that there is a lack of strategy. Please explain to me what public-private partnerships would consist of. How can we solve these problems? It is clear that there has been a substantial decline in tourism. Please give us some suggestions because this appears urgent.

[The Chair, Conservative, James Rajotte]

Mr. Williams or Mr. Allan.