Thank you.
Good afternoon, Mr. Chairman and members of the committee. I would like to thank the standing committee for providing the Vancouver Airport Authority the opportunity to make an oral presentation and answer questions.
First of all, our CEO, Craig Richmond, sends his regrets for not being able to participate today as he is out of the country and asked me to appear on his behalf. I would like to begin with some prepared remarks.
The Vancouver airport shares the goal of the global markets action plan to extend Canada’s trade network and strengthen Canada’s competitive position in global markets. Our mission is to proudly connect British Columbia and Canada to the world, and connectivity as we know is essential to meeting the objectives of the action plan.
I'll tell you a little about Vancouver airport, or as we call it, YVR.
In 2014 we set a new passenger record with 19.35 million passengers. That was a 7.7% growth over 2013, and Asia-Pacific traffic on its own had a 10% growth. In 2015 we expect to exceed 20 million passengers with a growth rate of about 4.2%. Today, almost 50% of the global economy is accessible by daily, non-stop, scheduled service from YVR. Our vision is to be a world-class, sustainable gateway between Asia and the Americas. That's been our focus for the last 20 years.
We have set an ambitious target of growing to 25 million passengers by 2020. Why are we doing that? It would mean over 30,000 direct jobs at the airport generating over $2.7 billion in gross domestic product and over $800 million in tax revenues to local, provincial, and federal governments. This growth also means more tourists to support my friend Mr. Taylor and his industry, more international students, and more business-to-business connections needed to develop markets and facilitate trade.
We want to be a gateway airport because that means more air service to more destinations. The Vancouver market is often not big enough to support a daily international air service to priority markets such as Xiamen or Santiago. But if an airline can combine a service from, say, Hangzhou to a Canadian city with an onward leg to a city in Latin America, then the economics of the flight work, and that's an important consideration.
If we look at connecting traffic, and you may wonder why we care about connecting traffic because these people are not coming to Canada, on an international flight anywhere from 25% to 50% of passengers on board are connecting, and that can result in the flight being profitable, something we would not be able to sustain based on our own small market base. So Canada benefits because the plane lands here bringing tourists and international students, and providing belly space for perishable cargo for our export markets.
I just want to touch on a few quick stories to highlight the importance of air transport to building Canada’s export market.
Direct air service stimulates the tourism market. Prior to having any direct service between Auckland and YVR, British Columbia had about 20,000 New Zealanders visiting each year. When non-stop air service began in 2007 that number jumped to 30,000. When we gained non-stop seasonal service to Munich two summers ago, German tourists to British Columbia jumped by 15%, so direct air service matters.
British Columbia alone has over 35,000 international students spending over $2 billion a year on tuition, food, accommodation, and other necessities. These students and their families develop an affinity for Canada. In the future they often return as tourists, invest in Canada, or do business here. The B.C. Council for International Education says that this market could be much bigger, but that students or their parents choose other destinations because they do not have direct, non-stop services.
Switching to cargo, fresh seafood is a very high-value export that must go by air. In British Columbia we export about $1 billion a year in fresh seafood. Dungeness crab is prized in Asia, but these crabs have 24 hours to make it from Canadian water to that seafood market in China.
Without non-stop service to Beijing, Shanghai, and Hong Kong, these markets would be closed to Canadian exporters, but markets such as Vietnam, Singapore, and Malaysia are not available. I’ll touch on that a little later. I'd also like to note that while some cargo moves on dedicated freighters, the vast majority of it moves in the belly of passenger aircraft. Passenger air services are critical to our cargo business.
Just like the supply chain for perishable goods has to work in complete concert, so do policies that support expanded trade and competitiveness. One of the concepts we talk about at YVR is what we call the “policy trinity”: first, free and open trade agreements; second, liberal air transport agreements; and third, simple and efficient visa policies and border processes, and for gateway airports particularly, visa initiatives such as transit without visa. Where these three policies are aligned, it's a recipe for growth in trade, travel, and tourism from our markets.
Let me give you another example. Canada has a free trade agreement with Chile. We've had one since 1997. We recently removed the requirement for Chileans to have visas to enter Canada, but the air transport agreement between Chile and Canada, the last piece of the policy trinity, remains very restrictive. Canadian or Chilean airlines can’t route services as the market might dictate. There's a piece of the puzzle that's missing today.
We also looked at the impact of a hypothetical flight between Beijing and Vancouver that is carrying on to Chile or another Latin American destination. We estimate that the direct economic impact of such a flight would create 365 person-years of employment directly at the airport, paying $17 million in wages and almost $10 million in taxes, and would add $32.5 million in value to British Columbia's GDP. The additional visitors resulting from such a flight would create another 630 direct person-years of employment in hotels, restaurants, shops, and tourist attractions, paying an estimated $20 million in wages and over $10 million in taxes, with $27 million in value added to the B.C. economy.
There are other benefits that our model can’t even calculate, but we do know that such a new service would create additional jobs by giving businesses involved in international trade and organizations such as universities more options to reach customers, suppliers, and investors in China and Latin America.
While Canada has liberalized a number of air transport agreements in recent years with key trading partners such as the EU, South Korea, and New Zealand, a number of the emerging priority markets identified in the action plan continue to have restrictive air service agreements. Examples are Thailand, Singapore, Malaysia, Indonesia, and Vietnam.
As noted in the action plan, air transport agreements are one of the key tools to help facilitate trade and remove barriers to growth. We encourage the federal government to be proactive in pursuing air service liberalization in countries identified in the action plan, where growth in their local economy means that trade in goods and services, particularly tourism and education, is poised to take off. By “proactive”, we mean creating the opportunity in advance of specific air carrier interest. This way, when the market is ready, people, planes, and products can move immediately rather than having to wait for an extended period while the necessary agreements are negotiated.
Border and visa policies are also key. We've been working with a joint government-industry group on transit without visa and have made considerable progress. As the name suggests, this allows the transiting passengers on those gateway flights I spoke of, the ones who are not staying in Canada, to travel through a Canadian airport without the need to obtain a Canadian visa. This puts Canada on a level competitive playing field with other global hubs, which are capturing an ever-increasing share of this transit market.
Passengers have choices. A passenger starting in Asia can choose to get to Latin America via an airport in North America, via Europe, or through the Middle East. It’s shorter for many to go via Vancouver, but Middle East airports offer a simple and efficient connecting process.
As recently as 2005, 3% of the China-South America connecting traffic went through Canada, and 0% through the Middle East. By 2013, only 1% of China-South America traffic—