Transport Committee on Oct. 5th, 2006

[Marcel Lussier, Bloc, Brossard—La Prairie, QC]

More specifically, I would like to know what type of consultations, in terms of their nature and frequency, were held for you to complete this brief. Is it a matter of 2, 10 or 60 hours?

[Fred Gaspar]

It really depends. On this one, it didn't take that long. Like I said, it's the third incarnation of what essentially is the same legislation, so our membership had a pretty good understanding of what the basis or the thinking was. But for a brand-new piece of legislation that hits us out of the blue and is pretty large, you're normally talking about a process that takes months.

[Marcel Lussier, Bloc, Brossard—La Prairie, QC]

Thank you.

[Le président, Conservative, Merv Tweed]

Mr. Blaney.

[Steven Blaney, Conservative, Lévis—Bellechasse, QC]

Thank you, Mr. Chairman.

Mr. Gaspar, I listened to your presentation. I think I understood your point of view on this bill, however, I do not think I fully share it. I consider myself a client, and from that perspective, I have reservations regarding a possible connection between Quebec and Sept-Îles. If there were to be only one air carrier for that flight, tariffs would be very high. People would then say something which we hear quite frequently, in other words that the flight from Quebec to Sept-Îles is more expensive than that from Quebec to Miami. You may say that, in this case, there are more passengers, but as legislators, it is important for us to give organizations control mechanisms to ensure that there is competition. In that regard, I would say that your arguments were not compelling to me.

That being said, as my colleague said earlier, gas falls under federal jurisdiction. It costs 87¢ a litre, and that includes everything. Some may choose to kindly point out that three quarters of that cost are due to taxes. Further, it would be good for people to know that a ticket will cost $172.50 rather than $99. I think we have to be fair to the client. That what they expect from legislators.

Moreover, when there is a merger between two carriers within one airline, I think it is incumbent on the legislator to defend the public interests and make sure that there is some control over tariffs. It is possible we may see an increase in mergers. We have to make sure that they remain competitive, or at the very least, that profits remain reasonable.

I could take you out in the field. You would most probably enjoy the experience. But for the time being, I believe that this bill has merits and I hope we will be able to bring it to fruition rather quickly.

You referred to airport tariffs. Perhaps you find there are some aspects missing from the bill. I would invite you to apprise the committee of that, if the committee is willing.

[Fred Gaspar]

Actually, you may be surprised to hear that we don't disagree as much as you think we do. I actually agree with your perspective in terms of routes where there's only one service provider. To borrow the Quebec Sept-Îles example, you mentioned that if there's only one carrier flying in there, there's a lot of concern about whether the right level of service is being provided and whether the fares are too high relative to other routes. I guess the question to ask is what you ultimately think is the best way to ensure that the fares aren't too high, to ensure that the service levels in fact reflect the actual demand.

I would suggest to you that the history of this industry in this country shows that the market is really the best way to do it. If you make it cheaper for someone to start an airline, they will. Warren Buffett had the famous line that someone should have shot down the Wright brothers, because this industry just has a history of losing money.

People start businesses in this industry even when there are minimal prospects of making money, so I would suggest to you that if you want to improve choice and service in Quebec's Sept-Îles, irrespective of the fact that it's actually probably pretty good compared to where it is in other comparable markets, I would suggest to you that the best way to do so is to make the industry a lot more affordable to operate.

I'm not trying to be disingenuous in terms of the merits of the legislation, I'm just trying to say that if we want to address these issues, we need to be courageous and really deal with the cost drivers in this industry: the cost of the airports there and the cost of the fuel excise tax every time a person fills up their plane. If you make it cheap for someone to start an airline, they will, and then your issues will be addressed.

To your concern about the ability to review mergers, people have a genuine and reasonable right to understand what the effect of a proposed merger is going to be on fees and fares. I think that's absolutely right, but the question I again ask you is one of efficiency. Doesn't that already exist? We have a competition bureau in this country. Certainly, if there is a merger that is proposed that will have a dramatic serious and negative effect on the level of competition in this sector, you can bet your bottom dollar that they will be commenting on that.

I just come back to the efficiency of this measure. Is this something that really adds any new value? Really, is it something that empowers consumers to a level at which they don't currently already have it?

These are things that I would suggest are window dressing elements that look good on the surface of it, and that's why I understand why some people are very much in favour of them. But the more you peel away the layers of the onion, the more you realize there really isn't that much there.

[The Chair, Conservative, Merv Tweed]

Mr. McGuire, for one brief comment and question.

[Joe McGuire, Liberal, Egmont, PE]

I'll be very brief.

I'm wondering how a company like Ryanair can be so successful, and CanJet can't make it.

[Fred Gaspar]

I'd go back to CanJet's own press release, when they ceased their scheduled operations. They talked about the cost structure in the sector.

How does it vary specifically from Britain? I can point you to their airport structure, for instance. They have a rule that says when a British airport wants to raise fees and charges on a carrier, it must do so under a strict formula that is a certain percentage under the consumer price index. They actually force airports to operate in a cost-effective and efficient manner, because they know that affordable and efficient infrastructure drives investment at the service provider level.

In Canada we've created a superstructure that says, “Airports, you guys are businesses. Airlines, you guys are businesses. NavCanada, you guys are a business.” That's all well and good, except these other businesses--airports, NavCanada, and CATSA--are monopoly service providers. They can set whatever fees and charges they want to set. What right do we have? We get a right to stand in front of them and say, “Please don't do that. It will hurt us.”

I would encourage you to look at broad reform of the sector to really encourage the viability of regional upstarts.

[Joe McGuire, Liberal, Egmont, PE]

Mr. McGuinty said it was Irish, not British.

[Fred Gaspar]

It is, you're absolutely right. Nonetheless, the majority of the profits are in the U.K.

[David McGuinty, Liberal, Ottawa South, ON]

I was going to say, Mr. Chair, I think Ryanair is particularly successful because it's an Irish company.

[The Chair, Conservative, Merv Tweed]

With a name like Tweed, I'd have to agree.

Thank you, Mr. Gaspar. We appreciate your attending and providing the committee with some valuable information.

[Fred Gaspar]

Thank you for your time.

[The Chair, Conservative, Merv Tweed]

Thank you.

Committee, we'll prepare for the second presentation. Joining us now are Michael Pepper, Michael Janigan, Christiane Théberge, and Marie-Hélène Beaulieu.

You've all been advised as far as your presentations are concerned. Whoever wants to go first, may. We'll get through the presentations and then go to the questions of the committee.

[Michael Pepper, President and Chief Executive Officer for Travel Industry Council of Ontario, Travellers' Protection Initiative]

Good afternoon. Thank you for allowing the Travellers' Protection Initiative the opportunity to make a submission today.

My name is Michael Pepper. I'm the CEO of the Travel Industry Council of Ontario, which is known as TICO. We are responsible for regulating travel agents and travel wholesalers in the province of Ontario. There are over 2,500 registered travel agencies, which generate over $7 billion in gross sales per year.

The Travellers' Protection Initiative is an alliance of several organizations. Our goal is to persuade the Minister of Transport to make necessary changes and amendments to Bill C-11. In addition to TICO, our members include the Public Interest Advocacy Centre, represented today by Michael Janigan; Option consommateurs, represented by Marie-Hélène Beaulieu; and the Association of Canadian Travel Agents, represented by Christiane Théberge. Christiane will provide an address following my overview.

These four organizations, together with the Canadian Association of Airline Passengers, represent the interests of consumers, professionals, and small businesses from across Canada. A full list of members can be found in the appendix to our written submission, which I think has been provided to you. The focus of the Travellers' Protection Initiative is consumer protection, and our submission deals not only with what's in the bill, but also with what's not in it.

There are a couple of issues in the bill we want to talk about, but we're also asking the committee to consider making some amendments to include some other things in the bill. We think the bill provides an opportunity for the Government of Canada to take a leadership role in the world by improving consumer protection for its citizens who travel by air. There are a few fundamental issues that we'd like the government to address.

First of all, we would like stronger financial criteria for air carriers, together with published information on airline service and financial performance. The issue of airline advertising has been mentioned. We have experienced full price disclosure in the three major provinces. We are advocating full price disclosure including all of the auxiliary charges, with the exception of the GST and the PST. The final issue is the continuation of the air travel complaints commissioner.

I'd like to outline our biggest concern with the airlines—the financial criteria. My colleague Christiane Théberge will outline our concerns regarding the advertising disclosure and the continuation of the complaints commissioner.

Our first concern is the financial plight of the airline industry. Many airlines in the world today are undercapitalized and unprofitable. A number of factors have contributed to this, including bad management, overcapacity, the cost of fuel, and an ever-increasing overhead cost that airlines have to incur, collect, and pass on to their customers.

In Canada, however, the airline industry is currently stable. Canadian scheduled and chartered carriers are well managed and profitable. But this was not the case in recent years. Two large carriers in Canada failed, namely Canada 3000 and Jetsgo. Both of these airlines provided a mix of scheduled and charter services.

On the scheduled side, neither of these airlines were subject to financial oversight from the government. While we understand and agree that the Canadian government is not in the airline business, and is a strong advocate of free enterprise, it has to take a leadership role in how air carriers are allowed to behave. Scheduled carriers in Canada are not subject to any ongoing financial criteria. There are neither working capital requirements nor any requirement to hold consumers' advance payments in trust.

As an example, I want to go back to Canada 3000, which failed in November 2001, and the Jetsgo failure of March of last year. Both of these carriers were permitted to sell seats in advance in order to generate cash to pay their operating expenses. This was to the detriment of consumers. When these airlines finally ran out of money, it was the unsuspecting consumer who felt the brunt. Thousands of consumers were either left stranded or did not receive the travel services for which they had paid.

Who bailed them out? Not the federal government, and certainly not the bankrupt airlines. The lucky ones received compensation from provincial compensation funds, credit card charge-backs, or insurance companies. Many, however, received nothing at all.

Unlike provincial consumer protection against travel agency failure, there is no federal compensation fund that reimburses consumers. And yes, I understand, and we understand, why the stronger airlines, like Air Canada and WestJet, would not support such a compensation fund scheme. But there is another remedy available, which needs serious consideration, that would go a long way to improving the financial plight of airlines.

Now is an opportune time to at least introduce stronger entry requirements, requiring ongoing financial criteria such as minimum working capital and trust accounting of consumer advance payments until the services are provided. These requirements would go a long way to improving the financial health of the industry. And why now? Because the Canadian airline sector is in good financial health and it should not have difficulty meeting minimum financial criteria. This would in turn benefit existing carriers, because any new entrants would not be able to do as they have done before, which in the past has diluted the marketplace and put consumers at risk, in addition to bringing down the level for the whole sector.

These financial provisions and the ability of the minister to make regulations in respect of a national compensation fund we think need to be firmly entrenched in the act. I'm saying the ability to make regulations for a compensation fund because perhaps down the road things might turn out differently.

Those are my main issues on the financial side. I would now like to ask my colleague, Christiane Théberge, to conclude with regard to advertising and the complaints commissioner.

[Christiane Théberge, Vice-President, Public Affairs and GM Eastern Canada for the Association of Canadian Travel agencies (ACTA) , Travellers' Protection Initiative]

The second concern we would like to address is with respect to airfare advertising transparency. We were here earlier on and heard a great deal about the matter. We believe that the proposed amendments in Bill C-11 will only give the minister power to prescribe regulations sometimes in the future. TPI does not believe that the airlines will willingly change their advertising practices. We see every indication that they increasingly tend to break up their airfares and announce one way fares when these are not even available. We have seen cases where consumers, upon completing the transaction, had paid 25%, 50% or even 90% more the amount initially advertised by the airline.

In the past, the airline industry has promised to take voluntary measures, but they never delivered the goods. We are therefore skeptical of arguments put forward by the airlines, in other words that the airline industry can be self-regulating with respect to consumers' interests. Despite years of discussions with the airline industry and a series of false starts, the airline industry has not moved voluntary on this issue.

We believe that the requirement to full disclosure, with details, should be firmly entrenched in the legislation and apply to all airlines which advertise in Canada. After all, air carriers providing services in United States are already subject to these requirements. There is indeed American legislation requiring that air carriers disclose their fares in full. It is stipulated that any advertising or solicitation by an air carrier or by one of its agents or middlemen will be considered an unfair or deceptive practice, unless the price stated is entire price to be paid by the customer to the air carrier, or the agent. In subsequent interpretations of this requirement, the US DOT has issued notices to clarify that the intent of the rule is to ensure that members of the public are given proper fare information on which to base their airline travel purchasing decisions.

It should also be noted that the US DOT just recently refused to change its rule and enforcement policy that have been in place for 21 years. The Department concluded that the current practice protects consumers and helps them compare prices. It also found that the current rule promotes healthy competition while leaving airlines with freedom to innovate.

Because Canadian airlines are not covered by any provincial regulations, they perpetuate a situation where consumers often experience “sticker shock” when they see the final travel bill. As was mentioned earlier by Michael Pepper, several provincial jurisdictions including Quebec and Ontario, already require that travel agents and wholesalers be fully transparent when it comes to their advertising, something which air carriers are not subjected too, I might add. In Ontario, there is the requirement that the advertised price indicates clearly and in an obvious manner to the consumer all additional fees , with the exception of provincial sales taxes and GST. The same applies in Quebec.

It is important to remember, when we refer the healthy competition within this industry that the current situation gives airlines an unfair advantage over , in many cases, largely small businesses, creating an uneven playing field at the expense of travel agents and wholesalers and also consumers.

TPI is therefore of the view that transparency in advertising needs to be entwined in the legislation and not left to the discretion of the Minister of Transport and the agency.

One other issue is with respect to the air travel Complaints Commissioner. TPI members certainly supported the position and role of the airline Complaints Commissioner when it was created. While we believe that the Commissioner was hampered in his/her position by a lack of powers to take substantive action, having a visible place for consumers to voice their concerns and issues, and having the Commissioner annual report, added an element of transparency to the system, that cannot be replaced by the officials at the Canada Transportation Agency. While we have confidence that the CTA can adequately carry out this function, we are concerned that the issues will loose their public focus., through what was referred to earlier as the “embarrassment” that such an annual report could bring about. We do believe that this balance is important to the consumer, in a way, finally giving consumers some power.

For these reasons, we are prepared to take a “wait and see” approach with respect to this new way of dealing with complaints. However, we expect that the CTA will take a proactive role in ensuring that passenger complaints are appropriately addressed, and that this role is well-known to airline passengers,so that they may know where to lodge their complaints.

In closing, we recognize that this bill addresses many important transportation issues. TPI believes that it is in the public interest that these consumers' concerns about air travel have a proper hearing and debate. By adopting our recommendations and amendments to Bill C-11, we believe that it is possible to adopt measures that would booster consumer confidence and promote competition by ensuring a stable market with transparent and measurable standards applicable across the board. We have all seen the statistics with respect to our main air carriers and that the numbers have been rising from month to month. So this is a stable industry, at the moment.

We thank you for your attention.

[The Chair, Conservative, Merv Tweed]

Thank you very much.

Mr. McGuinty.

[David McGuinty, Liberal, Ottawa South, ON]

Thanks, Mr. Chairman.

Merci beaucoup, messieurs et mesdames, pour la présentation.

I'd like to go back to the first part of the presentation and explore, maybe mine it with any of you--Mr. Pepper, Mr. Janigan. I really appreciate the fact that you've put this in writing. I appreciate the fact that you've given us some comparative data.

Maybe for our own purposes in the future, Mr. Chairman, we could ask the Department of Transport to give us comparative evaluations of data, so we find out comparatively where the world is going and not where Transport Canada's going by itself.

I'm really struck by the fact that the Americans are further ahead in terms of compensation in particular. Is that what I saw, that the Americans have a compensation fund, or is it the service performance?

[Michael Pepper]

Full disclosure in advertising.

[David McGuinty, Liberal, Ottawa South, ON]

It's service performance. Right, sorry.

I want to go back to the compensation fund, because everybody has a neighbour or friend who has lost money at some point somewhere along the line, or knows of someone who has, on an airline. You put in writing here that the airline industry has promised to take voluntary measures, for example a compensation fund for travellers for better price disclosure in advertising, but has failed to carry through with these promises. When did the airline industry promise to take these voluntary measures, particularly on the compensation fund, and are there other industrial sectors in Canada now in which we have such a compensation fund structure?

[Michael Pepper]

I don't think the airline industry directly promised to introduce a compensation fund. I think their response to the minister with respect to regulations regarding that matter was that they could do it themselves, with regard to the disclosure as well. So my understanding is that it wasn't entrenched in regulation.

[David McGuinty, Liberal, Ottawa South, ON]

Why is there a double standard, as you point out on page 4 of your brief, between charter flights--the regulations require charters to protect moneys they have received in respect of charter flights during the period in which they have the prepaid moneys--and non-charter flights?

[Michael Pepper]

Charter flights require approval from the CTA, and upon approval they are required to provide a financial guarantee with respect to the advanced payments. They have to put up a bond or some sort of financial guarantee to cover the advance payments from the wholesaler to the charterer.

[David McGuinty, Liberal, Ottawa South, ON]

Are you calling for a removal of the double standard?