Transport Committee on Dec. 8th, 2020

[Joseph Sparling, President, Air North]

Thank you for giving me the opportunity to speak with you today.

Air North, Yukon’s airline, has been in business for 43 years. We are based in Whitehorse, and we currently provide gateway jet service from our Whitehorse hub to Vancouver, Kelowna, and Victoria, and regional turboprop service to Dawson City, Old Crow, and Inuvik.

We are 100% Yukon owned and our shareholders include more than 1,500 local Yukoners, including the Vuntut Gwitchin First Nation, which holds a 49% interest. With more than 200 Yukon and northern employees, we are one of the largest private sector employers in Yukon.

My purpose in today's discussion is to provide the committee with a northern airline perspective on how the government might best help Canadian airlines to return to financial stability while minimizing the burden on taxpayers. In the longer term, airlines will return to sustainability when people start to travel again. In the short term, governments have stepped up with financial assistance, for which this airline is most thankful. In the medium term, which is likely to be years rather than months, if governments choose to continue to provide assistance, then we believe that the burden on taxpayers could be minimized by attaching strategic conditions to financial aid. The logic behind this is simply that much of the aid dollars to date have effectively funded excess capacity or empty seats, with the result being that the aid has been somewhat ineffective in stemming record industry losses.

Taxpayers shouldn't be paying airlines to burn jet fuel and wear out airplanes flying empty seats around. We believe it would be far more productive to use subsidy efforts to help all airlines undergo a very necessary temporary contraction so as to ensure that they can operate sustainably with reduced traffic and flying volumes while maintaining essential services and affordable pricing.

The government's commitment to support air service to regional communities underscores the need to support regional airlines. There are currently 23 air carriers in Canada providing service to 189 communities. Only 57 of these communities are served by Air Canada or WestJet, and 131 have a population of less than 10,000. Only 49 are served by more than one airline.

In the Yukon market, we compete with both mainline carriers, one of them seasonally on our gateway routes.

During the course of the pandemic, the resultant excess capacity has doubled the subsidy required to support our essential services.

Mainline carriers only do part of the job in the north, because they don't fly to any regional communities. This is akin to skimming the cream off the top and leaving the milk to go sour. To protect essential services to, from and within the north, we've asked the government to temporarily limit mainline carrier capacity in northern gateway markets. We've also asked the government to make interline agreements mandatory for all Canadian air carriers.

Mandatory interline agreements would help to level the playing field between large mainline air carriers and small regional carriers and would protect consumers and increase competition by making mainline route networks and wholesale pricing available to consumers in regional communities. Co-operation among suppliers is a feature of national policy in both the rail and the telecommunications sectors. In this environment it makes sense for airlines as well.

You may raise your eyebrows at a proposal to temporarily limit competition, but remember, it was not that long ago that limiting competition was the norm. The Canadian airline industry was not deregulated until 1987, and the north was not deregulated until 1996. In 1977, when we started our business, if we wanted to fly between Whitehorse and Vancouver, we would have been required to demonstrate public convenience and necessity to the Canadian transport committee, and our application would likely have been denied because, at that time, the market was only producing about 300 passengers per day, which was enough to support Canadian Pacific's two daily milk run flights to Whitehorse.

With our recent border lockdown, the Yukon market is currently producing only 104 daily passengers, yet there are three daily non-stop flights to Vancouver in the market. The U.S. provides subsidy for thin airline routes through its essential air services program, but only one carrier is subsidized on any route. In Canada, we are currently subsidizing competing carriers on several routes, and in the Yukon, taxpayers are effectively subsidizing three air carriers to fly the same route.

[The Chair, Liberal, Vance Badawey]

You have one minute, Mr. Sparling.

[Joseph Sparling]

Competition is important, but it's only one factor in keeping airfares low. Airline costs are a much larger influencer on price. In that respect, the numbers don't lie. The cost of flying a passenger on a 50%-full flight is exactly 50% more than on a 75%-full flight, so it's much more important to get capacity right.

In closing, there has been much discussion about financial aid for airlines and about competition and service to regional communities, but the numbers really tell the story. The industry is in trouble and in need of more help. The data show that the impact of industry aid may be optimized with minimal impact on taxpayers while protecting regional communities and consumers if appropriate policies and associated conditions are used to leverage aid dollars.

Thank you.

[The Chair, Liberal, Vance Badawey]

Thank you, Mr. Sparling. Well done.

Mr. Charbonneau, welcome. You have the floor for five minutes.

[Jacob Charbonneau, President and Chief Executive Officer, Late Flight Claim Canada Inc.]

Thank you, Mr. Chair.

I first want to thank the committee for inviting me to make a presentation.

Late Flight Claim is a business that helps airline passengers obtain—simply, quickly and without risk—financial compensation or a refund after a flight has been cancelled or is late.

Last time I had an opportunity to appear before a House of Commons committee was during the study on Bill C-49, aiming to implement a protection regime for airline passengers. We then critically assessed that bill's shortcomings. We raised the fact that a number of points benefited and protected airline companies more than consumers. The complexity of that piece of legislation and its regulations would open the door to a number of interpretations and encourage airline companies' refusal to provide compensation or a refund, although we had been promised a simple regime that would be ahead of various international programs.

The current crisis is unprecedented and has heavily impacted the aviation and tourism industry. It has highlighted the shortcomings of the current protection regime, the processes, the control measures and the organizations in charge of its proper operation.

The government and the Canada Transportation Agency have been slow in taking steps to protect consumers. Very early at the beginning of the crisis, the European Commission and the U.S. Department of Transportation stated that air carriers must reimburse consumers for unused flight portions. Not only was this not the case in Canada, but the CTA even encouraged consumers to settle for future travel credits and mentioned they should respect the fare rules in place.

In addition, while other countries were implementing clear directives forcing airlines to refund unused portions of tickets purchased, “the CTA quickly took [temporary] steps to address the significant impacts on the airline industry”. One of the things the agency did was apply a temporary exemption on the obligation to provide compensations or to provide new protection for passengers through other airlines.

The CTA additionally gave carriers a deadline extension to respond to passengers' compensation claims. Airline companies had until October 28, 2020, to respond to all compensation claims that had been backlogged since March 25, 2020, or that had been submitted between March 25 and September 29, 2020. That represents nearly a 700% extension of the deadlines.

The agency ordered that the processing of all requests for dispute resolution before the agency concerning airlines be suspended until June 30, 2020, including all requests received under the formal dispute settlement during the suspension period.

So the agency hurried up to implement measures to protect airline companies to the detriment of consumers. One has to wonder what the Canada Transportation Agency's role is and who benefits from it.

During his presentation, Mr. McNaney, from the National Airlines Council of Canada, mentioned that foreign companies that received support were starting to take parts of the market. However, Air Canada, which was in a good position in terms of cash flow at the beginning of the crisis and which has gained several billion dollars in cash flow since, in addition to the billions of dollars in non-refunded tickets, is probably better positioned than others to face this crisis, proportionally speaking.

Moreover, I am astounded when I see a company, on the one hand, asking for public assistance to survive and, on the other hand, offering a gold plated pension of several million dollars to its outgoing president.

And what if this was not just a matter of finances? Would it not be connected to the fact that clients are better protected and helped by different entities?

As you know, travellers expect a certain level of service, and I am not talking about a five-course meal served on board with nice plates. They just want to be able to talk to someone when they have a problem or to be reimbursed when services are not provided. Unfortunately, all too often, certain Canadian carriers have neglected their duty in both cases. The same goes for organizations in charge of regulating and protecting consumers. The situation was already noticeable well before this crisis began.

The longer we wait, the more consumers lose out, as do all other players in the value chain. This situation that has persisted puts undue pressure on service providers such as travel agencies and agents, insurance providers, as well as credit card companies. They should not have been paying for the lack of clear guidelines and airlines' inability to meet their commitment.

In closing, I would like to remind the committee of the fact that, before this crisis, when the airline industry was at its peak and had record sales and profits, a number of situations showed that short-term profit superseded services provided to consumers, who were all too often taken hostage through decisions related to business operations.

What will happen now, following cost and staff cuts, and with the two airlines about to be merged, which will result in less healthy market competition, which is already restricted in Canada, in addition to increasing a number of risk factors?

I have heard various stakeholders mention, at different meetings of this committee, to what extent the airline industry is Canada's economic backbone. Must we hit a wall to realize what consequences our decisions have, thereby jeopardizing an entire industry?

Thank you.

[The Chair, Liberal, Vance Badawey]

Thank you, Mr. Charbonneau. Well done. Great job.

We now have a speakers list. We'll start off with the Conservatives, Ms. Kusie, followed by Mr. El-Khoury from the Liberals, Mr. Barsalou-Duval from the Bloc, and Mr. Bachrach from the NDP, all for six minutes each.

Ms. Kusie, the floor is yours.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you very much, Mr. Chair.

I'll start off with you, Dr. Lukács. Why do you think the Canadian Transportation Agency allowed vouchers in place of refunds to Canadians?

[Dr. Gábor Lukács]

That is a question that one should be looking into further. Surely, passengers did not ask for it. That measure benefits airlines and stonewalls passengers. That is one more reason it would be so important for this committee to review in detail all the correspondence that happened between the Canadian Transportation Agency, the government and the airlines.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Okay.

I'll state very clearly that the position of the Conservative Party has been that passenger refunds should be tied to some type of plan for the airline sector. Why do you think the government has been so very slow to address this entire comprehensive issue of a plan for the airline sector, which in our opinion would allow passengers to be refunded in total? I recognize you want to see the law enforced, but why do you think the government has been so slow to respond to this global issue, to allow the food chain of payments, if you will, down the line?

Why have they been so slow to respond, Dr. Lukács?

[The Chair, Liberal, Vance Badawey]

Mr. Lukács.

[Dr. Gábor Lukács]

I don't want to speculate about those reasons. Our position is that the airlines have to issue those refunds. When you look at the actual facts—at the balance sheets, for example, for Air Canada, which does have public financial data—they would have had the money to refund passengers. Those airlines may need some support down the line, but there is no sign that the airlines are on the brink of bankruptcy.

If the airlines are in the position of being unable to issue refunds, as opposed to unwilling, there are proper procedures in this country for dealing with that. There is the BIA, the Bankruptcy and Insolvency Act. There is the CCAA, the Companies’ Creditors Arrangement Act, often called “bankruptcy protection”. None of the airlines in question has applied for any of those instruments. It indicates that they are solvent. They do have the money. They just don't want to pay.

[The Chair, Liberal, Vance Badawey]

Ms. Kusie.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you, Dr. Lukács.

Mr. Lawford, you mentioned something that I think is of great significance going forward, through the pandemic and beyond, as we look to the vaccine. That's the loss of confidence in the travelling Canadian public. Usually, I would say, we attribute this loss to the health and safety risks the public currently associates with flying. You related it to the lack of refunds. You made a very good point, that tens of thousands of Canadians have invested lots of money in purchasing tickets. This has created a loss of confidence within them for future travel.

Can you expand upon that, please? If the government doesn't act to provide a global plan allowing for passengers to be reimbursed, can you expand upon the loss of confidence we'll see in the travelling public as a result of their uncertainty in receiving a refund, should they book a flight?

[The Chair, Liberal, Vance Badawey]

Mr. Lawford.

[John Lawford]

The return to normality, once the pandemic is controlled, will be slower if consumers believe that in similar situations, totally outside their control, they will lose money. The thing about a service such as airlines is that the value of it often fades or is actually impossible to capitalize on. I'm thinking of older travellers, people who have a once-in-a-lifetime opportunity to see family members in other countries who are nearing the end of their lives and this sort of thing. Those are not replaceable. If you have people hesitating to take those flights, they just won't do it anymore and the recovery will be slower. That's our main concern around that.

As well, the legal regime is very uncertain, as Dr. Lukács pointed out. That should be tightened. At the moment, honestly, we cannot advise Canadians that the rules are clear—i.e., that in this case this will happen, and that in that case that will happen. That's a difficult position for us to be in, because we can't tell folks what to expect right from the start.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Mr. Sparling, in the Speech from the Throne, we saw the announcement about airlines, specifically relative to the north, and it re-announced in last week's fall economic statement.

Is the funding provided by the government enough? Has the government been receptive at all to your idea of interline agreements?

[Joseph Sparling]

To answer your first question, whether the funding is enough, we don't know where the bottom will be. However, as I have observed, with associated conditions tied to the funding, it would certainly be enough. We're comfortable that we could operate with less financial relief if we could get more people on our airplanes. We could do that if there were some steps taken to rationalize capacity in our market.

Please refresh my memory regarding your second question.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Has the government been receptive to interline agreements?

[Joseph Sparling]

There's not been a lot of attraction so far, but we're working on it. It's one of those things I expressed in my remarks: the notion of market intervention is not one that first comes to mind for the government, and it's probably not one that its hearing from everybody. To me, it just makes sense, so we're going to keep on with the same message.

[The Chair, Liberal, Vance Badawey]

Thank you, Mrs. Kusie, and thank you, gentlemen.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

I thank the witnesses.

Thank you, Mr. Chair.

[The Chair, Liberal, Vance Badawey]

Mr. El-Khoury, the floor is yours, for six minutes.

[Fayçal El-Khoury, Liberal, Laval—Les Îles, QC]

Thank you, Mr. Chair.

I thank the witnesses. We really appreciate their presence.

This a fairly delicate situation. On the one hand, people who purchase tickets have the right to be reimbursed. On the other hand, it is important to support the airline sector, so that carriers can retain and protect their employees. That is actually an absolute priority for me and for most people.

We don't know how long this pandemic, during which emergency levels are increasing on a daily basis, may last.

My first question is for Ms. De Bellefeuille.

Ms. De Bellefeuille, if airline companies went bankrupt, their assets would likely be liquidated and the product would go to their creditors, be they banks, suppliers or others.

According to you, where would passengers rank in the state of the collocation? Would there be enough money to pay them, after preferential creditors got their share?

I would like to hear your thoughts on that.

[Sylvie De Bellefeuille]

Thank you for your question.

I'm not familiar with every airline company's financial statements. However, as far as I understand the Bankruptcy and Insolvency Act, if an airline company went bankrupt, passengers would unfortunately probably be among the last creditors to be paid. Therefore, the chances of recovery would be very slim. If airline companies are insolvent, by definition, they don't have enough money.

[Fayçal El-Khoury, Liberal, Laval—Les Îles, QC]

So, if airline companies were given an opportunity to protect their rights and there was a possibility for ticket buyers to be reimbursed at the end, what do you think about that?