Transport Committee on May 2nd, 2024

[Annie Koutrakis, Liberal, Vimy, QC]

Very quickly, I will go to Mr. Gibbons.

Thank you for your testimony.

Mr. Gibbons, as you know, this is a study on the recent events of Lynx Air.

I'd be curious to know from you how you benefited from the closure of Lynx Air.

[Andrew Gibbons]

We don't sit around and calculate benefit when an airline fails.

As I said in my remarks, we are the company that succeeded. So many others have not. It's not a day of joy around our office when an airline fails. Actually, competition makes us stronger.

I'd submit to this committee that we've made Air Canada stronger. Air Transat has made us stronger. New carriers make us stronger.

It's not a day of celebration for us. What I can tell you is what we're doing to serve that market. What we're doing to serve that market is reconfiguring all of our aircraft so that there is an ultra-low-cost part of the cabin on every WestJet airplane.

Our determination is not different from Lynx's in that we ran Swoop; we owned Swoop and we operated Swoop. Our determination as a company was that this market segment can best be served within WestJet. Instead of having to stimulate 180 seats, you may have to stimulate only 40 or 60.

We believe that is the path forward for Canadian travellers. We think that is what they want. We'll come back in a year to find out how it's going.

We serve that market too, but it is not a day of celebration for us when an airline fails.

[The Chair, Liberal, Peter Schiefke]

Thank you, Ms. Koutrakis.

Mr. Iacono.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Thank you, Mr. Chair.

Thanks to the witnesses for being here.

My riding, Alfred-Pelland, is demographically quite diverse. Many constituents have expressed concerns to me because they travel long distances to countries such as Italy, Haiti and various countries in the Maghreb and Latin America.

What steps are Air Canada, WestJet and Air Transat taking to make international travel more affordable for families who find the cost of such travel prohibitive?

[David Rheault]

Mr. Iacono, thank you for your question.

Many of our employees live in your riding because it's located near our international hub in Montreal.

All carriers keep a close eye on costs to make sure they can offer an affordable and competitive product, and not just compared to other airlines in the country.

You mentioned international travel, where the competition is global. Since we fly to Morocco, we compete with Royal Air Maroc. We also fly to Algeria, and Air Algérie also has flights to Montreal.

Canadian carriers have to offer a product at a competitive price so passengers will choose to fly with us. That in turn helps us create jobs here at home.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Mr. Liebman, would you like to add something?

[Howard Liebman]

Thank you for your question.

In June, Air Transat will be launching a brand new flight to Africa, more specifically, to Marrakesh, in the Maghreb. We are also the only carrier that serves Haiti. It's very important for us to serve those destinations.

As for rising prices, I did a bit of research and discovered that prices for international destinations in the markets we serve are roughly 20% to 30% lower than those of our competitors.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Mr. Gibbons, would you like to add anything?

[Andrew Gibbons]

With respect to Italy specifically, we have a very successful direct flight from Calgary to Rome, which is in its second season. It's very heavily subscribed, so that's bringing a western component to Canada's connectivity to Europe.

I think the reality in a market economy is that the European market was red-hot last year. The Delta Air Lines president said in February or March that they had already sold 75% of all their transatlantic seats. We are talking about the hottest, most sought-after travel market in the summer in Canada.

To your question of what we can do, we can add more routes and fill the market void that we think exists. We've done that in western Canada.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Gibbons and Mr. Iacono.

Colleagues, we'll now suspend this meeting until the vote has concluded.

[The Chair, Liberal, Peter Schiefke]

I call this meeting back to order.

We will continue the round of questions.

Mr. Barsalou‑Duval, you have the floor for six minutes.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Thank you very much, Mr. Chair.

Thanks to our witnesses for being here. The topic we're discussing today, the state of airline competition in Canada, is very important.

I'll go first to the Air Transat representative for a simple reason. We are actually conducting this study as a result of Lynx Air's bankruptcy. In recent years, WestJet has acquired Sunwing. There's also Swoop, which belongs to WestJet, and Flare Airlines, which is now in trouble. Porter is in business, but it doesn't necessarily offer international flights.

In one sense, Air Transat is the lone bulwark against a potential Air Canada-WestJet duopoly.

Not so long ago, many people were skeptical about Air Transat's future, assuming that the business would go bankrupt. However, it made it through the pandemic and now seems to have a sound growth plan.

How did your company manage to navigate the crisis when others failed?

[Howard Liebman]

Thank you for your question.

I have to say it wasn't easy. The pandemic was our biggest challenge. As I admitted in my opening remarks, we're now deeply in debt. If the pandemic hadn't occurred and we hadn't taken on all that debt, Air Transat would have been able to bring even more growth to the market. However, we want to work with Parliament to find a way to continue growing.

I also mentioned our alliance with Porter, with which we've entered into a commercial agreement to offer more options and choices to all Canadians and Quebeckers. We're also going to add new destinations, such as Marrakesh, Morocco, and Lima, Peru. We've also maintained the sole link between Montreal, Canada and Port-au-Prince, Haiti.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Thank you.

I have to admit that people around me often say they choose Air Transat because they're certain, or feel guaranteed, that they'll get good service in French, which I think is very important.

Some witnesses told us at a previous meeting that one of the factors that might help improve competition is good time slot and gate access. However, they also said that shouldn't come at the expense of an established business. When I asked Air Canada, which holds a major market position, if it should limit its growth, I was told no.

How do you limit Air Canada's growth while allowing smaller players to grow? I assume there'll be construction at the major airports and that slots will be limited.

Is there a way to do both?

[Howard Liebman]

That's a very important question, and it's also one of our concerns.

Yes, Montreal and Toronto airports will be under construction for many years. It will be very important for our competitors and us to work with the airports to ensure adequate access to infrastructure such as gates and time slots. Otherwise there won't be a lot of competition.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Is there any kind of specific mechanism that would help facilitate that access?

[Howard Liebman]

Not that I know of, because it's managed by the airports locally. We're good partners for the airports, but it's important, when addressing this issue, to ensure automatically that competitors have adequate access to airport infrastructure, especially airports serving hubs, such as Montreal and Toronto airports, for example.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Many people have pointed out that we use the user-pay model in Canada. Under that model, users pay fees based on the costs that the infrastructure generates. A somewhat different model is used elsewhere in the world, under which governments subsidize airports.

So here's a naive question: If we decided to fund the expansion of infrastructure where that investment could help create competition, would that be a good way to create that competition? We could allow the airport to expand, but by first allowing smaller businesses to have access to it.

My question is for Mr. Liebman, but I'd be glad if Mr. Rheault and Mr. Gibbons wanted to answer it as well.

[Howard Liebman]

As regards the model, the problem today is that carriers, Nav Canada and the airports are enormously indebted. The pandemic added a considerable amount of it. However, under the Canadian model, the biggest airports pay the federal government rents representing 12% of their revenues, and that money, amounting to $400 million or $500 million, goes into the federal government's coffers and isn't necessarily reinvested.

Consequently, if the federal government takes in hundreds of millions of dollars a year, you may wonder where the necessary funding for our air infrastructure will come from. In the United States and Europe, that's money that the central governments invest because aviation is an essential economic driver.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Liebman.

Mr. Barsalou‑Duval, you are unfortunately out of time.

Mr. Bachrach, the floor is yours. You have six minutes, sir.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Thank you, Mr. Chair, and thank you to our witnesses for being with us today and answering our questions.

Mr. Rheault, you described Canada's airline sector as “dynamic and competitive”. It seems like a message that is in stark contrast to the one that we heard at our last meeting, when we heard from researchers and academics who work in this space and look at the structure of the air travel sector.

One of the questions that came up was one I thought was really good. Our chair, right at the end of the meeting, essentially asked this: If we were to take up this recommendation to reduce fees and charges and make it cheaper to operate an airline in Canada, what would prevent airlines from simply increasing their prices, charging the same amount to passengers and taking that as profit? The answer we got back was nothing, essentially. “Welcome to capitalism” was basically the answer we got.

The question for you would be this: What would ensure that those savings would be passed on to customers?

I would argue that we don't have a very competitive airline industry. Certainly, the communities I represent don't see that competition translating into lower prices.

Right now, both Air Canada and WestJet are posting profits. I think Moody's projects that those profits are going to be even greater in 2024. It seems like you're doing fine under the current regulatory, tax and fee structure.

Why do those need to be lower?

[David Rheault]

I would say, first, as I mentioned in my remarks, that the market in Canada is very competitive if you compare it to other jurisdictions.

With your permission, I'll continue in French.

In 2012, the Senate considered the same question that the chair asked last time, and prepared a report on it. It considered what would happen if taxes and fees declined. One element of consensus among the witnesses and one of the report's recommendations was that, if the cost base were lowered for operators, that would help large and small airlines further stimulate the market. Stimulating the market will generate more volume and enable more carriers to offer more capacity at more affordable prices.

You and the chair asked the same question: If fees go down, by what mechanism will the savings be reflected in ticket prices? The answer is that it will do so through competition because, if a carrier wants to make a profit, competition will enter the market.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

The argument is that if you lower those fees, charges and taxes, then the barrier to entry for smaller carriers will be less, and there will be more competition, which, theoretically, will drive down prices.

[David Rheault]

It will.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

The flip side of that is that someone has to pick up those costs. The idea being presented by both the airports and the airlines is that the Canadian public should subsidize the air travel sector. This is the argument that—