Transport Committee on May 2nd, 2024

[Andrew Gibbons]

No one is saying that.

[David Rheault]

No one is saying that.

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

We have heard that we should move from a user-pay situation, in which air travellers pay the freight for the air travel sector, to a situation in which the government invests in air travel as a public good and part of the economy.

This is the argument we heard at our last meeting.

[David Rheault]

I would say that we're not even at a user-pay model here in Canada, because there is revenue that is taken from the industry that is not reinvested. The first example is the ground rent. The second example is fuel excise tax.

If you look at the U.S., all amounts that are taken from the industry are put into a trust fund that is reinvested in infrastructure. This is more like a real user-pay model. It's taking all of the charges and fees from the industry and reinvesting them in industry. That's number one.

Number two is that some people think air travel benefits only people who travel. In fact, in a globalized economy like Canada's, a lot of communities rely on air travel for tourism, immigration or trade. There is definitely a public aspect to air travel that justifies government support for the infrastructure necessary to enable it.

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

I take the point. It does benefit air travellers more than non-air travellers, though. I think you would accept that.

I want to shift to this question around smaller rural markets. You know that this is a real preoccupation of mine, because my constituents are paying exorbitant costs to fly with Air Canada for short distances between communities like Smithers, Prince Rupert and Vancouver.

In the one market in northwest B.C. where we see competition from WestJet, the flights are consistently cheaper. We talked to Air Canada several years ago about this situation. The message we received was, “Don't worry. WestJet's pricing is artificially low. Eventually things will stabilize and we'll see equity between those markets.” We haven't seen that. People are having to drive over two hours in order to access affordable flights.

Why is there such a huge discrepancy between those markets?

[David Rheault]

You're probably making reference to Smithers and Terrace. I checked yesterday, and the basic fare difference is about $15 to $20. It depends on the time of day and the inventory available. We have increased the capacity in Smithers. We have a new flight this summer.

I'm going to quote what the mayor said. “I am delighted to know a second flight is being added by Air Canada to the Smithers Regional Airport,” she said. “The new schedule will allow residents and business travellers to plan more easily for connecting flights.”

You can see that we're taking steps to increase capacity.

[The Chair, Liberal, Peter Schiefke]

Thank you, Mr. Rheault.

Thank you, Mr. Bachrach.

We'll go to the second round. We'll start that with Mr. Strahl.

Mr. Strahl, the floor is yours. You have five minutes, sir.

[Mark Strahl, Conservative, Chilliwack—Hope, BC]

Thank you, Mr. Chair, and thank you to the witnesses.

Mr. Gibbons, I want to start with you. You mentioned the history of WestJet coming up against Air Canada and overcoming that to become a dominant national carrier. You also talked about the high taxes and fees that the government imposes on airline travellers.

In the last meeting, we came up with a figure. I believe it was somewhere between $100 and $150 for a round trip ticket before an airline takes a dollar from a passenger. Would you say that's accurate, or do you have a different figure in terms of how much the government and the airports, CATSA, Nav Canada...?

If someone's trying to buy a ticket, how much of that right off the top is going to government or federally regulated entities?

[Andrew Gibbons]

Thank you very much, Mr. Strahl.

The figure we've used is about that, publicly. We say that, for a domestic return flight, it's about $160 before the WestJet group's base fare is applied. We think that's high. Lynx thought that was high.

Most importantly for this discussion, it stifles competition. You can stimulate the market only so much when you're starting at $161. I think that's the issue.

That's the issue you see in your community, with your constituents going to Washington state. They don't have better planes, crews, staff or service. They're there because of that barrier, which has nothing to do with our company.

[Mark Strahl, Conservative, Chilliwack—Hope, BC]

The government taxes and fees actually make U.S. airports competitors to Canadian airports and make U.S. airlines competitors to Canadian airlines.

I want to give a quote here from the Montreal Economic Institute. It says, “Ottawa prefers to treat our airports as cash cows, rather than the essential transportation infrastructure that they are.”

Do you agree with that statement?

[Andrew Gibbons]

I think that's the record, honestly.

The government does overcollect for services it provides to the Canadian traveller. I think it's about the traveller and the consumer.

One quick example is CATSA. I have nothing against CATSA's leadership—they're doing their best job for the people of Canada—but that fee was raised by 29.5%, and we have questions as to whether that money.... That is a fee paid by our guests. We believe that that money should be held in public trust and should be directly tied to the services rendered by the organization. It's not that straight a line, and it's quite confusing at times to understand where the fee goes versus what the allocation of the budget is to the organization.

The new concern that we have, Mr. Strahl, is that the fees travellers are paying for their security are sometimes going to general revenues, and there's an overpay.

It's a small example of where a fee goes, and we think that if consumers and our guests are paying the fee, there should be a greater level of transparency around it.

[Mark Strahl, Conservative, Chilliwack—Hope, BC]

Is it your testimony today that if the government were to reduce these fees overall—to lower taxes, lower airport rents and reduce the fees they charge for things like security—to make it more competitive with the U.S.... If these fees were reduced from $161 by the government, would that have a positive effect on your offerings? Would you be able to offer more routes and more competitive pricing to your customers?

Do you think that other entrants, like Lynx, which have failed—I think there are eight that have failed since the early 2000s...? Do you believe that if Canada cut fees and became more competitive on the fees side, it would increase competition in Canadian airspace?

[Andrew Gibbons]

I don't think there's any doubt about it. This is what the witnesses said on Tuesday.

On top of that, we've fallen victim in this country to the “it's just”. “It's just $3. It's just $4. It's just $5.” We've had a cumulative impact of these fees, and the most measurable impact, Mr. Strahl, is the seven million Canadians who use U.S. border airports for no other reason than the issue you're asking about.

If we could repatriate those guests.... Why are we gifting the United States and those companies those travellers? We should work to arrest that.

[The Chair, Liberal, Peter Schiefke]

Thank you.

[Andrew Gibbons]

I have one more quick comment.

Our guests are paying these fees, and they're overpaying. This isn't a tax cut or something to be conferred upon a Canadian company that you may or may not think acts in the public interest. This is about the traveller and what they're paying.

[The Chair, Liberal, Peter Schiefke]

Thank you very much.

We'll next go to Ms. Murray.

Ms. Murray, the floor is yours. You have five minutes, please.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

Thank you, Chair, and thank you to the witnesses for their testimony and this interesting discussion so far.

I'm going to pick up on a comment that was just made. I think I heard that it's seven million Canadian travellers who are using U.S. airports, and that was attributed to fees.

The other day we heard that the key challenge for the Canadian air industry is the size of our country combined with the smaller population.

To what degree do you think the U.S. airlines are more competitive because of the basic structure of the U.S., with 10 times the population of Canada and a similar size, versus being about fees?

[David Rheault]

My counterpart said there are seven million Canadian travellers who fly from the U.S. That's an indication that it's cheaper there.

I will also give you another indication. If you look at U.S. carriers' presence in Canada outside the four major airports in Canada, since the pandemic their presence at other airports here is down by 40%. A lot of routes have not been re-established by U.S. carriers in Canada, because, when they have to decide how to allocate an aircraft, they look at many opportunities. Whether allocating an aircraft in Canada or the U.S., it's the same aircraft and the same crew. The fact that they're not coming back to Canada shows there is a cost challenge here that we should address together.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

Thank you for that.

I understood that Canadians are voting with their wallets, and it's cheaper, but I was asking whether it's cheaper because of the structure of the U.S. market in terms of the number of people who travel compared with the number in the Canadian market.

Anyway, I want to move on to something else.

Mr. Liebman, I'd like to explore a bit about your joint venture with Porter Airlines. Can you paint for us the picture of how that makes Air Transat more competitive than it otherwise would be?

[Howard Liebman]

Very briefly, given the time, we have historically been a point-to-point international carrier. You would catch an Air Transat flight in Quebec City, Montreal, Toronto, Halifax, Moncton or where have you, and you would fly to an international destination.

The joint venture with Porter is a commercial agreement. We're two separate companies and will remain so. As Porter begins to grow its service from all across Canada—cities across the country—and all across North America, it will bring flights and passengers in to connect with Air Transat's international flights. You can buy a ticket in Winnipeg, Regina or Edmonton, fly to Toronto or Montreal, and then go on to Lyon, Bordeaux or Rome, for example.

That's a new choice that's in competition with perhaps Air Canada, perhaps WestJet or perhaps a foreign carrier. It's an additional option for Canadian travellers, and it will be competitive.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

We've talked about fees. We understand that user fees have the customer bear the cost of the experience, as opposed to the taxpayer.

Is there something the government can do to remove barriers or increase the opportunities for the kinds of co-operative arrangements you're describing as a possible reduction of the challenges to competition and service here in Canada?

[Howard Liebman]

Again, very quickly, at a high level, Transat, Porter and others were closed for the pandemic and have hundreds of millions of dollars of debt.

We have to look at those programs. They saved the companies. It worked. They saved jobs. However, these debts are accumulating and the interest on them is accumulating. How do we go forward and protect competition at the same time?

In the hub airports, where those two will connect, how do we make sure there's adequate and fair access to the infrastructure, especially since they're going to be undergoing a lot of construction over the next years?

[Joyce Murray, Liberal, Vancouver Quadra, BC]

If there's a way for the government to facilitate those kinds of arrangements, perhaps you could put a few ideas on paper.

I wanted to get to my last question—

[The Chair, Liberal, Peter Schiefke]

Unfortunately, Ms. Murray, there's no time left. I'm being very strict today.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

It was on greenhouse gas emissions.