Transport Committee on May 2nd, 2024

[The Chair, Liberal, Peter Schiefke]

I call this meeting to order.

Welcome to meeting number 112 of the House of Commons Standing Committee on Transport, Infrastructure and Communities.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Tuesday, April 16, 2024, the committee is resuming its study on the state of airline competition in Canada.

Before I begin, I would like to remind all members and all meeting participants in the room of the following important preventative measures.

To prevent disruptive and potentially harmful audio feedback incidents that can cause injuries, all in-person participants are reminded to keep their earpieces away from the microphones at all times. As indicated in the communiqué from the Speaker to all members on Monday, April 29, the following measures have been taken to help prevent audio feedback incidents.

All earpieces have been replaced by a model that greatly reduces the probability of audio feedback. The new earpieces are black in colour, whereas the former earpieces were grey. Please use only the black, approved earpiece. By default, all unused earpieces will be unplugged at the start of the meeting. When you are not using your earpiece, please place it face down on the middle of the sticker for this purpose, which you will find on the table as indicated.

Please consult the cards on the table for guidelines to prevent audio feedback incidents. The room layout has been adjusted to increase the distance between microphones and to reduce the chance of feedback from an ambient earpiece. These measures are in place so that we can conduct our business without interruption and protect the health and safety of all participants, including our interpreters.

Thank you for your co-operation.

Once again, today's meeting is taking place in a hybrid format in accordance with the committee's routine motion concerning connection tests for witnesses. I'm also informing the committee that all witnesses have completed the required connection tests in advance of this meeting.

I would now like to welcome our witnesses.

Appearing before us for the first hour, we have, from Air Canada, David Rheault, vice-president, government and community relations. Bienvenue. We have, from Air Transat, Mr. Howard Liebman, vice-president, government relations. Welcome to you, sir. From WestJet Airlines, we have Andrew Gibbons, vice-president, external affairs. Welcome once again.

We'll begin with opening remarks. You will each have five minutes.

With that, I will start with you, Mr. Rheault.

You have the floor for five minutes.

[David Rheault, Vice-President, Government and Community Relations, Air Canada]

Thank you, Mr. Chair.

Good morning.

I am pleased to appear before you today.

Air Canada is proud of the services it offers Canadians. We serve more than 180 airports around the world, including 50 airports in Canada. In 2023, we offered nearly 55 million seats and welcomed more than 46 million passengers, whom I thank for having chosen us.

In the domestic market, we offered Canadians nearly 25 million seats. We are the only carrier to serve all the provinces every day of the year.

At the outset, I would like underline that the Canadian air travel market is highly competitive. Close to 70 international carriers operate to Canada and compete with Canadian airlines. Some of these carriers are two to three times larger than Air Canada, including Delta Air Lines, Air France KLM, British Airways, American Airlines, Turkish Airlines and others.

In fact, Canada has three of the world's 50 most globally connected hubs. This is a significant achievement. No other country, apart from the U.S. and China, has three hubs in this ranking. This highlights that the air travel market in Canada is dynamic and competitive and that Air Canada can compete and succeed at the global level. The level of connectivity offered by Air Canada facilitates trade, tourism and immigration. It allows us to employ 40,000 people and support more than 190,000 indirect jobs.

There has also been a significant increase in competition in the domestic market, with other carriers increasing capacity, including WestJet, Porter and Flair. While in 2001 Air Canada's capacity share of the domestic market was around 75%, it's currently around 43%.

There are 24 airlines serving the Canadian domestic market, including 20 offering more than 50,000 seats per year. Three carriers have more than 10% of the capacity for a total of 82% of the capacity. Let me share with you some facts to put this into a global perspective.

In Australia, Qantas has 58% of the capacity, and more than 90% of the total capacity belongs to two carriers. In total there are 13 carriers.

In France, Air France has 54% of the domestic capacity, and four carriers have more than 10%, for a total of 95%. There are 10 carriers.

Finally, in the U.S., by far the largest market, 20 times bigger than Canada, probably the most competitive market in the world, four carriers have at least 10% of the capacity for a total of 80%. Only 28 carriers offer more than 50,000 seats per year, compared to 20 in Canada.

However, we face unique challenges in Canada that limit the airlines' ability to stimulate the market, offer more attractive fares and develop our Canadian airports. First of all, our geography is a special challenge. Canada has relatively few major cities, distances are long and the climate difficult. We also have a model in Canada under which travellers bear all costs and certain revenues are not reinvested. Travel could be made more affordable if that model were reviewed.

For example, airports pay rent to the government, and that totalled around $400 million last year. They also make payments in lieu of taxes to municipalities.

In addition, Canadian travellers are subject to high fees and charges. This includes security fees that have risen by 30% in the 2023 budget, now exceeding $34 for an international flight. In the U.S. the equivalent fee is at $5.60 U.S.

As well, airports charge airport improvement fees to fund infrastructure that can reach $46 per flight in Canada compared to $5.50 in the U.S., where the government reinvests excise taxes into the system and has announced $40 billion U.S. to support airport infrastructure.

Finally, air navigation fees are also higher in Canada.

The impact of the Canadian model has been well documented and extensively studied.

The same findings were made by the Senate Standing Committee on Transport and Communications in 2012, in the Canada Transportation Act Review, the Emerson Report, released in 2015, and, more recently, by the Montreal Economic Institute.

Here's an excerpt from the Emerson Report:

“Canada is unique among its competitors in charging onerous rents and taxes that undermine competitiveness.”

This committee issued a report last year, recommending a review of all costs imposed on airports and airlines and the reinvesting of all rents collected in airport infrastructure. We welcome that conclusion.

In conclusion, we are here today to state once again how important it is to adopt policies that acknowledge the role of our industry, which, as the Senate put it in 2012, is to be “a spark plug” not “a toll booth”.

Thank you.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Rheault.

Colleagues, I see that the bells are ringing for a vote. I would like to propose unanimous consent to allow our witnesses to conclude their opening remarks before we go to vote. Do I have unanimous consent to allow for that to happen?

I see no objection.

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

[Howard Liebman, Vice-President, Government Relations, Air Transat]

Thank you, Mr. Chair.

Thanks as well to the members of the committee for the invitation to appear today on behalf of my 5,000 Air Transat colleagues.

Established in Montreal in 1987, Air Transat it is an affordable, people-centred, international holiday airline.

Air Transat connects Canadians to some 54 international destinations in more than 25 countries in the Americas and Europe—and soon, Africa—from eight Canadian cities. Air Transat carries five million passengers every year, including half a million visitors to Canada.

Air Transat is uniquely positioned as an affordable, reliable, international air travel option for Canadians. Our 37 years in the European and sun markets has enhanced competition and lowered prices for Canadians. Air Transat is eager to work with government and with Parliament to protect competition in Canada.

Air Canada is a dominant player, offering 39% of Canada's international airline seats. To southern sun destinations, WestJet and Sunwing together held 50% of our national market when they emerged, with a share of over 70% of western Canada seats to the sun. From Montreal to Europe, Air Canada has grown its seat offering by well over 60% since 2019.

Both Montreal and Toronto airports will undergo much-needed infrastructure upgrades and construction over the coming years. Airport infrastructure, slots and gates, especially at peak times and in peak season, will be in very high demand.

As the aviation experts noted to this committee on Tuesday, we will need to work closely with airports, partners and government to ensure that access to infrastructure during the coming years of construction and beyond at our key hub airports does not impair competition as dominant industry players continue to grow significantly.

The COVID-19 pandemic and the accompanying travel restrictions forced Air Transat, as a purely international carrier, to entirely suspend its operations in 2020 and 2021. Each time, we were making sure to repatriate tens of thousands of our customers safely back home from around the world at a cost of tens of millions of dollars. Eighty-five per cent of my fellow employees were laid off, and our revenues disappeared completely.

In our 33-year prepandemic history, Air Transat never sought financial support from government. We have rebounded from the pandemic and returned to our full prepandemic employment level of 5,000 workers, to revenues of $3 billion and to a fleet of just under 40 large commercial jets.

Our previously debt-free company, which had almost $700 million of liquidity in its coffers in 2018, was able to endure thanks to some $800 million of emergency pandemic loans from the federal government under programs unanimously authorized by Parliament. Of the $800 million loans, $350 million flowed directly to passengers in the form of refunds in 2021.

Your intervention worked. These loans saved Air Transat and 5,000 jobs from the ravages of the pandemic to continue as a strong and reliable competitor in the market, and we are here to thank you for it. This was no small feat. As was noted in committee on Tuesday, Lynx is no longer in business, and Sunwing has since been acquired by WestJet.

Without the pandemic and our large resulting indebtedness, Air Transat would have been in a much more favourable financial position to grow and further enhance competition in Canada.

Three years later, market conditions have evolved significantly in our industry. We recommend that the government undertake a review of the pandemic supports that were offered, how these arrangements are now operating and whether adjustments could be made that would continue to enhance competition in the marketplace.

It may sound odd for an airline to say this, but we welcome fewer restrictions on ownership. We need more capital to be able to compete. While we would not change ultimate ownership restriction at 49% for non-Canadians, we believe it is futile to leave the limit on a single foreign shareholder at 25%, particularly in the age of large global airline alliances.

In closing, while some airlines are exiting some markets, we are offering Canadians more choice. Air Transat has entered into a new commercial joint venture with Porter Airlines whereby the two airlines will code-share and offer convenient, seamless, affordable domestic and international travel options for Canadians.

We will connect Porter's growing domestic and North American network with Air Transat's expanding international network. This commercial agreement is a major win for travellers and for airline competition in Canada, with expanded service to more and more cities.

Thank you once again for your invitation to appear today.

I will be pleased to continue the discussion with committee members.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Liebman.

Next we have Mr. Gibbons.

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

[Andrew Gibbons, Vice-President, External Affairs, WestJet Airlines Ltd.]

Thank you, Mr. Chair and members of the committee.

Thank you very much for having me here today.

My name is Andy Gibbon. I am the vice-president of external affairs for the WestJet group.

We are pleased to be here to express our views on the state of airline competition in Canada.

WestJet has been enhancing competition and offering Canadians a range of affordable air travel options for 28 years.

No company or individual has our vantage point for this discussion. WestJet is the company that made it. We took on the nation’s largest carrier when many said it could not be done.

Canada is best served by a strong and profitable WestJet, but we can do this only thanks to our guests. They have a choice, and they choose us. We are grateful.

The democratization of Canadian air travel is a WestJet achievement. In our years of serving Canadians, WestJet has cut airfares in half and increased the percentage of Canadians flying by more than 50%.

Launched in 1996 with two aircraft, 200 employees, five destinations and a dream, WestJet has grown to more than 180 aircraft and 14,000 employees, flying to more than 100 destinations in 23 countries.

With great effort, we built an airline to serve Canada. Our plan is to continue to grow better, to connect Canadians with where they want to go and to support the recovery of the tourism industry across the nation. We are adding more routes, more services and more choices under our ambitious growth strategy, which is just shy of two years old.

While there are no barriers to entry into the Canadian marketplace, it isn’t easy to grow and succeed as a new airline in Canada.

First, Canada’s geography and market are challenges. To take one example, in Europe there are 100 air travel markets with a population of over 500,000, while in Canada there are 10.

Even though its area is similar to ours, Europe, with a population 20 times greater than that of Canada, has a market that can more readily support very low-cost carriers and market newcomers.

Second, we heard experts say on Tuesday that Canada has a high and uncompetitive tax and regulatory environment, with high mandatory third party fees. The most recent budget states, “It is only fair that Canadians have full transparency about the full cost of their flight.” We agree. This must include the mandatory third party fees that truly drive up ticket prices.

Successful American carriers have found a way to serve Canadians through U.S. border communities. They do this because there are fewer fees. To them, Canada is a low-margin, high-tax and regulatory burdensome market. To this end, we recommend reviewing all taxes, fees and service charges to provide greater transparency for Canadians and a market environment to enable all carriers to thrive. This must be part of an overall review on whether the user-pay model is working for a modern Canada.

I’d like to briefly update from my last appearance at this committee to address the challenges we all face in the postpandemic start-up. We at WestJet are thriving once again. We have hired thousands of new staff. We are beyond 100% capacity and back to where we were before 2020. We have further expanded with new strategic routes while maximizing choice for Canadian consumers.

Our ambitious growth plan, which has been welcomed by Canadian communities in all regions, has three pillars. The first is to continue to be Canada’s coast to coast leisure champion. The second is to provide western leadership and bring strategic investments to historically underserved markets in the west. The third is to return to our low-cost routes.

This is what made WestJet successful and what Canadians fell in love with. We know that; we've heard that, and we are returning to what made us successful.

We are proud to be part of an industry that, despite across-the-board cost increases, has managed to maintain stable and constant prices.

Canada has a competitive air travel market, but we can work together to make it better in partnership with government.

We put forward the following recommendations for committee members:

First, review the user-pay model for a modern Canada. All government and third party fees should be reviewed for competitiveness impacts, intermodal equity and value for taxpayers' money.

Second, officially suspend all APPR policy developments. There is agreement across all communities, chambers, airports, airlines big and small, and provincial governments that these proposals do not help lower prices or increase competition. We do not believe changes should be contemplated until the current system works for Canadians. Currently, there is inconsistent application of these policies, and there are huge backlogs at the Canadian Transportation Agency that need to be addressed.

Thank you again for having me here today. I welcome your questions and look forward to this discussion.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Gibbons.

Colleagues, we're done with the opening statements. I'm wondering if we want to end it there. We have resources only until 1:30 p.m., and I'm wondering if you want to keep going to allow Mr. Williams and Ms. Koutrakis to at least get their 12 minutes. That will still leave us six minutes to be able to go and vote.

Does that sound reasonable to colleagues? Okay, seeing no objections, we'll begin with a line of questions from Mr. Williams.

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

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you, Mr. Chair.

I appreciate that we're trying to get forward and, of course, we're behind schedule, but I just think we wanted to make Air Canada feel comfortable, being behind schedule in getting this meeting going.

I'm going to start with competition, what we're looking at here in Canada, what Canadians are feeling and what they're trying to get us to do here in committee and as parliamentarians.

We really don't have a lot of competition across all markets in Canada, across all provinces and certainly between all destinations. What we've seen with that is that there are three different problems.

One, there's not a lot of competition in high-frequency routes. There is in some of them, but not all. Two, we have routes to less-travelled regions in Canada that really don't have a lot of competition and sometimes have only one or, if they're lucky, two carriers going into them. The third complaint we hear from Canadians is that it's really expensive to fly from Canada to international destinations compared to the experience of some Canadians who go across the border and find cheaper flights.

My question is for Mr. Rheault from Air Canada. Air Canada was just ranked dead last in on-time performance among North American airlines. In January 2023, 63% of flights did not arrive within 15 minutes of their scheduled time—63% of your flights.

Do you believe we need more competition to have Air Canada improve that ranking?

[David Rheault]

Thank you for your question.

First of all, our performance improved in the first quarter of 2023. Air Canada has improved its performance and is not dead last in North America.

[Vance Badawey, Liberal, Niagara Centre, ON]

There's no translation.

[The Chair, Liberal, Peter Schiefke]

Mr. Rheault, it seems we've lost the interpretation. We'll do the necessary checks.

[David Rheault]

That's perfect.

[The Chair, Liberal, Peter Schiefke]

Mr. Rheault, it's all working now.

I'm going to give you a chance to answer Mr. Williams's question.

[David Rheault]

Thank you, Mr. Chair.

Thank you for your question, Mr. Williams.

We've considerably improved Air Canada's operational performance between the first quarters of 2022 and 2023. According to the operational statistics I have, Air Canada isn't ranked last in North America.

As for competition within Canada, as I mentioned in my opening remarks, the competitive landscape in Canada isn't different from that of most other regions around the world. There are a total of 24 carriers in Canada. How many carriers serve how many markets? That obviously depends on the relative sizes of those markets. Every carrier can serve those markets based on its own business model, but the relative sizes of the markets—

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you. I'm so sorry, Mr. Rheault; I have only so much time.

We're going to look at two major routes between two major city centres.

We'll look two weeks in the future between two routes. We'll look at Toronto to Ottawa, and then we'll look at Toronto to Vancouver. For Toronto to Vancouver, there's more competition, it seems. There seem to be four airlines: Flair, Porter, WestJet and Air Canada that are competing, and you can get a round-trip price with Air Canada for $385, which seems pretty low, but if you look at Toronto to Ottawa, it seems that you have only Porter, WestJet and Air Canada, and that price goes to $585.

For a destination, Toronto to Vancouver, that is nine times further than Toronto to Ottawa, it seems that the price goes way up with not having that competition.

How do you explain that you have a price that's so much higher for a local Toronto to Ottawa destination than for a Toronto to Vancouver destination?

[David Rheault]

The routes you mentioned are the ones with the most competition. For each of those routes, prices are determined based on respective market factors.

I can't comment on the specific examples you cited because I don't see them. The price of every route obviously depends on market conditions, available inventory, supply and demand in respective markets and the type of aircraft flown among the various cities in Canada.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Mr. Gibbons, you talked about government fees. Certainly, looking at fees south of the border compared to here in Canada, they seem to be different in different major centres.

Why does Canada have such high taxes and so many more fees than the Americans do, and how does that stop either your airline from entering other routes, like you said you want to, or new airlines from coming into Canada?

[Andrew Gibbons]

What's of value here, Mr. Williams, is what the American carriers have to say about why they avoid Canada.

Their testimony, whether it's the president of Southwest or JetBlue or what have you.... These are some of the most successful low-cost carriers in the world. Their public comments about why they avoid the Canadian market and how they serve from American airports is the most critical testimony you could find.

The reason, as I said in my original comments, is that I don't think we have a tax and regulatory environment for a modern Canada. There was a time when air travel was not the essential connective tissue of Canada, as it is today.

I have nothing against rail, but we see that in issues like the rail subsidy. Passengers from Moncton to Montreal are very heavily subsidized on a train. Is that essential for Canada today? We are now the essential mode for Canada.

It's not about us versus them; it's about a regulatory environment that believes that all modes should be treated equally and that we should prioritize a different psychology and culture around aviation.

[Ryan Williams, Conservative, Bay of Quinte, ON]

When we look at aviation, too, there are certain taxes that get added. On the example I gave before, WestJet still fits in that higher category as well. It seems to be cheaper between Toronto and Vancouver than between Toronto and Ottawa.

When it comes to taxes, let's talk about one tax that airlines have on fuel—the carbon tax. Is there a carbon tax between Toronto and Ottawa and is there one between Toronto and Vancouver?

[Andrew Gibbons]

There is not a carbon tax for interprovincial travel. There is a carbon tax for intraprovincial travel. I believe it exists from Toronto to Ottawa. For intraprovincial flights in our industry, it does apply as part of the backstop.

[The Chair, Liberal, Peter Schiefke]

Thank you, Mr. Williams.

Thank you, Mr. Gibbons.

Next, we have Ms. Koutrakis.

The floor is yours. You have six minutes, please.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair.

I wanted to advise that I will be yielding two minutes of my time to my colleague, Mr. Iacono.

Thank you to our witnesses for appearing before our committee once again. I'm sure that you've become regulars in the last little while. Thank you for your testimony.

My first question is for Mr. Rheault.

At our last meeting, witnesses told us we should focus on making room in the industry for low-cost carriers to operate instead of undermining our national carrier.

Do you agree with that statement? Can you tell us what has to be done to promote that environment?

[David Rheault]

Thank you for your question, Ms. Koutrakis.

I obviously agree that Air Canada is a source of pride for Canada. It connects Canada to the world, and it's good for the country when it prospers.

Yes, there are ways to work together to improve market conditions and make all carriers more competitive both in Canada and internationally. For example, as we discussed, you could review the taxes and fees applicable to the industry. Your colleague Mr. Williams mentioned that many American carriers serve Canadians in border states. There's an airport in Plattsburgh that calls itself “Montreal's U.S. airport”.

That's a symptom of a situation that encourages Canadians to cross the border to catch a flight. We should work together to see what could be done to keep our passengers in Canada because we're also losing jobs here.

[Annie Koutrakis, Liberal, Vimy, QC]

Do you have any recommendations to make in that regard? How can we do that?

[David Rheault]

First of all, as I said in my remarks, the committee has recommended that the taxes and fees applicable to the industry be reviewed.

You could also look at how to reinvest that money in the industry. Airport rents are money that the airports remit to the federal government every year. Last year, in committee, they requested that this money be reinvested in infrastructure. We aren't asking that it be given back to the carriers. We're asking that it be reinvested to modernize infrastructure, which would help us be more competitive globally.