Transport Committee on May 7th, 2024

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

There could be pricing.

[Craig Hutton]

There could be pricing—you're right. There are a number of features that go into the mix when somebody is deciding how and when to travel.

I would also say that for privacy reasons, we don't track those who are going over the border. Who is there and the actual numbers are not something we are tracking closely.

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

You don't know how many people are flying from U.S. airports as opposed to from Canadian airports.

[The Chair, Liberal, Peter Schiefke]

Thank you. I'm sorry, Mr. Strahl, but we're out of time for that answer.

I'm now going to turn the floor over to Mr. Badawey for the conclusion of the first half of our meeting.

Mr. Badawey, the floor is yours. You have four minutes, sir.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Mr. Chair.

I'm going to take a different direction. A lot of the questions have been somewhat from the political side and have concentrated strictly on the issues we're dealing with when it comes to competitiveness within the industry. I want to concentrate more on the reason we are doing this study, which is ultimately to create more revenue for airlines to offset costs that are being identified, to see what opportunities may present themselves to do just that and, therefore, to pass on a lot of the savings to the customer based on the higher revenue options and opportunities that airlines have.

In Niagara, for example, we have the ports of Niagara trade corridor. That covers parts of southwestern Ontario, including Hamilton and the Niagara area. To go back to Mr. Muys' comments earlier, we work with the Hamilton airport, the two airports in Niagara, the St. Lawrence Seaway, the Welland Canal, the short line and mainline railways—CN and CP—and our road networks within the region, especially the suppliers and transport companies that are frequenting our highways.

That said, having seen our supply chains strengthened, especially over the past year, because of the investment opportunities and attractiveness we have in certain areas, especially in the area I represent, do you see opportunities from strengthening multimodal networks, whether through investment in infrastructure, through policy or otherwise, for airlines, in partnership with, for example, rail and others, for revenue generation?

Second to that, there is not only value in the revenue for individual companies, but also value for supply chains with respect to integrating those networks, creating more fluidity and, of course with that, creating more investment opportunities for others to come into these areas to do business, as we are starting to see in southwestern Ontario, specifically in Niagara.

[Craig Hutton]

That multimodal network is important for giving people mobility options and connecting them particularly to air services, which may not be immediately locally available, so that they can easily get to their nearest airport. As you mentioned, in the Niagara region, which I'm quite familiar with, and Hamilton, which I am from, I know how congested the roadways are and how important it is that people are able to get to their destinations and access the air services they need.

Certainly, these investment opportunities are important. I know that Air Canada, for example, now offers a bus service in the region that connects to Pearson Airport for those who purchase an Air Canada ticket. That's an example of a revenue-generating opportunity, which is great for travellers. At the same time, it's sort of a new thing for Air Canada to be piloting, so I'll be watching very closely how that continues. Metrolinx is obviously very important in the Niagara region for connecting to Toronto, including, of course, with their UP service to Pearson airport. I've used that whole network many times, and I think the ability for that to be fluid and to operate appropriately is very important.

It is important for us to look at infrastructure improvements around those issues where they come into play. I would—

[Vance Badawey, Liberal, Niagara Centre, ON]

Mr. Hutton, I need an answer for this one quickly for the analysts, because I don't have much time left.

What we have to be cognizant of and looking at within this study is not only competition and therefore new revenue opportunities to pass on savings to the customer, but also the value for the customer with respect to their experience, their journey. Not all the time does their journey only include air. It may include bus. It may include train. It may include other things. We have to be cognizant of the efficiencies that can be found there, from end to end, because if efficiencies are found, the savings will be passed on to the customer.

[Craig Hutton]

The member raises an important point about that traveller perspective and making sure each of those steps is seamless and that there's an opportunity for one ticket to cover a complete journey. We're seeing that in places in Europe. I think that's what Air Canada is testing out in the Kitchener-Waterloo area with their bus service. It will be interesting to see how travellers respond to these things, but I think that is the future of how we think about travel and the seamless traveller journey.

[The Chair, Liberal, Peter Schiefke]

Thank you, Mr. Badawey, Mr. Hutton and Ms. Little.

I'd like to thank our witnesses for appearing before us for the first half of today's meeting.

I'm going to suspend for five minutes to allow the witnesses for the second half to take their place and for audiovisual to be set up accordingly.

[The Chair, Liberal, Peter Schiefke]

I call this meeting back to order.

Colleagues, we are pleased to welcome for the second half of our meeting today, from Abbotsford International Airport, Mr. Parm Sidhu, general manager, by video conference. Welcome back, sir.

From Air Passenger Rights, we have Dr. Gábor Lukács, president, by video conference. Welcome back.

Finally, from the National Airlines Council of Canada, we have Mr. Jeff Morrison, president and chief executive officer, who is joining us in person.

We'll turn the floor over to you, Mr. Sidhu, for your opening remarks of five minutes.

[Parm Sidhu, General Manager, Abbotsford International Airport]

Good morning, Mr. Chair and committee members. Thank you for having me here today to showcase our unique business model at Abbotsford airport and how we've been playing a role in the movement of goods and people.

In 1996, we had 3,000 passengers, and our biggest revenue source as a line item as an airport was raspberries grown on the airfield. In 1997, we assumed ownership and operations of the airport of the city of Abbotsford, and we were given a mandate: You have to grow the airport, you have very little borrowing power, you basically have to live within your own revenue stream and you can't cost the taxpayers of Abbotsford any money.

Shortly after the transfer, a company called WestJet said they wanted to service Abbotsford, and we brought a maintenance building to the marketplace. We didn't have a terminal building. WestJet then basically came to the marketplace. We had free parking and very low aeronautical fees, and WestJet helped us move the needle from 1997 to 2003 in a fast way. We stimulated the marketplace and shifted people from cars over to planes. Stimulation was happening. There was a win for the consumer: free parking and low fares.

From 2004 to 2015, the needle wasn't moving for us for various reasons, and we started studying the international marketplace. Ultra-low-cost carriers were making a move globally. We saw an opportunity that someone was going to get to the marketplace. We worked with our airline partners. We worked with Enerjet, which today is Lynx. We worked with NewLeaf Travel, which today is Flair. We worked with our partner WestJet. We went to them and asked, “What can we do to move the needle?”

In 2013, there were about 700,000 Canadians crossing the border to Bellingham. What could we do to bring back and repatriate these folks and give Canadians more options from their own country to see our fascinating, beautiful country? We came to the agreement that we would become an ultra-low-cost airport that simply took the fundamentals of ultra-low-cost carriers and plunked them into an airport.

Our core business is running runways, taxiways, leasing land for direct investments to aerospace companies, and running a Costco warehouse type of building. Gregg Saretsky, the former CEO of WestJet, used to call us the Costco of airports—high-value, volume priced. From there, we aligned our business model, and we enabled and empowered our airlines to go out to the marketplace, offer a product that wasn't available, stimulate the business, grow the market share for Canadians and give them the opportunity to have accessible air travel.

The numbers, I have shared with you. We had 490,000 passengers in 2015, 530,000 in 2016, 677,000 in 2017 and 842,000 in 2018. We broke the million mark in 2019. COVID hit us and all airports and airlines hard. We did have 315,000 in 2020 and 515,000 in 2021, but 2022 was the big breakout year—back to 2019 levels. We were one of the first to recover daily, weekly, monthly and annually, and last year we had a banner year.

With that in mind, last year was a record-breaking year. Most of our fares were in the double digits domestically—$49 to $79. We stimulated the marketplace. There was a significant demand for stimulation. We were turning into the Vegas of Canada in many ways. Our parking lot would fill up Thursdays and start emptying out Mondays. People were flying to Edmonton, Calgary and Winnipeg, and even transcontinentally all the way to Toronto. Something the airlines, our airline partners, had not seen before is the stimulation of four- or five-day travel for leisure within domestic Canada.

I believe we can make domestic Canada more resilient, which we showcased during COVID. Domestic travel was the first to come back. I believe that we can make it more year-round, but it's about the ecosystem on the airport and off the airport. Low fares can only do so much. They need a matching ecosystem on and off the airport. You can't have high hotel accommodation, high-cost ground transportation and low fares. They need a matching ecosystem. We believe we offer that to our airline partners in Flair and WestJet, and the numbers showcase that the demand for stimulation is there.

The ultra-low-cost carrier model is global and it is showing growth. It is like a dollar store. If you don't have a dollar store, not everyone can go upmarket. Ultra-low-cost carriers bring a product that is repetitive. You take multiple trips. You see loved ones multiple times a year. They stimulate the greater economy and the movement of goods and people.

We've already had one dollar store close. We need to sustain the current airlines. I believe the volumes are there between Porter, Air Transat, Flair, WestJet and Air Canada. If they can stay in the marketplace and deliver the aircraft orders they have into the marketplace, we will continue to make travel accessible and affordable for all Canadians so they can see our wonderful nation year-round.

The other important item is skills development. There was a shortage of pilots, but on top of the shortage of pilots, the shortness of maintenance, repair and overhaul technicians is immense as well. We need the whole ecosystem to be aligned on airfield, off airport and within aerospace aviation.

Aerospace jobs bring a multiplier to the economy. These are companies in Canada doing work that's global. They're bringing opportunities here. I believe we can continuously use our airport's aviation and aerospace to keep us competitive globally—

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Sidhu.

Next we have Dr. Lukács.

The floor is yours. You have five minutes for your opening remarks, sir.

[Dr. Gábor Lukács, President, Air Passenger Rights]

Mr. Chair and honourable members, Air Passenger Rights is Canada's independent, non-profit organization of volunteers devoted to empowering travellers. We speak for passengers, whom we help daily in their struggle to enforce their rights. We take no government or business funding, and we have no business interest in the travel industry.

I hold a Ph.D. in mathematics, and I taught financial mathematics at Dalhousie University for several years. Competition and oligopolies are some of the most complex problems in economics that have been studied for two centuries. The 1994 Nobel Memorial Prize in economics was awarded for research with applications in this very field.

Questions about competition must be addressed using real-life data and calculations, not using opinions or guesses. To answer Mr. Barsalou-Duval's question to witnesses last week, competition and the lack thereof can be quantified using, for example, the Herfindahl-Hirschman Index, or HHI. The HHI is used by the Competition Bureau of Canada, the U.S. Department of Justice, and the Federal Trade Commission. For example, the HHI can quantify Mr. Rogers' comment about the challenges of travelling to Gander. Calculating the HHI also validates Mr. Williams' views that Canada's domestic air travel market has been a near duopoly of Air Canada and WestJet.

Between 2014 and 2019, the HHI for air travel within Canada was over 4,200, which indicates high market concentration. The HHI in the U.S. domestic air travel market in the same period was only around 1,200. This quantifies that there is significantly more competition in the U.S. domestic market than in the Canadian one. To remedy Canada's domestic air travel market's competition deficit, I recommend granting to selected trustworthy foreign airlines the right to operate flights within Canada.

A lack of data on airlines' operations poses an additional challenge in Canada. The little information that is reported to Statistics Canada under the monthly civil aviation survey must be kept confidential. In sharp contrast, the U.S. requires airlines operating within, to and from its territory to file monthly route-based data on passenger and cargo numbers, as well as a 10% sample of all tickets sold. The data collected is publicly available on the U.S. Bureau of Transportation Statistics website. It has generated a substantial amount of valuable research on competition in the U.S. airline industry and enables data-driven policy-making. I recommend that Canada adopt airline data reporting and dissemination rules similar to those in the U.S. 14 CFR part 241.

I share Mr. Schiefke's and Mr. Bachrach's concern from last week that indiscriminate subsidies to air travel without substantial increase in competition will only enrich airlines at the public's expense and will unfairly favour wealthy travellers. I urge data- and calculation-driven policy-making on this issue.

First, subsidies must be targeted to specific airports or routes and to the lowest fare classes so as to incentivize low fares. Indeed, passengers who can afford a business class ticket can also afford to pay the full cost of their security screening.

Second, subsidized airports and routes should be selected on the basis of real-life data and economic analysis to ensure that the subsidy has a net-positive effect on tax revenues and that taxpayers get the maximum economic benefit for their dollars.

Lastly, subsidizing air travel without opening up our domestic market would be throwing good money after bad. Targeted subsidies must go hand in hand with remedying Canada's competition deficit by permitting selected, trustworthy foreign airlines to transport passengers within Canada.

Thank you.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Dr. Lukács.

Finally for today, we have Mr. Morrison.

Mr. Morrison, the floor is yours for five minutes. Go ahead, sir.

[Jeff Morrison, President and Chief Executive Officer, National Airlines Council of Canada]

Thank you, Mr. Chair, for the invitation to appear once again.

First, I want to acknowledge that we are on the traditional territory of the Algonquin Anishinabe peoples.

NACC, as you know, represents Canada's largest passenger airlines: Air Canada, Air Transat, Jazz Aviation and WestJet.

When it comes to air travel, let's acknowledge the obvious: Canada is a challenging market in which to operate an airline. We have a massive land mass, one of the lowest population densities on the planet, many scattered regional and remote communities and challenging climates. These are mostly, of course, natural conditions that are part of the reality of flying in Canada.

Then there are the challenges inherent in the system, which hinder competitiveness for all airlines. Let me give you five quick examples.

First, as you've heard from many others, is Canada's user-pay system. The list of fees, charges and taxes that passengers and airlines must pay are among the highest sets of fees in the world. Passengers must pay airport improvement fees, air navigation charges, the air traveller security charge and applicable taxes. Airlines must pay fees to NavCan, landing fees at airports and fuel taxes on aviation fuel. Many of these fees are set without consultation and without transparency in how or why they are set as they are. We don't oppose user-pay, but we are seeking a more competitive balance.

Second, it's estimated that airports pay over $400 million more in rent to the federal government per year than is received back in support. This is essentially a $400-million subsidy that passengers are paying to the federal government, which offers no return on investment since none of these funds are returned to the system.

Third, Canada's air travel regulatory framework is significantly burdensome and in need of modernization, and it puts Canada at a competitive disadvantage. As one quick example, Canada's security regulations currently require manual document checks when passengers board and check in, limiting the ability of air travel to make use of biometrics and facial recognition, which could speed up the overall boarding process.

Fourth, since the majority of Canadians live a short drive from U.S. airports and the U.S. system is much more competitive and cost-effective, it's estimated that over seven million Canadians choose to depart from U.S. airports on U.S. airlines.

Fifth, airlines from around the world, including Canadian ones, have committed to being net zero by 2050. According to Canada's aviation climate change plan, 60% of the path to decarbonization involves switching conventional jet fuels to sustainable aviation fuels, or SAF. However, to date, there is no notable production capacity in Canada because Canada is one of the few western nations that do not have an SAF incentive policy in place. Airlines will increasingly be making choices on where to fly based on where SAF is available.

The question becomes what we can do to address these elements of the overall system. Well, for starters, we suggest that the government stop seeing aviation as a cash cow and instead recognize it for what it is: an indispensable link that connects Canadians to each other and to the world, a critical component of the domestic and global supply chain and an economic enabler for a wide range of sectors.

Canada's airlines welcome competition, and as a result, to ensure that all airlines, large and small, have an equal opportunity to succeed, we request the following changes to create a more competitive business environment.

Airport rents should be reinvested into airport infrastructure. There's no reason why passengers should be subsidizing federal coffers at a time when airports need infrastructure to be more efficient, sustainable and accessible and to meet growing demand.

Let's conduct a review of all third party fees and charges with an eye to lowering overall costs and making them more transparent. One immediate example of how this principle could be implemented is to not adopt onerous APP regulations that will further drive up costs and threaten regional connectivity while doing nothing to improve air travel.

We need a full-scale regulatory modernization review. Although Transport Canada reviews certain regulations from time to time, we need a comprehensive approach to reviewing the regulatory environment in which airlines operate.

Although the 2024 federal budget did acknowledge the role of SAF and put some monies towards incentivizing the production of all biofuels, we call for a more ambitious plan and framework to incentivize SAF production in Canada, especially given our resource and skills advantages.

To conclude, this is clearly a comprehensive topic, and I want to thank this committee for devoting a number of meetings to this worthwhile examination.

With that, I look forward to the conversation.

Thank you.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Morrison.

To begin our line of questioning for this round, we will go to Mr. Strahl.

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

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

Thank you, Mr. Chair. I appreciate the opportunity to question Mr. Sidhu and Mr. Morrison, who have come back for round two.

I appreciate your persistence in providing testimony to Canadians.

Mr. Sidhu, the Abbotsford International Airport is the example the airlines that use your facilities and others give of what an airport should do, which is move passengers efficiently and cost-effectively through to their destination. You can correct me if I'm wrong, but the Abbotsford airport itself isn't a destination. It is a means to get people to where they want to go, and certainly, if there's a low-cost airline operating in western Canada, it is operating at the Abbotsford International Airport.

You mentioned the 700,000 Canadian passengers using Bellingham. The government claimed they couldn't quantify the number, but you said it was 700,000, and then you went to your airline partners and made some changes. What is the latest data? Have you been able to have an impact on that number because of your low-cost airport model? What are the latest numbers from Bellingham and what do you see? What lessons can other airports learn from Abbotsford to bring down the cost to Canadian consumers?

[Parm Sidhu]

We are a platform for business. We are a public asset. We enable our airlines. Our airlines are doing whatever they can to continue to make travel more affordable and accessible for Canadians. Nothing comes easy for secondary and tertiary airports like ours, Kitchener and Hamilton. We always have to be innovative and creative.

If you look at 1997 to 2003, it was really free parking and WestJet's low fare stimulating things. It's been the same thing from 2016 onwards with the ULCC movement that was built around Abbotsford, Hamilton and Edmonton. That movement showcased that there is demand.

Bellingham was doing 700,000 Canadians in 2013 of 1.3 million approximately. As to the numbers today, obviously the dollar has changed and the airline activity has changed. I believe we're still below 2019 numbers. I believe there are a fair number of Canadians—approximately 50% or more of Allegiant travellers—crossing the border. Our airlines did offer four flights a week to Seattle. The movement was building, but then COVID hit our airports and our airlines significantly.

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

Based on your low-cost model, when the federal government increases CATSA fees by 33%, for instance, or proposes to increase the airport firefighting model, what is the impact? How would you describe the impact when you're trying to keep fees low and the federal government imposes those fees? Would that not have a higher percentage impact on an airport like yours, which is trying to keep those fees low for the airlines that operate there and for Canadian consumers?

[Parm Sidhu]

That's a good question.

The brand is always Canada. Obviously, the regulatory framework at airlines and airports always needs to remain competitive nationally, globally and internationally.

When we designed the business model at Abbotsford, in parallel with the feedback from our airline partners, it was designed to be more competitive than those of most U.S. airports, and that was our ability to bring back.... If it weren't for COVID, we probably would have daily regular flights to the 10 destinations internationally where Canadians own either homes or assets. The reset with COVID has not brought back transborder flights. We're working with our airline partners to bring some of that back, but costs do matter. The stimulation is $49 to $79.

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

Mr. Morrison, I have just a bit of time left.

You mentioned the APPR, as did Andy Gibbons in the last panel. Obviously, protecting passengers is something that the government and everyone wants to see happen. Is there a danger that if it's too aggressive, it will have a negative impact on competition, as airlines will perhaps choose routes that they're afraid new APP regulations will come into effect on?

[Jeff Morrison]

The answer is yes. Frankly, it's not airlines saying that. It's small airports from around the country. The four Atlantic premiers recently sent a letter to the minister outlining their concerns with what has been proposed on that. It's a number of stakeholders.

[The Chair, Liberal, Peter Schiefke]

I appreciate the short answer. You got it in right on time.

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

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

Thank you, Mr. Chair.

Welcome to all our witnesses today—those from the first panel, of course, and now our second panel.

Mr. Sidhu, first of all, I listened with great interest to your success story in Abbotsford. I just wondered what, if anything, the City of Abbotsford, for example, contributes in direct or indirect dollars through services, tax breaks or anything of that nature to assist you guys in Abbotsford to be a success story.

[Parm Sidhu]

We have to be sustainable within our own revenue streams. We cannot cost the taxpayers of Abbotsford any money. We've reinvested $100 million since 1997 into infrastructure at the airport, which supports our aerospace companies and airlines. We have no debt today. We did get provincial and federal strategic investments within that portfolio, but we are a business unit that does not cost the taxpayers of Abbotsford any money.