Transport Committee on Dec. 13th, 2024

[The Chair, Liberal, Peter Schiefke]

I call this meeting to order.

Welcome to meeting number 145 of the Standing Committee on Transport, Infrastructure and Communities.

Before we begin the meeting, I want to remind all in-person participants to read the best practices guidelines on the cards on the table. These measures are in place to protect the health and safety of all of our participants.

Today's meeting is taking place in a hybrid format.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Thursday, December 5, the committee is commencing its study on Air Canada's plan to impose carry-on baggage fees and carry-on baggage fees in the air transport sector.

All witnesses have completed the required connection tests in advance of today's meeting.

Appearing before us for the first half of our meeting, from Porter Airlines, we have Michael Deluce, chief executive officer, by video conference.

From Air Transat Incorporated, we have Annick Guérard, president and chief executive officer, by video conference.

From WestJet Airlines, we have Alexis von Hoensbroech, chief executive officer; and Andrew Gibbons, vice-president, external affairs.

Welcome to all of our witnesses.

We'll begin our opening remarks. I will turn it over to our guests who are joining us here in person today.

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

[Alexis von Hoensbroech, Chief Executive Officer, WestJet Airlines Ltd.]

Thank you very much.

Good afternoon, Mr. Chair and honourable committee members. Thank you for having us here today.

My name is Alexis von Hoensbroech, and I'm CEO of the WestJet Group. I'm joined by Andy Gibbons, our VP for external affairs.

We all share the same ambition, which is providing affordable air travel options to Canadians. Unbundling our product and making parts of our services optional allows us to offer the lowest possible price to those who need it and who want it. We are happy to discuss the specifics of this and receive feedback.

At the same time, there's strong evidence that a thriving low-fare environment, such as people experience in other regions of the world, can only be achieved if the government takes serious actions to reform this sector. It is time for government to bring down mandatory fees and charges that passengers have to shoulder on top of their airfare to a level that is more in line with other similar countries.

WestJet's track record is unrivalled. WestJet is the company that democratized air travel in Canada. In our 28 years of serving Canadians, WestJet has cut airfares in half. I suspect one would struggle to name many industries that have improved affordability so dramatically and so consistently.

Unfortunately, over the same period of time, government and third party fees and taxes have gone up by two-thirds.

Our latest affordability effort, the ultrabasic fare, was launched this past June to provide Canadian travellers with even more affordable options. Ultrabasic is a brand new fare that offers Canadians an average of 14% savings compared to previous fares for those travelling with just a personal item like a backpack.

While this product was criticized by some, the facts show that it has achieved strong results for customers, our operations and the country. This is not hypothetical. It is data reflecting consumer choice.

Here are some quick facts around ultrabasic. In just six months, over 2.5 million guests have chosen this fare. The reduced airfare has saved Canadians as much as $48 million. According to our guest service, travellers are satisfied with this new option, as they are with all our other products.

Our ultrabasic fare has also positively impacted our efficiency and performance, which I know has been a topic of interest for this committee. The 1.2 million avoided carry-on bags have reduced delays, which occur when there are more bags than there is overhead bin space on a flight. Between this past August and November, we have seen a 54% reduction in delay minutes and a 67% reduction in flights impacted, meaning that more Canadians are getting where they want to go on time.

WestJet prides itself on being transparent about the cost of our tickets. Unbundling our tickets is about providing the most affordable option for those who choose it and not about creating new fares. Our fares are optional and transparent; government and third party fees are not. Before Canadians even buy their tickets, government and third party taxes, fees and charges can add up to as much as $99 to a ticket price. This is more than three times what it is in the United States, where similar charges are around $28.

Canadian charges, fees and taxes go in only one direction: up. These fees are part of Canada's out-of-date user-pays model for aviation infrastructure, where passengers pay more than the services they receive, with a portion of the ticket cost going directly into federal budgets. Moreover, there is little transparency or oversight regarding how these fares are determined or utilized.

These sky-high fees are truly the main hurdle to competition in Canada. We have all seen many new airlines come and go in Canada, with Lynx Air recently publicly linking their demise to the incredibly high government and third party fees and charges.

WestJet believes that the priority area that needs reform and scrutiny is the high cost and burden of these third party and government fees to the public. They are unfair, hurt our ability to compete and negatively impact Canadian wallets. Ultimately, these fees prevent millions of low-income Canadians from using air travel in a country that is so big that there is often no other option to travel but by air.

In closing, Canada has a robust air travel market, but we can work together to make it better. Canada's outdated user-pay model requires comprehensive review and reform. Many countries around the world provide air service and infrastructure at a higher quality and much lower cost. These should serve as a blueprint for a modern and more affordable Canadian air travel sector. Until such review is completed, Canadian regulators should refrain from introducing any additional financial burden to the sector that will further negatively impact ticket prices for Canadians.

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

[The Chair, Liberal, Peter Schiefke]

Thank you very much, sir.

It's your turn now, Ms. Guérard. You have the floor for five minutes.

[Annick Guérard, President and Chief Executive Officer, Transat A.T. Inc.]

Thank you.

Good afternoon, Mr. Chair and members of the committee.

Thank you for this invitation.

This year, Air Transat celebrated 37 years in business. Founded and based in Montreal, our company carries over 5 million passengers every year to nearly 60 international destinations in 28 countries, mainly in Europe, North Africa, Latin America and the Caribbean. We are guided by strong corporate values. Our customers and employees are at the heart of our concerns and all our decisions.

Air Transat's presence ensures healthy competition in the Canadian airline industry and competitive pricing in the markets we serve. We are committed to working with government and parliamentarians to preserve competition and ensure choice for Canadian travellers.

This committee has already been made aware that Air Transat, previously debt-free, is now facing financial challenges related to the impact of the pandemic, due to two years of suspended or limited operations as a result of travel restrictions. We face a high level of debt, which limits our ability to compete and grow.

We note the announcement made last week by Air Canada. We can now state that, since this announcement, all our Canadian competitors now apply some form of cabin baggage restriction or charge for certain passengers in certain markets.

The use of ancillary fees for optional services such as baggage and seat selection is common practice in Canada and for many international airlines. However, we feel it appropriate to use this forum to highlight the excessive and ever-increasing fees, taxes and regulatory burden that place the entire Canadian air transport ecosystem at a competitive disadvantage compared to other countries.

In recent years, we have witnessed a considerable increase in external fees and charges as part of Canada's so-called user-pay model, as mentioned by Mr. von Hoensbroech. For example, the air travellers security charge recently increased by 33%. In addition, charges for air navigation services have increased by almost 30% in 2023, and are set to rise again in 2025. In addition, Canada's major airports currently pay around 12% of their gross revenues in rent for Crown land, plus other payments in lieu of property taxes. At the same time, airports are making significant investments in infrastructure, and passengers are paying increasingly high airport improvement fees, which are nearly six times higher than what the American consumer has to pay.

The regulatory burden also represents a significant burden for travellers. The new requirements of the air passenger protection regulations, adopted in 2019 and amended in 2022, have also added to the bill for the air transport system. Other regulatory proposals from the Canadian Transportation Agency are currently under review, and would again result in considerable additional costs for the system.

Canada's air transportation system is essential. Canadian consumers and travellers are telling us they can no longer afford the constant cost increases we have to add to the price of an airline ticket. An airline like Air Transat, which does not dominate the market, is certainly no longer in a position to pass on these increases to its customers.

At a time when the pressure is on and airlines are withdrawing from certain markets, Air Transat's presence enables Canadians to benefit from a broader offer and make choices according to their needs and budget.

This is the approach we are taking to continually strengthen our network. We have a joint venture agreement with Porter Airlines under which we offer Canadians simple, transparent and affordable domestic and international travel options. We combine Porter's domestic and North American network with Air Transat's expanding international network. This commercial agreement is excellent news for travellers and for competition among Canada's air carriers, as it enables us to offer additional services from a growing number of cities.

To conclude, I would like to reiterate our commitment to playing a competitive and innovative role, as well as our willingness to continue working with the government and Parliament to advance the interests of the travelling public and our 5,000-plus employees.

Thank you.

[The Chair, Liberal, Peter Schiefke]

Thank you, Ms. Guérard.

Next, we have Mr. Deluce from Porter Airlines.

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

[Michael Deluce, Chief Executive Officer, Porter Airlines Inc.]

Thank you.

Good afternoon, Mr. Chairman and members of the committee. Thank you for the invitation to speak on behalf of Porter Airlines.

Porter has transformed within the last two years to become an airline serving more than three dozen markets across North America, as well as points around the world through various airline partnerships, including our joint venture with Air Transat.

We now operate in every province and are a genuine third option for Canadian air travellers, with over 10% of seats in the domestic market. This number is growing rapidly as our fleet of new Embraer E195-E2 aircraft is planned to more than double to 100 in the coming years.

Our focus is on providing an enjoyable experience for economy passengers by offering more value to these travellers than any other airline, through features such as complimentary beverages, including beer and wine served in glassware; premium snacks; free Wi-Fi; and earning 100% loyalty points regardless of the fare you purchase.

Economy passengers are diverse, ranging from day trippers and students on a budget to those looking for a premium all-inclusive experience. Economy travellers have various needs, and we cater to everyone, including people who value the option of a basic fare.

We introduced basic fares in 2018. Today, we have six types of economy fares with varying benefits, and basic is the second most popular fare we offer based on the number of seats sold. Basic economy fares have made air travel more accessible for Canadians and an affordable option for millions of passengers globally, allowing airlines to introduce competition on a scale never seen before. In North America, every airline of note offers a version of basic fares, from ultralow-cost carriers to global network carriers.

Only about 8% of basic fare passengers elect to upgrade their tickets to include a standard carry-on bag to go along with their personal item. This amounts to less than 2% of Porter's total customers.

Our basic fare clearly provides a benefit to consumers who do not intend to bring a carry-on bag to save on their base fare. We make every effort to clearly identify what's included and what's not in every fare type through the purchase process. To ensure passengers are well informed about the features of their selected fare, there are multiple prompts highlighting this prior to the customer confirming their purchase.

It's clear that more Canadians are flying because of basic fares, with a significant majority preferring the value this option provides and understanding what it includes. For those with a preference for having other services as part of their ticket, we have even more options for them.

Through the introduction of new routes that keep prices low and our commitment to elevated economy air service, Porter has set a new standard in the Canadian airline industry. This is driving positive change for all Canadians through healthy airline competition.

Thank you for the opportunity to make this submission. I look forward to answering your questions.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Deluce.

Colleagues, we'll begin our line of questioning today with Mr. Lawrence.

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

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much.

My questions will be for WestJet and Mr. von Hoensbroech.

I just want to start out by saying I understand the argument of the industry with respect to unbundling for passengers who don't want the full happy meal or the full value meal—I think you used this example in the media—but might just want french fries or a hamburger.

The obvious question, though, is this: If you unbundle, then it should be at a reduced cost, so since you've brought out your ultrabasic fare, how much cheaper is an ultrabasic fare versus a basic fare?

[Alexis von Hoensbroech]

I see it in the exact same way you do, and I think that's probably also the main misunderstanding in the public space. We have actually reduced our average fare for ultrabasic by 14% over what it was before, when it was a normal basic fare. There's a substantial reduction in price, and over the last six months, this has actually added up to $48 million of savings collectively for all those who booked this fare, so this is a considerable saving.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much.

I find sometimes that when we talk in generalities, we lose some of the point. I want to take a bit of a different approach and actually go through a fare with you. This is an actual fare that was purchased to fly from Winnipeg to Victoria on WestJet, obviously, in December.

The base fare starts at $197. I think most would agree that's a reasonable price. After we go through all the add-ons, we're up to $274. If you would be good enough, I'd like to go through each one of these additional fees and have you explain what they are and whom they go to.

The first one I have is $30 for YQI and, in brackets, “other air transportation charges”.

Could you explain what that is and who benefits from that charge?

[Alexis von Hoensbroech]

Yes, for sure.

First of all, we differentiate between those charges that we charge as an airline, which go straight into the airline.... These are what we call air transportation charges. They include the base fare and this YQI surcharge that you mentioned, and then the others are third party charges that come on top of it.

Why do we have a YQI surcharge? It's because there are infrastructure costs embedded in our base fare. For instance, navigation charges—those are domestic—are, I think, $15 per passenger. They're part of what the airline has to pay, and they're not a flow-through that goes through the other taxes and fees. This is reflected in there, and the same is also true for the aeronautical charges that we pay to airports.

It's basically a reflection of infrastructure costs that are paid by the airline and not paid through the tax box of the passenger.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

To simplify it a bit, how much of that $30, on average, would WestJet keep and how much would flow through to Nav Canada and other government...?

[Alexis von Hoensbroech]

It all flows through.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

It all flows through. Thank you.

Next up is the GST. I think we know what that is. It's $11.82.

Next is the $9.46 charge for the “air travellers security charge”. I know what that is, but perhaps you could share with the Canadians what that is.

[Alexis von Hoensbroech]

That's money being paid for security screening. However, this money doesn't go to CATSA, which performs the security screening. It actually goes into the federal budget, which then pays CATSA.

We assume, and we have a strong belief to assume, that our passengers are actually overpaying for security charges. The $9, which is the domestic charge, actually goes up to somewhere in the mid-twenties for international flights, although the process is the exact same thing. This charge was just hiked by 33%, and as far as I can see, there aren't 33% more additional agents doing screening, so it's a straight price increase for Canadians.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you for that.

The next is $25 for an “airport improvement fee”.

[Alexis von Hoensbroech]

That's the airports directly charging the passenger, on top of what the airports directly charge the airline, which is covered in the prior field I mentioned.

This must have been a flight from Victoria to Winnipeg, not the other way around, because Winnipeg charges a $45 AIF, so this is actually at the low end of what you have been showing.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

The final charge is GST on the airport improvement fee, so it's a government tax on a government fee.

Another embedded government cost, in addition to whatever corporate taxes and otherwise WestJet might pay, is the carbon tax. Does WestJet pay the carbon tax. If so, how much?

[Alexis von Hoensbroech]

Absolutely.

We pay the carbon tax. Again, that's embedded in the airfare that we charge. It's first collected by the airline and then we pay it forward.

It's only charged for intraprovincial flights, so it would be only charged on a Calgary to Edmonton flight. That has been—

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I think that's an important point to highlight because the carbon tax is supposed to be there to make you select choices that reduce your carbon footprint. However, the way it works in the aviation space is if I fly from Toronto to Vancouver, I'm not paying the carbon tax—or the airline's not paying the carbon tax; whichever way you want to slice it—but if I fly a shorter flight from Toronto to Ottawa, I have to pay the carbon tax.

[Alexis von Hoensbroech]

That is correct.

The amount was $10 million in 2024.

I want to highlight in that context that there are lots of additional carbon reduction costs coming into this sector, and by 2028, we will be paying far north of $100 million on all of these things. By the way, half of it is just from British Columbia.

[The Chair, Liberal, Peter Schiefke]

Thank you very much.

Colleagues, just as a reminder, I'm going to be quite firm with the time today because I know everybody wants to get their questions in. If you see the yellow card, it's a 30-second reminder. If you see the red card, it means that I will be cutting you off. Thank you, everyone, for your co-operation.

Next we go to Mr. Badawey. Mr. Badawey, you have the floor for six minutes, sir.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Mr. Chairman.

Thank you to all of the witnesses for being here today.

My first question is to WestJet. How does WestJet's approach to baggage fees compare to other carriers throughout Canada?

[Alexis von Hoensbroech]

I believe our approach is very similar. First of all, many people can have a checked bag for free. If you buy a higher fare type, or if you're a loyalty member or you have a credit card from WestJet, you actually get your first bag or, sometimes, more that you can check for free.

Then, the price is actually very transparent. You can look it up on our website. The price differs from when you pay it. If you buy it at booking, you pay the least. If you buy it at the airport—basically, when you show up—then it is more because, obviously, we want this transaction to happen early in the process, so we give an incentive to do this early.

[Vance Badawey, Liberal, Niagara Centre, ON]

In the last quarter, since implementing these fees, what have the revenues been?