Transport Committee on Dec. 13th, 2024

[Michael Deluce]

Yes, as I mentioned earlier, we were recipients of a LEEFF loan.

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

Porter, thank you.

Air Transat, what's your response?

[Annick Guérard]

We received the LEEFF loan. Just so that everybody understands as well, other countries have received subsidies.

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

You've all had good net profits, is that not right? But do you know who financed—

[Annick Guérard]

No.

[Alexis von Hoensbroech]

That's not correct, sir.

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

Excuse me, I have a question to ask.

Do you know who finances the Government of Canada? Does anybody know, from the three companies that are here today?

I guess you don't know, but let me tell you: It's Canadian citizens, those same citizens who travel on your planes and who, today, need a little support and relief. Here you are, imposing all these fees on Canadians. If you don't remember, it was Canadians who bailed you out in hard times.

Thank you very much for showing good support and consideration towards Canadians—

[Alexis von Hoensbroech]

Unlike the government, airlines have been very successful in lowering fares.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Iacono.

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

Mr. Chair, I have a point of order.

Generally, you give the witness the same amount of time as you've spoken. Mr. Iacono took all of the time. I think WestJet deserves 30 seconds to respond.

[The Chair, Liberal, Peter Schiefke]

I will say this, Mr. Lawrence. Members are free to ask questions or to make statements during their time. He's chosen to make statements and ask questions.

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

I have a point of order, Chair.

[The Chair, Liberal, Peter Schiefke]

Colleagues, Mr. Iacono, I just want to say we are done with the first hour. We do have a second panel here.

I'll listen to your point of order, Mr. Iacono.

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

I did ask for specific responses. It was a yes or no.

[The Chair, Liberal, Peter Schiefke]

I referenced that.

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

Thank you.

[The Chair, Liberal, Peter Schiefke]

You did ask questions. You used a portion of your time for questions and a portion of your time for comments. You're allowed to do both, sir.

With that, I want to thank all of the witnesses for appearing with us here in person or online, and for sharing their testimonies today.

I will suspend the meeting for two minutes to welcome the next round of witnesses.

[The Chair, Liberal, Peter Schiefke]

I call this meeting back to order.

Colleagues, appearing before us for the second hour are, from Air Canada, Michael Rousseau, president and chief executive officer, by video conference; Mark Galardo, executive vice-president, revenue and network planning, and president, cargo; and David Rheault, vice-president, government and community relations.

Welcome to all of you.

We also have, from Air Passenger Rights, Dr. Gábor Lukács, president.

Welcome to you. It's good to have you back, sir.

We will begin with our opening remarks.

Monsieur Rousseau, you have five minutes, sir.

[Michael Rousseau, President and Chief Executive Officer, Air Canada]

Thank you, Mr. Chair.

I'm here today following some recent changes made to Air Canada's fare structure.

I'm accompanied by two members of Air Canada's executive team: Mark Galardo, Air Canada's executive vice-president, revenue and network planning; and David Rheault, Air Canada's vice-president, government relations.

I am sorry not to be speaking to you in French. I am still taking courses, but at my age it's difficult. Thank you for your understanding.

Before providing more detail on our recent changes, it is important to underline the context in which these changes were made, a context that is characterized by solid competition in the domestic market, which means lower prices, more choice for passengers and increased pressure on carriers to compete more effectively. The changes we have announced have been and will continue to be communicated to our customers with the utmost transparency.

The growth of airlines such as WestJet and Porter and the entry of Flair have profoundly changed the market dynamic. Over the last 10 years, the proportion of domestic routes where three carriers compete has more than tripled, reaching 54% in 2023, the same proportion as that of the United States. There is no doubt this increased competition has driven air fares down.

Since 2011, according to an analysis by Intervistas based on data from Sabre, the average fare in the domestic market has been reduced by about 20% in constant dollars. During the same period, the number of domestic passengers has increased by about 27%. More people are travelling, and people are paying less for their tickets. As a reminder, the average domestic fare had already gone down by about 35% in constant dollars between 1990 and 2001, according to Stats Canada.

In this context, airlines must evolve their offerings to meet the changing needs of passengers. Part of this evolution, which is to benefit passengers, has been the unbundling of fares, which allows passengers to buy only the features that they are interested in.

Today, Air Canada offers a range of fare options tailored to different preferences, including, or not, services such as checked baggage, ticket changes, refundability and on-board meals. This provides customers the flexibility to choose the options most important to them while enabling Air Canada to compete effectively. Our recent change to Air Canada's lowest fare, the basic fare, which no longer includes carry-on baggage, represents another step in this direction. With online tools and price comparison platforms, shopping for fares has never been easier. Consumers can readily identify the lowest fares available.

True competition requires companies to respond to market forces. This is exactly what we're doing. We are aligning our lowest-fare policies with those already offered by our competitors—WestJet, Porter and Flair—to be in a better position to compete for price-conscious customers. By doing this, Air Canada is ensuring consistency for consumers when comparing fares across airlines. It is important to note that all other Air Canada fare types continue to include free carry-on baggage. It is also included in all fare types, including basic, for markets other than North America and sun destinations.

This committee would like to continue the discussion around affordability. I encourage you to revisit your previous recommendations, which include a review of all costs imposed by the government on airports and airlines and the reinvestment of all rents collected back into the airport infrastructure. Currently, taxes and government-imposed fees represent about 30% of the average domestic fare. If these fees were lowered, it would make a tangible difference for people travelling in Canada.

In today's competitive environment, Air Canada must respond to real-time dynamics to remain a competitive option for travellers. Similar fare structures at other carriers have not raised concerns from Parliament. Travellers tend to prioritize the lowest advertised price even if additional fees make the final cost higher, and small differences in pricing can determine whether we are considered at all.

We will all probably agree that competition is the best way to ensure the best service and prices for Canadians. It does that by allowing customers to compare products and by letting the market decide which will succeed and which are not wanted. To remain competitive, we must ensure our fares are comparable with those of our competitors while offering travellers the flexibility to pay only for the services they value.

Our goal is to provide affordable options without compromising on the quality of service, ensuring that Air Canada remains an accessible and competitive choice for Canadian travellers.

We are available to take questions.

Thank you.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Rousseau.

Next we'll go to Dr. Lukács.

Dr. Lukács, the floor is yours. You have five minutes, sir.

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

Thank you.

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. We have no business interest in the travel industry.

Once upon a time, travel was simple. We bought a ticket. We were quoted and paid a price that covered all aspects of our trip. This commercial norm is codified in the Canada Transportation Act. Section 55 defines basic fare as “one-way air transportation of an adult with reasonable baggage between two points in Canada”. Subsection 86(1) requires the Canadian Transportation Agency to make regulations to enable passengers to readily determine the total amount to be paid for the air services they buy.

You rightly wonder why, despite clear legislative language, Canadian passengers are facing a myriad of junk fees for services inherent to air travel—seat selection fees, checked baggage fees, carry-on fees and even a fee for checking in at the airport. Junk fees are deceptive marketing tactics that hinder readily determining how much passengers will end up paying.

The airlines' decision to charge junk fees is a rational act to maximize profits in the face of ill-advised regulatory policies. It is not the airlines; it is cabinet who is to blame for approving or failing to vary the agency's decisions and regulations that have eroded existing legal safeguards against junk fees. Make no mistake: The buck stops with cabinet, not the agency.

The agency requires cabinet approval for any regulation it makes. Under section 36 of the act, the agency cannot make regulations on its own. Furthermore, cabinet has the power to vary or rescind any decision, order or regulation made by the agency. The source of that power is section 40 of the act. For example, cabinet is empowered to revise the air passenger protection regulations, APPR, on its own motion, at any time, and without waiting for the agency for years.

When it comes to the erosion of existing safeguards against junk fees, there are two noteworthy landmarks. First, in 2012 cabinet approved regulations requiring airlines to advertise the total price of air travel. Alas, they treated baggage fees as an “optional incidental service”. These provisions were initially in the air transportation regulations, but made their way into the APPR under the current government's watch. Second, in 2019 the agency exempted ultralow-cost carriers from complying with the “basic fare” requirements in the act. This decision enabled some airlines to not offer any fares that include baggage. Cabinet did not step in to rescind or vary the agency's decision on these exemptions.

The airlines did not break the law by introducing junk fees. Rather, cabinet's poor judgment enabled the airlines to introduce junk fees and made junk fees so profitable.

There is a simple way to end junk fees in air travel in Canada. The APPR's price advertising provisions should be varied to clarify that a personal item, a standard carry-on, the first piece of checked baggage and checking in at the airport are not optional incidental services. Any charges for these services must be included in the total price being advertised and quoted. Doing so would also foster fair competition by making it easier for passengers to compare fares offered by different airlines. Airlines would still be at liberty to offer a discount to passengers who make an informed decision to not use some services.

We ask you to urge cabinet to promptly exercise the powers conferred upon them in section 40 of the act by varying the APPR's price advertising provisions to end junk fees for Canadian passengers.

Thank you.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Dr. Lukács.

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, Mr. Chair.

My questions will all be directed towards you, Mr. Rousseau.

I want to first of all level set and make sure that Canadians are aware of the actions that Air Canada has taken. It's my understanding that, on December 4, you announced that, starting January 3, your basic fare would no longer include carry-on luggage. Is that correct?

[Michael Rousseau]

That is correct for just the North American and sun markets.

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

Thank you for that.

If someone wanted to have a carry-on, they could either upgrade to a higher fare or they could pay a $35 fee. Is that correct as well?