TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, April 21, 1999

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[English]

The Chairman (Mr. Raymond Bonin (Nickel Belt, Lib.)): We'll resume proceedings.

I'd like to welcome today Mr. Geoffrey Elliot and Mr. Clifford Mackay from the Air Transport Association of Canada. I would also like to welcome special guests from the Forum for Young Canadians. These are our future leaders. Their names weren't picked from a hat; their names were picked because of their excellence. We're very proud of them, and we look forward to meeting them every year. We welcome you to our committee.

Our meeting will go on until 5.30 p.m. To our guests, I invite you to make a presentation. The time is yours, twenty minutes to half an hour maybe, for a presentation. After that, I'm sure we'll have questions for you.

Mr. J. Clifford Mackay (President and Chief Executive Officer, Air Transport Association of Canada): Thank you, Mr. Chairman.

I should start off by introducing myself. My name is Cliff Mackay. I'm the president of the Air Transport Association of Canada. I have with me Mr. Geoff Elliot, who is our executive vice president. Some of you may have known Geoff from other jobs he has held in the past. He joined us about six months ago, and we're very pleased.

Let me start off by saying that we're truly delighted the committee has decided to launch this study. We think a study of the competitiveness of the Canadian air transportation sector is, frankly, extremely timely. There are a number of issues facing our industry that in our view are very critical. Some of them directly involve government. Our ability to maintain and improve our competitive position in what is an increasingly global market is extremely important.

The issue you've chosen to study is extremely complex. Since we had less than a week's notice, I'd like to give you a presentation on some broad outlines and some key issues. But we really hope that as you get into your investigations and as critical issues get more clearly defined, we could come back and speak to you again, once the specifics of your agenda are better understood.

So let me lay down a couple of key factors before I talk about some particular issues. The air transportation industry of this country is clearly an export industry. I know people don't always think of us in this way, but it's very important that as we go forward we begin to think about our industry in this way. Every time a foreign traveller buys a ticket on a Canadian carrier, we're earning export dollars. Every time a Canadian traveller chooses to fly on a Canadian carrier as opposed to an American or a European carrier, we're engaged in import replacement, and we're earning dollars. If you look at it from this perspective, the two major airlines generate well over $5 billion a year in exports for the country.

It isn't just the big carriers that are significantly involved in the export business. Many of what you would classify as small or medium-sized enterprises, such as the training business and the tourism business, are increasingly attracting foreign travellers and/or trainees to Canada. We're highly competitive in the training market around the world. To train a pilot in Canada costs a third of what it does in Europe, and our companies are increasingly attracting people from outside of Canada to their training programs. This is another element of the export business that exists in Canada.

This gets me to the bottom line as to why this is so important. If you look at our industry as an export industry, then fundamental questions of our cost competitiveness become increasingly important to the overall view of the competitiveness of the industry.

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It goes slightly beyond that. It's difficult for a Canadian operator to draw a line and say that's exports, this is domestic. Things that impact our cost competitiveness on the domestic side also impact our cost competitiveness on the international side. You can't draw a magic line. So if we undertake various practices in the country that increase our costs and don't improve our productivity, we're directly affecting our ability to be competitive in the international marketplace.

I wanted to make that bit of an introduction, because I think it's very important that the committee view the industry in that context. We're not simply talking about an industry that in the past was classically defined as domestic.

Let me talk a bit about some of the real opportunities that have emerged in the last few years. You're all familiar with the open skies policy, which has been a major success story for the Canadian industry. As you know, the open skies agreement was signed in 1995, and since that time there has been literally an explosion of new routes into the U.S., either directly, with Canadian carriers flying directly to U.S. centres, or indirectly, through various types of alliances, agreements, and partnerships. Today I don't think there is a major centre of any size in the U.S. that you cannot get to from a Canadian airport with no more than one connection. That has meant a significant growth in our business, and it has been quite a success story.

It has also meant—and this is a part a lot of people haven't seen—that a number of our major airports, particularly Montreal, Toronto, and Vancouver, now have an opportunity, which never existed before, to become truly an international gateway. Before we had the open skies agreement, it was very difficult for a Canadian centre to act actually as a gateway for the rest of the world. Now if someone wants to go to Tel Aviv and they live in L.A., they can easily connect through Toronto, and many do. If someone is flying in from a European or Asian centre and it's easier for them to connect through Vancouver, for example, to Portland or Seattle or someplace, it's easily done. So that opportunity now exists. It never existed before, and the open skies policy has given us that opportunity.

However, there is one issue I think needs urgent attention from parliamentarians. I hope many of you are familiar with Bill S-22, the Preclearance Act, which is currently making its way through the legislative process. Without that piece of legislation, the ability for us to fully exploit this opportunity will be very significantly circumscribed. The disadvantages to any Canadian gateway of the absence of these preclearance activities are enormous and probably would lead to a situation where we would not be able to take advantage of the opportunity.

Just to give you a brief explanation of how it works, Canadians returning from abroad are really not affected by this practice, but if, for example, a foreign traveller chooses to fly from London to Toronto and then connect down to Chicago, at the moment they're required to go through not one but two customs clearance processes. They go through the Canadian one, and then they go through the American one, even though they have absolutely no intention of leaving Pearson Airport to get on the next airplane.

We've run a pilot project in Vancouver with the cooperation of the U.S. customs authorities, and it has worked extremely well. Basically, it takes the Canadian customs clearance out of the loop and allows for only one clearance process for travellers who are not in fact entering Canada. If we can move this law forward and quickly put it in place and make these same services available at our other major gateways, I think there's a significant opportunity there not only for Canadian airlines but also for Canadian airports to improve our competitive position vis-à-vis large U.S. airports, which frankly we're competing with for this business.

An added bonus of all of this is that when international travellers use Canadian gateways, it also increases our opportunities with regard to our connections with international partners. This is the second sort of ancillary impact, which also would be positive.

I would just leave with you the thought that getting Bill S-22 through the system as expeditiously as possible would be a good step in the right direction in terms of helping our competitiveness overall.

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Let me then ask a fundamental question. If all of these marvellous opportunities are out there, why is it that our two major carriers lost money last year? You're aware that Air Canada lost something like $16 million, and Canadian something in the order of $137 million. I can tell you that the larger charters, of which there are four in the country, have also been under significant pressure with regard to their profit margins in the last couple of years.

There are lots of reasons, of course, that companies make money or lose money. They include everything from internal management decisions to changes in the general market and what not. Last year, of course, the two-week strike that Air Canada took and the Asian slump were very significant factors in the fortunes of those companies.

But there's also been another major factor introduced into the Canadian marketplace, starting in about the 1993-94 timeframe, that we believe is having an increasingly important impact on the overall competitiveness of the industry. Essentially, the results of some miscalculations and mistakes that have been made as the Government of Canada has off-loaded their responsibility for the air transportation infrastructure of this country are starting to have a significant negative competitive impact on the operation of the air transportation system in Canada.

I'm not so much talking about the fundamental policy of user pay, because I can tell you that in general that policy is subscribed to by the industry. I'm talking more about how it's been done—the timing, the pacing, and some of the regulatory aspects that have been overlooked in the process. But to give you the bottom line, airlines today—and by implication, their customers, the travelling public—are shouldering an additional $1.35 billion approximately in costs to what they used to shoulder five or six years ago. Those are annual costs. That's not an easy proposition for an industry whose total revenues are in the order of $10 billion a year.

The only way that $1.35 billion in extra costs can be paid for is in one way or the other. It's either paid for by the shareholders of the air carriers or it's paid for the travelling public. In both cases it has competitiveness implications, which I'm sure I don't need to explain to members of this committee. Ticket prices have indeed gone up. Last year was a good example. They went up, but even so, the rate at which they went up was certainly not great enough to actually absorb all of these costs in terms of airline operations.

Let me outline for you some of the major elements that have led to this situation. The big-ticket items in the privatization program of government.... I should probably preface that word “privatization”, because I know it's a bit of a political term. You can call it transfer. You can call it commercialization. For us it really doesn't matter. What it has meant is a shift in the way things are done and who pays for them. But the big-ticket items are, of course, NAV CANADA, which runs the air traffic control system for the country, and the national airport policy. Those are by far the two biggest. There are others: policing, security, and a number of smaller user charges that have been introduced for a whole range of services that are provided to commercial and private aviation interests in the country.

In regard to the big items, airports are by far the largest. Our best estimate is that the transfer of airports is now costing airlines and their customers something in the order of $850 million in terms of the differential from what it was costing back in the 1993-94 period.

To break that down for you briefly, back in the period before these services were transferred to other authorities, the federal government in fact subsidized airport operations to the tune of about net $150 million a year. By “net”, I mean that the federal government did in fact make money on some of the big airports like Toronto, but what happened was, of course, that funding was taken to offset the deficits of a large number of other airports in the country. In addition to that, the taxpayers added another $150 million. Today, the total amount of money that Transport Canada is paying for what you could call airport capital operating costs is in the order of $30 million, through a small program called ACAP.

So there has been a significant shift in the cost burden in terms of the amount that taxpayers are paying for airports. I'm not complaining about that. I'm simply stating it as a fact. Somebody has to pay for it.

That's the first point.

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Secondly—and this point does concern us significantly—today, this year, the federal treasury will probably take in something approaching $200 million for leases they are charging to these airport authorities across the country to run the airports. As I'm sure many of you know, when these airports were transferred, many of them weren't transferred in terms of the ownership. The ownership stayed with the federal government, and the federal government is charging the local authorities a fee for the privilege of running the airports and using the assets that are there. This year that fee is going to amount to about $200 million. In the future, that fee is going to go up. In some airports there's no cap on it; in others there are caps on it.

I don't want to get into these details, but there's also another thing called participation rent that will make the numbers much bigger in the future.

Needless to say, the federal government is not putting anything back into the airports by way of offsetting these costs to the benefit of the competitiveness of the industry. So somebody has to pay that $200 million. Again, gentlemen and ladies, that $200 million is being paid for by either the airlines or the travelling public.

So I'm now up to $350 million.

The next major item has to do with the capital costs associated with these airports. Everything I've talked about to date has to do with operating costs. As many of you know, in the last number of years when airports were under federal stewardship, there were significant budget restriction programs ongoing in the federal government, and the capital budgets that were available to Transport Canada to maintain and expand the capital stock of airports in this country was, frankly, quite minimal. That resulted in a situation where, as these airports were transferred, there was significant pent-up demand for refurbishing, renovation, development of new capacity, etc., across the country. Our best estimate is that demand is now running at something in the order of $6.5 billion in new capital projects across the country, and it hasn't stopped yet.

Many of those projects, I should say, are probably meritorious. Some are very controversial. Some I'm sure you've read about in the newspapers in various ways across the country. But the fact is that there's an enormous capital bill out there, and again, there are only two sources to pay for it. In this particular case, without imputing the capital cost, a conservative estimate of the financing cost to put in place those kinds of capital programs would be something in the order of $500 million over the next few years.

So as you can see, there have been enormous new costs introduced into the system as a result of the basic policy decision to transfer airports from the taxpayers' account in government to the private sector or the industry's account in the economy.

The point I'm trying to make in all of this isn't that there's something fundamentally wrong with the policy, but that this needs to be recognized in the context of what it's doing competitively to the Canadian industry.

There are a number of issues around these transfers that we have some concerns with, which we have shared with Transport Canada. I don't intend to take the time today to itemize all of that, but some of these issues can be mitigated through, we hope, some changes in policy that Transport Canada will introduce in the next few months with regard to how the national airport policy is being implemented.

I'd be happy to talk in more detail in the future about that, Mr. Chairman, if the committee is so inclined.

Let me now turn to the second item, which is NAV CANADA. What I have to say about NAV CANADA is that obviously it has also imposed a significant cost on the system, something in the order of about $500 million. But I have to hasten to add that in NAV CANADA's case, the performance since transfer has been quite positive from a number of points of view. The regulatory framework the government put in place when they transferred NAV CANADA is a significant improvement over the framework that exists for airports, which frankly is non-existent.

Today, airports operate as local monopolies with essentially no checks and balances on the way they set prices, other than that the user can take them to court. In NAV CANADA's case, there's a clear legislative framework, there's a clear way in which prices have to be evolved, and there's a clear way to settle any disagreements, if there are disagreements, about how prices are set. Also, I should say that in NAV CANADA's case, the user community, airlines and general aviation and the unions, are directly involved through representation on the board and advisory committees with the management of that corporation.

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As a result of all of that, the cost to the consumer as a result of NAV CANADA has actually gone down from what the consumers paid in the old days, when they paid the air transportation tax. And that's good news, in our view. Unfortunately, I can't make that claim with regard to airports, because frankly the cost has gone up on airports.

Notwithstanding all of that, though, I do have to say to the committee that from the airlines' point of view we're now being charged something in the order of $500 million more for services from NAV CAN than we were charged before the transfer. Before the transfer, that was all paid for by the tax and it never showed up in airline books. That's now showing up in airline books, and it's by definition then a part of the management and decision-making that needs to be made to keep an airline competitive.

I could go on with others, but I hope I've given you a flavour. There are one or two others I should mention, though, before I close. There's a major cost that's going to hit us in the next few years, probably starting in about two years' time, and that has to do with a requirement to implement another whole generation of screening and security systems in airports for the purposes of determining explosive devices of a very sophisticated nature—plastics and this sort of thing. I can tell you right now our best estimate of doing that is, at a minimum, $200 million.

To date, the Canadian government has chosen not to make any funding available for that effort. I can tell you that the American government has already spent $250 million on the effort, and European governments are also putting some front-end money on this. This again is an item for which we're not asking the taxpayer to foot the bill, but it would sure be nice to see a little help on the front end so that we get it right in implementing it. But it's another major cost that we're going to see introduced into the system in the next couple of years.

Finally, Mr. Chair, I can't talk about competitiveness in the industry and not flag for you, once again, fuel taxes. There have been numerous studies, the most recent by Professor Mintz, that have indicated very clearly that export taxes of the nature of the fuel taxes that exist in Canada are highly economic inefficient and do not lead to efficient resource allocation in our economy and therefore are anti-productive. We pay higher fuel taxes than our American colleagues, and I can tell you that in some cases some provinces have recognized that they put themselves at a competitive disadvantage over other provinces in some of their practices.

We have documented cases where, for example, one province, about two years ago, cut their fuel taxes in half. They're now taking in more revenue from that tax than they ever took in before in the history of the tax in their province, simply because the natural reaction of the marketplace is to buy their fuel in the cheapest possible place.

We believe that fuel taxes are not a good economic solution, and we would again encourage the committee to do whatever it could through its studies to look at taxes from a competitiveness point of view and I hope, over time, add their voice to our view, which is that frankly we think it's a bit of a mug's game. We're losing more money by collecting the taxes than we're making, if you look at it from an economics point of view.

So with those comments, Mr. Chairman, I would like to close by again thanking the committee very much for this opportunity and asking the committee, as they go forward.... If there's another opportunity to talk in more detail about some of these issues, we'd be happy to come back.

I'll leave you with one major thought: we need to address the broad issue of costs in the industry in order to ensure that what we're doing here in Canada isn't going to negatively impact us in the future. We're talking about a lot of jobs. We're talking about a lot of communities. I'm not just talking about big companies; I'm talking about small companies, and I'm talking about some very essential services, particularly in remote and rural areas of the country.

So with that, Mr. Chairman, thank you very much.

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The Chairman: Thank you very much.

Before we go to questions, throughout the question and answer period there are some things we may be looking for—and I'm sure members have numerous questions. I would like to have an indication of additional costs on airlines, if you can identify if it's shared properly, let's say, with regional carriers, domestic operations, as compared to international operations. Is one of those carrying an overload? I'm interested in knowing the cost of jet fuel without the tax. How do we compare in Canada to the United States, where a lot of our flights go? I know that airlines buy it where it's cheaper and they fill up at that point. If we reduce the tax and our gas is still higher, then we're not recuperating.

So I'll be looking for some of those things throughout our study. Do you want to respond now, if you're able to?

Mr. Clifford MacKay: I can try to give you a general answer and then I'd ask my colleague Geoff, if he has more detailed information, to please comment. With regard to where the costs are falling most heavily, it's difficult to distinguish it, but clearly the smaller carriers have a more difficult time in absorbing costs. It's just a simple business proposition; if you have a small cost base or a small revenue base and you have to absorb a hit and it's not proportional, then you're going to have a more difficult time doing it.

The second point I would make is on the short-haul operations. For example, North Bay to Toronto or a lot of Air Nova or those sorts of flights are probably under greater squeeze in terms of their margins than the very long haul, partly because the economics of short-haul operations are tougher to begin with. You don't get the same fuel efficiencies, you're not able to charge as much, and you're subject to more competitive pressures from other modes; for example, people can choose to drive from North Bay as opposed to fly. So there are more competitive pressures in the marketplace, and those kinds of services are likely more sensitive to cost pressures than the very large ones.

I don't want to leave you with the impression that it's easy for the big guys, because it isn't. International travel is extremely competitive these days. One of the reasons I mentioned the Asian slump last year is that one of the reactions of the industry to it was to pull capacity—i.e., pull airplanes off the Asian runs and put them on the northern Atlantic runs to Europe. That resulted in a large overcapacity situation, and prices to Europe—you probably noticed some of them—dropped like a stone late last year. You can still get some really good deals. So there are still probably people flying to Europe at best just barely making their operating costs.

It's a very fluid, dynamic and very competitive market. But if you ask me to generalize, the short-haul carriers are probably under more pressure than the long-haul carriers.

Geoff, did you want to say anything about fuel prices?

Mr. Geoffrey Elliot (Executive Vice-President, Policy and Strategic Planning, Air Transport Association of Canada): Yes, as far as I know, the ex-tax price of fuel is not much different. It's the world price of fuel, so the difference between the Canadian situation and the U.S. situation primarily is the price of the tax. What happens in high-tax jurisdictions is that the transborder operators will tank up in the U.S. and they'll fly into Canada with enough fuel on board to go back so they don't have to buy their fuel in Canada. And that certainly happens in some provinces in Canada.

As to the other questions you mentioned on the viability, if you look at air navigation charges, for example, NAV CANADA adjust the rates related to the size of the aircraft. They have formulas that take this into account. And if there are anomalies, it seems to me that it's primarily between small operators. For example, the rates on an aircraft of the Dash 8 size may, on a per seat cost basis, be different from the cost for an operator of a smaller aircraft. And I know there are some concerns still in the industry about that anomaly.

Another factor in terms of the small operators is the viability of small airports. That's where the biggest problem is in the airport community in terms of viability, and so the new operators seek to maintain their viability by charging the carriers. In those small communities, the impact of those additional costs on a seat operated by a small operator may be of more significance than it would be in a large airport.

The Chairman: We will proceed to questions. I have on my list Mr. Morrison, Mr. Cullen, Mr. Guimond, Mr. Sekora, Mr. Dromisky and Mr. Casey. How about five minutes for questions and answers, and we'll probably have time for a second round?

Mr. Morrison.

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Mr. Lee Morrison (Cypress Hills—Grasslands, Ref.): Mr. Elliot, I know that at least one province charges fuel tax to the railways based on deemed consumption border to border, whether they buy their fuel within the province or not. Has there ever been any rumbles about that being done in the airline industry, whereby when you're in the airspace you pay the tax—never mind where you bought the fuel? Has there been any talk of that?

Mr. Geoffrey Elliot: I'm not sure there's any formula that's similar to that which you spoke of with respect to rail. However, there are some formulas in relation to the tax on flights that go out of province that may be adjusted by the amount of time they spend in provincial airspace. So it does happen. I think at least one province has a formula that equates the burden of the tax to the amount of time that's spent flying in the province.

Mr. Lee Morrison: I see. So there is a little of this.

Mr. Geoffrey Elliot: There's a little of it, but it's not the primary factor.

Mr. Lee Morrison: Yes, okay.

Mr. Mackay, you mentioned that it's difficult to draw an accounting line between domestic and international costs. What about revenues? You say you're an export industry. What percentage of the gross of the two major airlines would be international revenue and what percentage would be domestic?

Mr. Clifford Mackay: Roughly 60% international, which includes transborder, and about 40% domestic. That'll vary by airline, but it's the ballpark number.

Mr. Lee Morrison: And with this new legislation, Bill S-22, I gather the foreign traveller, in order to bypass the second customs, would have to be quarantined in the airport. Is that the way it works?

Mr. Clifford Mackay: Yes, that's the way it works anyway, even if you're not entering the country.

Mr. Lee Morrison: Yes, you're still quarantined, but you still have to go through customs—

Mr. Clifford Mackay: Exactly.

Mr. Lee Morrison: —which is a little illogical.

There was one thing you were referring to for which I didn't quite understand your reasoning; perhaps you could go through it again slowly for me. You talked about the financing costs of the capital improvements to the airports being a cost to the industry over and above the other airport costs you had mentioned. Did I get that right, or are you saying that it's one of the reasons we have the $800 million per year increase? Would you walk me through that?

Mr. Clifford Mackay: Sure. There are essentially three large chunks of money that make up the $850 million. There's the $150 million that the taxpayer is no longer putting into the system. There's the $200 million that they're taking out of the system by way of land lease charges. And then there's the costs associated with the financing of all of these major capital projects.

Mr. Lee Morrison: Okay, so that's part of the agreement.

Mr. Clifford Mackay: Exactly.

Mr. Lee Morrison: That's fair enough. I thought that was what you meant, but I wasn't sure.

How much money are they going to lose when the strike starts in June?

Mr. Clifford Mackay: I can't give you an exact number, but let me just try to answer that question as best I can. A succession of air travel in the majority of the countries—there'll be some exceptions to that because of the essential worker provisions—would be nothing short of a disaster for the industry in Canada. I use that word advisedly. We are looking at both the costs to the airlines and the broader cost to the economy today, but any significant shutdown of the system would result in losses of revenue of an order of magnitude that I think would have disastrous effects on some of our members. And you can't recoup those costs.

Mr. Lee Morrison: Would it be enough to kill one of the airlines? I won't say which one.

Mr. Clifford Mackay: I can't answer that question, but I know it could have very serious impacts. I don't want to speak for individual companies, but I guess I would say it would put a number of our companies in very severe jeopardy, maybe some of them to the point where they wouldn't make it.

The Chairman: Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman. Thank you, Mr. Mackay and Mr. Elliot.

I have a question first. You talked about the industry cost structure in Canada and the need to be mindful of that and concerned from time to time. There are industry costs that are driven by government policy or regulation, whatever, but there are also business costs. How do Canada's airlines stack up in terms of operating efficiency, labour costs, etc.? Do we stack up well against the international marketplace?

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Mr. Clifford Mackay: In general, we stack up reasonably well. Now, you always have to be a little careful here, sir, because the benchmark studies on some of this data aren't very good. Our pilot costs are reasonably competitive with the U.S. With regard to fuel costs in Canada, as Geoff has already mentioned, with the exception of taxes, we pay the international fuel price.

Mr. Roy Cullen: What about utilization?

Mr. Clifford Mackay: With regard to utilization, our fleets are very efficient relative to a lot of other fleets in the world. We tend to operate pretty efficiently on routes.

NAV CANADA's system is considered to be one of the most modern air traffic systems in the world. We are introducing procedures here to help us with flight efficiencies that are, frankly, world firsts. I won't get into the technology, but the system is called FM Star, and it is leading to some significant improvements in the way pilots can route their airplanes to improve their efficiencies.

With regard to fuel, though, I should flag one negative. Fuel tends to be priced in U.S. dollars. For a Canadian operator, that's a significant negative in terms of our competitiveness.

In other areas, service-wise and otherwise, we're seen as being very competitive. There's a philosophical difference there, though, that I should flag for you. If you compare us with airlines in the United States, there seems to be a difference in customer demand, if I can put it that way. Canadians tend to want their airlines to provide a higher level of service, such as wanting the meal to be slightly better and not to have to pay for the movie, etc., whereas Americans tend to go the other way. If they can get a slightly better price on the ticket, they don't care.

So in terms of trying to compare apples and apples, you have to be a little careful, because on the service side the demands of the Canadian traveller tend to be higher than those of the American traveller. Therefore, in terms of providing those services our costs are slightly higher.

Mr. Roy Cullen: Thank you. Would any of that benchmark data be publicly available or available to the committee?

Mr. Clifford Mackay: There are lots of good data on operations. For example, we can provide you with an enormous amount of material on the cost-effectiveness of various sorts of aircraft for various sorts of routes. That we can give you a lot of data on. We can give you a lot of data on traffic patterns.

Where there isn't a lot of data is when you get on the inside of airlines and look at the precise cost per meal and this sort of stuff. That tends to be held closely, for obvious competitive reasons.

Mr. Roy Cullen: I meant benchmark information for Canadian airlines versus other international airlines.

Mr. Geoffrey Elliot: Maybe I can help a little bit on that. I know you're going to be talking to the individual carriers, and I think it's probably an issue you should address with them individually. I'm sure you'll find that both of the major carriers in Canada track very closely their unit costs in comparison with their major competitors. If you look at their annual reports, you can see the costs per available seat mile.

A typical benchmark at Air Canada is significantly different from and somewhat higher than the cost at Canadian Airlines. But there are often good reasons for that. One is the kind of route system that's operated. If you have a lot of short-haul routes, they tend to have higher costs than long-haul routes. There are economies of scale. If you look at American Airlines or United in the U.S., both of those airlines are about four times the size of Air Canada in the number of aircraft they operate. That situation provides significant scale economies for them. Another factor is whether you're flying new aircraft or old aircraft. If you have older aircraft, you'll have lower capital costs, but you may have higher operating costs.

So each airline has its own cost strategy, which combines a number of those factors. But they do watch very closely how they compare with the others. Although I don't have the numbers, my recollection is that you'll find there are major U.S. carriers that on average have higher unit costs than Canadian carriers, but you'll also find that some of the majors have lower unit costs.

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The Chairman: Thank you.

Before we go to Monsieur Guimond, I'm interested in knowing if foreign carriers who operate in Canada are members of your association, or is it strictly Canadian-owned companies?

Mr. Clifford Mackay: No. Some are members of our association, but they are not what we call operating members. We have two categories of members: operating members and associate members. Operating members are commercial aviation companies registered in Canada. For example, British Airways is a member, but they're an associate member.

The Chairman: Thank you.

[Translation]

Go ahead, Mr. Guimond.

Mr. Michel Guimond (Beauport—Montmorency—Ile-d'Orléans, BQ): Messrs. Mackay and Elliot, could you tell me whether you listened to Question Period in the House yesterday?

[English]

Mr. Clifford Mackay: The answer is no. Unfortunately, I was on my way back from Yellowknife.

[Translation]

Mr. Michel Guimond: Your presentation surprised me because you didn't mention one issue that we will be discussing shortly, namely emergency response and firefighting services.

I asked if you listened to Question Period yesterday because a member put a question to the Minister about this very subject. For the participants in the Forum for Young Canadians who are here today, this is an interesting opportunity for you to learn something about the Canadian parliamentary system. When a Liberal MP puts a question to a Liberal minister, it's a planted question. The minister is expecting the question from his party colleague.

Some hon. members: No! No!

Some hon. members: Never!

[English]

A voice: Come on, who told you that?

[Translation]

The Chairman: One moment please, Mr. Guimond. Order.

I would like the young people in attendance to know that normally the chair would rule this type of question irrelevant and out of order. However, since this committee is generally more flexible, we accept comments like this with good nature.

Mr. Michel Guimond: But Mr. Chairman, I haven't yet asked my question. How can you say it's not relevant?

The Chairman: I was referring to your comments.

Mr. Michel Guimond: I see. Fine.

As I was about to say, a Liberal MP by the name of Mark Assad put the following question to the Minister:

Mr. Speaker, could the Minister of Transport tell the House if his department has made good on his commitment to air safety in reference to his declaration of February 1988 to ensure appropriate levels of aircraft firefighting and emergency response services for the flying public?

The Minister of Transport, who was expecting the question, supplied the following answer:

Yes, Mr. Speaker, I can confirm that we have started discussions on [...]

This is the part that concerns you.

[...] proposed amendments to the Canadian aviation regulations that will ensure a better level of emergency response [...]

These regulatory changes are part of a comprehensive review of all emergency response measures [...]

I'd like to know if your association was consulted, if these consultations are ongoing and if you agree with the proposed amendments to the regulations which the minister plans to table shortly.

The Chairman: Your question is out of order.

Mr. Michel Guimond: I beg your pardon?

The Chairman: Your question is out of order because we are here to study the future of our air transportation system. I am not prepared for us to discuss a bill that has already been passed, or the minister's response in the House. You may ask questions of a general nature, but I don't intend to allow a partisan debate at this stage of our study.

Mr. Michel Guimond: Mr. Chairman, with all due respect, I submit that my question is highly relevant. If security measures are enhanced, who is going to foot the bill? Will it be this association, users or airports? This question is very relevant to our study on the future of Canada's air transportation system.

The Chairman: Maybe so, but when we play politics with a question, things get complicated. I won't allow the last question you asked.

[English]

Mr. Clifford Mackay: I'll try to answer the question, Mr. Chairman, in general terms. As I said, I wasn't able to listen to Question Period yesterday.

The issue of what's called emergency response services in the industry has been a matter of debate since the beginning of the industry. It is a difficult issue. It's an issue we believe very strongly must be addressed by the experts. It's an emotional question, because the travelling public thinks if you don't have a fully trained firefighter at an airport, somehow or other it's not safe.

• 1620

There are many experts who would argue that the firefighter doesn't materially contribute to the safety of the airport, since to the best of our knowledge there has never been an incident in Canadian commercial aviation history where a firefighter has in fact saved a life at an airport. Notwithstanding that, frankly, firefighters have performed some very good services in terms of trying to reduce the risk in emergency situations—everything from foaming runways, etc.

So it's an emotional issue. It's highly complex. We are being consulted. Our position with the government has always been that this issue must be dealt with in a very rational, analytical, by-the-experts way. It should not be dealt with emotionally through large public debates among people like me, who are not experts on what is or isn't good about safety practices in this context.

We continue to urge the government in every way possible to deal with the issue in that context. There is a process by which rules are made for Canadian aviation safety, called CARAC. We hope the government will follow that process in this context. We are being consulted. We have some concerns that there could be an overreaction to this and costs could be introduced that do not significantly improve the safety of the system.

We're prepared to look at any cost if it significantly improves the safety of Canadian air services in this country. It has never been a matter for debate among my members that they're not prepared to pay for safety. We are prepared to pay for safety because it's the number one priority. If the travelling public out there ever gets the sense that our system isn't safe, then we're all in trouble.

I'd just leave it at that, Mr. Chairman. This is a serious issue. We hope it'll be debated by the experts and the decisions will be made on the advice of the experts. Thank you.

The Chairman: Mr. Sekora.

Mr. Lou Sekora (Port Moody—Coquitlam—Port Coquitlam, Lib.): Thank you very much.

I listened to your presentation, and it was a very good one. But something puzzles me. You're talking about gas taxes and that somehow between Canada and the United States they're lopsided, but gas prices may be bringing the profits up or down in the airlines, and that's a little scary to me.

The fact is that with gas prices, the gallons in the United States are a lot smaller. You can go to litres, because in a lot of places in the United States they're still in gallons. You say the American carriers come to Canada with a load of gas and they don't want to refill. If a carrier came into one of the Canadian airports and there were fifty-cent dollars, wouldn't that be a great saving on gas alone?

Mr. Clifford Mackay: Geoff, do you want to answer?

Mr. Geoffrey Elliot: Fuel is always priced in U.S. dollars. I think it was mentioned in Mr. Mackay's presentation that between the two carriers, one lost $16 million and the other lost $137 million last year. The industry paid over $200 million in fuel taxes alone, and fuel tax is an element in an airline's cost of production. It's not a tax on consumption; it's a tax on production.

One of the reasons the GST was introduced was to remove sales tax as a cost of production, so Canadian producers of goods and services would be more competitive. Well, the fuel tax is inconsistent with that objective.

There was a time when governments were contributing to the cost of airway infrastructure, and you could justify paying the tax in that sense. But government has withdrawn from contributing significantly to the cost of airway infrastructure. So we get nothing for the tax; it's just a tax on competitiveness.

Mr. Lou Sekora: I have a couple of other questions.

I used to go south quite often because I had a residence in Palm Springs that we used in the winter—or my family did; I didn't have much time to travel. If you take any airline from Vancouver to Palm Springs, it costs you about $400 return, or whatever it may be. You can go to Seattle and catch a return flight for $190 Canadian. Why is there such a big discrepancy?

• 1625

Mr. Clifford Mackay: I can't answer your specific question about that route, but I would encourage you to save the question and ask it when the airlines are here. But let me just try to answer it in more general terms.

I think you're aware that pricing in the airline business today is a wide-open market. The joke going around—and there's a lot of truth to it—is that no two seats on an airplane have the same price. With deregulation has come a very competitive situation. The airlines are introducing literally dozens of different pricing offerings. Some of them have various fences, as they are called, around them, where you can only travel on this day or between this time and that time.

All of that is by way of trying to improve their capacity and yields on a particular route. So depending on the judgment of whether or not they need to price competitively on that route and what the competitive factors are, the price for that ticket is going to vary. If three airlines are flying nose to nose from Vancouver to L.A., you will see different pricing practices than if you have one airline providing a service and they don't have any local competition.

Mr. Lou Sekora: We were talking about the great losses in Canadian airlines, but what about Canadian salaries for the same type of job compared to U.S. salaries? I'm talking about jobs. Are they competitive as far as salaries are concerned or are they lopsided somewhat? Are Canadian people paying a lot more money?

Mr. Clifford Mackay: Generally speaking, Canadian salaries are less than U.S. salaries. For example, in the Air Canada pilot strike, the pilots very much wanted to have parity with their U.S. counterparts. They didn't get it.

Mr. Lou Sekora: Thank you very much, Mr. Chairman. I hope it wasn't my questions that drove away the students who were here.

The Chairman: Mr. Elliot.

Mr. Geoffrey Elliot: Can I add just one point to the salary issue?

Often the salary ranges in the industry are greater within the United States and Canada than they are between the two countries. For example, the unionized big carriers tend to pay much higher salaries than the small guys and the upstarts. The low-cost, no-frills carriers are often not unionized and their employees tend to be paid significantly less in both countries.

Mr. Lou Sekora: Thank you very much.

The Chairman: For the benefit of the committee, in the airline industry they have what is called an FCU, which is a fictitious dollar. It's usually based on the U.S. currency. So if you're prepaying a ticket in Canada for someone to come from Germany, you don't get the lower fare.

Mr. Lou Sekora: That's what I thought.

The Chairman: They take the fare, convert it to an FCU and then convert it, through U.S. dollars, to Canadian dollars. You end up paying the same thing.

Mr. Lou Sekora: That's what happens when I take a Canadian dollar to the United States. They say it's a fictitious dollar.

The Chairman: But you're not supposed to use Canadian Tire money.

Mr. Dromisky.

Mr. Stan Dromisky (Thunder Bay—Atikokan, Lib.): Thank you very much.

In light of the kinds of questions that have been asked, I'd like to ask Mr. Mackay to clarify something here.

I see that you're president of the Air Transport Association of Canada, and that's a very generic term. As you and Mr. Elliot sit here today, are you representing just the small and large carriers, or are you representing every aspect of the aviation transportation industry?

Mr. Clifford Mackay: We're representing every aspect of the commercial aviation industry in the country.

Mr. Stan Dromisky: Can you clarify that? Are you talking only about planes that carry passengers or also cargo?

Mr. Clifford Mackay: We're also talking about cargo. We have over 300 members. The largest group of our members is what we call local service operators. They include people who do air taxis and charters and are in pilot training, all the way up through to regional carriers, tier 3 carriers, helicopter operators, people who fly for specialty things, like aerial surveys, on through to all the regional carriers, and of course the major carriers, the charters and the cargo. By the way, I should say we do not represent airports. About 98% of the revenue that is generated by people who actually fly things in this country is represented in our membership.

• 1630

Mr. Stan Dromisky: I know, but you can't separate one from the other. What I mean by that is that you can't separate the carriers from the airport.

Mr. Clifford Mackay: No, you can't.

Mr. Stan Dromisky: In light of the fact that you have this whole awesome area of responsibilities in your association, I'm going to relate my question directly to small airports.

As you know, in the federal government we have a special capital assistance program for small airports, and there are certain criteria that these airports must meet before they receive any financial assistance for any kind of capital program. In these airports, we are very concerned about safety, and therefore that is a very important criterion. However, there is another criterion in there that is practically impossible for many of the airports to meet, even though they might have commercial carriers coming in, and that is that they must get at least 1,000 passengers a year. My question is related to that whole area.

Many of these airports are in trouble right now, not only because they can't meet the criteria but simply because they can't generate enough funds to do the kinds of things they have to do as far as safety is concerned, or any other capital program that must be carried out. From your viewpoint as president, and because of the condition that we find many of our airports in at the present time, what impact do you think the ACAP program will have, if it does not change in the next few years, upon many of the small airports—if there is no change?

Mr. Clifford Mackay: Thank you very much for that question, because you've hit upon one of the critical points we've been making to governments. You're absolutely right, airlines and air carriers and people in the commercial aviation business are joined at the hip with airports. We must have an efficient and effective and safe airport system in this country if we're going to have a competitive industry.

To come to your fundamental point, which is the viability of smaller airports, we are frankly very concerned about it and we've made a proposal to the government, part of which is to improve and expand the ACAP program, because we think it's an important part of the problem.

When we analyse the small airport problem, we really see it from three points of view. First, there are a number of airports in the country that, if left just to the marketplace, are unlikely to generate revenues sufficient to be able to regenerate their capital stock. If you sat down and did the business analysis, you would see that some of those airports, frankly, are of a good size. So we're not talking about tiny little airports here, we're talking about significant airports, and airports that serve a relatively large region of the country.

This is where we hope an improved and expanded ACAP can play a real role. We'd like to see an ACAP program that would try to address self-sufficiency in their ability to generate enough revenue from the market to cover their capital costs.

But frankly, you need to look at this problem beyond that. There are also airports in this country that have been commercialized or transferred and that, frankly, are really struggling just to cover their operating costs. That's a much more difficult problem. They have been introducing all sorts of special fees and what not, and some of our members, particularly some of our regional carriers, that service a number of these places are getting to the point where they're having to make some very difficult decisions as to whether to continue to provide service at all, because what they're being charged for these services is reaching a point where it's becoming rapidly uneconomic.

There are a number of schemes being kicked around, special charges on people who utilize the airport or some other kind of scheme, but we would again encourage the government, when they're thinking about small airport viability.... You can't just address the capital issue; you have to look at the broader question.

Then there's a third category of airports in this country that we would argue are not part of what we call the commercial system but are, frankly, very important to small and remote communities. There is a program that exists in the government to make sure those airstrips—many of them are strips as opposed to regular airports—are maintained, and we would hope the government would not back away from that, because in remote areas, frankly, it's the lifeline of a lot of places.

But we don't see those particular facilities as being part of what we would call a national airport network. We do see a lot of these other facilities—and they go well beyond the list of 28 airports that are in the national airport system—as being very important to the viability of the whole system.

• 1635

So I want to thank you for your questions, sir, because it is a real problem right now, and we're living in relatively good economic times. I shudder to think what would happen to many of these facilities if we went into a major downturn.

Mr. Stan Dromisky: Okay, thank you.

The Chairman: Mr. Casey.

Mr. Bill Casey (Cumberland—Colchester, PC): Mr. Chairman, thank you.

Following up on that, in one place in your brief it says “it costs airlines and their customers $850 million more every year to cover increased airport costs”. How do the airports charge the airlines, and are they consistent from airport to airport? We're talking about small airports with small lines versus larger ones with large lines. Are the fees inconsistent, or is there a formula? How do they charge them?

Mr. Clifford Mackay: Every airport can charge any way they want to charge. There are no rules. But in general the practice is that there are essentially two general fees charged at airports. There's what's called a landing fee and then there's what's called a terminal fee.

Landing fees in most of the large airports are determined by the weight of the aircraft, and there's a formula they work out to determine that. Terminal fees, in the airports that are managed well, tend to be determined on a cost basis. In other words, the airport authority will determine its overall costs—both its cost of replacement of capital and that sort of stuff as well as its operating costs—they'll attribute those costs to the various users of the service, and they'll determine a fee through that process for the terminal services that are used.

Those are the two broad ways, but there are numerous other ways of charging. There are all sorts of “special charges”. There's one small airport in western Canada that decided they wanted to build up a nest egg of about a half a million dollars for future considerations, and they informed the air carriers that they would have to pay a special charge of x dollars every time they came and went. It didn't have anything to do with services, just—boom!—there it is.

There are other kinds of charges. For example, in Toronto until recently, if you wanted to have a crew come on and film for whatever commercial purposes, you had to pay a special charge to allow that crew of photographers to actually do their job at the airport. So there are literally dozens and dozens of “special charges”, and they're really at the whim of the individual airport.

Then there's a whole set of charges called AIFs, which is jargon that stands for airport improvement fees. These charges are a means of financing capital projects. In some cases it's collected by the airport directly. For example, many of you have travelled through Dorval or through Vancouver or Edmonton—

Mr. Stan Dromisky: Thunder Bay.

Mr. Clifford Mackay: Thunder Bay is another good one. There'll be a little booth there with a very pleasant person saying “That'll be $10, please.” That's an AIF.

In some other airports we, as an industry, have worked out an arrangement with the airport where in fact we collect that on the ticket. For example, if you're travelling through Calgary there are no little booths, but if you look at your ticket, you'll see a little box on there and it'll say $10. That's part of the way of paying for the capital improvements that have gone on in Calgary in the last five years.

I could give you a dozen other examples, but in general those are the sorts of charging practices that go on. The thing that concerns us isn't so much the practices, but the simple fact of life is that there are no rules. If you go to NAV CANADA, you can look back into the legislation and the regulations and there's a very short list of about six principles that will govern the way they charge for their services. That doesn't exist for airports in Canada.

Mr. Bill Casey: You were talking about the smaller airports with lower volumes that are having a hard time meeting their operating costs, much less capital costs. Is there a break-even volume? Is there a ballpark where an airport can be viable and below which it can't be viable?

Mr. Clifford Mackay: The answer is yes, but it partly depends on how the airport is operated. For example, if a local municipality chooses to take all the overheads out of the airport and build them into their normal operations, such as the accounting and the financing and the personnel—and many local authorities have chosen to do that with regard to the way they're running their airports—then the actual operating costs at the airport will in fact be lower than if, for example, they have a separate special-purpose organization to do it.

I can't give you the precise number, but yes, we have worked with both the Airports Council and others, and there's a rough order of magnitude that if you don't have a throughput or traffic through the airport up to a certain level you could probably be getting into trouble on your operating costs.

• 1640

Mr. Bill Casey: Roughly, what is that level?

Mr. Clifford Mackay: It's hard to say, but if you're an airport with an actual terminal and a runway and you have to have people clear it for snow and all that, if you're that level of airport, if you can't get something in the order of 100,000 to 150,000 passengers through in a year, you're probably reaching the point where you're on the edge. But it's a difficult question to give you a general answer to, because, as I say, it is partly determined by how the airport in fact organizes itself.

Mr. Bill Casey: Right. How does it impact on the airlines when an airport is in operating difficulty? Is there an impact on airlines?

Mr. Clifford Mackay: There's a direct impact on airlines in a number of different ways. Operationally, the service to the airline may start to get worse, not better, just in terms of the timeliness of things and the day-to-day things. Financially, airports that are in those sorts of positions try to do everything humanly possible to improve their revenue position, and that usually means they try to jack their rates to the maximum degree possible. There have been one or two situations—not many, thank God, to date—where some of our members have actually just told the airport they were not flying there any more.

That's a very, very difficult thing for a carrier to say, because basically it's saying to the community, to its customers, that they're not going to give them service. That's a very, very serious thing for an airline to say, because an airline is part of that community, especially the smaller airlines. It's very difficult. But those are the kinds of problems you get into when you get very close to the line.

Mr. Bill Casey: I noticed that—

The Chairman: That's it. You're over by a minute.

Before I go to Mr. Drouin, I'll be looking for you to expand on this. You repeat often that there are no rules that affect different stakeholders. I couldn't believe I was hearing you ask for governments to make more rules. Our past history says we're not very good at that.

Mr. Clifford Mackay: What we've proposed specifically on this matter is that the government get involved in developing an agreed set of principles for charging.

The Chairman: By the stakeholders.

Mr. Clifford Mackay: By the stakeholders and the government. We're not sure whether we need regulation; frankly, we're open to discussion on that. But we do need an enforceable way, a way that's enforceable on the parties, of ensuring that the rules are lived with and that if there are disputes—for example, an airline thinks the cost that this charge was based on wasn't properly done or something—there has to be a way of addressing those questions in an efficient and final way so that the dispute doesn't take on a life of its own.

One of the biggest problems we have in the country right now in terms of airport-airline relations is that this framework doesn't exist, and it's a serious problem. If we can do it in such a way that it avoids the need for government regulation, we would be very happy, but if government regulation is the only way to do it, we'd rather get the stakeholders together, get the rules, and then ask the government to do the right thing.

The Chairman: Okay. If some of your stakeholders or members want to do a paper on this and send it to the committee, I think it would be important for us to address that issue.

Mr. Clifford Mackay: We have a set of six policy positions with regard to airport issues, which we'll happily share with you. I'll make sure it gets over to you later this week.

The Chairman: To the clerk.

Mr. Clifford Mackay: Yes.

The Chairman: We appreciate that.

[Translation]

Please proceed, Mr. Drouin.

Mr. Claude Drouin (Beauce, Lib.): You mentioned a variety of factors that combine to increase costs to air carriers and the flying public. You stated that $200 million are collected annually in fuel taxes. Although similar taxes are charged in the US, these are much lower. I believe Mr. Elliot said that some foreign airlines arrange to refuel outside Canada. Have you done any studies which show that if the government were to impose lower taxes, which would favour air carriers, it would benefit because foreign airlines would refuel here in Canada? In my view, this proposition warrants further study.

• 1645

[English]

Mr. Geoffrey Elliot: It's very difficult to get inside the decision-making of the specialized individuals who are responsible for the procurement of fuel in airlines. They all have people whose whole job is to make sure fuel costs are the lowest they possibly can be. They make the strategic decisions for that airline, and it depends a lot on the kind of route it is whether they will do what they call tankering, bringing fuel in with them when they arrive at a destination.

That happens not only internationally, but also domestically. Sometimes the fuel taxes...for example, in Alberta at one point it was higher than the fuel tax in a neighbouring province. What was happening was that on the short-haul flights, even within Canada, the airlines would tanker. Saskatchewan had much higher rates at one point, and when they reduced their rates, their revenues went up. I think that was the example Mr. Mackay mentioned.

A couple of years ago, we in the association commissioned a study by the Van Horne Institute, based in Calgary, on fuel taxes across the country. We could certainly send you that.

[Translation]

Mr. Claude Drouin: Thank you, I'd appreciate that. This phenomenon is not unique to foreign airlines. Canadian carriers do the same thing when they go to the United States or another country.

[English]

The Chairman: Now we're on the second round. I guess we can go another five minutes again. Mr. Cullen, Mr. Morrison, M. Guimond, Mr. Casey.

Mr. Roy Cullen: Thank you, Mr. Chairman. I had a few questions, but I'll throw out a couple of unrelated ones at the same time in case we don't have time to get to them.

The first question is, in your estimation, has there been a differential competitive impact on the policies of the government over the last while? You can call it commercialization or devolution, whatever. Has there been a differential impact on the Canadian airline industry in Canada as a result of those policies—whether major airlines or regional airlines? Could you comment on that?

Secondly, you talk in your paper about the gateway to North America. What are the factors, in your view, that will facilitate Canadian airports becoming stronger gateways into North America? What are the factors that will inhibit that growth?

Mr. Clifford Mackay: Let me take the first one very briefly. I think the short answer to your question is yes, but it's been relatively modest to date, because these costs have been building over the last number of years. The numbers I gave you are the current costs. What we're really worried about is what we can do to mitigate that and make us more competitive going forward. So while even two or three years ago, when the big growth spurt hit the industry, these costs would have been relatively minor, as the industry becomes more competitive and as its profits are squeezed these costs are becoming very important.

Mr. Roy Cullen: Excuse me. Maybe I—

Mr. Clifford Mackay: Maybe I misunderstood your question.

Mr. Roy Cullen: I'm wondering if the public policies of the government in the area of devolution or commercialization, what have you, have differentially impacted, let's say, Air Canada versus Canadian Airlines, or regional airlines versus...?

Mr. Clifford Mackay: No. I think in general I would have to answer no to that, with a couple of exceptions. One is in the regional world with the short-haul carriers. They are less able to make the adjustments than the larger carriers because their base is just not as big. So they are struggling there, they're having a tougher time.

The other exception, of course, is when you get into the particular concerns of the north and rural remote areas. I think you have to make sure you always make that special case. They frankly just cannot absorb these kinds of costs. So we always have to make that special case.

Coming back to what the pros and cons are, what would make a great gateway, the first is to be globally cost competitive. Airlines will fly through a gateway that can provide very competitive prices. That's number one.

Number two is first-class world-class services. By that I mean gateways that work, access to the kinds of computer plug-ins and other connections you need to run a modern system, various sorts of support services on the air side, fuelling, first-class baggage service systems, and all the other things that need to go on. Those sorts of things are very, very important.

• 1650

Last but certainly not least—it's almost an attitudinal thing—is a sense that the authority really does want to work in partnership with the major carriers that are using the services in a way to expand and make everybody more competitive. It's basically a win-win attitude. There are airports in this country that are doing that. They're doing it well and they're succeeding. Unfortunately, there are airports in this country that I don't think have quite got that message yet.

Mr. Roy Cullen: Mr. Elliot, would you like to add anything on either of those questions?

Mr. Geoffrey Elliot: On the second one, certainly.

Canada is unique in terms of having a natural advantage in its geographical position, because it's in between the United States and Europe and it's in between the United States and Asia. On the great circle routes, if you originate in the United States you fly over Canada to many of the destinations in Europe and Asia. That means an open skies....

Let me take a step back. You're never going to convince the person who's travelling from Chicago, New York, or Los Angeles to fly over a Canadian gateway when they can get a non-stop service. But for most American destinations there is no such thing as a non-stop service between those locations in either Europe or Asia. They've got to make one stop. So the issue is, where do they make the one stop?

If you have the airport right, if you have airline service right, if you can make that one-stop change in Toronto, Vancouver, or Montreal more congenial for the passenger than New York's Kennedy, Boston, Chicago, or wherever, then you have a chance at getting a slice of that business if you have everything else right. You don't need to get a very big slice of that business in order to make a huge difference to the revenue possibilities of Canadian carriers. That's the opportunity. If we get it all right, there's a means of achieving it. Open skies created non-stop links between Toronto and Vancouver to a lot of those points where you cannot fly non-stop to Europe or Asia.

So if we can get that legislation that will eliminate the double clearance problem through, if we can have competitive airports, and if we continue to have two good carriers that offer excellent international services and transborder connections, like Canadian and its American partner and Air Canada and its U.S. partner, then we have a real opportunity to do something good for this country and make those international gateway opportunities economic drivers in those communities as well.

Mr. Roy Cullen: Thank you.

The Chairman: On international routes, are you talking about open skies bilaterally? Open it up between countries and let—

Mr. Geoffrey Elliot: I was really not addressing the international routes in terms of the international air policy overseas, because there is controversy between the carriers. But it's the open skies agreement between Canada and the United States, which both carriers support, that was essential to putting in place the international infrastructure that makes that possible.

The Chairman: I think it was important to clear that up.

Mr. Morrison.

Mr. Lee Morrison: Getting back to the question of emergency services at smaller certified airports, for example Whitehorse, Kimberley-Cranbrook—that size—there's a lot of public agitation now. They want to get full emergency services for every commercial aircraft movement. I would say at the outset that I don't think that's practical, but I'd like your views on it, as the experts.

I also am wondering what this would actually add to the costs for consumers if you did it. I did some back-of-the-envelope calculations, and it looked to me as if at these smaller certified airports you'd probably have to pay about an extra $5 every time you came down or got back onto an aircraft to cover it. Am I anywhere near right on that? I know the fees would be weight based rather than passenger based, but it ultimately is the passenger who's going to pay the shot.

Mr. Clifford MacKay: You're not far off. Again, it's hard to answer that question generically; you have to look at individual circumstances. But just to give you a few very rough ballpark numbers, if you went out today to buy a fire engine for an airport, you'd pay somewhere between $750,000 and $1 million for that one piece of equipment. Then you have to build somewhere to put it and you have to put all the auxiliary stuff around it, you have to hire some people to get on it, etc. So even if somebody were to pay all the capital costs, you're probably looking at a couple of hundred thousand dollars a year just on operating costs to keep that facility there.

• 1655

The real question that is put to the experts is, how much more safety are you getting for that expenditure? The preponderance of studies over the years—there have been one or two exceptions that have not said this—have argued that it is very difficult to justify the costs for the increased safety. The most recent one was the Gross report, which was done after the Fredericton incident.

It's difficult for the average person in the street to understand, because intuitively you would think that if there was a firefighter there you'd be safer. Unfortunately, the reality of our business is that when you get an accident, it all happens so fast that having a firefighter on the airport really doesn't make any difference in terms of the critical lifesaving aspect of this thing.

In the terrible accidents we had at Mirabel a couple of months ago with Propair, frankly, everybody did everything as right as they could possibly do, including the emergency response capability of Mirabel, and unfortunately it didn't make any difference at all. That's the sad reality, and that's why we argue strongly that you have to go to the experts to get the best judgments you can on these things. To have lay people try to make these judgments—we're just not, frankly, knowledgeable enough to make them.

So I hope that in the firefighting issue that's currently going on with smaller airports Transport Canada relies on the experts. If they don't, I'm a little worried that we're going to introduce another round of costs into the system that will simply add more pressure in the places that can least afford to have the pressure and we're not going to get much benefit for it.

Mr. Lee Morrison: Do you have any idea what the situation is with our big neighbour to the south? Do their small airports, places like Helena or Reno, have continuous emergency services?

Mr. Clifford MacKay: The answer is no.

Mr. Lee Morrison: No.

The Chairman: I can make a comment. A lot of this was instituted by airlines, and it was psychological. All members are too young to remember, but I remember when you had to be a registered nurse to be a flight attendant.

Mr. Lee Morrison: I used to fly just because of that.

The Chairman: It was more psychological than anything else, because there's not very much a nurse can do at 30,000 feet that somebody trained in CPR can't do. A lot of that was psychological, because it was a new industry and we had to convince people to use it.

Mr. Lee Morrison: What they need now is karate.

The Chairman: Mr. Guimond.

[Translation]

Mr. Michel Guimond: My Reform Party colleague is fortunate that the chair did not rule his question about airport firefighters out of order. In any event, Mr. Chairman, the fact that you tried to silence me proves that my question struck a nerve.

I have a comment and then two questions. Most likely, it will take longer than the five minutes allotted to me, but that's not a big problem.

In your presentation, you are highly critical of the airport commercialization process. One of my colleagues has already congratulated you on your fine report, but most likely he didn't read the third paragraph on page 6 of the English version where the following is noted:

[English]

Chickens are coming home to roost on mistakes or miscalculations that were made in the way the Government of Canada off-loaded responsibility and accountability for air transport infrastructure in this country.

[Translation]

You are highly critical of the process and unhappy with the way the situation has evolved. I congratulate you for taking this stand and for being so honest and forthright.

• 1700

Since the pages in the French version aren't numbered, it's difficult to find the corresponding text in the English version. Nevertheless, you make a reference to the costs billed to foreign airlines which use NAV CANADA's services.

When the Transport Committee reviewed the question of privatizing or commercializing the air traffic control system and I was a member of the committee at the time - the government informed us.... I'm sorry, Mr. Chairman, but I have no choice but to mention the government because I'm reporting what was said at the time. You reproach me for engaging in political debate, but this isn't a religious meeting. This is politics.

The Chairman: You have three minutes remaining, Mr. Guimond.

Mr. Michel Guimond: As I was about to say, the government informed us that ticket prices would be lower and that airlines would profit from the new structure. Judging from what you're telling us, that isn't the case. Are foreign airlines paying Canada $200 or $240 million for the use of its air traffic control services?

You mentioned the increase in air fares over the past year. During its submission yesterday, Transport Canada gave us a completely different version of events. Among other things, it maintained that international air fares had not kept pace with inflation and that in some cases, had even gone down. It argued that regional disparities were minimal and that the average cost of a ticket from Montreal to Paris had fallen by 26 per cent between 1987 and 1997. Who are we to believe? We are getting conflicting stories. Thank you, Mr. Chairman.

The Chairman: There's one minute remaining, but I will allow you three.

[English]

Mr. Clifford Mackay: Thank you. Let me address first, very briefly, the NAV CANADA cost issue.

It is absolutely true that the total costs of air navigation services in this country have come down since NAV CANADA was brought into existence. Before NAV CANADA—and I'm using these numbers from memory so, please, I may be a few million off here—the cost of the system, which was basically paid for by the ticket tax, was something in the order, I think, of about $850 million. NAV CANADA's costs this year we're just going into are projected to be something in the order of about $700 million, and the prices that will be set by NAV CANADA will be reflective of those kinds of costs. So as far as the travelling public is concerned, the costs of air navigation service in the country have come down in total.

The point we were making in this presentation was that from the point of view of airlines, many of those costs are now being charged through the airline and they are now showing up as costs on our balance sheets and our income statements, whereas in the past there was a special ticket tax that flowed directly to the government. We collected it, but we didn't touch it. It never got onto our books. It flowed straight in. So in terms of the competitiveness of our companies, it has made a difference.

But I hasten to add that we have been quite complimentary of what's gone on with NAV CANADA in the last few years and we will continue to be so. Now, there are some issues that Geoff mentioned, but those are issues we'll work out.

Coming to your question on prices generally, it is true that in the international market prices have not increased in any significant way, and that's largely because of the competition. It's very competitive out there. What have increased, though, are some of the domestic prices. In those cases where—again coming back to some of the short-haul issues we've been talking about—the markets are thin, there's not much traffic, and new costs are being introduced. Frankly, there's little or no choice but to try to increase the prices to recover the costs, and that's putting more pressure on the system. There's no doubt about that.

To your comment about our being critical, the answer is yes, we are critical of how the national airports policy program was implemented. We'll provide the committee with specific areas that we think need fixing. But I have to tell you that you shouldn't interpret that as our being opposed in principle to the policy, because we're not. We do believe that if we can get it right, as my colleague said earlier, we have an opportunity here to make a significant contribution to the Canadian economy. But there are some problems. We can't bury our heads in the sand. We have to address them and fix them now.

• 1705

The Chairman: Mr. Elliot, do you want to contribute?

Mr. Geoffrey Elliot: I have just one point on the prices.

At the international level, I think you'll find the list prices or full-fare prices did not go down; the airline yields went down because they had to sell more discount prices. The most expensive seat for an airline is the seat that flies empty, so airlines will do somersaults to sell every seat on an aircraft. When the markets were weak—and it was the Asian flu and the increased capacity that moved onto the Atlantic that created a competitive situation there—airlines had to be more aggressive with discount fares in order to fill their seats, so the average price may have gone down.

The Chairman: Mr. Casey.

Mr. Bill Casey: I have a question about the air transportation tax that disappeared in October. I didn't notice any reduction in the price of my airplane tickets. What happened when that tax was taken off?

Mr. Clifford Mackay: A couple of things happened. There had been an increase six months earlier because of the introduction of new fees. The second thing that happened was that NAV CANADA postponed the introduction of more fees until March of the next year, so even though the tax ended at that time, it didn't have any economic impact at that time.

Mr. Bill Casey: On the specific price of a ticket, though, if the tax came off it, did the airlines then have to increase the price of the ticket to make up for the air traffic control?

Mr. Clifford Mackay: That's exactly what's going on today, but that started in March as opposed to November. Because NAV CANADA had a surplus, they gave a fee holiday in order to let the surplus cover off, so the real impact didn't show up until March of this year.

Mr. Bill Casey: It did happen the year before as well.

Mr. Clifford Mackay: It happened the year before when the first round of fees was introduced. I can take you through all that, sir, but it's complicated.

Mr. Bill Casey: I was just more curious than anything.

Mr. Clifford Mackay: Okay.

Mr. Bill Casey: In your brief, you said: “Transport Canada failed in recent years to invest sufficiently in necessary improvements to airport infrastructure.” Therefore when they transferred the airports over, when they divested them, they were in need of upgrades, or whatever. What is the nature of the upgrades that are required by these local airports? Can you give me some examples?

Mr. Clifford Mackay: There are a number of them, but I'm sure Transport can give them to you, because many of these things were put on the table as part of the negotiations for the transfer. For example, in Halifax there were a number of changes to the terminal and there were some improvements in the aprons for the runway itself.

Mr. Geoffrey Elliot: I have a list here of the money.

Mr. Clifford Mackay: Okay. This is helpful. These were the estimated capital improvements that were part of the negotiated deal.

Mr. Bill Casey: Is Kelowna on that list?

Mr. Clifford Mackay: I don't see Kelowna. There may have been some upgrades in Kelowna, but I could find out for you easily enough.

Mr. Bill Casey: In Kelowna, the air traffic control tower was given a temporary permit 11 years ago to operate until they got a new tower. They still don't have a new tower.

Mr. Clifford Mackay: I'd have to check that with NAV CANADA to see where they're at. But new towers have been built in Halifax and Toronto. I'm doing this from memory at the moment.

Mr. Bill Casey: Is NAV CAN paying for those?

Mr. Clifford Mackay: Yes, they are. I'm talking about airport facilities in the transfers. But rather than my trying to do this from memory, I'm sure if I consulted with Transport Canada we could get you a list of the capital projects that were part of the transfer process.

Mr. Bill Casey: I'd like to have that.

Mr. Clifford Mackay: There were a number of them.

Mr. Bill Casey: Okay. Thank you.

The Chairman: We're ready for a third round. We'll do this for three minutes each. If you want a fourth round, we'll have time for it.

I have Mr. Cullen and Mr. Morrison.

Mr. Roy Cullen: Thank you, Mr. Chairman.

Mr. Guimond talked about the chickens coming home, and I'm sure our colleague Murray Calder would have a different take on that. Chickens coming home to roost is sometimes a good thing.

I'd like to pick up on a couple of points in that vein. I'm going to put it in simple terms, as I understand it, and it picks up on Mr. Casey's discussion.

Previously there was a tax on the ticket that went directly to NAV CAN. You're saying NAV CAN, since it has gone the route it's gone, has increased its operational efficiency and the cost structure has come down. Then the tax came off the ticket, so the price then could go back up to cover your costs to NAV CAN, which actually came down.

May I ask another question? You may have to come back to me in writing on this if we're over three minutes.

On the question of the airport rents, GTAA is right next door to me, and this issue is coming up more frequently now, particularly with this dispute with Air Canada. I'll be the devil's advocate because it's an important question. You talked about the rent for the privilege of operating the airport. But the other argument, of course, is that it's a rent on the real estate value and the highest and best use. Could you provide a rationale for why the government shouldn't be collecting rent on that property?

• 1710

Mr. Clifford Mackay: Sure. Let me try to clear up the first one first.

Prior to the creation of NAV CANADA, the government financed the air navigation system through the ticket tax. When NAV CANADA was created, as part of the transfer agreement there was an agreement to phase out the ticket tax in two tranches, and that happened. With the last tranche in November of last year, it disappeared entirely. As of November of last year, NAV CANADA's total cost—operating capital and the works—has been derived from charges to users. The users are primarily the commercial aircraft companies, either Canadian or foreign. So as of November last year, everything NAV CANADA does is paid for by users. There's no tax or anything.

Mr. Roy Cullen: But if there was a tax that went straight to NAV CAN and now there's no tax, and the airlines pay and there are some cost savings, it seems to me fairly neutral. Maybe I'm missing something.

Mr. Clifford Mackay: It's not neutral; it's good news for the travelling public. They're now paying less because the overall cost of the services has come down as a result of NAV CANADA. It's not good news, though, for my members, because in the past, before NAV CANADA, they didn't pay for the service.

Mr. Roy Cullen: But why not just increase the price of the ticket to make up for the tax?

Mr. Clifford Mackay: There's something called competition.

Mr. Roy Cullen: Yes, but that's the world. It's a tough world.

Mr. Clifford Mackay: That's my point. It's a tough world, and that's the only point I'm making. From a competitiveness point of view, each individual company now has to decide whether they're going to try to pass that on to their customers or not. Frankly, in many markets you can't.

Mr. Roy Cullen: But they did it before with the tax.

Mr. Clifford Mackay: They didn't.

Mr. Roy Cullen: Maybe I'm missing something.

Mr. Clifford Mackay: The tax was a tax. The airlines didn't have any choice; the government legislated it. There was no market there at all. If you wanted to fly on an airplane, you paid $50. The companies didn't have any choice; they had to collect it. The government mandated it; it was in law.

Mr. Roy Cullen: But if I were paying $100 for a ticket plus 5% tax for NAV CAN, it would be $105. The $5 tax comes off, so I increase my ticket price to $105, totally transparent to the travelling public. Now I have $5 to pay—in fact, it's only costing me $4.

Mr. Clifford Mackay: You could do that, but at the same time a new discount airline called Westjet comes into the market and says, “We're not going to do that. We're going to get more competitive and we're going to implement these kinds of things.” That's what's going on in the marketplace.

Mr. Roy Cullen: Okay.

Mr. Clifford Mackay: I'm not suggesting some of those costs haven't been passed on, because some of them have, but certainly not 100% of them. That I can tell you.

The Chairman: Mr. Morrison.

Mr. Lee Morrison: Getting back again to the question of fares, in your opinion, is there a significant amount of cross-subsidization within the industry on the international flights where the rates have been going down, and on the domestic flights where the rates have been going up? Is this a cross-subsidization question?

Mr. Clifford Mackay: It's very difficult. I wouldn't characterize it in those terms. Within an airline there's a process called yield management, whereby the airline tries to determine, almost on a route-by-route basis, how they can maximize their return on the capital and other assets employed on that route. In other words, how can they maximize their yield?

The factors that go into determining how much you can price, how many tickets you can offer, and what kind of equipment you put on the route are complex and all about the marketplace. So to say there's a decision to cross-subsidize this for that—it just doesn't work that way in the industry. Everybody tries to maximize their yield on each route, given the competitive factors they have to play with at any one time; that's how it works.

Notwithstanding that, there's a lot of pressure on, for example, the regional operators to maximize the traffic into the hubs so the national and international carriers can maximize their capacities. That process goes on every day as well.

• 1715

So these pricing decisions aren't made holistically, where somebody sits up there and says, we're going to charge more over here because we'll charge less over here. The whole name of the game is to optimize the capital you're using on every route possible.

Mr. Lee Morrison: Mr. Elliot.

Mr. Geoffrey Elliot: There's a dynamic in that as well. For example, a few years ago the domestic market was the most difficult market to make money in. The transborder market suddenly became very remunerative because U.S. carriers put their prices up, which, as well as exchange rate changes, suddenly made the transborder market extremely attractive. And you saw the reaction to that in terms of the new routes and capacity that the Canadian carriers put into the transborder market.

A couple of years ago, the international market was perhaps where the best yield was, and that simply isn't the case today. So things change from year to year, depending on where the demand is and where the competition puts its capacity.

The Chairman: Mr. Casey.

Mr. Bill Casey: I have a question about how competitive our airports are for terminal costs, landing fees and navigation fees compared to the U.S. on an airport that's equivalent in size and traffic.

Mr. Clifford Mackay: Some of our airports are very competitive. There have been some studies done, and again we can get some of this information. We'll ask the Airports Council and others. But for example, Vancouver is highly competitive versus LAX and some of the west coast competition. And so for some airports, yes.... I don't have much for Pearson, but I've seen some numbers where Pearson's costs have been going up in the last couple of years, and there's some concern being expressed that they may be pricing themselves too high.

Again, you have to be careful to compare apples and apples. Lots of people out there compare every airport in the world to Heathrow, which is the most expensive airport in the world. That's not what I would call an apples-to-apples comparison.

So we can try to get you some benchmarking information. Some of the airports have done a pretty good job. Calgary is another one that is considered to be competitive on a benchmarking basis.

Mr. Bill Casey: Thank you.

[Translation]

The Chairman: Mr. Drouin.

Mr. Claude Drouin: Earlier, you stated that the government was too hasty. If I understand you correctly, you agree with what was done, but believe it was done too quickly.

When we inherited a $42 billion deficit in 1993, we didn't spend too much time wondering what we were going to salvage. Our main concern was putting out the fire and saving as much as we possibly could. That's the approach the government took.

You are examining the situation solely from your own perspective, without taking into account the myriad decisions the government was forced to make. Did you say in your report that it is ill-advised to give infrastructures to these agencies? Are you saying that the infrastructures are being poorly maintained and that the work is not being done properly? We felt that these sound agencies were capable of doing good work and that it wasn't the government's job to be involved in these areas. So far, we believe things are going well. Some of your comments appear to confirm this, while others do not. I'd like you to enlighten us further. I want to understand where you're coming from.

[English]

Mr. Clifford Mackay: We'll provide you with some documentation on this. But first—I'll say it again—in terms of the general policy we are supportive of it.

What went wrong? The first thing that went wrong is that in implementing the policy the real stakeholders weren't invited to the table. Airlines were not a part of these negotiations and were explicitly excluded. Some major tenants in airports were also excluded. The deals were made between the Canadian government and organizations that were set up specifically for the purpose of receiving these assets and the negotiations went on between those two parties. And other critical stakeholders were not a party to those deals. So that was a mistake. We believe that if the other parties had been at the table, some of the mistakes that were made wouldn't have happened.

• 1720

The second thing we think was a mistake was that in creating these entities, which were essentially local monopolies, the structure wasn't put in place to ensure that pricing was transparent and that it was fair and cost based. These are principles that have been around the airline industry since the 1940s. So this isn't brave new world stuff. You can go back and look at these principles that came out of the Chicago convention and other things, and they have been practices in the industry for many years. For some reason, in this particular case those practices were not enshrined in any kind of process, and we didn't create at the time a way of solving problems, other than the parties taking each other to court, which frankly is not a very satisfactory way to solve problems, particularly pricing problems in a marketplace.

So we think that was a mistake. We think there were some other mistakes made with regard to the mandates for these new organizations being too broadly writ and open to some very broad interpretations. There are situations in the country where airports have invested in foreign airports, and a number of other things have gone on of that nature.

None of these problems, in our view, kill the policy. That's not the point. But what they do is, if they're not fixed, create a circumstance in the future where you could have a circumstance where large numbers of people, major stakeholders in all of this, would change their minds and would argue to kill the policy. We believe this would be tragic, because we think there is a lot of opportunity in this direction. But we have to fix these problems.

I don't disagree for a moment, sir, that at the time we certainly were among the voices encouraging the government to reduce the deficit. So we certainly wouldn't disagree with your statement in that context. But in doing it, there were some things overlooked and there were some oversights, and we're just arguing very strongly that we need to fix it now.

The Chairman: Thank you.

I will allow a fourth round. The way we will proceed is one minute, and I'll stick to the one minute. Colleagues, if you want to know the rules.... We will do a fourth round, with one-minute questions. We'll hear all the questions, and after that we will ask you to respond to all of them together, after which we will ask you to make closing remarks.

I'd like to have one minute with my colleagues to talk about future business. We won't make any decisions on that today, but we'll give information.

So we'll have one-minute questions. Do you want to do a real round table? Mr. Casey.

Mr. Bill Casey: The floor is mine. I wonder what organizations are there that represent the airport authorities.

The Chairman: Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chairman.

Gentlemen, the Preclearance Act, I'm hearing from the GTAA, is going to impose—or could impose, with one sort of law or something—additional cost burdens on Revenue Canada, and they're talking about some kind of user-pay concept. Are you familiar with this, and how does that work?

The Chairman: I will now ask you to address the questions and make your closing. You had a question, Mr. Dromisky?

Mr. Stan Dromisky: For this one I want a very simple answer without great detail. Regarding the CANPASS program the revenue department has, is it an asset to the industry or is it a hindrance?

The Chairman: I invite you to address those questions and then go on to your closing remarks.

Mr. Clifford Mackay: I'll address the first question, and I'll ask my colleague Geoff to address Bill C-22 and the CANPASS, and then I'll come back and just say a few words.

The major organization that represents airlines in Canada is the Canadian Airports Council. It represents large airports. It's a new organization and is just getting itself organized these days. There are also some smaller regional organizations that are emerging. There's one in Ontario, there's one in Alberta, there's one in Nova Scotia, and I believe there's one in B.C. as well. They attempt to represent the interests of smaller airports in their region. We can obviously talk to the CAC and get you these names, or you can deal with them directly, but they're all independent organizations.

Mr. Geoffrey Elliot: If I could respond on the issue in Toronto, I can't describe precisely what the issue is, but I think it's a technical issue that relates to facility design in order to handle the arriving international passengers. And there was some question, a legal question related to requirements of the charter, as to whether it was practical to co-mingle arriving international passengers, who would be in a sterile environment, with passengers who were already in the department lounge, having cleared U.S. preclearance. I believe that's a matter that will be cleared up in technical discussions before the bill is passed into law.

• 1725

On the issue of CANPASS, for those who are not familiar with it, CANPASS is an ID pass that you can get as a frequent traveller that will enable you to pass through Canadian Customs and Immigration more quickly, but you don't get it for nothing. I think it has to be a positive thing, because it will relieve lines at airports if it's used enough.

The Americans have a program called INSPASS, and something that would be even better would be if it were possible to have one card that enables you to go in both directions if you're a frequent traveller. This doesn't preclude authorities from spot-checking people they want to spot-check; it just makes it easier for the routine traveller. It enables Customs and Immigration people not to have as many staff and to have the same amount of efficiency and throughput, and if they do have the same staff, you have even more efficiency and fewer lineups at airports.

Yes, it has to be a good thing, because it makes travel easier for our customers.

Mr. Stan Dromisky: Thank you very much.

Mr. Clifford Mackay: By way of closing, let me again thank the committee very much for the time you've spent with us today. Frankly, it's heartening to us to have this much time in front of a committee like this.

I'll leave you with two thoughts. First, the key message we hope we've given you today is that there are a number of issues—all of them, thank heaven, solvable, we believe—and if we can address these in the next year or so, we can significantly improve the cost competitiveness with the industry at no significant cost to the taxpayer and make a more competitive situation for our members and, more broadly, for the travelling public.

Lastly, I would like to make the offer that if there's anything we can do by way of further information, please let us know. I've made a number of notes on various things, which we will make sure the clerk gets in the next few days, and we would very much welcome an opportunity to speak with you again once your agenda becomes clearer in terms of the particular areas you want to investigate.

Thank you very much.

The Chairman: Thank you. Because of the large number of airlines that you represent, it is my intention to recommend to the committee that we reinvite you before drafting the report.

Mr. Clifford Mackay: Thank you.

The Chairman: Thank you very much.

Colleagues, I can be very brief. I have three documents before me. One is a potential witness list, which you have. We could discuss that next week. The second is a proposed travel plan that we will be discussing next week, keeping in mind that there's one week of break left before the summer break, so we're going to have to make some good decisions on the travel, and you have the terms of reference.

So next Tuesday, if Air Canada does appear, they will be invited to be here from 3.30 p.m. to 5 p.m. We will do business from 5 p.m. to 5.30 p.m., so we will need a quorum then. If they cannot attend, we will do business at 3.30 p.m.

So I'll leave you with these documents so that we can prepare for that meeting next Tuesday.

Thank you very much. The meeting is adjourned.