TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, June 9, 1999

• 1524

[English]

The Chairman (Mr. Raymond Bonin (Nickel Belt, Lib.)): We'll call the meeting to order.

Thank you for being here, everyone, and special thanks to Mr. Angus Kinnear, the president of Canada 3000. We're here pursuant to Standing Order 108(2), a study on the competitiveness of Canada's air transportation system.

Welcome, Mr. Kinnear. I explained to you how casual our committee meetings are and that we like to allow flexibility and freedom to get information, because we learn from you. We will ask you to make a presentation and from there we'll go on to questions. Please proceed.

Mr. Angus Kinnear (President, Canada 3000): Thank you, Mr. Chairman, and thank you for inviting me.

• 1525

I had some brochures and timetables distributed to you just so you'd get an idea of what we're about. Canada 3000 is an airline with 15 airplanes. We fly around the world, as far as Sydney in Australia and into Europe as far as Vienna. Our business is subdivided into four different segments.

Roughly 25% of the revenue we earn is generated from domestic services across Canada. Since deregulation, as you are aware, we can fly to any destination, charge whatever fare we think appropriate, and operate to whatever schedule we deem appropriate. Flights between Canada and the U.S.A. generate 25% of our revenue, and the places, of course, that we serve in the U.S.A., as we're a leisure airline, are basically Florida, California, Las Vegas, and Hawaii. Another 25% of our revenue is generated through flying Southern Sun, our inclusive tour charter flights to Mexico, the Caribbean, and islands like the Bahamas. Last, 25% of our revenue is generated through flying transatlantic charters to Europe.

We've added a fifth leg of our stool, if you like, but it's still quite a small proportion of our total business. We have a weekly charter flight that goes through Hawaii, Fiji, and down to Australia. We're actually the only airline from Canada that turns up in Australia, although some of the others might insist that they serve it too.

So we have a pretty wide-ranging route structure, and the basis of our operation is to provide reliable, affordable air travel to the leisure segment of the business rather than the business traveller, the main function of the two national carriers, Air Canada and Canadian.

Obviously there have been some developments in the Canadian airline industry over the years, and of course it is a well-known fact that probably the smaller of the two national carriers—Canadian—would not exist if it were not for their partnership with American Airlines.

Canada, in trying to maintain two national carriers, is probably trying to force water uphill, because most other nations—with much larger populations—that have sought a similar type of policy have never ever been able to make it work. I strongly suspect that the inevitability of the system will prove that Canada will be no different and that eventually there will be one national carrier and maybe a smaller number of competing carriers in their various niches.

One of the problems created by the two-airline policy that Canada has adopted is that it tends to weaken both carriers. In particular, it puts Air Canada, as a stronger Canadian carrier, at a disadvantage and does not allow it to compete effectively in the world, as it might do if it were not for Canadian Airlines' presence.

Over the last five years, the globalization of the airline industry in the world has probably changed very dramatically the national element of aviation. Great play is made about who in fact owns and controls various airline companies. In fact, with the globalization and the major trading alliances that have been created, like Star Alliance and oneworld Alliance, in which Air Canada and other airlines have joined together in marketing agreements, it probably removes the original element of national ownership almost completely.

In Air Canada's case, all the major decisions being made by Star Alliance affect all of the members of that alliance association. I think we'd all be kidding ourselves if we were to think that the major decisions affecting the Star Alliance group, of which Air Canada is a member, are made in Montreal. They're made in Frankfurt and they're made in Chicago, where Lufthansa and United Airlines, the largest members, hold sway.

• 1530

I think we're probably also kidding ourselves somewhat if we think that in the oneworld Alliance the decisions affecting that operation are made in Calgary. I would recommend to you that they're probably made in Dallas and London, home of both American Airlines and British Airways.

With this much wider global association of airlines, the national element of the way in which we previously looked at airline ownership is probably a thing of the past. When we talk about ownership rules and whether airlines could be owned by foreign carriers or by foreign investment, they are probably in fact already owned and controlled in that way, and the legislation has yet to catch up with the fact. I don't think we're going to see that airlines will necessarily be national in 10 or 15 years; they will be international global entities that are trading just like any other large global entity. They will not be purely and simply held as national entities like they have been in the past.

Is it essential that the present ownership rules be maintained? Well, I don't think they're effective at this present moment. I think they've seen their time, and I think they have no bearing on the future of the airline industry in any way, shape or form. At the moment, they're simply a restriction that prevents the acknowledgement of the global industry that is actually in place.

The services in Canada are very competitive. I believe that the present route structures and competition in the marketplace pretty well cover off everybody's needs. I don't believe that competition is threatened by the present way the business is operated.

I think there are going to be two major changes in the future, and I would hope that Canada will not get left behind. Along with the idea of the globalization of air carriers because of their association in things like Star Alliance, the one major change that I think we're going to see is a further development of open skies, which is almost the continuation of free trade.

In Canadian aviation terms, one of the most effective and unsung success stories recently has been Air Canada's success at penetrating the transborder market following the deregulation of those routes. There is absolutely no doubt that they've proven to be a very effective competitor, and they've done it with a Canadian-built airplane. It's a sort of double success story, using the RJ to penetrate what everybody said was “Fortress America” and couldn't be penetrated.

As American Airlines already controls Canadian Airlines, America already in fact has 50% of the domestic business in Canada by their association through Canadian. It should be in our interests to try to pursue an open skies agreement between Canada and the U.S.A., which would allow domestic services in either country to be operated by either country's airlines. One of the problems that we have in Canada is that we have only 30 million people. There are 260 million people in the U.S.A. It's a market 10 times the size of the one we have here. As Canadian carriers, we've been able to prove that we're very competitive and that we can work within those markets.

At this moment, the U.S. and British governments are working on a revised Bermuda II agreement, which will most likely lead to an open skies regime. That, if it happens, will follow very quickly in the rest of Europe. I don't believe it's impossible to foresee that European carriers will have the rights to carry passengers within the United States within the next three to five years.

• 1535

We cannot afford to be left on the sidelines, north of the red line that separates Canada from the U.S.A. across North America, and not participate in being able to trade in what would be an ever-larger market. I would hope that we could possibly create a U.S.-Canada marketplace and then be able, obviously, to go forward and develop a North America-Europe marketplace. I think those things are inevitable, and I think if Canada's air carriers are not to be left out in the cold, it's essential that they be able to join what will be the larger marketplaces created by these global agreements.

If we have one problem at the moment in Canadian aviation, it's the issue of the privatization of Canadian airports, accepting that the other problem that we had this morning has now gone away, since, Mr. Chairman, you told me that it was likely that Nav Canada had resolved their differences with the unions.

Up until the handover of the airports, of course, Transport Canada ran the airport system across Canada. The privatization, as it was called, really wasn't privatization. It was a handover to local authorities, rather than the system being run by the national process. Unfortunately, when you give politicians the opportunity to build things, they tend to go out and do them in grand style. Most politicians across Canada like to think that their airport is a bigger glass box than the airport of the guy next door.

Under Transport Canada, they could only manage to do one project at a time, so if they were working in Alberta this year, Winnipeg had to wait till next year, and so on. Instead of having a more ordered development of airport infrastructure across Canada, we now have a situation whereby virtually every airport in Canada is in a major building program. In order to recover the costs of these building programs, the landing fees and other service charges are escalating out of control.

One of the issues that I think is very important—and I do differ very much from my ATAC colleagues on this—is that ATAC is negotiating with a number of these airports to collect airport improvement fees on behalf of the airports and bury them in the ticket price. I don't believe this is a good idea, because it removes the responsibility of the local airports to justify the expenditures they have created in their development programs.

With Toronto suggesting that its new terminal is going to cost $7.5 billion, it means that every passenger going through Pearson in the future is going to have to pay roughly $48 a passenger to walk through the terminal. Now, in terms of my business, where we take families to Orlando or to Disneyland or wherever, I cannot contemplate a family going on holiday paying close to $200 for the privilege of walking through Pearson airport.

I think we really do have to try to get the new airport authorities to be responsible for the types of expenditures currently going on and to be able to justify them to their local electorates, who they presumably represent. Very few of these airports have any input from the airline industry, and it is of very much concern to me that we are seeing very large increases in charges, which really have very little hope of being collected in the end.

• 1540

I'm concerned that the way in which the airport development is presently being conducted will have a very detrimental effect on us being able to offer Canadians low and economical airfares. Because of Canada's geographical position—we have a vast area of land with a small population—air travel is essential. It is no longer something that is done because it's a preference; it really is an essential in order to allow the country's business and communications to operate.

It would be very sad that we would try to bring down fares and offer better service only to be thwarted by the fact that large infrastructures had been built regardless of cost, with the inevitable outcome, that is, at some point, somebody has to meet the reality and find a way of paying for them. Or there is even the situation whereby the cost is loaded back onto the taxpayer, which is one inevitable outcome of the way in which things are being done at present.

Basically that's our position. We're free marketeers. We believe that the aviation industry should be opened up as much as possible, that reciprocity between the various countries should be negotiated to try to create the best free trade environment we can possibly have. At this moment, Canada's two national carriers are really a drag on Canada's position in the world. They ought to be able to be the representative of the Canadian aviation industry as a whole.

I don't think anybody should have any concerns about competition. There will always be competition in a free-market environment.

A lot of people come to me and ask why we don't serve this airport or that airport. Hamilton will call and say, “You don't fly in and out of our airport, but you go in and out of Pearson.” Mirabel will call and say, “Why don't you put more services into Mirabel?” I try to explain to these airport managers that if the people wanted to fly out of them, we'd be there, and there would be endless lines of jumbo jets to take people. We in fact provide air service from where people want to go to their destination. We don't decide where we fly to. The public decides where we fly to, because that's where they buy tickets to.

As long as there is the ability to create new traffic and to satisfy the market demand—as has happened over the last five years in Canada—I don't believe that any members of this committee should have any concerns about competition.

The Chairman: Thank you very much. That was very interesting.

We'll proceed to questions, with a total of five minutes for the question and the answer.

We'll start with Mr. Bailey, and then it'll be Monsieur Asselin and Mr. Keyes.

Mr. Roy Bailey (Souris—Moose Mountain, Ref.): Thanks, Mr. Chairman.

I'd like just a rundown, Mr. Kinnear. You mentioned that you had 15 aircraft in your fleet. Could you give us a breakdown as to the size? Are they all 320s?

Mr. Angus Kinnear: We have six A-320s, which are used in the North American area.

Mr. Roy Bailey: Those are the domestics.

Mr. Angus Kinnear: They're domestic and transborder.

Mr. Roy Bailey: Okay.

Mr. Angus Kinnear: We have six Boeing 757s, and they wander the world. That's our most flexible airplane. That's what we use for route development, for building up our services.

Last week, we took delivery of our third A-330, which is a wide-bodied airplane holding 340 people, and we will accept a fourth one of those airplanes in May of next year.

So we have three wide-bodied aircraft, six medium-range, narrow-bodied aircraft, and six aircraft that we use for local North American service.

Mr. Roy Bailey: Thank you.

Now, I missed some percentages. You claim that 25% of your income is from domestic flights, 25% from the charter flights, and 25% from the transatlantic flights. Was the other percentage from your weekly Hawaiian-Australian flights?

Mr. Angus Kinnear: Yes, it's U.S.A.: Florida, Las Vegas, California, and Hawaii.

Mr. Roy Bailey: Let me ask you this question. In your presentation, you alluded to the fact that the two carriers we have, namely, Air Canada and Canadian, were having trouble operating within the domestic market, that they both could be going this way. Your thought was that eventually they would become one through some magic, government in or government out or whatever. Are you looking forward with Canada 3000 to being the overseas operation while Air Canada could have the sole right of operating within Canada? Is that what I hear you saying?

• 1545

Mr. Angus Kinnear: No, not at all. What I'm saying is that there is insufficient traffic to run two major airlines in the Canada network. Air Canada and Canadian provide very expensive on-demand air travel. I use an analogy. It's a bit like these two comparisons.

We're the bus service. We go once a day to Vancouver or twice a day to Vancouver, at 10 o'clock or at 3 o'clock. You queue up for the bus, we give you a cheap fare because more people sat in the back, and we get you there.

They're the taxi service. They're the sort of thing whereby you can go out of this meeting and drive to the airport for the 6 o'clock flight, but if you get there at 5 o'clock you can just change your schedule, get on that service, and go.

They're on-demand air travel, while the type of travel that we provide is...we're doing it, really, for the person who's putting his own hand in his own pocket and is paying with his hard-earned, taxpaying dollars. The difference is that we see all of the people who are actually paying their own fare while Air Canada and Canadian see all the people who are having their fares paid for them by some organization. That's basically how the business breaks down.

There is insufficient business to make economic sense out of having an on-the-hour service of two carriers leaving Vancouver—at 12, 1, 2, 3, and 4 o'clock—and as long as these guys try to do it, one of them will fail. I'm not suggesting that Air Canada should have one segment of the business and we should have the other—not at all. There will automatically be competition and we will provide that competition, but the market will have to decide what it is and the market size will decide how much capacity is put in to make that service available.

Mr. Roy Bailey: May I have one quick question, Mr. Chairman?

The Chairman: Yes.

Mr. Roy Bailey: I get the impression that you're talking about these others and saying they are the business clientele, whereas at present you're serving the tourist clientele. Is that correct?

Mr. Angus Kinnear: Quite a few small-business people fly with us. We probably don't carry the chairman of the board, but we certainly have all of the people who run smaller companies and who are more price-sensitive than time-sensitive.

Mr. Roy Bailey: I'll get back to that, then.

The Chairman: Yes, on the second round.

[Translation]

Mr. Asselin.

Mr. Gérard Asselin (Charlevoix, BQ): I wish to welcome you to the Transportation Committee where we are studying the competitiveness of Canada's air transportation system. You have published a very nice brochure and I am convinced that you have French-speaking clients, at least in Canada where, as you know, we have two official languages, English and French. Those French-speaking clients would certainly be interested to read that excellent publication which is, unfortunately, only in English.

First of all, I would like to know if you have a French-speaking market that might be interested in reading your brochure and if it is also published in French.

I shall let you answer that question and I shall come back for another turn, Mr. Chairman, as I do not wish to use all my time.

[English]

Mr. Angus Kinnear: I'm sorry. I didn't understand what you asked me.

[Translation]

Mr. Gérard Asselin: The interpretation...

[English]

The Chairman: We'll provide you with the translation. The question was whether you had a francophone consumer base. The literature that was handed out was unilingual and he was asking if some of your passengers—

Mr. Angus Kinnear: Okay. We have a base in Montreal—

The Chairman: Excuse me. I'll just make a comment before that—

[Translation]

I shall say it in English...

[English]

to my colleague. Canada 3000 is not a government company. There is no obligation, but I understand the question. If it's a service to customers, the question is acceptable.

[Translation]

Can you hear the interpretation?

[English]

Mr. Angus Kinnear: I can hear the French now.

• 1550

[Translation]

The Chairman: Let us start all over again.

Mr. Gérard Asselin: I wish to welcome you to the Transportation Committee which is studying the competitiveness of Canada's air transportation system.

I wonder if you have unilingual French-speaking travellers among your clients? Do you offer your services in both official languages? We have two official languages in Canada, English and French. In your aircraft, does your crew offer the service in both official languages, English and French?

I also wish to congratulate you on your excellent marketing and information brochure. However, I regret that it is not written in both official languages. Maybe you have a French version of it to make your company and your product better known to the French-speaking community. When a French-speaking traveller buys a ticket from Montreal to Paris or Montreal to Vancouver his money is as good as that of an anglophone traveller.

[English]

Mr. Angus Kinnear: First of all, thank you. Yes, we do have service in French. We have a Quebec crew base. We fly from French Canada to Paris. We've just introduced a new service from Paris to Moncton because we are creating an interest in the original French settlements in New Brunswick. That has been very successful.

We have all of our on-board literature in both official languages. With respect to the brochure you have in front of you, I can provide it in French. I can also provide it to you in German and in Dutch. I can provide it to you in Portuguese, because we serve all of those international communities. On board our aircraft, when we're flying to Holland we have Dutch-speaking people. When we fly to Germany, we have German-speaking people. When we fly to France, we have French-speaking people. When we fly to Portugal, we have Portuguese-speaking people. When we go to Spain, we have Spanish-speaking people. When we go to Australia, we have Australian-speaking people. We serve the market as the need arises.

I regret that I do not speak French. You can probably tell from my accent that I'm originally from Britain. I didn't get on with the French mistress and when I was at school in Britain I was sent to do woodwork. So I can build you a table, but unfortunately I can't speak French.

Some hon. members: Oh, oh!

Mr. Gérard Asselin: Ah, I'm sorry.

[Translation]

Your French would be excellent, my dear friend, if you have had a French mistress.

[English]

Some hon. members: Oh, oh!

The Chairman: Mr. Keyes.

Mr. Stan Keyes (Hamilton West, Lib.): Thank you, Mr. Chairman. Thank you, Mr. Kinnear, for your presentation. I don't mean this as an insult in any way, but I wish I could learn where you bought your crystal ball on the airline industry, because I'd certainly like to purchase one myself.

• 1555

When it comes to the other airlines, for example, and your understanding of what would be best for the airline industry in Canada, that is, a combination of Air Canada and Canadian coming together to serve as one airline as opposed to two competing airlines, I'm not so sure that the domestic market would be better served given the fact that there would be reduced competition in the business of, as you describe, flying hourly between, say, Toronto and Ottawa. That competition in regard to flying between Toronto and Ottawa keeps the airlines honest, I think, when we understand what their flight schedules are and how much their ticket prices are.

In regard to the idea of having one airline, of course, it would be wonderful if we could come up with the solution or look into a crystal ball and see a solution for one airline in this country, whereby Canadian and Air Canada could come together and serve both the domestic market and the international market, again, without the domestic market, or those who would jump on a plane and fly to Ottawa at exorbitant prices because there was no competition—at that level of service, I might add. But it's not Mr. Kinnear or Stan Keyes or the transport committee that's going to make that decision for those airlines: it'll be the people who buy the stock in those airlines.

Mr. Angus Kinnear: With respect, the last time we went through this, the governments, both provincial and federal, were instrumental in keeping Canadian alive. Canadian doesn't make money flying from Toronto to Ottawa, and I doubt whether even the people in Dallas have an interest in subsidizing your travel between Toronto and Ottawa—or will continue to do so. Inevitably there probably will be one major carrier on that route, because how much is American prepared to lose until they decide not to continue to operate it?

But if that were to happen, other people would come into the marketplace, not necessarily doing the same thing, but in a slightly different way. I would use the WestJet example in western Canada. WestJet has provided a short-haul service very much like our own, based on price rather than business class service ideas. They've made a very big impact in the western market, but it's in a service that is different from the standard type of service that we've seen the two major carriers provide.

Mr. Stan Keyes: You are probably very much aware of the fact that it was not just the government that made the contribution in order for Canadian to stay afloat. It was also a great sacrifice by the employees themselves. The employees came forward. The employees made contributions of time, of—literally—cash, of pay cuts, etc., in order to try to make the airline work. There's still the outside chance that it just might be able to do that. Maybe it's going to have to rethink the way it does business. Maybe one day there doesn't have to be a Canadian Airlines that disappears in this country but rather a Canadian Airlines that reshapes itself to maybe even take into account what your suggestion might be.

The other thing I wanted to broach with you, of course, were your thoughts on Pearson airport and the airlines crying the blues about how increased costs at Toronto international airport, etc., will escalate their plans to make the renovations, to grow, and to become the major hub airport of Canada, etc. In part, I have to lay the blame at the feet of (a) the airlines, and (b) even those people who sell tickets for seats.

I come from Hamilton and I've been a big promoter of the Hamilton airport, for example. If Canada 3000, Canadian, Air Canada, or any airline, for that matter, decides that this is ridiculous, Toronto is outpricing itself, we can't afford the fares.... I take into account your remarks that you want to go where the people are so that you can carry them from place to place. Yes, that's so, but you can also, I think, have considerable influence on the travelling public if, all of a sudden, Canadian, Air Canada, Canada 3000, or a combination of all or part, said, we can get a lot better fare coming out of Hamilton airport, and, for that reason, Toronto, if you want to persist in doing this, if you want to persist in raising your rates, then one, two, three or more of us are going to move to Hamilton, Ontario.

• 1600

Mr. Angus Kinnear: That would probably be the outcome of very large fare increases in Toronto. There's no doubt that money and the cost of providing a service affects the amount of people who want to use it, and we know that airfares are extremely sensitive to that.

At present, it costs money to move aircraft from Toronto to Hamilton and, therefore, it's not economic. There isn't a big enough differential in the fare to persuade people to go to Hamilton rather than Toronto.

If Toronto continues to build the way that they are and the numbers that I have suggested come true, there will be people who go to Hamilton. Of course, that will make it all the more expensive for the people who are left in Toronto, because as the number of people in Toronto declines, as it inevitably will as it gets more expensive, those people who are left will have to bear a far higher share of the proportionate cost.

I think that's the bit that some of the people serving on the GTAA haven't figured out yet. They have assumed that they can go on escalating the amount of traffic through Toronto and that's what's going to pay for all of this. I suspect that they haven't actually found that as you increase cost you decrease traffic.

[Translation]

The Chairman: Mr. Drouin.

Mr. Claude Drouin (Beauce, Lib.): Mr. Kinnear, I apologize for being late. I had to go to another committee. I might ask you a question that has already been raised.

Before I left you were saying that we had two airlines and that we might have one too many. Do you think it might have had an impact on costs and that the real losers will be Canadians who are travelling in Canada and abroad?

[English]

Mr. Angus Kinnear: I think you misread my remarks. Let me try to restate. It is clear that a policy of two major national airlines cannot continue if one of those national airlines loses $100 million a quarter and the other one loses $1 million. It will not continue. There will have to be change.

I'm trying to say two things. Number one, the globalization of the airline industry means that competition will continue if there is one major Canadian carrier. It will continue. Number two, if we pursue an open skies policy with the U.S.A. that allows Canadian airlines to fly in the U.S. and the U.S. carriers to fly in Canada.... At present, the fact that American controls Canadian means that they in fact have access to 50% of the market in Canada, but as Canadians we don't have access to the domestic market in the U.S.A. They're under the barbed wire and we're still standing on the wrong side of the border.

We need to try to ensure that we open up the markets. This will ensure that we continue to have competition, and it will also ensure that we have a Canadian representative in world aviation that has the size and the might to be able to have some influence in an international industry.

That's the point I'm trying to make. There is one thing that is absolutely certain, almost as certain as gravity: the Canadian aviation industry as it is presently structured cannot continue and will not continue. It's losing money, and nobody is there or is prepared to fund it at the level at which it's presently losing money. It is going to change. The question is, how?

An hon. member: How fast?

Mr. Angus Kinnear: Yes. How fast?

The Chairman: This completes the first round.

Mr. Casey.

Mr. Bill Casey (Cumberland—Colchester, PC): Thank you very much.

I just want to try to get a perspective on the relative size of Canada 3000. I don't know how you judge airlines. Is it by passenger miles? Is that a legitimate criteria?

• 1605

Mr. Angus Kinnear: It's very hard. Let's look at it in terms of total revenue. We presently turn over about $540 million Canadian, and we carry about 2.7 million passengers a year, some as far as Sydney, Australia, and some from Toronto to Montreal or Montreal to Toronto, depending on which end you're starting from.

Mr. Bill Casey: What about Canadian Airlines and Air Canada in regard to either of those?

Mr. Angus Kinnear: Air Canada is up around 10 times the size in numbers of airplanes and probably is getting on to 8 times the passengers and revenue. But it doesn't mean that there aren't a lot of people out there that could add capacity if they needed to.

Mr. Bill Casey: What about Canadian Airlines?

Mr. Angus Kinnear: Canadian has about 125 airplanes against our 15, and they're probably two-thirds the size of Air Canada in miles and in revenue.

Mr. Bill Casey: I'm surprised at the number of flights you have in your schedule. Are there times when your planes aren't being used? What do you do with them if they aren't being used?

Mr. Angus Kinnear: We have the highest utilization in the world of any airline operating A-320s or 757s. One way that we can provide modern airplanes and low fares is that, as our colleague over here mentioned earlier, not only do we put 25% more people in them, we fly them 25% more than the regular airline does.

You see, Air Canada waits for the businessman to go off in the morning. It gets out of bed around 7.30 and finishes flying the businessman in the evening. They're all back in the hanger by 7.30 p.m. and they probably do eight hours of flying a day. We go off at 6.30 a.m., get back at 1 a.m., and do 16 hours a day. So not only do we carry 25% more people, but we fly twice as many people in a day, and that's how we're able to offer economical airfares.

The Chairman: Mr. Cullen.

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

Mr. Kinnear, I'm sorry, but I had the same problem as my colleague—another meeting conflict. I'll ask you something you may have already answered. Is Canada 3000 a private company or a public company?

Mr. Angus Kinnear: It's a private company.

Mr. Roy Cullen: Are you making profits?

Mr. Angus Kinnear: Yes.

An hon. member: Are you going to buy shares?

Mr. Roy Cullen: Well, getting to that....

Are you consistently making profits, a good return on investment, a return on assets?

Mr. Angus Kinnear: I don't know what you describe as a good return on investment, but we've been in business now since 1988 and we've pretty well followed the market up and down through those various years.

We're quite well positioned, because what we found in the last recession is that when people found they had to cut back on costs or got concerned about costs, they came off the scheduled carriers and into our marketplace. Then, when things are good, people tend to come off bicycles and out of motor cars and come up into our marketplace.

So because we're in the middle rock band, if you like, we tend to get the direction of the traffic going both ways. As things get good, people have more disposable income. They go on holiday more. They tend to boost our operation. When things go bad and companies cut back, they tell people they have to come out of this class and find an economical way of doing it, and they end up back with us again. We tend to get the flow both ways up and both ways down, and that's what tends to maintain our operation.

Mr. Bill Casey: How do you position yourself in the market? Is it in the sense of lower fares? You've talked about how operationally you're managing to do fairly well in the sense of higher rates of utilization and more generally, but in terms of the marketplace, how do you pick your routes, for example, and how do you position yourself in the market vis-à-vis Air Canada and vis-à-vis Canadian in particular?

Mr. Angus Kinnear: Most of our routes are leisure-oriented. Other than domestic service across Canada, which tends to be visiting-friends-and-relatives traffic rather than business traffic, they're leisure-oriented. For example, I keep saying Las Vegas. People like to go to Las Vegas. People like to go to Los Angeles. They like to go to Florida and they like to go to Hawaii. We don't go to Chicago. Not many people spend their holidays in Chicago. We tend to be leisure-oriented. We try to market ourselves as reliable, affordable air travel. We use the very latest equipment, and we make very good use of it. That's how we manage to equate the cost.

• 1610

Also, of course, you have to remember that Canada is an attractive destination for people from outside the country. To my mind, we have a greater potential for developing traffic of bringing tourists into Canada rather than taking them out. There are only 30 million Canadians, but there are 260 million U.S. citizens and 240 million people in Europe. Seventy per cent of the people flying on our aircraft this year on our transatlantic charter flights are Europeans; they're not Canadians. The majority of that traffic is people coming to Canada, basically because Canadians can't afford to go and live in Europe for more than a week.

Some hon. members: Oh, oh!

Mr. Angus Kinnear: We have much shorter vacation times than Europeans. Europeans have a standard month or more of vacation. They have high, strong currencies and they find that Canada is a very affordable place to vacation in, so we have very large numbers of people travelling on our aircraft who are in fact Europeans originating in Europe and coming to Canada—rather than the other way around. I wish that were the same in the U.S.A. but it's not.

The Chairman: Mr. Dromisky.

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

I don't know whether this topic has been broached by anyone. I apologize, first of all, for being late, but today has just been a circus.

This is the question of air rage. I've read a lot of reports on it from different sources and I've read all kinds of statements. You begin this business of taking people to a place of pleasure. I'm not asking you what you are doing to compete with other airlines that are more or less following the same routes, but what can be done to alleviate this problem? Are the seats too small? Are they too crowded? Are they too close to each other? Is the air problem anything like the reports that I read about? Is there not enough oxygen? Is smoking a factor? Are the people that haven't smoked for many hours...? So many different variables have been brought into the scene, and I'm just wondering what your company is doing or what kind of thoughts you have pertaining to air rage.

Mr. Angus Kinnear: First of all, I think it's a phenomenon in society. We're in a society that is far more violent than ever before. You only have to pick up the newspaper and see what goes on in schools and elsewhere.

We carry people. We don't pick the people who fly with us. They pick us. It's very different when you get somebody in an enclosed environment in an airplane. If you have an argument or there is an altercation or something happens in a restaurant or a bar, there are two alternatives. One, you can ask the person to leave, and secondly, you can call 9-1-1. When you're at 35,000 feet over the Atlantic, neither of those options are available to you.

We have exactly the same people on our airplanes as you will find in any other environment in Canada or anywhere else in the world. Clearly some people don't have the same behaviour ethics as others. We have to deal with them as we would in any other circumstance, but we are somewhat restricted in the position in which we have to deal with this issue, whereas if we were on the ground and in probably another environment, it wouldn't be an item that we would have to deal with.

We've had some amusing stories and some not-so-amusing stories, but human beings being human beings, they behave on airplanes like they behave anywhere else on earth—sometimes not too attractively.

Mr. Stan Dromisky: Thank you.

The Chairman: Second round, Mr. Bailey.

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

Mr. Kinnear, you alluded to the growing costs of the landing rights of the aircraft at the various airports after they had been...I shouldn't use the word “privatized”, as that's not quite the proper term.... Could you give me a percentage increase, just a rough one, say, at Pearson? By how much have the landing rights or the landing fees increased?

Mr. Angus Kinnear: We're up somewhere around 33% or 34%, with 9% or 10% being added this year.

Mr. Roy Bailey: Oh! Holy Christmas!

Mr. Angus Kinnear: Air Canada's last quarter landing fees in Canada were up $192 million on last year—for a quarter. That's over a million a day. We're talking big numbers. This is not just an airline grouching about the fact that their costs have gone up. This is spiralling considerably and is, in my view, out of control.

• 1615

Mr. Roy Bailey: Thank you.

You also mentioned, Mr. Kinnear, that in regard to this increase in cost the airline has to make this cost back in some way, either on the tickets or by a flat tax when you're coming through the bloody door, then. But if this is going to increase at the rate it has, is there no other control? It's costing $1 million a day, and we're not finished with this so-called privatization. Am I correct when I say your fuel tax has not gone down in conjunction with this?

Mr. Angus Kinnear: There used to be an air transportation tax that was paid to the government for the Nav Canada services and, of course, for landing fees. The problem is that every every major airport in the country has entertained a new building program. Instead of building in Edmonton this year, Calgary next year, Vancouver the year after, and then maybe St. John's and wherever, as would have been done under the old Transport Canada regime because they only had a budget that could stretch so far, we now have every one of these major airports virtually rebuilding the entire infrastructure. It's just too much at one time.

The thing is, you have to build very carefully as you build an airport. People don't live on airports. They come in one end and hopefully go out as quickly at the other end. You have to get the balance right between what you have on this end and what you have on the other end, and of course the infrastructure is a very large part of the cost of putting all of this together. Some of these projects won't get paid back for 25, 30, or 50 years. There is enormous infrastructure cost at present, which is adding an enormous burden onto the cost of travel in Canada.

One of the problems is that because an attempt is being made to bury it in the airfare, the general public is seeing the fares rise, but they don't know why they're being charged more. It's my view that if airports want to raise airport improvement fees—like Vancouver and Montreal—they should in fact charge those fees to the public, but they should also have to justify them. If Montrealers want a shiny new airport and they're prepared to pay $10 each time to walk through it, that's fine. I don't believe the people of Toronto right now know what cost is coming towards them.

Mr. Roy Bailey: That's right.

Mr. Angus Kinnear: I think that if they did know, the plans that are presently being put forward for Pearson would be modified, as Air Canada suggested they should be.

Mr. Roy Bailey: Thank you very much. I just fail to.... The figures, the percentage increase.... You say that because this is happening all at once they're not going to recapture the cost of this mammoth infrastructure program, that it will go on for 25 years. How long will it take an airport to pay for the infrastructure at Pearson, say, even at the rates they're charging now?

Mr. Angus Kinnear: Well, how many passengers are going to go through it in what time to recover $7.5 billion plus interest?

Mr. Roy Bailey: Good Lord!

Mr. Angus Kinnear: That's the answer.

But as you put the prices up, the number of people will go down, so it will either take much longer or it will cost much more.

Mr. Roy Bailey: I have just one last question, Mr. Chair.

These fees, are they...? You land in many countries. How do Pearson airport's landing fees stack up against those in Sydney, Australia? Could you give me that example?

Mr. Angus Kinnear: As they were before, they were probably very equal. Pearson was not an overly expensive airport up until this present hike in charges. It probably sat reasonably well through the whole of the infrastructure, but it is rapidly running into the top 10 and is soon to be in the top 5. So from being at about 20 or 25 in the league, we've sort of hopped in one fell swoop all the way up.

It's all very magnificent to go and build these enormous terminals, to do what they're doing, but you have to be sure you're actually going to have the people to go through them. As I say again, the airfares are enormously sensitive. The number of people travelling is very much determined by the fares they can buy. If the fares continue to rise dramatically, the number of people travelling will fall equally dramatically.

• 1620

[Translation]

The Chairman: Mr. Asselin.

Mr. Gérard Asselin: As I said earlier, the Transportation Committee is studying the competitiveness of Canada's air transportation system. We might ask you all kind of questions but to help us make good recommendations to the Department of Transport and to the Minister, I shall ask you to put yourself in a hypothetical situation. If you were sitting regularly in this Committee and were taking a major part in discussions and decision-making, what are the three main recommendations you would make to improve the competitiveness of the air transportation system?

[English]

Mr. Angus Kinnear: Number one, as I said before, the market forces will dictate the future size and shape of the Canadian aviation industry, and government should allow that to happen.

Number two, I would urge the Canadian government to try to further an open skies policy with the United States and, if necessary, allow American carriers cabotage in Canada in return for allowing Canadian carriers cabotage within the United States. I think that would solve any quasi-concerns about competition, and it would level the playing field that presently exists, whereby American Airlines actually owns 50% of the Canadian aviation industry and we don't have reciprocal rights within the U.S.A.

Thirdly, I would like to see some sort of review of the way in which the airport privatization matter is being handled, with perhaps more industry representation to ensure that we don't build airports that are facilities that make our competitiveness less attractive than it could otherwise be.

I think those are the main issues, but first of all, there should be no government intervention and the market forces that will play themselves out in the next 18 months to two years should be allowed to play themselves out, whatever transpires.

The Chairman: Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chairman. I have four minutes and I have four questions. That gives us one minute per question, and that includes the question and the answer, so I'll go quickly.

An hon. member: You've lost a minute already.

Mr. Roy Cullen: In regard to the 33% increase in the landing fees, Mr. Kinnear, over what period was that? I missed that.

Mr. Angus Kinnear: That has come in over the last 12 months.

Mr. Roy Cullen: Over the last 12 months?

The Chairman: Mr. Cullen, we can have a third round if you have other questions.

Mr. Roy Cullen: Okay.

With respect to Lester B. Pearson airport, Air Canada has sort of been leading the charge on the whole construction, design, and the costs. It's my understanding that Canadian Airlines has signed a lease. I don't know that for sure. What about Canada 3000? I haven't heard Canada 3000 out there complaining about the capital costs at Pearson. Have I just missed the press here?

Mr. Angus Kinnear: We were all part of a general committee and concern through the ACC on the costs of Pearson, and we expressed our view. Of course, Air Canada is in a slightly different position because their lease of Terminal 2 is affected by the redevelopment costs and by the redevelopment of the whole terminal. They have been the leaders of trying to get the GTAA to change the building program that they have in sway.

Canadian, because they're in Terminal 3—and we are also in Terminal 3—has benefited from carriers being moved into Terminal 3 because it's actually reduced their costs, not increased them.

• 1625

So at present, Canadian has seen a reduction in costs and Air Canada an increase.

Mr. Roy Cullen: Does Canada 3000 have a long-term lease now?

Mr. Angus Kinnear: Yes. We're in Terminal 3, helping Canadian pay for its terminal.

Mr. Roy Cullen: With respect to packaged holidays, I don't know much, or anything, in fact, about the packaged holiday business. Do you do much of that, where you work it up with the resort and do the whole package deal?

Mr. Angus Kinnear: Roughly 30% of our business is attached to a land package that goes with it, and about 70% is what we would call “air only”.

Mr. Roy Cullen: On the package deals, I don't know it works. Maybe you could explain that without giving away your whole business plan. Is there any sort of cross-subsidization or any sort of loss leader in how those holidays are packaged? The pricing is quite aggressive. Does everyone just put a bit of water in their wine and do a deal? How does that work?

Mr. Angus Kinnear: You put a lot of water in the wine and you do a lot of deals.

Mr. Roy Cullen: So if it's packaged, are you able to price your product a little lower than you would a conventional flight?

Mr. Angus Kinnear: Ideally what you're doing is offering a tour operator a block of seats. Clearly if you're a tour operator and you're going to buy 60 seats, you expect to get a better price than a guy that's going to come along and buy one seat. So you would either buy a whole aircraft or a block of seats on an aircraft. But most of us own our own tour companies, so it's whether you're being kissed or whatever as an intercompany budgetary thing. What we're trying to do is to meet the demand of a different segment of the market, which is the complete holiday package versus an air-only product.

Mr. Roy Cullen: I have one last quick question. Are your employees all part of the same union that Air Canada has, let's say, or Canadian Airlines, that pays the same salaries and wages, or is it non-union, or do you have different bargaining units?

Mr. Angus Kinnear: It's a mix. CAW represents our ground handling staff in Toronto and Vancouver; the other members of staff aren't unionized. The pilots have their own union association. CUPE has been trying for four years to unionize the cabin crew but as yet has not succeeded.

Mr. Roy Cullen: But with the pilots, for example, would it be the same union that Canadian and Air Canada have?

Mr. Angus Kinnear: No.

Mr. Roy Cullen: Separate unions?

Mr. Angus Kinnear: They have their own union, which is an affiliate of the American union, the Airline Pilots Association.

Mr. Roy Cullen: Would the salaries be comparable? Let's say a pilot's salary at Canadian versus a pilot's salary at Canada 3000....

Mr. Angus Kinnear: Again, you have to come back and look at the differences. Captains' salaries at Canada 3000 start at $85,000 and top out at about $120,000. We pay our captains the same salary irrespective of which type of airplane they fly. Air Canada would have a slightly different structure. If you were a first officer joining Canada 3000, you'd earn more than a first officer joining Air Canada, but because we've only been in business for 10 years and Air Canada has been in business since elephants flew, obviously some of their senior people have been there 20 years or 25 years and they're up at the $200,000 mark.

So we're probably a little bit cheaper than they are, but there isn't that great a difference. You have to remember, though, that a lot of our staff are younger and have done less service than the main carrier; somebody who has worked for 30 years at Air Canada has a lot more seniority and added benefits, maybe, than somebody who has worked for us for five years.

The Chairman: Ms. Desjarlais.

Ms. Bev Desjarlais (Churchill, NDP): In regard to the building and the infrastructure work that's being done, and the number of airports, was there a need for that infrastructure work to be done?

Mr. Angus Kinnear: Yes. We have to move with what's being done. The difficulty is that it's all being done at once instead of being phased. Some of the plans, in my view and in the view of some of the other airlines, are very aggressive in the amount of rebuilding that is being done.

I happen to think that Terminal 1 at Pearson is the most efficient airline terminal I know of. The only problem is that it was overused because there was a lack of capacity at Pearson for so many years. A lot of the infrastructure was never renewed, so Terminal 1 probably now has to be taken down and rebuilt.

• 1630

But why would you also then need to take down the whole of Terminal 2? Air Canada has just spent $9 million renewing Terminal 2. The present Pearson plans call for the whole domestic end of Terminal 2 to be torn down in three years. Now, I don't know what's wrong with the domestic end of Terminal 2, which was all rebuilt and refurbished, but it's part of the infrastructure plan to remove that whole half of Terminal 2 and eventually take down the whole of Terminal 2.

I question whether if it was an independent business you'd actually go and destroy that infrastructure and totally replace it, or whether you'd make some other plan to do it more economically.

Ms. Bev Desjarlais: For that matter, wouldn't you see any of the airport authorities in the light of being independent businesses now that they're under airport authorities compared to being under Transport Canada? I noted that you said Transport Canada wouldn't have gone through that process of doing them all at once, but I also have to note that it appears an awful lot of them need work after they've been turned over. Would you not see them as independent businesses?

Mr. Angus Kinnear: I don't see them as independent businesses. I see them as independent tax fiefdoms running a monopoly service that are able to take whatever they believe they can generate from the public for providing a service. What we're doing here is building glass palaces developed by egos—not economical air terminals.

Ms. Bev Desjarlais: Did Canada 3000 support the devolution of Transport Canada's responsibility with regard to airports? Did you support the move to airport authorities?

Mr. Angus Kinnear: Yes, we did. We're disappointed that the airport authorities don't appear to be dealing with the thing as you suggested earlier in your question that they might be: as a business.

I question some of the business decisions that are being made. After all, if you look at the results of the Canadian aviation industry over the last quarter, Canadian airlines, between them, have lost $130 million in 120 days. How can they fund $7.5 billion worth of new building? It doesn't make sense. If the airlines were having to make a decision as to whether they wanted a new terminal or not, it wouldn't be whether they wanted one, it would be that they couldn't afford one.

Ms. Bev Desjarlais: If we use the premise that the market forces will dictate what happens, we'll possibly have a situation where, as Mr. Keyes said, airlines will choose to possibly go elsewhere—such as Hamilton.

Also along with this, you mentioned a 33% increase in landing fees. Has there been a—

Mr. Angus Kinnear: Can I just correct you there? I don't think we should say landing fees. I would like to say airport costs; it has not just been landing fees. It has been increases in rent for check-in desks, increases for offices. All of the costs have been escalated to try to recover the building costs. It isn't just the term “landing fees”. Sorry.

Ms. Bev Desjarlais: That's fair enough. Has there been a decrease in some costs for the airlines, whether it be in fuel tax or other things? Has there been a decrease?

Mr. Angus Kinnear: No. What has happened is that the public hasn't had to pay the transportation tax. The transportation tax, which used to be added into the ticket, has been removed, but what's happening is that the increased costs are overrunning what the old transportation tax used to be. So where we would have hoped, with independent, business-run airports, to see greater efficiency, what everybody's complaining about is that we're not seeing any greater efficiency, we're just seeing an increase in costs.

Ms. Bev Desjarlais: I have one more comment, Mr. Chair.

I'm starting to be just totally amazed at every group that comes here, at the problems they're having with the airport authorities, the costs that are there.... Canadians are not seeing any competition gain whatsoever. We hear numerous members say that there's no difference in costs from one airline to the other. Really, Canadians are getting nothing. Nothing is any better. There has been no decrease in ticket costs.

• 1635

Meanwhile, everybody is still saying that we need to deregulate further, that we need to have more open skies, and I'm saying, hell, we have a worse system than we had before and they want to go even further. I would suggest that's how it appears to a lot of Canadians, that in some areas they're subsidizing Montreal-Toronto trips and Toronto-Ottawa trips. Because I can tell you this: I cannot get a Thompson-Winnipeg trip for $199.

Mr. Angus Kinnear: But you could fly on Canada 3000 right to London, England, for $279, and you could—

Ms. Bev Desjarlais: It doesn't do a heck of a lot of good when you're coming from up there to down here, which a good many Canadians are.

Mr. Angus Kinnear: You could fly from Toronto to Vancouver tonight for $299 and—

Ms. Bev Desjarlais: I'm thrilled.

Mr. Angus Kinnear: —I could go on. Canadians have never had lower airfares—ever.

Ms. Bev Desjarlais: Some Canadians. That has been the problem here. Overall this does not seem like we're coming up with a better system. That's just my view on what I'm listening to coming out of different discussions.

Mr. Angus Kinnear: I would say to you that maybe one of the problems is that in some of the smaller cities you don't have competition. The major carriers are being put in a situation where they are running services at a loss. Therefore, there is no way that you can compete in those marketplaces. If somebody's subsidizing the services and operating them the way they are, they will be at a loss.

You talked about Thompson. In Manitoba, I presume?

Ms. Bev Desjarlais: Yes.

Mr. Angus Kinnear: How many services a day are there from Thompson to Winnipeg?

Ms. Bev Desjarlais: Three times a day.

Mr. Angus Kinnear: One airline or two?

Ms. Bev Desjarlais: One airline.

Mr. Angus Kinnear: One airline....

Ms. Bev Desjarlais: The point I was making, and I think you said it too, is that people in areas like that—and I just give that as an example—are starting to feel that their costs are never going to go down. Meanwhile, we constantly hear about the number of flights between Toronto and Ottawa and the number of flights that both airlines operate between Vancouver and Toronto. People are starting to say that maybe they're subsidizing some of the cost for these other trips here and there, simply so that.... Meanwhile, these airlines aren't surviving. Most are going to the regional carriers doing the trafficking to them, so....

Mr. Angus Kinnear: I wouldn't disagree with some of the points that you've made there.

The Chairman: I have no other names on the list.

I have a couple of points I'd like to get on the record. Are you permitted to carry any cargo on any of your flights?

Mr. Angus Kinnear: Yes.

The Chairman: You do. So that's another good source of revenue.

There's another point I'd like to get on the record to assist us. In the last 40 years, we've seen charter companies come and go. We can remember Wardair, which seemed to be doing real well but disappeared, as the others have. Is there a factor that caused all these companies that tried to do that to disappear? Is there convenient competition at the right time? Is there a factor that makes it almost impossible to survive? Are the two major carriers squeezing out others? Is there anything you foresee that could assist us in our study?

Mr. Angus Kinnear: Let's use the Max Ward experience. Max Ward ran one of the best airlines in the world in his time and was recognized for that. He was one of the first people to put jet service onto the transatlantic for charter flights. He was one of the first people to go into wide-bodied aircraft for charter flights.

All he did was spend his entire life fighting the NTA in Ottawa as to whether or not he could survive and provide competition. Had he been in Singapore, he'd have been the Singapore Airlines' Virgin Atlantic of Canada today, but Canadians don't usually help their success stories. They try to hinder them, for some peculiar reason.

Max Ward ran an extremely good airline and was a leader in his time. His only problem was that he ran up against the Canadian government, which was determined that he wouldn't succeed.

Eventually, when deregulation came, Max Ward tried to run wing-tip to wing-tip with Air Canada and Canadian. He believed that people would sit in Vancouver's airport lounge and wait for two hours because the girl on Wardair would smile at you whereas the girl on Air Canada would scowl at you. Unfortunately, time is more important and people chose the most regular service, not the irregular service.

So when he stood in his niche and was a leisure carrier leading the movement into jet travel, leading the movement into wide-bodied flights on the Atlantic, and doing all of those things, Max was a success story.

• 1640

Unfortunately, Canada's marketplace isn't big enough to sustain two major carriers. It surely was not big enough to sustain three. Max was hoping that he could take the business based on his service reputation, whereas he was unable to put into practice the amount of volume of flights, the frequency of flights, on the main routes, and because he couldn't drive the frequency, he didn't get the business.

The Chairman: So it's not a situation of the two major carriers putting on seat sales to squeeze you out. There's none of that stuff.

Mr. Angus Kinnear: They're competitive in the marketplace, but they should be. They have to compete for the market just like the rest of us do. Air Canada has a seat sale at the moment and so have we.

The Chairman: Yes. Because if they together would coerce and would put on seat sales for the purpose of squeezing out a third, well, that's against the law under the Competition Act.

Mr. Angus Kinnear: I wouldn't make any comment.

The Chairman: You're not saying it's happening?

Mr. Angus Kinnear: When I started operating across Canada at deregulation, I was very careful to make sure that all of our flights left at different times of the day, so that on a Monday we would probably go to Vancouver at 3 o'clock, on a Tuesday at 9 o'clock, and on a Wednesday at 2.30.

I was very cognizant of the fact that if I went at 9 o'clock every morning, I could in fact be a very easy target to hit, because all you would have to do is increase the capacity and lower the price on the 9 o'clock flight. But by us moving the flights all over the clock, it makes it very hard to hit a moving target. Therefore, you're probably going to have to discount so many flights that it isn't worth it for your own revenue dilution to compete. You're probably going to allow me to carry my 3% or 4% of the marketplace because it's too costly to take me out doing it the other way.

The Chairman: Thank you very much. Your information was very interesting and will cause a lot of questions on future consultations. Do you have closing remarks?

Mr. Angus Kinnear: None at all, thank you, Mr. Chairman. I appreciate the opportunity to come and talk to you and I thank you for inviting another segment of the business to give its view—as well as the majors. I appreciate the opportunity you've given me.

The Chairman: We appreciate that. Thank you very much.