TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 19, 1999

• 0908

[English]

The Chairman (Mr. Stan Keyes (Hamilton West, Lib.)): Good morning, colleagues. Today we begin a process we collectively agreed upon yesterday, and that is a study on the future of the airline industry in Canada.

Before we begin, I just thought I might take a little latitude here to explain, for the benefit of our audience that may be watching, that this committee has a lot of work on its plate: there are the Kroeger and Estey reports, which both examined and have already reported on Canada's grain transportation system; there is the issue of the renewal of our national highways; there is the ongoing divestiture of our ports and harbours; and there is the continuing discussion on the future policy for Canada's passenger rail system, not to mention any legislation that might come our way, including legislation pertaining to interprovincial vehicle transportation.

These are just a few of the issues the Standing Committee on Transport will be facing over the coming months. We'll be together again to prioritize those issues to continue our work, but we're here today to focus primarily on the future of the airline industry in Canada.

Colleagues, I just have one bit of business we have to get out of the way, and that is a motion I need from someone that the Standing Committee on Transport be permitted to televise its meetings between October 20, 1999, and December 10, 1999, in Room 237-C, Centre Block, just across the hall, for the duration of its study on the future of the airline industry in Canada.

Mr. Joe Fontana (London North Centre, Lib.): I so move.

(Motion agreed to)

The Chairman: Thank you, colleagues.

• 0910

Our first witnesses today are from Transport Canada. As we discussed, it would be helpful to get a history. So we're here for Airline 101 for the day to get an understanding of where we came from in the airline industry. We welcome our witnesses today: Valérie Dufour is director of domestic air policy; Larry LaFleur is deputy director of international air policy; and Eric Mainville is senior policy adviser for international air policy.

Ladies and gentlemen, welcome to the Standing Committee on Transport, and thank you for responding so quickly to the request of the committee that you come forward and provide us with a background and a history.

Normally witnesses who appear before the committee are given ten minutes to make their presentation, but in this particular case, of course, we are allowing the witnesses to spend the time they need to take us through this history. Colleagues, if you want to keep track of your questions as the presentation is being made, we'll get to a round of questions as soon as the witnesses have completed their presentation.

Welcome, thank you, and when you're comfortable, please begin.

[Translation]

Ms. Valérie Dufour (Director, Domestic Air Policy, Transport Canada): Good morning,

[English]

good morning, everyone. I see quite a few familiar faces. If the chair calls this 101, I would call it a refresher course.

[Translation]

Some of you have already familiarized yourself with this issue. I invite you to ask your questions either in English or in French. It's as you prefer.

[English]

Mr. Chairman, the document we presented this morning is broken up into a series of information blocks, and with your indulgence perhaps the members will let you know if they want to stop and ask questions at certain stages in this document. We do begin with a policy and legislative context and an economic framework. Then we have kind of a picture of the airline industry as it is today, before this process began. It's a picture in time of mid-August.

Our purpose is to try to set you a kind of baseline picture for your future deliberations and to assist you in perhaps decoding some of the information you will receive from further witnesses through your process.

So let us begin with the big picture, the general expression of our transportation policies and the Canada Transportation Act. It sets out the economic framework for licensing publicly available air services. We have a domestic regime now that is essentially deregulated. There are a few bits and pieces left, and we will come to them. We have an international regime, which is still regulated but not as tightly as in the past. There's considerable liberalization, and we'll come to that. The details of how those are regulated appear in the air transportation regulations. That's the economic side.

Our safety regulation, of course, is in the Aeronautics Act and the Canadian aviation regulations, but you don't get to the economic licences if you haven't passed the safety test. So they go hand in hand.

The general features of our economic framework are that there are five tests to be an operator who is licensed to operate in Canada. We will come back to these, and I'm happy to answer specific questions.

We have our Canadian ownership and control tests in which there is a 25% limit on foreign ownership. The legislation does however provide that the Minister of Transport can grant exemptions from that obligation for a domestic operator to be Canadian. I say domestic because the law does not include the ability of the minister to designate a non-Canadian as a carrier who can be designated to fly on behalf of Canada in the international context.

We frequently use this on very small operations. For example, most of the exemptions out there right now are for U.S. small-camp operators who were in the business in the eighties and who still need a plane to take their sportsmen in and out of their fishing camps. We granted them an exemption. Periodically we grant exemptions because the company itself or the parent companies don't meet the ownership requirements. So there's an interesting discussion that can take place around the interpretation of the meaning of the 25%.

• 0915

I just mentioned you don't get to the economic licensing unless you pass the civil aviation safety test, and therefore the second test for a licence is that you be certified safe. So Canadian owned and controlled, certified safe, properly insured, financially fit—this is a piece we added in 1996 to ensure that new entrants with medium and large aircraft entering the Canadian business have to meet a fundamental financial fitness test. Finally, if those of you remember some of the unhappy consumers who spoke to you in the mid-nineties, there's a prohibition on sales of tickets until you get your licence. Now you can't go out and say “Hey, I'm going to set up an airline and I'll sell you tickets”, and later on maybe the plane doesn't show up. Right now the deal is if the plane shows up, then you get to sell the tickets.

That's for the domestic operators. Obviously foreign carriers who operate in Canada have to hold licences as well. We give them a licence if they arrive with their own licences. So a foreign operator has to have a matched set. He has to have one from us and one from his home state. The management of this licensing system is the responsibility of the Canadian Transportation Agency.

There are some general features in the legislation that I think are important for you to be aware of. The Governor in Council can issue policy directions to the agency with respect to the manner in which it conducts its agency business, especially in the air sector, as is our interest.

On the international side there are areas in which the minister needs the concurrence of the Minister of Foreign Affairs to issue directions dealing with functions related to international air service and including aircraft with crew provided by another carrier. That's also part—and we'll come back to our transparency side, the no surprises policy in this, which is that if a carrier is forced for one reason or another, either technical or otherwise, to substitute an aircraft or to fly any airplane other than their own with another crew, they need permission. There is a series of regulatory permissions, depending on whether it's an emergency or a longer-term operation. There's a complementary requirement that a consumer who is going to get on that plane is informed before they get on the plane. That's the no surprises part of it for the traveller.

The Governor in Council obviously is the appeal mechanism for all agency decisions, and it doesn't happen very often, but the governor may, on its own motion or in response to a petition, vary or rescind any decision, rule, or order of the agency. These are on the decisions per se. A legal challenge would naturally go to the Federal Court.

Just coming back to that Canadian and foreign ownership rule issue for another moment, the ownership rules are in section 55 of the act, and that's where that statutory limit of 25% is. In fact the rule is just in the definition of Canadian. If you're looking for it in the legislation, the foreign ownership rule is built into what constitutes a Canadian for the purposes of getting a Canadian licence, and that is that your entity is Canadian in the sense of the citizenship legislation, but in addition it explains the two quite distinct tests of ownership...control, in fact, which is where the 25% limit is. That means you can only have 25% foreign-owned voting shares. So when you count up and you decide how the voting shares are split, that's the test.

• 0920

The largest companies have to put technical mechanisms in place to track sales on the stock market to ensure that they never exceed. Canadian Airlines frequently is putting out a list, because they're always on the edge. Air Canada hovers around 15% in normal times. That's one test. That's the control in law.

The control in fact is that the Canadian Transportation Agency looks over all the commercial arrangements in the deal and determines if the combination of all the agreements and so on makes it such that it is in fact controlled by Canadians. It's their job. It's a permanent requirement. It's not something you pass and then you can kind of slide away from. It's a permanent requirement. A company has to attest, and there's a document their lawyers submit annually, that they have in fact not changed the relationships and that they continue to be controlled in fact by Canadians.

Now, just for the purposes of the legislation, the Governor in Council can change that 25%. It says “25% or such other percentage as may be determined by the Governor in Council”. So you could move the goalpost from 25% to something else, but you have to amend the legislation to change the obligation to be controlled in fact by Canadians. That's why you hear the discussion that perhaps we could change the foreign ownership limits. The Governor in Council could agree to change the limit, but you would still have to amend the legislation to give up the notion that a Canadian company had to be controlled by Canadians. There are two tests: the GIC to change the percentage, and legislation to change the concept. That's in the context of the Canadian airline industry.

The second issue that comes into play is the Investment Canada Act. Because you can in fact invest, a foreign entity could invest in a Canadian airline so long as they want to take non-voting shares, in which case they end up with equity that would exceed the 25%. When they reach the next statutory limit in Canadian legislation, what they reach is the 33 1/3% limit that's in the Investment Canada Act. If you do that, then you're subject to the tests that are in the Investment Canada Act, which would be in addition. Just as an example, when American Airlines chose to stop at 33%, they were staying right up close but not exceeding and not getting into an Investment Canada review. So they stopped right where that second piece of legislation took place.

The Investment Canada Act does allow a higher amount, but you have to pass the test. It's not a test the airline industry has been particularly interested in exceeding. In fact, despite the discussion in the media, there is not a request for any review of that percentage at the moment.

The other feature of foreign ownership restrictions is why we would have them in the first place. We have them because they are common to most countries. I'm not aware of any country that doesn't have a foreign ownership rule or restriction on the admissibility of a foreign operator or foreign investment in what is viewed essentially as a national institution, privately or publicly held. For our purposes what this tends to do is guarantee that our domestic routes are flown by Canadians, and it's part of the schema for ensuring that companies benefiting from designations by the Minister of Transport as Canadian carriers for route obligations and route rights under our bilateral agreements are in fact truly Canadian. Larry is certainly in a position to provide, during the question phase, further discussion on the international implications of that.

But for the time being, let's stay with the framework and look at the competitive features of the policy framework. The legislation right now has specific freedom of entry and exit for domestic operators and international charter services. The international scheduled services are governed by bilateral air agreements, and we'll come to that later on.

• 0925

But the freedom of entry and exit for domestic operators is the standard fit, willing, and able, and that's the licence test I explained a little bit earlier. International charter operators have considerable freedom to enter if the receiving country is prepared to receive them. So it's a looser set of rules than for international scheduled, and we'll come back to that later on. My point here really is that there is considerable freedom for the entry and exit of domestic operators in the domestic environment.

The entry is what I mentioned just a minute ago, that you get the licence, and you then can fly to any point in Canada. There are no restrictions in the Canadian domestic environment that limit a Canadian operator in the way it can operate in Canada, other than the commercial things they decide for themselves.

On the exit side, what we've had since 1996 is the concept that the second last and last carrier out of a point have to give notice. The reason they would have to do that is in order to alert both the community and other operators that there is a competitive opportunity available, which other carriers might not have taken up if they felt there were too many players in the market. But when you're down to the short strokes, the second last and last carrier out, rather than the old way where everybody who exited a market had to give 60 days' notice and they always sought an exemption and so on, when nobody really needs this, it's something that is pretty well known when it's happening.

Perhaps, Eric, you could talk about pricing.

Mr. Eric Mainville (Senior Policy Adviser, International Air Policy, Transport Canada): The carriers are completely free to set their prices in the domestic market. There are no restrictions at all.

In the transborder market what we have is a dual disapproval regime where basically a fare can only be disallowed if both countries say so. Since there isn't really much interest in the U.S. or Canada in reviewing all these fares, it's almost like the domestic regime where the airlines can set what fares they wish. In the international market some countries do have a dual disapproval regime, but a lot of them also have what we call a single disapproval regime, where one of the two countries can disallow a fare if they find that fare to be objectionable.

One of the features of the NTA with regard to pricing is that we now allow confidential contracts between airlines and corporations so that they can negotiate a fixed set of fares for people travelling under the company banner.

Ms. Valérie Dufour: So with regard to pricing freedom in the domestic transborder and international markets, it's a decision of the carrier what prices they want to put in. Particularly in the domestic area, there are no conditions on pricing. There may be some limits in the international markets, and we'll come to those.

What we should be pointing out here in terms of the competitive framework, because of the concern with the high side of pricing, is that there is an agency mechanism, and on complaint the agency will review the basic fare or fare increase. When we say “basic fare”, we mean the economy fare or the lowest unrestricted fare. They don't get to look at discounted fares, but they do get to look at the Y fare or fare increase on a monopoly route and can order rollbacks and refunds where practical. It hasn't happened very often, I might add.

• 0930

[English]

Now, we regrouped some of this information so that you can see it from different perspectives, and one of the perspectives is the consumer protection features. So we've looked at it from the perspective of competition, and we'd like to look at the framework from the perspective of consumer protection.

Now, I mentioned the first one earlier. The financial fitness test for new entrants was designed as a consumer protection mechanism, as I explained earlier, so that in fact the consumer does not find himself, when he's buying a ticket, with a company that won't deliver. They have to have sufficient funds to sustain operations in a start-up period without the revenue generated by tickets. That's the whole notion of the prohibition on sales as well.

So you have to pass a financial fitness test, which means that you can stay in business for at least three months without the money from tickets. That's a very simple explanation of it, but it boils down to that. You have the companion piece, which is the prohibition on sales prior to licensing, so that you can't use the ticket money to start up your operation. Another consumer protection feature is the public disclosure of the carrier actually operating the service. Clearly this is important for all code-shared services or when a substitute is provided for an expected operator. There is also the obligation on carriers to publish their domestic fares and conditions of carriage and all their fares, except the confidential contracts, and to only sell those that are listed. We also have regulations respecting the protection of advance payments to tour operators for air services.

Mr. Chairman, that's kind of a natural break right now. Those are all the questions that relate to the legislation. What I would do now is move to the issue of the industry structure, but I am in your hands as to whether you want to allow questions or to carry on.

The Chairman: If the committee members can hold their questioning directly to the legislative segment that we've just gone through, then.... Of course I'm in the hands of the committee. I get a sense that committee members do have a few questions pertaining to this chapter in our work, so I'm taking names.

Mr. Bailey is first, please.

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

I have a question. We have the 25% limited foreign ownership and the 33 1/2% non-voting shares type of thing. Can the same company, the same investor, hold 25% of one and 33 1/2% of the other?

Ms. Valérie Dufour: Yes. What you do is limit the amount you're prepared to have put with the privilege of voting, but you may want to invest an amount. Many entities, including Air Canada and Canadian, allow both voting and non-voting shares. That's quite common.

Mr. Roy Bailey: I have a quick one in relation to that, Mr. Chairman.

Last year the union representing one of the airlines was in, and if I remember correctly, they stated that they didn't really worry about the foreign ownership or percentage of shares as long as you could guarantee that the workplace would be Canadian. Has that issue come up whatsoever in Transport Canada since that time?

Ms. Valérie Dufour: The legislation really doesn't say anything about what work has to be done in Canada.

Mr. Roy Bailey: I meant percentage of work of the employees—

Ms. Valérie Dufour: No.

Mr. Roy Bailey: Thank you.

The Chairman: Thank you, Mr. Bailey.

Mr. Fontana.

Mr. Joe Fontana: Thank you, Mr. Chairman, and thank you, Transport Canada, on the legislative side of things, for a start.

• 0935

In terms of foreign ownership, I think Roy just asked a little bit about the 25%, and you indicated that all it would take to move 25% to whatever number is simply a cabinet order moving it from 25% and above. You indicated that the limit would be set by Governor in Council, but in terms of the concept of being a Canadian corporate entity it would need legislative change.

Could you expand further on that? If you move, as an example, from 25% to 49% of voting shares, where does it say that you're un-Canadian if you get to 50% plus one? I'm sure the whole issue of effective Canadian control.... What does that really mean? Is it voting shares? Is it non-voting shares? In the definition in the legislation, you say that a simple Order in Council would move from 25% to whatever, but what triggers the definition of “Canadian“ or “non-Canadian”? Is it the 50%? Is it 33 1/3%? Is it 50% for the Investment Canada Act? What says that you're a Canadian or not a Canadian?

Ms. Valérie Dufour: There are no specific measures where you could say “You've passed that test, and I tick off this one and I tick off that one”. Let me just read you the definition of “Canadian”:

“Canadian” means a Canadian citizen or a permanent resident within the meaning of the Immigration Act, a government in Canada or an agent of such a government or a corporation or other entity that is incorporated or formed under the laws of Canada or a province, that is controlled in fact by Canadians and of which at least seventy-five per cent, or such lesser percentage as the Governor in Council may by regulation specify, of the voting interests are owned and controlled by Canadians;

Mr. Joe Fontana: That's totally confusing.

Ms. Valérie Dufour: That's the piece. All right, now let's take it piece by piece.

This says the Governor in Council can decide that it takes less than 75% of voting shares for it to still be Canadian. So we're talking about the reverse. You could take the 25% and move it wherever the Governor in Council wants. There's no stop at 49%. I believe it's more in the order of general business concepts that control shifts at the 50% plus or minus 0.1%. So from the point of view of voting and the general principle of majority versus minority, you flip over once you get into the 49%.

Mr. Joe Fontana: What you're saying is that from 25% to at least 75% it's possible, if the Governor in Council decided that's what it would be, except that there are two other tests. You'd have to change the legislation under the Investment Canada Act to “and/or up to 33 1/3%”, or you'd have to do the 50% less a share with regards to the Investment Canada Act with regards to foreign holdings. So there's a number of thresholds, right?

Ms. Valérie Dufour: Yes.

Mr. Joe Fontana: But you're essentially saying that it can be up or down, depending on what the.... Can you just tell me the history, though? Was it always 25%? Has it moved from, say, 5%, 10%, 15%, 20% or 25%? When was the last time a Governor in Council increased it to 25%?

Ms. Valérie Dufour: The switch to 25% came with the legislation in 1988. The National Transportation Act came into effect on January 1, 1988. That's where we set it specifically at 25% and 75%. Before that, the Canadian Transport Commission made a finding that was in the general principles of ownership and control. We switched in 1988 to the way the Americans do it. They've set a specific percentage split. Prior to that, I would say—and Larry was at the Transport Commission in those days—they tended to see Canadian ownership in the two-thirds, 66% or better, so it was kind of in the 33% range.

Mr. Joe Fontana: Just for the benefit of this committee, has Transport Canada done a study with regards how the United States, Europe, and other foreign countries handle the foreign ownership question? I think you indicated that there was probably a regime in place, but what are those numbers? If you don't have them now, perhaps you can supply them to the committee.

• 0940

Ms. Valérie Dufour: We don't tend to have the numbers in that manner, Mr. Fontana, because in many countries they are state owned. A majority of countries have proceeded in that direction. The U.S. is one of the countries that has the most specific and the most similar to ours. We could certainly do some statistics on percentages elsewhere.

Mr. Joe Fontana: Okay.

The Chairman: Thanks, Mr. Fontana.

Mr. Guimond.

[Translation]

Mr. Michel Guimond (Beauport—Montmorency—Côte-de- Beaupré—Ile d'Orléans, BQ): Ms. Dufour, we will give you an opportunity to practise your French because we intend to put several questions to you in that language.

I don't know whether it's a question of us being poor students or of you being a poor teacher, but we're having some difficulty grasping the 25% ownership rule. Your explanations have only served to confuse me even further.

I have found one contradiction in your submission and in your statement. On page 4 of the document, we note the following:

The Canada Transportation Act requires carriers operating in Canada:

to be controlled by Canadians [...]

Next to the asterisk, we have the following: “Only the Minister of Transport can grant exemptions...”

Then, on page 6, we read this:

a statutory maximum of 25% of voting shares, which can be changed by the Governor in Council [...]

Am I missing something here or isn't a distinction being drawn between domestic and international carriers? I really don't understand. Are we talking about two different things? Why have you gone to the trouble of stating that only the Minister of Transport can grant an exemption, whereas in the second instance, you say that the Governor in Council, namely Cabinet, can change the statutory maximum? This question is along the same lines as that of Mr. Fontana.

Ms. Valérie Dufour: These are two different things. The Governor in Council may change the statutory requirement now set at 25%. In certain specific instances, the Minister of Transport may grant to a domestic carrier an exemption to the requirement that it be Canadian controlled and that its foreign ownership be limited to 25%.

I've provided several examples to illustrate that these situations do not apply to carriers wishing to operate on domestic as well as international routes. A carrier offering transborder or international services isn't about to ask the minister to grant it an exemption because the law doesn't allow it to do that.

However, the minister can grant for a limited period of time an exemption to the 25% limit on foreign ownership to a small carrier that needs to make some operational changes. I can give you the example of the nine-month exemption granted to Air Atlantic during which time the original ownership changed hands and the carrier was owned by an aircraft manufacturing firm, before becoming a wholly Canadian carrier. The Minister had agreed to this nine-month exemption so that the carrier could undergo some restructuring. That's what we meant when we said “the Minister of Transport can grant exemptions”. We were referring to a very specific set of circumstances.

As Mr. Fontana was saying, the Governor in Council, further to a Cabinet decision, can change this percentage which is currently set at 25%.

Mr. Michel Guimond: I take it that the Minister of Transport grants exemptions on an ad hoc basis, in very specific cases.

Ms. Valérie Dufour: That's correct.

Mr. Michel Guimond: And as rule, the exemption is for a limited period of time.

Ms. Valérie Dufour: Yes.

Mr. Michel Guimond: However, a carrier purchasing Air Canada would not be allowed to exceed the 25% ownership rule on a ongoing basis. That's would not be allowed.

Ms. Valérie Dufour: Absolutely not. A large international carrier would not be allowed to do that. This isn't an option for large carriers.

• 0945

Mr. Michel Guimond: Thank you, you've answered my question. Following up on Mr. Fontana's question, I'd also like to know whether the 25% foreign ownership limit has been in effect since the 1988 revision.

Ms. Valérie Dufour: Yes, it has.

Mr. Michel Guimond: Perhaps I didn't catch some of your explanations, but how exactly did officials arrive at the limit set in 1988? Back in the old days, that is prior to 1988, what was the limit?

Ms. Valérie Dufour: We were operating under the 1967 legislation at the time. The Canadian Transport Commission was responsible for determining if the degree of Canadian ownership of a carrier was adequate before granting it an operating license. As a rule, licenses were always granted when two-thirds of the carriers was Canadian-owned. In 1988, following the lead of the United States, we settled on the 75% and 25% limits.

[English]

The Chairman: Thank you very much, Mr. Guimond.

Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman.

I have found this very interesting so far. There's one nice thing about rules. A lot of people out there make a very good living figuring out how to get around them. The one I am interested in is the Investment Canada Act: 50% less a share, can't be in a block, management in Canada. It sounds really great.

Say, for instance, I wanted to take over an airline. Of course, I look at that and I figure as one person I can't do that, but say I had a number of numbered companies that went out and very quietly started buying up shares in this airline. The numbered companies are all owned by me, but as numbered companies they're very hard to trace to find out who has ownership. On top of that, I was able to achieve a section 47, which basically gets me away from the Competition Act. Now I want to push a shareholders meeting, and I have all these numbered companies that have all the shares. I would actually be able to control that shareholders meeting. How does this act stop me from doing that?

Ms. Valérie Dufour: The scenario you are dealing with is a very specific one that involves more pieces of legislation than you've actually referenced. This act would suggest that if that airline changed its ownership and control context as a result of the completion of those processes, they would be subject to licensing review by the agency. If the sum of all the acts you are talking about end up creating an airline that is significantly different from the ones that came before, they become subject again to the ownership and control test of the Canadian Transportation Agency.

Mr. Murray Calder: But I have a section 47 right now that allows that to come through—or am I wrong on that?

Ms. Valérie Dufour: That's a different act. I'm not hear to interpret section 47 for you either. My job is to get you ready to ask those questions in a more informed manner to people who will come after me.

Mr. Murray Calder: Okay. Thank you.

The Chairman: Thanks, Mr. Calder.

Mr. Casey.

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

It certainly is an interesting subject. Can you define “controlled in fact by Canadians”?

Ms. Valérie Dufour: No, and I wouldn't try to. Every case is different. Every combination of financial contributions, commercial agreements, interrelationships, who deals with whom, who makes the decisions, all the side deals—everything has to be submitted to the agency and the agency determines in the individual case what that strange and particular mix of commercial arrangement does in terms of assuring Canadian control.

Just to finish, if somebody doesn't believe they've made a proper finding, they can appeal to the Governor in Council and there's a second review, because somebody has to review that. The Governor in Council can decide there was a good decision and do nothing, but essentially it's the Canadian Transportation Agency whose job it is to pick apart the deal, determine if, and put it back together again, and what pieces if they were pulled out would in fact change who runs the business. That's their job.

• 0950

Mr. Bill Casey: Just following up on Murray Calder's hypothetical numbered company scenario, if a foreign company invested the maximum 25% in a Canadian company and then they loaned an equivalent amount to another company and they invested that money into that Canadian company, and then the arrangement included the nine members on the board of directors out of 13, would that be considered controlled by a Canadian company—just in Murray Calder's hypothetical scenario?

Ms. Valérie Dufour: Well, the two of you can send your scenarios back and forth. All I can say to you is it's up to the Canadian Transportation Agency to look at the deal.

Mr. Bill Casey: What is the process to access the Canadian Transportation Agency's process?

Ms. Valérie Dufour: You have to know that the entity you have is in fact subject to review. If you change the investments and the commercial arrangements within your company in the same way that other legislation requires that you maintain conformity, you have to go in, and if you don't, the agency has the right to say “Hey, I know things are changing. Get your documents in here and let's have a look at it.”

Mr. Bill Casey: If Murray Calder isn't satisfied that it meets the requirements, what does Murray do? Is there a process that he can access to ask the agency to review that situation and establish it, or is there any process in place to appeal a decision?

Ms. Valérie Dufour: I think you're sort of running ahead of the process in the sense that you may have a personal interest. There are issues in the Competition Act that take six citizens to get together and make a complaint. There is no equivalent to take six citizens to make a complaint, but you can always address your concerns to the agency. There's no doubt about that. But it's their job.

Mr. Bill Casey: Just one last question. When we were talking about the agency review of basic fares and fare increases on monopoly routes in Canada, with the ability to order rollbacks and refunds where practical, how is that process accessed? If a consumer feels there's a monopoly and the fare is unfair, how do they apply to the agency for a rollback or a refund?

Ms. Valérie Dufour: They write a complaint.

Mr. Bill Casey: Just a letter. Okay.

The Chairman: Thank you, Mr. Casey.

Just as a supplement to Mr. Casey, Ms. Dufour, you said in a monopoly situation a complaint to the Canadian Transportation Agency can prompt it to review the price of a Y class ticket, for example. How often has this been done? How many complaints have been received? How many times has the agency actually said “since you're the monopoly in this particular situation” and how many times have you said you have had a complaint, the price is too high, and you're ordering them to roll it back?

Ms. Valérie Dufour: I believe the agency has conducted six good solid reviews of complaints since 1988. None of them have really given rise to a finding in favour of the consumer because the agency has frequently determined that the route is not a genuine monopoly.

The only high-profile monopoly route that we've had in this country over that ten years is Vancouver-Whitehorse. Almost every other city pair in this country has either non-stop or one-stop service from more than one point. Part of the challenge the agency has in determining true monopoly is whether it should apply strictly point to point, A to B, and if A to B to C isn't good enough, if you understand the difference between non-stop and one-stop, and they have essentially not found that it was required to roll back. Of course, it's caused a lot of soul searching by airlines. I don't know whether they've rolled their prices back on their own, but it's not an overly used process because there are not a lot of monopoly routes, or haven't been over the last 12 years.

• 0955

The Chairman: Thank you.

Mr. Dromisky.

Mr. Stan Dromisky (Thunder Bay—Atikokan, Lib.): Regarding fares and pricing freedom, let's go to page 8 in your document, please.

You talk about pricing freedom here in the domestic, transborder, and some international markets. I really don't have much of an understanding of the kind of relationship that exists between the agency and the other partners, such as the Competition Bureau, the Minister of Transportation, and the government itself.

We're talking here about domestic flights. Where does the Competition Bureau step in when you have two major carriers...? Basically, for most of the flights from point A to B, wherever you are in this country, the fares are identical. In other words, if I fly from Thunder Bay to Ottawa and return, it makes no difference which carrier I choose. If one goes up 10¢, the other one goes up 10¢.

We look at that situation year after year. Who steps in to check that? Who is examining that situation? Who has the right to make a decision pertaining to that apparent pseudo-competitive situation where there is really no competition?

The Chairman: Your latter question is fine, but the first question about when the Competition Bureau steps in is probably not a question for these witnesses, but you rephrased it nicely in the end.

Ms. Valérie Dufour: The answer is that anything the Competition Bureau does is complaint driven. So it's a question of complaint, the same as the agency. That's not very complicated.

What needs to be understood about how pricing works in the high-tech environment is that most major air carriers now have software packages sitting in their pricing technology that match the price.... The minute a price shows up on the screen from any other carrier, they automatically reprice their own. We're past the point where we can actually tell the technology, stop, you can't do that; you can't match that price. The way we have to deal with pricing has to be very different from the past because the technology is way past our ability to pull it back.

So, yes, if $249 shows up at 10 o'clock in one air carrier's bin, then at 2:51 p.m., the other air carrier's software is going bip, bip, bip, there's one, and pops its own fare in. The issue is how many tickets are available at those fares, because the game isn't just the price but the size of the bucket, which is the lingo I....

Mr. Stan Dromisky: I just have one further question. This is for information. When we look at the last statement that says when the agency is reviewing the basic fares or fare increases on monopoly routes, aren't there some guidelines? Are there some specific guidelines that the agency will use to determine whether the margin of profit is a fair one or is excess?

Ms. Valérie Dufour: There are no guidelines.

Mr. Stan Dromisky: No guidelines.

Ms. Valérie Dufour: They have only the information from the carriers to rely on. There is no test against which.... Trying to figure out the costs associated with a fare are almost impossible between—and this is where Eric is really good. If the chair permits, I'll let him....

Mr. Eric Mainville: There are basically two problems. One is we don't collect the cost information from the airlines any more. It really gets into the second reason, which is because we felt the allocation of airline costs was a very difficult and arbitrary thing to do. There used to be a joke. Get two economists in the room and try to get them to agree on a costing methodology. They'd never be able to. So the government hasn't looked at those issues for quite some time now, ever since 1988.

• 1000

Ms. Valérie Dufour: Is that enough, Mr. Dromisky?

Mr. Stan Dromisky: Yes, thank you.

The Chairman: Thanks, Mr. Dromisky.

Ms. Meredith, please.

Ms. Val Meredith (South Surrey—White Rock—Langley, Ref.): Thank you, Mr. Chair.

We've been throwing around the Canadian Transportation Agency for the last hour. I'm sure the people listening out there are as interested as I am in the makeup of this industry. What is the relationship to the government? Who are they? What access do we have to the agency?

Ms. Valérie Dufour: Well, you have access to the agency. The agency has been a witness in its own name before this committee. For us, they represent our licensing entity and our aeronautical authority in the international environment, but we consider them a quasi-judicial, hands-off, autonomous group. We respect their autonomous decisions and we have to keep them at the appropriate arm's length in terms of their ability to make independent decisions.

The Chairman: Just as a point of information too, Val, they'll be called as a witness as early as next Monday.

Ms. Val Meredith: Yes. I guess I wasn't so concerned about our parliamentary access to them as about the general public's access to them. Are these appointments by Order in Council? Are they appointed because of their expertise in the industry? Who are they?

The Chairman: Maybe, Val, when the Canadian Transportation Agency comes before us, we can get into the details of how they're structured and that kind of thing. When they come before us, you can ask them directly.

Ms. Val Meredith: It's just that they seem to have a lot of power.

The Chairman: Yes, they do.

Ms. Valérie Dufour: I would say they have a very specific task to do as the licenser. They are the group that ensures that the fundamentals of the legislation from an economic perspective are respected, just as my colleagues in civil aviation have a responsibility for ensuring that the safety side of the puzzle is also properly respected.

Ms. Val Meredith: Thank you.

The Chairman: Thank you, Val.

Mr. Drouin, please.

[Translation]

Mr. Claude Drouin (Beauce, Lib.): Welcome, Ms. Dufour, Mr. LaFleur and Mr. Mainville.

The last speakers talked at length to fares. I'd like to focus on that subject for a moment. Ms. Dufour, you stated that you haven't often seen the Bureau step in... We're talking about the future of our national carriers. We have one proposal on the table that talks about a monopoly and a second one that would probably lead to the same outcome. While we don't know that for a fact, we can only assume so.

Is the Bureau able to intervene quickly? Is the consumer really protected? Does the Bureau have the necessary tools with which to take appropriate action?

Mr. Mainville said it was difficult to evaluate costs. Given today's technology and knowhow, you would think that wouldn't be a problem. If there's only two of them, and two different versions, then we should put six options on the table and force them to come up with a solution that could be international in scope. Then, we would have the data that would allow us to protect airline passengers.

Ms. Valérie Dufour: I can answer that question two ways: firstly, the Bureau is mindful of consumers and is in a position to address complaints far more quickly than the mechanism provided for in the Competition Act, simply because of its close association with the act, with consumers and with the licensing body.

As for acquiring the needed data, there is a provision in the act to assist the Department of Transport with the drafting of its annual report on the overall status of all modes of transportation, including air transportation. Subsequently, however, a decision was made to inform small and larger carriers that this report contained far too much information. The paper, or regulatory burden, was causing problems.

• 1005

Therefore, we reduced the amount of basic information requested in a timely manner. We are prepared to concede that we collect less data than we once did. The Bureau must rely on information given on a case by case basis by the carrier in order to rule on a consumer complaint.

Mr. Claude Drouin: Are you trying to devise a better way of gathering data?

Ms. Valérie Dufour: We're looking into this, but we haven't yet come to the point of asking carriers once again to start supplying us with the data they once did nearly 15 years ago.

Mr. Claude Drouin: The data might not necessarily be the same, but at least you would have a better fix on the situation.

On a final note, Mr. Bailey mentioned something about bringing in regulations to ensure that the majority of the workforce was Canadian. No such regulations exist. Is this something that could be considered or would this suggestion not be well received on the international front?

Ms. Valérie Dufour: To that question, let me simply say that that is not a transportation issue, but rather an employment issue.

Mr. Claude Drouin: Thank you, Ms. Dufour. Thank you, Mr. Chairman.

[English]

The Chairman: Thank you, Claude.

Mr. Bailey, please.

Mr. Roy Bailey: I think there's a bit of a feeling out there that no doubt we're all caught up in this and that it's the no-competition syndrome and so on. We've recently had a report from Judge Estey and the Kroeger report, and they have laid some of the fears.... You say there's so much data available really quickly. If there is a real fear among Canadians about the rate fares and so on—and I've listened to many of these people—is it possible in this industry to develop what they did, and that is a revenue cap that would ultimately show Canadians that there is a true relationship between the operation and the ticket for which they are paying? I think it would allay a lot of fears, not now but in the future.

I just throw that in, because it is obviously going to become a reality in the railway. I think that is for sure now.

All these companies have all this data so quickly, and it's all computed so quickly. They know exactly what each flight is costing each year and what the average flight is, and there should be some correlation with the ticket the passenger is paying for. That's just a comment. I'd like to know if it is possible to move that way.

Ms. Valérie Dufour: I think, Mr. Bailey, we have reached the stage in the passenger transportation sector where a large entity is generating so many different types of revenue. On every airplane, you might have as many as seven, eight, or ten fares, depending on when you bought and what conditions you were prepared to have attached to that purchase. I wouldn't know where to set a revenue cap.

If you set a broad top on all revenue caps, all you do is impede the entity's ability to find that balance between costs and revenues. I don't think the complexity of the air passenger and cargo business lends itself to a revenue cap. That's just me, and Eric might say a little more.

Mr. Eric Mainville: Yes, to add to that, we're talking about Air Canada and Canadian, but we still have some fifty other airlines operating in Canada, and presumably a lot of these regulations would have to apply to them as well and they might find that onerous.

The Chairman: Thanks, Mr. Bailey.

Mr. Comuzzi.

Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.): I'll pass, Mr. Chairman, but before we leave I might want the chance to question.

The Chairman: Ms. Desjarlais.

Ms. Bev Desjarlais (Churchill, NDP): Thank you for coming before committee to answer some of our questions.

I'll go back over our notes on this, but just so I make sure I heard what I thought I heard, Mr. Mainville, you mentioned that there are no guidelines to decide if an increase is fair or not. I take that as in regard to Mr. Dromisky's question about the cost of tickets going up. I don't think Canadians or this committee are probably as greatly concerned about prices going down as compared to when prices are out of the scope of most Canadians or it appears there's sort of a monopoly there.

• 1010

You mentioned that there are no guidelines there, and you also made the point that it's too hard to get that info. Then, Ms. Dufour, you mentioned that the Transportation Agency is supposed to look after the economic aspect or ensure that it is respected, and I can't help but wonder how in the heck they ensure that the economic aspect is respected if it's too hard to get the information.

Then a comment was made that the agency is tuned to the consumer. You commented that you're not at the point of asking for information; you stopped requesting it 15 years ago. I'm thinking something's wrong with this picture. Either we're able to get the information or we're not. The airlines obviously have that information coming from every angle, and it seems like something is being lost here.

Just to make sure I get all my questions in, Mr. Bailey mentioned a revenue cap. I don't think I'm as much concerned about a revenue cap as a passenger cost cap. At some point the passengers have to have a reasonable price of a ticket there and we need to ensure that's what we're talking about. I don't think anyone would suggest that we should have a cap on the amount of revenue a corporation is able to make, unless of course somebody's getting the rotten end of the deal, such as the passenger being charged an astronomical fare.

So it appears to me that somehow you're suggesting we have a monster we don't know how to control. I'm kind of at a loss because there are so many conflicting views coming out here.

Mr. Eric Mainville: Maybe our answer was a little too brief. We continue to get revenue data from the airlines. We could tell you what the average fare is by city pair, how many pay discount fares, how many pay the full fare, and so on.

When we talk about cost data, we're really talking about the nature of airline costs. For instance, you might use an aircraft to serve a city pair such as a flight between Montreal and Toronto and then off to London in the evening. You have to allocate the ownership costs of that aircraft among various activities, among the various passengers and all the cost centres, and it gets very difficult to do. The U.S. has continued to do so in a deregulated environment, but the data is considered to be unreliable because of all the assumptions that have to go into doing that. That's all we meant by the arbitrariness of the cost data.

When we entered the new era in 1988 we found that this data was extremely costly for the airlines to produce and we decided at that time that we would not continue gathering it. So that's the history of the whole thing.

Ms. Valérie Dufour: I would just like to add that what we did in 1988 was essentially deregulate and assume that the marketplace would determine what the price was that the market could bear. I appreciate that you're concerned about high prices. There's a competitive theory that says high prices will attract lower-priced entities who believe they can put a competitive product on the market.

There may be an issue that some of the documentation we now get doesn't refresh itself fast enough. There is a role for Statistics Canada in dealing with this information, to determine its veracity and so on. We all want yesterday's numbers and we usually have last year's numbers. It's part of the difficulty in trying to stay up with the fast pace at which prices change. So part of the difficulty is in being responsive.

I would like to suggest, however, that the agency's responsibility in the economic sense is a licensing responsibility, to which is added some safeguards for the high-priced side on monopoly routes, but for the rest essentially it is the market that decides the prices.

• 1015

The Chairman: Thank you.

Colleagues, just a reminder that we still have a few more chapters to go, and we might be asking questions to which we might get answers a little later on in the presentations. So you might want to scan your index to see if some of your questions may be drifting into an area we'll be dealing with, for example, transborder or market situations. Those questions might be more appropriate for the section when we're dealing with it. So we don't have to try to get all our questions in right off the top.

We've had 12 interveners so far. We're now going for 13. Mr. Fontana, please.

Mr. Joe Fontana: Thank you.

Just sticking to this regulation, Mr. Casey and Mr. Calder talked a little bit about scenarios, and I think you had some difficulty defining what Canadian ownership or a Canadian corporate citizen is. I'm not going to ask you to take it up at this time, but I would suggest that you review your testimony and come back to this committee with a definition of what a Canadian corporation or Canadian ownership is under the various regulations that are in place. I'm a little confused as to what exactly those thresholds are. I understand that it's complicated, because there's more than one act you have to look at, and there are a number of different tests. But the scenarios of Mr. Casey and Mr. Calder, hypothetical as they may be, sort of confused the issue of what is a Canadian. I understood that there really isn't a definition. You could be 75% owned by somebody else and still be considered a Canadian.

I just ask you to consider your testimony, because I think you may have confused someone. This gets to the crux of one of the public interest tests the minister has talked about. I don't want to get into it right now.

I have a couple of questions with regard to consumers, who I think are just as important. First of all, the CTA determines the financial fitness at the start-up. Does the CTA get involved in the ongoing financial fitness of a corporation? Once you start up, they could care less whether a company is strong or weak or whether the consumers are going to be protected. Is that right?

Ms. Valérie Dufour: Freedom to enter has entry tests, but there are no tests to exit, except notice if you're leaving a point.

Mr. Joe Fontana: I take it that is part and parcel, because I know in some of the questions Bev talked about.... In 1988, let's face it, there was a fundamental change by the previous government—and, Bill Casey, you might want to review that—to total deregulation of the air industry as it relates to the policy side. So when you start asking questions about costs and revenues and everything else, guess what? Because of the actions of the government of the day, we're in a deregulated situation. That kind of information is no longer required. It has absolutely nothing to do with the agency or something. It has to do with the policy decision of deregulation in 1988. So I think one needs to put this in the total context of what happened in 1988.

On the exit requirements of the domestic carrier, on page 8 it says “for second last and last carrier out of a domestic point”. In London, Ontario, there are two carriers there now, Canadian or InterCanadian and Air Ontario. Say one of them wanted to get out, the second one, and I doubt it because Air Ontario is housed there.

The Chairman: And move to Hamilton.

Mr. Joe Fontana: Yes. How are you going to enforce that someone in a domestic market, deregulated as it is, should stay in? How do we force people to stay where they don't want to be? You said they have to give notice about the second to go and the last to go. So they give notice. What happens after that? What can we say about that? Nothing, right?

Ms. Valérie Dufour: They're gone.

Mr. Joe Fontana: That's a lot of consumer protection, saying nothing, doing nothing. Okay. I just wanted to know. It's interesting.

Ms. Valérie Dufour: Well, no. There's—

Mr. Joe Fontana: My last question—

The Chairman: No, wait, Joe. Let's let the witness answer the question a little bit.

Mr. Mainville, did you want to answer, or Ms. Dufour?

Ms. Valérie Dufour: The purpose of notice is to inform the community and the industry that there is a withdrawal from the market in order to attract others who entered the market. There has never been more than that. What we had in the past was that everybody had to give notice whenever they left any city—

Mr. Joe Fontana: My point is this. For a consumer or a community, once you give notice that you're leaving the marketplace and you're the second last or the last to go, it's wishful thinking that the marketplace is going to answer the demands of that community for service if there's nobody else to go there.

• 1020

All I wanted to know is if the only consumer protection is notice that they're leaving the marketplace. That's all I wanted to know. Whether or not somebody else gets in is up to them. But in a private marketplace and deregulation as we have it, give me 60 days' notice that I'm leaving your community, and that's all you have to do.

With regard to the consumer end of it, I have one further question, if I could. Is it possible for Air Canada and Canadian to code-share on similar domestic routes? Is there anything in legislation that prevents those two carriers from code-sharing? Canadian could do it with another company, Air Canada could do it with another company, and it could be domestic with its regional carriers. Is there anything in legislation that precludes Air Canada and Canadian from working together on similar routes in a code-sharing fashion?

Ms. Valérie Dufour: On code shares there are no domestic rules. There are quite significant government-to-government decisions on who gets to code-share internationally, but as a domestic concept, we've never prohibited code sharing between parties.

Mr. Joe Fontana: So it's possible for two Canadian air carriers—

Ms. Valérie Dufour: Domestically.

Mr. Joe Fontana: —domestically to code-share.

The Chairman: Joe, I have to cut you off there.

Mr. Joe Fontana: I have just one last question on the legislative thing, because it was touched upon.

Ms. Valérie Dufour: I would just like to add that that's something that is not touched by transportation legislation, but as Larry reminds me, the Competition Bureau might have quite a different view of what that would represent in terms of the lessening of competition.

The Chairman: Be very quick, Joe.

Mr. Joe Fontana: I didn't hear you talk about the Air Canada Act, which precludes anyone from owning more than 10% as a single entity. Do you cover it off someplace down here, or could you just briefly tell us that from a legislative standpoint the Air Canada Act says that no single entity can own more than 10% of the shares of Air Canada? Could you review that with us, or is that someplace else?

The Chairman: Are you referring to the Air Canada Act or the Air Canada Public Participation Act?

Ms. Valérie Dufour: It's the Air Canada Public Participation Act.

Mr. Joe Fontana: Either piece of legislation talks about the 10%.

Ms. Valérie Dufour: I haven't covered it because it's a carrier-specific piece of legislation, but I can tell you it is called the Air Canada Public Participation Act. It does have sections in it that outline the obligations this government put on it when it was privatized in 1988, and one of them is a shareholder limit of 10%.

The Chairman: Thank you, Joe.

Mr. St-Julien, please.

[Translation]

Mr. Guy St-Julien (Abitibi—James Bay—Nunavik, Lib.): My question is directed to all of the witnesses and concerns the James Bay Agreement signed by the federal government in 1975.

On page 10 of your document, there is a reference to “independent regional carriers throughout Canada, particularly in northern and remote regions”. Should a merger occur, how would this affect the James Bay Agreement?

Ms. Valérie Dufour: I have to admit that I have no idea what impact this would have.

Mr. Guy St-Julien: Thank you very much.

[English]

Ms. Valérie Dufour: I have no idea whether the James Bay deal would be taken into account.

[Translation]

Mr. Guy St-Julien: Will you be looking at the James Bay Agreement as it concerns First Air and Air Inuit, and in particular Makivik, the corporation that is an integral part of the James Bay Agreement as it applies to the Canadian North and to northern Quebec?

[English]

The Chairman: Mr. St-Julien, what we're going to try to do here is to be broader in our information gathering as it pertains to the transport officials. If there are specific questions about any specific areas within our ridings or something, then I'm sure our witnesses would be glad to entertain your question after the hearings and try to get back to you with some information pertaining to any specifics.

[Translation]

Mr. Guy St-Julien: Thank you, Mr. Chairman.

[English]

The Chairman: Thank you, Mr. St-Julien.

We have one more intervener.

Ms. Bev Desjarlais: I have a point of order.

Mr. Joe Comuzzi: I have a point of order.

The Chairman: I'll recognize the first point of order.

Ms. Bev Desjarlais: In actuality, although that's a nice set-up, it's kind of interesting for all of us, since we represent all of Canada, to know some of the specifics from each and every riding and to know the problems that are going to be there, rather than—

The Chairman: Ms. Desjarlais, you're going to have to rely on the latitude of the chair here. If we start dealing with every riding and every specific case, we are not going to be giving ourselves enough time.

• 1025

Ms. Bev Desjarlais: Is there some way of ensuring that information goes back to all?

The Chairman: That will be up to the individual member when they meet with any one of these witnesses who come before us. They can bring it up with them personally or even with the minister directly, if they'd like to. So I'm going to try to keep it a little broader than any case specifics with each individual riding.

Colleagues, I didn't get any more names on this side of the table before I started recognizing this side of the table.

Mr. Joe Comuzzi: I have a point of order. Just to carry on with the Air Canada—

The Chairman: No, Mr. Comuzzi, I'm sorry, that's not a point of order.

Mr. Joe Comuzzi: It's not a question.

The Chairman: No, it's not a point of order, Mr. Comuzzi.

Mr. Joe Comuzzi: Yes, it is. Just a minute. You have 10%—

The Chairman: No. Mr. Comuzzi, please. That's not a point of order. You're going to have to wait your turn if you have a question.

Mr. Joe Comuzzi: I don't have a question. She said there was 10% participation in Air Canada. Does that mean equity? That's all. What's the equity?

The Chairman: That sounds like a question, not a point of order, Mr. Comuzzi, so you'll just have to wait your turn.

Next on the list is Mr. Lou Sekora.

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

In British Columbia, where I come from, there are towns and small cities that are being abandoned by Air Canada or Canadian. If one abandons it, can the other one abandon any trips to this particular city or town? Can they can both abandon it?

Ms. Valérie Dufour: Our belief, Mr. Sekora, is that if there is a market, another carrier will come in. We have had a history since 1988 that no community that had service before 1988 has ever lost their air service in that period. We have a lot of confidence that other commercial operators will find a business opportunity and go for it.

Mr. Lou Sekora: I have a second question. You mentioned the 10% ownership. Let's say that three different companies were formed, numbered companies, and let's say that there is a director or a president who is an owner of one or two of those companies and they said, we'll buy 10% of this company, 10% of this company, and 10% of this company. Is that allowed?

Ms. Valérie Dufour: In what context?

Mr. Lou Sekora: It would be on the basis that foreign ownership cannot be any more than about 10% of any airline. Am I right?

Ms. Valérie Dufour: In the general policy framework, there are no limits on individual shareholdings except that the foreign owners cannot own more than 25% in total. So you couldn't have 10%, 10%, and 10% because you'd pass 25%. Right now under the broad Canadian transportation legislation one single individual can own as much as 25% of the voting shares of a Canadian airline.

The point in Mr. Fontana's request is that there's special legislation dealing with Air Canada that has additional limits in it.

Mr. Lou Sekora: Thank you.

The Chair: Thanks, Mr. Sekora.

Mr. Guimond, please.

[Translation]

Mr. Michel Guimond: Mr. Fontana asked you a question about an item on page 7 of your submission where the following is noted:

Foreign ownership restrictions of the Canadian type are common to most countries.

Do certain largely industrialized G8 countries not impose restrictions of this nature? Are these not small countries with very modest GDPs? Do any of the world's major international players not impose restrictions on foreign ownership?

Ms. Valérie Dufour: Some African and Caribbean countries without the financial resources to support a domestic air carrier have joined forces to acquire a regional air carrier. I'm quite certain that all G8 or G20 countries impose restrictions on foreign ownership. Many of these countries maintain partial ownership of these carriers.

• 1030

Mr. Michel Guimond: Perhaps I should go over your submission in its entirety before I put the next question to you, but why did you not explain the 10% rule in part one of your document? I think that issue is important to the future of the airline industry. I realize that you do not wish to comment on the offers on the table and that you wish to remain objective, but this is critically important to the matter at hand. We would have liked to see some mention of this in your submission.

Ms. Valérie Dufour: Mr. Guimond, we were asked to prepare a presentation on the structure of the airline industry, not on the corporate structure of any one carrier.

[English]

The Chairman: I'd like to step in here. Colleagues, we don't want to get into asking officials of the Department of Transport what their views are on one airline having a 10% policy and another one not, for example. They're only here to tell us what the policies are. When the appropriate witnesses come forward, you'll have the opportunity to ask the appropriate witnesses. As far as transport officials are concerned, they're here to give us the history. That's what we agreed.

[Translation]

Mr. Michel Guimond: Yes, but...

[English]

The Chairman: I'm giving some latitude here, but let's not get into asking the witnesses who are here to give us a general history of the background...rather than even going so far as to put them on the spot to give us their opinion of one airline having one thing and another airline having another. I'm going to try to steer away from that.

[Translation]

Mr. Michel Guimond: Mr. Chairman, I'd like to challenge you on that one and I'll tell you why. Air Canada was a Crown corporation...

[English]

The Chairman: Okay, wait. I'm not going to get into a debate, Michel. If you want to ask the question, whatever it is, and the chair finds it in order, he'll let it go. If I think it's going to be causing a problem for the committee as a whole, then I'll cut in. So why don't you ask your question and we'll take it from there, so we don't have to get into a debate.

[Translation]

Mr. Michel Guimond: Well, you've answered my question. You talked about the structure of the corporation, as we requested. However, given that one of Canada's two airlines used to be a Crown corporation and has since been privatized, and given that the enabling federal legislation restricts ownership to 10%, I do think that this would have been relevant to the discussion. That has to do with the overall structure of the carrier. We're not talking about a foreign carrier that has always been privately owned or has never been a Crown corporation.

[English]

The Chairman: And your question is?

[Translation]

Mr. Michel Guimond: Why not talk about the structure of a carrier that currently is privately owned, but that was privatized pursuant to federal legislation?

[English]

The Chairman: That's a good question.

[Translation]

Ms. Valérie Dufour: To answer that question, the structure of a carrier doesn't change the way it operates within the industry. It operates much like any other corporate entity.

If you want to examine at some point in time another piece of enabling legislation, the Chairman will decide when it would be appropriate for you to do that. Our mandate was to give you an overview of how the industry operates, not to explain the corporate structure of any one company in particular.

I can't tell you more about Air Transit, a carrier with a very unique structure in Canada, or about Canadian, whose corporate structure has evolved over the years. That was not our mandate.

[English]

The Chairman: To briefly interject, Mr. Guimond makes a good point. He is saying he's hoping it will be made clear by the department officials that there seems to be one set of understandings for one airline in this country and another set of rules for another. Much of it is the same. In fact, probably 99% of it is the same. But I think our witnesses, you yourselves, should be pointing out that, for example, in Air Canada's case, they do have a public participation act that limits them to 10% ownership. In Canadian Airlines' case—and this is where you didn't take the next step forward—there is no 10% rule for them. This is I think what Mr. Guimond is getting at. If there are other situations like this between the airlines, we would like you to tell us what they are.

• 1035

Ms. Valérie Dufour: Well, I'd be happy to make that distinction. The Air Canada Public Participation Act, in 1988 and 1989, when it was privatized in two tranches and there was legislation that was passed in August 1988, has section 6, and section 6 says that the individual share ownership of common voting shares is limited to 10%, and there's an additional limit that says those 10% may not associate. In the debate in the House at the time it was very clear that the concept for Air Canada in 1988 was that it would be a widely held company.

There are other sections of that act that are included in that. It has its own statutory limit of 25%. That's important in understanding that if the Governor in Council were to move the 25% limit as part of the Canada Transportation Act, we would have to amend the Air Canada Public Participation Act to allow Air Canada to follow along with the change in the general legislation.

I would add only one other point—or two actually, one about Canadian and one about Air Canada. The Air Canada section also obliges Air Canada to remain in conformity with the Official Languages Act. It establishes its headquarters in Montreal and it establishes its obligations to have points of maintenance in Winnipeg, Toronto, and le grand Montréal. Those are in their legislation.

The Canadian Airlines legislation, until 1988, had a similar 10% limit on the shareholdings of Canadian Airlines Corporation, which was the holding company that owned Canadian Airlines. That was removed by the Alberta legislation, because Canadian Airlines Corp. has been subject to Alberta government legislation since it was purchased as PWA in the early eighties and subsequently turned into Canadian Airlines Corp., which had an airline they called Canadian Airlines. So until a year ago, both of the major carriers, either at the level of the corporation, à la Air Canada, or at the level of the holding company, as in Canadian Airlines Corp., each had a 10% limit on individual shareholdings.

The Chairman: Thank you, Ms. Dufour. Thank you, Michel.

Mr. Comuzzi, please.

Mr. Joe Comuzzi: Mr. Chairman, that was the point of order I wanted to make, the comparison between the Air Canada legislation and the Canadian legislation, in order to find out if there is a level playing field there.

Madame, you didn't talk about equity. Do you want to talk about equity? You say that public policy is 33% equity, and that can change. Is there an equity article in the Air Canada Public Participation Act?

Ms. Valérie Dufour: No, we don't speak of equity, Mr. Comuzzi. We speak of voting shares because the issue really is the right to vote. The limit in Air Canada is 10% of the common voting shares. Air Canada does have several other classes of shares that are non-voting and that generate equity for the company but do not have the privilege of voting for the board of directors.

Mr. Joe Comuzzi: So they're not restricted in any way insofar as equity is concerned.

Ms. Valérie Dufour: No. Airlines generate equity through non-voting share purchases, and debt.

Mr. Joe Comuzzi: Exactly, but airlines have.... Part of public policy is that you can have 25%....

Ms. Valérie Dufour: Voting equity.

Mr. Joe Comuzzi: Voting equity. Air Canada has no restrictions.

Ms. Valérie Dufour: Air Canada has a 10% voting equity limit and a 25% voting equity limit, and the industry as a whole has a 25% foreign voting limit—a 25% foreign limit for everybody, including Air Canada, with an extra limit on Air Canada at 10% on the individual.

Mr. Joe Comuzzi: I'm sorry, I don't understand.

Ms. Valérie Dufour: Air Canada does have one more limit—

Mr. Joe Comuzzi: That's what I'm asking.

Ms. Valérie Dufour: —than everybody else. That is true.

Mr. Joe Comuzzi: What is that limit again?

Ms. Valérie Dufour: It's 10%.

Mr. Joe Comuzzi: And that's on a personal limit.

Ms. Valérie Dufour: That's right.

Mr. Joe Comuzzi: How do you define personal in public policy?

The Chairman: Individual, not personal.

Ms. Valérie Dufour: Individual.

Mr. Joe Comuzzi: That is a person.

• 1040

Ms. Valérie Dufour: Well, it's a legal person.

The Chairman: Or a company.

Ms. Valérie Dufour: That's right, a legal person. Une personne can be an individual or it can be a corporation—une personne, a person.

Mr. Joe Comuzzi: It could be another company.

Ms. Valérie Dufour: Yes.

Mr. Joe Comuzzi: As long as that company is Canadian.

Ms. Valérie Dufour: Well, yes.

Mr. Joe Comuzzi: It's not Canadian Airlines I'm talking about.

Ms. Valérie Dufour: No, no. A foreign individual could hold 10% of Air Canada, but not more.

The Chairman: The parallel there, Ms. Dufour, might be CN, for example. When it privatized, it said that no legal entity, be it a person, a company, or whatever, can own more than 10% of that particular company.

Ms. Valérie Dufour: Actually, it's 15% in the case of CN—

The Chairman: I'm sorry, 15%.

Ms. Valérie Dufour: —and 10% in the case of PetroCanada, which are two other companies that were privatized and that have limits on the individual equity voting shareholdings.

The Chairman: Okay, Mr. Comuzzi?

Mr. Joe Comuzzi: Well, I'm not sure, but I'll come back to it.

The Chairman: Okay. Mr. Casey, please.

Mr. Bill Casey: Well, we're not going to go far away from it. The 25% voting shares—could a company also own non-voting preferred shares or non-voting common shares and...? How much more equity could they have in a business and still comply? They have 25% of the voting shares, but could they have another 25% in non-voting shares, either preferred or non-voting common?

Ms. Valérie Dufour: If the sum of that equity leads them past 33%, then the Investment Canada Act wants to have a look at them too.

Mr. Bill Casey: Okay, 33%. Then is there any limit to debt? A company could own 25% of the voting shares, 33% of the total equity, and lend another 33% to the company and hold security on the assets?

Ms. Valérie Dufour: If the effect of that were that the control of the company shifted away from Canadian control, then the agency would have to determine whether that was appropriate.

Mr. Bill Casey: They investigate one on one. They just do an individual—

Ms. Valérie Dufour: It's case by case. Every case has its own characteristics.

Mr. Bill Casey: What are the U.S. rules for foreign ownership?

Ms. Valérie Dufour: The same as Canada's.

Mr. Bill Casey: Exactly the same? Is it 25%?

Ms. Valérie Dufour: They trigger control concerns at 5% to 10%. They start to be interested when non-Americans invest more than 10%. They make bigger decisions beyond 25% on a case-by-case basis, and it's made by the executive.... What is it, Larry? Is it an executive decision, for example, in Northwest?

Mr. Bill Casey: At 5% or 10%, a process is triggered?

Ms. Valérie Dufour: Yes.

Mr. Bill Casey: What is the process, do you know?

Ms. Valérie Dufour: On the matter of control.

Mr. Bill Casey: On control. If somebody has 10% control.

Ms. Valérie Dufour: There are business theories that say that once you get beyond 5% in a widely held company, you begin to have the ability to control the decisions of the entity.

Mr. Bill Casey: And that's the American position, 5%?

Ms. Valérie Dufour: It depends on the case, but yes, that's the American approach.

Mr. Bill Casey: Is there a summary paper on the Americans' approach that we could have?

Ms. Valérie Dufour: We could try to find one.

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

Ms. Valérie Dufour: It's 1978 legislation.

The Chairman: Mr. Casey, do you have any more Canadian questions for our Canadian witnesses?

Mr. Bill Casey: Well, this is a Canadian question. It's very Canadian. I'd like to see a thumbnail of the American position on that and what action kicks in, if you have it.

Thank you.

The Chairman: Thanks, Mr. Casey.

Mr. Bill Casey: You're welcome, Mr. Chair.

The Chairman: Colleagues, just another reminder. We're only on section 1, and there are other sections in this report that we would like to move on to.

I have two more interveners on my list: Mr. St-Julien and Mr. Asselin. Mr. St-Julien, please.

[Translation]

Mr. Guy St-Julien: It worries me when I hear people talk about independent regional carriers. I think we should be talking about regular air carriers instead, those that fly regular routes. On page 10 of your submission, you mention independent regional carriers throughout Canada, but there are several categories of independent carriers. Some operate flights for one, two or four months of the year and don't have a set schedule. Why not focus instead on regular air carriers that fly regularly scheduled routes?

Ms. Valerie Dufour: Ever since 1996, when the legislation came into force, no distinction has been drawn between the different licence holders in Canada. All air carriers, whether Air Canada, Canadian, Air Alma, Air St-Julien...

Mr. Guy St-Julien: Inuit.

Ms. Valérie Dufour: ... Air Inuit, etc., hold the same license and have the same rights when it comes to operating or discontinuing operations on certain routes.

• 1045

Mr. Guy St-Julien: Thank you.

[English]

The Chairman: Thanks, Mr. St-Julien.

Mr. Asselin, please.

[Translation]

Mr. Gérard Asselin (Charlevoix, BQ): My question is for Ms. Dufour. At this time, I'd like to convey to you my concern about the future of regional airports. I don't know what the government's plans are, much less those of the Department of Transport, in terms of addressing the issue of regional air fares.

It costs more to fly from one region to Montreal than it does to fly from Montreal to Paris or from Montreal to Vancouver. I've asked this question of Air Canada and Inter-Canadian officials, and I was told that air fares were affected by overall passenger volume. However, when air fares are too expensive, fewer people book flights.

Next, I'd like to discuss with you the merger of Air Canada and Canadian. Inter-Canadian is one regional carrier that operates primarily in my region, the North Shore, while Air Alliance is another. If Canadian were to merge with Air Alliance or Air Canada, service will be reduced. We'll no longer have two regional carriers, but only one instead. If that happens, airport traffic will be reduced by 50 per cent, which will mean that the airport will operate at an even greater deficit.

Another concern I have about the future of regional air carriers is the issue of airport privatization. Airports have been turned over to NAV CANADA...

[English]

The Chairman: Mr. Asselin, I don't want to interrupt, but you are dangerously close to being ruled out of order with your question. If you wouldn't mind directing a question specifically to the department concerning the rules that have been presented to us, either present or in the past, as opposed to policy decisions for which the department isn't here to be a witness, it would be much appreciated by the chair.

[Translation]

Mr. Gérard Asselin: Mr. Chairman, mention was made earlier, not of privatization, but rather of the fares airline passenger pay. We have a Competition Bureau.

Can either Transport Canada or the Competition Bureau address the concerns of the Chamber of Commerce which is worried about the air fares charged by a regional carrier?

Ms. Valérie Dufour: I know that Quebec regions have been concerned about this issue for a number of years. I've personally met with several chamber of commerce representatives.

We suggested to them that they establish a relationship with regional carriers. There is no government policy in place requiring that carrier to provide a particular service to a given region.

We have always recommended that you establish win-win agreements. Your responsibility is to explain the needs of your market to the carriers and to find a way to convince them to address your needs. That's what a free market economy is all about.

We've also tried to explain, and not always to people's satisfaction, why regional fares may be higher. You can discuss this with your carriers, and they'll explain to you the costs associated with operating a regional carrier. Maybe you should be negotiating with them ways of operating that meet your needs.

The government is no longer in a position to force carriers to operate in a particular way.

Mr. Gérard Asselin: What you're saying then is that the Chamber of Commerce of Baie-Comeau has no chance of exerting any kind of influence on the Competition Bureau, the Department of Transport or the Minister. The solution is for it to negotiate directly with the regional air carriers.

Ms. Valérie Dufour: If the Chamber Of Commerce feels that air fares or the manner in which a carrier is operating are not in compliance with the Competition Act or that the Bureau should review this matter, pursuant to its regulations, then yes, it can intervene. The airline industry has been deregulated and there are fewer parameters in place than in the past. The government is no longer in a position where it can force a carrier to operate in a certain manner. That is the reality of a deregulated market.

• 1050

Mr. Gérard Asselin: I see.

[English]

The Chairman: Thank you, Mr. Asselin.

Mr. Hubbard, please.

Mr. Charles Hubbard (Miramichi, Lib.): Very briefly, Mr. Chairman, we've heard a lot on percentages—10%, 25% and so forth—but is there supervision by a board of directors who could commit themselves to international creditors in terms of their industry? In other words, we get debt management where an airline could owe great amounts of money to sources outside of Canada who literally are the callers of the tune to which these airlines are about to dance. Is there supervision of long-term commitments of our carriers in terms of their borrowing and commitments for debt outside of Canada?

Ms. Valérie Dufour: No. I think what we've said so far, Mr. Hubbard, is that we don't have financial oversight once the company enters the business. They are presumed to have to act on normal good business principles, and our preoccupation is that they be Canadian controlled.

Mr. Charles Hubbard: So in effect we're saying that the problems we're looking at in the industry could be debt driven rather than driven by a board of directors within Canada.

Ms. Valérie Dufour: That board of directors within Canada is the one that allowed that debt to increase. So we would be looking at whether that was a Canadian-controlled entity or not. No, the transport legislation does not deal with your issue.

Mr. Charles Hubbard: It does not control that aspect of their operation.

Ms. Valérie Dufour: No.

Mr. Charles Hubbard: Okay, thank you.

The Chairman: Thank you, Mr. Hubbard.

Colleagues, I'm going to use the prerogative of the chair. We've been at this for two hours now, and I'd like to give the witnesses a five-minute break. What we'll do is suspend until 11 o'clock for a five-minute recess, and then we'll resume with the next chapter in the report from our witnesses. Be mindful that if there are any carry-over questions from this round, you can ask them in the next round, if you like.

We're suspended for five minutes.

• 1052

• 1103

The Chairman: Colleagues, pursuant to Standing Order 108(2), a study on the future of the airline industry in Canada, our witnesses are Valérie Dufour, director of domestic air policy; Larry LaFleur, deputy director of international air policy; and Eric Mainville, senior policy adviser for international air policy.

We'll now move on to the next chapter in the report that the department officials have for us, and then we'll get back into questioning.

Ms. Dufour, please.

Ms. Valérie Dufour: Thank you, Mr. Chairman.

Let's turn then to a brief picture of the industry structure, which we've divided into regions. Let me start with the big picture stuff.

I'm starting on page 10, ladies and gentlemen.

We have two large full-service carriers, Air Canada and Canadian. A full-service carrier for us is one that carries all domestic, transborder, and international services. We distinguish transborder and international because we have a special regime in our open skies arrangements with the U.S., and we do our statistics separately on domestic and transborder and international as three different blocks. Each of those two full-service carriers provide that full service in part through regional affiliates or commercial partners, and that is what allows them to get at so many communities in the country. It includes the jet services feeding transcontinental flights, obviously, and some of the affiliates in this arrangement have no ownership links.

We have another group of large jet operators, which we call leisure charter carriers. In the domestic market everyone is equal. So they have the same licence as a big or a small operator, but they operate both transcontinental and long-haul services in Canada appropriate to the kind of equipment they have and they offer international charter services, which are sold through tour operators for air only and as vacation packages in leisure markets. Most of that is sold through the tour operators. This group of carriers does not have the full marketing tools that Air Canada and Canadian have in place. They've left that to the tour operator community. So they don't have the same kinds of marketing and sales staffs.

• 1105

We have some major independent regional jet service. I think we all recognize the impact WestJet has had on our thinking and on service in the west. There are independent regional carriers throughout Canada, including the northern and remote communities, and they're of all sizes.

Let's just take a look at the domestic market structure. The large bulk of Canada's domestic passenger traffic is concentrated in eight major markets, the clothesline of communities that runs from Halifax to Vancouver. The top 25 airports in Canada make up 90% of the domestic emplaned and deplaned traffic, and 1997 obviously is the last fully confirmed number we have, but that number is constant in time. The top 25 always carry about 90% of the traffic.

Air Canada and Canadian Airlines dominate in the ensemble, but they limit their own presence to the busiest markets. Our slide shows that Air Canada serves 18 markets with its own aircraft and Canadian Airlines serves 10 markets with its own aircraft. When you add to that the amount of presence they have through code-sharing arrangements with their wholly owned regional affiliates, partially owned regional affiliates, commercial partners, and so on, Air Canada serves 78 points and Canadian Airlines and its partners serve 102.

We did have a dip in passenger traffic volumes in the early nineties, but we are back up carrying 26 million passengers in this country in 1998. That growth has been uneven, with the growth primarily in the eight largest cities and in general with more growth in western Canada than eastern Canada.

In terms of the competition picture, Air Canada and Canadian clearly compete head to head at the major airports in terms of routes, flights, and fares, with high frequencies for business travellers but not at a lower cost. They use affiliates to compete in the regional markets and to provide feed.

The charter airlines I mentioned just a moment ago have become increasingly present in the transcontinental and the Atlantic Canada markets. They in fact represent a very interesting competitive response to Air Canada and Canadian, with their fares slightly lower than the lowest discounted fares of the majors.

They're not yet a factor in the business market, although more and more of them are talking business options. I saw yet another one prepared to increase their business participation, or their attempt to attract the business traveller. They have more flexibility to move to markets in response to demand or lack of it.

WestJet is obviously a very interesting new contribution to the domestic competitive environment. They've only been operating since February 1996 and yet they are well known now. They offer low fares with low frequencies. They have clearly stimulated demand, and they have had a serious effect on the yields of the majors because they are the price leaders in western Canada now, at the low end. They have a fleet and points served, which is increasing.

There was a brief flurry of activity particularly by Greyhound. I'm not quite so confident that the VistaJet story was so good, but WestJet was an interesting addition to the domestic environment. It was not the failure of an airline; it was a decision of the purchaser of Greyhound to withdraw from air service.

• 1110

Just going back to that transcontinental market, we identify 11 cities from Halifax to Victoria as representing what I called earlier the clothesline of cities from east to west, and of those—it's an interesting number—76% of flights in 1999 involved Pearson.

In certain markets—for example, Toronto, Calgary, Edmonton, and Vancouver—Air Canada and Canadian have roughly equivalent market shares. Air Canada has the higher level of service in Toronto-Winnipeg and provides the only non-stop services between Toronto and the cities of Regina, Saskatoon, and Victoria.

Air Transat, Canada 3000, and Royal compete at all the transcontinental airports, with their services concentrated out of Toronto, Calgary, and Vancouver. This is the domestic. This has nothing to do with the very significant role that Montreal and Mirabel in particular play in international charter destinations. In terms of the data we have on the concentrated activity in the transcontinental market, which is obviously strongest during the summer season and at that stage represents up to 15% of passengers carried, it's those three big cities.

In central Canada, clearly Air Canada's affiliates are strongest in most city pairs, and we've listed their activity on the triangle: frequent Toronto-Quebec-Thunder Bay...; smaller points are served by Air Ontario and Air Alliance; the integration of Air Alliance and Air Nova is an effective use of equipment and personnel; Air Ontario is adding itself and creating as a corporate group a fairly large regional operation for the eastern half of Canada; and there are independent carriers who have arrangements with Air Canada on certain city pairs where they supplement their own regional services, and we've listed Air Creebec, but we could also have listed First Air and Bearskin as two others in various parts of central Canada. First Air is an interesting case and we might come back to it.

Canadian Airlines is now focused on peak hour flights in the Toronto-Ottawa-Montreal market but sometimes using the smaller aircraft, the F-28s, rather than the 737s. Canadian Regional and InterCanadian have taken over some of their services, including those to Thunder Bay and Quebec.

Although there have been some general increases in frequencies, Atlantic Canada's marketing capacity hasn't changed much in ten years. It's very busy in the summer and not quite so busy the rest of the year. It's highly seasonal and there's a low business demand, which has an effect on yields. Scheduled services are predominantly by Air Canada and Air Nova, and with Halifax as a hub, most non-stop service from Toronto, Montreal, and Ottawa is provided by Air Canada.

Canadian Airlines' own equipment presence goes no further than Halifax, but InterCanadian has picked up most of the routes that were formerly flown by Air Atlantic, without interruption of service, when Air Atlantic chose to cease operations. Again, it's not a failure, but a business decision to access the market made by the president, Mr. Rowe.

The leisure carriers, Canada 3000 and Royal, now provide year-round service to Halifax and St. John's, with service to additional points during the summer season. You can see a big Royal plane at the Charlottetown airport in the middle of the summer, for example.

• 1115

Western Canada is the region that shows the best increases in flights, capacity, and traffic, largely stimulated by the arrival of WestJet. Canadian Airlines is the major carrier, but it has realigned services to use smaller aircraft and has transferred some of its activity to Canadian Regional.

Air Canada has realigned its service in the region in response to poor results by transferring services to Air BC, and Air BC has in fact handed off some services to smaller entities like Central Mountain Air.

WestJet has expanded its service to more markets throughout the region and has added communities like Prince George and Thunder Bay. They don't want to go much further east than Thunder Bay, but they have come as far as Thunder Bay.

The next regional market we have is northern Canada, in which regional carriers use both jets and turboprop equipment and have affiliations with either Air Canada or Canadian Airlines. It's interesting to note that it is the Inuit corporations that now own all of the key air services up there. The jet operations are all owned either by Norterra or Makivik, and each of them have a series of smaller carriers that feed to them, so they fan out into the very small communities in the very northern parts of the country.

The leisure carriers have found a market in Whitehorse, and you can see sometimes Canadian and sometimes foreign charter operators in Whitehorse during the summer.

We haven't spoken a lot about cargo, and perhaps we could say more, but cargo is clearly a huge factor in the north. Part of the problem for operators is that most of the cargo movement is northbound and they come back out without cargo. So it does affect the cost of flying and it's a reality for the time being.

That's our picture of the market. I have one slide on domestic airfares, and then we would move to the Canada-U.S. environment. So I think I'll probably just keep going.

In keeping with what Mr. Dromisky said earlier, it is true that there is little price differentiation between Air Canada and Canadian, and they are well equipped technically to respond and match prices continuously. But the competition from WestJet and the charter airlines has affected fares, and fares tend to be lowest where the two majors compete directly with WestJet in western Canada and where they compete, particularly in the summer, with the charter operators in the transcontinental markets.

Fares in northern Canada are the highest, with those at Whitehorse and Yellowknife slightly higher than in other parts of Canada. Fares for business travel have increased more rapidly than inflation, while fares for leisure travel have increased close to or below the rate of inflation. Scheduled carriers manage yield by offering a wide range of fares with various fences, and the general principle is the fewer the fences the higher the fare. But 85%—and that number is constant and solid and has been for many years now—of domestic travellers purchase some form of discounted fare. So that economy high-side fare is in fact being flown by 15% or less.

Now we're going to switch gears. That's our picture of the domestic sections of the market. I would move to the transborder market—

The Chairman: Just before we do, Ms. Dufour, we've had expressions of interest for questions up to here—

Ms. Valérie Dufour: Okay.

The Chairman: I'll start with my list. Mr. Bailey, are you deferring to Ms. Meredith?

• 1120

Ms. Meredith.

Ms. Val Meredith: Very briefly, you mentioned in a number of cases—Greyhound, VistaJet and Atlantic Air—that these decisions that were made to withdraw the service of the airline were corporate decisions, and not because the market failed. Is that right?

Ms. Valérie Dufour: That's right.

Ms. Val Meredith: My understanding of what that means basically is that although there was still a market to move people, for business reasons they wanted to make more money somewhere else. They chose to get out of the airline industry and to vacate that market, which might appeal to a third party.

Ms. Valérie Dufour: Which might...?

Ms. Val Meredith: It might appeal to a third airline, or another airline moving in to take that.... The market was still there.

Ms. Valérie Dufour: Oh yes.

Ms. Val Meredith: I just wanted to clarify that, because I think it leads to some of the questions that were asked before. It's the government's role to determine that an airline must service an area where there isn't a market, and what we have found is that there are corporate entities that have made a decision that although the market is there, they don't want to be in that market. That was the case for those three airlines.

Thank you.

Ms. Valérie Dufour: I appreciate your perspective on it. Thank you.

Ms. Val Meredith: Thank you.

The Chairman: Thank you, Val.

Mr. Hubbard.

Mr. Charles Hubbard: On page 11 you speak of the various points of service. Yesterday I brought up this question, Mr. Chairman, about how many passengers were passing through each of those points of service by airports. Would that be available to this committee?

Ms. Valérie Dufour: How many passengers passing through...?

Mr. Charles Hubbard: Each of the various airports across the country.

Mr. Eric Mainville: Yes, that's available.

The Chairman: Mr. Hubbard, in fact the clerk asked ATAC, which is appearing before us tomorrow, to bring that information to us.

Mr. Charles Hubbard: So we will have that available to us.

The Chairman: Yes, sir.

Ms. Valérie Dufour: We will be able to provide our aviation statistics, and our forecasting people have the.... What you're looking for, sir, is the number of passengers flowing through airports.

The Chairman: The department could provide that to the clerk for distribution to the committee?

Ms. Valérie Dufour: Yes.

The Chairman: Thank you very much.

Mr. Casey, please.

Mr. Bill Casey: Thank you.

On page 13 you say that “76% of flights in 1999 involved Toronto's Pearson Airport”. Does that mean they originated there or that it was their destination? What does that mean?

Mr. Eric Mainville: It means they arrived or departed from Pearson.

Mr. Bill Casey: Okay. So directly they were there.

Mr. Eric Mainville: They were there.

Mr. Bill Casey: Does that include charter aircraft too, charter flights?

Mr. Eric Mainville: That would include the charters as well.

Mr. Bill Casey: Is Toronto airport at capacity now?

Mr. Eric Mainville: You'll have to ask Toronto that.

Mr. Bill Casey: Does Toronto know, then?

On page 11 you say that “Air Canada and Canadian Airlines dominate” and that “Air Canada serves 18 markets”. Is that 18 airports? What is a market?

Mr. Eric Mainville: It's 18 airports in Canada.

Mr. Bill Casey: And Canadian Airlines serves 10.

Regarding page 10, I had a question. “Independent regional carriers throughout Canada, particularly in northern or remote regions”—those independent carriers are generally owned by the parents, aren't they, Canadian Airlines or Air Canada, or are you talking about others?

Mr. Eric Mainville: No, we're talking about others in there.

Mr. Bill Casey: The very small ones.

Mr. Eric Mainville: Mr. St-Julien brought up a good example, the case of First Air. It's an independent operator, not affiliated at all with Air Canada or Canadian. It might do code sharing.

Mr. Bill Casey: Okay, thanks.

The Chairman: Thanks, Mr. Casey.

Mr. Fontana.

Mr. Joe Fontana: Thank you, Mr. Chairman.

With regard to the domestic market, the policy is that you can get in and out of this market as you please, with no regulation. It looks as if both carriers, with their commercial agreements and/or regional carriers, are either serving...Air Canada, 78 points, and Canadian, about 102 points. You talk about a marketplace of 26 million passengers a year. You say those levels have increased and have rebounded—from what to what I don't know. From what I hear—and perhaps your economic models would tell you this—with perhaps the exception of some of the regionals and WestJet, it seems to me that both main carriers are losing money on the domestic side.

• 1125

So while all of this service is going on, what's the capacity? Are Air Canada and Canadian running at full capacity, or at 50% capacity? Are they losing money on the domestic side of things? Are we tracking those kinds of numbers?

I think, Eric, you talked about looking at transcontinental, international, and domestic revenue figures. I want to know what the state of the Canadian domestic side of things is from your vantage point and if you've looked at it or had someone look at it. You've given us the good side. I want to know essentially the capacity and who's making money and who's losing money on the domestic side of things just so that I have an understanding of what that marketplace really is all about.

Mr. Eric Mainville: We could put together a small package for you. Just to briefly answer your question, on the domestic side, on average the flights are about 75% full. People are using the capacity that's out there.

As far as domestic profits go, it's unfortunate but the carriers do not report a domestic and an international profit. They report total profit and that's it. I've never seen figures released saying Air Canada made x amount of profit in the domestic market ever since I've been in the business.

Ms. Valérie Dufour: I think part of the point, Mr. Fontana, is that they may make a lot of money on some and practically none on others and perhaps none elsewhere, and they tend not to want to share that.

Mr. Joe Fontana: But some of us know that the lucrative game in airlines is long haul, especially in the international stuff. That's where the big money is primarily made. On the domestic side, because you have to maintain national infrastructures, especially Air Canada and Canadian, to 102 communities or 78 communities, you do it obviously to feed your major networks or your hub points, such as Pearson, to get the international business.

You talk to airlines all the time, and so do we. Would you characterize the domestic market as being very competitive? Is there room for others?

In terms of trying to get the right policy framework for this country for the next century, I think what this committee primarily wants to do is to make sure that the regulations and the policies fit what we need to do as a country in the 21st century and to review what happened in 1988 with the change in policy in order to see whether or not that policy is serving the country well today.

If you can't do it today, perhaps at another date you could give us your overall assessment of what the domestic economic side looks like. From what I understand and from what you've indicated, there's not a heck of a lot of money being made on the domestic side. Prices from the consumers' standpoint aren't really competitive. The prices are all the same except for some independent carriers and charters that are in the game. So I want to understand the domestic market a lot better and to find out what the viability is of Air Canada and Canadian in the domestic market.

The Chairman: Do we have a problem with the proprietary interest of an airline that is private to keep those kinds of figures to themselves?

Ms. Valérie Dufour: We have a very big problem. We can look at macro numbers. The carriers put out monthly reports on various aspects. But we did not come to this meeting prepared to give you an evaluation of the economic condition of today and what the implications would be for the future. I'm sure you will speak to others who will be prepared to answer that from a different perspective from ours.

Mr. Joe Fontana: I appreciate that, but you brought up the number of passengers being carried. Who's carrying them to what points? I'd like to understand whether our policy framework is adequate or should be enhanced for the new century. You've given us the lay of the land as to this point. Maybe the CTA or other agencies of the government can tell us, or maybe I'll have to wait for Air Canada and Canadian to show up to ask them about their financial viability on the domestic front. But from a policy framework perspective, surely Transport Canada and/or the CTA, which deal with these matters, have some information we can glean as to the domestic marketplace and the viability of that domestic marketplace.

• 1130

Ms. Valérie Dufour: It may be viable for one and not viable for another. It's really an issue of corporate decisions in an open marketplace. Our task has to do with whether the market is working.

Mr. Joe Fontana: Is it working?

Ms. Valérie Dufour: We believe the market entry and exit provisions and the ability of carriers to enter and exit freely provide an environment that allows for a response to demand.

The Chairman: Thank you, Mr. Fontana.

Ms. Valérie Dufour: It's a question of a framework. The way people operate inside it is based on a series of business and corporate decisions that we don't influence.

Mr. Joe Fontana: But in the—

The Chairman: I have to cut you off, Joe.

Of course our test is going to be to put these tough questions right to the airlines themselves and ask them to reveal to us exactly how they're doing domestically from location to location.

Ms. Meredith, please, and then Mr. Jackson.

Ms. Val Meredith: Thank you, Mr. Chair.

I note with interest Air Canada's dominance particularly in the domestic market and certainly in central Canada. I want to ask you two questions. One, is this a direct result of the decisions or the legislative controls prior to 1979 that gave Air Canada control of 75% of the transcontinental market, and is another part of that gate control? Who controls access to gates at the airport? Is this part of the reason there's dominance by some major carriers and that the smaller carriers—you call them leisure carriers or independents—don't have the same ability to increase their market share?

Ms. Valérie Dufour: The first is an interesting historical question. I would say that from the focus you put on it, the answer is no. Historically, Air Canada was clearly the dominant carrier, but the history of central Canada and of Canadian Pacific and all the regional carriers that are there now is that it has been a very dynamic industry. It's more a question of market response now.

On the second question, however, you have to remember that we have only one airport in this country that has any slot control issues, and that's Pearson. There's an independent slot coordinator who's paid by the carriers to sort out slots and ensure they are properly distributed fairly among not only the domestic operators but also foreign carriers who are seeking to serve from that particular airport. The issue of slots for the rest of the country sorts itself out among the carriers. So it's a question of demand.

Ms. Val Meredith: But the control is with the carriers for gates and slots.

Ms. Valérie Dufour: No. At Pearson there's a fellow who takes all of the demands, sorts them out, and makes sure that everybody gets as good as he can deliver on the total demand by season.

Up until now we have not had criticism from the charter operators in terms of their charter business. They don't have the same requirements as the high frequency business operator, and they don't have the same hours when they want to be there at the airport.

There's a shift in the responsibility for airport infrastructure other than slots, the gates and so on. They are now within the responsibility of the local airport authorities, which obviously have their contracts and seasonals and so on and are now a new player in the decision making as to who gets access to what infrastructure and when. Some of them are moving to common usage, so there's less of that kind of historical hoarding that used to go on.

Ms. Val Meredith: Thank you.

The Chairman: Thank you, Val.

Mr. Jackson, please.

Mr. Ovid L. Jackson (Bruce—Grey, Lib.): I have one question, Mr. Chair. For the committee's edification, I was wondering if we could possibly get a list of all the carriers, their relative size, and their ability to grow, or something like that, so that we could see the landscape. I'm not sure if these witnesses are the ones we would ask about that. Would that be possible?

The Chairman: The ability to grow part might be a problem.

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Ms. Valérie Dufour: Well, there are over a thousand licensees in the domestic market.

Mr. Ovid Jackson: Give us the top eight or twelve, or something like that.

Ms. Valérie Dufour: I'm not sure we could personally list the top twelve, but that's never going to give you a picture of the dynamism of the Canadian industry. The agency has a list of all its licensees, and you'll get it all, from Ovid Jackson Air to Air Canada.

Mr. Ovid Jackson: So you're saying you have no idea what's out there.

Ms. Valérie Dufour: We have a very good idea of what's out there, but once we have a list, then what? It's a market to market, market by market....

The Chairman: I think you may be reading into it a little bit.... All he's looking for is a list of who the players are. I imagine the CTA would have that list because they're the ones who licensed these particular airlines.

Ovid, I think we can ask the CTA to produce a list for you.

Ms. Valérie Dufour: You would ask them for a list of the Canadian licensees.

Mr. Ovid Jackson: They may only have one or two industries that.... Usually in the competitive field people manage better and have newer aircraft and all this kind of thing. So we need to know that.

The Chairman: I'm almost willing to bet they'll come to you in alphabetical order.

Ms. Valérie Dufour: That list will not answer the questions as to the fleets. It will not answer the questions as to the economics. It will simply tell you who the licensees are. The quantum you're looking for is simply not there, not in that list.

Mr. Ovid Jackson: We'll find it piece by piece.

Ms. Valérie Dufour: That's right. There's a separate list. For every agency list there's an operating certificate. That operating certificate will tell you the kinds of aircraft they fly but will not tell you necessarily how many. Carriers are still the best persons to tell you exactly who they are at any given point in time. A charter air carrier may be up or down three or four aircraft in a season. It's changing all the time.

Mr. Ovid Jackson: Thanks, Mr. Chair. At least if we have the list, when those carriers come we can ask pertinent questions that might give us some of these answers.

The Chairman: Good idea. Thanks, Mr. Jackson.

Ms. Desjarlais.

Ms. Bev Desjarlais: Again, I'm kind of torn over some of the answers that are coming out, seeing that they are coming from both sides of the issue here.

On page 12 you talk about Greyhound and VistaJet, and you have indicated that it was the choice of those carriers to leave the market. The statement here is they “were not successful and ceased service”. How would you define “not successful?” My thoughts on the business perspective of “not successful” are that we're not making a buck, so we're going to leave and go somewhere else.

Ms. Valérie Dufour: That was the case for VistaJet, absolutely.

Ms. Bev Desjarlais: You've included Greyhound in this statement.

Ms. Valérie Dufour: Then I stand corrected. The story of Greyhound was that they were not doing very well financially but they were very popular. When Laidlaw bought Greyhound they decided they were not prepared to subsidize air services. The decision by Laidlaw was that they did not want to try to stay in the airline business.

Ms. Bev Desjarlais: I guess in all fairness then they weren't paying their own way and they chose to get out. I don't think you're giving us a really true perspective when you say Greyhound didn't apply, but now you're saying they didn't want to subsidize. Well, you can't have it both ways. Either success in business means you're going to make some profit or you have another scope of providing a service because you're there to provide the service.

Ms. Valérie Dufour: In less than three years Greyhound had not got its legs. Laidlaw decided they were not prepared to continue and try to grow the business into a success. VistaJet started and went poof; it was over in about two flights. I'm not sure they even had two. Air Atlantic were not happy with the arrangements that Canadian Airlines wanted to have with them to fly as a regional and they simply chose to back off and exit the business. So every case has its particularities.

Ms. Bev Desjarlais: Fair enough. That's fine.

The Chairman: Thanks, Bev.

Mr. St-Julien, please.

[Translation]

Mr. Guy St-Julien: Ms. Dufour, on page 11 of your submission, you discuss the structure of the domestic market. I've always believed that domestic passenger traffic was concentrated in 11 major airports, including the airports in Iqaluit, Kuujjaq and Yellowknife. You claim, on the other hand, that Canada's domestic passenger traffic is concentrated in only eight major markets, although you also mention the countries top 25 airports. Could the committee get a complete list of these top 25 airports?

Ms. Valérie Dufour: Certainly.

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Mr. Guy St-Julien: On another subject, on page 10 of your submission, you refer to full service carriers and international charter services. You mention names like Air Transat and Canada 3000, but you neglect to mention one Canadian carrier that provides international charter services. I'm talking about First Air, which offers flights to Russia. This carrier owns the only Hercules aircraft in Canada that can be chartered and I note that its name isn't mentioned in the list on page 10.

Ms. Valérie Dufour: I would have put this carrier in the third category under “major independent regional jet service carrier”, along with WestJet.

Mr. Guy St-Julien: Then this carrier will be added to the list the next time around?

Ms. Valérie Dufour: Yes.

Mr. Guy St-Julien: Thank you very much.

[English]

The Chairman: Mr. Bailey.

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

I've been looking at this for some time, and perhaps you can help me. Many of the countries in the world have a domestic airline and an overseas airline. I'm wondering if somewhere out there somebody is doing a doctorate or a masters or some paper and has been able to get enough figures together to show what Canada would be like in the air industry if you had the domestic handled by one airline and the overseas by another. Do you know of any such study that has taken place? This is kind of a personal thing. I'd like to take a look at that. Even though you would have one market, you would still branch off. You've got Air Ontario and so on to service the big ones.

This works in Australia and other countries of the world, and I just wonder if somebody has given it an academic view to see what it would be like here in Canada. Has anybody done that, to your knowledge?

Ms. Valérie Dufour: The most interesting example, Mr. Bailey, is Australia. It clearly doesn't have the same characteristics as Canada does sitting next to the U.S. of A.

Almost every paper that's ever been written about the Canadian situation would tend to suggest the opposite, that to be a successful international carrier you need to have the domestic feed. You need to have the ability to gather your own traffic to your international departure points on your own system.

No one has ever made the leap of faith to be able to say a full service domestic carrier on the one hand and a full service international carrier.... It's kind of like saying because our central hubs are not on the outer edges of our country, the domestics would be on the inside and the international would be on the outside, visually. But in fact we have major hubs for international that bring traffic from the domestic systems to make those economically viable.

So, no, I would say I could find you lots of stuff to give you the opposite argument to yours, which is that an international carrier needs its domestic feed, not that you could hold them separate.

Mr. Roy Bailey: It wasn't my argument. I was just wondering if anybody ever tried to prove that scenario.

Ms. Valérie Dufour: There might be an academic who simulated it somewhere in the last ten years.

Mr. Eric Mainville: We've had the experience of Qantas and Pan Am as well in the United States, and both carriers abandoned that approach eventually.

Mr. Roy Bailey: Thank you.

The Chairman: Thanks, Mr. Bailey.

There is one left on this list and then we'll proceed with the presentation. Mr. Guimond.

[Translation]

Mr. Michel Guimond: Ms. Dufour, on April 20 last, during the previous session of Parliament, you testified before the Transport Committee. Your presentation was virtually the same as the one you made today. That's not a criticism, because the committee does have some new members.

Back then, I asked Mr. Ranger to send us a document detailing changes in passenger traffic on regular domestic and transborder routes, as well as on chartered flights.

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You state the following in your submission: “top 25 airports made up 90 per cent of domestic enplaned/deplaned traffic”. I wouldn't want 18 of your officials working on this full-time around the clock, but can you give us more data on passenger traffic?

Mr. Ranger forwarded to me a Transport Canada document entitled “Aviation”, but it does not appear to contain the information I requested. At least I'm being consistent in my thought processes. I requested that information in April. I believe I'm too young to be suffering from Alzheimer's. If you see Mr. Ranger, you can tell him that I don't understand the information he sent to me. It doesn't answer my questions. I'd like some data on growth in passenger traffic so that I can get a clearer picture of the situation. Which airports are experiencing passenger traffic growth and which ones are seeing no changes? Has passenger traffic declined at certain airports? Could you possibly send us, through the clerk, a list of the top 25 airports in Canada in terms of passenger traffic so that we can see how passenger traffic has evolved over the past three years? Furthermore, can you draw a distinction between regular flights and chartered flights? I'm sure colleagues would appreciate having this information for the purposes of our study so that we can see how the situation has evolved. Would that be asking too much?

Ms. Valérie Dufour: We'll get that information to you, Mr. Guimond.

Mr. Michel Guimond: Please don't send me the same document that I received from Mr. Ranger. Do you know the document I'm referring to? Don't send me that one. I already have it, although I don't understand it.

Ms. Valérie Dufour: Our colleagues will help us put together something that is a little clearer.

Mr. Michel Guimond: Thank you.

[English]

The Chairman: In addition, Michel, I think the Airports Council International is also appearing before us, which is the group representing all the airports. That question might be good for them too. Maybe they have statistics and information to satisfy your quest.

We'll continue now, Ms. Dufour, with the next segment of your presentation, please.

Ms. Valérie Dufour: Thank you, Mr. Chairman. I will try to describe our transborder market.

We clearly are talking about across the border. We have two very distinct domestic markets with their own domestic regimes, and our open skies agreement is about across the border.

Our new open skies agreement goes back to February 1995. Our objectives were to open the transborder to allow market forces to decide who got what city pairs, rather than to number crunch. We wanted to ensure that Canadian carriers were as viable competitors as possible. This led to an agreement for full access, with a transition phase of three years. So we got full access to the U.S. in year one, but the U.S. was prepared to phase its entry into Canada, with its larger market team, for a three-year transition for new U.S. entrants in Toronto, two years in Vancouver and Montreal, and one year for all cargo carriers. I can say that we are now past the three-year transition, so we are in fact in full open skies.

How has this agreement impacted our market? Well, before the agreement we had about 82 Canada-U.S. city pairs receiving non-stop scheduled service. In the year since the agreement has been signed we have now had this moved to 135 city pairs. In total there are about 109 new transborder services offered in that period. Those numbers are different because clearly there were some winners and losers in terms of city pairs. Some increased efficiencies were brought in as a result of the freedom to choose what communities were to be served.

Passenger traffic has grown from 13.5 million to some 18.7 million a year ago now, which is an average increase of 8.5% a year. Most Canadian airports, including several smaller markets, now enjoy improved access to major U.S. destinations. In addition, several key U.S. metropolitan areas that were excluded from the list of communities in the previous Canada-U.S. agreement are now enjoying improved links to Canada, and key cities in that group would be Atlanta, Denver, Minneapolis, and St. Louis. It has allowed both Air Canada and Canadian Airlines to develop some key hubbing activity based on U.S. traffic. It has also allowed the charter carriers to remain active. But many have converted their services from charter to scheduled, so they're in the market at a higher frequency.

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I'll now mention a few of the international features of this with regard to alliances and code sharing. The code-sharing provisions in the agreement and the antitrust immunity that the U.S. government granted to both Air Canada and Canadian Airlines have allowed them to develop a much closer relationship with their U.S. alliance partners. In the sub-bullets it lists when Canadian and Air Canada received their antitrust immunity from the American authorities. As a result of this immunity, the flights of Canadian Airlines and Air Canada now have full access to the domestic traffic feed generated at their respective partner's hubs, and they can use their U.S. partner networks to generate feed to their international services, such as U.S. to Asia and U.S. to Europe, through a Canadian point.

There has been a lower cost of entering new markets because with the alliances and the code sharing, they have been able to develop improved joint use of airport and check-in facilities at airports on both sides of the border. They have in fact coordinated their marketing efforts and administrative overheads, so they can dilute the costs over a larger traffic base.

There is no evidence that U.S. alliance partners have been developing new transborder routes at our carriers' expense.

Page 22 shows how we've done in this market. Our share of the market has increased from 43% in 1994 to 49% in 1997. There is scheduled service to 32 new cities in the U.S. for the Canadian carriers and six new cities in Canada for U.S. operators.

New aircraft at Air Canada and Canadian Airlines' domestic fleet redeployment have enabled both airlines to readily exploit the new opportunities that have been provided. One of the key features—and this goes to Ms. Meredith's point that was made earlier—is that when we negotiated the deal, we received 24 slots at key U.S. airports, which Canada has the opportunity to distribute to Canadian carriers, and we have distributed them to Canadian and Air Canada on the basis of their market requirements. But they are clearly recognized as an important feature. We got them to help us get going, and they're very important to us in terms of our ability to serve key U.S. points. Additional slots above those 24 are subject to the buy-and-sell rules, and that's a significant expense to a carrier. So we have something of value to share with our carriers.

In terms of unit costs, the Canada-U.S. agreement has allowed us to remain fairly competitive compared with U.S. operators.

I'll stop again, Mr. Keyes. Mr. Chairman, I've done my transborder picture, and it's your call.

The Chairman: Thank you very much, Ms. Dufour.

Is there anyone on that side? No, we're satisfied.

Mr. Guimond, please, and then Mr. Fontana.

[Translation]

Mr. Michel Guimond: You state the following in the last paragraph on page 21:

No evidence that U.S. alliance partners have been developing new transborder routes at Air Canada's or Canadian Airlines' expense.

Are you quite certain of that, Ms. Dufour?

Ms. Valérie Dufour: Quite certain.

Mr. Michel Guimond: Really?

Ms. Valérie Dufour: Yes.

Mr. Michel Guimond: When we hear about a carrier that no longer offers flights out of Toronto for Asia and that this service is now available from Chicago, wouldn't you call this evidence of this happening?

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Ms. Valérie Dufour: What exactly are you saying, Mr. Guimond?

Mr. Michel Guimond: I've been told that several routes once offered by Canadian Airlines out of Toronto were now available through an American Airlines link to the U.S. The service is no longer offered here in Canada. In other words, Canadian Airlines will provide transborder service and the fact of the matter is that most operations are conducted in the U.S.

I hope you realize that the information contained in your submission will help us launch our study. We are fortunate to hear from you first. As an opposition party member, I hope that the witnesses we have yet to hear from can confirm much of the information in your submission. We're assuming that what you're telling us is the gospel truth. I'm confident that your officials will follow the committee's hearings at which time we will seek confirmation of these facts.

You say there is no evidence that U.S. Alliance partners have been developing new transborder routes. Can we accept that statement at face value?

Ms. Valérie Dufour: You're no longer talking about transborder routes. You're referring to a decision that affects international routes. As far as transborder services are concerned, Canadian carriers have not been squeezed out in the least by U.S. carriers.

If you want to discuss some of the decisions made by certain carriers involving international routes, we can do so at a later time.

Mr. Michel Guimond: Fine.

[English]

The Chairman: Thanks, Mr. Guimond. Mr. Fontana.

Mr. Joe Fontana: Thank you, Mr. Chairman.

If there is a success story anywhere in the airline industry at least for Canada, it's obviously the transborder marketplace, the open skies agreement, which I think was good policy on the part of the present government. Bill, you might want to take note of that.

The Chairman: Okay, Joe, let's just get on with it.

Mr. Joe Fontana: Good negotiating on the part—

The Chairman: I just don't want to open up something that we don't have to open up.

Mr. Joe Fontana: —of a former minister, Doug Young, and his parliamentary secretary, who will remain nameless, of course.

Mr. Michel Guimond: Doug who? Where is he?

The Chairman: Order, please. Mr. Fontana, see, you started something.

Mr. Joe Fontana: My point, Mr. Chairman, is this. Obviously it has worked, and all the statistics point to the fact that Canadian air carriers and Canadian consumers have benefited from this open skies policy, because we're taking the best advantage of the arrangement. So far it would appear there was a boom even for regionals, such as Air Ontario from my community, which flies into a number of U.S. markets. Primarily, it's Canadian and Air Canada that are doing this. You've outlined who's doing what, and the passenger traffic has gone up remarkably. Is there information within Transport Canada that can tell us who the players are over and above Air Canada and Canadian and if there are some regional carriers and perhaps even some independents that are in fact flying into the United States, so that we have a better idea of what's happening?

I think there were some missing there. You broke them down between Air Canada and Canadian. I know they have regionals, but I think maybe a further breakdown would point out that some regional carriers do in fact.... As we go through this thing as to the role the regionals will play in any potential merger or buyout, regional communities and regional carriers become very important, not only on the domestic front but also in terms of the transborder capacity they are handling. I'm just wondering whether or not you have information that further breaks down those carriers.

Ms. Valérie Dufour: Mr. Mainville will explain to you how we've been tracking the U.S. area for the last three years. I bring to your attention our chapters in the annual report of Transport Canada where we have regularly updated the information on a yearly basis. But I'll let Eric explain to you how we've been gathering that material. We can clearly provide you with a much better picture of the ebb and flow, but I'm not sure we can tell you what specific carrier in every case. But I'll let Eric say a few more words about it.

Mr. Eric Mainville: We can give you a list of routes that were operating before the open skies policy. We can tell you which carriers entered and which carriers exited.

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To get more specifically to your point about independents, the independents have not been much of a factor in the transport market. As far as I know, there's only been one operator, called Helijet, that started a Victoria-Seattle service. By and large, the new services have been started by Air Canada, Canadian, and the U.S. majors and their affiliates.

Mr. Joe Fontana: In terms of the competitiveness of the Canadian industry—and this is something that might be of interest not only to us but to anybody else—you say in your last point on page 22 that “In terms of unit costs, Canadian industry is thought to be cost competitive with the major U.S. airlines.” I wonder if you have some additional information and can tell us what exactly that means. Does that mean we compete very well, or our unit costs are lower than that of the United States? What are the benchmarks that you are measuring Canadian competitiveness with?

Mr. Eric Mainville: It comes from what our carriers have been telling us, that they've been able to compete head to head with the American carriers, American airlines, and be cost competitive. There is no documentation. It is just what the carriers have told us.

Mr. Joe Fontana: So that's something else that we can ask about.

I'm sure this question will come up in terms of alliances and code sharing with regard to page 21. In your opinion, in studying the code sharing and alliances on both sides, that is the Star Alliance and/or the Oneworld one, and as it relates to transborder...I wonder whether you have found, in terms of complaints between airline and airline or consumers with regard to code sharing and/or.... Have you been monitoring from a consumer standpoint or even an industry standpoint how these alliances have been working out?

I'll give you an example from a consumer standpoint. You go to a Canadian airport to go to a U.S. destination and find that in fact.... Say you were going from Vancouver to wherever. Because you're using an American carrier now and not necessarily a Canadian carrier, they put you through two or three different points. I'd like to know whether or not we've been measuring the complaints and/or the relationship between alliances and code-sharing numbers with our Canadian industry.

Ms. Valérie Dufour: I don't think we've created a significant link, because the transborder market is very particular.

Your very last comment, however, does go to the point of understanding the issue of having to go through double sets of preclearance facilities or clearance facilities, customs, on both sides. One of the other parts of the arrangements, which is not part of the open skies but part of a separate negotiation, is to improve preclearance facilities. We are in fact in the process of developing improved facilities so that those efficiencies will be felt by the consumer as well.

Mr. Joe Fontana: Good. Thank you.

The Chairman: Thanks, Mr. Fontana.

Ms. Desjarlais.

Ms. Bev Desjarlais: Going along the line of what Mr. Fontana was asking, when you talk about the Canadian industry's share of the transborder passengers, and again you talk about having to go through two sets of preclearance, from what I've seen, instead of going from a Canadian point to the furthest American point, what seems to be happening—I admit I'm not sure whether it's more so now than before—is you might stop at that other American port of call and continue on their airline rather than the Canadian airline, if you were lucky enough to have been on it crossing the border, to the next port of call in the U.S. In other words, it's kind of being used as a stop-gap.

When you talk about the increase in transborder passengers, does it relate it to the same...? Say you were going to Toronto, Chicago, or somewhere else in the U.S., do you just consider that initial trip or do you consider the fact that maybe at one time there was a Toronto flight to that furthest point in the U.S. on a Canadian carrier, but now the traffic is being diverted so that there is additional use of the U.S. carriers?

Mr. Eric Mainville: You have to keep in mind that when you're talking about connecting beyond a U.S. hub, you're probably either going to an international destination—and this has been brought up before—or to a small point in the U.S. An example would be Cedar Rapids. A lot of these points are points where the Canadian carriers would have no interest in going in to begin with.

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To answer your question, yes, when we look at the statistics, if we only look at the hop over the border.... But if you ask the airlines, and I think the airlines will tell you, the ability to connect with their U.S. alliance partners to these small points isn't going to benefit them.

Ms. Valérie Dufour: I think the other point, Ms. Desjarlais, to be remembered is that Canadian operators can't fly between two domestic points. Once they touch down, unless they have co-terminaling, which we will get into, they essentially can only serve the arrival point and they have to hand off. So the question is, do they fly all the way or do they work with an alliance partner and fly the most efficient length for them and turn over the second most efficient, the U.S. leg, to the U.S. alliance partner?

Ms. Bev Desjarlais: So there hasn't been a situation where they would have been flying to the furthest destination point, say before open skies, where they would have been flying to a different point that hasn't sort of been diverted now. It's no different from the way it was before.

Mr. Eric Mainville: The only example I can think of has worked the other way. American Airlines used to fly to Edmonton via Calgary. They would be carrying people from Dallas to Edmonton with a stop in Calgary. They've gotten rid of that leg by code-sharing with Canadian.

Ms. Bev Desjarlais: Thank you.

The Chairman: Thank you, Bev.

One last question before we move to the next chapter on the international market. Mr. Fontana.

Mr. Joe Fontana: Yes. You brought it up, but I was going to ask you anyway. In terms of studies that have been done by Transport Canada with regard to the impact of a co-terminal arrangement or a cabotage arrangement specifically with the United States and the impact on the Canadian industry and, more importantly, what benefits there may be to the consumer by virtue of a North American cabotage arrangement between all airlines in North America.... Has that study been done or not?

Mr. Eric Mainville: No, we haven't done any studies like that, the reason being that when we negotiated this deal with the Americans, from the very first day of negotiations both countries agreed not to talk about cabotage.

Mr. Joe Fontana: Oh, I know nobody wants to talk about it, but I was just wondering if Transport Canada has had any discussions with regard to the whole issue of cabotage, the pros and cons, or the one you talked about, the co-terminal, which is not quite cabotage but is sort of a derivative of it.

Ms. Valérie Dufour: There was a time when we thought the way to get access to the U.S. was to try to have the ability of the Canadian carrier to fly to a second point in the States. The decision was made that the openness of the agreement on the transborder was quite adequate, and with the freedom to fly and the sizing of aircraft available, on the transborder that was fine.

The issue of allowing U.S. operators to operate between domestic points in Canada is an entirely different matter. No, we haven't done a lot of work on it. One of the most important reasons why is because in the international environment, when you give rights to your country, you normally give them on a reciprocal basis. It's very clear in our mind that there is no appetite in the U.S. for allowing any foreign operators, including Canadians, to fly between points in the U.S. Therefore we have not pursued the notion that we would allow the Americans to come in unilaterally.

Mr. Joe Fontana: I would agree.

The Chairman: For good reason, I would think.

Mr. Comuzzi, do you have one question?

Mr. Joe Comuzzi: We are going to carry on until what time, Mr. Chairman?

The Chairman: We've ordered in something to eat, so we'll have a working lunch. Whatever the committee feels. I was looking at 1.30 p.m. to give everyone a change to get back to their offices before question period.

Mr. Joe Comuzzi: Perhaps we could turn up the heat before we come back again.

The Chairman: We'll turn up the heat. The request has already been made.

Mr. Joe Comuzzi: I have to go back to the Air Canada thing for a minute. I wonder if the witnesses could give us something definitive on a piece of paper that could be studied that would show the ownership rule, the equity rule, on all airlines in Canada, and then put the Air Canada agreement, the Public Participation Act, by way of comparison, so it would be more understandable to me.

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Ms. Valérie Dufour: I think we can do that.

Mr. Joe Comuzzi: That would be very helpful.

The issue in point is the cabotage, and we haven't explored it with the United States, but we haven't explored it mainly because we've been involved in an east-west configuration of protecting Canadian airlines—all Canadian airlines. But given what's happening in the marketplace and what may happen in the next little while with whatever is happening in the business world and the unhappy takeover proposals, perhaps, out of precaution, we should be studying and approaching our American colleagues with respect to what are the possibilities of landing in more than one point in the United States and being reciprocal in Canada, if for no other reason than to provide a competitive atmosphere in the event that at the end of the day we don't have a competitive atmosphere in the Canadian airline system. Do you think that makes some sense?

Ms. Valérie Dufour: That's not for me to answer today, sir.

Mr. Joe Comuzzi: No, I understand that. Maybe that's an unfair question. But that's a very real consideration. That's not a question, Mr. Chairman, but that's something that has to be considered.

The Chairman: Thanks, Mr. Comuzzi.

This is definitely the last question, Mr. Dromisky. Then we have to move on to the international market.

Mr. Stan Dromisky: Possibly I could delay my question until we start dealing with the various conventions that are coming up on the following pages. I think it would be more related to that.

The Chairman: Terrific. Thanks, Mr. Dromisky.

Before you proceed, Ms. Dufour, I need a motion, colleagues, for great clarification. We moved the motion about being permitted to televise our meetings, but we limited it to the one room, and there is more than one room available for TV. So could I have a motion to rescind the last motion?

Mr. Roy Bailey: I so move.

(Motion agreed to)

The Chairman: Then we can decide on the motion that the Standing Committee on Transport be permitted to televise its meetings between October 20, 1999, and December 10, 1999, for the duration of its study on the future of the airline industry in Canada.

Mr. Joe Fontana: I so move.

(Motion agreed to)

The Chairman: Thank you, colleagues.

Sorry for that interruption, Ms. Dufour.

Colleagues, we are into a working lunch, so there is some food available for you at the back of the room. But if you could do it quietly, please, so we can proceed with the hearings.... The lunch is for interpreters and staff. We ask staff of members or visitors to frequent our lovely dining room upstairs, if they so choose.

Colleagues, I will tell you what. Given the amount of noise and the number of people who have left the table...it is now 12.15 p.m. We will resume at 12.20 p.m. So we will stand suspended until 12.20 p.m.

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The Chairman: We'll resume. We'll go right through with a working lunch.

Mr. LaFleur has wrapped up his luxury meal of pizza and Coke, so we'll let him give the next segment on the international market. Thank you, Mr. LaFleur.

Mr. Larry LaFleur (Deputy Director, International Air Policy, Transport Canada): I guess the first point I would want to make is that competition in the international market is very much affected by the decisions and policies of the government, because this sector is still regulated. How did this all come about? It stems back to a convention on international civil aviation, often referred to as the Chicago convention, the 1944 convention. It basically established that states agreed on one very important principle, and that is that all states have sovereignty over their air space. What that means is that each state decides who operates over their air space, who operates to communities and to airports in their territory.

From that basic principle, I'll move to two key different types of services. The first one is non-scheduled international air services or charter services. The convention established that each country may set their own regulations for non-scheduled or charter air services to and from their territory.

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The other key development that came from this conference is that the exchange of rights of commercial access for scheduled services would be determined through the negotiation of a bilateral agreement between two states. They even went so far as to provide a standard formulation for such agreements.

I guess the two main messages that come out of this would be that states set their own rules for charter services and that the ability to operate scheduled services is pursuant to a bilateral air agreement between two states.

I'll move to the next slide and talk a little bit about the kinds of powers that are used in the context of international civil aviation. Probably the most important one is the Minister of Transport's power to designate Canadian carriers for international scheduled services. One of the background pieces of information you should have is that bilateral agreements for the most part don't say that Air Canada is allowed to operate three flights a week or that specific foreign carriers are able to operate. It gives each country the right to have one, two, or any number of carriers to operate the commercial rights that are agreed to in the agreement.

From that perspective, under the Canada Transportation Act it is the Minister of Transport's discretionary decision to determine which Canadian carriers will operate under which agreements—i.e., to which countries, with scheduled air services to those countries.

The other power the minister has is to direct the Canadian Transportation Agency in respect of the exercise of its powers regarding the performance of any of its duties or functions relating to international air services.

Moving down to the Canadian Transportation Agency, which you've heard a little bit about today, they're basically the custodians of our air agreements. They issue, suspend, cancel, or condition licences for both scheduled and non-scheduled air services. As I said, they implement our bilateral agreements, and they ensure that tariffs are consistent with the provisions of our bilateral agreements. I think you heard Mr. Mainville mention earlier today that with respect to tariffs some of our bilateral agreements have what's called double disapproval, which provides for a great deal of flexibility for the carriers to operate. It's almost equivalent to a hands-off type of approach by governments.

Some of our agreements still have what we call single disapproval regimes for tariffs, for fares. I should flag to you that there are still countries that have state-owned airlines that are designated. Those airlines are subsidized, can be subsidized, are subsidized. Therefore, there's always a concern that we would want to have oversight over the fares being charged on the routes.

The other power of the Canadian Transportation Agency is to authorize, on a temporary basis, an international service that is not provided for in an agreement. I'm sure you will recognize that there are cases where both parties want an air service to take place. It could be additional flights, or it could be a new service between new city pairs, and you don't have time to go through the whole bilateral process to negotiate and amend an air agreement. This is a new provision that was put into the act in 1996 whereby the Canadian Transportation Agency can authorize—temporarily, I might add—air services. This is really just to expedite things.

I'll speak a little bit now about the evolution of Canadian international transportation policy. I think you've all heard of the concept of division of the world. Historically, international scheduled routes were allocated by the minister pursuant to a concept called division of the world. It was based on a principle that the routes should not be competitive or conflicting but should represent a single integrated plan. The routes were granted on an exclusive basis to Air Canada and CP Air.

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The erosion of this geographical exclusivity for Air Canada and CP began in 1985, when Wardair was designated to serve the United Kingdom. This was in addition to Air Canada's existing designation to that country.

As part of a reallocation of international routes, after October 1987 Air Canada and Canadian Airlines were no longer guaranteed exclusive access to specific markets. Any Canadian carrier was allowed to apply for additional designations. So you can see that there's been a progressive evolution away from a division-of-the-world concept of exclusivity for each of our carriers on international routes.

That takes us to our current policy framework, beginning in December 1994, when the government initiated a “use it or lose it” approach to the allocation of scheduled international routes. It also initiated a new foreign carrier access policy. The use it or lose it approach was an effort to ensure that scarce assets—that is, specific route rights—are utilized to the maximum by our carriers. I'll get into the details of the use it or lose it policy a little later, in the other slides.

This was quickly followed in March 1995 by the promulgation of criteria for the designation of a second Canadian carrier on a specific route. It was decided that in country markets that generate over 300,000 scheduled passenger trips per year—for example, the United Kingdom—two Canadian carriers may be designated.

The rationale for this was that for the most part airlines try to grow their services to the point where they have a daily service to international markets. Once they have a daily service they feel they have a product that is attractive to the business traveller. This is both ways. So an airline would have a return flight, or a flight in both directions to each of the countries. This de facto is more attractive to the business traveller. It was felt by policy-makers that once a carrier achieves that, there is room for an additional Canadian carrier in the market. It was felt that 300,000 was the number at which a daily product was quite possible for one carrier. So that's a bit of the rationale for this 300,000 scheduled passenger trips per year.

I guess the residual of that is that in country markets that generate less than that amount, 300,000 scheduled passenger trips per year—for example, Chile—only one Canadian carrier would be designated.

About the middle of the summer of 1998, there was a decision taken by the minister that new route opportunities for both Air Canada and Canadian Airlines would be approved. This was in response to an expansion of the needs of both airlines. There are a couple of factors at play here. Aside from the direct flights, where Air Canada was permitted to operate new daily flights between Toronto and Hong Kong, and Canadian Airlines between Vancouver and Osaka, both airlines were finding that the single-carrier designation in the small markets was impinging on their ability to really effect a better relationship with their alliance partners. The whole concept of alliances is one in which you are trying to grow your network. But if you are not permitted to cooperate and code-share with your alliance partners by virtue of the fact that you're not designated to that country, then you can't implement those alliances in the manner they wanted to.

So the minister decided that each carrier would be permitted to choose five new markets for the operation of code-share services. I can tell you that Air Canada chose New Zealand, Thailand, Netherlands, Brazil, and Mexico for their markets. I would flag to you that the airlines of four of those countries are either in or part of the Star Alliance family. So you can see how that was affected. Canadian Airlines chose Belgium, Sweden, Finland, and Jamaica.

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I'm going to move to the regulation of charter services now. As I mentioned before, pursuant to the Chicago convention, international charter or non-scheduled flight services are governed by national regulations. They're normally not subject therefore to bilateral negotiations. There have been some exceptions to that.

What this also means is that a charter carrier that's operating between Canada and Jamaica, for example, ends up being subject to the rules and regulations of both countries. De facto, what it means is that the country with the most rigid or restrictive regulations usually prevails. If this circumstance gets to be too much of an impediment to our industry, they often will ask us to bring these matters up at bilateral negotiations, but I would flag that that's really an exception rather than the rule.

The charter rules we have today are really reflective of a charter policy that dates back to 1978. Basically it is one that allows all carriers, scheduled and charter carriers, to compete for the leisure market, and it's an attempt therefore to protect the year-round scheduled services from being undermined by lower-priced seasonal charters. I'll get the element later; I think it's the second-last bullet. The non-discretionary or must-go traveller has been steered towards scheduled services through fences in the air transport regulations such as requirements for advance booking, minimum stay, and return transportation.

A review of the charter policy conducted in 1998 revealed strong support for liberalization of the Canadian charter policy.

The air transport regulations: Those are regulations that are promulgated by the Canadian Transportation Agency pursuant to our legislation.

The role of government regarding international scheduled services: In addition to its responsibilities for the safety of international air services, the government has the responsibility for developing policy, for negotiating and implementing our bilateral air agreements, and, as I mentioned earlier, allocating international routes for Canadian carriers. The Minister of Foreign Affairs is responsible for the conduct and management of our international negotiations, and I can elaborate further on our process for that if there are questions on that. The detailed mandates for our negotiations are authorized by both the Minister of Transport and the Minister of Foreign Affairs, and ultimately because bilateral air agreements are treaties, following their negotiation the Governor in Council issues an Order in Council to bring the agreement formally into force.

That's a little bit about the process of the legal framework for our bilateral negotiations. As I said, I can tell you a little bit more, if you want, on how we go about determining our mandates and so on in consultation with stakeholders, etc.

There are over 2,000 bilateral air agreements worldwide and Canada has some 69 of them. They include the specific commercial rights granted to each government, and that includes things like routes. It might be the ability to operate between all cities in Canada and all cities in the other country, if it's a very liberal agreement, or it might be the ability to operate from five cities in Canada. Some of the very old agreements still contain simply the ability to operate betwen Toronto and Montreal, which were our primary gateways back in the early seventies. They include what the rules of the game are with respect to capacity and frequency, the type of aircraft that can be operated, and the number of carriers.

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When I identify these things, it seems they are very rigid, but again, you can have very restrictive agreements or you can have very liberal agreements, depending on the circumstances and depending on what the foreign government is prepared to do, whether they have adopted a protectionist stance vis-à-vis their carriers or whatever their philosophy is.

There are a great number of technical articles as well in our air agreements that refer to the application of national laws on the use of airport and aviation facilities, whether these are done in a manner that is fair and equitable. It covers tariffs or prices and what kinds of regulations we would apply, whether it's liberal, which is a double disapproval regime, or whether it's more restrictive or involving regulatory oversight. It covers technical matters such as transfer of funds. In some areas of the world you can't freely convert the revenue that you generate from air transportation; you have to go through certain financial rules in that country. Basically our policy is one of freely convertible funds. There are provisions on taxation, customs, airline stuff, etc., as you can see here.

In the end, there are provisions for resolving disputes, and in the event that neither party can resolve the dispute through that process, there are provisions for termination of an agreement. It usually involves serving notice, which is one year. For the most part when that happens, there's a lot of pressure on the part of both governments to get together and resolve the matters before the agreement terminates.

And of course there are always safety and security provisions in all of our air agreements.

I mentioned to you earlier the 1994 policy on “use it or lose it”. It begs the question, therefore, of how this policy works. It is there, again, to encourage the full exercise of our bilateral rights; ie., if a carrier doesn't use the rights, then there is a risk that he will lose those rights.

Any Canadian carrier may apply to the minister for designation where the current carrier is either not operating or is underutilizing the designation, and this is where you get into the detail of what constitutes underutilization. The policy is one that defines this by saying that if a carrier is not operating at least twice a week with its own aircraft, or if it is operating through a commercial agreement or a code-share agreement with a partner, it must be operating that service at a daily level or near a daily frequency in order to maintain that designation. If it is operating below that, and another carrier wants to operate the route, that designation is contestable, and Transport Canada solicits service proposals from all Canadian carriers, including the incumbent carrier. Following a review, the minister will decide on the best proposal.

Since March 1995, nearly 60 carrier selections have been conducted. There are transparent criteria for this selection, which include frequency of service, the directness of the service—that is, whether it is non-stop or one-stop—the number of Canadian cities having access to the service, and in the end, there is a judgment as to whether the route is negotiable with our bilateral partner. That is factored in.

Talking about air services in general, it's clear that international air services are very important to Canadian carriers. The two major carriers generate more than 50% of their revenue from international carriers, and this is including the U.S. Canada's largest non-U.S. scheduled air markets are the United Kingdom, Japan, Hong Kong, Germany, France, Taiwan, and Mexico. Air Canada and Canadian Airlines are both designated to all these countries except for France, where Air Canada and Air Transat are designated. I would flag that Air Canada's designation to Mexico is for code-sharing purposes only at this point in time.

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Only these markets generate over the 300,000 scheduled passenger trips per year, so all of our other markets, when you think about the fact that we have 69 bilateral agreements.... Only these markets are large enough to support two Canadian carriers being designated.

A little bit now about the size of our carriers. Air Canada is the world's 19th largest carrier. Canadian Airlines is the 25th. United Airlines, by comparison, the world's largest, is three times their combined size.

Air Canada has historically been very strong in Europe, the United Kingdom, Germany, and France, and it is the main Canadian carrier operating scheduled services to the Caribbean. Canadian Airlines has been historically and remains strongest in Asia, with its routes to Japan and Hong Kong, and it operates a service to London, England, that is competitive with that of Air Canada. It is also present with direct flights to Brazil and Argentina.

On our international routes, competition is mostly with the foreign carrier. Direct competition between Air Canada and Canadian Airlines is primarily in the Canada-London market. There is limited competition between both carriers in Hong Kong, Japan, Taiwan, and Mexico.

Now our charter air services: Air Transat, Canada 3000, Royal, and Skyservice operate a combined fleet of over 50 jet aircraft to a large number of international destinations, and they compete with each other and with scheduled carriers for leisure traffic. Typically they'll operate seasonal services to Europe in the summer and to sun spot destinations like Mexico and the Caribbean during the winter. Our largest charter markets are Mexico, the United Kingdom, France, and the Dominican Republic.

Canada's charter carriers have developed a close working relationship with a number of tour operators to market leisure travel, whether it's air only or inclusive tour packages. I think Val had mentioned this evolution earlier in her presentation. Indeed, some of our charter carriers and tour operators are integrated within one company, for example, Transat AT Inc. Air Transat's parent company also owns Air Transat Holidays, which is a major tour operator.

The Chairman: Mr. LaFleur, maybe that would be a natural break for us there.

Mr. Larry LaFleur: Fine.

The Chairman: Then we'll carry on in the next segment with the last five pages of the presentation, dealing with everything from airfares to competitiveness in the airline industry.

I'll take some questions from my colleagues now.

Just to look at that bullet on 31 again, it says that “Air Canada is the world's 19th largest carrier; Canadian Airlines the 25th”, and that United is three times larger than Air Canada and Canadian combined.

Mr. Larry LaFleur: That's correct.

Mr. Roy Bailey: Wow!

The Chairman: Wow is right. On top of that combination and the size of United, you have 18 other carriers that are larger than Air Canada for competition. So if we're looking for competition on a worldwide scale, we're talking about what we had in this country on a two-airline policy for how long? Each individual airline has been trying to compete with the likes of a United Airlines—as opposed to a United Alternative—which is three times larger than both of them combined, and then there are 18 more airlines larger than Air Canada on top of that.

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“Wow” is just about the right word, Mr. Bailey.

Mr. Bailey, please, Mr. Dromisky, and then Mr. Casey.

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

I was interested in your comments as you went through the pages here. In the bilateral agreements made between two companies—and I see you have KLM. Obviously Canada has a bilateral agreement with that air company.

Ms. Valérie Dufour: Sorry, Mr. Bailey, with Holland.

Mr. Roy Bailey: With Holland, I'm sorry. That does not mean the plane parked next to it, which could be Air France, has the same terms of agreement. Is that correct?

Mr. Larry LaFleur: That's correct.

Mr. Roy Bailey: In other words, we have 19. Didn't I see that?

Mr. Larry LaFleur: We have 69 air bilaterals.

Mr. Roy Bailey: So each one is different and separate, or could be.

Mr. Larry LaFleur: Could be, yes.

Mr. Roy Bailey: When that agreement is dissolved, that means somebody else could buy in that individual country to pick up that agreement?

Mr. Larry LaFleur: No, the agreement is between Canada and another country. It's called a bilateral. It's between two countries. In the rare cases where an agreement is terminated—to my knowledge, it's happened in only two cases with respect to Canada—what we usually end up with are temporary services in the interim, pending the two governments getting together to try to resolve their differences. If an air agreement is terminated, it usually is because one side feels it's being hard done by, by that agreement. Over time the agreement has become imbalanced, in the view of one of the parties, and it hasn't been able to be resolved through negotiations. So the aggrieved party will issue a one year's notice of termination. You still have a year to try to resolve it, and you try.

Mr. Roy Bailey: This is a national thing. Say it was Canada and Holland and they're bickering. That also involves the airlines. Where is that role?

Mr. Larry LaFleur: This is where I made the comment about our process for negotiations. If there's a new development, if we have an air agreement between country A and B, those air agreements are simply a means to facilitate air services by the airlines that are named by our minister, pursuant to that agreement, and by the foreign government, who have named their airline to operate. If the airlines want to do something new, usually they will advise their governments, and the governments will then consult with many stakeholders to get more than just airline views. Ultimately a mandate is formulated for ministerial consideration. Then the negotiators get together to resolve it.

So the airlines have input into the mandate. They have input into any decision by a particular government to terminate an agreement, if that is the case.

But to your point as to what happens when it ends, for the most part air services will continue on a temporary basis until the two parties resolve that issue.

Mr. Roy Bailey: Thank you.

Ms. Valérie Dufour: I would clarify for Mr. Bailey, though, that these bilaterals are living treaties. They're constantly evolving and they don't in effect come to an end very often. You tend to amend them and keep making them bigger and better and richer and more liberalized. They don't end. There are 69 working sectors for us. Very infrequently do you have the kind of tension that results where both countries can't agree.

Mr. Roy Bailey: Thanks very much.

The Chairman: Thanks, Mr. Bailey.

Mr. Dromisky.

Mr. Stan Dromisky: Thank you very much, Mr. Chair. I saved my question for this portion of the presentation because I have a narrower perspective to be dealt with. That is the instance of the trade agreement that we have with the United States of America, and possibly with Mexico too. I'm looking at services. My question will deal with two sections: one, our agreements with the United States under the free trade agreement and Mexico; and also looking at it from the international scope, in other countries where labour especially is very cheap. We're talking about services here, but we're talking chiefly about a heavy emphasis on carriers.

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I would like to know about those carriers, the planes that are being serviced. I know planes have to be regularly checked. There are all kinds of inspection systems that we have to implement, or the owners of these carriers have to implement, on a regular basis and be audited as well. Can refurbishing an airplane, remodelling an airplane, painting an airplane—can this be accomplished outside of Canada under the free trade deal? Because of our 69 agreements—that's a lot of countries—can the major carriers in Canada designate certain agreements and have workshops to do all the servicing of the Canadian planes on a regular basis and close down the Canadian shops and the Canadian service people involved at the present time? In other words, if I own an airline, can I get all my services done in Taipei at a very small fraction of the cost that I would have to deal with in Canada?

Ms. Valérie Dufour: The short answer is probably not, and it's more because it has to be maintained to the levels that the Canadian civil aviation regulations require. Yes, you can have servicing done offshore, but let's come back around to the trade agreements first.

The NAFTA agreement excludes air services. The only reference in the NAFTA to any form of air services is specialty air services and it's only about allowing the kinds of things we were talking about, such as aerial surveying, crop spraying—the two ends, the high-tech to the low-tech end of what is essentially a service using an aircraft. Everything involving the transportation of goods and passengers is completely written out of the NAFTA and is equally completely written out of the World Trade Organization.

To come back to Mr. Dromisky's point, though, there are three items that have slightly different arrangements in the WTO. Computer reservation systems are wide open, marketing and sales are wide open, and there is a World Trade Organization agreement on repair and maintenance, but it is hedged by the requirements of national regulations with respect to the levels of maintenance required and it is hedged by the ICAO, the International Civil Aviation Organisation, requirements on safety maintenance standards.

So it's not as open as your scenario might suggest, sir, that you could just simply offload all your maintenance to some sweatshop somewhere in the world and that would be fine. It would not be fine. No matter where you have it done, at the end of the day your operating responsibility is to meet the Canadian aviation standards for maintenance and your own operating manual requirements for maintenance. So it always comes home for the final approval.

Mr. Stan Dromisky: I have a spin-off from this whole area. It's really a legal question that I have in mind. Can a Canadian firm, owned by Canadians, all the regulations being adhered to, have the registration of that air company or carrier transferred to another country where labour costs are very cheap, very inexpensive, and still maintain that Canadian identity?

Ms. Valérie Dufour: No.

Mr. Stan Dromisky: It can't be done?

Ms. Valérie Dufour: You can take aircraft off the register, but if you ever want to bring it back into the country, you're going to have to get back into the game in terms of regulations. There are some attempts to find a tax advantage by having your aircraft someplace else, but if you don't have your aircraft on the Canadian register, you're only allowed to operate in Canada for 90 days per year.

Mr. Stan Dromisky: That's a crucial point. Thank you very much.

The Chairman: Thank you, Stan.

Mr. Casey.

Mr. Bill Casey: Thank you.

I don't understand the allocation of international routes. Does the Government of Canada negotiate availability of routes and then go to the airlines, or do the airlines come to Canada and say please negotiate some extra routes with another country? What's the process?

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Mr. Larry LaFleur: We have had a “use it or lose it” policy since 1994. Whether we have an air agreement or we don't, the airlines can make a bid to operate a route, even if the rights aren't there. So for the most part now, when we go and meet for bilateral air negotiations, the minister has already decided which airline is going to operate the route, and we know what the bid was in terms of what the airline is interesting in operating. So that's one circumstance.

You ask, how does the situation start? It usually starts by an expression of interest on the part of the airline industry, and the government is reacting, first of all through a decision by the minister, and then through a bilateral negotiation to secure the rights to allow the service to begin. That's one scenario.

The other scenario is where you have already a living agreement; there is an airline operating a service and he wants to enhance that service. So again, you already have a decision, you have an incumbent in terms of an airline operating the service, he wants to improve it, the agreement is not flexible enough, he advises the government, and the government is reacting to the interests of the airline industry in expanding air services.

Mr. Bill Casey: Are there outstanding requests now from the airline industry for new routes?

Mr. Larry LaFleur: The short answer to that is yes, there are. For the most part, our international carriers are Canadian Airlines and Air Canada, so at this particular point in time, our bilateral program is basically in suspension pending the current developments. But there is always a longer list of demands than we are able to expeditiously deliver the bilateral rights for. As a result of that, about two or three times a year, we go through the development of what we call our bilateral program and establish priorities.

Mr. Bill Casey: Do you have any routes that are open now and that nobody is using?

Mr. Larry LaFleur: Yes, I do believe there are routes that are open now that nobody's using.

Mr. Bill Casey: On page 22 it says 24 new slots were provided to the Canadian industry under the agreement. Who negotiated that, Transport Canada?

Mr. Larry LaFleur: The Canada-U.S. agreement?

Mr. Bill Casey: Yes.

Mr. Larry LaFleur: Who negotiated it? That was negotiated by the Government of Canada and the Government of the United States. The talks are headed usually by the Department of Foreign Affairs, the chief air negotiator, if you're talking about the content of the delegation.

This is quite an exceptional circumstance. For the most part, slots are not negotiated under bilateral air agreements. But I guess the negotiators—and I wasn't party to that negotiation—felt that in trying to effectively implement some of the new rights, there were impediments out there other than the economic rights, and those impediments were slots at U.S. airports. So that was a demand by the Canadian government, and it was met by the U.S. government in order to go through.

Mr. Bill Casey: How would the federal negotiators in the U.S. know they could commit slots at a certain airport? How would they know the slots were available?

Mr. Larry LaFleur: Could you answer that, Eric?

Mr. Eric Mainville: Honestly, they did not give us an answer immediately. They had to go back to their government agencies and secure the necessary slots. In this case it was the FAA. We asked for slots at three airports, and we only got two.

Mr. Bill Casey: So your request was very specific, for three airports.

Ms. Valérie Dufour: The controlled slots, the ones with the highest degree of activity, had to be pushed aside a bit to give some room for Canadian entrance.

Mr. Bill Casey: Does Transport Canada control the use of those slots?

Mr. Larry LaFleur: The Minister of Transport allocated those slots.

Mr. Bill Casey: All right, thank you very much. That was really interesting.

The Chairman: Thanks, Mr. Casey.

One more, Mr. Bailey.

Mr. Roy Bailey: I'm reading this in the papers; I assume it happens. Let's say you have a bilateral agreement between Canada and Japan, and at the present time that particular flight is being controlled by Canadian. Say Canadian and Air Canada enter into a little agreement on their own that they'll swap this one for that one—and that happens, I think—does that one change?

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It seems to me a slot was made.... The bilateral agreement between Japan and Air Canada is the same bilateral agreement as between Japan and Canadian. Is that right?

Mr. Larry LaFleur: There's a bilateral agreement between Canada and Japan that provides rights for Canada.

Mr. Roy Bailey: For both airlines that they travel?

Mr. Larry LaFleur: No. Then the Minister of Transport decides who will operate those routes. The minister decides that Canadian will operate these and Air Canada will operate those.

Mr. Roy Bailey: So the airlines are subject to the one agreement.

Mr. Larry LaFleur: There is an air agreement that gives the Government of Canada the ability to decide which airlines in Canada will operate those routes to Japan. Once that agreement is in place, then the minister decides which Canadian carriers will operate, and he has decided to split it up between Canadian and Air Canada. I hope that answers your question.

The Chairman: Do you have more questions, Mr. Bailey?

Mr. Roy Bailey: No.

The Chairman: Thank you.

Then we'll proceed. Valérie or Larry, do you want to present the last six pages of your 38-page brief? Then we'll wrap up with some more questions if necessary.

Ms. Valérie Dufour: We're all going to do this part, Mr. Keyes.

The Chairman: Great.

It's page 33, colleagues.

Ms. Valérie Dufour: We'll say a few words about international affairs, which was just a tail-end piece from the international one, and then we want to make sure you have an appreciation of the impacts of the global alliances. There were questions from members earlier.

We will try, perhaps, in the end to get back to the issue that has been put on the table, at least in the media, which is this issue of cabotage. You may decide that we've in fact addressed that and that we can deal with fares and alliances and be done for the day.

The Chairman: That's fine. Thank you.

Ms. Valérie Dufour: The slide we did for you on airfares is quite straightforward. The airfares are not keeping pace with the rate of inflation. There's enough competitive pressure in the international environment that in some cases they've decreased. For Monsieur Asselin, who is still concerned that Basse-Côte-Nord is not getting a good rate on flights, it's interesting to note that there's enough volume on the Montreal-Paris and there are enough competitors in that market that there's been a 25% decrease over 10 years in the average airfare paid. That's from the high side to the most discounted available on the Montreal-Paris.

In the international environment, everybody is looking for a discounted fare. In fact look at how high that number is. It's even higher than at home.

We're noting, in our look at fares, little regional disparity. Montreal-Paris and Toronto-Paris have the same fare. In fact we know those costs are very similar. It doesn't cost you a heck of a lot more to fly the extra 300 air miles up there between Toronto and Montreal to the other side of the ocean. So to the extent that they're trying to compete with the foreign carriers, who are very strong competitors in the north Atlantic, we see there is an effect on fares.

We're noting that the gap between European and Asian fares has been narrowing. Asian fares have always been highly regulated and high, but now—and this gives me my opportunity to move to the next point—as the alliances put more competition into the Asian market, those prices are beginning to show a reaction, and the gap between European and Asian prices is narrowing.

I'm going to turn the alliances piece over to Larry to do. That's slides 34, 35, and 36.

Mr. Larry LaFleur: Airline alliances are partnerships between carriers, and they're designed primarily to give the partners access, daily, to a larger number of markets than would be possible through individual efforts.

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As an example, Canada being of such large geographical diversity with markets so distant, it would not be feasible for foreign airlines to operate to every Canadian city, but they want access to those markets. So how do they do that? Well, they build upon their relationship with their alliance partner who has a network that can operate to all of those points. It provides both a more efficient way of accessing the markets and a much better and integrated product to the consumer because those two carriers are working together to coordinate their schedules, etc.

To finish that point, these relationships can also range from simple commercial cooperation to equity ownership. The key thing is that alliances generate revenue by encouraging increased flow, and the example that I just gave you shows how that is developed.

A lot of focus has also been placed on the cost benefits that are provided through joint marketing initiatives. Think about Air Canada and their Star Alliance or about Canadian and their Oneworld alliance whereby they share lounges and frequent flyer benefits. There are a lot of elements there for which they can share with their alliance partner the indirect costs of providing the services. They can also permit joint purchasing of aircraft and equipment, although I'm not aware of where that has taken place.

Consumers, especially business travellers, are attracted by the global network of destinations and enhanced scheduling and by the perception of one airline. I think it's probably more than a perception because, again, the alliance partners work hard to coordinate their scheduling and to provide a very smooth transition to the consumer from the point of origin to the point of destination even though it involves a connection.

I have just a little bit to say about the alliances to which our carriers are a party. Air Canada, as you all know, I think, is a member of the Star Alliance, with Air New Zealand, Ansett Australia, United Airlines, Lufthansa, Scandinavian Air Systems or SAS, which is the Scandinavian air carrier, Thai Airways, Varig, and most recently ANA of Japan. There are others we know of that are considering joining Star.

Canadian Airlines is a member of the Oneworld alliance with American Airlines, British Airways, Cathay Pacific, Japan Airlines, and Qantas. Again, I understand that FinnAir and Iberia are also considering joining Oneworld; I think it's just a question of timing.

How do alliances benefit Canadian carriers? Well, as we've talked about—and you heard the statistic about how large Canadian carriers are relative to some of the other carriers in the world—it's not viable for them to mount direct own-aircraft services to all these points. That's primarily related to the small population base we have in Canada relative to a lot of these other markets. When you code-share with your alliance partners you're effectively eliminating the risk of starting a new service or expanding an existing one, whereas at the same time you have access to those markets by code-sharing with your alliance partner.

My next sub-bullet point is really an important one. It relates to the observation made by our chairman a few moments ago with respect to the size of Air Canada and Canadian relative to other carriers in the marketplace. Air Canada and Canadian Airlines are convinced that their future viability is, to a large degree, dependent on their participation in these alliances by virtue of the fact that you can access basically any city in the world. That is their goal: to expand their network and their access and to coordinate their schedules.

In a nutshell, that summarizes the main benefits.

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There are also some other points. One is that the alliances allow Canadian industry to exploit our geographic advantage by bringing U.S. traffic through Canadian airports to Asia and to Europe. This builds the volume of traffic on the Canadian carrier services from Canada to Asia and from Canada to Europe. Conversely, it works for the U.S. industry. In any alliance there have to be benefits for all parties, and the U.S. industry participates in some of our markets by taking Canadian traffic to Central and South America via the U.S. You just have to look at the geography and see how that makes sense.

This last point is a question that was raised previously, and I'm not sure if it's still of interest: how do airline alliances affect our route allocation process? You will recall that we had talked about a “use it or lose it” policy and the fact that carriers are encouraged to make bids on unused routes. The fact that a carrier is participating in an airline alliance can significantly increase the strength of the proposals that it is making. For example, American Airlines and Canadian Airlines serve Toronto-Miami five times a day; in the absence of cooperation between Canadian and American on that sector, the service might be a lot less frequent.

Another example is that Air Canada is now able to operate a daily code-share service to Athens via a code-share arrangement with its partner, Lufthansa, via Frankfurt. In the past, Air Canada was not able to sustain even a very minimal level of frequency to Athens on a direct-service basis.

In the end, the ability to have an alliance partner and work with it enhances the attractiveness of a carrier's proposal to government and gives it a greater opportunity to secure the benefits of a designation under a number of our agreements.

The Chairman: Thanks, Mr. LaFleur.

Mr. Larry LaFleur: That concludes my part.

Val.

Ms. Valérie Dufour: At the end here we have a number of questions that were raised in the last round of appearances before this committee, and the concerns about cabotage.

What's interesting about the alliances is that carriers who felt they could never grow have now found a way to grow. They've found a way to get around commercial restrictions in terms of access because they hand off to each other in their global alliances, and they can do it with a minimum of equity participation; they just work together to get the most efficiency out of the system. It makes cabotage far less attractive because you have your home-base carrier do all the work on the home base and then you hand off at the most efficient point to your partner. It's all designed for that seamless transportation that we keep hearing about.

In fact, there's less incentive. You won't find a lot of carriers insisting on the need for cabotage because they have better deals now by doing the things they do best rather than trying to horn in on somebody else's turf and make a little space. You have to build your credibility as a carrier; people don't just get on you because you're there. So everybody is protecting their home markets and that's part of what we have to appreciate about Canadian operators. They want that strength in their home markets because that's their best marketing tool with respect to being invited into the alliance and playing their roles.

That's the final speech from me.

The Chairman: Thanks, Ms. Dufour, but “better” or “different”? If cabotage were an option, I'm not sure how long an alliance would last. If cabotage is suddenly going to crop up in Canada or is going to be permitted in the United States, then of course an airline is going to be very competitive. An American Airlines, say, would be very competitive in the Canadian environment if they had full cabotage opportunity. They would have to look at their bottom line to determine whether or not a membership in an alliance would serve them as well as going it alone with cabotage rights in Canada. Then that brings on a whole slew of new problems, of course. So if they're thinking that if even cabotage came along we wouldn't have to worry, because they're happy as an alliance, I don't really think we could come to that kind of conclusion.

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Ms. Valérie Dufour: This is the sort of thing it's best to speak to the carriers about, because they will have their views.

The Chairman: Yes. But you were the one who said how wonderful the alliances were and how cabotage really doesn't figure in any more. Well, it doesn't figure in because it's not allowed to. But if it were allowed to, I'm not so sure the alliances would hang together.

Ms. Valérie Dufour: Yes, you're quite right, sir, you might in fact affect the value of the alliances. The alliances were a way to create these intercontinental systems of services in substitution for flying into foreign countries on your own.

The Chairman: Exactly.

Mr. Asselin, you were on the list.

[Translation]

Mr. Gérard Asselin: You state the following on page 33 of your submission:

International air fares have not kept pace with the rate of inflation—in some cases, they have actually decreased.

The average air fare paid on the Montreal-Paris route decreased 26 per cent between 1987 and 1997.

Of course, these are international routes. However, during this very same period, the air fare charged on the Baie-Comeau- Montreal route increased, keeping pace with inflation. As you yourself acknowledged earlier, the inhabitants of a region like the North Shore must have access to health care and to professional services and must be able to travel to large centres, which can be a costly undertaking.

After inquiring of both Air Canada and Canadian, I received the same answer from both carriers: air fares are high because passenger traffic is low. However, passenger traffic is low because air fares are too high. It's the classic question of which came first: the chicken or the egg? I learned that the Chamber of Commerce was concerned about the future of regional air carriers.

NAV CANADA saved $65 billion by cutting services at regional airports. The people who live in the regions are the ones responsible for generating these revenues now being awarded as subsidies to Canadian and Air Canada. Shouldn't these savings be used to maintain reasonable, competitive air fares which would benefit the people in the regions who need to travel to the large urban centres?

[English]

The Chairman: I'm not sure this is the group we should ask that question, Mr. Asselin. That's more of a policy decision than an information question. But I'm sure that would be a good question for, say, the Minister of Transport when he appears before us a week from tonight.

[Translation]

Mr. Gérard Asselin: I agree, but perhaps Ms. Dufour could answer that question, until such time as we hear from the Minister?

Ms. Valérie Dufour: I'd just like to clarify a few things. NAV CANADA has been fully privatized and now operates on a cost- recovery basis. I see no connection between Parliament's decision to privatize NAV CANADA and to assign it this particular structure and the policy framework at issue here today. We are confining ourselves to this policy framework. I wouldn't establish the same kind of connection that you're making, as far as airports are concerned.

You're implying that there is some correlation between the revenues collected and the subsidies later awarded to others. The current system does not provide for government subsidization of services.

Mr. Gérard Asselin: My next question is unrelated to my previous one.

In your opinion, would the merger of Air Canada and Canadian result in higher air fares in the regions?

[English]

The Chairman: Again, I don't think it's an appropriate question for departmental officials. What you can do is ask those questions of, this time, Air Canada or Canadian, or even Onex, the ones who are proposing their particular deal, or of course Air Canada when they appear before us with the deal that we just received a press release about today. They're probably more for them, Mr. Asselin, than for the department. Thank you.

Val.

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Ms. Val Meredith: Thank you, Mr. Chair. I want to follow up on the questions concerning the alliances.

Would it not be fair to say that we have an international war going on between the two largest alliances, with Canada being the battleground? A question I have for you is this: is there a danger for Canadian consumers if there's only one alliance in the Canadian air industry? A second part to that is would cabotage not offer a competitive aspect in the marketplace that would bring airline prices down? First, is there a danger with one alliance serving all of Canada; and two, wouldn't cabotage be another vehicle...? Yes, it may bring in problems, but I would suggest it brings in other issues that we need to deal with, and might it not address some of the competitive requirements of the Canadian travelling public?

Ms. Valérie Dufour: I'll answer the first in a way you won't expect. I won't answer the second one; I think that's for the carriers to tell you.

Right now we have at least two alliances operating in this country, but there are no interdictions on other alliances and it's entirely conceivable, in a dynamic commercial environment, that our other surviving carriers can have code-sharing and alliance arrangements with not only those two but others. There are now three or four. There's one called Wings, and there's a Delta-Air France one. It is conceivable that carriers that see a different commercial environment in Canada in the future will seek those types of alliances. It's never a closed story; it's more of an open story, because we don't impede those sorts of opportunities.

The Chairman: Is that okay, Val?

Ms. Val Meredith: Yes.

The Chairman: Thank you, Val.

Anyone else for questions? Colleagues, thanks to you for your adherence to the time guidelines that we set ourselves. Because of you, we had four and a half hours of committee hearings and 44 interventions by all of us. So we made good use of our time.

Because you've done this, we will not need to meet this afternoon, because we are wrapped up with the officials. So our next meeting is tomorrow afternoon, because we are with our caucuses in the morning. Tomorrow afternoon the Air Transport Association of Canada is appearing before us. Please check your e-mail and have your staff check with the clerk to the find the location of that meeting. We're still in the throes of debating who should sit where.

I want to thank especially our witnesses, Ms. Dufour, Mr. LaFleur, and Mr. Mainville, for their quick response to our request to come back to this committee. It's a different Standing Committee on Transport every time it's reconstituted with new membership. It's always good to make sure we're all asking questions from the same songbook. You'll appreciate that what may have been repetitive for you is very fresh for many of us on the committee.

I thank you for your indulgence and your appearance here today. The information you have provided us with of course is invaluable and you were very thorough. Thank you.

Ms. Valérie Dufour: Thank you very much.

The Chairman: Thank you, colleagues. We'll see you tomorrow afternoon.

This committee meeting is adjourned.