TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, April 4, 2000

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[English]

The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good afternoon, colleagues.

The Standing Committee on Transport is meeting pursuant to an order of reference of the House dated March 31, 2000, consideration of Bill C-26, an act to amend the Canada Transportation Act, the Competition Act, the Competition Tribunal Act, and the Air Canada Public Participation Act, and to amend another act in consequence.

Appearing before us this afternoon is the Hon. David Collenette, Minister of Transport. Minister, thank you for coming before our committee to give us a heads up on the legislation, Bill C-26, and to answer any questions we will have for you. Please introduce those you have brought with you from the department when you're comfortable, sir.

Hon. David Collenette (Minister of Transport): Thank you very much, Mr. Chairman. It's great to be back again, after just three months' respite, with the transport committee to talk about airlines. As you know, my officials are here and my deputy minister, Margaret Bloodworth. Monsieur Jacques Pigeon is the chief legal counsel for the department. Valérie Dufour is one of our heads in the air policy secretariat—I think I've got that right. They'll be pleased to answer questions as well.

This, of course, is the next step in the government's response to the process of airline restructuring. The bill we have before us is the next step. With this bill, the government is going to put in place a legislative structure that responds to the very momentous changes that have resulted from the process of airline restructuring. Of course, we know the result of that has been the emergence of a single dominant carrier, with a complete monopoly on some routes, in place of two national carriers competing across the country.

Therefore the overriding objectives of the legislation are to protect consumers, to protect communities from monopoly behaviour, and of course to promote competition.

[Translation]

Since the process of airline restructuring was launched last August, I have sought advice from many sources on how these two objectives might best be advanced if a dominant air carrier were to emerge in Canada. I want to thank all those who made submissions or recommendations, either publicly or privately. Their contributions have aided the government materially in formulating the elements found in Bill C-26.

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In particular, I want to thank the Commissioner of Competition for his recommendations, which took the form of a letter to me that was made public. They figured prominently in the way we developed the details of our subsequent policy, found in the Policy Framework for Airline Restructuring in Canada, issued last October, which is our plan for protecting the public interest.

[English]

I'd also like to pay particular tribute to the members of the standing committee, as well as your counterparts in the other place, for the deliberations on the policy framework I first made public at this committee last October—particularly in view of the timeframe constraints involved. I appreciate the conscientious and diligent manner in which you gathered views and made your recommendations.

I recognize that you went through a lot of work last fall, and I hope you don't feel encumbered upon to put in that many meetings and hours and hear that many witnesses this time. You laid the groundwork for this bill last fall, and I hope you will focus on certain key areas of great interest to all of us as Canadians, but specifically to the members of the committee, to try to improve the bill and examine its various provisions.

As you know, there was a considerable amount of agreement between the two committees on key issues related to fostering competition and protecting the consumer. Both committees, by and large, agreed with many of the principles outlined in the policy framework. In fact, in reading the committee's recommendations, I really was assured that we could count on considerable support from members of the House and the Senate for both the thrust and details of the legislation. So on most points, the government's response incorporates the recommendations you made to us last December.

[Translation]

Let me elaborate on the government's response to your recommendations in this presentation. As you already know, the government tabled its response to the Standing Committee on Transport recommendations along with Bill C-26 on February 17. Now, I want to explain the government's responses and to explain why it has chosen to act as it has.

Our legislation aims to accomplish two goals: to enhance consumer protection and to foster competition.

[English]

Let's turn now to fostering competition, because that is a prime goal of this bill. Under the broad heading of fostering competition are things like predatory pricing, airport access, frequent flyer plans, travel agent commissions, surplus aircraft, unaffiliated regional and charter airlines, computer reservation systems, regulations, and international air policy.

In some cases, the government has sufficient authority under existing legislation to give effect to the committee's recommendations. In others, the government implemented a number of the committee's recommendations by way of commitments and undertakings from Air Canada as part of the process of approval of its acquisition of Canadian Airlines. This bill incorporates, by reference, these undertakings in order to make them legally binding and enforceable.

Failure to honour any of these undertakings or commitments could result in the courts imposing rather stiff penalties. There's been some allusion to this in the press, as if we're singling out the airline industry. We're not doing that. The fact is these are penalties that are contained within the Competition Act, and what's good for bankers and any other business people should be good for their airline executives.

[Translation]

Amendments to the Competition Act are required to give effect to the Committee's recommendations only with respect to three points: predatory pricing; the exemption to permit travel agents to negotiate their commissions collectively with airlines; and the new merger review process.

[English]

I think you've covered predatory pricing in three of your recommendations, and we have accepted two of them.

Currently, the Competition Act contains provisions to deal with some types of predatory behaviour. The bill proposes to strengthen the Competition Act by adding the behaviour of airlines offering domestic services to the list of anti-competitive acts found in section 78; allowing the governor in council to define, by regulation, anti-competitive acts or predatory behaviour in the domestic airline industry; and giving the commissioner the authority to issue temporary cease and desist orders in cases of predatory behaviour in the domestic airline industry. These provisions recognize the need for quick action to prevent a dominant airline from engaging in conduct that would damage competitors or exclude them from the market.

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These changes were requested by Mr. von Finckenstein. We are obliging him in the bill, and we think we are nearing your thinking here. We cannot allow this particular issue of predatory pricing to go unchecked, because with the very sensitive environment we have now, with the WestJets expanding and some of the charter carriers, we cannot have a dominant carrier—notwithstanding the assurances from its executives—take advantage and put these people out of business. We have to encourage competition, and this is a big element toward encouraging competition.

[Translation]

The government chose not to impose any condition related to predatory behaviour in its approval of Air Canada's takeover of Canadian Airlines. All air carriers will be subject to the full application of the Competition Act in this area, including Air Canada from the moment of approval of the acquisition last December.

[English]

You talked about slots and have called for more slot regulations as the need arises. For the present, the government is satisfied that the undertaking made by Air Canada to surrender slots at Lester B. Pearson International Airport for assignment to other Canadian carriers will grant reasonable access to new and existing air carriers. Air Canada has already given up 28 slots every day, including at least two every hour from 7 a.m. until 9 a.m. and from 3 p.m. to 8 p.m., and they will give up an additional 14 slots if the company doesn't sell Canadian Regional Airlines.

So I've been assured by my officials that there are all manner of slots available during peak periods in the peak summer period this year. So there's no excuse for anyone who wants to offer services saying they can't get into Pearson at particular times. Those slots are available, and there is a slot-coordinating mechanism in play at Pearson, a committee where there's a bidding process, and it's worked rather well. So there are slots available for carriers if they want them.

But we have to monitor the implementation of this whole phase and use our existing authority under the Aeronautics Act to regulate if it becomes necessary. At the moment it doesn't seem that we will have to use that authority.

[Translation]

Concerning recommendation 7 of the committee about airport facilities, the government is satisfied that Air Canada's undertaking to surrender key facilities—such as loading bridges, gates and counters—at airports in Ottawa, Winnipeg, Montréal, Halifax and Toronto, as well as at numerous smaller airports across the country, will provide reasonable access for new entrants and services. Airport authorities will re-assign these facilities to other domestic carriers.

[English]

Recommendations 9 and 10 of the report concerned frequent flyer programs. I know you've been following the recent announcement by Air Canada of its plans to integrate Aeroplan and Canadian Plus, and as you know, Air Canada has undertaken to allow other carriers to purchase points in the frequent flyer program. In this way we will enable other Canadian carriers to compete with Air Canada on more level terms. It also accomplishes what the committee intended in its recommendation.

Recommendations 35 and 36 were on travel agent commissions. You know that Air Canada has agreed that incentive override commissions paid by Air Canada and Canadian Airlines will be on a straight line percentage basis applied to the travel agents' domestic revenue volumes and not on market share targets. This measure ensures that agents will not be penalized for booking domestic flights of new entrants.

As well, the government is proposing to amend the Competition Act to exempt travel agents from the conspiracy provisions of the act. This will allow travel agents to negotiate collectively with a dominant air carrier for commissions on domestic ticket sales and help level the playing field between the two parties.

I really appreciate your support for this particular measure, recommendation 36.

[Translation]

In your recommendation 11, you addressed the issue of surplus aircraft. Air Canada has agreed to make all surplus aircraft available for purchase by Canadian air carriers for a three-year period as part of its commitments to the Competition Bureau on December 21. It has also agreed to use an arbitrator, if necessary. This covers recommendation 11 of the committee.

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[English]

Recommendations 12 and 13 concern interlining and code sharing. Air Canada agreed to enter into interlining and joint fare agreements with any Canadian air carrier upon request in accordance with international air transportation standards. This will allow consumers to save money by avoiding the requirement of buying two tickets for a trip necessitating a change of airlines.

This is very important to some of the small airlines. I used a couple of examples in the House the other day: Bearskin, First Air, and Canada North. It means you can be in Iqaluit and book to Los Angeles from a travel agent there. You get a through ticket; you don't have to buy two tickets. You can travel on First Air to Montreal, then you get Air Canada to Los Angeles. So there's an interlining. You don't get any bonus points, unless of course First Air makes a deal with Air Canada to purchase such points, but it does allow you the same benefit as if, for example, Air Canada were to establish a subsidiary in the north and fly a competing service. You're not bound to travel Air Canada. You can support your local airline if you want to. And I think this is a very key provision that a lot of people really haven't focused on.

[Translation]

Air Canada will not be obliged to code-share with unaffiliated carriers as recommended by the committee in recommendation 13. This will remain a commercial decision of the airline.

[English]

Recommendation 14 deals with divestiture of regional affiliates. At the request of the Commissioner of Competition, Air Canada has agreed to offer Canadian Regional Airlines Limited for sale at fair market value in order to foster more competition on regional routes, including those served by Air Canada. If no purchaser for this particular item comes forward in the next little while, Air Canada may integrate Canadian Regional into its existing operations. Now, a cynic would say they've already done that. But that's the risk they take, because if it's sold, they're going to have to extract it out.

I assume the commissioner will give you more information on this, because this is a sale conducted under his authority, and I think he's coming to the committee next week. But I understand there has been some issue of determining the real value of this airline because of the way it was tied in to Canadian Airlines, hence the delay. But I think he'll tell you that the evaluation process and the offer for sale is proceeding as he envisaged.

Recommendation 8 concerns computer reservation systems. We agree with the intent of the recommendation on computer reservation systems. Later this year, my officials plan to review the CRS regulations with the carriers, the system operators, and the travel agents to ensure the regulations do not encourage anti-competitive practices, either in the process of displaying airline information or in relationships between air carriers and travel agents.

In regard to competition and international services, including charters, while this is not one of the committee's recommendations, I've taken steps to ensure that our progress toward more open and competitive international services will continue. In my letter to Air Canada of December 21, I outlined a series of initiatives related to scheduled international air services. These initiatives allow our two major carriers to rationalize their international services. They also open new opportunities for other Canadian carriers that want to expand their international services. I also indicated that a full review of the current international air policy, as it relates to scheduled services, will be conducted next year.

Last December, I also announced the intention of the government to liberalize our international freight policy. The new policy I've announced today will deal with some of those issues. I don't know if we have the release here. I hope we do.

We just released the international charter policy changes, which, in effect, will free the charter companies of many constraints in dealing with international services. It means the end of layover provisions. It means you can sell single-fare charter tickets. All of this will, in my view, be a great boon to the charter industry.

If we have copies for the clerk, we can get this copied and send it around to the members of the committee. I'm sorry, we should have had that for you.

Essentially, my logic here is that if we can help the charter industry expand in their core business overseas, then they will require additional capacity. In fact, some of them have already brought in additional capacity. I'm told—and I think it's public—that Canada 3000 is going to issue an IPO in June of $20 million, and I assume they will add some more to their fleet.

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As for what the charter carriers are doing, they offer not only international services, but they offer scheduled services. There are twenty cities now with scheduled services across the country, and this is competition to Air Canada. Most of them are the big cities, like Montreal, Toronto, Vancouver, Edmonton, Calgary, Winnipeg, Halifax, and Ottawa, but there are some places like Stephenville and Gander, Newfoundland. I don't have the whole list in my head, but there are small cities that also benefit from this.

So in addition to what WestJet is doing on the discount side, we are looking towards the international charter regime to improve the prospects of our companies, give a great break to consumers, including greater flexibility and better deals. This should make all the travel agents happy, as well as the charter carriers and consumers. You can have more services offered.

On reciprocal cabotage, Canada-only carriers, and modified sixth freedom, you came forward with all these recommendations. I thought about this long and hard. We want to achieve a healthy, Canadian-controlled airline industry, and our goal is to foster competition from Canadian carriers first and foremost, as I've just said, from the WestJets and from the charters, and from the smaller airlines, the Bearskins, the First Airs, the Time Airs, and everyone else. We're doing this by ensuring that the conditions for attracting competition from new and existing carriers are in place. It's far too soon, in our view, to decide whether or not Canadian carriers have responded adequately to the new situation thrown up by airline restructuring. Indeed, we have already seen new services launched in a number of markets.

We have to recognize that we're in a period of transition and that it may take a year or so before we have a clear idea of our new competitive environment. Should this not work, I'll be the first one to go down to Washington to start opening talks with my American counterpart to bring the U.S. carriers in. But as I said in the debate, one of the commentators who spoke a lot last fall in this airline restructuring actually knew what he was talking about, unlike some. In one article that I read in one of the newspapers, Mr. Jacques Kavafian, of Yorkton Securities, said that if the U.S. carriers under cabotage applied 3% of their existing capacity to the Canadian market, Air Canada would be gone within six months or a year. We can't let that happen. We've gone through hell in the last ten years with Canadian Airlines and Air Canada and all the disruption of service and the need for government support. We cannot now throw Air Canada to the wolves. We have to give this time to see if it works, and I think we will see some really positive competition coming forward in the next little while.

On protection for consumers,

[Translation]

our second key objective is to ensure that consumers enjoy effective protection. To accomplish this goal, we are proposing specific measures covering a wide range of issues, notably monopoly pricing, conditions of carriage, market exit, official languages and monitoring.

Let me begin with the subject of airfares.

[English]

Turning to air fares and your recommendations 22, 23, 24, and 25, we have chosen a less regulatory approach than what was recommended by the committee. It's one that proposes to continue to give all carriers the freedom to price as they want. As you know, section 66 of the Canada Transportation Act currently stipulates that the Canadian Transportation Agency can act on complaint to review passenger economy fares on monopoly routes and roll back fares or order refunds as appropriate. Amendments to section 66 will strengthen the Canadian Transportation Agency's powers to act to oversee pricing behaviour on monopoly routes. These are the routes of most concern to Canadians, especially those living in smaller communities and in the rural and remote areas of the country.

The first change is to make the definition of a monopoly route more precise, so that it captures those markets that are in most need of oversight.

[Translation]

We are proposing to give the Canadian Transportation Agency increased powers to investigate and remedy complaints respecting prices on monopoly routes. Instead of being limited to reviewing only those complaints related to the basic economy fare, it would be able to review all passenger fares as well as cargo rates. As has been the case since 1988, the agency would be able to disallow, or roll back a fare or a fare increase.

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The agency would also have the power to order a carrier to add classes of fares if they are found to be absent on monopoly routes, but available on similar competitive routes operated by the carrier elsewhere in the country.

We are also proposing that the agency have the authority to review prices, on its own initiative, for two years, with a possible extension of two years by the governor in council.

[English]

In other words, we're saying it's not good enough just to have somebody complain. A lot of people won't complain to the CTA because they won't want to see it through. We need to have the CTA there monitoring the situation and protecting consumers.

There have been some cynics saying this won't work, that it's going to be too complex. I've met with the head of the Canadian Transportation Agency, and I know she and her staff are working on ways to put this into effect. I assume you would have the chairman of the CTA here—I think that's appropriate, at some point—to ask her how she and her staff will address the particular situation.

So I think we've taken a tough but balanced approach on the issue. We want to provide added protection for consumers while ensuring that airlines are free to compete at home and abroad, which is still the best guarantee of reasonable prices. Consumers can direct their complaints to the agency and be confident that their concerns will be addressed. They can also take comfort in the fact that the agency can monitor the situation of its own accord and can take action as necessary.

On conditions of carriage, as a complementary consumer protection measure, the government is proposing to restore to the agency the authority to review the terms of conditions of carriage in domestic service. This covers such things as compensation for lost baggage or overbooking. It will allow the agency to ensure that carriers have and apply terms and conditions that are reasonable and non-discriminatory. It will also allow the agency to suspend, disallow, or require substitutions to those terms and conditions and to order compensation for expenses of passengers who have been adversely affected.

[Translation]

The airlines will remain responsible for individual complaints related to the terms and conditions in their tariff. The role of the agency will be to respond to complaints that these are unreasonable or discriminatory, which the agency can do currently for international travel.

[English]

This has been in the news in the last week or so, because there have been different people, including public officials, who have not been happy with the level of service they're getting from the airlines. I hope you'll look into this particular section, because if you come back with some further recommendations or ways to strengthen the bill, we'd be more than open to them. But we think we have gone as far as we need to go legislatively to effect these standards. There may be some things that I can do by regulation to smarten up some of the carriers and to protect consumers on some of the conditions of carriage, and I'd welcome the chance to look at those after study by the committee.

As you know, small communities composed one of our five principles in the whole restructuring issue. You agreed with this. Your recommendation supported the government's position in negotiating Air Canada's commitment to maintain service for three years. The government has gone further than the committee's recommendation because we believe Air Canada should remain at all points presently served for that period, whether or not new competition emerges. However, we are not prepared to obligate Air Canada to operate routes abandoned by independent carriers. You can only go so far. We are either into a free-market, deregulated world or we're not. We still believe that if there is a market, other carriers with the appropriate equipment and services will come forward.

[Translation]

Small communities will also benefit from our proposed amendments to the Canada Transportation Act. These would require an airline to give 120 days' notice if it plans to withdraw or significantly reduce service on a route. Currently, next-to-last and last carriers withdrawing services from a point are required to give 60 days' notice. We are proposing to return to the 120-day notice period in the National Transportation Act of 1988. The carrier will continue to have the right to seek the agency's approval for reduced notice periods.

[English]

There's a new provision requiring that any carrier whose departure or service reduction will affect more than 50% of the weekly seats offered year-round by all carriers on a city pair would also have to give notice. A second new provision would require that any air carrier who must give notice has to provide an opportunity for local elected officials of the various communities affected to meet and discuss the impact of the proposed reduction or discontinuance of service. This means there will be no surprises. It means local groups can deal with impending loss of service and can encourage others to come into the market.

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[Translation]

These measures are designed to minimize or prevent service disruptions, and to ensure that consumers and communities are well informed if there are any plans to discontinue or reduce service.

Let's deal now with the issue of bilingualism.

[English]

We stress from the outset that bilingual service is an overriding consideration. We support and will do what SCOT has recommended in recommendation 21: encourage all carriers to use both official languages because doing so makes good commercial sense, but also because both official languages are part of the very fabric of Canada.

[Translation]

More specifically, we are proposing to amend the Air Canada Public Participation Act to require that Air Canada ensures that its airline subsidiaries provide service to travellers, shippers and consignees in both official languages where there is significant demand. Air services on regional affiliates flying in eastern Canada would be expected to comply immediately following the passage of our legislation, which is very important for Quebec and New Brunswick, for example. Air services by affiliates in the rest of the country would be given one year to comply.

[English]

Canadian Airlines would have three years to comply from the time it becomes a subsidiary of Air Canada, with a possible one-year extension that may be granted later on, on a case-by-case basis. We're taking Canadian Airlines from a situation in which it did not have the same obligations as Air Canada had as a former crown corporation under the Official Languages Act. We're now bringing the Canadian Airlines staff and personnel within the ambit of the Official Languages Act, so it will require a little bit more time. But whenever Canadian Airlines and Canadian Regional replaces Air Canada or its affiliate on a route, there would be an obligation to comply immediately, as if the service was still offered by Air Canada. I think that's the situation in New Brunswick, where Canadian Regional has replaced Air Canada on some of those routes.

On the matter of monitoring, which you covered in recommendations 39 to 42, I'm proposing to take an approach a little bit different from that of the committee. I do not intend to appoint an ombudsman who would duplicate the work of the department, the bureau, and the agency. I think you also recommended waiting a year before launching a review. I don't think we can wait that long, and I don't want to set up the bureaucracy of an ombudsman.

What I propose to do—and what we have announced—is to appoint one or more independent observers very shortly to monitor, review, and assess the effects of airline restructuring on consumers, communities, airports, the airlines, and their employees during the next eighteen months, with an optional one-year extension if necessary. The observers will report to Parliament through me, and at the end of this exercise I would expect recommendations on all manner of things, including requirement for scope of any monitoring function for the future. There are all kinds of things that they can report on. Recommendations for further legislative and regulatory changes could also come from these observers.

[Translation]

This measure will complement the government's ongoing monitoring of the airline industry through Transport Canada's annual review and in-house monitoring, Statistics Canada's reports on data filed by the industry, and through the Canadian Transportation Agency's licence monitoring and complaint resolution procedures.

[English]

As well, Air Canada agreed that the Commissioner of Competition will review all undertakings made by the company on December 21 in three years' time, in order to determine whether any changes to the undertakings are necessary.

I'm almost finished, but your report was comprehensive, as you know, and I hope our bill and our reply are equally comprehensive.

[Translation]

From the outset, I insisted that fair treatment of employees must accompany successful restructuring of the airline sector.

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[English]

In response, Air Canada pledged that no involuntary layoffs or relocation of unionized employees of Air Canada, Canadian Airlines, or their wholly owned subsidiaries would occur for a two-year period. Air Canada will make its best efforts to conclude agreements with all the unions involved at both airlines to incorporate these commitments into their collective agreements. In fact, I think they just announced a deal last week with the CAW, and they're obviously looking for deals with the pilots and the flight attendants.

Once this occurs, Air Canada will have filled its commitment. The labour agreements will then be subject to federal labour legislation.

[Translation]

I will now move on to the issue of mergers and acquisitions, which was addressed in recommendation 37 of your committee. We are proposing to add a new section to the Canada Transportation Act which sets out in detail how the government plans to review mergers and acquisitions in the airline industry. This incorporates the three-track process outlined in the Policy Framework. It enables the minister of Transport to trigger this process if a transaction involving the airlines causes national transportation concerns. This guarantees that, in such circumstances, the minister of Transport can act to ensure that the governor in council has the final decision. If no such concerns exist, only the Competition Bureau would review the transaction. In all circumstances, the agency would exercise its mandated responsibility to assess compliance with the Canadian ownership and control requirements.

It is within this process that the penalties, mentioned earlier, are found. If an airline fails to comply with the terms and conditions of a transaction approved by the governor in council, it becomes liable to the enforcement provisions.

The bill also includes a transition clause that declares that any transaction involving the airline industry initiated since October 26 of last year is subject to this legislation.

In addition, an amendment to the Air Canada Public Participation Act deems the undertakings and commitments made last December to be terms and conditions of a transaction concluded pursuant to this new review process. This has the effect of making them enforceable as provided in the new section on the review process.

[English]

On ownership limits, we don't want to go as far as the committee recommends at this time with respect to foreign ownership. We do, however, make two changes to the Air Canada Public Participation Act with respect to ownership. The first provides for an increase in the limit on individual share ownership from 10% to 15%, as we announced in December.

[Translation]

The second will allow the governor in council to change the carrier's foreign ownership limit by regulation, as is presently the case for other Canadian airlines under the Canada Transportation Act. This will make it possible to change Air Canada's foreign ownership limits at the same time as the rest of the industry, without the need to amend the Air Canada Public Participation Act again.

[English]

We take the position that we do not want to increase foreign ownership at this time, but as you know, we have the legislative power to do this, so it can be done with the signatures of four ministers. We don't really have to move very precipitously on this. We just don't think it's necessary at this time.

On the issue of responding to your recommendation 29 dealing with the airports, without going into great detail, we're looking into the impact on airports. We think this can be handled over time, but we're not convinced the fundamentals of the program have to change at this particular point.

Other airport issues are being considered separately through the government's local airport authorities lease review, which is now underway. Safety is always our priority, and I won't go into great detail on that because we will not compromise one inch on safety.

In conclusion, I think this bill marks the best efforts of both the committee and the government to come forward with a way we can keep this new dominant carrier in check. It's very important that we have a legislative framework to ensure that the public interest is safeguarded.

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Again, not to put undue pressure on the committee, but we have to treat this bill as a priority. We've been delayed because of problems in the House in getting it here. I want to thank my colleagues in the opposition for agreeing to refer the bill to the committee after only one day of debate, with one speaker per party.

Failure to put this regime in place will expose us—not just the government, but Parliament—to a lot of criticism, because as Air Canada gets organized and starts feeling its way, there could be a tendency, notwithstanding their best assurances, to take advantage of consumers. We can't allow that. We cannot just take someone's word in this. We must have the legislative framework.

I'm asking for your help in getting this bill through quickly and giving me your best advice on whether or not the bill, as drafted, meets all of the goals.

Thank you.

The Chair: Thank you, Minister. On the heels of that very comment, I want to draw your attention to page 8. I just want to get one question in before we go to the rounds. I'm guaranteed one question.

Given everything you've just said about assurances for consumers, protecting consumers, etc., I'm just hopeful the section on monitoring can be chalked up to bad speech writing. In the second paragraph you say it is your intent to appoint one or more independent observers, but then later on you say they will report to you first and then Parliament. You say “The observer(s) will report to Parliament through me.” I take it they will be reporting to you first and then to Parliament.

The perception, of course, is how independent can an observer be if the results of what they learn go to you first, instead of the committee, a public forum, or that kind of thing. I suppose I read a contradiction in terms here, and I'm just hoping that given everything you've said about protecting the public, etc., you'll be able to somehow flesh that out a bit. What kind of independent observers are we talking about here? Who will they be, and will they be able to somehow report openly?

Mr. David Collenette: That's a very good point. If you're following the recommendation of the committee to appoint an ombudsman, then I assumed that person would report to Parliament and have their own bureaucracy. It would be a bit like the Auditor General. I just don't think it's necessary to get into that. You are, as I said before, duplicating the work of the Canadian Transportation Agency, which is an arm's-length agency, and the Competition Bureau, which is also an arm's-length agency. I don't think we should do that.

We also want to get this up and running very quickly. In fact, we've developed terms of reference and we're just now mulling over a list of people. Frankly, if we get people with credibility to do the job, their terms of reference will reflect their independence. They're not going to be mouthpieces for the department. If they are, I will look like a fool and the government will look foolish in this.

We want to get prominent people who have credibility. Because it's not being set up separately with an ombudsman under statute, they will obviously report through me to Parliament, but they're not going to be censored. They will be people of quality. They will not be minions for the department, but will be prominent people who will reflect independent thought.

The Chair: I suppose later we can get into the details of how these independent individuals will be nominated and put forward.

Mr. David Collenette: If you have names, give them to us right now, because we're working on it. Seriously, if you have any great ideas, let us have them.

The Chair: Great. Thank you.

Colleagues, because of the number of people who want to ask questions, we will go right to the five-minute round instead of the ten-minute round, so we can get as many questions in as we can.

Val for five minutes.

[Translation]

You're the ones who made that decision.

[English]

Ms. Val Meredith (South Surrey—White Rock—Langley, Canadian Alliance): Thank you, Mr. Chair, and thank you, Mr. Minister, for appearing before the committee.

I guess I heard from your comments that you are basically prepared to give Air Canada two years without any real competition. You mentioned in your comments that the penalties will kick in under the merger and acquisition review process.

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A number of concerns from the industry have come to my attention, and I'm going to let them bring them up. My concern is that if you're not going to allow real competition by opening up the foreign ownership component by removing the ownership limitation on Air Canada shares, then how are you going to prevent things from occurring that are already starting to show up?

Dorval Airport, the home base of Air Canada, is talking about refusing WestJet access to that airport, wanting to put them into Mirabel, which is not a prime spot. In Thunder Bay, because WestJet is in there, all of a sudden Air Canada's fares have dropped to meet WestJet's. That's the situation we had before that didn't allow these other carriers to provide the competition in the long term.

If you're looking at these penalties and the ramifications for not complying with this legislation to the merger and acquisition review, how are you going to prevent these kinds of situations from occurring? You have a dominant airline preventing other carriers, particularly the existing Canadian carriers, from actually establishing good, solid competition with them.

Mr. David Collenette: First of all, on the issue of penalties, the penalties for not complying with the deal negotiated between the commissioner and Air Canada are the ones I mentioned before. In the Competition Act they are well known. We've drawn attention to them to really say this is serious business. We expect Air Canada to not want to pay such a penalty and its executives not wanting to be charged and potentially being incarcerated.

On the issue of the pricing, you used the Thunder Bay example, and it's true. Air Canada, as I understand, is offering comparable fares from Toronto to Thunder Bay now that WestJet is there. What we have to make sure of is that the predatory pricing provisions in this bill go through so that we do not have an Air Canada driving down the prices and then somebody pulling out of a market and then they jack up the prices again. This is predatory pricing.

You'd better ask Mr. Milton whether he's making any money from Toronto to Thunder Bay, but I can't believe he's going to make any money on that. That's for him to answer.

The point is well taken. If you have competition, you get lower fares. What we're saying is that we want to give a period of time for this competition to develop.

You raised the issue of WestJet in Montreal. I have no evidence to suggest that the airport authority there would discriminate against a particular carrier. I understand you're having the CEO of ADM come to the committee next week, and I think you should put that question directly to her. We believe in ensuring competition, and we will not allow anything that will denigrate that competition we've fostered.

Ms. Val Meredith: My concern, Minister, is how do you kick in the penalties? Who's going to decide that Thunder Bay pricing of Air Canada is not simply competition but is predatory?

Mr. David Collenette: It's the Competition Bureau.

Ms. Val Meredith: Is it the Competition Bureau that's going to kick in the penalties?

Mr. David Collenette: The Competition Bureau is a very powerful institution. No business wants to run afoul of the Competition Bureau. In the most extreme case, you can see what's happened in the United States with the Microsoft decision by the United States authorities. I think Air Canada will think twice about infringing on these obligations.

The Chair: Thank you, Val.

Mr. David Collenette: The deputy wanted to add one point on that.

The Chair: If we're limiting the members to five-minute rounds, we have to ask for short answers from our witnesses as well.

Ms. Margaret Bloodworth (Deputy Minister, Department of Transport): I'll be short. I just wanted to note that on the predatory pricing, one of the things that's included, particularly for airlines, is the possibility of the commissioner doing interim injunctions, which is quite unusual, but it was his recommendation and we agreed because of the particular situation. Therefore he would be enforcing that.

The Chair: Thank you.

Joe.

Mr. Joe Fontana (London North Centre, Lib.): Thank you, Mr. Chairman, and welcome to the minister. Thank you for your bill, and thank you especially for this news release with regard to the international market, which was our recommendation number 19.

• 1620

I'd like to think, Minister, that our report was a little bolder in its vision in terms of where we wanted competition and where we wanted the airline industry to go, especially in light of the dominant carrier scenario. To tell you the truth, I thought it was more protective in this sense.

I must tell you, Minister, that I'm already getting worried, because so far what we hear since Air Canada decided to go with Canadian is that you have prices going up in certain sectors, service going down in an awful lot of communities, and anti-competitive and predatory behaviour already commencing by Air Canada. You might say it is good for the consumer to have a choice of whether it be an Air Canada ticket or a WestJet ticket, in terms of Thunder Bay. But you know what? That's the exact scenario that happened between Air Canada and Canadian.

Minister, I have some questions that relate to your approach. In your last statement, in your conclusion, you say you're not about to take anybody's word for it. We have to protect the consumer and make sure that in fact they are protected. Well, Minister, I'd like to think that most of your legislation does that, but I think you are relying too much on the word of Air Canada.

Some of the recommendations of the committee, especially as you relate to them, included allowing the governor in council to define by regulation anti-competitive acts or predatory behaviour. Maybe you can define what those might be. The fact is that it says the government chose not to impose any conditions related to predatory behaviour in its approval of Air Canada's takeover.

Well, Minister, we asked for a freeze for two years. You can monitor a freeze. With the exception of fuel costs going up or extenuating circumstances, it's easy to monitor a freeze.

I understand that airline flights change about 12,000 times a day. There are 12 classifications of seats. There are different seats on every aircraft. I'd like to know how you and the Competition Bureau, who can't even control gas prices, are going to be able to control airline prices. I'd like to know how you envision this. That's why we wanted to take a harder position with regard to pricing.

Secondly, with regard to interlining and code-sharing, you said “Air Canada will not be obliged to code-share with unaffiliated carriers as recommended by SCOT (13).” Mr. Minister, we were afraid that might happen. Maybe Lou Sekora will talk about this, but I already understand that where reductions of services have taken place in certain communities where there are unaffiliated independents, Air Canada is not being very cooperative in giving code-sharing and interlining agreements with those unaffiliated carriers, which means the consumer is getting screwed. It isn't Air Canada or anybody else. The consumer is the one who is going to suffer.

I wonder, Mr. Minister, if you can talk about how you're going to guarantee Canadians that Air Canada is not going to do predatory behaviour and that the prices are going to be reasonable. In my opinion they should still be frozen. How are you going to assure those communities where services are starting to diminish, such as my own city of London, Ontario, that this won't continue to occur?

Mr. David Collenette: First of all, on the services, I think you should ask Mr. Milton when he comes here to talk about the transition phase. I saw him yesterday, and the assurance he gave was that with the new schedule in effect as of Sunday, this is the first time they've actually been able to organize things rationally. A lot of these irritations and overbooking and lack of capacity that have been described to me by some will be addressed. I think you should address that to him.

Let's not forget that what you have in the bill is not only policy changes and legislative changes recommended by the department, but the entrenchment of a deal between Air Canada and the Competition Bureau. I would say that if Mr. Fontana doesn't like elements of that deal, such as the issue on code-sharing—there is no obligation for Air Canada to code-share—then he should address that to the commissioner.

The government was faced with a bankruptcy of Canadian Airlines within a matter of days and a deal that had been negotiated between Air Canada and the Competition Bureau. We thought he had made the best effort in a difficult situation within the constraints of the law, which he will describe in a failing-firm scenario, to get the best deal possible. We chose not to challenge that because to challenge it probably would have put Canadian Airlines into bankruptcy on Christmas Eve, and the government was not prepared to disrupt the lives of thousands of Canadian travellers and put workers out of work simply because there were elements of the deal that we thought could have been tougher that the commissioner could have negotiated. But I think you should address those questions to him.

• 1625

Lastly, you talked about the issue of a price freeze. Well, look at what's happened with fuel prices and the whole notion of those fuel prices being passed through. Let's assume we had frozen prices as of January 1. With the price of aviation fuel going up in the last couple of months, we would have had an even bigger problem. So the problem we have, Mr. Chairman, is that we have to have some balance here. We don't want Air Canada to go down the tube. We want it to compete with the world's best airlines, but we want it to be constrained in the best way possible.

Thank you.

The Chair: Michel Guimond, please.

[Translation]

Mr. Michel Guimond (Beauport—Montmorency—Côte-de-Beaupré—Île d'Orléans, BQ): Mr. Minister, before asking you a specific question on Bill C-26, I would like to come back to the anticipated appearance of Ms. Pageau-Goyette and Aéroports de Montréal before this committee next week, as you mentioned earlier.

In the House, you answered a question from the Bloc Québecois by saying that some revelations could be characterised as troubling and that you would be asking your officials to review the issue. Could you possibly tell us what information your officials have been able to obtain?

Ms. Pageau-Goyette will be giving evidence on the motion that I, myself, have moved and that was unanimously agreed to by all parties and all my colleagues to whom I am very grateful. She will be appearing next Tuesday, April 11. Would it be possible for you to give us this information so that we may prepare our questioning of Ms. Pageau-Goyette and ADM?

Mr. David Collenette: It is indeed troubling to see the CEO of a big Canadian airport being criticised by all of Quebec media. We have reviewed the facts and in our opinion, in the opinion of Transport Canada, there are no problems either with the management of flights or the management of the airport. As I said, the airport is doing well. Up until now, there had never been any problems with the lease between the Canadian government and Aéroports de Montréal.

But the actual administration has been questioned and SOPRAM is in charge of administration. SOPRAM is the group that is responsible for ADM's policy and it has a board made up of business representatives from the Montreal area.

As far as Transport Canada is concerned, I think that there is no problem with ADM's legal obligations to the Canadian government. But in my opinion, you are right to ask questions to Ms. Pageau-Goyette on the accusations the media have been making concerning management, the reports by Samson Bélair Deloitte & Touche and other criticism about ADM's performance.

You should be asking this question to Ms. Pageau-Goyette.

Mr. Michel Guimond: Mr. Minister, if I understand you correctly, the watchdog for the decisions made... You are the minister and you have made your bed when you introduced a bill and asked Parliament to improve it, to amend it or to approve it as is. In other words, the government made a decision when it tabled Bill C-26.

What is the function of the Competition Bureau? Earlier, in answer to a question by Mr. Fontana that I, myself, would have liked to ask... I also have examples that I would like to present. There is the case of Air Alma, which, after having been a partner of Canadian Airlines for 20 years in Bagotville, was told that after the month of April, once Air Canada takes over, it would not be needed. It is to be expected. Now that Air Alliance or Air Nova is flying to Bagotville, what would be the advantage of having a competitor?

Earlier, you told Mr. Fontana that he should ask his questions to Mr. Milton of Air Canada. I would rather expect you, or Transport Canada, to act as watchdog for the benefit of consumers and airline passengers. When you refer us to Mr. Milton of Air Canada, I worry because he is both judge and judged. Anyway, we will try to look into this situation.

• 1630

So, the Competition Commissioner will be the one dealing with complaints that might be presented regarding competition or services offered outside the main urban areas, for example. This is the reason why the committee recommended creating the position of ombudsman. You have refused to commit yourself, but the decision is yours. Maybe we will reiterate this recommendation by making an amendment to the bill. We'll see how the liberal majority will vote and whether our amendment stands any chance of being carried. An ombudsman would be much closer to the field than the Competition Commissioner.

If the commissioner acts as watchdog for all decisions made, why was he by your side at the February 17 press conference when you announced your policy? Not a single member of the media remarked on the fact that he was there, but I think it was improper for the Competition Commissioner to be sitting next to you in the National Press Building, at the press conference to announce the bill.

[English]

The Chair: Thanks, Michel.

[Translation]

Mr. David Collenette: Mr. Chairman, it is Mr. von Finckenstein himself who wanted to be at the press conference because he had made an agreement with Air Canada, a legal agreement that we have recognised on behalf of the Canadian government and that will be enshrined in the bill. Frankly, if you have any questions about the competition issue, you should ask them to Mr. von Finckenstein next week.

As I said to Mr. Fontana, what we had to deal with last December was the problem of the impending bankruptcy of Canadian Airlines. To avoid a bankruptcy and to allow services to be maintained in the communities, we had an independent third party, the head of the Competition Bureau, Mr. von Finckenstein, negotiate an agreement with Air Canada on the merger of the two airlines. It is in the best interests of both the staff and the passengers and it has also spared Canadian taxpayers some expenses. Those are the facts. This bill contains all the necessary means to maintain the competition level.

Who is the watchdog? Me, I am a watchdog on weekends only. Mr. von Finckenstein is the one whose role it is to be the watchdog as head of the Competition Bureau.

However, we ask you to approve the other measures that are provided for in this bill and that will give the Canadian Transportation Agency a greater control over fares in a monopolistic context. I think that this solution is fair for everyone: for the passengers and also for Air Canada, the employees and everyone else.

It is difficult. As I said, the merger has run into problems since December, but roughly speaking, things are going well. I know there have been problems, mostly in the small committees—Mr. Sekora has told me about some problems in Vancouver—, but Mr. Milton has assured me that there would be three direct flights between Vancouver and Ottawa and that there would be enough capacity for the MPs and others who have to travel out there.

I think that your questions about the level of service should go to Mr. Milton.

[English]

The Chair: Thanks very much.

Mr. Charles Hubbard, please.

Mr. Charles Hubbard (Miramichi, Lib.): Thank you, Mr. Chairman. The minister probably knows what's on the top of my mind, but I won't ask that first.

In any case, Mr. Minister, we're seeing here an air industry being dominated by one carrier, and Air Canada of course has tremendous powers in terms of the service they offer and the prices they charge. In owning Canadian Regional, Air Nova, Air Ontario, Air BC, and so forth; in dominating the domestic business; and in interlining with anyone wanting to travel from a smaller community to many of the international ways, we have to be concerned with the concept of a competition bureau, as Mr. Guimond has mentioned.

When you write to a bureau...and most citizens don't have a lot of confidence, privately or individually, in the Competition Bureau. Our committee recommended the concept of an ombudsman. Writing to a competition bureau is probably like writing to “Room 269 of the West Block”. But when you write to an ombudsman, you think there's either a woman or a man on the reception end who is going to respond to your concerns. I express concerns about this business and competition, and how long we can see what Air Canada might do.

• 1635

I've met privately in my office with British Airways, who are concerned with what's happened with their business here. If we don't have a proper alignment of all the different routes and airports that exist across this country and an opportunity for them to obtain service from a dominant carrier, and we allow Air Canada to have a great deal of power, certainly we're not doing a lot for the travelling public.

In one recommendation we had, I think it was recommendation 27, we talked about Inter-Canadian, which served Atlantic Canada and areas of Quebec. With that we were hoping that there definitely would be a statement about what communities served by Inter-Canadian in the past would obtain in terms of what Air Canada would offer. I believe Mr. Milton did say he was going to give some service back to communities like Miramichi and Charlo, but it's been from November until today and we still don't have service to those two communities. I believe there are some on the north shore of Quebec that are caught in the same way.

Mr. Minister, in terms of how we deal with this bill—and I know you did ask us to get it back to you as soon as possible—I would, as a member, certainly want to ensure that the travelling public is properly protected and above all that we have an opportunity to offer them a real way to deal with problems they might encounter in dealing with a monopolistic company that will dominate our airline industry.

Mr. David Collenette: I guess the question is how many institutions do we really want safeguarding the travelling public? We have the Canadian Transportation Agency, with powers that we are proposing in this bill to have enhanced. You have the Commissioner of Competition, who, in this bill, will be given cease-and-desist powers dealing with predatory pricing, and, as the deputy said, injunctive powers. You have the minister, who can allocate international routes and has power with the Aeronautics Act on slot control, gates, and things of that nature.

If you want to have another institution, another layer, another bureaucracy, it's going to take a while to get set up. I would say, with great respect, it's better to have some people appointed right now, independent people who have credibility with this committee and everyone else, to oversee this particular process. Maybe they'll come to the conclusion that you need an ombudsman in the long term as well. I would be surprised, because we do have the instruments with the department, the agency, and the Competition Bureau.

On the question of Inter-Canadian, that was really unfortunate, but Inter-Canadian was a company that was in financial difficulty well over a year ago. One could make a very good case that the principals involved took on too much of a liability. There were, I believe, four airports that were affected, where service ended. Two of them happened to be in your backyard, and that's very regrettable.

There is service from Bathurst—and I recognize it's a bit of a hike to Bathurst. I'm not sure how long it takes to drive from your community to Bathurst, maybe an hour or an hour and a half, maybe less than that.

Mr. Charles Hubbard: A lot more than that.

Mr. David Collenette: More than that?

Mr. Charles Hubbard: It depends. What we're talking about is a large geographical area. We talk about driving from the city, but normally most people drive 25 or 30 miles to what was Miramichi Airport, and it's another 45 miles or so to the Bathurst Airport. So we're talking, on New Brunswick roads, probably an hour and a half to an hour and forty minutes for most people.

Mr. David Collenette: Let me tell you about my backyard. There are seven million people around the golden horseshoe of Lake Ontario, and the seven million people have to use Pearson Airport and drive there. Now, that's changing with a service at Hamilton that has come about as a result of this restructuring. But if you live in Belleville or Cobourg and you want to go to Paris, Los Angeles, or anywhere like that, you have to drive through the traffic for two and a half hours, two hours at least, to get to the airport. If you live in Muskoka or other parts, it's the same.

All I'm saying is that there's a certain expectation of level of service that people expect, and unfortunately in your area, where you have three airports relatively close together, considering some of the distances that are travelled in other parts of the country, obviously this has come as a bit of a shock.

• 1640

I understand that an Air Canada subsidiary will start flights from Miramichi or Charlo to a point in Quebec, maybe Montreal.

I think that is something to emphasize with Mr. Milton. Unfortunately, it was not covered by the deal because Inter-Canadian was not a wholly owned subsidiary of Canadian Airlines when the deal was done between the commissioner and Air Canada.

The Chair: Thanks, Charles.

Bev Desjarlais, please.

Ms. Bev Desjarlais (Churchill, NDP): I have a couple of questions, but to make a point first in regard to the CTA and the Competition Bureau and push for an ombudsman rather than independently appointed persons, I think it's the confidence that's out there. There just isn't the confidence in the Competition Bureau or the CTA right now.

We had the situation we were in because the Competition Bureau or the CTA weren't able to do anything. In order to have confidence in a new process that's going to be taking place, Canadians deserve to know there is going to be someone out there really keeping an eye on the parties involved. Certainly the committee isn't feeling confident with the government agencies that are there, and I think we believe Canadians aren't confident either. So I think the point needs to be emphasized.

Mr. David Collenette: Excuse me, but I would just say you're not confident because they don't have the powers. We're proposing to give both the bureau and the agency the powers. If they have the powers, then I believe you'll feel a lot more comfortable.

Ms. Bev Desjarlais: I'm not convinced, but anyway, I think you know the committee is fairly strong on having a separate ombudsman there to deal with it.

The other issue is in regard to this legislation and the indication, of course, of the competition commissioner sort of working the deal out with Air Canada, and now hearing that really it's Air Canada that's kind of calling the shots, because we were in this eleventh hour of making the decision, right before Christmas. However, this legislation hasn't passed through the House as yet. What should happen now if it doesn't?

Mr. David Collenette: I can tell you that if the legislation doesn't go through, then the deal doesn't go through, and you're letting Air Canada off the hook totally. That's what you're doing. We have to get this bill through to legislate the deal the commissioner made. If we don't get it through—

Ms. Bev Desjarlais: So the Christmas Eve hour really wasn't the issue; it was just a matter of us having to take this deal because that's the deal that was there, and Christmas had nothing to do with.

Mr. David Collenette: No, the commissioner does have powers, but the commissioner negotiated this deal under the Competition Act and the government accepted that. We accepted it because it was a reasonable compromise in a very difficult situation.

There's no question that the best guarantor you have is to have legislation through that deals with pricing, predatory pricing, that gives the powers to the bureau and the Canadian Transportation Agency.

Ms. Bev Desjarlais: So how much leeway is there for this committee to come up with any amendments if Air Canada is calling the shots?

Mr. David Collenette: No, Air Canada is not calling the shots. There was a deal, a legal agreement, between the commissioner and Air Canada—I'll let the deputy speak on this—on the question of the failing firm, which is Canadian Airlines.

What we are saying is that there's all kinds of scope for legislative remedies in dealing with pricing and those areas of amending the acts under our control. We're asking you in this bill to pass those amendments to the Canadian Transportation Act.

The deputy would like to say something.

Ms. Margaret Bloodworth: First of all, let me comment on the Competition Bureau part of it.

There's no question that the Competition Bureau has powers under their existing act to pass a deal, including enforcing any conditions. It was the competition commissioner's choice and request that we also make his conditions enforceable under this law.

Secondly, when it came to the question of pricing on the high side and predatory pricing, it was a choice of those involved with us dealing with Air Canada not to do a deal with Air Canada on that but to have legislative powers, not just myself but also the competition commissioner.

So, for example, the competition commissioner does not have the powers on predatory pricing that are recommended in this bill, and if this Parliament chooses not to pass it, then he would not have that. It was his recommendation that it was necessary.

• 1645

On the high side, there are some high pricing provisions in the CTA, but they're quite narrow and restricted. It was our choice and the minister's choice that we should increase those, but not do it through a commitment by Air Canada pricing, which was another choice.

So there are several types of commitments. Absent any legislation at all, there's still power for the Competition Bureau to enforce his conditions through his law. He would prefer to have them also enforceable under this. But we would not have power to increase the powers on high pricing. We would not have the predatory pricing powers. It was a choice to do that through legislation.

Thank you.

The Chair: Thank you, Bev.

Murray Calder, please.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you, Mr. Chairman. I have two questions.

On the frequent flyer points, which is SCOT 9 and 10, the statement is made here that:

Air Canada has undertaken to allow other Canadian carriers to purchase points in its frequent flyer program.

What are the terms and what are the costs if they're going to allow somebody else in?

You have people who had offered services through Canadian. Now Canadian is an arm's-length subsidiary of Air Canada, and when it's eventually absorbed, these people are going to be left out in the cold. So Air Canada could be in the situation of putting them at such a disadvantage that it puts them out of business.

Secondly, dealing with SCOT 26 and 27, the 120 days' notice, that 120 days' notice is for a carrier that exists right now. It has probably been in business for well over a year, and I can understand that, but what about a new carrier coming in? They're going to be put at a disadvantage, that if they're into something, they still have to be there for 120 days. Would that not make a carrier that's looking at this say, gee, this is just one more impediment, I don't think I want to do this?

Those are two things I'm curious about.

Mr. David Collenette: I'm glad you raised that, because you're absolutely bang on. This was something of considerable debate in the department for the reasons he states. If someone is obliged to give exit notice of 120 days versus 60 days, they're going to be a little bit leery about going in, in the first place. But we felt that this was an acceptable trade-off, because we want to give communities some kind of comfort that they just can't lose their service within 60 days.

We believe it will work. We believe people will still go in. But at one point we were talking about even longer than 120 days. For the argument you made, we rejected that, because the longer the exit provision, the less likely someone will go into a new market.

On your question about Aeroplan and all that, I think you are getting two items a little bit mixed up here. There are, of course, the bonus points, the Aeroplan points and Canadian Plus. Air Canada is integrating Canadian Plus so that if you have Canadian Plus points, they will show up as credits with Aeroplan. They're doing that as we speak.

On the issue of offering Aeroplan points to other carriers, these can be purchased at commercial terms. I believe those terms are overseen by the commissioner. You should talk to him, because that was part of his requirements in his particular deal.

But I think you're also talking about what is known as Air Miles. I assume that the representatives from the Loyalty Group have been in to see everybody. They've been in to see me, and—

The Chair: They'll be back.

Mr. David Collenette: They'll be back.

Let's get it straight what they do. This is a private sector company that purchases seats at Canadian Airlines, some of them discounted up to 90%, and offers them to people who accrue air miles when they go and buy liquor, or buy at some grocery stores, or whoever else has the deal.

There is a particular problem with Air Miles, and I think we have to be very straight with it. The fact is that Air Canada is now saying, wait a minute, that is a commercial agreement with a company that we're taking over, which entered into it because they needed to fill their seats, but we don't need that particular service. As I understand it—and they can speak for themselves—they said, well, you have to come and negotiate a better deal because we think you were getting a deal that was too rich from Canadian Airlines.

• 1650

This is a commercial arrangement between two companies, and I think you should explore it with Mr. Milton. There have been some harsh words about this, and it may be the subject of legal action, so I have to be careful about what I say. But it's certainly something that has to be differentiated from the Aeroplan, the frequent flyer points that Air Canada offers.

Mr. Murray Calder: If I may go back to the 120 days, what would be wrong if this applies for existing carriers that are already there and if it doesn't apply for a new carrier that's looking at coming in? Is there a possibility of doing that?

Mr. David Collenette: That's a reasonable suggestion, and I think you should mull it over. That's something we could look at, and the committee should think about it. Thank you for raising it.

Mr. Murray Calder: Good, thank you.

The Chair: Thanks, Murray.

Bill Casey, please.

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

I'm kind of enjoying this.

An hon. member: We're not talking about roads, Bill.

An hon. member: Or Marine Atlantic.

Mr. Bill Casey: That too.

Mr. David Collenette: Air roads.

Mr. Bill Casey: You will recall that in the Friday debate about the bill I was disappointed that you had taken out our recommendation on the ombudsman and that I was going to move a motion that the exact same clause be put back in. In fact, I've already submitted it to the clerk. I said that, in the meantime, I had invited people to write me or fax me or e-mail me.

Mr. David Collenette: I remember that.

Mr. Bill Casey: Do you remember that? You stood up and suggested that I'd be deluged with complaints and that I'd need more staff. Well, I'm pleased to report that I'm not deluged, but we do have a consistent level of information and complaints coming in. They concern things like long lineups at the ticket counters, sometimes so long that people don't get on their plane; things like overbooking flights, where people are left at the airport; and things like delayed flights and long waits on telephone access. I don't think it's appropriate for the CTA or the Competition Bureau to be dealing with these complaints. Again, I think this is appropriate for an ombudsman, because these people who wait in long lineups and encounter overbooking can't go to another airline any more if they're flying on a monopoly flight—and there are a lot of them.

I think the ombudsman proposal is appropriate, and I would ask if you would be more inclined towards an ombudsman now. The only other person on your list here doesn't agree with the ombudsman, “who would duplicate the work of my Department, the Competition Bureau and the Agency”. I don't think these complaints are appropriate for the Competition Bureau or the agency, so who in your department should consumers call if they have a long lineup problem or a delayed flight?

A voice: Call Air Canada.

Mr. Bill Casey: It only leaves you.

Mr. David Collenette: Well, sure you can write to the minister. People do. In fact, in the last week I've just had a whole batch of letters in which people are complaining.

First of all, we have to try to step back a bit, because we have taken the number one and number two airlines in the country, we've taken 40,000 people, we've taken 350 aircraft, we've taken, in some cases, multiple terminals like those at Toronto, and there is a big logistics reorganization going on. There's no question that there have been some disruptions as a result of the consolidation, of the taking out of capacity. On the other hand, they've taken out 15% of domestic capacity, but they have applied a lot of that capacity to transborder routes in order to create new service opportunities for Canadians that will ultimately create new jobs and benefits in this country.

When Mr. Milton comes here, I think you should raise these issues with him. As I said, I raised them with him yesterday. The CTA has responsibility for many of the areas you've talked about, and I think you should raise them with Ms. Robson when she comes, along with the question of whether or not she feels she has enough resources and is competent enough to deal with some of these complaints.

But we are dealing with the re-imposition of the conditions of carriage on domestic flights that are still available for international flights on bumping and on lost baggage. I know you've had an experience with that, and I want to hear further about your experience with lost baggage.

Mr. Bill Casey: I'm sure you do. E-mail me.

Mr. David Collenette: This is not to trivialize this, because I think there are a lot of serious concerns, but let's give the benefit of the doubt in the short term to this huge logistics exercise that has gone on. Let's see whether things improve over the next few weeks.

I think the deputy wanted to say something too.

Ms. Margaret Bloodworth: I just wanted to note that one of the things the bill does is reinstitute the power of the agency to deal with the conditions of carriage domestically. It can do that internationally, but it has not been able to do it domestically since 1985. No, that would not deal with long lineups at the check-in counters—

Mr. Bill Casey: No.

Ms. Margaret Bloodworth: —but it would deal with things like bumping and overbooking. There are some measures there, and the agency does deal with complaints now. They can describe that when they come.

• 1655

Mr. David Collenette: Mr. Chairman, let's look at it from Air Canada's point of view. Does Air Canada want a group of irate travellers yelling and screaming in line, thus delaying the takeoff of a plane, which would then delay its arrival and could delay other passengers in other places? No, it doesn't want long lineups and it doesn't want to upset people unnecessarily. That's bad for business, and it's going to throw the whole schedule into disruption.

I would hope that you ask these questions of Mr. Milton in order to see if you can get assurances. Also, monitor it, because you're going to be dealing with this bill over the next few weeks and you'll see if things have changed as a result of the new schedule.

Mr. Bill Casey: I just want to add one other thing here. In your opening remarks you said that if a policy is good for bankers, it's good for aviation. You said that, and I wrote it down here. The bankers have an ombudsman for exactly the same thing, for lower-level complaints.

Mr. David Collenette: That's their ombudsman.

Mr. Bill Casey: I'm coming back to the fact that this was your recommendation, and it was our recommendation originally. And in the bankers' case, the bankers pay for the ombudsman.

Mr. David Collenette: You might want to ask that of Mr. Milton when he comes.

Mr. Bill Casey: Why don't you establish that? I find that Air Canada and all the other airlines do address problems if they know about them.

Mr. David Collenette: I think the deputy understands the way the bankers' ombudsman works, right?

Ms. Margaret Bloodworth: No.

Mr. David Collenette: No?

Ms. Margaret Bloodworth: I don't pretend to understand banks. I'm just saying it's quite a different proposition for organizations to set up their own ombudsman than it is for the government to set up another different organization. We're talking about a fourth organization that would now have the power to review an agency. I would just respectfully suggest that if there's not confidence in the existing ones, the answer is to fix them, not add another one.

As for adding an ombudsman, nothing stops Air Canada or any organization from doing that. I think some of the newspapers have them as well. But that's a different proposition than having government set up another bureaucracy to deal with it.

The Chair: Thank you, Bill. We have to move along.

Mr. David Collenette: Thank you, Stan.

The Chair: Just as an addition, I guess I started the ball rolling on this ombudsman stuff. In the public's perception, Minister, what we have is your CTA, your Competition Bureau, etc., and they're looked at as organizations that deal with complaints from companies to companies—Air Canada with Bearskin, or Air Canada with Canadian, more of a company-company thing.

Is there a toll-free line that a customer can call because of baggage or because they felt they were mishandled or mistreated in line or that the airline didn't look after them properly and that kind of thing? Maybe it's just a matter of communications. If it is, then maybe what we ought to hear, not necessarily from yourself but maybe from the other agencies, is exactly what their hands-on is with the actual people who buy the tickets and who get in line. They have a line, they have a secretary who takes messages, but if it's clear that their customers are not being looked after, an ombudsperson....

Even we're getting the perception here, I think, that to set up another level of bureaucracy...I mean, we're talking about one person with two staffers. We're not talking about creating another floor at the Department of Transport to deal with complaints in the airline industry.

Maybe it's a communications problem. Maybe we have to learn more about what the other agencies do and how they handle actual customer complaints rather than the airline-to-airline business. Maybe that's what we have to see.

Mr. David Collenette: Mr. Chairman, I think that's a fair point. That's why I think you should ask Ms. Robson and Mr. von Finckenstein for their views of how they deal with complaints under their statutory responsibilities.

The Chair: I'll ask Margaret Bloodworth, because she's the deputy minister. At the Competition Bureau or at the CTA, do they actually have a number or anything that we could—

Mr. David Collenette: Perhaps I could finish before we let the deputy speak. The fact is that there is, I believe, a provision within the agency right now. There is a toll-free line, and they do have a system in place already to deal with some of the complaints.

The issue of an ombudsman will not ensure service to small communities. It will not stop pricing misbehaviour or price gouging. It will not ensure enforcement of the undertakings that Mr. von Finckenstein made. That will only be done by the passage of this act.

After you talk to the other two people I've mentioned, I think you might be somewhat reassured.

Perhaps the deputy has something to say.

The Chair: That's okay. That's enough of that.

Lou Sekora, please.

• 1700

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

I watched TV one night, and after this agreement between Air Canada and Canadian, Mr. Milton said “Whatever city you talk about in Canada, I can give you some good news.” It's been anything but good news. I don't know what he was drinking, but I'll tell you something, I was really concerned with him making these silly statements.

Number one, in Vancouver, there have been three or four planes that have been cancelled. One thing that happens on a daily basis is there are cancellations; they cancel the plane you were on and they do not put you on another plane. They say, you've lost your seat, goodbye, make your own way. It's still happening. In Penticton, as I talk to you, Mr. Minister, the fact is that when he was talking about good things happening in Penticton, they didn't go to the city council; they didn't even go to anything else. They just eliminated the service to Penticton and put a Beaver on there, without talking to the council or anybody else. They just decided that it's the service they're going to get.

Really, I'm just saying what is coming through my office. I think Milton has gotten too big for his britches and he needs to be packed down a wee bit, and brought down to a size he should be.

I don't know what happened between them and British Airways, but it looks like British Airways is out of business because of what Air Canada is doing. I'm beginning to wonder how many people are going to fall for this Milton to be quite happy at what's happening.

It goes on and on and on. It doesn't get any better. I can go on for another half hour here, but I don't think I want to because I'm waiting for Milton to come in here. And I don't know if he'll come now or not.

Mr. David Collenette: I think you have the power of subpoena.

Mr. Lou Sekora: I realize that, but it's been a long time waiting for him to come here. I wish he'd be here very soon because I want to know how soon this disaster is going to end.

And I can tell you something, Mr. Minister, from me to you: I've used Canadian Airlines for many years, for many reasons, and the staff is totally different between one plane and the other. The courtesy that Canadian Airlines give you and the service and everything else is far superior to Air Canada. Air Canada has the attitude “We don't care” That's the attitude, and it irks me. If I could catch another plane out of Vancouver to Ottawa, I'd be willing to wait four or five hours to catch another air carrier that may be anything else but Air Canada. We need competition.

Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.): Lou, Canada 3000—

Mr. David Collenette: On the Toronto-Vancouver route—but that doesn't do you any good for Ottawa—there is competition, as Mr. Comuzzi was saying. There's 20% of the market now with Air Transat and Canada 3000. But it's obvious that you have some issues with Air Canada, and I think you should raise them with Mr. Milton.

After talking with you, Mr. Sekora, I specifically raised the point about the west coast flights, and I was told that the new schedule takes into account the concerns you've had, and those disruptions should be minimized. So I think you should raise that with him.

You raise the issue of Penticton. Penticton was a case in point where Air Canada actually broke its undertaking under the obligation of the deal negotiated with the commissioner. It was there, it was also in Sarnia, and there was one other place in the country—Sault Ste. Marie, I think—and our officials were monitoring it. We immediately got on the phone to them and said “Listen you guys, this is an infraction against the agreement”. To their credit, they dealt with the situation immediately. In fact, I was very pleased to see a letter from Mr. Hart, one of our colleagues from the Canadian Alliance Party, who thanked us for our quick action in making sure this situation didn't occur.

That's why we need this entrenched in the bill, because Air Canada didn't have the legal obligation—I suppose they did with the agreement negotiated with the commissioner, but we are entrenching this in the bill so that we can take severe action against them if they do things of this nature. But to their credit, once they found out that they inadvertently were in breach of the agreement, they reinstated the service.

The Chair: Thirty seconds, Lou.

Mr. Lou Sekora: No, that's fine. I'll wait for the next round.

The Chair: Roy Bailey, Joe Comuzzi. Roy.

• 1705

Mr. Roy Bailey (Souris—Moose Mountain, Canadian Alliance): I will perhaps be a little kinder, in that being a reasonable man, Mr. Minister, like most MPs I am going to look at my own constituency and my own area first. Then you start looking beyond that and phoning people you know in other parts of Canada. The good thing is that you can check the MPs when you come back here because they represent all parts of Canada, and you'll get a pretty fair consensus of what's going on out there—and that I have done.

I find, from my own little closet here, that most of the problems are in the interior of B.C. and on the coast. I find the Maritimes have more complaints perhaps than the rest of Canada, and I also find that there are some areas that are very positive towards what's happening.

To all members, though, I'd say that most of the people out there know what you're talking about with Bill C-26. There are three basic things: service, competition, and fair pricing. That's it. That's the language they speak. They don't talk any other language than that.

One of the complaints, the most common complaint we had, was this overbooking, and I tried to get a handle on that idea of overbooking. I haven't seen it personally, but I have talked to people, and of course there you have people saying it is deliberate. I said “At the present time what do they do to make it deliberate? Tell me about it.” They said “They're taking what used to be two 60-passenger flights and they're only booking for 100, and so on.” I don't know whether that's true or not.

I will suggest that what you have said, that no airline is going to do that, is the truth. But something happened. I'm not saying it was deliberate, but it is happening that people are being turned away and people are having to stay over at their own expense. Whether the airline has corrected that at the present time or not, I don't know. That would be the advantage of being able to pick up the phone and say “I had a ticket for a particular flight and I was forced to stay overnight. I was forced to take a hotel, and I wasn't treated properly.” To do that under the present set-up without an ombudsman—and I don't care what you call him. It's impossible to go through the other route as an individual.

The other concern I have, Mr. Minister, is there seems to be a concern among the flight attendants from Canadian. There's a kind of peace coming between the airline pilots as they move together that seems to be a little more compatible, but there's a genuine fear among the flight attendants of Canadian that they are not going to be accepted and they're going to be left out of this deal. I don't know whether there's any validity to that, but because we have so many people coming, we'll be able to ask those questions.

The last thing I have is that on page 10 of your briefing, in the second paragraph, you mention that four ministers can decide about the ownership limits. Then you say these ownership limits are to parallel those for the rest of the industry. Parallel the limits to what industry? What are you making reference to? To the airline industry?

Mr. David Collenette: On the last point, what we're doing is we're making the foreign ownership provisions that exist for every other air carrier but not Air Canada at the moment now apply to Air Canada, because they didn't apply to Air Canada. So this bill does that. In other words, the provision that allows the governor in council to go up to 49% foreign ownership—and we've only gone as far as 25%—will now apply after the passage of this bill to Air Canada. But what I was saying is that we will then have the ability to change it. If we want to go up 35% or 49%, that's done by order in council. An order in council has four ministers signing it off.

On your issue about the flight attendants, there are obviously cultural differences between these companies and there are inter-union rivalries. In fact, it's within the same union, the inter-union rivalries, and I don't propose to get into that. I think the union leadership of CUPE, as with CAW and the others, are mature people and they have to bargain in good faith to make sure their employees are looked after in this transition and they have to comply with Canada's labour laws. So I think that, yes, there will be some tough bargaining. I don't think that we, as members of Parliament, should be drawn into these labour issues.

• 1710

On the whole issue about capacity, I had a colleague who said to me the other day, “I always used to fly Canadian Airlines”—like Mr. Sekora—“and I never had a problem getting on a flight. Guess what? I was told I'd better get upstairs very quickly at Toronto and get my flight. I got up there and it took three minutes. You know what they did to me?” I said “They didn't do it to you; they didn't know it was you.”

The fact is the computer is programmed at Air Canada so that if you don't check in 20 minutes before flight time, your seat is gone. It's happened to me. Being delayed in the scrum outside the House, I missed my whole flight. This was in October. The fact is that over the last number of years we've had excess capacity, especially at Canadian. There hasn't been a problem, generally, getting on Canadian Airlines because they weren't filling their planes. This is part of the problem.

So it's going to take some behavioural changes on our part, and I'm one who has to change my behaviour. I used to arrive sometimes in Toronto seven minutes before a plane and knew I could get on a plane—Air Canada or Canadian. Now I'm pretty sure I have to be there at least 25 to 30 minutes ahead—I have to get through security. It's because the airlines want to know what seats are available; they want those seats to be filled, and there are standbys. So I think we have to change a little bit of our behaviour too, but I don't think it's too much to ask.

Again, in conclusion, I do think there is a shakedown period going on, and hopefully with the change in schedule, a lot of these problems will be eliminated.

The Chair: Mr. Comuzzi, please.

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

I guess it's fair to say, Minister, that you sense a certain uneasiness within the committee, and hopefully the committee members are thereby expressing what they're hearing in their communities.

Let me differentiate something just at the outset, Mr. Chairman. Whatever we're talking about has nothing to do with Canadian Airlines or Air Canada in the manner in which we see the airlines operating once the airplane gets off the ground. The safety aspects and the service and everything is absolutely consistent with what it was before. So we shouldn't get those two areas confused. What we're talking about is the other area, the ground side, or whatever.

We're unsure of ourselves, and you can only talk about local conditions. I've expressed this and I've tried to negotiate, but 37% of the capacity has been eliminated from Thunder Bay—we were talking about that—immediately upon the assimilation of the two airlines. One of the caterers supplying one of the airlines had to go out of business, not because he couldn't arrive at a contractual arrangement but because he couldn't talk to anybody—so he had to close his doors.

There is predatory pricing in the marketplace. Just this past week there was a full-page ad in one of the Toronto newspapers saying there were no restrictions and Air Canada would fly between Thunder Bay and Toronto for $199. We've gone through that experience before when Royal Air was forced out and could no longer compete with Air Canada. So that is happening.

I'm concerned about something Ms. Bloodworth said. She said we're trying to get injunctive relief. And that really comes down to my question. Injunctive relief, by its very nature, means you have to go through a court process in order to get some kind of relief. I know the CTA or the Competition Bureau can get injunctive relief, but you still have to prove that case. We always know that on the other side there will be somebody from whom you're trying to get the relief who is going to oppose your relief application.

All through this process, starting last year, I've always been concerned that the average Canadian hasn't got access to the facilities, and I have to say in all sincerity that I still don't think, given all of the protections in the legislation, that the average Canadian will have the protections he deserves when he is travelling with an airline.

• 1715

Having said that, I want to know what's the alternative if this doesn't work and how long it would take us to put the alternative in place.

Mr. David Collenette: I think those are very good questions. The first point to Mr. Comuzzi is that I don't feel pressured at all. I travel like everyone else does. Yes, I travel largely through Toronto, but some of these issues have arisen at that large airport. I know the frustrations Mr. Comuzzi and others have been feeling over some service in their local communities through what I call a transition period. A lot of these questions should be asked of Mr. Milton.

But let's take Mr. Comuzzi's first point, a 37% capacity reduction at Thunder Bay. Now, if you're going to reduce capacity at Thunder Bay—if Air Canada has, as he says—you don't do it because there are people who want to fly. You do it because there's too much capacity and we've had too many empty seats. That doesn't mean to say that there won't be seats for people, or it shouldn't, because it's not in the airline's interest to turn people away. They will gauge the capacity of their planes to the level of the market. What they're trying to do is have their loads closer to being full. That's good logic in any business. Whether you're running a bus line or trains or operating a movie theatre or a restaurant, you want to make sure your seating capacity is used.

So I don't think that should cause a problem. In the next couple of weeks, as the new schedule takes effect, I'll talk to Mr. Comuzzi to see whether or not there have been changes in Thunder Bay. Given what I've been told, hopefully there will be extra capacity.

I can't answer the issue about the caterer going out of business, but if that individual had written to me or if I had been aware of that, I would have taken that up right away with Air Canada to make sure that a caterer would be treated fairly. It's quite obvious that if you're going to reduce capacity, then some of the ancillary services will be reduced. I noticed that Hudson General in Halifax had to lay off some employees because again there aren't as many planes to be serviced. So we can't kid ourselves. This is causing some pain and heartache. But there was overcapacity, and that overcapacity we got used to was being subsidized by the shareholders—actually, the creditors—of Canadian Airlines and the shareholders of Air Canada in the mindless competition that went on for the previous 10 years.

Mr. Comuzzi talks about predatory pricing going on, and I'm sure he can give me examples. That's why we need tougher powers. That's why the commissioner has said “I would like this in the bill. I want cease-and-desist powers.” The deputy will talk about her use of the phrase “injunctive powers”. But Mr. von Finckenstein wants these powers so that we can deal with the very situations you described, which are hurting people and hurting companies, such as the Royal airline in the case of Thunder Bay.

The Chair: Ms. Bloodworth.

Ms. Margaret Bloodworth: Mr. Comuzzi is of course quite right that if you have to go and get a full injunction, that is a court proceeding. That was exactly the commissioner's point to us. So I'm glad to have this chance to clarify that. He says that's not sufficient. He has to be able to act more quickly. That's why the bill includes what's called cease-and-desist powers, which in effect is his ability to have an interim injunction, if I can use that term. He quite rightly pointed out that if there is predatory behaviour, not just pricing, by the time he can go to court and prove it to the tribunal and so on, it may be too late because the other company may be out of business or may have left the market. So this bill will include cease-and-desist powers to allow him to act pre-emptively. Of course, Air Canada will have its day in court, as will everyone else. But he has the power to act right away.

The Chair: Thank you, Joe.

Michel Guimond, please.

Mr. Joe Comuzzi: He didn't answer my last question.

The Chair: Sorry. Did you miss one?

Mr. Joe Comuzzi: What's the alternative we'll have in place in case this act doesn't work?

Mr. David Collenette: As I've said publicly, if competition doesn't ensue, I—if I'm still the minister—or whoever the minister is, will get on a plane and go down to Washington and start talks with the Americans, and we'll see if we can get reciprocal cabotage. I'm not sure that the American carriers would be in agreement with that and that the U.S. would agree. Maybe they would. Then the question is, do we ask for unilateral cabotage or modified sixth freedoms? Do we explore the wholly owned subsidiary issue?

• 1720

So there are the other remedies the commissioner raised, one of which the committee endorsed. No, I think the committee endorsed the three of them.

All we're saying is that we want to see if the competition can ensue within a specified period of time. I would say 18 months to two years. If not, the government—hopefully, we're in power—will then remedy the situation by inviting in those carriers. At that point Air Canada will be in a stronger position to deal with the competition.

The Chair: Just to clear the record, yes, they were endorsed by the committee. If there were talks on cabotage, sixth freedoms, etc., reciprocal or unilateral—I think we were more focused on reciprocal—anything that came out of those talks would be subject to CTA, Competition Bureau, etc., examination before implementation. So there were caveats to those discussions.

Michel Guimond.

[Translation]

Mr. Michel Guimond: Mr. Minister, in Toronto yesterday for the inaugural Air Canada flight between Toronto and Japan, you made the following statement:

[English]

My overriding preoccupation is to encourage domestic competition.

[Translation]

You were stating a general principle. It is as if I were to tell everybody that I would like to be canonised after my life on earth, even though I don't always behave as a saint. My friends would tell me that it's impossible. To cut a long story short, Mr. Minister, every time we ask questions on very real problems, you refer us to Mr. Milton at Air Canada.

We are up against an incredibly powerful carrier that might have a definition of competition quite different from our own. Also, it might not have the same sense of service quality that we have as elected representatives of the public. Let me give you an example. I've been told that in January, Air Nova's on-time performance was around 24%. That's what I have been told. Of course, you're going to tell me to ask Mr. Milton about it and Mr. Milton will tell me to ask Mr. Joseph Randell; then Mr. Randell will refer me to someone else still. Do you consider an on-time performance rate of 24% to be good service? Let me specify right now that I have checked the atmospheric conditions for the month of January and January has not had appalling conditions as far as winter storms are concerned.

I gave you those examples, Mr. Minister, to remind you that our committee's recommendation to appoint an independent ombudsman makes sense because people who use airlines would then have someone to listen to their complaints and to deal with them. I remind you that your own government has created an ombudsman position for the Armed Forces to which it appointed Mr. André Marin. This is precisely what he does.

Mr. Minister, you are telling us that you intend to appoint one or more independent observers over the next few days. If you do not want them to be criticised, make sure that they are truly independent, that they have no connection whatsoever with neither Canadian Airlines nor Air Canada, that they are not linked in any way to the liberal government, that they have never attended any fund-raising cocktails for the Liberal Party. Let me tell you right away all the arguments that will be used to attack their independence. I think that it would make much more sense if there were an arm's-length ombudsman appointed by Parliament, by MPs who have been democratically elected by the population.

• 1725

On page 8, you finally say, “I do not intend to...”. Ms. Dufour will probably have to look into this. In my opinion, the committee's recommendation has been misunderstood. You say:

I do not intend to appoint an ombudsperson who would duplicate the work... Likewise, I do not plan to wait two years before launching a review.

The committee did not ask you to wait two years before doing so. We said “no later than two years”. We didn't ask you to wait two years. We said not to take more than two years. The review could be launched right now. Your officials, the numerous advisers around you here did not understand what is meant by the words “no later than two years”.

[English]

The Chair: Thank you, Michel.

[Translation]

Mr. David Collenette: I think that it is a matter of language. We say that we are ready to ask an observer to begin a review immediately. Today you heard my fellow liberal MPs. Even they are insisting on good quality services. The liberal MPs would probably criticise us immensely if we were to appoint a friend of the Liberal Party, of Air Canada or of Canadian Airlines.

Mr. Michel Guimond: That's a poor example because the liberals want a different prime minister. Even our chairman wants a different prime minister.

Mr. David Collenette: Mr. Chairman, I can assure you that we will be appointing independent people, people who will make you proud Mr. Guimond.

You're talking about an ombudsman. I think that the committee's report did not make any suggestion about the powers such an ombudsman should have. Yes? Where? Legislative powers?

[English]

A voice: You monitor the commitments. That's a duplication.

The Chair: No, we didn't talk legislative.

Mr. David Collenette: In recommendation 42, what you're saying is create an ombudsman. What does the ombudsman do? He reports to Parliament and he monitors complaints. But where's the stick? There's no stick. In this bill you have the stick because you're giving the stick to Mr. von Finckenstein with the injunctive process, where he doesn't even have to go to court.

The Chair: No, no. My colleagues will call me wrong on this if I am wrong, but what we as a committee were trying to do was to have the ombudsperson there as the middle person between the consumers, etc., during the review process. Then the ombudsman could come back and report on all the problems that existed during the review process, so that at the end of the review process there would be something that could be identified as an ongoing problem, whether it's fares, communities being cut, etc. This would not only maybe rectify whatever the problem is between the customer and the airline, but in large part we would be able to liaise with the review in order to make sure that whatever the airlines promised they'd do would be carried out.

Mr. David Collenette: Right, but the enforcement powers of that ombudsman—

The Chair: We weren't looking for enforcement powers.

Mr. David Collenette: Okay. What I'm saying to you is that you have enforcement powers with the Commissioner of Competition and you should ask him about those.

The Chair: We agree with all that.

Mr. David Collenette: I understand you're going to have Ms. Robson here tomorrow. Let's see what she has to say about her authority under the act.

If you come to the conclusion that the CTA needs more powers, then let's talk about it. I'm not going to come down here with some big fiat and say this is it. The whole purpose of the committee is to identify some of these problems and to see whether or not we've missed anything in putting the bill together. I welcome this kind of discussion. It's a very frank, useful discussion. For anybody who's listening and watching, we know this is the job that committees do. They take a tough look at legislation. I appreciate these comments.

The Chair: We'll hear from many witnesses between now and then, and our recommendation will be reflected properly.

Joe Fontana.

Mr. Joe Fontana: Mr. Minister, we recommended that the CTA and the Competition Bureau have all the power. The ombudsperson was supposed to report to Parliament on consumer complaints, hopefully to do exactly what either the CTA with additional resources.... The CTA and the Competition Bureau have to look at gas pricing, have to look at every other industry in this country. I hope they will be given the resources in order to do that.

• 1730

Mr. Minister, talk about a stick. I'd suggest that the committee report was a stick, especially a stick at the temples of Air Canada and not necessarily a feather. I can understand that you had to make a deal, and that's perfectly fine.

Let me ask you something as an example. If you are to believe what customers are telling us now in remote communities or smaller communities where there isn't a company affiliated with Air Canada that needs interlining to ensure service to that community.... Northwest B.C. is an example. Right now you say you're not about to impose that upon Air Canada or upon anybody. You say that in your statement right here: “Air Canada will not be obliged to code-share with unaffiliated carriers as recommended by SCOT (13).”

Mr. David Collenette: That's code-sharing; that's not interlining. It's two different things.

Mr. Joe Fontana: I can tell you, Minister, that it is interlining too or code-sharing. I can tell you it's happening on the ground today.

What if we, as a committee, wanted to do that? Would that screw up the deal? Could Mr. Milton tell us to go and blow smoke? I'm just trying to understand. What role do we now have to play if there's an existing agreement between Air Canada and the government? That's supposed to be part of this legislative stuff and it's supposed to be referenced here. I haven't had an opportunity....

What if we wanted to make policy changes or amendments, which you might agree to, in order to strengthen the legislation? Are we at risk on this deal? What essentially can we do now? What part of this legislative agenda is being dictated by the agreement that was negotiated between Air Canada and the government or the Competition Bureau? Could I ask you that?

Mr. David Collenette: Under the Competition Act the commissioner had the authority to enter into an agreement. That is a binding agreement and the government is accepting that agreement. As the deputy said, at the insistence of Mr. von Finckenstein, we're putting this in the legislation to entrench it. From that point of view, unless Air Canada agrees and the commissioner agrees.... It's quite possible that there could be some things one would want to change, but you'd have to have everyone's agreement.

Mr. Joe Fontana: Let's say Mr. Milton agreed after hearing from this committee and the concerns that have been expressed to us about code-sharing or interlining agreement or service to small communities that had been abandoned by other unaffiliated carriers to introduce service. I suppose it would have to be voluntary on the basis of Air Canada. Even though the committee wanted it to be a condition of approval, obviously it wasn't. If he agreed, is that all that would be necessary?

Mr. David Collenette: There are two parts to this bill. There is the letter exchanged between the bureau and Air Canada. The only way you can change that is to get Air Canada and the bureau to agree. But the rest of the bill is like any other bill. If amendments want to come forward, they can come forward.

I want to come back to the earlier point you made about interlining and code-share. They're two different things. The section on interlining in the deal says that:

(a) Air Canada shall:

(i) enter into interlining agreements in accordance with IATA standards; and

(ii) in good faith, negotiate Joint Fare Agreements on commercially reasonable terms, in connection with such interlining agreements

You're saying you have examples in B.C. where that's not now being done. Air Canada is not legally obliged to do this until this bill is passed. That's why we need this bill passed.

Mr. Chairman, on the issue of Aeroplan, of frequent flyer points, that is something that is elected. In other words, if First Air wants to make a deal with Air Canada, they have to buy into the plan. It's a commercial arrangement. What should be the most concern to us as members is that with that small airline in B.C., you can go to the ticket counter and not be forced to fly Air BC. You can fly a smaller independent, but you can still get a through-ticket at the same price, with no penalty, that you would get if you went through Air BC. That's in the deal.

Mr. Joe Fontana: Mr. Minister, I will table with you letters from mayors in communities such as Kitimat, Terrace, and Prince Rupert, which already are starting to feel the effect because there are no good-faith arrangements and negotiations going on between Air Canada and the independents, who need access to the mainline service so that their customers can get to Paris, London, Ottawa, or wherever.

• 1735

Mr. David Collenette: I'm glad you raised that. I'd like to see those. You should ask Mr. Milton about that, and if that's the case then it's a violation of the agreement. You should talk to the bureau about that.

I talked to you earlier about the cases Mr. Sekora raised, where Air Canada inadvertently changed service that was inconsistent with the deal. In good faith, they reinstated service to Penticton, Sarnia, and Sault Ste. Marie.

The Chair: Colleagues, we've each had a round. Mr. St-Julien, who is a non-member of this committee, has asked if he can ask a question.

[Translation]

Mr. St-Julien, five minutes, please.

Mr. Guy St-Julien (Abitibi—Baie-James—Nunavik, Lib.): Thank you, Mr. Chairman. I want to ask one question.

Mr. Minister, in the Abitibi—Baie-James—Nunavik riding, we find the exact opposite of what is happening in Toronto. There are only 150,000 people, but more than 33 airports. With the offshore islands included, we cover one million square kilometres. The regional airport in Val-d'Or has 10 000 feet of runways.

On December 10, I tabled motion M-336 in the House of Commons, asking that the transportation legislation be amended in order to give the Canadian Transportation Agency the power to approve or reject all fare increases requested by a dominant carrier. That same day, I also tabled motion M-333.

On March 31st, at my office, I received a letter from Rémy Trudel, MLA for Rouyn-Noranda/Témiscamingue and also, if I'm not mistaken, minister responsible for the Abitibi-Témiscamingue. I answered on April 1st. Mr. Trudel was worried about Bill C-26 and he was saying that the airfares paid by consumers would be increasing because there was only one airline, Air Nova. I must say we also have Air Creebec and Air Montréal. Here is what he wrote:

... to permit access to Air Canada's reservation system, the same way that Bell has had to authorise use of its equipment following deregulation of long-distance service. It is imperative that your government deregulates in order to attract more competitors in air transportation in regional markets. Refusing to do so would send a clear signal that the federal government is desperately trying to strangulate Quebec and its regions.

The very next day, on Saturday April 1st, I wrote him back saying that we had acted. As far as strangling Quebec is concerned, here is what I had to say:

Hanging is no longer used in Canada, and strangling was never used, except perhaps in your writing, your pen being faster than your mind, and maybe also in the separatist philosophy.

Here is my question: will Air Canada's reservation system be accessible to other carriers in the same way that Bell Canada has had to permit the use of its equipment following deregulation of long-distance services?

Mr. David Collenette: As I have already told Mr. Fontana, an agreement was reached concerning interlining and joint fares. I have to reiterate that Canada must enter into interlining agreements that comply with IATA standards and negotiate in good faith interlining fares at reasonable commercial terms. When you live in a small community—I do know that your riding is huge and includes many northern communities—and you want to fly to Paris, for example, if you go by First Air or another independent company, you are entitled to make arrangements directly with your travel agent who will issue a ticket. You don't have to use Air Nova if this company provides the same service as Air Canada. If you prefer supporting First Air, for example, a company owned by Canadian aboriginal people, you would have the same rights as if you were using Air Nova.

Mr. Guy St-Julien: Is it the same thing for Air Inuit and Air Creebec?

Mr. David Collenette: Yes, no problem.

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

[English]

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

Colleagues, apparently there's a memo going around to all the committees now that there will only be a short five-minute bell for the vote that will take place at 6 p.m. sharp.

We have two people left on the list, Bev and Val. If you can keep your questions short, we can get some time in before the bell rings for just five minutes.

Bev.

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Ms. Bev Desjarlais: I just have a quick comment. It's sort of along the line of this 10% everybody's talking about and your mentioning that you have to get there early.

The 10% overbooking that's taking place has nothing to do with getting there 20 or 25 minutes early. It's something the airlines have always done, but because of the overcapacity, people really haven't noticed it much. They automatically book 10% over. For a plane with 100 seats, they book 110 seats.

Mr. David Collenette: But what's the reason?

Ms. Bev Desjarlais: In case people don't show, they want to have the plane filled. However, as a passenger, you get there and expect to get a seat. The bottom line is, you don't and you're left there. That's when they say “I'll give you $100, I'll give you $200, $300 or $400”. Hopefully the little kid crying to go see her grandmother gets on the plane, so you don't feel like you're a wretched soul, not letting them have your seat.

Those things are happening more and more. It's happened every single time I've been to the airport since this merger has taken place. Every single time, people have been in the situation where they're not getting on, or they're waiting to the dying minutes to see if they will get on.

If we don't have some way of resolving some of these issues, or ensuring passengers have the right to know that's going to happen, we're going to have more problems.

Mr. David Collenette: Again, let's not look at the last 60 days as to what will go on in the next 60 days. They have a new schedule. Ask Mr. Milton about this. But if you're running a business, you want to make sure you maximize your seating capacity, and the fact is there are no-shows. Obviously, if you're on advanced booking you know those people are going to show up because they won't get any refunds. But if you're on a business class ticket or a full-fare economy ticket, it means you can decide whether to stay over for another night or not. That happens quite frequently. Certainly with the business class travellers between the major cities, the airline overbooks because they know, on average, how many no-shows there will be.

I think over the last 60 days, because of the transition and taking out at capacity, that's been more pronounced. Obviously, it's in Air Canada's interest for that to end. I hope Mr. Milton will be able to mollify you somewhat on that.

The Chair: Thanks, Bev.

Val.

Ms. Val Meredith: I have two things I want to bring up. The first is on defining a monopoly.

When you have a monopoly route, a lot of smaller airlines are caught up in that, such as Bearskin and First Air. We can't look at monopoly routes as applying only to the big dominant carrier. In some instances we need to be a little more definitive as to what the rules and regulations are, so they know in advance what parameters they're working under, particularly in the northern and isolated routes.

There's another thing I want to throw in. You've heard all afternoon about passengers being malcontent—the problems they're having. There is talk about making stiffer penalties for air rage. I've had complaints about the treatment passengers have received from the airlines when they complained and made a fuss about the service. There is fear that the passenger isn't protected and the belief that the onus of air rage coming down hard on the passenger is all on the carrier's side. Passengers who feel, quite rightly, they aren't getting the service and complain about it are being marched off airplanes and away from the loading zones by RCMP or police officers. There seems to be no protection for them. Because they complain, it is being labelled as air rage.

I just hope any attempts to legislate will be put off until we get over this transition period and passengers are no longer feeling tension and anger about missing planes or overbooking, and all the rest of it. The complaints were there before we even started this exercise. I hope we're not going to advance that kind of legislation until this is over.

Mr. David Collenette: First of all, we have a committee looking at this. It may or may not entail amendments to the Criminal Code, but that's something apart from this particular exercise and this particular bill. We have to be very careful.

I raised this point with Air Canada pilots—the executive—who were in to see me last week. They said “Look, we think a lot of this can be handled by crews. We don't want the airplane to become so restrictive. We don't want armed guards. We don't want this to become an unpleasant experience.” They pointed out that the incidence of air rage is infinitesimal compared to the number of people who fly, and more and more people are flying. So I don't think we should overreact. I take your point there.

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On the question of monopoly pricing, there is a definition in clause 4 of the bill that proposes to amend section 66 of the act. I think you made a good point in the House the other day that in an effort to keep Air Canada on its toes, we don't want to unfairly squeeze all the small operators, like Time Air, for example, in Manitoba. They're a profitable airline. They fly to all the little communities and don't have any competition. I think that's something you should ask Ms. Robson about, because these are powers we are proposing to give to the agency.

Ms. Val Meredith: Thank you.

The Chair: Mr. Casey, you have 30 seconds.

Mr. Bill Casey: I can do it. I just want to ask if the department has a list of monopoly routes. If they do, will you make it available?

Mr. David Collenette: I think there are a lot of routes, and we definitely can answer that. But first of all you should talk to Ms. Robson tomorrow about the actual definition of monopoly routes and how she's going to pursue that. Do we have a list?

Ms. Margaret Bloodworth: The difficulty is all the schedules changed this week. I don't think we have a list yet, but we'll have—

The Chair: There's nothing fresh and new, anyway.

Mr. David Collenette: We've been working on one, so there's no secret. We'll get you a list if you want a list.

The Chair: Minister, deputy minister, and your officials, thank you very much for appearing before the committee.

Mr. David Collenette: Thank you.

The Chair: We hope that if we run into any stumbling blocks, we can call you back.

Mr. David Collenette: Any time.

The Chair: Thank you, colleagues.

The meeting is adjourned.