TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, May 26, 1999

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[English]

The Chairman (Mr. Raymond Bonin (Nickel Belt, Lib.)): I call the meeting to order and thank you for being here.

To our guests, there are some empty members' chairs, but there are many committees going on. When we have witnesses on this study, everything is recorded, and members get to read it the next day. They're probably sitting in other committees where they have to vote. So it's not a lack of interest, because this committee is very active.

Today, pursuant to Standing Order 108(2), we're doing a study on the competitiveness of Canada's air transportation system.

We're very pleased to have with us today, from the Air Line Pilots Association, Captain Lynch, president, with captains Hardisty and Adamus.

• 1535

I welcome you to our committee. As I say, you have an opportunity to influence the direction of our study. Everything you say will be recorded.

We're looking forward to your presentation. Please carry on.

Captain Michael Lynch (President, Canada Board, Air Line Pilots Association (International)): Thank you, Mr. Chairman.

I'd like to start off by thanking you on behalf of the Air Line Pilots Association and by describing who we are. The Air Line Pilots Association, International, or ALPA, would like to thank you for the opportunity to be before you today to discuss some of the issues regarding the competitiveness of Canada's air transportation system.

ALPA itself represents the professional interests of 53,000 pilots for 52 airlines in Canada and the United States. In Canada we represent a broad range of carriers, 11 of them in all, with a total membership of 3,300 pilots at the current time.

I'm president of ALPA's Canada board and a Canadian representative to the International Federation of Air Line Pilots Association, known as IFALPA. This is the worldwide federation of national pilots' associations. I'm also a captain with Canadian Airlines, where I've been employed for 31 years.

With me are two colleagues, Captain Kent Hardisty, who has been a pilot for 25 years, and Captain Dan Adamus, who has been flying for 16 years. Kent is vice-president of the Air Line Pilots Association, Canada board, and Dan is our legislative affairs chairman, based here in Ottawa.

I'd like to commend the committee for holding these hearings and undertaking an important and timely study. The sustained viability of Canada's air transportation system is important to all Canadians, particularly as the airline industry continues to globalize, a trend we all expect to increase in the coming years.

We at ALPA believe that by working together to address the critical issues facing the Canadian aviation industry and the government we can develop effective policies and strategies that will enable the airlines of Canada to compete effectively in the world market.

I'd like to focus on selected items from the terms of reference outlined by your committee, but first I'd like to give a little bit of background to show you where we're coming from and how we arrived at our positions.

In addressing the competitive position of Canada's two national carriers in the domestic, North American, and international markets, ALPA believes it is important to understand the size of the Canadian market and the environment in which we operate.

The Canadian airline market is very small in comparison with the U.S. and other markets. In 1997, according to the International Air Transport Association, the Canadian aviation industry carried only 13.7 million domestic scheduled passengers. That's in sharp contrast with Europe's 249.2 million and the U.S. industry's 589 million.

The contrast is further shown by comparing the percentage of domestic scheduled passengers with each country's population. In Canada, 45% of the population flew; in Europe, 64%; and in the United States, 218%. This means every American flew the equivalent of four trips a year. Our relatively small population as compared with the population in the United States and Europe has a significant effect on the extent of airline competition in Canada.

During 1998, net income slipped for both Canadian Airlines and Air Canada. Canadian posted a net loss of $137.6 million after a profitable 1997. Air Canada reported a net loss of $16 million, down from a $427 million profit in 1997. So the operating performance of Air Canada and Canadian Airlines shows how delicate the situations are, even in a relatively healthy economy.

Both of the two major airlines in Canada operate extensive regional carrier networks, or feeders, to support the flow of traffic on less dense routes and to smaller and more remote communities.

Over the past two decades, several events have detrimentally affected these feeder networks in Canada. I'll give you an example. WestJet Airlines, a low-cost, low-fare carrier, which operates mainly in western Canada, posted record earnings in 1998 of $14.1 million, a 34% increase over 1997. Additionally, WestJet experienced significant growth throughout 1998, increasing its available seat miles—in other words, its capacity—by 55% over its 1997 levels.

• 1540

Charter carriers are further fueling competition to major scheduled airlines as they continue to expand domestic services. Carriers such as Royal Aviation, Air Transat, and Canada 3000 now provide transcontinental, international, and interregional service. Their share of the passenger market has doubled since 1980.

According to Transport Canada's 1997 annual report, sourcing data from Stats Can, total passenger traffic by service in 1997 showed 11% for charter and 89% for scheduled service.

By the way, all these dates are the latest years for which complete figures are available.

The 1996 city-pair analysis of scheduled domestic and charter activity reflects the three top city pairs in Canada as being Toronto-Winnipeg, Toronto-Halifax, and Toronto-Vancouver, with respectively 28.5%, 24.1%, and 22.5% of the charter service.

The profit levels of Canada's major airlines have been pressured by the charter operators in markets where they provide overlap service. Much of this overlap service is in the leisure markets that cater to the vacation traveller.

Stats Can also reported 1996 operating revenues of $6.99 billion for scheduled passenger service compared with revenues of $1.6 billion in charter operations.

In transborder operations, competition was enhanced as a result of the Open Skies agreements between Canada and the United States, which permitted unlimited route rights between both countries in a phased-in approach. Coupled with the rapid emergence of global alliances among international carriers, the airlines of Canada are not guaranteed equal shares of transborder flying.

Under the aforementioned agreements, Air Canada maintains more frequencies than its North American Star Alliance partner, United Airlines. In June of 1998, Air Canada recorded 5,372 operations in the Canada-U.S. market, a substantial advantage over United Airlines' 1,000 operations during the same period.

A comparison on the basis of block hour—that's defined as the time gate-to-gate, basically, or terminal-to-terminal—for the month of June 1998 reflects approximately 13,000 block hours for Air Canada and 2,500 for United. In comparison, for the same month, the Canadian Airlines-American Airlines relationship shows 4,823 block hours for Canadian versus 5,121 block hours for American Airlines.

These figures illustrate that Canadian Airlines flies about 7% less on a annualized basis than its alliance partner, American Airlines.

As a leader in the transborder market, Air Canada enjoys a competitive edge in Canada.

Apart from United States and Canada transborder markets, international air travel is still highly regulated under agreements between Canadian and foreign governments. The Canadian government imposes restrictions on the international market whereby only one Canadian carrier can serve routes with fewer than 300,000 passengers per year. Each of our major airlines is established as the designated carrier to certain countries.

For example, Canadian Airlines is the sole Canadian-based provider of passenger service to the Philippines, Malaysia, and the South Pacific. Air Canada is the designated carrier to Spain, Germany, and Korea.

Under current government regulations, a second carrier designation may be made on routes sustaining greater than 300,000 passengers over a predetermined period of time. However, this policy can prove to be a drawback if there is no incentive to develop the market beyond a point near the 300,000 mark, since passing this level will lead to additional competition. As it is, competition is minimized among the major carriers of Canada with these guidelines in place. However, our airlines still must compete with foreign air carriers serving the markets to and from Canada.

That is by way of some background, Mr. Chairman. I'd like now to deal with some specific issues that are of concern to ALPA.

I'll start with foreign ownership. Current ownership laws limit foreign investment in a Canadian airline to 25% of the voting shares. While ALPA believes careful monitoring of foreign investment can preserve Canada's jobs and enhance the economic stability of Canadian carriers, we have concerns regarding changes that could transfer a controlling interest to a foreign entity. Ownership percentage and voting share rights must be synchronized to avoid the risk of an imbalance of a non-Canadian entity having control over a Canadian entity.

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It is also ALPA's firm position that government-owned foreign airlines should not be permitted to make significant investments in Canadian airlines. In general, government support of air carriers distorts the marketplace.

For example, a government-owned carrier is likely to favour its own employees over those of its Canadian partner, even where the employees of the latter airline may be cost-efficient. This could result in Canadian carriers losing both existing and newly created jobs to a foreign counterpart.

Our second issue, Mr. Chairman, is cabotage. ALPA does not support the granting of cabotage rights to foreign carriers. Cabotage is defined as the ability of an air carrier to transport passengers exclusively between two points within a country. Currently, almost no other country in the world allows foreign carriers access to this traffic.

ALPA views cabotage and foreign ownership as similar threats based on the potential impact each could have on a country. When foreign ownership rules are allowed to be changed or relaxed, then a nation could essentially be handing over its carriers to foreign interests, potentially sacrificing both an element of national security and reinvestment in that nation's airline industry.

Canadian citizens have paid, and paid dearly, for the infrastructure in our country. If we permit foreign investors to come in and claim our purely domestic markets, we have no control over where those proceeds are directed. Simply put, this brings no benefit to the citizens of Canada.

Our second point is airline alliances. As I mentioned earlier, foreign airline alliances have a considerable impact on the aviation industry today. Canadian carriers have seen an increase in international service and expansion, marked by an increased use of code sharing with foreign alliance partners. This has allowed Canadian carriers a presence in a vastly increased number of markets without requiring them to grow their own aircraft fleets, an opportunity that would be otherwise unattainable.

Perhaps the most beneficial aspect from a Canadian perspective of the emerging global alliances is the opportunity that a worldwide marketplace affords the airlines of Canada. In today's marketplace, there are currently four major global alliance systems—Star Alliance, oneworld, the alliance for excellence, and Wings. Air Canada has aligned with the Star Alliance, and Canadian Airlines is a member of oneworld.

In 1997, Airline Business Magazine's list of the “top 50” passenger carriers showed that the airlines belonging to one of these four alliances represent 65% of the world's airline revenue and 83% of its net income. The profit impact from international alliances is significant and growing.

I'll give you an example. United Airlines, an ALPA member, recently announced that of its 1998 operating earnings of $2.3 billion, about 10% was a direct result of the Star Alliance contribution. In addition, the two major carriers in Canada also rely heavily on the regional or feeder operations that I referred to earlier as domestic alliances. Indeed, the regional carriers are a major part of the corporate families, filling the need of feeding traffic to the major airline hubs.

ALPA does believe a strong regional support network is important from a labour perspective. We do, however, have some concerns about the impact of alliances on labour and on the crucial issue of job security.

Risks to pilot job security include: the whipsawing of one group against another; transfer of flying; diminished growth of the individual airline alliance partners; the transfer of financial resources; and changes in the corporate relationships.

Our goals include protecting current pilot jobs, ensuring growth for future pilot jobs, and ensuring the financial stability of our carriers. As airline managements have continued to establish and expand their global affiliations, so labour groups, particularly within ALPA, have responded by creating pilot alliances. These alliances have established bylaws, protocols, governance provisions, and some mutual assistance policies.

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Our next topic, Mr. Chairman, is Canada's airport management system. As the nation's major airports have devolved from government to private ownership, be it by corporate, municipal, or local interests, ALPA's position is, and always will be, that safety comes first. The safety of the pilots, cabin crew, and the travelling public is paramount to the operation of our nation's airport system. We are, however, conscious of the need for financial considerations, accessibility, and the infrastructure required to maintain airports. We are always prepared to work with airport managements to maintain and enhance safety and operational standards.

I can give you some examples of areas of cooperation. We are currently working with Transport Canada, through the Canadian Aviation Regulation Advisory Committee, or the CARAC process, to mitigate the problems associated with the introduction of SIRO, or simultaneous intersecting runway operations. As we recently told Minister Collenette, ALPA applauds Transport Canada's efforts toward the improvement of fire and rescue resources at all airports served by scheduled air services. Advancing this critical area of safety is a priority both ALPA and Transport Canada can jointly pursue, vigorously and with resolve. We also monitor changes to, or reduction of, communications services throughout the country.

Those are just some examples of our cooperation with industry and regulation.

The next issue is Nav Canada. Prior to 1998, air navigation service was provided by the Canadian government, and paid for through the air transportation tax, or the ATT. The ATT was eliminated on November 1, 1998, and Nav Canada implemented a new system of charging the users directly for these services.

These charges are direct operating costs for the airlines. Since recoupment of these costs will be in the form of an increase in fares to the consumer, the ability to recover them will depend entirely on the market. The increase in direct operating costs puts pressure on all aspects of airline operations, and can also result in demands on employees for increased workload in the form of efficiencies and/or wage concessions. This is particularly true of the major carriers, who provide safe, efficient, and regular service on a year-round basis to all the markets they serve.

Incidentally, we have supported and will continue to support the need for an ALPA pilot representative on the Nav Canada advisory board.

In closing, Mr. Chairman, I would like to thank your committee for its interest in the various issues relating to Canada's air transportation system. In addition to our abiding interest in aviation safety issues, airline pilots have always had a keen awareness of the relationship between the success of our own careers and the financial health of our airlines.

We wish to continue our cooperative efforts to bolster the financial health of our carriers in a fair and equitable manner while at all times ensuring the maximum level of safety for our passengers. Pursued intelligently, these goals need not be mutually exclusive.

We view this opportunity to speak to the committee as merely the first step in what we hope will be a long and fruitful dialogue on these matters.

At this point we would be pleased to answer any questions.

Thank you very much.

The Chairman: Thank you very much.

Before I go on to the first round of questions, you mentioned that you support and will continue to support having a member of ALPA on a Nav Can board. Do you have a member or are you pushing to have one?

Capt Michael Lynch: No, we do have a member. We've had a member on the Nav Can advisory board, not the board of directors, ever since its inception. We believe that's a very good thing, and we'd like to continue it.

The Chairman: Okay.

The other question I'd like cleared up is that there has been a lot of talk about cabotage. Have you been hearing things, or have there been indications that maybe Transport Canada is to ease up on this and allow it? It seems to come up a lot. Is there a major concern or is it something we just want to prevent?

Capt Michael Lynch: I'm not aware, personally or through the association, of any issues that are coming forth. We just make a very strong case that virtually no other countries do it. There are two in the world that do it, a long way away from North America.

It would have a very detrimental effect on the industry.

The Chairman: So that's the important point, to prevent it.

Capt Michael Lynch: Yes.

Mr. Stan Keyes (Hamilton West, Lib.): Preventative medicine, Mr. Chairman.

Voices: Oh, oh.

Capt Michael Lynch: Thank you, Mr. Keyes.

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The Chairman: We'll now have the first round, with five minutes, questions and answers.

I have Monsieur Guimond, Mr. Keyes, Mr. Morrison, and Mr. Cullen.

[Translation]

Mr. Guimond.

Mr. Michel Guimond (Beauport—Montmorency—Côte-de-Beaupré— Île-d'Orléans, BQ): I had the opportunity to raise that question on a few occasions. It was asked to other witnesses we heard since the beginning of our study. Our mandate is to do a study on the competitiveness of Canada's air transportation system. Of course, it may be difficult for a labour union to answer such a question, because there could be jobs losses. We all know that job losses mean fewer members, fewer subscriptions and less income for the unions. In your opinion, should our two airlines, Air Canada and Canadian Airlines, seriously consider merging their operations, as in France with Air France, in England with British Airways, in Italy with Alitalia and in Greece with Olympic?

Capt Michael Lynch: Thank you, sir. That's a good question. If I may, I am going to answer in English.

[English]

The question you pose is a good one. It's been asked many, many times.

Mr. Stan Keyes: All by the same party.

Capt Michael Lynch: The response is a very difficult one. Personally, I don't believe, and the association does not believe, we should have one airline in Canada.

Indeed, in the examples you quote, although there is a dominant airline in each of those countries, each of those countries does have a very great amount of competition within those countries. I could cite several carriers in Great Britain, in Italy, in France. There is competition throughout those.

I think recent experience has shown that having one carrier domestically in Canada would be detrimental to primarily the Canadian public. A recent work stoppage at one of the major airlines in Canada has only proven the fact that it's not a good thing from the point of view of the Canadian public, the travelling public, to have one carrier. I think competition would be lessened.

In the long run, one major carrier in Canada will outgrow all the others and will eventually force them into irregular service, poor service, or cut rates, whether or not they're organized by the association.

Beyond that, I don't believe I could go any further on that question.

[Translation]

Mr. Michel Guimond: I find it difficult to follow you. I am referring to page 7 of the French version of your brief. It's about the percentage of foreign ownership. We all know how important it is for the survival of Canadian Airlines at this moment. I don't mean that Canadian makes it a sine qua non condition, but the company is putting much emphasis on that matter. I compared the English and French versions of your brief. I am going to read you the French version, if you don't mind. I have some difficulty in understanding what you mean. Maybe it's not explicit enough. Anyway, in your presentation, you have stuck to your text fairly well. It says:

Le pourcentage de propriété et les droits sur les actions permettant de voter doivent être synchronisés afin d'éviter tout risque de déséquilibre [...]

What do you mean by that? Previously, you said that you had concerns regarding changes that could transfer a controlling interest to a foreign entity. What is exactly your position on that? You know about the request from Canadian and you are yourself a long-standing employee at Canadian. What is exactly your position vis-à-vis that request?

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[English]

Capt Michael Lynch: Thank you again, Monsieur.

I am still active as a pilot with Canadian, actually, but I do represent all of the airlines in Canada, under the Air Line Pilots Association, and I speak on behalf of them.

The point we're trying to make in our brief is that as much as foreign ownership in itself is not particularly detrimental to everything, we believe foreign control is. We'd like to maintain control of the industry within Canada for a number of reasons, one of them being financial considerations, jobs, that type of thing. The other one is the fact that if control is lost to outside the country, we believe Canadian carriers will not have the opportunity to go outside the country and have any growth if the control is from another carrier, a foreign carrier.

We don't mind who owns the airline, but we do object to its control going outside the country.

The Chairman: Mr. Keyes.

Mr. Stan Keyes: Thank you, Mr. Chairman.

Thank you, Captain Lynch, and gentlemen, for coming to our committee, and thank you for your report to the committee.

You're absolutely right, Captain Lynch; oftentimes the question of a one-airline policy has been asked, and oftentimes asked by the same member, which is good.

Mr. Michel Guimond: Is there a problem?

Mr. Stan Keyes: No, there's no problem. We get the same answer, as well, to the same question, so....

Mr. Michel Guimond: Yes, but from different witnesses.

Mr. Stan Keyes: You know, Mr. Chairman, I have to ask the presenter today, Captain Lynch—

[Translation]

Mr. Michel Guimond: Well, another fireworks display.

[English]

Mr. Stan Keyes: Maybe we could kill his mike, since he doesn't have the floor. He's very interesting, but not now.

The Chairman: I would ask him not to refer to other members' comments.

Mr. Stan Keyes: Oh, I don't mind. I can take it, Mr. Chairman. Mr. Guimond is a friend.

The Chairman: Some of us can take it, some of us can't. Let's proceed, please.

Mr. Stan Keyes: But I want to play devil's advocate with that for a second, because the rationale given by you and others who have come before our committee is that, well, you can't have a one-airline policy because of the impact it would have on fares across this country; can you imagine if there was only one airline in place, what the fares might be? And what if there's a strike, etc.?

But we can ensure that the airline industry keeps running, even if there is a strike. There are ways of doing that.

On the fares, though, I would draw your attention to page 4, where you give an example of WestJet Airlines, the carrier that operates mainly in western Canada, posting record earnings and experiencing significant growth in 1998, etc.

What do you think is the chief reason for that, Captain Lynch? Why is WestJet so popular? Why is it growing in leaps and bounds when we see Canadian Airlines, for example, struggling?

Capt Michael Lynch: WestJet has taken a niche of the market.

By the way, if I may say, the first part of our presentation is not criticism or anything else. It's purely background. There's no criticism of WestJet.

They're a carrier that has come into what's commonly called a “niche” market, but they do have a specific market they're aiming for. They provide scheduled service to that market. They're a company that is, to my knowledge, fairly well funded. They're privately held, so we don't know all the details, but their aircraft are fairly well funded. I do believe, on that basis, they're flying older aircraft that are a little less expensive to operate. They have provided a service on the market that was not being provided by other carriers.

Mr. Stan Keyes: And the prices are good.

Capt Michael Lynch: Their prices are good, but all the major carriers and their feeders in the regionals do offer those same prices, albeit not in the same volume.

Mr. Stan Keyes: So then I bring you back to page 3, where you're talking about, as a percentage of population, domestic scheduled passengers in each country: Canada, 45%; Europe, 64%; and the U.S., 218%.

Why do you suppose that is? There's no explanation here. I notice you raise many issues, but you don't explain many of them. Why do you suppose the U.S. is up to 218%?

Capt Michael Lynch: I can only say there's the tremendous volume. In Canada, when we quoted the three top city pairs....

Incidentally, two of the three city pairs are not by any means the largest cities in Canada.

We have a population of 30 million, which is about the same as California, in a country in fact larger than the United States. We don't have that population. Therefore, we don't have the desire or the need or the ability.

Mr. Stan Keyes: No, but you said “comparing the percentage of domestic scheduled flight by population”. Are you talking percentage here, in relative terms?

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Capt Michael Lynch: I'm sorry. I didn't mean to get the figures confused.

Mr. Stan Keyes: Okay.

Capt Michael Lynch: What I was leading to was that the large population allows huge population centres. If you were to further research those numbers, I think you'd find—and I could be wrong—that most of the travel in the United States is between large city pairs, probably 20 to 25 major city pairs that we don't have in this country. We don't have the volume of people to travel.

Mr. Stan Keyes: So I'll come full circle with my question. The U.S. is at 218%, and WestJet is doing well, in part because of low costs, low fares. We began our discussion by talking about the one-airline versus two-airline policy, and the consideration given as to why the consumer might not benefit by a one-airline policy.

I mean, if you take an American flight, you can jump on a plane in Buffalo and fly to New York City for $99 return. If you cover that same distance in Canada, and jump on a plane in Toronto and fly to Ottawa, it costs you $340 economy and $800 business.

Now, I imagine there are limitations that the market will bear when it comes to the price of a seat on an aircraft travelling in Canada. Part of what we're trying to do here, with this committee, is to establish why the hell it is I can't, as a Canadian, jump on an aircraft of any company and fly somewhere to show my kids what B.C. is like, or what P.E.I. is like, without it costing me an arm and a leg, when I can drive to Buffalo and show them New York, California, San Francisco, Florida for $218 return.

I understand the cost of doing business. I understand why you have to charge per seat, etc. But if you're already maxed out at what customers will pay to fly in an aircraft across this country, how is a two-airline policy going to be any different from a one-airline policy?

Capt Michael Lynch: Mr. Keyes, in fairness to our own presentation, that's really getting outside of the mandate of what we, as an association, talk about.

Mr. Stan Keyes: But you are the members who fly the planes. Because you're employed by these airlines, you have the most to lose if the airlines don't do well.

Capt Michael Lynch: That is true, and on that basis I will try to answer your question as best as I can.

Again, it comes down to population and cost. The cost of fuel in the country is higher. The cost of navigation fees is a little bit higher at this point. Then there's the cost of doing business in the winter. The carriers that fly from Buffalo to New York and then take their airplane on to Florida do not have a big problem with regard to de-icing. I mean, our winter costs alone are huge in this country.

We do not have the volume of population. You can jump on an airplane and fly from Toronto to Vancouver 16 times a day on one airline and 16 times a day on the other airline and do it quite reasonably. You can do it in the charter market quite reasonably. You just can't do it all year round reasonably, because there are times when we need to have that extra cost to keep the airlines viable.

With regard to the policy, I'm not sure we actually do have a two-airline or one-airline policy. We certainly do have two major airlines, but we have something like eight or nine carriers in the country that fly the large airplanes.

Mr. Stan Keyes: Yes, but two of you have most of the flights.

With regard to that rationale you just gave me, thank you very much for it, but if I just look at WestJet and what they're doing—

Capt Michael Lynch: WestJet isn't spanning the country.

Mr. Stan Keyes: —they have the same problems. They still have to buy fuel, they still have to pay navigation fees, they still have to land at airports. They still have winter conditions, maybe worse winter conditions than we have here, but they seem to be doing very well.

Capt Michael Lynch: They seem to be, and our records show that, but it isn't something....

Because they are a privately held company, these records are the only ones available, probably through the Internet, or whatever they put out. We're not in a position to see exactly what their future is, or what their viability is.

But that's really more of a corporate question. From our point of view, that's getting beyond the mandate I have to speak on.

The Chairman: Before I go on to Mr. Morrison, I certainly won't try to answer on your behalf, but for the benefit of the committee, we must remember that a number of charter companies in this country have come and gone. I've been associated with airlines since 1963, and it's one thing to say that they operate cheaper, but next year they may not be there. We've seen a number of them.

• 1610

In the United States, when we compare fares, it's one thing to say we can go for $99 from Buffalo to New York, but they are in the process of knocking out competition. A large number of airlines are in the United States, and the process is to knock out the weaker. Once it's all done, the prices will go up.

That's my experience in the industry, for what it's worth. I'm not trying to influence the debate, of course.

Mr. Stan Keyes: You did a good job of it, though.

Voices: Oh, oh!

The Chairman: I don't do it often.

Mr. Lou Sekora (Port Moody—Coquitlam—Port Coquitlam, Lib.): I thought it was very useful.

Mr. Stan Keyes: But don't do it on my ticket.

Mr. Lee Morrison (Cypress Hills—Grasslands, Ref.): There's nothing like a neutral chairman.

Captain Lynch, I thought I knew what cabotage was until I heard your presentation. You talk about it as being “the ability of an air carrier to transport passengers exclusively between two points within a country”.

Now, I thought cabotage was the ability of a flight originating outside of the country and terminating outside of the country to pick up passengers and unload them at intermediate points within the country. In other words, if it's a flight from New York to Toronto to Edmonton and then down to Denver, they would be able to carry passengers picked up in Toronto and let them off in Edmonton. Am I wrong?

Capt Michael Lynch: That is correct. That's another way of saying—

Mr. Lee Morrison: Oh. So your definition here is not correct, then.

Capt Michael Lynch: Well, no, I made it very simplistic, Mr. Morrison, just by way decreasing the length of my brief.

You're correct; there are such things as third, fourth, fifth, sixth, and seventh freedoms, which are far too complicated for me to understand, anyway.

With regard to cabotage, that's an extension of what you're saying—an aircraft coming into the country and being able to pick up within the country and deliver domestically; in other words, to fly our domestic carriers.

It's almost unknown in this world. Two countries, Peru and New Zealand, do allow that, but most other countries do not allow the right to pick up domestic passengers and fly them within their own country. Certainly you can drop them off, or you can occasionally, under fifth freedom rights, pick them up in another country and take them to a third country.

Cabotage, the way we see it, is flying domestic passengers within Canada, picking them up in Toronto and flying to, say, Edmonton or some such thing from—

Mr. Lee Morrison: But afterwards you still have to leave the country with your airplane; you can't just keep shuttling back and forth.

Capt Michael Lynch: It doesn't matter. You still have the ability....

In fact, that puts a Canadian airline under even greater stress, because then you would have the foreign carriers coming in from another country, making their money on the long haul. They could give away the domestic portions for whatever they could pick up for—they could give it away for a dollar—take the airplane somewhere else, and still make money on it.

Mr. Lee Morrison: Captain, you've set yourself up for the question I really wanted to ask.

Capt Michael Lynch: Please do.

Mr. Lee Morrison: The United States is an enormously larger market than Canada. I mean, there's no comparison. If you had a reciprocal agreement between Canada and the U.S., your employer and other Canadian employers could go down into the United States and tap into that huge market, whereas the American competitors would have only our small market available to them. They could perhaps come up and saturate it. Maybe that's what you're afraid of. But you'd have a lot of pickings available to you down there, where the fuel is cheap and the fees are low and so on.

What's your reply to that?

Capt Michael Lynch: There are two parts to my reply.

First of all, from the marketing point of view, I would see that as a great problem for Canadian airlines. If you think about it, a lot of American airlines are on your mind. You could think of United, you could think of American, and you probably could think of many others. I don't think Canadian Airlines or Air Canada or any of the other airlines in Canada are household words in Dallas or New Orleans—or Milwaukee, for that matter. I think we'd have a heck of a problem with marketing Canada down there.

Second, on the larger air carriers, it wouldn't be restricted to American carriers. Even if it was, those carriers have so much power. American Airlines is a $9 billion operation—$9.25 billion, $12 billion or $15 billion a year, I think it is; I'm not sure, but it's a huge amount of money—as is United. They would take on the carriers here, put the locals out of business and then leave again. That's been proven several times. There are many markets where American carriers have come into the country and left again very quietly.

• 1615

Mr. Stan Keyes: They try to get a sellout or a cave-in.

Capt Michael Lynch: The other thing, of course, is it's controlled—thank you, Mr. Keyes—by slots in the major markets. It's very difficult to get into Chicago, La Guardia, Kennedy, and Washington. It's very difficult to get into any of those markets at all.

Mr. Lee Morrison: Thank you.

The Chairman: Mr. Cullen.

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

Thank you, Captain Lynch and your colleagues. Captain, you're a longstanding pilot with Canadian Airlines. Is that correct? Are you familiar with the concept called management by walking about, where management comes on your aircraft and talks to the pilots and crew? Has that ever happened at Canadian Airlines?

Capt Michael Lynch: I didn't know there was a name for it. All of our executives travel quite extensively. It's not unusual for the executives of the airline—it doesn't matter which area they're in—to come up front and say hello to the pilots. For some reason, we seem to attract them.

Mr. Roy Cullen: When I say it's a concept, it's just management wandering about or walking about. In fact, I was just reading an article that said the founders of Home Hardware don't spend a lot of time in the offices. They get out, go to the stores and talk to the people right at the front lines. The theory behind it is that the people in the front lines probably know the business a lot better than the people sitting behind the desks at head office.

So I'm just wondering if someone from Canadian Airlines, from the senior management team, has done that already. How do you see it from your perspective? Is the key driver of the profitability of an airline maximizing your capacity, in other words filling seats and keeping your costs low and maintained? If someone were to ask you, “What are the keys for the success of an airline company?”, would they be filling seats and keeping your costs contained?

Capt Michael Lynch: Once again, Mr. Cullen, it's probably a little outside of the mandate we have in representing all the carriers in Canada, or the number we do. However, if I may answer you on a personal basis, in the 30-odd years I've been flying for Canadian and the several more years I was flying before that, I have yet to determine what the success of an airline is based on, or how it maintains its success. Very few airlines maintain long-term viability. I'm fortunate. In my 31 years I've had five mergers within the Canadian group that now makes Canadian Airlines. It's an ongoing process.

As to what actually makes an airline viable or profitable, to be quite honest, I haven't yet found the secret of that.

Mr. Roy Cullen: Then let me ask you a more specific question. You hear rumours. I don't want to focus on Canadian Airlines, but you happen to be a Canadian Airlines pilot, so I'm going to pursue this a little bit, if I may. There's this thinking going around that if Canadian Airlines' fleet is not quite as modern, it impacts operating costs. So you get into this vicious circle, if you don't have the capital to replace the fleet and your operating costs go up.

From your perspective, do you see a lot of maintenance and operating costs? Are the units, the equipment, always being repaired? Do they require excessive maintenance? Do you see any of that at your level?

Capt Michael Lynch: That's a fairly normal business cycle. At the present time, the Canadian fleet is a little older than Air Canada's. At the beginning of this decade, it was the other way around. Air Canada had a fleet of older aircraft. We tend to go in cycles and we're out of synchronization, as far as the two major airlines are concerned.

Yes, I'm sure there are increased costs as you add maintenance, but maintenance is fairly steady on an airplane. It's not one big cost item. It starts off from the day you get the airplane and the maintenance is on a continuum basis. Speaking for myself and perhaps for my colleagues who fly for different airlines, we rarely go into airplanes that have a number of snags on them. They're very well maintained. Our standards in this country are huge.

I don't see that is a particularly ongoing thing until the fleet gets to be quite long in the tooth. I know at Canadian we have some aircraft right now that are 15 to 20 years old and it's probably time to start looking at replacements. I'm sure they will at some point. We are in the process of doing that, as all airlines are, but it's sometimes a slow process. It takes about 10 years to overhaul a fleet.

• 1620

Mr. Roy Cullen: I appreciate that. I didn't want to put you on the spot.

Mr. Chairman, can I go to another line of questioning?

You talked about the greater market share that has been achieved by companies like WestJet, Canada 3000, etc. Sometimes when you get a new player in the market, it expands the market and results in more people flying. Is it your impression that companies like WestJet, Canada 3000, and Royal Air are simply taking share away from the other major companies, or is the market expanding at the same time? Do you have any sense of that?

Capt Michael Lynch: I would say it is a combination of both. They take away the leisure traffic, the discretionary traffic. They also take away a portion of the business traffic, when they find they can book on short notice and save a bit of money, depending on what business you're in and how you care to travel.

But by and large, I think your first statement was correct, Mr. Cullen, that they tend to expand the market to some degree initially. When there is no more expansion there, then the airline either gets big and folds under or merges into something else. Our history in this country is full of airlines that have merged and rolled over. Some have gone out of business and some have continued in other ways.

Mr. Roy Cullen: Okay. Thank you.

The Chairman: For the second round we will be lax today—four minutes—Mr. Keyes, Mr. Morrison, Mr. Guimond and Mr. Cullen.

Mr. Stan Keyes: Thank you, Mr. Chairman.

Captain Lynch, can we find out which airlines the other gentlemen who are with you fly with?

Capt Michael Lynch: Certainly.

Captain Kent Hardisty (Vice-President, Canada Board, Air Line Pilots Association (International)): I'm a pilot with Air Canada regional, which is in the west—Air B.C.

Captain Dan Adamus (Chairman, Legislative Affairs, Canada Board, Air Line Pilots Association (International)): I'm with Air Ontario here in eastern Canada, which is also a regional carrier for Air Canada.

Mr. Stan Keyes: Thanks, gentlemen.

I'm playing a little bit of the devil's advocate again. Keeping in mind what we're studying here—the competitiveness of our air transportation system—I'm not quite sure how to put this softly, but the fact of the matter is you have two airlines going head to head and knocking each other out trying to be the airline of choice in the country. Some people say that's business, that's competition, that's the way things work; it keeps the prices down for the consumer, etc. But if the weaker of the two is having problems as a result of that kind of head-to-head competition—you can start drawing analogies to a shoe store business or a hardware store business or any other business in this country—if it's broke you have to try to fix it. If fixing it means you have to back off, downscale, recognize maybe more viable markets with a greater return on investment, etc.—all the business lingo you can throw at it—would it be fair to say we wouldn't be in this fix?

Capt Michael Lynch: You've posed a difficult question. In terms of a sensible response, I'm not sure if all the factors would have put us in the same boat and whether we would still be in it if we only had one. Certainly if we had only one airline it might still have difficulty surviving. With the international market, the policy that has been in place for several years, the 300,000 passenger rule has been quite effective in allowing the major carriers in this country to develop in different markets. That's somewhat going by the wayside. The effect of it is lessening, due to the global alliance situation.

Domestically, if we only had one major carrier we would still have the other carriers coming and going all the time, as we do. I don't think having one carrier would be particularly beneficial to the citizens of Canada. As far as our own association is concerned, our piloting profession, the loss of jobs would certainly be detrimental to us as well.

From the point of view of the industry and the public, I don't know that we would be better off with one carrier, quite frankly.

• 1625

Mr. Stan Keyes: I understand your position on the one carrier. Maybe I'm not making myself clear enough, but we're not talking about one carrier; we're talking about a domestic carrier at the end of the day that has more fingers out to the country than any single other carrier. But, as you mentioned earlier, there are seven or eight other regional carriers. There's the WestJets, the Canada 3000s, and all the other carriers. They've found where they can concentrate their effort and be profitable and still even supply the other domestic with continuing flights to other parts of Canada. So they find their niche, they do their job, and they make money doing it.

Then you have two airlines in this country, Canadian and Air Canada, and you walk into Toronto airport and, yes, there's a flight Toronto-Ottawa at 7 a.m., 8 a.m., 9 a.m., 10 a.m., 12 noon, 2 p.m., 3 p.m., 4 p.m., 5 p.m., 7 p.m., 8 p.m. and 9 p.m., and from both airlines. So if a company is having problems.... I'm trying to get back down to the bottom line on this whole thing. We can start padding it up with, well, you've got the international stuff, you've got this stuff, you've got the other.

No. Let's get back to the grassroots here. Let's look at this from a simple business perspective. That is to say, if we can't go head to head, then we change the way we do business. Yes, we may create small niche markets here, there, and everywhere, in order to survive under a banner, but we're not going to try to go head to head with the big guy because it's killing us. Look at the share price, for God's sake. That tells everyone, why do I want to invest in that place? It makes no sense to me.

I suppose, and I hope, there are plans in the works, for example, for Canadian Airlines, who are going to try to make it work. But it's hard to be optimistic when you look at the share price and it's hard to be optimistic given the recent past of the airline. It's hard to be optimistic when you're.... Sorry, I'm going on and on. I should give you a chance to speak here.

Mr. Lee Morrison: That sounds like a good idea.

Capt Michael Lynch: This, again, is a difficult position that you pose. It would be difficult to try to determine which airline should be there and try to convince them. I do believe that in the past there have been attempts to organize capacity, to regulate capacity within the industry in Canada. I don't believe it's been terribly successful. It's a matter of which airline you can convince, or of going back to full regulation. That, I'm sure, would be a very difficult thing for you to recommend in your report, because full regulation would be putting us back 10 or 15 years, in terms of the industry. We didn't like it very much in the first place, in deregulation, but I'm not sure we want to go back. But I think what you're suggesting, Mr. Keyes, is some form of regulation. Is that correct?

Mr. Stan Keyes: No. When you say you're not sure which airline we would do that for, I suppose it would be the first airline that has to come back to the government and say help us, bail us out because we can't make it. The first one to do that is the one that should be thinking twice about how they do business.

The Chairman: Mr. Morrison.

Mr. Lee Morrison: Just following up a little bit on what Mr. Keyes was saying, I hope I can be a little more—

Mr. Stan Keyes: Brief.

Mr. Lee Morrison: Brief, yes. Thank you for that.

This is really directed to the pilots from the smaller airlines. Maybe it's an unfair question to ask crew, but if we did end up with one big airline in this country, how long would the regionals survive as separate entities before they were swallowed up totally by the one big airline they are there to serve? And as far as that goes, how much independence do Air Ontario and Air B.C. have right now from Air Canada?

Capt Kent Hardisty: I'll take the last part of your question first.

In terms of dependence, we are totally dependent, in terms of the Air Canada regional system, as is the Canadian regional airline system, on the parent corporations. The first part of your question or statement is interesting and speculative. From an association perspective, I don't believe we've taken any great time to deliberate any of those possibilities at this point. Our focus would always come back to what impact that would have on our members' interests, in terms of industrial and safety. We would have to focus on that.

• 1630

Mr. Lee Morrison: Okay, well, let's get on to something that is more down your alley, I guess. With respect to code-sharing, this is purely a mechanical question. When you have a code-shared international route, are there any instances when you have aircraft from both of the associated airlines flying that route—in other words, taking turns—or do they invariably give all of the traffic to one airline and just share the ticketing and the revenue? How does that work?

Capt Michael Lynch: There are actually several ways of doing it, Mr. Morrison, and one of them is indeed alternating days. I can give you some examples. For example, the Canadian and British Airways route from here to London is flown six times a day from Canada to England by Canadian, and I believe twice or three times a day by British Airways at certain times of the year.

As another example, Alitalia to Rome alternates. They fly the majority of flights in the summer and we fly the majority in the winter, but there's some altering. Another example is in the South Pacific, where Canadian only flies as far as Honolulu and Qantas flies Honolulu to Sydney. So if you buy a Canadian ticket to Sydney.... I'm sorry, I can only speak for the Canadian family here.

Mr. Lee Morrison: That's fine.

Capt Michael Lynch: At least I can only use those examples. If you fly Toronto to Sydney, you will fly to Honolulu on Canadian and from there on to Sydney on Qantas. Regretfully, we don't fly past Honolulu to Sydney.

Mr. Lee Morrison: And Qantas doesn't come into Toronto from Honolulu?

Capt Michael Lynch: No, they don't, or Vancouver, no.

That way it enables the carrier to more or less have a mini-hub. In other words, you can feed passengers from several destinations in Canada to Honolulu, and from several destinations to a farther country from that point. It becomes a mini-hub on that basis.

Mr. Lee Morrison: But are you in any associations where one or the other of the two airlines provides all of the aircraft and does all of the flying? I know we heard about one from your competition where that is the case. Does that happen at all with Canadian?

Capt Michael Lynch: Offhand, I can't think of an instance of this; there are probably some transborder routes that we do not fly and American does. We code-share on 96 routes or thereabouts with American and we only fly maybe half a dozen of them. But that is on a different agreement; that's the open skies policy.

Mr. Lee Morrison: I was really thinking of the long haul.

Capt Michael Lynch: Of the international? At the moment I can't think of an example.

Mr. Lee Morrison: Okay. Thank you.

[Translation]

The Chairman: Mr. Guimond.

Mr. Michel Guimond: Mr. Chairman, before I ask my question to our witness, I would like to come back to Mr. Keyes' comments who seem to find it funny that I always ask the same questions to different witnesses and that we are always given the same answer. That's exactly for that purpose that we want to hear several witnesses. Otherwise, we would ask our questions to one witness only and from there we would make up an opinion. That's the reason why we invite several witnesses. I guess you agree with me on that, Mr. Chairman, and I would have liked you to let him know.

The Chairman: You do not have to explain that to me. I leave some latitude to committee members. It's not illegal to make personal comments. I am not a fourth grade schoolmaster. I have no intention to discipline committee members to the extent of controlling what they say. I am going to try to control what committee members say about each other and to get them stick to the subject matter under study, but I am not going to play the schoolmaster.

Mr. Michel Guimond: Perfect, Mr. Chairman. I am glad to hear that comment. I am now going to ask a question to blast Transport Canada.

[English]

Mr. Stan Keyes: We all live in a yellow submarine.

[Translation]

Mr. Michel Guimond: I appreciate that.

You say that you applaud Transport Canada's efforts to improve rescue and fire services. If the Air Line Pilots Association of Canada wasn't delighted about it, I would really be concerned. Nobody is against virtue. We all want to go to heaven at the end of the day, but during our life on earth, we don't always behave in a chaste and virtuous way.

• 1635

What was your association's position when Transport Canada cut fire services in 1996? If that is possible for you, I would like you to send to our clerk the press releases which were then issued by you to denounce that measure.

Let me tell you why I am asking you that question. I find those new regulations from Transport Canada a bit curious. When airports were still owned by Transport Canada, the department did cut fire services. Now that those same airports are under the authority of municipalities and that Transport Canada has passed off its responsibilities onto them, new standards are imposed by the department. That is going to cause airport closures or competition between airports. So, there will be fewer flights for the members of your association. I would like to hear you on that.

The Chairman: You may answer that question. Furthermore, if committee members wish to invite the minister to answer some questions, it's also possible. I authorize the question.

Mr. Michel Guimond: Thank you, Mr. Fourth grade schoolmaster.

[English]

Capt Michael Lynch: I think I'll stick to flying.

Mr. Guimond, we were pretty infuriated about the cutbacks in the mid-nineties of the five services and five rescue services. We've been lobbying against that; we've been protesting it as much as possible. Certainly we have a fair amount of documentation, probably enough to fill one of these desks, on our opposition to the cutbacks in the five rescue services. We have been working with Transport Canada, and as much as we can we recognize that when the airports were turned over to private ownership, as most of the airports are—I think 280 airports right now are owned by private organizations, some municipalities, some cities, some authorities—it became a matter of economics.

We honestly really do not believe that when it comes to safety economics is paramount. It certainly isn't. We've been fighting it ever since. That's why we're very pleased to see some return to a higher standard, which is going to be enforced at a number of airports. There's still a long way to go. As a matter of fact, I have a report here from the volunteer, our pilot chairman who sat on that committee to start to ensure increasing levels of fire services in those airports. We certainly have been against it since the cutbacks, and we're not comfortable with what's been done so far; we'd like to see it increased. Also, we are cognizant of the fact that airports have to be able to run and be made somewhat viable so that we can have services there. Somewhere there has to be a balance, and we're working with Transport Canada to maintain that balance at the present time.

[Translation]

Mr. Michel Guimond: Am I allowed to go on?

[English]

The Chairman: Mr. Cullen.

Mr. Roy Cullen: Mr. Lynch, this whole idea of code-sharing has been discussed more in the context of international...you know, different airlines in different countries, alliances, etc. What about code-sharing in some of the domestic routes in Canada? I'm just wondering. I gather there are discussions going on between Canadian and Air Canada and they're trying to work things out, whether that's trading off routes.... I'm not sure what they're doing.

You must sit around over lunch or over a coffee and say “I'm flying to Calgary and I have about a 40% payload and Air Canada is going with a 50% or 60% payload—does it make any sense?” Is that happening, first of all? Plus, you can fill a seat for $40 but your cost might be $180, by way of example, so filling seats doesn't really give you all the answers either. Do you feel there's a lot of excess capacity on the domestic routes in Canada? Are there opportunities for the airlines to rationalize some of that, through some domestic code-sharing, for example?

• 1640

Capt Michael Lynch: Again, that's a question that's fairly global in its content. Domestic code-sharing does go on. It goes on between smaller carriers and the major carriers. I can give you a number of examples of that, not only in our families, but there are independent carriers that do code-share. I'm aware of it. Air Canada has been talking with WestJet with regard to domestic work-code-sharing. There is some code-sharing that goes on in the United States in fairly big carriers in a limited capacity.

Overall, I'm not sure that resolves the issues. It certainly is a short-term thing. It doesn't resolve the issues in the long term. It goes back to one of the earlier questions about finding out how an airline makes money. Right now, as to the number of people who are travelling across this country—the figures I gave you were for 1996, I believe, the population ones—I would say that's probably changing very rapidly. It's very difficult to get a flight to almost anywhere across the country at the present time. I think we all agree that we're flying with quite full airplanes and still don't appear to be making any money. So I don't know what the answer is, but I'm not sure that code-sharing would have an effect.

The only form of code-sharing that I could see would be with the non-scheduled carriers that are presently flying across the country in the summertime. They generally don't use their aircraft across the country in the wintertime. They might be able to code-share, or do something with the majors, or do some feed. I don't know if it's a viable situation.

Mr. Roy Cullen: From your perspective, then, you don't see a lot of empty seats, and when you talk among yourselves you're not seeing a lot of empty seats.

Capt Michael Lynch: Mostly the question these days is how could we possibly not be making money when we're flying with 75% and 80% load factors? When I started flying, you needed about a 45% load factor to make money. These days I think it's about 110%.

Mr. Roy Cullen: Of course, on the pricing, I'm not in the airline business, but I would hazard a guess that the way to get the drivers to make money would be that you have to fill seats based on some kind of recovery of cost and profit and you have to keep your costs down. It seems to me maybe that is oversimplifying it, but if I were to hazard a guess, I think that would be the way I would describe it.

Let's say you're filling a plane with 80%. A lot of that depends too on how those tickets are priced, right? You have the different fares; they're multitudinous. You have 40 different fares on a plane. You know how the optimizing models work. They start off with full fares, and they crash down until it's better to have somebody sitting in the seat paying $40, even though your variable costs....

Well, I suppose you have to cover your variable costs, but it gets to a point where you're filling a seat because it's better to have $40 than nothing. I'm using a stupid example, perhaps. So in itself, filling planes is not necessarily the answer if you're not covering all your fixed costs and your profits, and so on. Would that be a fair assessment?

Capt Michael Lynch: It would be, but I'm not quite sure what you're driving at with the original question with regard to code-sharing. If you're looking at code-sharing between the major carriers, that probably could be effective if it can be made to work. We do code-share, certainly, with a lot of carriers in the country, but at exactly what point you should say no, there are no more people coming on at $40 a seat because it's not worth it, I don't know. I'm not the economic—

Mr. Roy Cullen: The point I was trying to get at is if, let's say, we have Canadian Airlines flying from Montreal to Calgary and Air Canada flying from Montreal to Calgary around the same time, and let's say they are at 80% capacity, if you really actually look at the pricing, with the prices we're really getting that are worth while, where we're recovering our variable costs, our fixed costs, and making a small profit, really the planes are operating at about a 50% capacity. Why wouldn't we take one plane, fill it at 80% at a full price or relatively full price, and have a profitable route? You need those domestic routes to feed the international routes that Canadian Airlines does, and for Air Canada I suspect it's the same.

So it's difficult to say we're just going to drop these domestic flights, because you have to feed all this other stuff. If you're looking at what the available options are, a company can't lose money forever. I'm just exploring that as a possibility. Does that make any sense?

• 1645

Capt Michael Lynch: It certainly does, but we're pretty much also in the dark, because we're not privy to a lot of the airline's figures. I know from my own previous experience with the airline, and having more to do specifically with Canadian Airlines in the past and the operation of it, these figures are available, but not to us as an association. So it's very hard for us to draw any conclusions from a full airplane or looking at an answer to that. Maybe it would be very effective, as long as we didn't lose any pilot jobs. But from the point of view of the economics of it, I really can't comment beyond that, because we're not privy to the figures.

Mr. Roy Cullen: I understand.

Mr. Chairman, I think we should have the airlines back again at some point, because there's a bunch of questions that are sort of rattling about here.

If I could ask one more question on the question of foreign ownership, you mentioned that it would cause you some concern if the government increased that from 25%, or whatever it is today, to 40% or 50% or whatever. What exactly would your concerns be? How does that affect you and your pilots?

Capt Michael Lynch: We're looking at a number of issues there. Primarily, we don't really want to see control go out of it, because when control goes out, then you lose control of your labour. Jobs have a possibility of disappearing. You have basically no way of recovering those jobs and no growth possible within your own airline if the control....

We're concerned primarily about control leaving the country. We would like to see that control at our airlines, because you have the possibility of growth. You could pick either of the major carriers and make an example and say if this were to happen...and you make a hypothetical case. You could make a model that would show a tremendous amount of loss of jobs, loss of flying, loss of growth within the airline, and ultimately loss of competition and benefits to the Canadian consumer.

Mr. Roy Cullen: Okay. Thank you.

The Chairman: For the benefit of the committee, there's another factor to consider when you talk about code-sharing domestic flights. The reason the airlines don't use 747s as much is not because they're not good aircraft; it's because they're too big. So if you code-share, you take two smaller aircraft and replace them with a 747, but then what do you do with it when it gets to Calgary? To make it pay, it has to keep flying. There's nowhere else to bring it and get the load factors.

I compared Sudbury to Toronto. They had 727s flying to Sudbury, with 150 seats. Now we're down to 50- or 55-seaters and we have more frequency. There's a demand for frequency, and people require it. The problem is that from Sudbury to Toronto there are two regional carriers, because in Toronto there are two places where you end up to feed the major carriers. We could see code-sharing Sudbury to Toronto and have the frequency, but are you going to take them to Terminal 1 or Terminal 2?

So those are things you can look at. But regarding code-sharing domestic flights, with my experience I don't see it as practical because of the larger aircraft they would use instead. Then you would lose a lot of jobs. But that's just a comment, and I know that doesn't influence my colleagues.

Mr. Morrison, this is the third round.

Mr. Lee Morrison: Captain Lynch, I guess this is very specific to you. I fly to the midwest more often than I care to, back and forth, and I've observed that when I fly Air Canada, those flights are packed; you couldn't get a cockroach in. Yet the few times I've flown CP, it's 50%, or maybe 60% tops—not the same days of the week, necessarily, or the same ultimate destination, but still you're flying from one side of the country to the other.

In your personal experience, do you find generally you have a decent load factor on your larger aircraft or not?

Capt Michael Lynch: In the last couple of years our load factors have been very good. Mind you, I don't personally fly a lot of domestic flights. I fly across the country. I fly from Toronto to Calgary or Toronto to Vancouver. These flights are full.

• 1650

I live in Winnipeg myself, so I do go back and forth there, and I have great difficulty getting on a flight sometimes. It depends on the market, on the frequency, and time of the year very much, and also the time of the week and the time of the day, but by and large I think we've seen quite a resurgence of the travelling public across the country and quite a move afoot. And load factors reflect this. I don't know what the present load factor is, probably in the mid-70s for Canadian. I doubt that it's much more for Air Canada on that basis. Maybe it's just been the days that you've travelled, but I don't think—

Mr. Lee Morrison: When I get on, it's 95%.

Capt Michael Lynch: In my own experience, I fly 767s, so we only fly the longer-haul routes domestically—

Mr. Lee Morrison: I see.

Capt Michael Lynch: —but from what I hear, the load factors are very good.

Mr. Lee Morrison: I have another technical question, and perhaps I should be asking it of the airlines rather than of you folks.

When I started flying, you could buy a ticket from A to B with airline Z, and if at the last minute you decided you wanted to fly on airline Y, you just walked across the terminal, handed them the ticket and they would load you on the plane. You can't do that any more. You haven't been able to do it for several years. Why?

Capt Michael Lynch: I believe you can if it's a full-fare ticket, providing the first airline will endorse it over to the second one.

Mr. Lee Morrison: That's the trick.

Capt Michael Lynch: Yes, but if it's an advanced booking ticket or any form of fixed date, fixed travel, or non-refundable type of ticket, it's not possible to do that unless the airlines themselves move you across or offer you other alternatives.

Mr. Lee Morrison: I see, but they will endorse them over?

Capt Michael Lynch: They will endorse a business class or a full-fare ticket.

Mr. Lee Morrison: I see. Of course, when it used to be so easy, there were only two fares.

Capt Michael Lynch: That's right.

Mr. Lee Morrison: Now there are about 10.

Capt Michael Lynch: There are about 40.

Mr. Stan Keyes: Not to mention all the upgrade coupons.

Mr. Lee Morrison: They won't take my upgrade coupons from Air Canada on CP. I don't know why.

Mr. Roy Cullen: They're ornery, aren't they?

The Chairman: Just for information, even on international flights, airlines will endorse to other airlines on full fares.

Mr. Lee Morrison: Will they?

The Chairman: You need to call and get permission.

I will, in all fairness, ask you a question that I asked the Air Canada pilots association representatives. As you may know, when Air Canada and Canadian appeared before the committee, it was in camera for good reasons: because of competitiveness, they needed to protect some information. And I can assure you that the question I'm about to ask was not asked of the airlines. It was asked of your colleagues at Air Canada, because the airline representatives will be called back. So if a member would ask Air Canada or Canadian why they couldn't co-chair between each other—and we're talking international flights mostly—if their response would be because of collective agreements, would they have reason to say that?

Capt Michael Lynch: I'm quite sure they would use that as one of their excuses.

The Chairman: I'll explain why I asked both of you this question. It's important to get things like this on record, I think, when you do a study, because I'm sure the question will be asked. So it's an opportunity for you to get on record whatever it is you want, if you wish to.

Capt Michael Lynch: There certainly would be a big consideration as far as we're concerned, in that Canadian has six collective agreements on their property. I don't know how many Air Canada has; I presume it's much the same. And certainly they would be one factor to be considered.

Inasmuch as the airlines in the last few years have gone through concessionary stages, more at Canadian than Air Canada, but they've had their share, and some of the collective agreements have provided some fairly good job security provisions, it they may be very difficult to work around those right now. Certainly that would be an issue for the airlines and it would be an issue for us.

The Chairman: I want to be clear that part of our study involves foreign carriers, which are really taking passengers that Canadians feel you and Air Canada are entitled to. If it would mean giving you a better position in competing with foreign carriers, do I see the unions as sitting together and saying let's make it happen? That's the gist of the question.

• 1655

Capt Michael Lynch: Which particular unions are you referring to? All the collective unions in the country?

The Chairman: If Air Canada and Canadian International would code-share to Sydney, Australia, and it would mean that or Qantas getting the passengers through Los Angeles, I don't think it would be acceptable for Air Canada and Canadian to say we can't do it because the unions won't let us. I'm asking the unions, would you find a way to make it happen so we get more passengers and more jobs up here? You don't need to respond; it's an opportunity.

Capt Michael Lynch: We would have to consider the alliances that have come into play, and this would be a very big factor. Exactly what agreements the airlines have within those alliances we're not privy to. We know what we've done in terms of labour alliances within those alliance groups, and most of the unions are trying some form of alliance; certainly the flight attendants have, to my knowledge, in some of the alliances. The pilots have all got alliance meetings going on and meet regularly.

I don't think there is any really strong position that would say we would stand in the way of it happening if it meant some growth for the Canadian carriers and continuation of our jobs. I think it would be rather foolish for us to stand in the way of some future direction that basically is very good for the Canadian industry.

I probably should stop right there, but I think that would be the position we should take. We should look forward and examine it, and not take a firm position and say no, that will never happen. I think we should really look to the future.

The Chairman: That's very good.

Capt Michael Lynch: I would like to have Captain Hardisty comment.

Capt Kent Hardisty: I appreciate that question. Indeed, it would be a very convenient place to lay the problem at the unions' feet. I would suggest that there are many obstacles, which when you get into the alliance picture would be corporate, related in terms of the relationships between the agreements they have between themselves. That in itself may overshadow any other particular issues between the labour groups and the agreements therein. So I think, again, that it would be somewhat disingenuous to try to lay that problem directly here.

The Chairman: The reason I threw the question in is I much prefer, if the alliance would request it, that we would have one Air Canada pilot and one Canadian pilot going to Sydney, Australia, together—because you are professionals, and I know that—rather than have two Qantas pilots going to Sydney. That was the intent there, the direction. I'm sure you agree with that.

Capt Kent Hardisty: That issue, of course, brings many other pilot groups into the fold. When we talk about the Star Alliance and its relationships, we're not just talking about Canadian and Air Canada. We have our own issues, which we can certainly meet on and discuss, but they again go to the multiple other groups, which are problematic in the scope of it.

The Chairman: I wasn't looking for solutions here. I found what I was looking for is when you said that you certainly would look at it, and if it's of benefit to Canadians, the airlines in Canada, and your association, your members, you would want to look at it and be positive. That's what I wanted to get on record.

Members, any other questions?

Any closing comments?

Capt Michael Lynch: I'd like to thank you for the opportunity to address that last question. I was speaking very globally where as an association we like to think that we can look forward. We have looked back at things and looked over our shoulders a few times in the past, and it's been very difficult to come to grips with some of the things that have happened in the industry. It's a tremendous industry. I've seen over 30 years it's changed tremendously since that time, and we would be foolish as an organization to not look to the future.

In terms of how it's going to go, my personal crystal ball is very cloudy.

On behalf of my colleagues, Captain Hardisty and Captain Adamus, and all of us at the association, I thank you for allowing us to appear here. And if you feel that we need to come back and answer questions, we would be very prepared to. Thank you, Mr. Chairman.

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The Chairman: We thank you very much for that. We thank you for your offer. If there are any documents you wish to send to us at any time, we invite you to send them to the clerk. We will assure that all members receive them. Thank you very much.

Capt Michael Lynch: Thank you.

The Chairman: Mr. Keyes has a question for the committee members.

Mr. Stan Keyes: Mr. Chairman, I sent you a note requesting that I might ask the committee a question. Mr. Cullen alluded to it during his question on the same subject.

We've had all these witnesses before us, and many of the questions we have are probably directed more to some of the owners of these companies—the actual Canadian Airlines or Air Canada representatives. Many of the questions we've been posing should probably rightly go to these company reps. So I'm wondering if it would be the mood of the committee to invite Canadian and Air Canada representatives back, not to give us a presentation, because that's already been done, but to come back solely for the purpose of answering questions.

I'm not sure if there's any benefit to having it in camera, either. Much of what they're going to say.... I don't think it would make a difference if they were to say what they've said in camera in a room full of reporters. I think sometimes it's to our benefit to see reporters sitting there, because then they become a little bit more accountable to exactly how they're going to respond to us. There's another set of ears examining exactly what it is they're rationalizing with us.

My proposal would be that we invite them back, not to make a presentation but to answer questions, and have it open, not in camera.

The Chairman: Mr. Cullen.

Mr. Roy Cullen: Mr. Chairman, I would agree. To me it would be more of a function of the timing. I don't know where we're at with all our witnesses, but it seems to me it would be better if we could bring them back closer to the end, because there are going to be other questions if there are other witnesses that come up. I wonder if our very capable research assistant could go through the transcripts. There are a lot of questions that we've collectively put forward for which the answers really lie with the airlines themselves. I know I'll forget them if I go through the transcripts myself. If the researcher could come up with a list, when we do get them back we could go back over some of those issues and refresh our memories.

Mr. Stan Keyes: The usual suggested questions.

The Chairman: Mr. Morrison.

Mr. Lee Morrison: That was going to be my point as well. I wouldn't want to waste their time by asking them back here and then having us all sit here like lumps without anything to ask them. We should be prepared. If the researcher can do the list of questions for us, that would certainly solve that problem. I can't remember specifically which questions were fumbled by the pilots.

Mr. Stan Keyes: They don't even have to be questions; they could be themes, for example, the theme of code-sharing.

Mr. Lee Morrison: I would like to know a lot more about code-sharing. It was the pilots who brought that our attention.

Mr. Stan Keyes: Yes, but it's not fair to ask them about how the company should operate on code-sharing.

Mr. Lee Morrison: No.

Mr. Stan Keyes: We should ask the company. Why aren't you trying this? What are you doing to try to do it, etc.?

Mr. Lee Morrison: I think that is sound, as long as we don't bring them in here and it's just an exercise in nothing, that's all. We've got to have some good stuff to hand to them or to do to them.

Mr. Stan Keyes: I'll even give up the floor to Mr. Guimond to ask Canadian Airlines what they think of a one-airline policy.

The Chairman: Based on what Mr. Morrison said, I will ask the clerk to tell us the names of other groups that are yet to come or to be invited. This may help you decide if you wish to bring the airlines back before that or after.

The Clerk of the Committee: We have lined up in the next few weeks the tourism industry, the Canadian Air Traffic Control Association, Canada 3000, the airline division of CUPE, which is the Canadian Union of Public Employees, Royal Air, Air Transat, NAV CAN, and Air Nova. We have a lot of them. We had a chance to talk to Air B.C. today. And there are the foreign airlines, which we haven't tackled yet.

Mr. Stan Keyes: Would it be done by the time we break for the summer?

The Chairman: I doubt if we could do it now.

Mr. Stan Keyes: We have the regulations to do for a day or two, don't we?

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Mr. Roy Cullen: If we're going to bring Air Canada and Canadian Airlines back, we want to make sure we're going to cover all the questions we have. We're going to find with Air Nova and with the foreign airlines that there are going to be other questions we're going to want to put.

The Chairman: But the process of identifying questions can start now.

Mr. Lee Morrison: Now that this has been raised, it gives a signal to the researcher and the clerk to be watching for this stuff with future witnesses.

Talking about ACTA, when are they coming in? You mentioned they're coming. When are they coming?

The Clerk: I kept a few days open because of the bill that was referred to us. But they're scheduled to appear before June 9—in the next two weeks.

Mr. Lee Morrison: They are.

The Clerk: But which date has not been determined yet.

A voice: June 8.

Mr. Lee Morrison: That's the day before they hit the bricks.

The Chairman: Well, if we can do Bill S-23 tomorrow morning, that opens up two slots next week.

Mr. Stan Keyes: Sure.

Mr. Roy Cullen: I'm sure the opposition parties will cooperate fully.

The Chairman: Okay, that's it. Thank you very much.

The meeting is adjourned.