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STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 18, 1999

• 0905

[English]

The Chairman (Mr. Stan Keyes (Hamilton West, Lib.)): Good morning, colleagues. Pursuant to Standing Order 108(2), a study on the future of the airline industry in Canada, we have two witnesses this morning. From the Tourism Industry Association of Canada, we have with us Adam Belyea, who is the vice-president, policy and government affairs.

Is Mr. Stewart joining you, Mr. Belyea?

Mr. Adam Belyea (Vice-President, Policy and Government Affairs, Tourism Industry Association of Canada): Yes, he is.

The Chairman: Mr. Stewart, what is your position with the tourism industry?

Mr. Gordon Stewart (Past Vice-Chair, Tourism Industry Association of Canada): I am past vice-chair.

The Chairman: From the Association of Canadian Travel Agents, we have with us Mr. Ron Pradinuk, chair, and Mr. Randall Williams, president.

Gentlemen, welcome to the Standing Committee on Transport. We look forward to your presentations. You'll each have ten minutes to make your presentation and then we'll get into questions. When you're comfortable, gentlemen... Thank you.

Mr. Randall Williams (President, Association of Canadian Travel Agents): Thank you, Mr. Chairman, and thank you for the opportunity to present to you today.

I have presented a document which is certainly larger than what I'll speak to. If I may, I will cover just what ACTA is and nine key points, and then I'll turn it over to my colleague.

The Association of Canadian Travel Agents is an industry-led organization representing the retail travel community in Canada. We have an active association. We have had an active association for the last 23 years. We represent the interests of Canadian travellers through 5,000 travel agencies employing 35,000 people, predominantly in small businesses from Newfoundland to British Columbia and from Montreal to Yellowknife.

ACTA membership in 1999 is at 2,793 members, providing us the recognition as Canada's largest travel and tourism association. In 1998, ACTA members—only—sold $4 billion in scheduled air service and issued more than 7 million tickets. Travel agents book 85% of all airline reservations in Canada.

I'd like to now go to the third page of our discussion document and talk about the nine points we'd like to present to the committee today.

Firstly, ACTA wants the value of the service we provide to consumers on behalf of the airline industry to be recognized and fairly compensated by the airlines. We want a regulatory environment that provides for the right to negotiate minimum compensation with air carriers.

Secondly, ACTA wants fair marketing and promotion of ticket pricing that removes predatory practices and does not place the carrier and the retail travel agents in competition with each other.

Thirdly, ACTA wants a full review of the CRS regulations to meet current technology advances and to remove anti-competitive practices. One specific concern we have is that the CRS competitive marketing information must not be disclosed.

Fourthly, ACTA want a service fee box added to the ticket for the optional use of travel agents in describing the total cost to consumers.

Fifth, ACTA wants a reasonable notice period on any changes to compensation plans to allow for adjustments to travel agency business plans and education and training of industry personnel.

Sixth, ACTA wants a more competitive airline industry. We are opposed to a regulated monopoly alternative under the scenario of one dominant carrier.

• 0910

Seventh, ACTA generally supports the document A Policy Framework for Airline Restructuring in Canada, and wants to be involved, as the document suggests, with the examination of ways to address anti-competitive effects of commission overrides—on page 8—and the amendments to the CRS regulations, as recommended on page 9.

Eighth, as well, ACTA generally supports the October 22 report to the Minister from Mr. von Finckenstein, the commissioner of competition at Industry Canada.

Finally, ninth, we want protection in place for consumers during this period of restructuring in the event that an airline ceases operation or is unable to meet the purchased travel arrangements.

Within the last two weeks, we have met with the key players in the industry. They represent chains and they represent the consortiums and the franchises. We've agreed that the number one issue that we need to have resolved, and that we would look for government intervention on, is giving ACTA the legal right to negotiate minimum compensation agreements with airlines.

Background to this and this need for importance: with one airline the concept of overrides becomes lost. The Competition Bureau has recommended that there no longer be overrides. Overrides have been economic power and slavery, which airlines have used to control travel agencies. A significant portion of travel agency income does come from that area. Additionally, airlines are now going through commission cuts. The airlines have clearly demonstrated that at present they are using the agencies to cut costs while not helping the consumer at all. In fact, with each cut, the price for consumer air travel has gone up.

This is a very complicated issue, but the reality is that we are going to lose travel agencies across this country in massive numbers when you take these two issues together. We've agreed as an industry that the only way to negotiate is as a group, that in fact there will not be any other way for us to hold onto an industry environment out there if we do not.

We have supported most of the Competition Bureau's recommendations in both the area of overrides and the area of data control. In fact, on the area of data control, which has given a tremendous amount of power to the airlines, we are suggesting that the Competition Bureau recommendations do not go far enough. They have recommended that the power of data be controlled only from a domestic point of view. We believe this control has been abused and we believe it should be applied to all international tickets as well.

That just gives you a brief summation of some of the issues. This is a critical issue at present, and it is one where government frequently says it does not want to become involved because it is a commercial issue. At this point, what is set to take place out there is a massive devastation of an industry. If there is not some kind of freedom for us to negotiate, we are going to see thousands of jobs lost in that sector.

The Chairman: Thank you, gentlemen.

Mr. Belyea.

Mr. Adam Belyea: Thank you, Mr. Chairman.

I would like to first introduce my colleague, Mr. Gordon Stewart. He's the past vice-chair of the Tourism Industry Association of Canada. Mr. Stewart has a wealth of knowledge within the tourism industry and of the tourism industry and is past policy chair for the past five years.

Let me start by saying, Mr. Chairman, that we are finalizing our position paper regarding this very important issue. It is a more detailed explanation of our views. There was great discussion and debate regarding this issue at our national conference on tourism three weeks ago.

However, what I propose to do today is to just highlight some of the key points in our paper. I can assure you, Mr. Chairman and committee, that we'll forward to the committee our detailed position paper once it has been finalized, as I expect, within three to four days.

First, let me tell you about ourselves. The Tourism Industry Association of Canada is a national advocacy body representing tourism business interests. We do not represent any one company or organization. Rather, we make representations based on what the association believes is in the best interests of tourism as a whole, with input and endorsement from our members.

Our association represents one of the key economic sectors in this country. In 1998, the sector reached $47 billion in spending. Of that, foreign travellers spent approximately $15 billion in Canada.

• 0915

Our membership base includes provincial and territorial tourism associations, destinations, attractions, suppliers to the tourism industry, and the major commercial carriers, including Air Canada and Canadian Airlines International as well as several charter carriers.

Today we're here to provide a point of view from the Tourism Industry Association of Canada's perspective on the restructuring of the airline industry. However, before I do that I need to make one point, that is, our primary raison d'être is to represent our members, and in this particular situation, may I add, there's really not a consensus among our members on what the right answers are for this very important question.

The linkages between the tourism industry and the airline industry are obvious. The equation is quite simple. Strong tourism destinations equal inbound and domestic demand, which equals air service development, which in turn equals growth, jobs, and increased economic prosperity for Canada and Canadians.

A strong and competitive airline industry in a policy framework that puts the traveller first would equal more jobs in tourism. More tourism means more jobs, as I've mentioned. More jobs lead to greater economic growth. To use a current term of the Government of Canada, it would create “a virtual circle”, with Canada being the overall benefactor.

TIAC supports a strong and viable domestic transportation industry. Competition and market forces should work hand in hand with a strategy that recognizes customer satisfaction as its main objective. Any policy framework regarding the restructuring of the industry should foster competition within the Canadian airline industry at the regional, national, and international levels.

The tourism industry will not benefit from a monopoly situation. Leisure travel is often a discretionary expenditure. The tourism industry benefits from competition in the airline industry as airlines seek to stimulate consumer demand at home and abroad to fill seats that will remain unfilled by high-yield business travellers. Competition within the airline industry creates an incentive for air carriers to work with tour operators, travel agencies, and destinations to market travel to the consumer, to open new routes, and to increase capacity.

One could argue that the air transportation system could be compared to that of the railroads at the turn of the century as a means of building and binding Canada. People are rediscovering Canada in record numbers, and a price-competitive marketplace can only accelerate this growth.

Any attempt to restructure the industry should appreciate that a competitive threat is often the best incentive for improved service to a community, and as such, fostering competition, particularly in regions like Atlantic Canada, which do not have the same level of international service as other centres.

The advent of the charter carriers has impacted positively on the quality of service, and this competition should continue with steps taken to ensure that service is not impeded by operational considerations at airports or by the potential for predatory sales practices by major carriers.

However, one cannot really comment or speak about the restructuring of the airline industry without referring to the current taxation regime. The airline industry is a tax magnet for governments because there is a common belief that people who fly are generally well-to-do consumers and business people. This view may have been fine in the 1960s, but it's no longer true today.

Worldwide, there are approximately 1,500 taxes and user fees that can be put on an air ticket. In Canada, the 7% GST, the 15% HST, the 7.5% QST, and various user fees are a sample of the taxes and fees that passengers see on their air ticket. Furthermore, excise taxes on the aviation fuel are also factored into the cost of air travel.

Since the introduction of the GST in 1991, the number of Canadians choosing to travel to U.S. destinations from U.S. airports has risen dramatically. This increase in diversions has occurred even though airfares from Canada to the most popular U.S. destinations remain competitive with the U.S. airports.

The GST on transborder air tickets is inconsistent with tax policy for other modes and is unique in the way it penalizes the Canadian airline industry. Transborder rail, bus, and ferry transportation are not subject to the GST. This inconsistency is penalizing the Canadian air carrier industry and the airports by encouraging Canadians to travel on U.S. carriers at U.S. airports to U.S. and other destinations.

• 0920

A study done by Sypher-Mueller International on the impact of the GST on transborder air travel on behalf of ATAC stated that the diversion of traffic through U.S. airports as a result of the GST is costing the cities of Vancouver and Toronto approximately $65 million a year in economic activity, and 394 jobs. Furthermore, with more than 90% of Canadians living within 350 kilometres of the U.S. border, the increased difference in travel costs has led Canadians to purchase their travel south of the border, not only for U.S. destinations, but also for Canadian destinations using a U.S. routing.

In order for Canadian carriers and destinations to remain competitive within the global marketplace, a review of various taxation policies must be undertaken.

Mr. Chairman, we hope the committee will take a broad view and focus on this issue from the point of view of what needs to change in the policy environment to foster a strong and vibrant airline industry. Our association looks forward to working with your committee as well as Transport Canada to develop a policy framework that allows for growth of not only the airline industry, but also the tourism industry.

With that, I would like to close and say thank you very much for your time.

The Chairman: Thank you very much, Mr. Belyea, Mr. Stewart.

Gentlemen, we now move to the question and answer period. Each of my colleagues has five minutes to ask their question and get an answer from you. Sometimes the questions are a little longer than the answers. We try our best.

Ms. Meredith, please.

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

Thank you for coming out this morning. I found your presentations very interesting, because it brings a different aspect to our discussions that we haven't really dealt with.

My first question would be to you, Mr. Williams. You were talking about the travel agencies providing I believe it was 85% of all airline reservations. We heard in a presentation yesterday that technology developments and the ability for people to make their own arrangements via the Internet would have an impact. I would suggest that's been a new entry into the parameters for about a year. Have you noticed any drop because of that new technology?

Mr. Ron Pradinuk (Chair, Association of Canadian Travel Agents): I can respond to that in part, if you don't mind. I'm a past chair, so I've been involved.

Many of the travel agencies now have their own Internet sites, so it's not as though the business is bypassing us. The airlines actually are frustrated with the Internet to date because it is an information-gathering source, and people are still going back to the travel agency to book. While there has been significant amount of booking through the Internet, most of the industry is becoming conversant with it and they're part of it. It really hasn't had a major effect on any individual agency. The sum total of business going that route is significant, but as a loss to us it's not appreciable at this stage.

Ms. Val Meredith: So what you're telling us is that people are using the Internet to do their booking, but they're using travel agencies' websites or access to do that booking.

Mr. Ron Pradinuk: That's correct.

Ms. Val Meredith: So you're part of the technology and it hasn't affected your business per se.

Mr. Ron Pradinuk: The airlines so far have taken some distressed product, and if you look at where the airlines are getting success, they're using it to sell off and dump some of their distressed product. Our entire issue on this is that if this is made equally accessible to us on the same timeframe, we will likely sell it faster than they can sell it. So it's not really been a major issue, other than that some of the product hasn't been as easily accessible.

Ms. Val Meredith: Can you explain to us what distressed product is?

Mr. Ron Pradinuk: It's last-minute product: get on an airplane tomorrow, because there are empty seats. It's a product that is excess inventory.

Ms. Val Meredith: Is that what you were saying when you brought up the business of there not being shared information, that you wanted full disclosure, or you wanted—

Mr. Ron Pradinuk: No. This area of computer reservations, if that's what you're talking about... Sometimes we do not have instant access to the Internet product. In other words, the airlines basically force us to have our computers in place, but they don't put this information on the computer. We don't mind the fact that this product can be sold over the Internet, but given the fact that we have a major plant, if you put that into our systems, we can basically sell it. Even if they access us directly, we can sell it. So it's not a major issue for us.

• 0925

We need to go back and talk about, if I can, the major issue, which is the need for us to have the right to negotiate with the airlines for the work we do.

You don't have any other industry where the airlines, in this case, are putting out a suggested selling price—$199 to Winnipeg return—that we would, in effect, make $10 on. It's not possible for us to make a living on that. When you talk to the airlines, as we have recently, they will say that they cannot write that ticket for $10. Yet we cannot pass on a service fee that's sufficient to cover the cost of doing that. That's why we are near devastation. We are on the edge of a major, major problem if you do not step in to deal with this issue.

Ms. Val Meredith: Okay. Why don't you have the right, as any other business, to negotiate business to business, a contract? Why do you feel that, as you put it, the government has to intercede, and that you need regulations to allow you to have that right?

Mr. Ron Pradinuk: Because essentially the airlines have pretty much established a powerful dominance. They have set exactly what they will pay the travel agency community, and we do not have the right, in effect, to withhold service. We can negotiate, but there is no point in negotiation, because at the present time, the airlines simply are saying you're going to get 5%, and we don't care whether you don't make any money on it. If you want to do so, charge a service fee.

The reality of the service fee concept is that it takes about $60 to $70 to write a ticket in Canada. On $199, I obviously cannot add on a $50 service charge. The airline has already agreed with me that they can't write that ticket for $10.

So the power we're looking for from the government—and our industry is behind us—is to be able negotiate, and if we need to, to be able, as a group—which at the present time we could not do—to say we're not going to sell your service.

Ms. Val Meredith: But what power can the government give you to do that negotiation?

Mr. Ron Pradinuk: It simply is a form of collective bargaining power, such as exists in B.C., apparently, with independent truckers, who have the right to negotiate rates with their suppliers even though they are independent owners. It basically allows us to negotiate minimum contractual rates with the airlines.

Having this collective power still does not take away the consumer's right to go direct. If we, as a group, say we're not going to sell it any more, if we recommend our members do not sell this product, they can still go directly to the airline. But we believe in the end—

Ms. Val Meredith: So are you—

The Chairman: Thanks, Val. We have to move along.

Lou.

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

I was in the tourism industry for many, many years, in hotels, restaurants, and a few other things, so I know exactly what you're talking about. Precisely what you're talking about today is that the travel agents have taken a hell of a beating in the last couple of years.

I've had many letters in my office, to which I keep replying, “Write to Mr. Collenette and other people”. I think we'd be very bad if we did not, as a committee, discuss that while we're looking at the restructuring. I can tell you, the fact is...

You know, we had Mr. Milton and Mr. Benson before us, and of course this commission originated from United Airlines. But the fact is that while we had Mr. Milton and Mr. Benson in here, they were talking about 2,500 job losses, 5,000 job losses. Each one is attacking each other about what might happen, what might not happen. What they're doing is putting the travel agents out of business.

They can't even work at a minimum wage. I know that for a fact. You know what they'll say? All the airlines will say that the travel agent has a right to tab another $70 on the ticket. Well, when you start adding on, that's how you frustrate an average traveller. That's how they get mad at the travel agents.

They're saying they're the shining knights, they're okay, but to hell with the travel agency. I think that is very bad. So as one member, I'm just serving notice that I will be talking about it when we are talking about what we must do. Because I think the travel agents have a right.

You know, they'll say 2,500 jobs, 5,000 jobs, and they'll put maybe 10,000 travel agents out of business. So then what are we doing? So that is one thing I am going to talk about.

• 0930

When you mention a 5% commission, the travel agents don't even get a 5% commission. Where would they get a 5% commission?

Mr. Ron Pradinuk: Remember, the concept is commission up to caps. The caps have been set in, so you were getting $50 on a maximum amount. The reality is that as of December 1, it will be a 5% commission, which means that the cap comes in on tickets that are in excess of $1,200.

All those people who deal with the consumers are the ones who are going to be most affected. When we deal with the casual leisure consumer, the reality is that when you now remove any overrides that were some source of revenue and you cut the commission, it will devastate the industry. As much as this is not totally understood, I sat here for two months and I've watched the discussions in which you pointed out how we had to be concerned about the jobs in the industry, and I am concerned about the airline jobs in any restructuring, but I can tell you that the impact that is about to take place on travel agencies large and small across this country, in every community in every province, and the number of people who are going to be laid off is major. It is significant and far outweighs the impact the restructuring itself would have effected.

Mr. Lou Sekora: Mr. Stewart, you talk about all these taxes. The fact is, I didn't know about some of those things, but it seems like those taxes are a fairly hefty charge across the board. How would you like to see it restructured?

Mr. Adam Belyea: I appreciate the tax policy considerations of the GST and the HST and the QST being a broad-based consumption tax on goods and services. My primary concern at this point with respect to the airline industry is more the tax on transborder air travel.

As I mentioned, initially in 1989-90, when the Department of Finance was developing tax policy for the GST, there was a view in the department that there would be what's called “the substitution effect”—that is, basically, if you have GST only on flights within Canada, people would actually substitute their U.S. destinations for Canadian destinations. Our association and other associations, including ATAC and ACTA, have been involved in this issue. While one of the responses we've been getting is, well, you asked for it because of the substitution effect and the concerns, I can tell you that the tourism industry never asked for this policy.

It's very interesting that it's only applicable on air transportation, and it's broad-based to include rail and bus and ferry. But in terms of value-added taxes around the world, Canada is one of the only jurisdictions that taxes international travel. So this has been a great concern.

But I must add that our association has been working with the Department of Finance in the past year. They're very receptive to our arguments, and we look forward to continuing to work with their officials with a view to eliminating the GST on transport and air travel.

Mr. Lou Sekora: Thank you very much.

The Chairman: Thanks, Mr. Sekora.

Michel Guimond, please.

[Translation]

Mr. Michel Guimond (Beauport—Montmorency—Côte-de- Beaupré—Île-d'Orléans, BQ): Gentlemen, thank you for your presentation. My question is not addressed to anyone in particular. If any of you would like to respond, please do so.

My question will deal with the role of charter carriers. Given that our committee will have to formulate recommendations to the Minister of Transport and to the government regarding public policy decisions, could you tell us what role these charter carriers could play in the restructuring of the air transport industry? We have met with people from Air Transat, Canada 3000 and Royal Aviation, air carriers that your industry deals with. As you know, one of their problems is access to gates and runways in Canada's busy airports. I think that for flights to Flin Flon and Sept-Îles, the gate problem does not arise. The difficulty is mainly in the larger centres: Toronto, Vancouver, Montreal, Dorval and Calgary. They have all told us that they would like to schedule flights for the morning slot to land between 8 and 9 a.m., so that American and European tourists can take advantage of their day, but what they are given, on a Montreal to Toronto flight, for example, are landings in Toronto at 11:30 a.m..

• 0935

I think that when we look at the issue of regulatory powers to be given to the minister, we should look into this matter if we want charters to play a genuine role in the restructuring of the industry and also to act as competition watchdogs, especially if we have a dominant carrier.

[English]

Mr. Randall Williams: Thank you very much for your comments and your question.

Right now, our contention is that even with the two airlines in Canada, we don't have a competitive situation. We have a duopoly. And the charters have been around for a while and have been unable to penetrate certain key markets because of the power and the competitive advantage the two airlines currently have. Certainly if we have a dominant airline situation develop, we believe the charters will be even more negatively impacted than they are today and will have more difficulty penetrating key markets and getting the slots at the airports and the access they require.

Under the current situation, the charters are already in a very uncompetitive position and are being blocked out of certain markets. We believe with any restructuring of the airline industry where we have only one dominant carrier, that difficulty will be magnified.

Mr. Ron Pradinuk: I would like to add to that. If you review the Competition Bureau's comments on Wardair, Wardair went into the market a number of years ago to try to become a player. Part of the reason they couldn't succeed was the connections, the ability to create positive connections to international and transborder carriers, which really does come around the same issue to which you're referring. You can't build an airline simply by travelling. You build very excellent niche carriers, as WestJet is, but you really can't build an airline unless you are able to provide interconnectivity to a whole other series of carriers that are flying out of Canada north and south or are connecting in Canada.

So that issue is not just one of transporting Canadians back and forth at 8 a.m. It is also about how you create a successful competitive carrier that is enabled to carry people, and if we lose one of the alliances it is able to create some form of additional alliance with current international carriers.

The Chairman: Thanks, Michel.

Ms. Parrish, please.

Ms. Carolyn Parrish (Mississauga Centre, Lib.): Thank you, Mr. Chairman.

I think my illustrious partner and I are going to disagree on one thing here. I think the travel agents are going through a renaissance, going from plows into tractors.

I book through the Internet business travel. They don't give me a discount on my ticket, but they give me 500 bonus air miles. So I do it, and I think a lot of business travellers do it.

One of my concerns is that you didn't see that coming. You're pretty smart cookies, and you represent a lot of people who have been in this business for a long time.

When the airlines were here, they told us 80% of the travel is on discount tickets. So business travellers are getting nailed. When I travel back and forth to Ottawa, I'm getting hit hard. I'm paying a large amount of money on those tickets, or the federal government is.

Anticipating that, the 5% rate applied to business tickets would have been a very good idea on your part. You would have had competition there to give better service to the ones that are easy to book, like Toronto-Ottawa. Toronto-Ottawa is very easy. If you would have dropped the 5% on that and passed that on to the consumer, and then really hit the fun travellers...

• 0940

When I'm booking a holiday to the United States, or to the Bahamas, I change it three times because my kids decide they're going, then they're not going. That's a real pain in the neck for your travel agents, and I would soak me for that one. I would charge me a surcharge on that, and I wouldn't keep hitting the business travellers, because we're the guys who are paying full-fare tickets all the time because we're travelling in peak times.

So I'm a little concerned that you didn't see this coming, you didn't anticipate it, and you didn't voluntarily restructure your industry.

I share Mr. Sekora's concern that a lot of people are going to be out of work, but a lot of horses were out of work when they came in with tractors. And what happens is you couldn't anticipate a tractor, but you sure as heck could have anticipated this.

Mr. Ron Pradinuk: I agree it's a problem, because, first, you are entirely correct, the goose that laid the golden egg is the corporate traveller for the airlines, and as they have cut commissions they have not passed on any of those savings to the corporate traveller. In fact, they have raised prices 50% to 70% since they have started cutting commissions.

The reality, though, about the anticipation is that corporate travel agencies dealing with large corporate customers restructured a long time ago and are working with the corporate customers on a total service package. The impact of what has taken place is on the consumer and on dealing with the leisure consumer.

You talk about soaking you. The reality is that we do certain things on behalf of the airline and certain things on behalf of the customer. When the airline makes schedule changes, we are the ones who are asked to inform you about the schedule changes. We do not get compensated. I cannot charge you that many dollars; it's not an elastic charge. Yet the airline is setting a consumer price expectation by several millions of dollars of advertising, and saying the Winnipeg return flight should only cost you $199.

Ms. Carolyn Parrish: I'm going to interrupt you, because the boss here gives me a very precise amount of time.

What are the percentage rates, comparative to, for example, Germany and the United Kingdom? Are they giving higher rates to their agents, or lower rates?

Mr. Ron Pradinuk: Let me tell you what has taken place.

Ms. Carolyn Parrish: Quickly. I have two more questions.

Mr. Ron Pradinuk: In England now, with the current regulations taking place, they're getting 10% plus in Europe. Europe has not followed the North American model. As a matter of fact, even out of Canada, British Airways, Air France, a number of the carriers that were here chose not to do any capping. They cut commissions marginally on the first-class tickets, which was fair, which we talked to them about. That's fair, there's a lot of commission on that. This is a North American problem.

Ms. Carolyn Parrish: I'm going to stop you again.

Is the real competition for Canadian Airlines and Air Canada big airlines like Lufthansa and American Airlines? You were talking about people routing through the United States on American carriers. For a lot of the travel we do here with some of the friendship groups and NATO and some of the associations, we end up on Lufthansa, and the answer is always because it is cheaper. Is that where the real competition is?

Mr. Randall Williams: There are really three markets that need to be considered: there's the domestic market, the transborder market, and the international market. So there are three different markets, and there are different competitive situations in all three markets. Certainly Air Canada is competing differently in international markets than they are domestically with different carriers. So to answer the question, you have to look at... Certainly Lufthansa is a competitor on international markets, but not on the others.

Ms. Carolyn Parrish: So if we were to have one dominant airline that did international travel, would it be a stronger airline to compete with Lufthansa or a stronger airline to compete with British Airways?

Mr. Randall Williams: Yes. We're looking at a strong Canadian flag carrier to compete internationally. But we need a lot of competition domestically to make it the right environment for consumers.

The Chairman: Thank you, Carolyn.

Mr. Randall Williams: I'd like to add one more point to your earlier question.

You were critical of the travel agency association not seeing this coming. We've been recognizing that some of these have been coming. But I would also contend that the airline industry, which now this committee is dealing with, could have seen this coming as well, and we are now looking at the restructuring of the airline industry.

As the travel agency community could see changes, so could the airline industry in the predicament we're in today. We're suggesting to you that just like Microsoft controls a lot of their distribution—and it's been proven most recently—with the non-competitive environment we have today with two airlines, the two airlines are dominating the whole distribution channel and telling us what to do. We need protection too. Just as it's the reason for this committee to look at the issue in terms of the airlines, we're suggesting that 10,000 travel agency jobs are just as important to Canadians as the 2,500 airline jobs we're talking about.

• 0945

The Chairman: Thanks, Ms. Parrish. Ms. Desjarlais, please.

Ms. Bev Desjarlais (Churchill, NDP): I apologize, I'm not sure which one of you mentioned it, but it was mentioned that you've been dealing with the finance department or Revenue Canada on the issue of the taxes. Can you tell me what kind of a response you're getting?

Mr. Adam Belyea: With respect to dealing with Revenue Canada and the Department of Finance, the response has been cordial at best. I can tell you that this issue has been going on since 1991. Finance is well aware of the concerns of not only our association but ACTA and ATAC on this issue. We are hoping that beginning in the calendar year in January there's going to be a study done on this and other issues we have. They've assured us that we would have full participation.

So the short answer is yes, there's been quite a bit of activity at both departments, but it still is an important issue for not only the tourism industry but also the airline industry, given the possibility of substituting U.S. routes and U.S. carriers for Canadian carriers.

Mr. Gordon Stewart: Could I add one comment to that? The taxation thing is about the final cost. Some of the pressures of costs have gone up. You see what's happening with the travel agents and so on. So what we're really seeing is the total cost to the consumer is climbing yet the real cost to the industry is not.

Where does that come from? It comes with the deregulation of airports. So you have an airport authority, what does it mean? All of a sudden they now tack on a levy at the airport of $8, $10, and so on. It comes as a tax at the provincial level: GST and PST is added on. We have new taxes added on tickets at airlines being put on because the airline industry is putting pressure on the travel agents.

So this layer of taxing is not just by governments any more; it's by other people who have entered into the fold, which is really disrupting the market drives in terms of the total price. A good example of this, in analysing ticket pricing, is I recently bought my package to Yukon, which was five days, and it was $759. My air added on was another $4,750. For a Canadian to travel inside of Canada that's a bit ridiculous. I know you can go quite a bit around the world, but with the taxes alone and all the other charges added on there, airport charges out of Vancouver and everything else, I could have gone comfortably on another vacation trip all by itself just on the tax base alone.

Ms. Bev Desjarlais: You would have missed the Yukon.

You mentioned taxes by the airline industry. Specifically what taxes by the airline industry?

Mr. Gordon Stewart: You're getting added on. If I take the rough cost of the ticket, where do the other add-ons come in? There are lots of new add-ons coming.

Ms. Bev Desjarlais: Specifically by the airline industry. I recognize the fuel tax, I recognize the GST, but you made the statement that by the airline industry there are other taxes.

Mr. Gordon Stewart: For example, Adam mentioned other taxes that are related. Fuel tax would be the big one.

Ms. Bev Desjarlais: But you said specifically by the airline industry, so I take that as being by the companies. That's not what you're implying?

Mr. Gordon Stewart: Maybe it's just my wording and speech. I should correct myself.

Ms. Bev Desjarlais: Fair enough. I wondered whether there was something else happening there we weren't aware of.

A number of years back a person I know who's a senior said that it was 15% cheaper for her to purchase her ticket directly from Canadian than by going through the travel agent. This is a few years back, and it's a senior who doesn't have the Internet, but if she dialled directly or went to the airport it was 15% cheaper for her to get her ticket than it was going through the travel agent.

Mr. Gordon Stewart: The only place where it is cheaper is on some of the really last-minute product that comes through on the Internet, but by and large it has not been cheaper.

If you take the service fee aspect to it, perhaps in that instance it could be, because you would theoretically not have a service fee. This really goes to the core of the issue we have been speaking about: there is no industry that advertises a price and doesn't give its supplier a reasonable chance to make a dollar and still can't sell it for that price when it goes direct. It is a phenomenal circumstance to be in at this point in time.

• 0950

Ms. Bev Desjarlais: Do I have time for a little bit more?

The Chairman: Yes.

Ms. Bev Desjarlais: Ms. Meredith mentioned the statements that were made yesterday, and she was actually quite kind in her interpretation, because the professor who gave us the presentation yesterday said travel agents really are an endangered species. Those were his words, if I recall. His indication was—and it was a fair point—that more and more people will get on the Internet and will do their own.

Your indication that people haven't seen a decrease in the price of their ticket is probably what's saving the travel agents, I would think, at this point, but should the airline industry make that big step and shock the heck out of us and lower the cost of a ticket, what do we then do to ensure that we're supporting the travel agents if it's going to mean a reduction in a ticket of $140?

Mr. Ron Pradinuk: I'm fully supportive of any cuts in the airline ticket. I only want to be compensated for the work I do on behalf of the airline, not the work I don't do. I am not asking to receive anything for what I don't do, and if you choose to go directly, you can theoretically do that. But one of the things that exists today is... When someone asked whether we have dealt with this issue before, yes, we have appeared before the Competition Bureau about the abuse of dominant power.

The airlines in effect create a structure where we must have computers and computer systems to book and we must have certain staff on hand, and then they try to cherry-pick certain portions of the business. It is an industry that needs a government overview because it is not competitive.

We have said throughout that if you take the carrier out of the business equation, 4,000 agents in this country, who are highly competitive against each other, will give the consumers the best possible prices they could get. What the airline is doing is they are abusing what was a duopoly and could become a monopoly in such a way as to advertise a price that essentially can't be sold inside or essentially outside. If they're willing to pay me $10 and it costs them $50 to do it inside, pay us the $50. But they don't even want that business. That is the sad part of the reality that exists: they do not want that business. They want to turn it over to us so we can deal with it for $10.

Ms. Bev Desjarlais: Fair enough. Thank you.

The Chairman: Thanks, Bev.

Mr. Ron Pradinuk: It's a ludicrous situation. I just hope this committee... It's hard to say how a government gets involved in an issue like this, because you say it's competitive. This is a monopoly, and we are on the edge of a major employment disaster.

The Chairman: Mr. Williams.

Mr. Randall Williams: Could I make a short statement supplemental to Mr. Pradinuk's comment?

The Chairman: Very short, Mr. Williams, please.

Mr. Randall Williams: There will always be travel agencies, because people can book. For example, people can fill in their own tax forms and it costs them more money to have another company do it, and they're doing that. You can sell your own real estate. They hire agents to sell the real estate and they pay them a commission.

There are always ways for travel agencies to serve, in an unbiased professional way, consumers in Canada.

The Chairman: Thanks, Mr. Williams.

Mr. Dromisky, please.

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

First of all, I have a general comment. I'm really shocked that you people aren't at the table to negotiate with the air carriers. After all, you're giving them the business. That's how simple it is. The vast majority of the people who fly rely upon agents. You are the people who encourage the customers, entice them, inform them, and give them the information that is absolutely essential for them when they're making decisions as to where they're going to go—the Bahamas, Africa, or wherever they're going to go.

Yes, there are a lot of business people travelling on the transborder and maybe even across the ocean. The vast majority of the travellers I see on the plane are the people who have the money and they're travelling for holidays, to visit friends, family, or on a special occasion, whatever it might be. I'm talking about people who are already retired, senior citizens. They are a big group of customers. They have the bucks.

I have two questions for you. What controls do you people have on your own industry? I'm talking about unscrupulous agents, people who say “I'm sorry, there aren't any more seats at that price. We'll have to give it to you at this higher price.”

What controls are there, for instance, on an electronic ticket that comes out and at the bottom it says “no refunds available”, or “you cannot refund this ticket”? It might be a business-class ticket or a full economy ticket. If someone who hasn't travelled before and doesn't know anything about the travel industry sees that at the bottom and changes his plans, he loses that big buck. It's the agent who is putting it on there, not the airlines. So I don't know what kinds of controls you have.

• 0955

Also, I would like to know who is in the battle with you. What agencies, chambers of commerce, and other organizations are helping you in this battle?

Mr. Ron Pradinuk: I just want to talk about the history of this industry and why we are where we are and why the comment was made.

We are not a powerful association. I think this is likely the first time we've come forward and spoken up as strongly as we have, because we are now in a survival mode. For a long time—and it's fair to make the comment about what we didn't see coming—the relationship with the airlines was a genuine partnership. We were their distribution channel, and they made sure that we were compensated fairly for the work we did.

We woke up one day with the deer-in-the-headlights look, and we were hit with commission caps and further commission cuts. We are an industry in which half the people work in small, independent agencies that do not have the kinds of dollars to come before legislators like yourselves and lobby the case. So we have been behind. As a result, we are in a crisis situation.

There is no question that it would have been good to have the resources to prevent this, particularly when we see the resources the airlines have. In that regard it's correct to say that we did not see it coming. Up until three years ago, it was a partnership. I can tell you that there is not an agency in this country today, small or large, that will ever turn toward an airline and say “my partner”. It's a very peculiar situation when our supplier has become the economic enemy.

Mr. Stan Dromisky: The reason I'm very concerned is because we need you. The travelling public needs you. Not everybody has a computer and not everybody can get e-mail or anything like that. We need someone to give us reassurance about the choices we're making, and you help us to make the choice. We need you. There's no doubt about it.

If we go the electronic way—and that's a threat, I know—if I try to get a ticket changed or buy a ticket by telephone after hours or even in the middle of the busiest hours, I might have to wait five, ten, fifteen, twenty minutes to talk to a major carrier, and all I hear over and over again is “We need your business. Please stay on the line.”

Mr. Ron Pradinuk: If I could just interrupt briefly, the real frustration we have is what the airlines want to compensate us for, and I go back to my $10. They don't want the business. If you've called 1-800-who-cares, you know you're not going to get served. They do not want the business. They want to turn it over to us and for us to work for nothing. It is an absolute abuse of power, and we need you to give us the serious legal power to negotiate.

I just want to answer the one question. We have a code of ethics in ACTA. I don't know if there's an agency that is doing what you say it is, but if they were an ACTA member, we would kick them out. We have a no-cancellation policy, but a full-fare ticket would never have that on it. But there are all kinds of cancellation policies—

Mr. Stan Dromisky: It was on mine.

Mr. Ron Pradinuk: If you look at all these seat sales, you need to be a computer genius just to know which of the options you are giving the consumer can be cancelled.

I can fairly say that in 99.9% of the travel agencies in this country the loyalty is to the client, because they need them to come back, and it's not worth $20 to have a client not come back. So if that's happening, they're not going to be in the business very long anyway. If they're an ACTA member and it were brought to our attention, they'd be gone.

Mr. Stan Dromisky: Okay. Thanks.

The Chairman: Thank you, Stan.

Mr. Casey, please.

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

Just on this issue, this is a very important issue for you, but it's kind of peripheral to our restructuring debate.

• 1000

I want to clarify one thing. You sell 85% of the tickets, but you cannot bargain with them. What's preventing your organization from getting all your agents together and saying “We're going to withhold ticket sales unless you deal with us”? What's stopping you from doing that?

Mr. Ron Pradinuk: It's the competition law.

Mr. Bill Casey: So we need to change the competition law.

Mr. Ron Pradinuk: That's exactly what it is. I've talked to the Competition Bureau, and they said yes, you can talk to the airlines, and if you want to call it negotiation, you can call it negotiation. But the reality is that you have absolutely no powers. You can have a nice little conversation with the airline, and if the airline says they're not interested in talking to you, that's the way life is.

A voice: We can't tell our members.

Mr. Ron Pradinuk: With the dominant position, we're really boxed in.

The Competition Bureau told me, if you try to withhold commerce, if you as a group agree you're not going to do anything with this particular carrier, I'm putting you in jail, or the first equivalent of putting you in jail.

Mr. Bill Casey: We know what we now have to do on that issue, and I wanted to get that on the table.

I also want to move to the fundamental issue. Both of your organizations have talked about the need for competition. In the last few days two organizations have proposed to take over all of the regional airlines. In the event we do end up with one dominant carrier, which I'm not sure we're going to end up with, is it a good idea to divest the regionals, either separately or as another airline? I'd like to hear from both of you on that.

Mr. Randall Williams: I think divesting the regionals is a good idea. But giving them exclusive powers is wrong. It would be setting up a monopoly situation in the regional carrier system.

Mr. Bill Casey: Which is better, divest them individually or as one national chain?

Mr. Ron Pradinuk: I think one national chain would likely be better in terms of national competition. The big problem with the individual carriers is that there's not enough competition to create a true competitive environment.

But I want to relate this to the other part of the recommendations of the Competition Bureau. We've been talking about some of these things for three years, and we wouldn't be in this situation if in fact we had been listened to earlier.

If the regional carriers become a force and you do not deal with the concept of what happens with computer reservation system data, they're not going to emerge. They will be held down regardless of who is coming in. It's important to deal with the sub-issues related to this, and the sharing of data is a vital one, because a dominant carrier can cherry-pick an agency and say on the Toronto-Montreal route they're going to pay an override of 50%.

Mr. Bill Casey: I want to hear also from TIAC on the divestiture.

Mr. Gordon Stewart: I think our issue is not so much about choice among regional, national, or two air carriers. I think it's about other issues that affect our industry overall in terms of tourism. For us I think it's things such as access. You ask, what is access? We have an open skies policy, which is a good thing. When open skies came to Canada, the national statistics were very strong and good. But if you were in the regions, such as Atlantic Canada, the difference was 15%. We had a plus 16% in national statistics and a minus 1% in Atlantic Canada. So access became a real issue.

Mr. Bill Casey: What do you mean by that?

Mr. Gordon Stewart: We had the open skies policy. People talked about jamming at certain gates. The major airlines, of course, jam more at those gates. They rerouted their flights to the most profitable routes, and the ones that were on the tail end of the regions did not receive those benefits. Halifax lost its direct route to Germany, for example. Halifax-Germany was a tremendous route to have for tourism development and business, and now we don't have that direct route any more.

The other side of that coin is that it's also a regulatory environment that is really government controlled. You're deregulating the airports, and you think it's about a physical structure, but in actual fact it's about business. It's not about deregulation; it's about business.

What do I mean? For example, Halifax reaches airport authority status, and you say “Now you're an airport. You go out and make your own money. You run it the way you want, and you can put tax on anything you want to. Just go ahead and run it. Now it's yours to run.” So what do we do? The first thing people look at is adding new surcharges for the customer, so the price is going up. Where do we create new business? In our case we went after Icelandair. How many flights can we get? We can get four flights a week by Icelandair. How much do they have by law in Canada? Two flights a week. We are losing millions of dollars a week because we can't bring in customers to our destination.

• 1005

We have a travel packager in Newfoundland today, and he has designed a millennium package. He's done everything, and he's sold it in the marketplace. What's his problem? He can't have access into Newfoundland at a time when he has a tremendous amount of product offering and he has a clientele that wants to buy. He can't get his people into Newfoundland, into St. John's, to buy his millennium package.

Mr. Bill Casey: Who's stopping him?

Mr. Gordon Stewart: There's no access. The airlines...there's not enough capacity. Access is a major issue across the regions.

The Chairman: Thanks, Bill.

Colleagues, we've gone through one round. You're on the list next, Ovid. We've gone through one round, and the chairman has the opportunity to ask questions after a complete round.

Gentlemen, I'd like to ask a couple of questions.

No one denies, Mr. Pradinuk, that there's a problem, that you have a problem. I can sympathize with your problem, but you will not convince me the government should step in, and here's why. I think you've got some demonstrating to do as an association. I can't believe for a moment, with the clout you have as an organization, with the symbiotic relationship you have with the airline industry, that the airline industry does not need you as much as you need the airline industry.

You said you are not a powerful association. You have 5,000 travel agents, 35,000 people, $4 billion in air service bookings, 85% of all airline reservations. You've got the hammers. You've got the hammer. But before you would come to government and say you are in trouble and there could be thousands of job losses as a result of your being in trouble, what have you as an association done? If you have the hammers, today is a wonderful springboard, and I hope a wake-up call to all the travel agents to call Mr. Pradinuk and say it's time we got organized; it's time we formed an association. Maybe it's time you even joined a union in order to take your hammers effectively to the airlines and ask, “What's this all about, you guys just all of a sudden deciding the commission rate is going to fall from 8% to 5%? Well, guess what, you have a problem now with the Association of Canadian Travel Agents”—or whatever you want to call yourselves.

The government I'm sure is willing to help out, if it's been demonstrated at the end of the day that the organization has done something or attempted to do something to resolve the problem. But so far I see nothing except that you have a problem, there are going to be thousands of job losses, and there is nothing you can do. I suggest there is something you can do. I welcome your comment on that.

Mr. Randall Williams: Well, if I can just respond to that, we have talked about the airline community being unified in saying that what we should do is not take any more Air Canada or Canadian Airlines bookings, and force the consumer to phone the airlines directly and make the bookings. They couldn't handle it, and what you'd have in this country is a mess.

If that's how we handle getting a voice heard... We have said to our industry that the most important person for your business is the consumer. We had hoped we could talk in a proactive, intelligent, professional manner and not start picketing airports and telling our agents to not serve their customers. If that's the way we have to do it to be heard, then we may have to go that route, and we'll be back—

The Chairman: But, Mr. Williams, have you gone to the airlines and said that to them face to face? Have you said “Look, we don't want to get into a spat with you”—

Mr. Randall Williams: Yes, we have, and they won't talk to us.

The Chairman: So if I were Air Canada or Canadian I'd say “Go ahead, Mr. Williams, give her a shot”. You guys are so blown up over the map and unorganized that, you know what, if I were Canadian Airlines or Air Canada, I'd say “They don't have the strength, they don't have the unity, they don't have everybody on board. They have a split across the country, and everybody is acting on their own.” You've got to organize—

Mr. Ron Pradinuk: Well, Mr. Keyes—

The Chairman: I sound like a bloody labour union—

Mr. Ron Pradinuk: Unfortunately, Mr. Keyes, I think maybe the possession of the facts here is not entirely accurate. I have a body out there that's virtually prepared to do what it takes to ensure that we get compensated fairly. We have already done the negotiation route on an ongoing basis. I can assure you that during this process and before, we have been meeting with the airlines to absolutely no avail, because when you have one powerful carrier, basically they do not have to respond.

• 1010

I can also tell you that I have a community out there that would unite in a group action, but the point I tried to make is I have already been told by the very Competition Bureau that is willing to take us to court that we do not have the legal authority to take any of those stands. That's exactly why we are here today.

We have a united group. I can tell you that right now my group would do whatever it takes to ensure that we are able to be compensated fairly—anything.

I've never seen what I saw in a meeting last week, when major chains and major consortiums in this country and the largest franchises gathered in a room and agreed on the number one point that I'm coming here to ask you for, which you're saying you're not prepared to do, all of us together for the first time as an industry, large chains who do so much of the business, saying yes, that's what this association needs, because it has now gone over the edge.

Mr. Keyes, if I could in fact make the airlines listen on a negotiated basis, as I have tried to do, including three weeks ago in meeting with senior people in one of the air carriers, I would do so.

The Chairman: Let me ask you, when you say you went to them as a group to negotiate, who was Mr. Pradinuk representing?

Mr. Ron Pradinuk: Basically, I was representing 30,000 travel agents in this country, or the owners, through that.

When you talk about a so-called union, remember that as a trade body, which is different from the employees, we're not empowered at the present time to create such a union. That's exactly what we're looking for, the right to do so, and there is some precedent on the government side.

The Chairman: You don't have the right to organize?

Mr. Ron Pradinuk: No, we do not have the right to organize.

The Chairman: Who says you cannot organize into a union?

Mr. Ron Pradinuk: The Competition Bureau basically says that as an industry—this is not about employees, this is about owners—we do not have the legal right to negotiate, to organize a negotiating union for economic—

The Chairman: Now we're talking turkey. I want to hear more about that.

I have to yield the floor to my colleagues now, because I've taken too much time already. It's a good point.

Mr. Ron Pradinuk: Yes, this is about the ownership position. That's exactly right. This is not about employees negotiating with owners; this is about owners negotiating with airlines. That's where we need a change to the legal parameters.

The Chairman: If we can get a suggestion from you on precisely what you'd need vis-à-vis regulation, on how it could give you the opportunity to organize in order to do your negotiating, that's what we'd like to hear. I think I'm speaking for everyone.

Mr. Ron Pradinuk: Yes.

The Chairman: Mr. Jackson, please.

Mr. Ovid L. Jackson (Bruce—Grey, Lib.): Thank you very much, Mr. Chairman.

Mr. Ron Pradinuk: You've had to be very patient.

Mr. Ovid Jackson: I am, because I don't ask questions unless I have something meaningful to contribute. They wanted me to go down to the House just now, but I stayed because I want to ask a question.

It's interesting that every group that has come to us always asks for their own interest. They always say the other guys are bad or good. I'm not saying this is a good or bad thing; it's just that there is a role for government. That's what it proves.

Bill Gates spends $70 billion a year trying to figure out what's coming, what's new. He's watching in the rear view mirror, and he never gets it. I know some of my colleagues accuse you of being asleep at the switch, saying that with a paradigm shift over things changing, why didn't you know the answer? Why don't we have the answer to the shortage of doctors or various skills or on things that happened. It's just that human beings resist changes. It's 11 years old, and changes happen.

So you've had a change, and obviously your industry is under stress. The Internet and the use of information technology is bringing a lot of changes. That brings me back to my question: What is the public interest and how can it be best served?

Like everybody else, I have a lot of travel agents in my riding. You guys do provide a service: is the person insured; are they going to someplace that has a great picture but they're going to get ripped off? That's the part you do; you add value to it. That's basically what you do, hopefully, once the agencies have experience and expertise. That's what you offer. It's a value-added thing.

• 1015

I see the frustration on your faces and I hear it in your voices. You've been playing the game, and all of a sudden the rules of the game have changed. The score was 50 to zero. Now it's turned around, and the guy who had the zero is up to 300 and you're still stuck at 50. There's nothing you can do about it, simply because they're using their travel points or whatever techniques, and it's an unfair advantage.

Notwithstanding that we may have to weed out some of this stuff, if I asked my question to the tourism industry, they'd say get rid of all the taxes. But I would want to prioritize which ones we might want to work on.

It would be an interesting study to see who flies on airplanes. To a large degree, you get a lot of government people flying, because we have a big country. Without some of the government people flying on some of these routes, they wouldn't be as good, so maybe some of the taxes we take we spend back in the industry anyway.

So my question to you two groups is what exactly do you want from us? I want to hear from the travel industry and from the tourism industry.

Mr. Randall Williams: What we want, obviously, as Ron has stated, is some regulatory clout to be able to confront the powers or the non-competitive environment. The way Air Canada and Canadian control the marketplace and control their distribution channels handicaps our ability even to go to the table and negotiate with them.

Minister Collenette stated that the government's primary interest in this restructuring of the industry is to provide fair pricing, ensure good service to our diverse country, and respect the rights of all workers involved in the airline industry. We'd like to suggest that this is the same objective we have here for the travel agency industry. Why are we identifying one sector to come in and intercede when we're suggesting to you that there are more jobs and more businesses at risk here than what exists in the airline industry?

The government suggested that they want to intercede and protect jobs and consumers. What we're suggesting to you here is that travel agencies will have a greater impact in jobs lost and the consumers will be even more negatively impacted because an unbiased and professional service will be taken out of the consumer marketplace.

Mr. Ron Pradinuk: There is no industry in this country that is peopled by more fiercely competitive free-enterprise thinkers than the small-business travel agency owners who populate every province in this country.

Mr. Ovid Jackson: Before we go to the tourism industry, I want to find out exactly what you guys are doing, because you have had a shift. People are using technology a lot more, and you have to make some changes in your industry as well.

Mr. Gordon Stewart: Mr. Chairman, could I offer a comment on the technology side?

The Chairman: Sure, Mr. Stewart.

Mr. Gordon Stewart: I have extensive knowledge that might shed some light in terms of that field.

I'm not a travel agent—I do use a travel agent—but I do know about the technology impact on the travel industry extensively. People think there's going to be a great migration for everyone, jumping to the Internet to do their travel reservations. That's not an evolution; that's already here. That penetration of the market is very small. In North America, it's less than 2%. Even if our wildest dreams came true over the next 25 or 30 years, we might hit 5% to 6%.

Where you're going to see the customer interaction using technology, and I think our colleagues here on the travel side were talking about that, is going to be in sell-off of what we refer to as perishable merchandise, which includes the hotel room, the airline, a variety of different things. It's more perishable than the cupcake sitting on the shelf, because you can eat a cupcake two days later, but you can't sell the seat two days later.

So you're going to see the Internet used more and more for that kind of functionality. Destinations will use it. Right now, there's no question about it; if you look at the statistics on America Online for travel, it's the number one category. The number one piece of travel is consumers looking for destination information. Number two is people doing bookings. But when it involves a very specialized vacation package, when it involves referrals, they go right back to the travel agency to complete that.

So I think technology will be of influence, but I don't think it's going to take over nearly as much as people think it will.

• 1020

The Chairman: Thanks, Mr. Stewart.

Just before Val asks her question, Mr. Pradinuk, I've had a discussion with our researchers because I'd like to learn, for the committee's collective knowledge, exactly what it is in the Competition Bureau or the act that prevents you from organizing. Quite frankly, if the big boys like American Express or Rider can get into this game, cut their deals, and survive on 5% because of the huge amount of business they do, where does that leave the independently owned travel agent when they say they're not... They're just large and they can deal in all these volumes and you can't organize to compete against them. It sounds almost anti-competitive to me, so—

Mr. Ron Pradinuk: Yes.

The Chairman: —we'll have a little research done on it.

Mr. Ron Pradinuk: What's even funnier about what's just occurred with this... I do look forward to this discussion, because I have been told directly that as a group we cannot have the powers of negotiation. Now, you can get together and have any discussion you want, but that's not a power of negotiation. It doesn't give you any power. That's what we're dealing with: what right do we have to take some action that has results?

The Chairman: If the other side doesn't have to come to the table—

Mr. Ron Pradinuk: That's right.

The Chairman: —there is no negotiation.

Mr. Ron Pradinuk: There's no negotiation unless someone agrees that you have to negotiate.

The Chairman: That's right.

Mr. Ron Pradinuk: The second part I want to say, because, as I said earlier, it's really important on this issue we are coming forward with today, is that at our meetings some of the very players you have referred to on the large agency side are behind this completely. Because you now have a situation when a large chain is behind an association doing negotiations around minimums.

The Chairman: Yes.

Mr. Ron Pradinuk: This is a serious situation.

The Chairman: Yes. Thanks, Mr. Pradinuk.

Ms. Meredith, please.

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

I want to change the topic a little because I'm appreciating more what this issue this. I am still confused, and I am looking for the actual legislation that prevents a business community from saying they're withdrawing their services because they're not prepared to do the work for what someone is prepared to pay for it. Having been in business before, let me say that it was always an option for a businessperson to say “I'm not going to work with you because you're not treating me fairly”. I find it almost impossible to believe that a government can prevent you from having that kind of relationship with your business partners.

But I want to get into your point number two: ACTA wants fair marketing and promotion of ticket prices that removes predatory practices and does not place the carriers and retail travel agents in competition with each other.

So on the one hand you're saying you don't want to provide competition within your own industry, and then you're going to point six, on the other hand, which says ACTA wants a more competitive airline industry.

As I read this, what you're saying is that you want competition in the airline industry but you don't want competition in the travel agencies.

Mr. Ron Pradinuk: No.

Mr. Randall Williams: Oh, no. The term “competition with each other” doesn't mean between retail travel agents. That refers to the carrier and the travel agent being in competition with each other, not the fact that the travel agents would be competing with each other. Travel agencies compete with each other—

Mr. Ron Pradinuk: All the time.

Mr. Randall Williams: Yes, all the time, and we want that to continue.

Mr. Ron Pradinuk: Earlier someone mentioned an important area: how we find ourselves in an unfair competitive position with our supplier. I don't know whether we have it in this document, but we've agreed as an industry that what we need you to do is to say that the points that an airline has to entice you as a consumer to book direct, by giving you 500 free points...as an industry, travel agents want the right to buy those at the same price airlines would sell it to other players so that they can use that enticement if they choose to do so.

This is an abuse of power. You have the points. You control the points. You prevent me from competing effectively with you by saying that I can't have the points. As a travel agent, I'm willing to buy those points at fair market value, at the lowest value they sell it at. That's what I mean. That's unfair competition. In order to get my what they call “plates”, I need to have certain economic insurances and I need to have computer reservation systems.

All I want is the right to book that ticket. Don't take away the right to book it, because then you place me in an unfair competitive environment, where I'm in fact competing against you—and not on a level playing field.

• 1025

The Chairman: We have two “short question” requests, one from Mr. Sekora and one from Mr. Guimond.

Mr. Lou Sekora: There was an earlier comment by my colleague, Ms. Parrish. The fact is that if I book through a travel agent...somehow the airlines can book it a lot cheaper. There are savings there, but they don't pass on any savings whatsoever to me. There are no savings. When I book with a travel agent, I know I can get an agent on the other end of the line and talk to him, and I know they'll get back to me in five minutes.

I'll say to my colleagues on all sides of the House, try your cell phone when you're busy and try to book through Air Canada or Canadian Airlines. Somebody is answering in Dallas or somewhere, and if you want to speak Mexican you press this button, and if you want to—

The Chairman: Okay, Lou, you have to ask your question quickly, please.

Mr. Lou Sekora: You press this button and so on. Try to use a cell number where you can press a button and get the language you want. You can't. The service is just not there.

These people are absolutely correct. When I was in the hotel industry, we paid a commission to travel agents—

The Chairman: Lou, you're going to have to ask your question.

Mr. Lou Sekora: So the thing is, what I'm saying here is that when I book through you people or the airlines there is no saving for me in going direct to the airlines and having all these headaches and everything else, is there?

Mr. Ron Pradinuk: No, there's not, but you must remember something. What's about to take place with the essentially no-commission environment we're in is that agencies are going to have to deal with some ways of staying alive. If we can't get some fair compensation, there will be increased service charges. With the loss of overrides and with the loss of commissions, there is not a hope that we're going to be able to charge the kind of price we need to charge to hold on to the consumer.

This is a “spiral-down” situation, which has to be dealt with, and yet nobody seems to deal with it. I really look forward to having the discussion about this area, I can tell you, because we've been given it so directly in terms of owners. I, as an owner, can do something, but as a group of owners, we don't have the legal authority to band together. That's where the Competition Act comes into play.

The Chairman: Mr. Guimond, please.

[Translation]

Mr. Michel Guimond: I would like to hear from Mr. Belyea, on behalf of the Tourism Industry Association, and from Mr. Pradinuk, from the Canadian Association of Travel Agents, regarding quality of service and the types of aircraft used. I do not know if we will be able to require airlines to serve communities using adequate aircraft. For example, in Quebec, Air Alliance uses Beechcraft 1900. How can we develop the cruise ship industry that way? How can the industry attract foreign tourists with that kind of aircraft? Do you think it will be possible to impose standards on airlines regarding quality of service?

[English]

Mr. Randall Williams: As long as we have a competitive environment and an open environment, where new entries can enter the airports, we'll find that the best type of aircraft will be used to service the customer. Right now, though, the airlines have such a dominant position in the key airports that they can dictate the time they enter into a Regina market, for example, which is a smaller market, and the type of aircraft, without fear of losing customers to a competing airline—because there isn't any.

With the competitive environment we have in Canada right now, the airlines are so dominant that they can go in with the times they want and the type of aircraft they want to go in with and know that they won't lose market share, because there is not enough competition. As long as there are regulations, you can't tell the airlines what type of aircraft they need to use and so on, but what you can do is to set up a competitive environment so that the consumer will dictate to the airline what type of equipment they want to ride on.

The Chairman: Thanks, Mr. Guimond.

Did you want a response, Mr. Stewart and Mr. Belyea?

Mr. Gordon Stewart: I have just a couple of quick comments for you, Mr. Chairman.

• 1030

Certainly what happens nationally does not necessarily happen regionally. I think the reflection of consumer air travel does change. You may or may not know that Canada 3000 has the most modern air fleet in Canada, yet it's a charter air service. Everything falls down from there, so to speak—not down from the sky, hopefully.

In regional air service—and I think that's what your question is about—there's certainly quite a change in the level and quality of service today, because what we've done is that we've taken the airline industry in Canada and made the airlines engines of the stock market, and we've not necessarily made them engines of growth for the regions. I think there clearly is an impact on regional service, in type and in quality, because of that.

The Chairman: We thank the Tourism Industry Association of Canada and the Association of Canadian Travel Agents for their presentations to us. Thank you, gentlemen, for answering our questions. We look forward to speaking with you again soon.

Colleagues, we're suspended for two minutes, to change witnesses.

• 1031




• 1038

The Chairman: Colleagues, the bells are ringing for a vote. I understand it's a half-hour bell. That being the case, let's welcome the Federation of Canadian Municipalities to the table to give us their presentation of eight minutes. We can go to our vote and then come back for questions and answers. Do we agree on that?

Some hon. members: Agreed.

The Chairman: We welcome Mr. Sam Synard, president, and Mr. Joseph Dion, director of policy and public affairs, from the Federation of Canadian Municipalities. We look forward to your presentation. We may have to break away for a vote, but then we'll be right back to ask questions of you.

Mr. Synard.

Mr. Sam Synard (President, Federation of Canadian Municipalities): Good morning, Mr. Chair and your fellow colleagues. I'm deputy mayor of Marystown, Newfoundland, and president of the Federation of Canadian Municipalities. Also with me today is Mr. Joseph Dion, director of policy and public affairs at the Federation of Canadian Municipalities. I'll use the acronym FCM to save maybe 25 seconds.

On behalf of FCM, I would like to thank you for inviting us to discuss our views on several issues related to restructuring of Canada's airline industry. FCM is the national voice for municipal governments across Canada. Our membership base makes up 77% of the Canadian population—some 23.5 million people—so we're very concerned about our constituents and the impact airline mergers will have on communities.

• 1040

We are here today because we are concerned that a merger between Canadian Airlines and Air Canada, in whatever form, will ultimately result in higher costs and reduced service levels for air travel across the country, particularly in smaller remote and northern communities. At the same time, we understand that the airline status quo is clearly unsustainable.

When the air transportation system was deregulated in 1987, Canadians expected the introduction of new and special service operators to the marketplace, which would increase competition and bring better and less expensive services to consumers.

While this approach appeared to work at first, by 1993 the industry was dominated by two major airlines competing for market share on every major route. This cut-throat competition undermined the financial stability of both airlines, and Air Canada survived somewhat better than Canadian Airlines. That has brought us to where we are today, looking at industry consolidation and, most probably, an airline monopoly.

Considering the strong likelihood that an airline monopoly will be created and the fact the federal transport minister has made it very clear that re-regulating the transport industry is not an option, we feel we must ask one important question. How will the interests of communities large and small across Canada, air travellers, and businesses and shippers, who depend on affordable air access, be protected in an unregulated airline monopoly?

Clearly, before amalgamation is allowed to proceed, adequate and effective procedures must be put in place to protect the interests of air service consumers and the communities that depend on their access, and ensure that the new dominant group of airlines is unable to abuse its market position and power.

The FCM understands that to promote healthy competition in the Canadian airline industry, any direct regulation of prices and routes will not be in the best interests of consumers or communities. But we equally understand the need for oversight and enforcement. Without some kinds of checks and balances, the creation of an airline monopoly, with the goal of maximizing shareholder profits, can only have negative consequences for consumers.

While we are encouraged that the transport minister has taken the first steps to manage the eventual restructuring of the airline industry, we remain unclear as to how the resulting new frontier will be overseen.

Communities across Canada want reassurance that Ottawa fully intends to accept its public responsibility to ensure a free and open marketplace, as well as competitive and affordable services. Again, this is especially true in smaller markets, where industry restructuring might possibly result in service degradation or loss.

To foster and ensure airline competition in Canada, the FCM supports many of the recommendations and remedies identified by the Commissioner of Competition. We believe these remedies must be implemented as both carrier commitments and conditions of approval.

Specifically, governments must have the ability to prevent predatory behaviour by the dominant carrier. Predatory behaviour can appear in the form of pricing, overcapacity, frequent flyer point manipulation, and through the use of computer reservation systems. We agree that the government should also consider the benefits of relaxing foreign ownership limits to allow foreign carriers to operate in Canada, either directly or via subsidiaries.

We also agree that all provisions of the Competition Act applicable to the airline industry must be applied and enforced rigorously, including airport access and slots, travel agency commissions and interline arrangements. Specifically, the act should be amended to bend certain types of anti-competitive acts and give the competition commissioner the effective power to police and maintain airline competition. Alternatively, similar powers could be vested with the Canadian Transportation Agency.

These are not radical solutions, the are pragmatic approaches to a serious public policy issue.

Regarding services to smaller and remote communities, especially in the northern regions, FCM has some serious reservations about the emergence of one dominant airline. Canadians are among the highest per capita users of air services in the world, and for people living in smaller and remote communities ,air services are sometimes the only viable link to the outside world.

Air carriers and the federal government have increasingly looked to municipalities to help maintain these air links. Due to government service off-loading, which I will come back to in a few moments, combined with the possibility of service degradation or loss as a result of airline restructuring, many communities feel their economic and social viability is under attack. Small communities, like large centres, want competition and access to air networks.

• 1045

In the absence of competition, FCM believes that legislative action is needed to ensure that carriers provide adequate notice of market exit and provide a replacement carrier, and to create a subsidy program for communities facing the loss of their air service. A program and subsidy similar to this was introduced in the United States as part of its own new domestic and airline policy. Given our demographic and geographic challenges, Canada should do the same.

In closing, Mr. Chair, the off-loading of program responsibilities by other orders of government has added many burdens to municipal governments and has made it hard for us to strengthen our local economies and businesses. The effects of this off-loading have been even more keenly felt in smaller and more remote communities that do not have either the tax base or access to services to compensate for the extra responsibility. We hope you will urge your government to adopt at least some of these suggestions. Please do not let airline restructuring kill the economies and future of Canada's most vulnerable communities.

Again, Mr. Chair, thank you for the opportunity to present. We would be more than pleased to answer any questions that are forthcoming.

The Chairman: Thank you very much, Mr. Synard, for your presentation.

My list is Ms. Meredith, Mr. Hubbard, Mr. Guimond, and Mr. Calder so far.

Why don't we take the first five minutes, Val, and then we'll break for the vote and come back immediately after the vote. Val, do you want to take your five minutes?

Ms. Val Meredith: Thank you, I will.

I find your presentation very interesting. I want to deal with an issue I have heard from municipalities probably more in the last week than before, and that's what you have referred to as off-loading. It's apparent to me that the federal government is thinking about reinstating the emergency response time to airports that have been divested to municipalities, and a great concern by the municipalities that they are not in a position of fulfilling those regulatory demands on them. Is this the area of off-loading, or are there other areas of off-loading I'm not aware of?

Mr. Sam Synard: I'll get back to that point, but firstly, in the areas of off-loading I'll give you an example. Most of our off-loading has come from the federal, provincial, and municipal sectors—cutbacks in health care transfers, for example—

Ms. Val Meredith: We're talking generally off-loading then, not specific to the airlines?

Mr. Sam Synard: Yes. For example, in Quebec three years ago the Quebec provincial government said we need to cut expenditures, we need to increase our coffers, so instead of giving $500 million in transfer payments to a municipal government we're going to abolish it totally with this one piece of legislation. It happened in many provinces across the country.

On the issue of response time, I can't believe that the Department of Transport has created such a double standard. When the airports were the responsibility of the federal government they had one standard of response time service, one standard of care vis-à-vis response time. Now that the airports have been devolved to municipal or local authorities, that standard of care has increased and the financial burden to enforce that standard of care has increased. We are lobbying with some success but with a great deal of frustration to even have acknowledged the fact that, yes, there is a double standard. It's a specific example of downloading in the transportation industry.

Ms. Val Meredith: Having spent almost eight years in municipal government and having spent another three in the administration of municipal government, it's very clear to me that you can't treat all municipal entities the same way. Where a three-minute response time might be reasonable in a fairly populated, affluent community, when you depend on volunteer firefighters in smaller communities there's no way on God's green earth that you could ever respond in three minutes. Is this something the Department of Transport is willing to hear from you, that you can't have one standard for all communities in this country?

Mr. Sam Synard: Yes, we have an ongoing active lobby on this issue. The FCM is a fairly large organization, and we have close to a hundred full-time employees, many of whom are deployed to track government policies that affect municipal government. Some of our officials met just last week; we had officials from the Department of Transport on this particular issue. I met with Minister Collenette a number of weeks ago, and we're going to continue to lobby, but it's very frustrating.

• 1050

Regarding your suggestion that there be a template response time across the country, I live in Newfoundland, for example, and we have seven operating airports and only two of these communities have paid firefighters. The rest are volunteer firefighters. So I agree with you totally.

Ms. Val Meredith: With some of the other comments you've made in your paper, it's interesting that you seem to be supporting the competition commissioner's report. One of the points is you feel there shouldn't be any limitation—not that there shouldn't be any limitations, but you refer to relaxing foreign ownership limits to allow foreign carriers to operate in Canada. When you say “relaxing”, what are you thinking of? Taking it off completely? Just raising the limit? How do you look at that?

Mr. Sam Synard: Relaxing foreign ownership rules would not be our first choice. Of course our first choice would be a strong competitive airline industry in Canada, in effect controlled 100% by Canadians if at all possible. But in the absence of that and in the void that may be created in an airline merger that creates one dominant player that may practise predatory practices vis-à-vis competition, we have two choices: we can either deregulate the industry further vis-à-vis the ownership rules to ensure competition, or you're forced as parliamentarians to bring in strict regulations and to control a monopolistic situation.

But that's certainly not our first choice, no. We're very patriotic, of course.

Ms. Val Meredith: It's taking patriotism to its extreme. If a carrier could survive to bring in competition to ensure a competitive industry by upping the foreign ownership amount, and I'm saying to 49%, so it's still Canadian-controlled, would you find that an issue if it meant the survival of a competitive industry?

Mr. Sam Synard: We would side with competition relaxing the foreign ownership rules if it meant that was the only way to create a competitive environment in the airline industry, yes.

Ms. Val Meredith: Okay, thank you.

Mr. Sam Synard: We would take foreign competition more than we would take a 100%-owned Canadian monopoly.

The Chairman: Thanks, Val. Thanks, Mr. Synard.

You'll have to excuse us for about fifteen minutes. The vote is in five minutes. We'll return to begin questions again, beginning with Mr. Hubbard.

Mr. Sam Synard: Right. Thank you.

The Chairman: We're suspended until after the vote.

• 1052




• 1123

The Chairman: We again apologize to our witnesses from the Federation of Canadian Municipalities for the interruption. We had to have a vote in the House of Commons.

Mr. Synard, the president, is joined by Mr. Joseph Dion, director of policy and public affairs. Mr. Synard has made his presentation and Ms. Meredith has asked the first question already, so we'll go to the next questioner on the list, and that is Mr. Charles Hubbard. Mr. Hubbard.

Mr. Charles Hubbard (Miramichi, Lib.): Thanks, Mr. Chairman.

First of all, I want to go back to a request I made the day this committee was set up, which is that we have before us the various airports in the country, the travel frequency, and some information on how they're served. As of today, we still don't have that. I'm not sure where the fault should lie, but when we hear groups such as the one we have before us now, a federation of all Canadian municipalities—

The Chairman: Mr. Hubbard, we are in receipt of that documentation, but we can't—

Mr. Charles Hubbard: I am not in receipt, Mr. Chair, and I've been looking for that for more than two weeks.

The Chairman: Mr. Hubbard, we just received the information yesterday, but before we can—

Mr. Charles Hubbard: And we should have had it some time ago.

The Chairman: Mr. Hubbard, we can't distribute it until it's translated.

Mr. Charles Hubbard: Well, I think, Mr. Chairman, if such be the case, this committee should adjourn until such time that we have that information. It's critical for the—

The Chairman: Well, Mr. Hubbard, if you want to move a motion to that effect, do so. Otherwise, you'll have—

Mr. Charles Hubbard: I will later today, Mr. Chairman.

The Chairman: —to move along with questions to the witnesses.

Mr. Charles Hubbard: And secondly, Mr. Chairman, there's an issue that comes up here that is brought out again in this report this morning. It deals with frequent flyer points. Again, I'd like to have some research done on that, because under the Income Tax Act, benefits from frequent flyer points certainly should become a part of the income of that individual.

• 1125

When we hear groups saying they're being manipulated by frequent flyer points, I think this committee through its research should investigate to see if the companies that are involved with frequent flyer points are sending out T slips to the people who are receiving them. I'd request, Mr. Chairman, that we pursue that.

I'd like to now go to the witnesses regarding page 8. The indication there is that:

    In the absence of competition, FCM believes that legislative action is needed to ensure that carriers provide adequate notice of market exit and provide a replacement carrier, and to create a subsidy program for communities facing the loss of air service.

I'd like to hear our witnesses on an explanation of how they see this working in terms of a replacement carrier and in terms of subsidies that might be available to smaller airports.

Mr. Joseph P. Dion (Director of Policy and Public Affairs, Federation of Canadian Municipalities): As we have said, we are not experts in the area. We make the point that the best way would be to have open competition. I think if the choice is made not to relax restrictions to allow open competition, other measures have to be taken.

Notice of market exit is very easily implemented. A requirement could also be put on a carrier that if they were to exit the market, they'd have to take steps to ensure there was a replacement. The subsidy program would be something instituted by government. As Mr. Synard said earlier, it would not be our first choice. But if there's no other option, the people in remote communities would have to receive some subsidy from the government to give them air travel that they could use.

Mr. Charles Hubbard: It's interesting who should pay this subsidy. You're saying the government. We've heard certain people say there should be a subsidy from mainline carriers, because most of these smaller airports are part of a spoke and hub system.

You're a very important association. You probably better represent the Canadian flying public than any other group that has been before us. You have all the small towns and all those rural areas across the country. From your perception, would you look to the provincial government, the federal government, the local government, or the mainline carrier for some cross-subsidies to support travel in our remote and rural areas?

Mr. Sam Synard: Mr. Chair, there are examples where industries in this country do subsidize services to rural or remote parts of the country. Yesterday I met with the general manager of Canada Post on behalf of FCM, and he informed me that Canada Post basically loses $100 million a year providing services to rural and remote communities.

So the concept isn't alien or foreign. In fact, the concept of subsidizing the quality of service, or service generally, in rural and remote Canada is almost a part of the Canadian psyche in some way. If not, I guess, to be curt about it, sir, I could always decide I can no longer live in Newfoundland because I have no air service, so I'm now forced to relocate to southern Ontario. And I guess you can leave Slave Lake, Madam, and move to southern Ontario, and so on. But as a Canadian, I choose not to live in southern Ontario. I choose to live in rural Newfoundland. I think there's an obligation to ensure that there's some equality of life assured to people who choose not to live in large urban centres.

Mr. Charles Hubbard: It's ironic that the Moncton airport authority have issued a press release of what they call the rights of Canadians in terms of air travel.

You alluded a minute ago to Canada Post. Now, if you live in rural Newfoundland, rural New Brunswick, or in the far north, for a fixed fee you can send a letter anywhere in this country. Would it be realistic to have a fixed fee by which people could travel from any place in this country to another place?

Mr. Sam Synard: I think yes. It's not unreasonable—although the fixed fee, I think, would best be established by competition, as opposed to regulation. But in the event that competition does not emerge from this process, then yes, there have to be some regulations put in place to ensure availability and reasonable cost of services throughout Canada. If not, you really undermine the integrity of rural Canada and the remote parts of this country.

• 1130

I'm sure, sir, there will be. The RapidAir service and the triangle from Ottawa, Montreal, and Toronto will survive. Competition will come in. WestJet has proven that in the triangle between Edmonton, Calgary, and Vancouver. But I don't see a whole lot of people in the industry clamouring to break into the market in rural Newfoundland, or northern Alberta, the Yukon, the Northwest Territories, and Iqaluit.

Mr. Charles Hubbard: It seems ironic that more than a hundred years ago—probably two hundred years ago—some government officials decided that regardless of where you lived in this country, you could send things for a fixed fee anywhere. If I mail a letter from here to Montreal, it costs the same amount of money as if I mailed one to Vancouver. But today, our thinking has changed drastically in terms of how we see communication and travel.

Thank you, Mr. Chairman, for letting me make that observation.

The Chairman: Thank you.

Mr. Sam Synard: On the issue of provision of services to remote parts of this country, Canada Post—which loses $100 million—being an example, its philosophical attitude transcends other parts of government as well. It's much more expensive, of course, to deliver health care in rural Canada. It's much more expensive to deliver educational services. Yet we don't say you have to pay a whole lot more to go to a university in northern B.C. than a university in southern Ontario.

There are some acceptable standards of why we are Canadians: we support each other and we support those who need our support. And that's what makes us great as the country of Canada.

That's my philosophical statement for the day.

The Chairman: Thank you very much, Mr. Synard. We're all the wiser for it.

Mr. Sam Synard: Thank you.

The Chairman: Mr. Guimond, please.

[Translation]

Mr. Michel Guimond: Mr. Synard, I find it hard to understand your comment about making the foreign ownership rules more flexible so that foreign carriers can operate here, when we know that foreign carriers may be inclined to buy their supplies, their goods and their services in their own country. We should keep in mind that when we are talking about foreign carriers, we are talking about the Americans. When the representatives of the machinists' union appeared before us, they said that when American Airlines took so-called control of Canadian Airlines, 384 of their members in Calgary, if I remember rightly, lost their jobs. I believe that the City of Calgary is a member of your association, and I know that the City of Montreal is. When they appear here next week, the representatives from the Montreal airport support group will be telling us whether the use of the SABRE reservation system, which is located in the United States—in fact, it is not in Dallas, but rather in Tulsa, Oklahoma—by the new carrier would cause the loss of 1,400 computer jobs, including 700 in Montreal.

I would be tempted to send your brief to the City of Calgary and the City of Montreal to see whether they agree with your comment on control by foreign carriers.

[English]

Mr. Sam Synard: That's a fair comment, Mr. Chair. I'm assuming our brief is now tabled, so it becomes part of public domain information. You can forward it to whomever you wish, of course, and we'll react to it accordingly.

I don't mean to be curt, but on the issue of foreign ownership, the only thing worse than a Canadian-owned monopoly controlling the skies in Canada would be an American-owned monopoly controlling the skies in Canada. But neither one of them is a good choice.

I'm at a loss to understand that if competition does not emerge in some form through the amalgamated airline industry, then regulation is the next step. We see that with Microsoft south of the border. How else do you ensure competition in a monopolistic situation unless the industry does it themselves? And failing that, as parliamentarians I think you have a moral and legal obligation to intervene and create that level of competition. That's basically what we're saying, in a nutshell.

• 1135

On the issue of loss of jobs, we're very concerned about the loss of jobs, of course, but we're here as a lobby group articulating the concerns of municipal government. I'm assuming that if Mr. Hardcore from the CAW did a presentation, he would focus more on job loss, but my obligation as president of the FCM is to focus more on the availability of air services for all of our municipal members across the country. Having said that, I'm not unsympathetic to the issue of job loss. No, we're very concerned about it.

[Translation]

Mr. Michel Guimond: Thank you, sir.

Mr. Chairman, I just want to mention, for the purposes of our study, that Ms. Meredith asked the question that I was intending to ask regarding the new standards for fire services imposed on airports, since that responsibility has been passed along to the municipalities and regional communities. I am fully satisfied with the answer given by the witness.

[English]

The Chairman: Thanks very much, Mr. Guimond.

Mr. Calder please.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman. I found this very interesting this morning.

The last couple of days I have been asking for a vision of what the airline industry would look like, and given that, we could turn around and craft policy around it. I haven't been able to get that vision, so I'm going to do a flip-over here. I'm going to come up with policy, because I think I have a vision in my head. It's basically ten points, and I'd like your comment on it.

We would definitely be dealing with one carrier. We would be looking at a 15% clause on ownership, and a 49% clause on foreign ownership. We'd have to incorporate a regional carrier policy within it. There'd be an employee retirement package through attrition that would be involved in this. There'd be a policy dealing with airport slots, charter policy, reciprocal cabotage, a remote communities policy, and policy on the issue of frequent flyer points.

I'd like your comments on that.

Mr. Sam Synard: Well, I have eight out of ten recorded. I missed two; you'll have to jog my memory.

Mr. Murray Calder: Okay.

Mr. Sam Synard: On the issue of one carrier, very succinctly, as a national organization we are not lobbying for Onex over Air Canada over Canadian Airlines to control the skies. So regardless of who the new carrier is, be it Onex, Air Canada, or me, the same rationale would have to apply. That is, open competition and availability of services to small or remote communities.

There seems to have been across the country a much greater lightning rod on this issue when we anticipated that Onex would control the skies. There seems to be somewhat less public backlash for Air Canada somehow controlling the skies. Really, removing the principal who may eventually control the skies... It's really immaterial who controls the skies. If there is one carrier—and it looks like there will be one carrier—then there has to be competition instilled in that system, and there must be services provided to small remote communities that are probably not the cream of the crème when it means profits for the new airline industry.

Mr. Murray Calder: Bear in mind though that right now, as the situation stands, we have eight carriers in Canada. Only one's sick. So we have the competition.

Mr. Sam Synard: There are eight carriers in Canada, but take the east coast, for example. On the east coast and into Newfoundland, 87% of all flights and slots at all airports in Newfoundland, and primarily Atlantic Canada, are controlled by Air Canada. So even in Atlantic Canada now, an important geographic part of this country, we are nearing a monopolistic situation.

On the issue of 15% individual ownership, we really don't have any strong opinions on that. We really haven't analysed that in any great detail. So I really can't pass any opinion on it.

The 49% foreign ownership is an important issue. As I said earlier, the only thing worse than a monopolistic Canadian-owned airline industry would be a monopolistic American-owned or foreign-owned airline industry. Sometimes the devil you know is probably better than the devil you don't know, in trying to deal with people.

• 1140

Regional carriers are very important, of course. We keep hearing that regional carriers may be able to provide the level of competition needed to provide services to small and remote communities. We're certainly not seeing that in Atlantic Canada and in Newfoundland. I just gave you my example of 87% of the industry being controlled totally by Air Canada. I'm not sure what the numbers are for WestJet, for example, on the west coast. They seem to have penetrated the market somewhat more greatly than the competition has on the east coast.

Regional carriers will play an important part, but it's safe to assume on occasion that regional carriers can easily be manipulated and dominated by the main carrier. We've seen that historically in this country. For Air Nova and Air B.C., the regional carriers, I can't prove it to be real or not, but at least the perception certainly is that they're very much controlled, manipulated, and dominated by Air Canada in everything from scheduling to reservations to maintenance agreements, and so on and so forth.

The Chairman: Thanks very much, Mr. Synard.

Colleagues, I just remind you that we still have one more set of witnesses to go.

Ms. Desjarlais, please.

Ms. Bev Desjarlais: I guess that was my reminder to be quick about it.

The Chairman: No, that's not just to you.

Ms. Bev Desjarlais: No, I'm kidding, Stan.

One of the issues that has come up with a number of witnesses involved in the airline industry is the excessive amount of taxation, or all the different areas in which the airlines have been taxed. One of them was municipal taxes as well. Can you tell me the position of the FCM on why there would be increased municipal taxes for the airports, which then affect—

Mr. Sam Synard: For municipal governments, of course, the primary source of revenue is property taxation. We don't have access to the federal income tax dollar, the GST taxation system, and so on.

I'll just step outside Canada for a moment. Many countries in the world do have access to a sharing arrangement for the income tax dollar transfer and so on. We believe—and we've held this position quite vehemently—that municipal government, being an elected, autonomous, democratic government, has the right to levy municipal taxes on property inside their own municipal boundaries, whether that property is owned by the airline industry, whether it's owned by me as an individual, or whether it's owned by the Minister of Public Works. We hold that quite strongly.

I don't think I can find any examples in this country of where municipalities are abusing airlines specifically. One could argue that we're probably abusing everybody collectively, but nobody specifically.

Ms. Bev Desjarlais: Fair enough.

In regard to the issue of the firefighters at the airports, do you think most Canadians know the types of emergency services that were at the airports or that may never have been there? Do they have any idea of what is there? Do you have feeling of what they expect?

Mr. Sam Synard: No. I do a lot of travelling in my current position. I criss-cross the country every week to go somewhere. As a consumer of that service, I don't stop to think about what the level of response would be if I crashed, for argument's sake. I think most Canadians have very little understanding about the response time, about the quality of the response time, or about whether they would be responded to by professionally trained firefighters or volunteer firefighters.

Ms. Bev Desjarlais: What do you think when you land at an airport?

Mr. Sam Synard: I just thank God I landed at the airport.

Ms. Bev Desjarlais: Well, what would be your general thought? Just say you're going to go down. What's your thought as to what happens if you crash? Who do you think responds?

Mr. Sam Synard: As a consumer, if I travel with my family, I'm more cognizant of that. I assume that if I'm ever involved in an airline crash, or specifically if my family is ever there, then I would expect a prompt, professional response. As consumers, when we travel and we go to land or take off, we assume we will be presented with a quick response time and a very professional response in the event of an emergency. That's my general perception.

Ms. Bev Desjarlais: Do you expect that to be at the airport, or do you just expect it will be there somehow?

Mr. Sam Synard: I expect it to be fairly close to the airport. I guess stats would show that 75% of all aircraft emergencies occur on landing at airports. So that would be safe to assume, yes.

Ms. Bev Desjarlais: I'm bringing this up because the firefighter issue has come up as being a cost factor in this whole situation. As a consumer, do you assume, do you recognize, or do you understand that the first responders—the emergency response to that accident—are the crew that is on the same flight that might be having the accident?

Mr. Sam Synard: Yes.

Ms. Bev Desjarlais: Do you think most Canadians realize that?

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Mr. Sam Synard: No, I don't think most Canadians are preoccupied with what would happen in the event of a crash. But I think there's a general acceptance that in the event of an emergency, I will be attended to by professional, prompt services. I'm assuming most people would assume it would be people outside of the plane who would respond, because the crew members might not be able to respond too efficiently if they are involved in the same crash.

Ms. Bev Desjarlais: I certainly felt that way, and I just wanted to get the point across. I think Canadians have had a trust in the systems that have been in place. As a result of that trust, they just expect that those things are going to happen. If we're in situations in which they're not going to happen, then we're going to have to be very vocal in letting Canadians know that this is what they're going to have to expect, and then they can make a decision about whether or not they get on an airplane.

Mr. Sam Synard: Exactly. That's a very fair statement.

Ms. Bev Desjarlais: Thank you.

The Chairman: Thanks, Bev.

Mr. Sekora, please.

Mr. Lou Sekora: Thank you very much.

The fact is that I served on the board of directors for FCM, Mr. Chair. I'm sure you know that. I was a mayor for many years, and I belonged to the FCM.

I'm going to ask you some questions. Number one, you said the federal government downloads these airports. But is it not also correct that some of the airports are getting very wealthy, that their cities are getting very wealthy because they're getting 600 acres of land or 300 acres of land for a dollar? Is that really downloading?

Mr. Sam Synard: There are several examples, sir. In some examples there were reasonably negotiated contracts for municipal and/or local authorities to take over airports. Those were basically the airports that had the potential to create profits, and that's a generally good business decision for municipalities to take on.

However, there are a number of airports that we feel were heavy-handedly disposed, in the sense of, “We are no longer going to run your airport. If you want an airport in St. Anthony, Newfoundland, you run it yourself.” In that relationship, you're almost obligated to take over the airport, because it means so much for the economy of your area, the quality of life, and so on and so forth.

Mr. Lou Sekora: I've been involved in many airports, because I'm also B.C. caucus chair. The fact is that there was also cash given to the municipalities along with the airports. I'll put it that way.

Another thing I might mention is the fact that I've had many meetings with the mayors from the greater Vancouver regional district, which I was part of, on the board of directors. The fact is that you would have a meeting and the mayors would complain about the grants in lieu of taxes for the airports. They were always two years late in coming. Mr. Gagliano himself had a meeting with these mayors and said it had to be brought up to date, it had to be brought up to speed, so that they didn't have to wait for their money to come. But it was grants in lieu of taxes.

Now the shoe's on the other foot. What has happened is that if you have an airport in your city, you as a mayor or deputy mayor now have a different taxation rate, because ours was a grant in lieu of taxes and there was never enough money. What you're doing now, sir, is actually having taxation. The mayors and the council members in each city can say the mill rate will be so much for residential, the mill rate will be so much for commercial, and it will be so much for industrial.

Whatever category it fits in—and I'm sure it would be industrial—the fact is that the mill rate is very high, so really the cities also have taxed the people on the airports a little differently from what they've been taxed before. Am I correct?

Mr. Sam Synard: Yes.

On that issue, though, there is a democratic dispute mechanism built in. I'm sure all of you are aware that Bill C-10 is now in front of the House; I think it has received first reading. Bill C-10 deals specifically with payments in lieu of taxes for federally owned property within municipal boundaries. I'm therefore assuming, sir, that you will have an opportunity to voice that concern during the second reading or however the process works throughout Parliament.

But there is a dispute mechanism built in. We've been working very diligently with the minister. In fact, last summer, or the summer before last, the minister did a trans-Canada tour to talk specifically about the issue of payment in lieu of taxes within municipal boundaries.

Mr. Lou Sekora: We're talking about a paid fire department, not a volunteer fire department. Of course there are cities across Canada... Look at Surrey, where you come from, Val. The population is huge, at around 400,000, and three-quarters to 90% of the fire department are volunteers. That's the case in many cities. Where I come from, there are 120,000 people and we have maybe 50 volunteer firefighters, with about 140 who are paid.

So I don't think you're suggesting that somehow the federal government, in these volunteer fire department towns, should be putting paid fire departments into the airports.

Mr. Sam Synard: No. What we are arguing is that it should not be a double standard.

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Prior to the devolution of airports to municipal and/or local authorities, the Department of Transport had a certain standard of care for response time, and it figured it to be a reasonable standard of care vis-à-vis response time. Now that primarily municipalities own airports, that response time has been increased and the quality of care has been decreased. You are now expecting municipalities to pay a much higher cost of response time than you yourselves would be prepared to pay as the previous owners of airports. There seems to be an obvious double standard here.

Mr. Lou Sekora: I have one more question. It's a fast one.

The Chairman: No, you're out of time, Lou.

Ms. Meredith.

Ms. Val Meredith: I'll pass.

The Chairman: Thanks, Val.

Mr. Dromisky, please.

Mr. Stan Dromisky: We know there are a lot of communities that have control of own their own airports, we know that we have the airports capital assistance program, and we also know that many of these communities do not qualify for any kind of assistance for upgrading their facilities in regard to or pertaining to safety factors. When we look at many of these airports, they are not qualified because they don't have regularly scheduled commercial carriers coming in for whatever the reason might be, but we find all kinds of other planes coming in. We find tourists coming in. We find Canadians coming in. We find people from the United States coming in. We find charter flights coming in. We find MNR, air ambulances, couriers, forest firefighters, and all kinds of people flying in. Yet these airports and these municipalities don't qualify for one cent in regard to upgrades to their facilities as they pertain to safety factors.

What is your recommendation to this committee and to this government pertaining to that situation that exists right now?

Mr. Sam Synard: I think it goes back to your colleague's point about a vision for the airline industry. Part of that vision would be an acknowledgement that for city-owned airports, many of those airports are right in the middle of the city in some locations. They play a vital part for tourism in Canada, and for economic development opportunities and so on. We haven't formulated any specific policy on it, but generally speaking we would expect that these airports would have the same level of relationship or level of access to government programs as would airports falling outside of the jurisdiction of city-owned airports.

I don't mean to be presumptuous, but there doesn't appear to be a master game plan in place for the airline industry generally. I guess part of the lack of that master plan deals with the issue of city-owned airports. I apologize for making that comment, but that's just my gut feeling here.

Mr. Stan Dromisky: But we're not only talking about cities. We're talking about small communities. You might classify them as small towns or villages.

Mr. Sam Synard: Yes.

The Chairman: Thanks, Mr. Dromisky.

Mr. Comuzzi, you're going to round things out before we go to our next witness.

Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.): I just wanted to touch on a very small issue in order to see if the federation that you represent has given it any consideration.

Under our health care system, universality and accessibility are two of the pillars. As you know, many of the health services can't be offered in smaller regions. As a result, people have to travel to larger centres to avail themselves of whatever the health services are. I don't see any mention of that in your report. Have you given that consideration? What do you foresee if the scenario as you have outlined it progresses and is put into practice? How will that affect the health care system in Canada, and how will it affect the health of people who live in smaller areas in this country? That's the only question I have.

Mr. Sam Synard: In a very general sense, there are many examples of where we, as Canadians, hang our hat on the principle of universality. Health care is number one, I guess Canada Post is number two to some degree, and there are others. We see the same thing in the airline industry. In really remote communities, of course, the availability of airline flights that are medivac or chartered flights plays an extremely important part in the quality of health care. We realize that you can't have a CAT scan machine in every small remote community across Canada, so people depend on transportation—and many times on airline transportation—to avail themselves of those health care services.

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Having said that, we still realize that if one chooses to live in rural Canada then one makes a conscious decision to accept a lesser quality of health care, a lesser quality of transportation, a lesser quality of education. We as Canadians still should strive to minimize that disparity as much as possible, either through subsidies that reduce the costs or through a regulation that demands that industry provide the service.

Even as I speak, if you live in rural Canada you pay a great deal more to fly than if you live in urban Canada. So already we as consumers who live in small remote communities subsidize the service to some degree.

As a Newfoundlander, I can fly more cheaply. I can leave St. John's, Newfoundland, and fly to London, England, Copenhagen, Stockholm, or Oslo cheaper than I can fly to Vancouver, cheaper than I can fly to Toronto on many occasions, and cheaper than I can fly within the province of Newfoundland and Labrador. A ticket from St. John's, Newfoundland, to Happy Valley, Goose Bay, or Labrador City in the province of Newfoundland and Labrador is around $1,500. I can fly almost anywhere in the world for $1,500, so we already subsidize that service, sir.

Mr. Joe Comuzzi: I keep asking that question. No one has ever answered why it costs so much.

Mr. Sam Synard: We've gone to the Competition Bureau with that question, and we've never had a satisfactory answer. There'd be a long discussion to try to solve it.

Mr. Joe Comuzzi: Yes, thank you.

The Chairman: We want to thank Mr. Synard and Mr. Dion for their presentation from the Federation of Canadian Municipalities and for answering our questions.

Mr. Sam Synard: Thank you very much for your time. We enjoyed the open and mature discussion.

The Chairman: Thank you very much, sir.

Colleagues, we won't suspend the proceedings. We'll just move right to the next two witnesses.

We welcome to the table the Consumers' Association of Canada, represented by Jennifer Hillard, vice-president, issues and policy. From Democracy Watch we have Mr. Duff Conacher, coordinator, and Mr. Daniel Martin Bellemare, the counsel. They do not have a brief for us, so we will have to listen attentively.

Ladies and gentlemen, you each have eight minutes to make your presentation.

We'll begin with Ms. Jennifer Hillard from the Consumers' Association of Canada. Ms. Hillard, welcome. Would you commence when you're comfortable, please.

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Ms. Jennifer Hillard (Vice-President, Issues and Policy, Consumers' Association of Canada): Gail Lacombe, who is our president, will introduce the association and then I will follow up with the brief.

Ms. Gail Lacombe (President, Consumers' Association of Canada): Good morning.

The Consumers' Association of Canada is a 52-year-old voluntary organization with a national office in Ottawa and branches in the provinces and territories. CAC is a member of Consumers International and bases its policies on the internationally accepted consumer bill of rights. These rights include the right to choice.

CAC has always been supportive of the federal Competition Bureau. We were active in lobbying for the establishment of that agency. We have made many submissions to the bureau, and we believe it is critical to the protection of the rights of Canadian consumers to have adequate choice in the marketplace.

With that I'll turn it over to you, Jenny.

Ms. Jennifer Hillard: Thank you.

I'm not going to read our brief. For one thing, you don't have it; and for another thing, we're somewhat short of time. So I'm going to try to focus on some of the key points that perhaps other groups would not necessarily have brought up.

We are a volunteer association. We come from all across the country. Gail is from Montreal and I'm from Winnipeg. Our trade committee is scattered across the country. For the purposes of this particular brief and throughout the airline issue we've enlisted the help of members from Yellowknife and Iqaluit, in particular, to ensure that we've dealt with the remote issues, because they're somewhat different from those in the cities.

We were very upset about the suspension of the Competition Bureau, but I'm not going to dwell on that a great deal. We believe that Canadian consumers have been well served by the vigorous investigations and the impartial reports of the federal Competition Bureau. We believe the bureau must be involved in the public review of whatever is going to happen within the airline industry. We're very supportive of the report that Mr. von Finckenstein presented to the minister on this issue.

We are happy that this process is an opportunity for a lot of stakeholder input. We feel that all the way through there's a great need for public transparency in how we're going to address something that's as important to a country like Canada as our transportation system. We think we need a lot of public input on the issue of foreign ownership percentages, cabotage, restructuring and improving the management of Canadian Airlines, maintenance of competition within Canada, and perhaps the sale of under-utilized overseas routes that Canadian Airlines has.

We also believe there must be ways of removing some of the more destructive impacts of the current system, such as the cooperative elimination of some of the duplicate timetables. That would give consumers more choice in scheduling, rather than the choice of service providers with simultaneous departure and arrival times.

We're very concerned that the government appears to be not only allowing but also actually encouraging the establishment of a monopoly position in the national airline industry. Monopolies are notorious for raising prices and decreasing the long-term service quality to Canadian consumers and businesses.

The Chairman: We have to apologize, we were just given a note that a choir will be forming out in the rotunda from now until one o'clock. So bear with us.

Ms. Jennifer Hillard: In our opinion, the whole value of a monopolistic bid is based on high future ticket prices, on cutting internal costs and minimizing commercial risks in the Canadian national market. In addition, the direct effect on consumers, the impact on business travellers and air freight is of concern to CAC. Canadian firms will face higher transportation costs under a monopoly and these increased costs will be reflected in the increased cost of goods and services available to consumers. This is a very great concern to our northern and remote members who are totally dependent on air freight for everything they have—not just their health services, as you were asking the last presenters.

We also believe that the monopoly environment will mean that firms located in Canada will have an important cost disadvantage compared to their international competitors.

We looked at the situation in Australia, because although Australia has a population about half the size of Canada, it has to deal with very similar population density and distribution problems. We got in touch with some people we knew in the consumer area in Australia and we asked about their airline situation, because they do have Ansett, which operates primarily within Australia, and Qantas, which operates internationally.

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It seems that there was some regulation brought in here that allowed Ansett to have higher than normal foreign investment and some restrictions on the routes it could run. So they finished up with Ansett being primarily domestic, with a few short-run South Pacific locations and Qantas handling the international competition.

Looking at some of the ideas that came out in the proposals raised in Canada, we liked the idea of Canadian and Delta possibly getting together, as proposed by Air Canada, and operating in North America with a higher foreign ownership. This would enable Air Canada to continue to be our international airline.

We looked specifically at the five principles the minister raised, and we've addressed them in our brief. When it's translated you'll be able to see those. We're not going to go through them in detail, but there's been a lot of talk about capping prices. This seems totally undoable in the current situation, where you may have 20 or 30 different prices on a flight.

We feel that no matter what you do in a monopoly situation, there will be some cheap seats, but we won't see the seat sales that consumers have been taking advantage of over the last few years. We also feel there is a concern that seat sales may be used as an indicator of credibility, where in fact they may be a cloak for some predatory pricing that will eventually finish up with a worse situation than we have.

One issue that we feel has been inadequately addressed throughout this process is the issue of service quality. When we talk about service, it's always service into various communities and how often. But for consumers, how quickly you get through the check-in desk, how you're dealt with if there's a problem, what happens when your luggage gets lost, how polite the stewardesses are on board are the really important things.

We believe that although the on-flight service will probably be okay because people will be trained to compete on the international routes, the airport service may decrease in quality.

We also have had a lot of calls to our provincial offices with regard to the frequent flyer program and people concerned about losing their points. We don't necessarily support this sort of system. We think it's the nineties version of greenshield stamps. On the other hand, to consumers these are really important.

We're really concerned that while they're saying they'll honour the points, they may bring in a “use them or lose them” deadline or they may in fact devalue the points. You'd need twice as many to go to a set location. Again, that was very important to our northern consumers.

We were concerned that there was inadequate regulation in this deregulated area and that we hadn't looked at something other than regulation to deal with consumer complaints and redress.

I hope I can bring out the rest of the points in the questions.

The Chairman: Thanks very much, Ms. Hillard.

Mr. Conacher, please.

Mr. Duff Conacher (Coordinator, Democracy Watch): Thank you very much for inviting us to appear before the committee today.

I am just going to outline very briefly what we'll speak about and then turn it over to Mr. Bellemare.

We see this situation as raising very similar issues as the bank mergers raised last year. We were very active on that issue. Of course there are the additional issues of ownership and control by Canadians and safety issues. So we would be addressing the ownership and control issues, the pricing and service standards, and safety issues. We will also address an innovative method we're proposing to create a very strong air passengers' organization that would be very helpful in holding regulators and airlines accountable for serving people fairly and well.

You have in front of you a copy of our news release from today, which is in English and French. It summarizes our brief very well.

You will see in our brief, which is being translated, that we will be addressing the issue of the Competition Bureau's role. I will turn that over to our counsel, Daniel Martin Bellemare, who is very expert in this area.

Mr. Daniel Martin Bellemare (Counsel, Democracy Watch): Mr. Chairman, members of the committee, good afternoon.

We all know that the Canadian airline industry faces a serious crisis. The industry could well fall under the control of a single air carrier. We submit to this committee that the crisis plaguing the Canadian airline industry stems in large part from the Commissioner of Competitions' non-enforcement of the Competition Act within this industry.

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More specifically, the commissioner failed to enforce the act within this industry after the coming into force of the Competition Act and after deregulation in this industry in 1987. During this period, in 1987, PWA Corporation was allowed to acquire Canadian Pacific Airlines Limited. In 1988 PWA Corporation merged its two subsidiaries, PWA Limited and Canadian Pacific Airlines Limited, into Canadian Airlines Limited. Thereafter, PWA Corporation and Air Canada merged their computer reservation services into Gemini. Finally, in 1989 PWA Corporation acquired a failing Wardair, a new entrant in the market. The commissioner rubber-stamped all these mergers, and they have had a very important and drastic effect on the Canadian airline industry.

Therefore, we call on this committee to make a formal request to the Governor in Council for the appointment of a commissioner under the Inquiries Act to investigate the commissioner's review of mergers and acquisitions within the Canadian airline industry since the coming into force of the Competition Act on June 19, 1986. The commissioner appointed under the Inquiries Act should also investigate and assess the record and performance of the bureau's merger branch in reviewing merger transactions under the act.

Secondly, the anti-trust review of Air Canada's proposal should not be entrusted to the actual commissioner of competition, Mr. von Finckenstein. This is so for two reasons.

First, he has accepted passively the government's decision to suspend the application of the Competition Act to the airline industry for a period of 90 days, without challenging the legality of the Order in Council to that effect. This was done by Air Canada instead. This is an indication that the commissioner approved the government's decision to suspend the application of the Competition Act notwithstanding any public comment to the contrary.

Second, the commissioner's recent review of the Loblaw-Provigo merger shows that the bureau is a cosmetic agency regulated by regulators. That's the reason why, on September 30, 1999, we called for Commissioner von Finckenstein's removal from office.

Thank you for your attention. I am available to answer your questions in both official languages.

Mr. Duff Conacher: I would like to now address the issues of ownership and control.

We are very concerned that share ownership limits are not the sole basis upon which such a review should take place. As we've seen with the relationship between AMR and the plan that Onex set out, the service contracts can give a merged airline quite a bit of influence. We are very concerned about raising the limits in terms of share ownership, both the limit on ownership for Air Canada and the foreign ownership limits. The review of ownership should not be based just on share percentage but also on effective control. We raised similar concerns when we were intervening with regard to the bank mergers.

We are also concerned about whether one carrier or more than one carrier comes out of this situation. If the Competition Act is actually enforced, new entrants would have a much better chance of coming in and competing. Even still, price and service standards must be regulated much more effectively. If one carrier is to be allowed, any undertakings on price and service standards should be required and should be fully enforceable, with very severe penalties.

We are also concerned about safety. We endorse what you will hear about in more detail from a coalition in which we are currently considering membership, the Canadian Association of Airline Passengers, a coalition of groups, most of whom have no experience working on airline issues. There is one group, the Airline Passenger Safety Group, that does have quite a bit of experience in the safety issue. We endorse what they have been calling for in terms of increased regulation on safety issues and we endorse many of the other things that coalition is calling for.

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One of the proposals we have put before that coalition is the creation of an air passenger organization; the air passenger organization is summarized in the news release you have in front of you. There is also a question-and-answer sheet in the brief.

It would be formed very simply, by the federal government following a U.S. model for forming utility ratepayer groups. In a few states in the U.S., utilities have been required to send out a one-page flyer just like this one, a lick-and-stick envelope, in the same envelope that they use to send their bills out to their customers. The flyer describes an industry watchdog group and invites people to join for a very low annual fee of about $20.

If the federal government required the airlines, whether it's one airline or more than one, to distribute such a flyer when people board a plane or to also distribute a flyer through frequent-flyer envelopes, inviting people to join an air passenger organization at very low cost, all passengers would be reached. All passengers would be given a very easy opportunity, with a lick-and-stick envelope, with the postage paid, to send back their membership fees and join such an organization.

Given that there are an estimated 10 million air passengers annually in Canada, if only a few percent joined you'd have a group with several hundred thousand members. It would not be taking money from industry, as some consumer groups do in Canada now, and it would not be taking money from government. It would be independent of both. It would be able to represent air passengers in a way that no consumer group in Canada currently can.

All of the groups you'll hear from that are from the consumer side are very small and have very few resources and very little expertise in the area. Consumers need an ongoing strong voice in the industry to balance the very strong industry voice, which you have seen, of course, with the full-page ads.

The airlines already send out such flyers in their frequent flyer envelopes. Here's one for an advertisement—

The Chairman: I'm going to have to ask you to wrap up, Mr. Conacher.

Mr. Duff Conacher: —for Avis and one for an advertisement for Hilton Hotels.

So they can enclose such flyers easily in their frequent flyer envelopes and easily hand one to people as they board a plane. It's essential that this be created in order to have a watchdog that can watch over the airlines and the regulators and ensure that consumers are protected, not just over the next few months but through the years.

Thank you very much. We welcome any questions.

The Chairman: Gentlemen, thank you.

Ladies, thank you.

Val Meredith, please.

Ms. Val Meredith: Thank you, Mr. Chair. My questions are for Ms. Hillard and Ms. Lacombe.

You mentioned that your preference would be for two strong air carriers to provide competition. You said you supported the proposal for Canadian to join with Delta and be a strong domestic carrier and let Air Canada be the international carrier. But we heard from Canadian that the money they make is on the international routes, not the domestic routes. We've heard in a representation by Air Canada that they don't foresee cutting back their domestic routes in order to enhance Canadian's ability to be profitable.

In that scenario, I would suggest to you that if you take away the financially viable routes from Canadian and if Air Canada refuses to restrict themselves in the domestic market, you're not going to solve the problem. Either we have to look at a different scenario...and I want to lead into your comments about opening up the foreign investment in a carrier in order for competition to be there. Would you favour raising the foreign ownership limit to 49% if it meant that there could be a second carrier, if it meant the survival of a second carrier that would provide the competition you seem to be looking for?

Ms. Jennifer Hillard: We would support that totally. We can't really find a logical explanation for the 25% rule. We can see that if there's only one airline we obviously wouldn't want it to be a foreign-controlled one. When NAFTA was signed, there was all this talk about the open skies, and we don't seem to have that. If we can't change the 25% rule, then let some American airlines compete on Canadian routes, but give us some competition.

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Ms. Val Meredith: As a consumer organization, you look at all industries, do you not, not just the airline industry? Would it be fair to say that the automobile industry, which is largely foreign-owned, has been advantageous for Canadians, that it has given employment to Canadians, that it has stimulated the economy in probably the most populated area of this country? Would it be fair to say that foreign ownership has been a positive thing, not a negative thing, in the car industry?

Ms. Jennifer Hillard: I think it has.

We're moving into a global marketplace. As I said, we feel that some of the rules are a little arbitrary and, in this day and age, need to be re-examined, especially in light of the fact that, as I said, one of the things we were promised under NAFTA was an open skies policy. It's one of the things that we thought would give consumers some benefit, and it's one of the many things out of NAFTA that would have benefited consumers but hasn't happened.

Ms. Val Meredith: Thank you.

I'm going to end on that point.

The Chairman: Thanks very much, Val. I appreciate that.

Mr. Comuzzi, please.

Mr. Joe Comuzzi: Thank you.

Thank you to both groups for the presentation.

Ms. Hillard, you talked a little about the consumer organization, and I liked what you said about service. As you said, it goes beyond price. Sometimes when you say you offer a service to a community, the fact is that the service is so expensive that you really offer no service to the community.

I want to talk about the quality of service. The other day I was on an airplane and someone took sick with a heart attack. There were 280 passengers on the airplane and there was no room to put the sick passenger in. Tell me what you, as a consumer organization, visualize with respect to this.

Also, Mr. Chairman and I are over six feet tall and they keep sticking us in this 40-passenger jet where there's no room and we're flying around for a long time. That's not very good service.

What do you tell us?

Ms. Jennifer Hillard: Actually, you need to read our brief. One of the things we talk about is how close together the seats are.

Mr. Joe Comuzzi: I don't have your brief.

Ms. Jennifer Hillard: You will when it is translated. I'm sorry, but we don't have the capacity to translate it ourselves.

Mr. Joe Comuzzi: Okay.

Ms. Jennifer Hillard: We do actually talk about how close together the seats are. One thing I find really interesting, in fact, is that you usually have more legroom on a domestic flight, which is shorter, than you do on some of the really long ones. There's nothing worse than flying to Australia when the person in front of you puts their seat back and you basically have their head in your lap.

Mr. Joe Comuzzi: Tell us how you want us to fix it.

Ms. Jennifer Hillard: We believe, especially if we're going to have a monopoly situation—but this would be a good idea anyway—that it would be a good idea to benchmark some service standards now.

Compared with foreign countries, actually, Canada has fairly good customer service standards. We have more employees per passenger-mile in our two Canadian carriers than they do anywhere else in North America, and Canadian has a much higher employee rate than Air Canada. So if this is the best, we certainly don't want it to get any worse. For those of you who ever fly on American carriers, I think you'll have some appreciation of the fact that Canada is not that bad after all.

We think this should be benchmarked now, while there's competition. We need either some regulations... But we're not terribly pro-regulation and we don't want to move backwards into regulation. We need the minister to be looking at some other system. There is a system in the U.K. in which there is a sort of monitoring agency for service and quality, for complaints and redress for consumers, with an independent ombudsman. We'd like to see the minister looking at a solution like that.

You don't like that...

Mr. Joe Comuzzi: I don't know. They haven't worked up to now. We have to come up with a fix.

Ms. Jennifer Hillard: We have to come up with a fix, but we don't want to move back into a lot of regulation.

Mr. Joe Comuzzi: Yes.

Ms. Jennifer Hillard: I think one of the things that hasn't been discussed throughout this is a fix for customer service. We talked about a lot of other things, but we haven't talked about a fix for customer service.

The Chairman: Thanks, Mr. Comuzzi.

[Translation]

Mr. Guimond.

Mr. Michel Guimond: I would like to ask one question each to Ms. Hillard and Mr. Bellemare. I would ask them to give a fairly brief answer.

My question to Ms. Hillard concerns pricing. At the start of our study, one of the witnesses, Onex, in fact, made a commitment to keep airline ticket prices at their present levels for the next five years.

• 1225

[English]

You have a problem with...

Ms. Jennifer Hillard: It's not translating, unless I'm on the wrong button.

Mr. Michel Guimond: Which channel is French to English?

Ms. Jennifer Hillard: Am I on the wrong button? Okay. Thank you.

Mr. Michel Guimond: We had one witness in front of us, Onex, who mentioned they would freeze the price of airline tickets for the next five years. But the problem is that the prices are too high. It's impossible for people of the region to take planes.

Do you think it's realistic? Please give a short answer, because I have another one, and we must go to the House.

Ms. Jennifer Hillard: It's really not realistic to try to freeze prices, because as you say, the only ones they could freeze are the ones that are listed and are constant, and those are the ones that cost me $2,000 to come to Ottawa for a day from Winnipeg. The ones that float all over the place—the book three weeks ahead, stay Saturday night to have dinner with your grandma—are different every week, so you can't lock those in.

[Translation]

Mr. Michel Guimond: Mr. Bellemare, we have a wonderful expression in French, and I am not sure how our interpreters will render it in English. Maybe there is an equivalent expression in English.

Mr. Daniel Martin Bellemare: I am a francophone.

Mr. Michel Guimond: But there are unilingual anglophones around the table. Did you know that?

Mr. Daniel Martin Bellemare: All right, I'm listening.

Mr. Michel Guimond: As we say, you do not go in for half- measures, since you actually go so far as to ask for Mr. von Fickenstein to be removed from his position as commissioner. Were you attacking the individual or the institution? Do we need to rethink the institution? It would seem that you do not have much faith in the Competition Bureau. I will have to think about that. I thought we were fairly well protected by the Competition Bureau, but you have raised very important issues.

In your press release, you say that you are a former legal counsel in the Consumer Law Division at Justice Canada. When did you leave that position and what were the circumstances surrounding your departure? Was it a voluntary departure or did people ask you to leave? You seem to be bitter regarding the system in the Competition Bureau.

Mr. Daniel Martin Bellemare: In response to your first question, I would say the whole system is responsible for the situation we are now facing. The wave of mergers and acquisitions in the airline industry has brought us to where we now have a carrier with a high debt load and a catastrophic financial situation. We are now in the situation that you described when you directed the question to the representative from the Consumers Association of Canada. It is very expensive to travel within Canada. That is a direct consequence of the laisser-faire policy that led to the creation of a duopoly enabling existing carriers to keep prices much higher than they would be in a competitive market. It is because of this preposterous situation that we are calling for the creation of a commission of inquiry into the Competition Bureau, especially since, in 1987, when the airline industry was deregulated, we were promised a competitive market, affordable prices for consumers and better service. And what has happened is exactly the opposite.

We did not ask for the removal of the Competition Commissioner because of the Air Canada and Onex file, but rather because of what happened in the case of Loblaws and Provigo. Some of the troubling circumstances caused us to look into how the Act is administered in the Competition Bureau. We particularly focussed on the fact that the lawyer representing Lowblaws before the Competition Bureau was the same one who represented the director of competition in another merger case eight months earlier.

• 1230

That is how I would summarize the situation and why a commission of inquiry should look into how the Competition Bureau runs.

[English]

The Chairman: Thanks, Mr. Guimond.

I have one final question before we go. Gentlemen, you put together your presentation for us and gave us the idea of the sticker and the association of airline passengers, etc. Currently there's a group called the Canadian Association of Airline Passengers. They're made up of the Air Passenger Safety Group, the Council of Canadians, the Public Interest Advocacy Centre, Transport 2000, even the Consumers' Association. They are all consumer advocates, so why do we need yet another watchdog organization?

Mr. Duff Conacher: None of those groups are putting any significant resources into watching over the airlines or the regulators, except the Airline Passenger Safety Group, and they will be before you and you can ask them. It's all volunteer time. They have no resources. Compare the industry, which has put full-page ads in and has many lobbyists on an ongoing basis, to the ability of consumer groups to come together, band together on an ongoing basis and have a broad-based, well-resourced organization that represents them on airline issues. There are enormous barriers to that happening.

So this coalition has come together. It's very ad hoc. Just ask the groups about the resources they have and are actually putting into the situation. This coalition will be around for a few months, then it will disappear and there will be no group to watch on an ongoing basis, except groups that either rely solely on government funding and have small memberships, or, as with some groups such as the Consumers' Association of Canada, take donations from industry. And we don't think that's a good situation to have.

The Chairman: Okay.

Mr. Duff Conacher: We think there should be a broad-based lobbyist group funded by consumers.

The Chairman: Thanks, Mr. Conacher.

Ms. Hillard, would you agree with Mr. Conacher's...

Ms. Jennifer Hillard: No, I'm afraid we don't agree. For a start, we don't take donations from industry.

The Chairman: No, no, that has nothing to do with it.

Ms. Jennifer Hillard: I'm not prepared to argue with this.

The Chairman: Mr. Conacher, we're not going to get into a debate.

Ms. Jennifer Hillard: I'm afraid that through foundations...that's entirely what supports Democracy Watch next door, almost. Everybody takes money from foundations, and foundations get their moneys from industry. That's the way groups operate.

We're a volunteer group. We're not staff-run. We think the strength of the consumer movement in Canada is that it draws on grassroots volunteers from right across the country. We don't send staff to represent us. Gail and I are volunteers. Our trade committee is made up of volunteers, and that's the way we operate. Although obviously we would like to be a better-resourced group and we would like to have more research staff behind us, we feel that we carry in our volunteer movement the strength to outweigh the two-page ads that Onex and Air Canada came up with.

Mr. Gail Lacombe: If I may add, Mr. Chairman, we are a volunteer group. I think we've built our reputation, and it's very credible over the last 52 years. We have been in existence for 52 years.

Mr. Duff Conacher: If I can mention just one other thing, the coalition, and our membership in the coalition, is formally considering this proposal, and it's simply a matter of getting their boards together and the timelines they need to make decisions.

The Chairman: Okay.

Mr. Duff Conacher: They haven't been able to consider it, but I think you will hear it from... Most of the groups in the coalition are in favour of this idea of the flyer, because they see the gaps that exist currently.

The Chairman: I want to thank the Federation of Canadian Municipalities, and of course our latest witnesses, the Consumers' Association of Canada and Democracy Watch. Thank you for your presentations. They've been very valuable. And thank you for answering our questions.

Colleagues, we'll be back at 3:30 in this room. We're adjourned until 3:30.