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STANDING COMMITTEE ON TRANSPORT
LE COMITÉ PERMANENT DES TRANSPORTS
[Recorded by Electronic Apparatus]
Tuesday, May 2, 2000
The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good morning, colleagues. We're already a little bit behind, so we'll start.
Pursuant to an order of reference of the House dated March 31, 2000, we are considering Bill C-26, An Act to amend the Canada Transportation Act, the Competition Act, the Competition Tribunal Act and the Air Canada Public Participation Act and to amend another Act in consequence.
This morning, colleagues, we have a busy day. We'll go from 9 a.m. to 9 p.m. today. So we'll try to do five-minute rounds on questions so that we can get through as many questions as we can in the limited time each witness has before us.
Our first witness this morning is Joe Randell, who is president and CEO of Air Nova, Air Ontario, and Air BC.
Welcome back to the Standing Committee on Transport, Mr. Randell. I appreciate your taking the time to be with us. When you're comfortable, please give us your presentation of between five and ten minutes so that we can get right to questions.
Mr. Joe Randell (President and CEO, Air Nova, Air Ontario, Air BC): Thank you, Mr. Keyes.
Good morning, bonjour.
With me today is Laurel Clark, who is vice-president of Air Nova. Laurel has been working quite closely with me on the integration of the Air Canada regionals.
Mr. Chairman, honourable members,
Mr. Chairman, honourable members of the committee, I appreciate this opportunity to appear before you today.
Thank you for the opportunity to appear before you today and to provide an update on the Air Canada regionals.
There have been a number of developments since I met you in November. On January 19, Air Canada announced it would proceed with the consolidation of its regional airlines: Air BC, Air Ontario, and Air Nova. At that time I was named president of the Air Canada regionals. It was also announced that Canadian Regional Airlines, or CRA, would be integrated into the newly consolidated regional airline should the offer for sale pursuant to the undertakings made to the Competition Bureau not be successful. If CRA continues to be owned, it does not make sense to operate it separately.
The consolidated airline, which may or may not include CRA, will focus on short-haul markets operating a modern fleet of turbo props and small jets. The airline will be decentralized and field-based to be close to customers. There will be a major presence in all regions of Canada, with regional bases in Atlantic Canada, Quebec, Ontario, and the west. Although we had earlier announced a headquarter presence in Toronto, we are now completing further analysis of the best location for the headquarters. There are no anticipated changes to crew bases. Employees have been given guarantees of no involuntary layoff or transfers for a period of two years.
The consolidation process will take several months, and at this stage we are still operating as separate airlines. We have purposefully waited to finalize our structure in anticipation of CRA's future being clearer by now. We haven't wanted to exclude CRA employees should CRA not be sold. We have been developing plans; however, with the prolonged valuation period, implementation has been delayed.
Consolidation will provide increased operational flexibility to better respond to the needs of our communities. Although the full benefits of consolidation won't be realized until operational and corporate integration is complete, the new summer schedule certainly previews the potential of the airline to focus on the short-haul needs of our customers.
The regional schedule is an integral part of the overall network, providing feed while meeting the needs of local customers. By pooling our fleet, we have been able to match the right aircraft to the needs of the market. We have redeployed capacity from the west, where significant duplication existed, and moved it to the east, where market growth and the sudden withdrawal of InterCanadian had caused capacity issues.
We have enhanced service in a number of markets and have launched new routes in each region of the country, including new transborder services. New services include Halifax-Stephenville; Goose Bay-Stephenville; Montreal non-stop to St. John's, Charlottetown, Windsor, and London; Ottawa to Windsor; Toronto Pearson and a number of new transborder services to Detroit, Dayton, Albany, Grand Rapids, Louisville, Akron, Fort Wayne; and in the west, Vancouver to Spokane.
Our connecting customers will benefit from the strengthening of Toronto as a northeast hub, Vancouver as a trans-Pacific hub, and the building of Montreal as a new hub. Consolidation of most regional flights in one gating area at Montreal has also been beneficial.
We have honoured our commitment to communities. Plans to more economically serve the markets of Penticton, Fort Nelson, and Sarnia, Ontario, with Beech aircraft were changed to ensure continued Dash 8 service. Markets that were left without service as a result of InterCanadian's withdrawal will now all be served by an Air Canada regional or code-shared partner. Air Creebec, a domestic partner, began service to La Grande and Kuujjuarapik, Quebec, in December. Air Nova launched a Dash 8 service to Stephenville, Newfoundland, in April.
We are pleased to work with Mr. Hubbard to find a solution for the communities in northern New Brunswick. Our new code-share partner, Air Labrador, will launch service to Charlo and Miramichi effective May 22.
Communities and customers are increasingly wary of the changes in the airline industry. We want to reassure the communities we serve that we will continue to be responsive to their needs.
Addressing these needs while respecting labour contracts and our guarantees to employees and maintaining our primary focus on the safety and operational integrity of four separate airlines has been extremely challenging. For example, redeploying aircraft from the west to the east might seem like a very simple change. However, we face many constraints, such as regulatory issues that prevent us from intermingling crews from different regionals on the same aircraft. Aircraft, even though alike, must remain assigned to individual carriers. We have guarantees of no involuntary transfer, and collective agreements prevent temporary bases. We have different union representation, collective agreements, and work rules amongst the regionals. CRA is in the valuation of sale process and must maintain its value. It must remain independent until ultimate ownership is determined. There are language issues for western-based crews flying in eastern markets.
We've had to make use of extended charters. This is the only option that allowed us to respond in the short term, at great cost and with significant operational complication. Eight Dash 8s, five from Canadian Regional and three from Air BC, were deployed in eastern Canada, and flight crews and maintenance personnel from their respective airlines have been commuting across the country. Bilingual Halifax-based crews have been displaced to do Quebec flying. Each week we have 1,367 flight crew members commuting from as far away as Vancouver to St. John's to work. These complicated short- and medium-term gyrations to meet customer demands have significantly increased our cost and stress levels. Added costs have not been passed along to our customers.
We are trying our best to respond to the needs of the communities and customers as quickly as possible. Although we obviously won't be able to meet every community's wish list, we are listening and having meaningful dialogue across the country.
Despite the magnitude and speed of what we have accomplished, our on-time performance is at record highs in Ontario and the west.
Unfortunately, our performance has not been as positive in Quebec and Atlantic Canada. When InterCanadian unexpectedly withdrew from the market before Christmas, we hastily developed a schedule with the resources we had available at the time. It was not easy. However, we responded as best we could under the circumstances. With some planning time now, however, and with the April schedule, we have now implemented a number of initiatives, including the new schedule, which are already making a positive impact.
I would like to share a couple of issues with the committee today to which I trust you will give due consideration.
We certainly respect the spirit and intent of the Official Languages Act, and at Air Nova bilingualism is a hiring criterion for flight attendants and for Beech 1900 pilots. In western Canada, without the market demand and with a very limited supply of bilingual candidates, we have primarily unilingual resources. We agree that customers should be served in their language of choice; however, we do not feel Air BC and Air Ontario can meet the requirements of the act in the suggested timeframes without serious disruption to our employees and our operations. Given that we operate single flight attendant aircraft and that less than 8% of the total number of flight attendants in these two airlines are bilingual, we face a significant challenge. Fortunately, we receive very few complaints regarding language in these markets.
We ask that we be given a year's extension to work with our labour force at Air Ontario and Air BC in meeting the requirements. We would ask that the same consideration be given to CRA if it is not sold and becomes part of the consolidated regional. We have immediately adjusted our hiring requirements and are in the process of developing a training plan.
The other issue of grave concern is the prolonged valuation and sale process for CRA. We aren't able to finalize major decisions surrounding consolidation such as organization structure, staffing requirements, locations, or fleet until we know the results and the terms for the sale process. The stress and strain of continued uncertainty is evidenced by retention issues and declining morale. Our employees in Quebec have worked under a cloud of uncertainty since June 1998. Employees of Air Nova, Air BC, and Air Ontario have seen over a year pass since the announcement of the review of potential consolidation. And CRA employees are increasingly disheartened and frustrated as the sale process drags on.
We are eager to realize our vision for the new regional airline. Our employees are highly skilled professionals, committed to building the best regional airline in the world. Our success will be based on our ability to respond to the short-haul needs of Canadians while maintaining the community and regional focus that has contributed to our success. We are working within current constraints to make interim decisions and ask for your patience and cooperation as we move to realize our full potential.
Thank you for your time. I'd be pleased to answer any questions you may have.
Thank you. I would be pleased to answer your questions.
The Chair: Thank you, Mr. Randell.
Welcome to the committee, Ms. Clark.
We'll go to questions. Val Meredith, please.
Ms. Val Meredith (South Surrey—White Rock—Langley, Canadian Alliance): Thank you, Mr. Chair.
The Chair: Five minute rounds, please.
Ms. Val Meredith: Thank you, Mr. Randell. Seeing as how I only have five minutes, I'm going to cut to the chase very quickly.
I'm a little concerned with some of the comments you've made, and my concerns come from being a western Canadian, particularly from British Columbia. You have made the same error in your regional distribution as others have done in the past. There are now five regions in Canada, not four. British Columbia is recognized as a region on its own.
You have mentioned several times in your presentation that you have taken resources out of what you consider to be western Canada and replaced them in the east. We have never really felt that we've got great service in British Columbia. I've been advised that the service now in northern British Columbia is worse than it was. Service from Fort St. John to Prince George has now been removed. In order to get to Prince George from Fort St. John, you have to take a flight from Fort St. John to Vancouver and then go back north to Prince George. It would appear that this is because a relationship with Central Mountain Air, I believe it is, has been discontinued, so individuals who want to go from Fort St. John to Prince George now have to go all the way to Vancouver in order to go a few miles south. I don't consider that better service. I don't see where you feel your service, particularly in British Columbia, meets the requirements.
The other concern I have is the language issue you have raised. What is the requirement, as you see it, for bilingual services in western Canada, where, as you have stated in your comments, it's not an issue? Does that mean western Canadians will no longer be hired by your regional airlines—because, to be quite honest, there just aren't the same numbers of bilingual applicants as you would find elsewhere in the country?
So there are two things: Are you going to improve your service in western Canada, particularly British Columbia; and are you going to recognize that in areas of Canada there isn't the same need for bilingual services, and are western Canadians no longer going to be given the same opportunities for job employment in your company?
Mr. Joe Randell: I will go through those one at a time.
First of all, with regard to the service in western Canada, some of the greatest losses that existed prior to the consolidation of the airlines actually came from western Canada. Air BC itself was losing millions and millions of dollars a year, and the duplicate networks that existed in western Canada just could not be sustained in their entirety with the costs that were there and the losses that were being incurred. It's a contributing factor to the issues that were in the airline business prior to the restructuring.
With regard to the service levels, we have gone back and actually made adjustments in a number of markets and added a number of flights in markets where we have found that the demand has not been adequately served. We have a number of examples of those, and more flights will be added in June. We did not terminate the relationship with CMA; we still have that relationship with CMA.
The market you mentioned, from Fort St. John to Prince George, I'm not totally familiar with, but it would be my understanding that those flights were actually joined in order to feed into a larger centre and as a result of the realignment now are separated. I believe the demand level in that market is actually very low, but I will follow up personally on that market after today to see exactly what the situation is with regard to that market. This is the first time it's been brought to my attention.
It's service issues such as these that we want to be sensitive to and understand and respond to in making the schedule adjustments that are necessary. We certainly in no way view western Canada as any less important than anywhere else. It's a very important market for us, and we want to provide the right level of service for the demand that exists in those markets and live up to the commitments that have been made in the restructuring process.
With regard to the language issues, we certainly want to hire employees from all regions of this country. However, there are language-of-service requirements we must abide by, in particular from a customer service point of view. In terms of the service we provide in Quebec and Atlantic Canada, those standards have been very well set out and we've been following those. It's the application now of the Official Languages Act and its implications in other areas of the country that we have to be cognizant of. As I mentioned, we have significant training issues with the existing employee base. It's our commitment to enter into that, but some of these employees have absolutely zero capability in the second language, so we have a significant investment to make in that regard.
With regard to new employees, we will be doing everything in our power to encourage people from the various regions to obviously become proficient in both languages, because it doesn't make sense for us to be hiring from one region of the country and expect people to live and to be happy in their careers and have to move thousands of miles away from their families.
So we'll be working within that framework, and we're asking for a little more time in terms of getting to where we need to get to be compliant with the act.
The Chair: Joe Fontana, please.
Mr. Joe Fontana (London North Centre, Lib.): Thank you, Mr. Chairman.
Welcome, Joe, again to our committee, and thank you for your insight the last time we had you here, as we were going through our restructuring, or the committee was going through the deliberations. I think it was most useful.
I only have five minutes, and there are a number of questions I would want to ask.
Firstly, when you're looking at a good corporate headquarters, I hope you will continue to believe that London is a good place to have that corporate headquarters, with all of its fine facilities.
The Chair: Joe, I'm going to hold you to five minutes.
Mr. Joe Fontana: Being central, I think it might work out very advantageously because of the time zones.
Joe, most of my concerns I'll have to deal with Mr. Milton about. I was always impressed as to how autonomous the regional carriers were, how they were able to meet the customer demands that even Bell talked about, because they were autonomous—Air BC, Air Nova, Air Ontario, Air Alliance. And I would agree that consolidating all of them as an entity to maximize efficiencies would be absolutely fantastic. But as I understand it, you are not the one who determines the schedules; you're not the one who determines the pricing any more; you're not the one who determines code-sharing. All of that has been done by Air Canada for you.
I also understand that, as entities, the Air Canada regionals don't even report directly to the president. They report to some Air Canada VP in the commercial division, which to my way of thinking doesn't give you the status that I think you need, especially if you're going to respond to the concerns of customers in most of the regions of this country, including even in Ontario.
What is the model by which Air Canada is going to be operating with its regionals? I wonder if you could let us know that. There are employee issues, there are pilot issues, and there are aircraft issues.
When you were here before I know we talked about serving the customers. Well, that means Air Canada allowing you to have RJs and so on. I want to understand this. Mr. Milton will be here on Thursday, and I will have an awful lot of questions for him on Air Canada's relationship with Air Canada's regionals. Forget about CRA; he's supposed to be selling that off. He may be postponing this because he doesn't want to. We understand that. But I want to know, from your standpoint, are you going to be given all of the opportunities or the entrepreneurial benefits that come from operating Air Canada regionals so that you can serve the customers, if that's who we're really supposed to be concerned about?
Mr. Joe Randell: We do work very closely with Air Canada. We are part of Air Canada as wholly owned subsidiaries of Air Canada. We are going through a restructuring process in our business as Air Canada is changing its relationship with Canadian Airlines.
Air Canada's corporate structure is something that probably would be best dealt with in a question to Mr. Milton. However, I'd like to speak specifically to the issues related to schedules and pricing. While we are moving to work even more closely with Air Canada, we provide significant input and market knowledge and feedback through this process. We work hand in hand with Air Canada in terms of the design of the schedules.
We put forward suggestions with regard to pricing. One of the goals and part of the structure we're talking about in a consolidated regional carrier will be significant regional presence in each of the regions to ensure that we get that knowledge and get the complete market synergy that is absolutely necessary for us to be successful in these regions so that we're able to bring those things forward.
With regard to how that then is brought into the mix, obviously we'll be working with Air Canada to maximize the network and to be responsive to all stakeholders. So it'll essentially be a balance in terms of the final product.
The Chair: Thanks, Joe.
Tony Guimond, please.
An hon. member: Tony Guimond?
Some hon. members: Oh, oh!
Mr. Michel Guimond (Beauport—Montmorency—Côte-de-Beaupré—Île-d'Orléans, BQ): I would like to start by telling you, Mr. Randell, that I think your decision to transfer Air Alliance's maintenance operations from Quebec City to Halifax is a poor one and that users, including myself, have seen a marked deterioration in Air Nova's regional services in Quebec, particularly since the collapse of InterCanadian.
I'm told, Mr. Randell, that the on-time performance of Air Nova for January, month during there were not many storms, was about 24%. Only 24% of your planes left on time in January, a month during which there were not many storms, which was not the case in February.
I would ask you for a quick answer, Mr. Randell, because I have another question. On the second round, I will raise the language issue and the question of quality of service in French in Quebec. I understand my colleague from the Canadian Alliance had some questions about language as well. I can tell you that users are complaining about the quality of the service in French, as I am sure you know. Users and employees tell me that the quality of service in French has deteriorated.
Mr. Randell, I'm going to ask you to answer quickly, because I have another question for you. Do you still think that your decision to transfer the maintenance base for Dash 8s from Quebec City to Halifax, was the right decision and that safety is guaranteed as well now as formerly?
Mr. Joe Randell: Thank you, Mr. Guimond.
First of all, with regard to the decision, the decision that was taken to transfer maintenance at the time, given the size of the Quebec operation, was the right decision. This was back last year. The change that occurred last fall with the shutdown of InterCanadian suddenly changed the picture in Quebec for us entirely. We first of all had to respond in the short term to the demands that were on us with the fleet that we had and the employees that we had, so we were very strained, very stretched. We increased the utilization on the fleet. We increased the number of flights with the existing fleet. We couldn't just immediately, because of training issues and staffing issues, move additional resources very quickly into Quebec, but we did the best we could over the winter period. Our on-time performance as a result of that increased utilization decreased. It was not at an acceptable level. I don't think it was as low as the number you mentioned; I believe the number was closer to 45%. However, it was not acceptable.
Now, though, with this new schedule, the first thing we've done in Quebec is increase capacity by 62%, so we have increased the product dramatically in Quebec. As a result of that, we've had to reassess the decisions we've made with regard to maintenance in Quebec, because now we have a larger fleet; now the economies of scale make more sense.
So we will be conducting Dash 8 A-checks in Quebec. We are hiring eight new maintenance people. We've established new leadership at the base. We have a full-time safety officer, whose position we've made from a part-time situation. We're developing a vision and action plan. As well, in Montreal we are establishing a line maintenance base of between 30 and 40 positions.
So we are taking action. You're right, what we've done in the past is no longer acceptable in the new operation within Quebec and the demand that exists within the marketplace.
With regard to the language of service issues, we took several steps to ensure that flight attendants who weren't as proficient in French as we thought they should be were basically Halifax based. We changed the pairing so that the Quebec flight attendants essentially would stay within the Quebec marketplace. We instituted a training program to upgrade the flight attendants. We have a testing program that we're putting them through, and we've been reinforcing this constantly. The number of complaints we had in the first four months of this year, a total of eight complaints, related to language. That is the total number of complaints we had in the first four months of this year.
Mr. Michel Guimond: Monsieur Randell, on November 23 and 24, 1999, focus groups were conducted with Air Nova employees based in the province of Quebec. Groupe Pécus facilitated the focus groups in French. The groups were designed to gain a better understanding of employee issues.
I would like to hear your comments on what your maintenance employees are saying, Mr. Randell. Maintenance employees in Quebec City made the following comment to the Pécus Group:
They are told that the airplanes are not in as good condition as
before. Before they always thought to do preventive maintenance, but
now they can't.
Can you reassure passengers, like myself, who take Air Nova flights 26 weeks a year to travel between Quebec City and Ottawa? When your own employees say:
“the airplanes are not in as good condition as before”,
What does that mean? Can you reassure me as a passenger, and one who does not like flying?
A voice: Take the bus.
Some hon. members: Oh, oh!
Mr. Joe Randell: Well, first of all—
A voice: Take the train.
Some hon. members: Oh, oh!
Mr. Joe Randell: I would never say that.
Some hon. members: Oh, oh!
Mr. Joe Randell: First of all, Monsieur Guimond, that report you've received is the very reason we do those things: to identify if there are any issues or shortcomings in the operation. We have to take every step we possibly can to identify those.
Some of the items I mentioned earlier have been a result. That's been a contributing factor and has been a concern of employees. I want to assure you safety is our highest commitment and we will take the necessary steps to ensure our airplanes are operated in a safe manner. Our airplanes are not dispatched if they are unsafe and do not meet requirements. That is a commitment we make. That is a commitment that is absolutely vital, and for our survival it's vital.
We are establishing, as a result of the increased operation in Quebec and some of the issues you mentioned earlier.... It's an adjustment period. We did not finalize the structure of our business, because again, we were in a continued period of uncertainty. We didn't know whether we would be sold as single entities or as total entities, whether we would be kept, or whether we would be consolidated. Again, in the interest of trying to remain flexible but at the same time with due regard to safety, we have identified some issues that we've moved to address, and we will continue to do that as we move forward.
Again, part of what I'm saying here is it's absolutely necessary that we do move forward in several areas, because prolonged uncertainty is just not good in our business.
The Chair: Thanks, Michel.
Lou Sekora, please.
Mr. Lou Sekora (Port Moody—Coquitlam—Port Coquitlam, Lib.): Thank you.
I'm sorry I missed your speech, the address you gave to us. You're saying you're working very closely with Air Canada. You are a subsidiary of Air Canada, are you not?
Mr. Joe Randell: Yes, we are.
Mr. Lou Sekora: So it's easy to say that, but I guess you have to work with them, because it doesn't seem anybody else is working with them. I've had a tremendous amount of complaints. I want to talk to Mr. Milton, as a matter of fact, so badly that I can't wait for him to come here. I wish I could have about half an hour of my time with him alone, Mr. Chair.
Mr. Joe Fontana: Line up.
Mr. Lou Sekora: Yes, that's right.
I guess you're involved in Penticton and places like that?
Mr. Joe Randell: Yes.
Mr. Lou Sekora: Okay. A person with a complaint from the MLA in Penticton phoned me one day here just six weeks ago or two months ago, saying you're cutting services out there without discussing it with the mayor; without discussing it with the MLA; without discussing it with the MP there, Jim Hart; without discussing it with anyone. That's just total disregard for a community, total disregard for a community.
So I went to the transport minister and a few other places, and we found out you violated your own agreement or whatever it is you have, and you have to put the service back in there. How can one be so...? I guess if you didn't have a monopoly, this wouldn't have happened. But now you have a damn monopoly, and I'll tell you, you've just taken over and you're doing as you bloody well please. You don't listen to the communities.
Mr. Milton was on TV, and I don't know if it was before dinner or after dinner, how many glasses of wine he had, or what he was doing, but the fact is he said “Talk about any part of Canada. We have so many good things to say about any city in Canada.” Well, pardon me. I really begin to burn and get choked when I hear those comments, because it's so untrue.
Everything throughout British Columbia that I know of has been neutered by you people, totally. People go to the airports and there are big lineups, every airline is oversold by 45 seats—oh yes, 45 seats—you're buying people off by $300 or $500. You're doing all kinds of these crazy things. I wonder how much markup there is on every damn airline ticket if you can do that. Maybe you can explain some of those to me.
Mr. Joe Randell: Mr. Sekora, first of all, the normal process we would go through with regard to the discussion of service adjustments that were made for this past winter and spring we did not go through. It was rendered impossible in order to communicate with every community, every mayor, every MHA, etc., because we were in a situation of having to redesign an entire network extremely quickly with the losses that were being incurred within our business. There was significant bleeding happening at Canadian Airlines with regards to cash, significant problems with regard to losses at Air BC. We did move quickly and hastily, and I'm the first to admit that it could have been done better. A time constraint did exist, and the circumstances that we've been going through in transition have been rather unusual, to say the least. This is not a usual period.
In the case of Penticton, you're right, we did cut capacity too much. We realized that an error had been made. We did reinstall the Dash 8. But I'd like to mention right now that as of June 10, a number of capacity increases are being put into the marketplace. We will be adding yet another flight from Penticton to Vancouver, flights from Cranbrook to Calgary, Nanaimo to Vancouver, and Victoria to Vancouver. All of these flights are in addition, and of the six scheduled adjustments that will be going in in June, four of them are in British Columbia.
With regard to our having a monopoly, part of the problem with the airports in the interior of B.C. has been the draw that Kelowna has had from these other airports. A lot of the reduced demand at these airports is a result of the WestJet service that has existed in Kelowna. To believe that we have a monopoly in Penticton—that is not in fact the case. We are very much affected by surrounding airports and we do not have a monopoly at that airport.
The Chair: Thanks, Mr. Randell.
Ms. Bev Desjarlais (Churchill, NDP): I'd like to follow up on Mr. Guimond's concerns in regards to the maintenance situation in Quebec. Have there been any changes or decreases in your preventive maintenance practices in that area? Second, just so you can get it all in, is it possible to get a listing of the capacity and, say, your scheduling within the B.C. area, pre- and post-merger, so that we have something to go by in writing so we can see if there have been significant changes?
Mr. Joe Randell: Dealing with those issues, first of all, it is possible to get a measure of capacity year over year. It's not a problem. We have that readily available, so that's no problem at all.
With regard to maintenance, as a matter of fact, we've been moving to improve the quality of maintenance. Just recently Air Nova made a presentation at a maintenance conference in Vancouver and is recognized as being a leader in the use of human factors in terms of maintenance and maintenance training, to encourage the reporting by employees of issues, etc., so that they are ensured it's done on a non-punitive basis and that we in fact obtain all of the feedback that is absolutely necessary for us to ensure that we have safe operations. So if anything, we're working to improve the level and quality and reliability and the comfort that we have in the maintenance area.
There was a question earlier on over-sales. I would mention that our statistics with regard to over-sales year over year have been unchanged and are far lower than what you would find elsewhere within the industry. We have the facts and figures to support that.
I'm sorry, did I miss one of those questions?
Ms. Bev Desjarlais: When I was asking about capacity, I also wanted a listing of what the routes were and what they are now.
Mr. Joe Randell: Certainly. I can provide that, yes.
Ms. Bev Desjarlais: Can you give us some specifics as to exactly what you're dealing with in trying to address the language issue out west?
Mr. Joe Randell: First of all, we're identifying the markets where there is a significant demand with regard to the requirement that exists, and of course it will affect schedules and scheduling requirements for flight attendants, etc. But generally speaking, we're working on a complete retraining program, and again, bringing people from zero knowledge to being capable of dealing with passengers on the flight is a significant challenge for us.
The Chair: Thanks, Bev.
Mr. Claude Drouin (Beauce, Lib.): Thank you for your presentation, Mr. Randell and Ms. Clark. I would like to make a comment and then ask you a question.
First of all, you say that bilingual service is to be upgraded, and you want one year to do that. I hope you will not wait that long to offer bilingual service. I think this is essential for reasons of safety, as has already been mentioned. I have already given this example here at the committee. People taking the plane for the first time who hear the explanations about safety procedures in one language only might not know what to do in an emergency. So I sincerely hope that you are going to make an effort in this regard.
My question is about service. Your company is an affiliate of Air Canada and it serves the regions. You mentioned a few regions where service had been improved. We hear that the regional companies that are not Air Canada affiliates are currently having trouble maintaining the services they have. My fear is that Air Canada will use its monopoly to try to squeeze out these companies, and this could result in poorer service in the regions. I think we should allow these companies, that used to be independent or affiliates of Canadian Airlines, to continue providing the same service for a few years, and subsequently determine whether negotiations might be advisable in order to improve the situation. I think the objective is to provide the people with the best possible service. I fail to see how we can serve people better by reducing the number of companies. We have to be aware as well that there are jobs at stake, here. These companies have become dependent on the crumbs you will be leaving for them. This is not reasonable, and I would like to know what your position is with respect to these independent companies.
Mr. Joe Randell: Thank you.
First of all, with regard to language in Quebec and Atlantic Canada, our commitment now—and we're working through this very diligently—is to provide service in both official languages. The one year I spoke of is with respect to Air Ontario, Air BC, and potentially CRA if it is not sold.
With regard to safety, all of these airlines presently make announcements and safety instructions in both official languages through the use of tapes in terms of the instructions initially for the flight, etc. So the safety announcements with regard to exits, etc., are already made in both languages.
With regard to independent carriers, we have not set out in any way, shape or form to try to put independent carriers in a poor situation or to put them out of business. As a matter of fact, we've entered into discussions with a number of carriers as to how we can cooperate in going forward to the advantage of the carrier itself and also of course in their working with us. We do have independent carriers in a number of regions of the country who are competitors of ours and will continue to be competitors of ours, and we will have new competition as well. It's up to those carriers themselves as to whether they want to work with us. We're willing to talk with any of them, with no preconceived idea that we don't want to talk with them or that there aren't ways that we can cooperate.
It's very difficult to be a competitor and to cooperate at the same time. There are requirements that we've talked about under the guidelines with respect to access to joint fares and Aeroplan, for instance, which will be available to these carriers in any event. I think those have been well covered off. But I think it's important that if carriers have financial difficulty, their financial difficulty is not always laid on our doorstep as being our responsibility and the reason they were unable to come up with a viable business plan, because all business plans don't fail as a result of our actions.
The Chair: Thanks, Mr. Guimond.
Mr. Casey, please.
Mr. Bill Casey (Cumberland—Colchester, PC): Under your mandate as president of Air Canada's regional airlines, are you responsible for Canadian Regional Airlines now?
Mr. Joe Randell: No, I am not.
Mr. Bill Casey: Who is?
Mr. Joe Randell: There's an interim president of Canadian Regional; his name is Kim Kapp. He reports through Canadian Airlines itself, so Canadian Regional is still a subsidiary of Canadian Airlines.
Mr. Bill Casey: Do you know what the main problems are in the negotiation to divest Canadian Regional?
Mr. Joe Randell: I'm not involved in those negotiations. I understand it relates to how the value is set, but other than that, I've not been party to those discussions.
Mr. Bill Casey: Okay.
It seems puzzling to me. Now we have the national regional airlines system, of which you're president. Are you going to change the names of all the companies, or are they going to stay the three or four different names?
Mr. Joe Randell: That's under review, but most likely the names will change.
Mr. Bill Casey: So we'll have a national Air Canada regional system and a national Air Canada international system parallel? What is the advantage of maintaining the two systems? Why not just Air Canada, now that it's essentially all one?
Mr. Joe Randell: Throughout the world, generally regional operations are kept separate from main line, whether they're owned or not. It really speaks to the difference in the mandate of the carriers. We operate smaller equipment, have far more landings and take-offs, have smaller airports, and work at airports where people do multiple duties rather than being specific. It has to do with the size and the scope of the operation and the flexibility required in order to be competitive within the regional airline business.
As well, the whole issue of the corporate overhead and the training issues in terms of integrating workforces entirely, all the way from 747s to Beech 1900s, just makes everything logistically far more complicated than the operation of a separate regional carrier.
Mr. Bill Casey: Is it for management control or cost control mostly that you keep the two divided?
Mr. Joe Randell: It's both. It's focus on regional markets. Something we put forward all the time is that sometimes it's a little more glamorous to be talking about a route from Montreal to Paris than from Wabush to Goose Bay, but the people who travel from Wabush to Goose Bay are very, very important themselves. By being there and being the advocates and the promoters of regional service and by being responsive and accountable for regional service, we ensure that focus is there and is not lost. That's extremely important as we move forward within the business, and that's all the more reason it should be separate, from a management point of view.
So it isn't strictly one or the other; it's a combination of the two.
Mr. Bill Casey: Yes, that makes sense.
Right now, is Canadian Regional still operating the way it always did?
Mr. Joe Randell: Canadian Regional still operates as a feed carrier into the main line, which is what it did with Canadian. The role continues to be that.
Mr. Bill Casey: I just have one other specific question. I want to say too, you always answer my letters, and I appreciate that, but there was one—
Mr. Joe Randell: I can't say I enjoy getting your letters.
Some hon. members: Oh, oh!
Mr. Bill Casey: No, but you always answer them, and I appreciate that. I can't say I always agree with your answers—
Some hon. members: Oh, oh!
Mr. Bill Casey: —but at least you answer them, and I appreciate that.
I have another letter I'll write. Never mind; I don't want to bring it up here.
Mr. Joe Randell: Oh, no.
Mr. Bill Casey: Let me see if I had anything else here. I guess that's it for now.
Thank you, Mr. Chair.
The Chair: Thank you, Bill.
Murray Calder, please, a question, then Val Meredith a question, and Joe Fontana a question.
Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): I want to piggyback on Monsieur Guimond's concern about safety. You've made a statement here about pooling your fleet, that you could move western aircraft to eastern Canada. Obviously a percentage of your fleet is in the air and a percentage of it is in the shop being maintained and repaired.
Mr. Joe Randell: Yes.
Mr. Murray Calder: What's the industry norm?
Mr. Joe Randell: In terms of percentage?
Mr. Murray Calder: Yes.
Mr. Joe Randell: Well, of course every aircraft is maintained overnight and as required on the line, so that's a normal situation. With regard to heavy maintenance, where you actually take aircraft off the line for a prolonged inspection period, generally for every 25 aircraft you will find one will be off the line entirely.
Mr. Murray Calder: Okay. How close are you to that industry norm?
Mr. Joe Randell: Oh, we're right at the industry norm, basically.
Mr. Murray Calder: Okay. Thank you.
The Chair: Thanks, Murray.
Ms. Val Meredith: I wanted to follow up on this whole Official Languages Act requirement, because my understanding of the Official Languages Act is that there's a 5% guideline—that 5% of the market, or 5% of the demand, or 5% of the province, or 5% of a designated area is required in order for that to be an issue. Do you question your travelling public as to what language they speak in order to determine that 5% requirement?
Mr. Joe Randell: We are conducting research to determine where that 5% level exists.
Ms. Val Meredith: So where the 5% level does not exist, where there is not a demand either by the travelling public or by the province or by a designated area, do you feel you still have to qualify under the Official Languages Act?
Mr. Joe Randell: I believe the answer to that technically is no.
Ms. Val Meredith: Thank you.
The Chair: Stan Dromisky, a single question. Do you have a single question?
Mr. Stan Dromisky (Thunder Bay—Atikokan, Lib.): Yes, a single question.
I think it's important for the public to know what your present policy is. I know the answer you give could change tomorrow, it could change a year from now, or even two years from now.
In the past, one major airport like Pearson, with its gigantic profit, used to subsidize many losing operations. The same thing was applicable to airlines. If you have a money-losing route—in other words, revenue is being lost by a short regional route—will that route be maintained by the profits of other profitable routes within your system, or will the public be notified that “Sorry, that route is a money-losing one. There's no relationship to the moneys that have been generated in other routes where the profits do exist. We are cancelling that route.”
Mr. Joe Randell: Well, there are three types of routes. There are routes that obviously will support themselves, period. There is a second type of route that, if you look at the route on its own, doesn't support itself, but when you look at what that route contributes to other routes, it makes sense to operate. And we operate many routes like that. In other words—
Mr. Stan Dromisky: That's very important for the public to know.
Mr. Joe Randell: Yes. But it's difficult for them to understand.
Then there is the third type of route where, even if you look at the contribution, the route still doesn't cover its costs, and those are problem routes because they just are money-losing routes.
Mr. Stan Dromisky: The reason I raise the question is that we do have communities where people are screaming for service but do not take advantage of the service being provided. Very few people take the plane, yet they want it. Therefore, that causes quite a concern on a national basis. That's why I wanted the kind of answer you gave, and I'm hoping you will be more effective in communicating with the public regarding the criteria used in each of the three categories you mentioned.
Mr. Joe Randell: There are a lot of misconceptions out there with regard to routes and profitability, etc. It's difficult to address, but it's one of the challenges that I think ATAC needs to face as well with regard to educating the travelling public.
The Chair: Michel, a single question; Joe, a single question.
Mr. Michel Guimond: Mr. Randell, I have here a report entitled Quebec Involvement which is dated February 27. I'm going to quote some passages that come under the heading Why the Merger Didn't Work:
We have managed to have an excellent core team in Quebec. We want to
work, we want to participate, we want to make it a success, and we
want to be part of it. We would like to be part of Air Nova, but we
don't feel it. There has been lack of trust, lack of concern, and we
feel more being spied on than getting the job done.
I could read you 19 pages of this. I am a lawyer by training, Mr. Randell. When I studied law, we were taught to never ask a question unless we knew the answer.
Mr. Joe Randell: First of all, with regard to that report, the comments made dealt more with the integration process.
Air Nova and Air Alliance were corporately integrated back in March 1999. We commenced the integration process with Canadian Regional and looking at what the implications of that would be, along with Air Ontario and Air BC, as of January. In that integration process a total of four airlines entered into discussions. Of those, of course three were Air Canada regionals, which we had to look at in terms of the integration of the Air Canada regionals. In that process a number of teams were established to look at various aspects of integration, and there were a number of representations from Quebec on various teams.
There was a total unacceptance in certain areas in Quebec of the fact that Air Nova and Air Alliance had been integrated as one carrier. In these operations, one of the issues that developed as to why we had some of the issues we alluded to earlier is we had two leaders. In a business where you have one operation and one operating certificate, you cannot have two leaders. We made an adjustment with regard to that to ensure there was total clarity as to who was responsible and who the leader was. So a change was made with one person in Quebec as a result of that.
We have moved now, and again, people from Quebec are very much involved with the integration. It's one of the steps we felt was absolutely necessary, and it had nothing to do with diminishing the importance of Quebec in the operation. As a matter of fact, what I've said earlier is that we're adding resources. For instance, the Air Labrador Beech 1900 that will operate to Charlo and Miramichi will actually be maintained in Quebec as well.
It was an internal issue with regard to a disagreement on whether we should have a fourth airline for all representations at the integration level. It was our belief that Air Nova and Air Alliance had been integrated as one operation. We need to conduct our business in that way, as it's very important to us to ensure we have clarity and focus with regard to safety and the quality of operations.
The Chair: Joe Fontana, please.
Mr. Joe Fontana: Thank you, Joe. I would feel more assured if I could believe you were calling the shots for the Air Canada regionals, being someone who understands the local regional marketplace, and based on some of the responses you've given today, which are important.
But the problem is, again, I don't believe it's well served by the fact that Air Canada essentially thinks of you as nothing more than a service to them, as opposed to a wholly owned subsidiary, allowing you to do what it takes in order to serve your customers. I'll ask that of Mr. Milton, but I'm not sure you do totally call the shots. Some VP at Air Canada is essentially in charge of code-sharing, reservations, scheduling, capacity, and all of those things. I know you have input, but at the end of the day, they're the guys who pay the bills and they're the ones who are going to make the decisions, and I have a problem with that.
Whose decision was it, Pearson's or Air Canada's, to put all of Air Ontario flying into Terminal 1 as of June 7 or 8, essentially forcing the majority of the customers who need to connect with other cities in Canada to have to take a tunnel and/or a shuttle or walk to Terminal 2 to connect with the rest of the country? That doesn't sound like something you would do. Obviously it worked well when Air Ontario went into Terminal 2 and Terminal 2 was essentially the domestic thing.
Terminal 1, as I understand it, is going to be a combination of international and Air Ontario, forcing an awful lot of your customers.... And I can tell you I've heard already from a lot of customers who are saying it's absolutely ridiculous that most of Air Ontario's customers are going to be forced into Terminal 1 and then have to find their way to Terminal 2 in order to get connecting flights. Whose decision was that, Air Canada's or Pearson's?
Mr. Joe Randell: As Air Ontario...there was involvement in the analysis and look at various options in terms of how the operations were consolidated at Pearson. I wasn't party to those discussions. I know that Air Canada entered into discussions with Pearson, with the GTAA, with regard to how it would be done, and the end result was the result of several constraints, I know. I can't say that it was suboptimal in any way. As a matter of fact, it most likely was optimal.
With regard to the Air Ontario customers, while the operation will be remote from T-2, there will be tunnel access that is convenient for international connections. As a matter of fact, for local customers from Toronto to intra-Ontario communities, access to T-1 may in fact be a little more convenient for them than going through T-2. That's not the end state. The end state will be T-New, and hopefully within a few years we'll have that. That will address a lot of the issues, and the regional operations will certainly be an important focus in T-New.
The Chair: Mr. Randell, thank you very much for appearing before our committee. We could probably spend another hour with you, but unfortunately we have other witnesses as well who have to be heard. We appreciate your coming before the committee.
Some of our committee members may have some questions for you, whatever their mode of communication happens to be, but if you could cooperate with any one of the committee members who gives you a call or an e-mail, etc., just so we can have the information we need when we go to clause-by-clause examination of the bill, we'd appreciate it.
Thank you very much, Mr. Randell and Ms. Clark.
Mr. Joe Randell: Thank you, Mr. Keyes.
The Chair: Colleagues, I'm trying to stick to the schedule as much as I can. At this end of the table we're getting feedback from some of my colleagues who are saying, look, we'll go a little longer with this one and a little shorter with that one, and they're saying they'll sacrifice some questioning of some of the other witnesses. So there's going to be give and take on the schedule today as we proceed.
Colleagues, our next witness is Dean Tuggey, manager of operations with Régionnair.
Mr. Tuggey, welcome to the Standing Committee on Transport. We look forward to your presentation of five to eight minutes, and then we can have some questions for you, sir.
Mr. Dean Tuggey (Manager of Operations, Régionnair): I'll be reading this in French only, because of the time—
The Chair: Not a problem, sir. We have translation.
Mr. Dean Tuggey: Mr. Chairman and honourable members of the committee I am pleased to accept your invitation to express our views on the restructuring of air transportation in the country. It is also a privilege for me to defend Regionnair's interests.
My name is Dean Tuggey and I am the Director of Operations at Regionnair. Your committee is seeking a practical solution to the problems caused by the restructuring of air transportation in Canada, and Bill C-26 which amends the Canada Transportation Act, among others, will give you an opportunity to implement the solutions you developed.
This morning I will not be discussing each of the proposed amendments. Rather, I will try to describe the difficulties we are facing in this transition from a duopoly to a monopoly, and the dangers of this restructuring because, far from promoting genuine competition, it merely reinforces the takeover of the entire industry by Air Canada and its affiliates.
I will set out the facts and I will tell you about the serious consequences they are causing and might cause for the industry in general and for Régionnair in particular.
First of all, I would like to give you a brief description of Régionnair Inc. It was founded in 1992 in response to a pressing need for communities on the Mid and Lower North Shore to have reliable, high quality service, in keeping with the standards of the end of the 20th century.
For those of you who are not familiar with this region, I would just say that it is located to the east of Sept-Îles, and extends to Blanc-Sablon. A number of communities located to the east of Sept-Îles were served only by float planes in summer and ski planes in winter. Régionnair built runways in four of these coastal communities so that land-based aircraft such as the Twin Otter, could finally land there. These planes were more comfortable than the Beavers and Otters people were accustomed to. Some of the services were offered in competition with InterCanadian (which was subsidized) and others were offered exclusively by Régionnair.
Over the years, Régionnair has had to compete with InterCanadian and Aviation Quebec Labrador, which associated with Air Canada, but has maintained the trust and loyalty of its customers.
From 1996 to 1999, Régionnair operated under a commercial agreement with Canadian Regional via InterCanadian. This partnership agreement was modified on a few occasions to adjust to new demands and changes in the market, where we eventually replaced InterCanadian's services to certain destinations that no longer warranted a large aircraft. The agreement allowed the two parties to maintain their presence in these isolated, remote communities. Passengers benefitted as well, because they could use CP ticketing and a variety of its fare products. These products included low fares, occasional seat sales, presence on the international market of CP and its affiliates, bonus points in the Canadian Plus program, and so on. This agreement, which could be described as beneficial to both parties, was abolished in August 1999 after structural changes in the routes and the offer of single-engine aircraft that were not covered by the agreement.
Thus, we had to restructure ourselves in order to offer services that were formerly offered by Canadian and by doing so, we lost the CP code.
I can assure you that without a recognized and well-established code, regular and connecting flights require more sustained efforts in terms of sales.
In our streak of bad luck, we had to double our efforts to establish a more competitive and independent structure, which is starting to yield results.
Since InterCanadian disappeared last November, we have succeeded in introducing a new service between Sept-Îles and Montreal, via Quebec, based on two return flights daily from Monday to Friday. We also offer prices that are reasonable and convenient in our market.
But we started having problems when Air Nova began to offer excess capacity that is far superior to the services previously offered by InterCanadian. It is well known that both companies were operating with a load factor of barely 40%, and we think for this reason that the excess capacity exceeds demand. Then why offer so many flights? The answer, in our opinion, is Air Canada's desire, via Air Nova, to flood the market in order to drown the competition. Where we had a flight leaving before Air Nova, they added one before ours and left the one just after ours, leaving us in a more marginal position.
These tactics of matching, and even doubling the number of flights that we offer, are nothing more than intimidation on their part to make us abandon the new markets that we are developing. In fact, during the time that InterCanadian offered services on these routes, the already excess capacity was not justified. After InterCanadian's withdrawal, Air Nova did not replace InterCanadian on a flight-per-flight basis. Why do so? Why do it now when the market shows no signs of growth? Why offer a flight to Baie-Comeau, at the same time as ours in the morning, when they did not do so when InterCanadian was there? And how can they justify their contact with the City of Bonaventure to suddenly offer them service after having learned that Régionnair was interested in doing so?
This behaviour is the reason why we are concerned that we might ultimately be forced to leave the market. If this were the case, we would have really felt and experienced the predatory behaviour of the dominant operator and this situation has to be stopped before it is too late.
Another example of predatory behaviour is the dominant position of Air Canada and Air Nova at airports, where they take over all available facilities without this being justified by the number of passengers or the number of spaces open on the flights offered. And in this situation, no support is offered by Transport Canada, which manages many of these facilities. Furthermore, Air Canada had made a commitment to release any surplus counter spaces.
We are going to pass along with our presentation, a number of letters of support and confirmation of what we stated earlier. I learned earlier on that the letters would be translated before being distributed to you.
The situation is far from reassuring in light of the complete integration of Canadian Airlines and the expansion of Air Nova's or its affiliated airlines in Quebec with whom we compete honestly and independently.
As for the use of frequent flyer points, we have to point out that Air Canada has responded favourably to our request, but the process of implementation is so long and time-consuming that we will only be able to offer them to our customers at the end of October.
There is no technical reason to justify this delay, if not to be able to make their mark on the market before they let us compete on more equal terms. We have suggested many ways of accelerating this process, but we are always faced with an agenda that is not ours and over which we have no control. During this time, our passengers cannot benefit from these points when they are travelling.
These conditions are anti-competitive and prevent us from doing business to our full potential. They also run counter to the promise Air Canada made on December 21 to the Director of competition.
In conclusion, I would like to ask that, when you amend Bill C-26, you seriously examine all of the real and harmful action that has been taken to prevent us from offering our passengers a real choice and true competition.
I thank you for your attention, and I am now ready to answer your questions.
The Chair: Thanks very much, Mr. Tuggey.
Roy Bailey, please.
Mr. Roy Bailey (Souris—Moose Mountain, Canadian Alliance): Thank you, sir, for coming before us today. The message you have brought is something this committee feared from the very beginning could happen and obviously is happening across Canada. Somehow we just can't seem to get that message out from this community.
I have just a quick question. Have you attempted to make use of the Competition Act to protect your position at the present time?
Mr. Dean Tuggey: Not to this point, but it is certainly a solution we are looking at, because being a small company, we feel this is a bit of a David-against-Goliath situation. It's a very hard market, and without any help from this committee or whoever else can help us, we won't be able to go on much longer.
Mr. Roy Bailey: Do you feel Transport Canada has not lived up to your expectations? With what's going on before us, Bill C-26, do you and your company...? You have a company, I assume. Is it a company you have?
Mr. Dean Tuggey: I'm not the owner, but yes.
Mr. Roy Bailey: Yes, all right. I sense you have a great insecurity under the present system. Is that a correct feeling I have?
Mr. Dean Tuggey: Absolutely, sir.
Mr. Roy Bailey: So then in the event of your demise, if your company were to be forced out of business.... What you suspect is happening is that a monopoly situation exists, which is not good for the area you now serve.
Mr. Dean Tuggey: Especially in our area, where we offer services to very small communities, and with our competitor, which is affiliated with Air Nova, being there, it's pretty difficult for us. It's difficult also to be operating on our own without being hooked onto any other big carrier, which is not what we want, because then we would only heighten the problem of the monopoly situation.
Mr. Roy Bailey: This is my last question. I've heard this from different smaller groups such as yours. Why is it necessary for you to have an affiliation with a larger carrier? Once you have the timetable and the scheduling of the larger carrier, you yourself, your smaller company, could change your timetable to meet their timetable without the affiliation and thus remain independent. Is that not possible?
Mr. Dean Tuggey: Well, that's what we are doing right now, but the big problem with not being affiliated with a bigger company is you lose on the through passengers, the connecting flights, and all that. That is where we have the biggest problem, without any affiliation whatsoever with any other company.
Mr. Roy Bailey: But you are saying then you can't have agreements without affiliation?
Mr. Dean Tuggey: I guess it could always be possible. We have spoken with Air Canada about using their points system, and they have answered favourably to us, but time is the biggest factor in this, because it won't be accessible to us until probably the end of October, maybe even later.
Mr. Roy Bailey: The huge companies have agreements, and they're not affiliated.
Mr. Dean Tuggey: No.
Mr. Roy Bailey: So why can't you? That's my question.
Mr. Dean Tuggey: Well, we can ask Air Canada that.
Mr. Roy Bailey: Thank you, sir.
The Chair: Thank you, Roy.
Mr. Claude Drouin: Thank you for your presentation, Mr. Tuggey. You have raised several points that show that for Régionnair, life is a bit difficult, if not impossible to foresee in the short and medium term. You mentioned excess capacity that existed, problems that Air Canada is causing by scheduling flights before and after yours, surplus counter space, the fact that frequent flyer points are being monopolized, and so on. How did Transport Canada react to the surplus counter space? You have undoubtedly lodged some complaints. I would like to know how Transport Canada reacted.
Mr. Dean Tuggey: Transport Canada always reacts in favour of Air Canada. Even when no one had requested the counter space, it was kept in case Air Canada needed it, which causes us a serious problem with respect to visibility in the airports and attracting our clientele.
Mr. Claude Drouin: Have you lodged any complaints?
Mr. Dean Tuggey: We have lodged several complaints with Transport Canada. We lodged complaints with authorities other than Transport Canada where facilities are not managed by Transport Canada. The answer is always the same: if Air Canada needs it, Air Canada will have it; if Air Canada does not need it, might consider offering it to you.
Mr. Claude Drouin: That is a bit strange.
Secondly, you talked about frequent flyer points. You say that if you have to wait several months to implement that, it will be detrimental to your clients. In your opinion, what exactly is the problem? You say that it is unjustified and that it could be done easily, but I would like you to give me a little bit more detail so that I can fully grasp the problem.
Mr. Dean Tuggey: Obviously, it is easier to sell tickets when you can offer clients, points that will enable them to travel later on. That is where the problem lies. We have suggested several ways of speeding up the process to help us reach a different clientele or a larger clientele. Each time we are told the same thing: we are not necessarily a priority in terms of their requirements.
Mr. Claude Drouin: Thank you, Mr. Chairman.
The Chair: Thanks, Claude.
Mr. Michel Guimond: Mr. Tuggey, thank you for your presentation. My colleague Claude Drouin accurately raised the three most important complaints. I have only one wish, and it is that you be able to continue your operations as long as possible to serve the regions and ensure competition in the regions. If nothing is done, unless your shareholders are multibillionaires, the services in the region that you provide could be abandoned. That is the comment I wanted to make.
I am now going to make a comment for my colleagues on the committee. Three weeks ago, when Air Transat appeared, I paraphrased and old French folk song entitled "Tout va très bien, madame la marquise" to point out that senior officials at Transport Canada, especially Ms. Valerie Dufour, Direction of Civil Aviation—that is more or less her title—told us that all was well. We have an indication of just how well things are going! We must be proud today to hear this evidence on how things are going. I appeal to my Transport Committee colleagues. I am going to table amendments to Bill C-26, and I appeal to you for your solidarity. If all committee members truly want competition in the regions, I appeal to them. Mr. Tuggey, I am telling you that I am appealing to committee members for their solidarity. If the people sitting around this table want real competition in the regions, there will have to be some amendments, because the bill, as it is drafted, does not work and will kill off all regional companies. There are other regional companies that will appear today. The same fate awaits them all. I am going to table amendments, and I hope that the Liberal majority on the committee will not follow the party line and the messages put out by Transport Canada. That is the comment I wanted to make. Do you have anything to add?
Mr. Dean Tuggey: No, but we would like to thank you. We need all the support we can get. In this kind of market, it's difficult to go it alone. Sometimes, we feel quite lonely.
The Chair: Thank you very much, Mr. Guimond, for your passionate intervention and your request of your colleagues.
Because this committee of course, Mr. Tuggey, is very seized with all of the problems that are being presented to us, I can assure you there will in all likelihood be amendments, quite possibly many amendments, to this piece of legislation. Sometimes some of our members get carried away with their passions and forget what was said a few meetings back. Sometimes Michel Guimond...and I appreciate his intervention. He's a knowledgeable man, and he works very hard on this committee. When Onex was here and we were talking about the possibility of the continuance of ownership of Canadian separate from Air Canada, I remember Mr. Guimond was very passionate about Air Canada.
Mr. Calder, do you have a question?
Mr. Murray Calder: No.
The Chair: Bev Desjarlais, please.
Ms. Bev Desjarlais: Thank you.
I'll try to give you all the questions to start.
In terms of your concerns regarding what appears to be predatory practices by Air Canada, Air Nova, or its affiliates, have you put those concerns in writing and received anything back, whether it be from the CTA, the Competition Bureau, Transport Canada, or any of those you might have contacted?
Secondly, you indicated that the whole bonus points system and the way it's being set up is very complicated and therefore can't be put in place until October. I would like to know exactly why it is so complicated and why the delay is until October. Is it as a result of what Air Canada is doing, or Air Nova or their affiliates, or is it something that's hard to implement within your own business?
The other thing I would like to know is with regard to the capacity you talk about and the fact that Air Canada, Air Nova, or their affiliates have added additional flights or capacity on lines where you are. Do you specifically have those listed, with pre- and post-merger changes?
Would you be able to give us that information?
Mr. Dean Tuggey: As far as the extra flights are concerned, I don't have the information with me, but it is available.
Just to give you a rough idea, on the Sept-Îles-to-Montreal route via Quebec or whatever—
Ms. Bev Desjarlais: Actually, if at all possible, I don't necessarily want the specifics for one particular route. As a committee, we'd like to know this, in writing, for all the routes rather than just hearing about one route here today, if that's okay.
Mr. Dean Tuggey: I was just going to give an example.
Capacities have been augmented by as much as 150% in some cases. That's where we have a big problem with that. We're a small company. We don't have the means to compete.
Ms. Bev Desjarlais: I understand all that, but I want the specifics in writing. I got your point when you first made it, but I do want the specifics so that we have something to deal with in terms of the whole factor.
I would like to get answers to my other questions.
Mr. Dean Tuggey: As far as the letters are concerned, no, there have been no letters sent as of yet. We wanted to expose our point of view to the committee. After this has been done, well, we will be writing letters and asking for help from different levels of government, wherever we can get help.
In terms of the points system, Air Canada would be the only ones to answer that question, I'm afraid. Every time we ask them to accelerate the process, we are told that it is not a priority issue for them and we are just put aside.
Ms. Bev Desjarlais: What do you see as being the answer on the issue of capacity? Is there a need to regulate the number of carriers that go in as long as capacity is a certain level? Is there a need to have some type of regulation like that in place? What do you see as the answer?
Mr. Dean Tuggey: Certainly there is room for more than one carrier. To regulate that might be a good idea, or, on the competition level, which is our main concern, to restrain the bigger operators from taking over an existing market, especially in regions where in the long run the passengers of these regions will be the first to suffer from this. In the long run, these passengers will end up with no service whatsoever.
Ms. Bev Desjarlais: Thank you.
The Chair: Thanks, Bev.
Bill Casey, do you have any questions?
Mr. Bill Casey: Yes, I do.
I want to get a perspective of your company. How many airplanes do you have, how many employees do you have, and how many airports do you serve?
Mr. Dean Tuggey: As of now we have five airplanes, we have 70 employees, and we serve all the lower north shore, which is about eight airports, and then Sept-Îles, Quebec, Montreal, Gaspé, and Bonaventure.
Mr. Bill Casey: You're now operating at a loss, from what you're saying.
Mr. Dean Tuggey: Yes, we are.
Mr. Bill Casey: For how many years have you been operating at a loss?
Mr. Dean Tuggey: It's not years, it's less than a year, about six to nine months.
Mr. Bill Casey: Prior to that you were profitable?
Mr. Dean Tuggey: We were maintaining, or sustaining, ourselves.
Mr. Bill Casey: Who are the shareholders?
Mr. Dean Tuggey: The president, Guy Marcoux, is the major shareholder, but we have investors all over the lower north shore. Some of our pilots are investors, as are local communities. A whole bunch of investors are involved in this.
Mr. Bill Casey: In your paper you said that no support is offered by Transport Canada, which is the managing agency in many of the cases. You were referring to airports. What are the managing agencies in the other airports? Is it the local authorities?
Mr. Dean Tuggey: The local authorities, towns, yes.
Mr. Bill Casey: Do you own any airports?
Mr. Dean Tuggey: No. We built landing strips but we don't own the airport.
Mr. Bill Casey: You built landing strips but you don't own the airport. Do you own the landing strips?
Mr. Dean Tuggey: No. It was to offer a better service to the people of those communities who were served in the summer by float planes, in the winter by ski planes, and then, during freeze-up and breakup, by snowmobiles. So we took it upon ourselves to build the landing strips in four of these communities. We used to offer service with a Twin Otter and now we offer it with a Caravan.
Mr. Bill Casey: What's the most important amendment we could make to help you survive?
Mr. Dean Tuggey: The most important? To have some type of regulation that would help—or perhaps I wouldn't say “help”—
Mr. Roy Bailey: To protect?
Mr. Dean Tuggey: Yes, protect. Exactly. Thank you, sir.
The most important regulation would be one that would protect us from being drowned by bigger companies.
Mr. Bill Casey: Okay. Thank you.
The Chair: Thanks, Bill.
Mr. Tuggey, I'm at a bit of a loss here. A question has been asked of you twice, and your response was that you wanted to raise it with the committee. When you started to see things go downhill last August, why didn't you go to the competition commissioner immediately?
Mr. Dean Tuggey: I have to admit, I was not with the company last August. I was on the other side of the fence.
My president has made numerous phone calls, but then again, no letters have been written to the Competition Bureau, that's for sure. They are coming, I can assure you of that.
The Chair: So you must be heartened by the idea that this legislation contains an opportunity for your company to go to the competition commissioner, and that the competition commissioner will be given in this legislation extra powers to be able to tell a monopoly or threatening airline to stop its predatory practices immediately.
Mr. Dean Tuggey: That's what we hope for, yes.
The Chair: Okay.
Mr. Tuggey, thank you very much for appearing before our committee. We appreciate your presentation. If you could forward right to our committee clerk the information that Ms. Desjarlais had requested, she can distribute it to our committee. Thank you very much, sir.
Mr. Dean Tuggey: Thank you, Chair.
The Chair: Colleagues, we welcome to the table our next witnesses, representatives of Skyservice Airlines Inc., with Mr. L. Russell Payson, president.
Welcome, Mr. Payson, to the Standing Committee on Transport. Could you introduce those you have brought with you today and give us a presentation of between five and eight minutes so that we can get right to questioning, sir.
Mr. L. Russell Payson (President, Skyservice Airlines Inc.): Thank you, Mr. Chairman.
I am president of Skyservice. With me is Richard Look. He is our all-knowing guru about affairs here in Ottawa, so I refer to him on many occasions.
Assuming that most of you might not know much about us, I thought it might be useful to provide you with a brief description of who we are. Skyservice is an aviation services company operating in two principal areas: executive aircraft and airline operations. Since our inception, quality has been pretty well our sole guiding principle. Everything we produce must be of the highest order in terms of quality services.
To give you an example, in the past few weeks our fixed-base operations—those are the facilities that cater to executive aircraft—were recognized and ranked number four in North America and Mexico, out of some—I'm guessing at this—3,000 to 4,000 or maybe 5,000 other facilities, while in Canada we've maintained our ranking as number one for the past five years.
We have an intensive air ambulance system, which has likewise been recognized and is competing on a daily basis for long-range repatriations with the world's best, such as Rega Swiss Air Ambulance, etc.
Our aircraft maintenance services are being used extensively by discriminating organizations such as Bombardier and COMAIR, the Delta connector for whom we maintain a lot of regional jets.
Our airline is the smallest and least known of the Canadian charter airlines but is recognized in terms of its quality of service. I should insert here that we actually had the first Airbus A-330 in North America, and we operate five Airbus A-320s, along with a 727.
In terms of expansion, we have been the least aggressive of the charter airlines, choosing not to take the same risks as others have taken, because of the overcapacity that has existed in the market to date. We are proud of the fact that we've been profitable in each year since our inception, which was in 1986. We have chosen not to gamble with the future of our employees.
However, with the recent changes in the Canadian marketplace, we do see some emerging opportunities, which, if the right environment were to exist, could offer some very attractive possibilities. In order to create this environment, more will have to be envisioned than has been done so far. Otherwise, a suitable environment for the growth of competition will not be there, and the new status quo of a dominant carrier will be perpetuated, in our opinion.
If Canada wants to ensure a competitive domestic airline environment in which competitors are able to co-exist with the dominant carrier, measures to protect and foster this market are essential. Our purpose in meeting with you today is to stress the absolute importance of creating an environment in which the right conditions exist to support the emergence of Canadian competitive forces. Without the proper legislative and regulatory framework, I do not believe any significant competition will emerge because of the barriers to entry presented by Air Canada. This new environment should be created so as to support Air Canada in international markets where it is competing with foreign carriers but limit its potential to eliminate domestic competition.
In order to envision what this environment should be like, we should look forward several years from now and ask ourselves if the legislation and supporting regulations being reviewed today would give positive answers to the following questions: one, are Canadian consumers and Canada's communities well served and at fair prices; two, is the new Air Canada a successful world-class airline; and three, have Canadian-owned airlines emerged to compete with Air Canada for all segments of the domestic marketplace, and are they successful?
Following the acquisition of Canadian by Air Canada, I am sure every Canadian carrier has contemplated coming forward with enhanced domestic services. However, you will note that the response so far has been rather hesitant and has been limited to providing a few more discount services in select areas of the country. So far nobody has come forward to offer full-service airline capabilities in areas where the travelling public could benefit from a competitive entity. Why?
A number of existing Canadian carriers are more than interested in developing competitive options to Air Canada, but nobody wants to commit economic suicide. Air Canada's sheer dominance and its ability to control all aspects of the marketplace make it nearly impossible for any new entrant to succeed as a full-service airline without a suitable environment to support its emergence. At present the only airlines that are trying to compete with Air Canada are those that stay out of their line of fire by not challenging their dominance as the only full-service airline catering to the needs of the high-yield Canadian domestic market.
Why is Air Canada so powerful? Prior to its privatization Air Canada was fostered and supported by the government in numerous ways over a half century. It is so disproportionately powerful when compared with other Canadian carriers—it's funny, when I heard Mr. Tuggey mention David and Goliath, I thought, it's more like the fly and the elephant—that Air Canada has sufficient equity on its balance sheet to outlast any competitor in any circumstances. This financial power, combined with the competitive advantages gained through the use of the best of check-in counters; the best locations in almost all terminals across the country; strategically located VIP lounges; gates located closest to the entrances and exits of terminals; departure and arrival slots in Canada's busiest airports when they need them; fast-lane access to many services, whether it be related to baggage handling or ground services, renders potential competitors almost defenceless.
Air Canada has acquired or inherited all the prime locations at airports, and there needs to be a way to have these shared in a more equitable manner with other legitimate Canadian operators planning to enter the domestic market. These assets should not be treated as entitlements. They should remain the property of the various airport authorities and should be made available to competitors that wish to mount a competitive service. There needs to be a means to distribute these strategically located airport assets in an equitable manner to legitimate competitors of Air Canada.
If it is determined by the Government of Canada that it is in the interest of the Canadian public to foster domestic competition, then it will have to be prepared to step in and develop the means to reassign the rights to many of the domestic advantages now enjoyed by Air Canada, mentioned above, in meaningful ways so that new entrants do have a fighting chance.
While I indicate that these entrants must have access to adequate preferential check-in counters, gating, lounge space, etc. in terminals and airport slots at airports, these issues must be considered in the context that these new entrants will be facing the most experienced organization in the country, supported by the most sophisticated yield management systems and inventory tracking systems, which some of us refer to as the backhouse systems, all of which a new entrant will not have to any comparable degree.
The Vice-Chair (Ms. Val Meredith): Mr. Payson, you've pretty much used up ten minutes, so would you please conclude so that we can get some questions in?
Mr. Russell Payson: Okay. I will skip the Aeroplan statements.
Over the past few weeks, we have started to see Air Canada's real intent with respect to any competition. They are committed to deter, if not eliminate, any competition from Canada's other airlines. I would point out that as a result of the merger, they now control virtually all of the major hangar and training facilities in the country. These actions, while we think they're somewhat petty, do not bode well for potential competitors, and we believe they reflect Air Canada's true intent to deter competition.
We have tabled for your consideration a number of issues under predation, as well as a number of observations with respect to the undertakings made by Air Canada to the commissioner of competition.
Thank you very much for the opportunity to present our views.
The Vice-Chair (Ms. Val Meredith): Thank you, Mr. Payson.
Because of the circumstances, we're going to start with the Bloc. Michel, you have five minutes.
Mr. Michel Guimond: Mr. Payson, I would like to thank you for your presentation. Some of the issues you raised are very relevant, particularly certain actions taken by Air Canada which may be perceived as being anti-competitive since they impede real competition.
I would also like to say that the issue of personnel training was raised by Canada 3000 and Air Transat, who are also experiencing a similar problem. I don't want to say that your comments were not relevant, just that they reinforce what your colleagues from other airlines have said regarding their experiences in this industry. There's also the issue of the leasing of hangars.
However, you said something which I heard for the first time. It's the rewards system or frequent flyer points. I would like you to explain how you would like to see it work. You want this type of plan to be managed by an organization independent from Air Canada. You state:
Serious consideration should be given as to how this system could
be managed in an unbiased manner for the new entrants, and failing
an equitable solution, a forced divestiture by Air Canada should be
These frequent flyer miles programs are based on customer loyalty. The point is for travellers to use your system, but we know that airlines also provide related services, such as free tickets and the use of airport lounges. These lounges won't be called “Maple Leaf” anymore; they would be part of the new structure.
I have a hard time understanding this. However, I am aware of the situation. The spokesperson for Régionnair mentioned that if a Hydro-Québec engineer wants to fly from Baie-Comeau and can either take a carrier affiliated with Air Canada which offers frequent flyer points or a smaller carrier from the competition which does not offer them, it's normal that he would opt for the carrier which will give him the frequent flyer points. Members of Parliament basically do this as well. I want to understand how the point system would work if it was not managed by Air Canada.
Mr. Russell Payson: Our fear is quite simple. Everyone in this room is probably a member with Aéroplan. I think we are all in exactly the same situation. If you have 30,000 points today and if you can get 5,000 additional ones with Air Canada, you would have enough to take a trip with your wife and children. So it is clear that your next trip will be with Air Canada or with one of its affiliates. That's the point we are trying to make today. When both plans will have merged, who will not be a member of it?
Mr. Tuggey spoke earlier. It seems that he asked Air Canada whether his company could not become a member of the plan. Air Canada will say yes, but only after six months, once the company will have gone belly up. That's exactly what we are trying to say. There's a conflict of interest. If Aéroplan was an independent company, it would be completely different, since Aéroplan would be interested in bringing all of Canada's airlines on board instead of just a single one. That's what we are trying to say regarding the Aéroplan situation.
Mr. Michel Guimond: That answers my question. All the major alliances throughout the world, such as Star Alliance.... I'm not saying that you're not making any sense, but....
Mr. Russell Payson: But what does it mean?
Mr. Michel Guimond: In reality, an alliance like that one and the frequent flyer points are there to.... It's true that you raise an interesting issue. Today, all Canadian air travellers are members of the merged Canadian Plus and Aéroplan plans. I myself am a member of the Delta Airlines and Air France plans, but it's true that I cannot fly Air France to go from Montreal to Vancouver.
Mr. Russell Payson: How many people here are members of the Delta or Air France plans? You will probably never accumulate enough points to travel on Air France. Businessmen travel everywhere in Canada. We're not talking about international flights. We're talking about competition within Canada. In Canada, 95% of travellers are probably members of Aéroplan, whereas only 2% are members of Air France, Delta or AAdvantage.
Mr. Michel Guimond: [Editor's Note: Inaudible]
Mr. Russell Payson: Yes, but the other plans have no impact here now. Even if a carrier like ours entered the market with another plan, it would not matter. If I offered Delta or AAdvantage, will that change anything? No. The person who travels from Baie-Comeau to Quebec City is not interested in flying with Delta. That person wants to be with Aéroplan. The power of that plan is unbelievable: it affects a person's buying pattern.
The Chair: Thanks, Michel.
Stan Dromisky, please.
Mr. Stan Dromisky: Thank you very much, Mr. Chairman.
You know, I'm very impressed by your presentation here. You certainly have hit the nail on the head by identifying many of the concerns that you have. You must have been doing a lot of thinking and discussing regarding this proposal and these concerns that you have. Certainly you must have some type of model in mind.
If you have a competitor who has one or two planes going to Pearson daily, let's say, we're talking about an infrastructure that is really financially very demanding. That is to have all the human resources there—ground crews, equipment, baggage handlers, counter space, attendants, counselling services as well, a host of other people who are involved in providing service for the travellers. Not many companies can afford to do all of that. You're recommending possibly...I don't know, I'm thinking that you're recommending a sharing process of some type.
Mr. Russell Payson: No, that's not it. I'm not a great believer in government subsidies or anything of that nature.
Mr. Stan Dromisky: No, I'm not talking about subsidies. I'm talking about sharing with the companies that already have all of the infrastructure in place. In smaller airports it's probably not much of a problem, but in the bigger airports it will be a gigantic problem.
Are you recommending that Air Canada share its human resources, its equipment, its infrastructure, and so forth?
Mr. Russell Payson: No, no. What I am saying is....
Let me give you an example. Let's take Dorval. If you walk into Dorval today, the Air Canada counters are right across the front of the terminal, so you go in there and the first counters you hit are Air Canada's. If you want to take one of the competitors—I don't know where Transat is located, but let's say T-3 or any of the others—you go way to the other end of the terminal and you can do your check-in there.
We're now thinking of a domestic service here. We're trying to compete with these guys from Montreal to Halifax and Toronto and Ottawa and these places. We're not talking about international operations here, just domestic. So you're the traveller, and you come up today, and just as life would have it, the wife has asked you to take the ten-pound present to the kids and everything else. That never happens, does it?
Some hon. members: Oh, oh!
Mr. Russell Payson: So you're now going to go down to the gate, and you're hauling along the stuff. You go past all the Air Canada gates—I bet you it's a kilometre down to the gates right now, for anybody else other than Air Canada—and you go down the staircase, across to the satellite, and as usual the rolling sidewalk isn't working, so you have to haul it all the way along and back up to the other side. The next time you'll come in and say “I think I'll take the points and pay the extra hundred bucks and go with Air Canada.”
This is what I'm trying to say here. They have the best gates, they have the best counters, their lounge is in the right location—
Mr. Stan Dromisky: What's your recommendation?
Mr. Russell Payson: Well, for example, at Dorval you have the Canadian gates, which they just took over. Why not make those Canadian gates available to somebody else instead of them? And they've taken over the Canadian counters, which were quite well located too.
Mr. Stan Dromisky: What about the infrastructure, the human resources, the equipment, and everything else?
Mr. Russell Payson: No, because there's a conflict of interest. The moment you rely on your competitors to supply you with something, you're in trouble anyway. Any competitor has to go out and get his own stuff, whether it's maintenance or ground servicing. I'm not asking for any handouts from Air Canada. What I'm suggesting to you, the members of the committee, is where there are shared entitlement issues at airports, to say “Air Canada, sorry, you're out; we're going to give these guys a chance and let them at least compete.”
We're all competing with almost both hands tied behind our backs. That's why I say to you an awful lot of people would come forward, us included. But we're looking at this and saying, can we get over that mound? It's not only to get the financing to get going, but then you see these guys have absolutely everything going for them. They have the most trained employees in the country, they have all of the backhouse systems running for them, they have yield management, and they can figure what you're doing before you've figured it out. As a result, to take these guys on is going to be an incredible task.
Let's face it. You can hear the sentiments here. There are a lot of people who would try the other guy if he were given the right opportunity. If you take Aeroplan out of the picture, then he probably has a chance, but it's going to take a lot of money just the same. There are some of us who probably would like to take a shot at it, but everybody's dodging around them right now so that they don't react. And they are. As far as I'm concerned, they've acted in a very predatory fashion in a number of areas.
The Chair: Thank you, Stan.
Mr. Stan Dromisky: Thank you.
The Chair: Bev Desjarlais, please.
Ms. Bev Desjarlais: I have a couple of questions.
Just now you commented that you don't expect Air Canada or any competitor to give out its facilities. I note on page 4 of your presentation you say:
Recently, Canadian Airlines pulled out of facility agreements and
undertakings with other Canadian airlines including Skyservice. In
the past, Canadian Airlines was willing to lease out facility
capacity, such as hangarage, training facilities, and ground services.
What you're saying then is you don't see it as a necessity that this should have to happen, but meanwhile—
Mr. Russell Payson: I'm saying it's just showing their intent to hurt or injure; that's all. That's my only point in raising it.
Ms. Bev Desjarlais: Okay. You're saying that's showing their intent to hurt or injure, yet you're saying it's bad business practice if you do it, so I'm a little caught on that one.
My question, though, is in regard to the airport facilities and how they're divvied out. The government, under the airport divestiture, has allowed airport authorities to be autonomous in their operation of airports. We've heard it presented before this committee that airport authorities now have the right to work out whatever business deal they can with airlines. So if Air Canada has the numbers, they can give them a better deal for the use of certain facilities.
I think on one hand we've given airport authorities the business opportunities, but I think you're indicating that they shouldn't have that option, that it should be regulated or controlled as to who gets it, that the airport authority shouldn't be able to do that.
Mr. Russell Payson: My suggestion would be that there should be a one-time forced divestiture of those entitlement items, let's say as a gate location or a counter, to give an entrant a chance, because right now if you're the airport authority and Air Canada represents 85% of your revenues, when Air Canada walks in that door, you're going to listen to them. He's going to say, look, buddy, you give that up on me and you'll be fried. This is the point. Somebody's got to come into Dorval, let's say, and say those ex-Canadian gates...if somebody comes along and is prepared to pick up the gate—
Ms. Bev Desjarlais: You're saying on a one-time basis only, so you're just talking about right here and now. You're not talking about allowing competitors to come in and provide a competitive market. You're talking about specifically right now that this should happen.
Mr. Russell Payson: I'll be quite honest with you. I would leave that for you to determine.
Ms. Bev Desjarlais: Well, you've come before us and suggested—
Mr. Russell Payson: I have not thought of a time—
Ms. Bev Desjarlais: You've indicated a one-time.... So I want to clarify: is that exactly what you're saying, only on a one-time deal that we do this, and then don't allow further competition into the market, or should it happen on an ongoing basis?
Mr. Russell Payson: Let's say one time for the period of the next year—in other words, so that at least some new entrants can put together some plans to come forward. What I'm saying is give us, the other airlines, a chance to come forward with plans that make some sense. You've got to know what you've got there before you're going to go to it. If we know we have those gates, if we know we have slots, for example—I haven't mentioned slots—if we know we have those things, it's a whole different ball game. But if you know you're going to be bracketed and you can't get the slots out of Pearson, well, what's the point of starting?
Ms. Bev Desjarlais: One more, just on the Aeroplan. On your suggestion on the Aeroplan and what should happen with it, how does it then become a business advantage for an airline to have a point system if it has to be provided to every airline? I guess I'm kind of at a loss as to what advantage it is. I ultimately think consumers will end up losing out on the plan itself, because if every airline has to provide the points and give them out equally, I see the airlines themselves upping the amount of points you need. Ultimately, I don't see that as being advantageous to consumers. How is it a business advantage?
Mr. Russell Payson: It's a non-taxable advantage right now. It's essentially a discount, if you will. I think it's up to each airline to decide whether they need to offer that discount. My submission to you would be that these plans have been so wildly successful in marketing across the world that it's a huge advantage. If you don't have it—and that's probably the worst-case scenario—you are at a total disadvantage in this situation.
Ms. Bev Desjarlais: I agree with you, but I'm wondering how it becomes a business advantage say to Air Canada to have to give it up. Why would they bother having it if everybody has to have it? Wouldn't it be beneficial to all airlines to not have it and not have to provide discounted seats?
Mr. Russell Payson: This would not be an advantage for Air Canada. I'm saying I'm trying to level the playing field for the others, not for Air Canada.
The Chair: Roy Bailey, please.
Mr. Roy Bailey: Thank you very much.
I know today we're going to be looking at this problem from a different angle, and you have certainly brought a different perspective to it, one that we can visualize. You were telling us about walking into an airport, and that is certainly true. But how do we, with this bill—and I can see what you're saying, that this bill before us is going to make the situation so concrete and so solid that we may not leave any room for competition outside of the few that are there now.
Just as a matter of interest, in your report I was reading about the air ambulance service you now have. I have a personal interest in that. Are you on a retainer fee with any of the provinces at any time for that service?
Mr. Russell Payson: No.
Mr. Roy Bailey: Okay. A lot of the provinces had, and maybe some still have, air ambulance service.
The question you bring before this committee is for this committee to study a way in which.... Without regulations, as I heard you say, how are you going to keep those doors open for the competition at Dorval or Pearson or whatever and make it possible for new entries without some type of government regulation?
Mr. Russell Payson: My ignorance of the workings of government, I have to say, would come to the fore here. I cannot give you a suggestion as to how this could be enacted. What I am trying to do is bring forward to you the problem that we in the industry have. And I don't know quite how to solve that, sir, to be quite candid with you. Without it, I don't think you're going to see people come forward, because we'll just be at such a competitive disadvantage.
Mr. Roy Bailey: As we said to the people who came before, and as we'll probably say to the people who come later today, there are definitely going to be some amendments to this bill, and it's up to this committee to examine that to the fullest. I expect there will be amendments from all of the parties that are represented here.
From what I see, at the present time there is a very, very dangerous thing going on in Canada. We haven't got this big bird out of the nest yet, but it's already gobbling up everything along the way in a predatory action. I really have fears about that, coming from a province that's presently enjoying some level of competition—but that too could be squeezed out by various means.
I appreciate your viewpoint. It's a little different viewpoint from the others, but it's certainly one we'll take into consideration.
The Chair: Val, please.
Ms. Val Meredith: At the Vancouver airport, in the international terminal, they have flexibility in gates. No one airline owns a gate; they change with the flights. Is that possible in a domestic situation?
Mr. Russell Payson: Absolutely. In fact we've got that right now, with the new arrangements in Terminal 3 at Toronto. My comments are not directed at Toronto right now because I think there are other problems with Toronto. In other words, if you're into any kind of interlining passengers to Air Canada, it doesn't quite work as well in Toronto now. But from a gate point of view, I would not make those same comments at T-3 right now, because there is a sharing of the gates and I think it's probably fairly equitable. I believe Vancouver is the same.
Ms. Val Meredith: Well, it is internationally, but I'm just not sure that it is domestically, and that's why I'm asking. Can it be done domestically, with the computer system situation and all the rest of it? Is it the same computer system that everybody uses?
Mr. Russell Payson: No.
Ms. Val Meredith: No. So if you have desks that are set up with a computer system for one company, it may not necessarily work for another company. So domestically that may not work in having a sharing of gates—or can it be accommodated?
Mr. Russell Payson: Again, my detailed knowledge of Vancouver—you're pushing it a bit.
Ms. Val Meredith: Okay, but Vancouver is.... I'm saying all of these airports have their own unique kind of situation, but is it feasible for your company to share a gate—or a counter, I guess you would call it—with Air Canada or with Canada 3000 or what not? Are you compatible with the system they would be using?
Mr. Russell Payson: I think we could handle that by just separate wiring: you bring in your own system, and that's it.
Ms. Val Meredith: So it might be possible.
Mr. Russell Payson: I think it's possible. It's a little bit of plumbing, but it would work.
Ms. Val Meredith: Thank you.
The Chair: Ovid Jackson, please.
Mr. Ovid L. Jackson (Bruce—Grey, Lib.): I'd just like to ask Mr. Payson a couple of questions.
Are you saying there is already some successful modelling where there is an opportunity for you guys to compete properly? I think I heard that—that Dorval is not so good, but maybe in a lot of places the slots are there, the counter space is there. Is this a shared thing? How would that operate to make sure that everybody gets a fair shot at it? Would the coalition sort of work to make that happen?
Mr. Russell Payson: Let me give you an example. I just hypothesize here, but I believe that at Dorval Canadian had eight, nine, and ten, which are the first gates as you go in on the right, down the domestic wing on the right-hand side. Now, if those were made common-use gates, I believe that would bring a far more significant degree of competitiveness to the table than if everybody had to go across to the satellite off to gate.... I think they were obliged to give up gates 37, 38, and 39, or something. Am I right on that? Yes. To me, that's sort of a mockery. Why give up the ones that are the farthest instead of the closest?
Mr. Ovid Jackson: The other question I had is on the computer systems, which are evolving very quickly. They're even starting to give people their own disks to get on-line. They're trying to eliminate those middle people. Perhaps only 10% are sold, because people still want to use the travel people or the people with experience, the people on the ground, so that they don't get ripped off.
How is that evolving system going to operate? Does some other work have to be done, or is it just an evolving thing in terms of people booking themselves through these giants, Gemini or what have you?
Mr. Russell Payson: Again, the automated ticketing and issuance of boarding passes represents that if you have gates that are your own, you can start to install your own hardware and everything else. It gives you a huge competitive advantage over somebody who's trying to compete with you who does not have a gate of his own.
Again, it's just another way that Air Canada has a competitive advantage. Let's face it, it's a lot easier to call them up. Just the other day when I came in, I was in a rush and called in literally 40 minutes before the flight. My secretary called in the credit card. I walked up, stuck my card in, got the boarding pass, and went on the airplane. There was a lineup 30 or 40 deep, so I would have missed the flight.
So it's a great advantage for them to have that capability. People like us, obviously, if we succeed and get ahead, would like to do the same thing if we were to start this kind of service. But not even having the gate, you can't do that.
Mr. Ovid Jackson: This made a lot of sense. Thank you.
The Chair: Thanks, Ovid.
Mr. Payson, thank you very much for your presentation to the committee and for answering our questions here today. We appreciate it.
Mr. Look, thank you, sir.
Colleagues, our next witness is Mr. Robert Davis, president and CEO of First Air.
Mr. Davis, welcome to the Standing Committee on Transport. We look forward to your presentation of between five and eight minutes. We can get to questions right after that.
When you're comfortable, sir.
Mr. Robert Davis (President and CEO, First Air): Before I read my prepared statement, with the kits being passed out there is a November millennium quarter. The coin is not to be considered a political contribution. There's a little bit of a story to the coin.
On the coin is a picture of a Beaver aircraft. If you read closely, you can see the name Bradley, which is the actual corporate name of First Air. It's our aircraft, and we are very proud that the Mint chose to put that aircraft on the coin, 30 million of which are in circulation. We still have the aircraft. It's out flying today and carrying people.
As to the purpose of the coin, I know these meetings have been arduous for you all. A lot of witnesses have been giving their two cents' worth of advice, and I'm not sure I can deliver that much value, so I'm trying to pay for it.
Some hon. members: Oh, oh!
The Chair: Very good. Thank you.
An hon. member: Do you need a receipt?
Mr. Robert Davis: No, that's all right.
Mr. Chairman, honourable members of the committee, thank you for the opportunity to appear before you on this important issue of the proposed legislation concerning the airline industry restructuring.
Owned 100% by the Inuit of Nunavik, First Air is both Canada's largest aboriginal-owned airline and largest northern scheduled carrier. Employing over 1,000 people, many of whom live and work in Canada's north, First Air provides essential air services to 26 remote communities, most of which are not accessible by any other mode of transport. Scheduled air service in the north is a necessity, not a luxury.
Considering the operating territory of First Air, the focus of our attention is to protect the interests of the northern aviation industry and our stakeholders from what can certainly be characterized as a southern industry restructuring process. It is our understanding that the proposed legislation was developed primarily to protect the public interests in light of a dominant airline emerging from the restructuring process. While the legislation may have been intended to be straightforward, it includes many complex issues and unnecessarily impacts almost every air carrier in the country.
We certainly do not oppose new legislation. However, we also believe the north deserves special consideration given the essential nature of air services throughout the region. First and foremost, the new legislation must ensure that a level playing field for competitive activity is maintained.
Time doesn't permit us to discuss all of the issues we'd like to, but a few of our key points are as follows.
Proposed section 66 deals with unreasonable fares. The proposed amendments on the review of fares complicate further an already undefined and subjective process. Our company is one of the few in Canada that has gone through a passenger fare complaint review under the existing legislation. Although we received a favourable ruling on our fares, it was clear from this first-hand experience that with no defined process, no rules regarding confidentiality, and no objective decision criteria, none of the parties involved—the complainant, the CTA, and ourselves—were satisfied with the process.
Please remember that this unproductive exercise was done under the old rules looking at only one fare type. It is now proposed that the agency not only respond to complaints but also go out on its own and review all passenger fares and cargo rates—all still without a defined process, a list of specific information, or the format to be supplied in order to conduct such a review.
Air carriers offer a multitude of fare ranges, seat sales, and seat allocations that are in constant change to meet the demands of our travelling public. As a result, much more complex passenger fare review processes will now be necessary.
With this increasing complexity will come more uncertainty on the aspects of air carrier pricing, record keeping and retention, and complaint response requirements. It should be incumbent upon the agency to provide clear and concise guidelines prior to this legislation being passed into law on how it proposes to make practical use of this broad range of new powers.
Our recommendation is that proposed section 66 should be amended to ensure that review criteria contemplated should remain restricted to basic fares. The agency must provide a defined process and the agency should be empowered to respond to complaints only.
With regard to cargo rates, making cargo rates subject to review under proposed section 66 is untenable, in our view. How does the government possibly expect the agency to conduct a consistent review or cost comparison model on our company's cargo rates when over 90% of our cargo is unidirectional—that is, full airplanes north and empty south? We operate four different combi types of aircraft that are capable of being configured in 38 different arrangements. These arrangements are routinely reconfigured, en route, on multi-stop turbo prop routes.
There also appears to be no evidence that monopoly cargo markets exist to any great extent in Canada, and competition remains at vicious levels on routes that can support two carriers and even those that can support only one.
Our recommendation is to remove entirely from the bill the reference to cargo rates.
Proposed section 64 deals with discontinuance of service. While we in general support the position presented to you earlier by our industry representative, the Air Transport Association of Canada, we feel the northern environment requires some special consideration.
Freedom to compete and target specific routes on a seasonal basis or otherwise in a southern market may be fine where you in fact have a sizeable market and can stimulate new traffic. Indeed, WestJet is the master of this concept and should certainly be encouraged to have the flexibility to do so. However, northern markets are very thin and also remote. To survive we have to find the right balance of frequency, passenger and cargo mix, network pattern, etc.
Our experience has demonstrated that subjecting individual smaller markets to cherry-picking by other carriers unconcerned with the overall region does not stimulate new additional traffic but simply splits the available traffic and destabilizes markets without long-term benefits to the consumer. Without strong market exit provisions on northern markets, northern markets will be exposed to unreliable and inconsistent levels of service.
Our recommendation on discontinuance of service is that section 64 should be amended such that stringent market exit—or in the reverse, market entrance—conditions be applied in some form for northern markets only.
The letter of undertaking on service to small communities dated December 21, 1999: First Air strongly opposes as highly discriminatory that part of the December 21, 1999 letter of undertaking subtitled “Service to Small Communities”, approved by the government and forming part of the new legislation. Within this undertaking our principal competitor is named and is provided legislative protection for a three-year period under the guise of service to small communities. This reference is unacceptable, given the fact that First Air currently provides regularly scheduled year-round service to all those small communities—with one exception—that our principal competitor serves. The undertaking has more to do with commercial support by Air Canada to our competitors than the provision of air service to small communities. It has nothing whatsoever to do with that.
Questions arise as to why the government appears unconcerned with First Air's service to 26 of Canada's small northern communities and did not consider including our company in this undertaking, notwithstanding the knowledge of pre-existing commercial agreements between First Air and Air Canada. The whole situation is quite inconceivable, actually.
We operate in a competitive marketplace. First Air does not have and does not want legislative protection. All we want is a level playing field for competition. We do not agree that our competition and their employees should be able to hide behind the legislation while we fly at our own business risk to communities throughout the north, as we have for many years. Why should our employees, many of whom are Inuit, work without the legislative protection the government is willing to provide our competitors?
Our recommendation on service to small communities is that the letter of undertaking must be amended to remove all reference to air carriers specifically named, or reduce the commercial support duration to a more reasonable time period.
In closing, I cannot emphasize enough the importance of reliable and efficient air traffic for Canada's north. If you're interested, I certainly invite you to come up and visit the communities to see first-hand the impact on people's daily lives up there. There's a lot of territory to cover for a small market.
I don't want to sound negative in all my comments. To this point, Transport Canada has been listening. Ms. Dufour and her team have certainly been accessible and open in listening to our problems. We don't have a solution to our problems yet, but listening is at least the first step toward that.
I trust you will consider our recommendations put forward today, particularly our comments on service to small communities. We have made our commitment to service these small communities by growing our business in Canada's north for over 53 years. We make an appeal to you to ensure that this legislation allows us to continue on this path.
Thank you very much. I would be pleased to answer your questions.
The Chair: Thanks very much, Mr. Davis, for your presentation to the committee.
Ms. Val Meredith: Thank you, Mr. Davis. I want to follow up on some of your comments.
You made a comment that you had a commercial agreement with Air Canada to provide the service in those communities. Is that correct?
Mr. Robert Davis: We have a commercial agreement with Air Canada that calls for us to develop business together; it doesn't call for us to provide service to certain communities.
Ms. Val Meredith: Okay, but you do presently provide the service to these communities in the north, the remote communities, smaller communities in the north, instead of Air Canada providing that service. They provide that service through you?
Mr. Robert Davis: On some routes, yes, we have a mixture, probably about one-third to one-half of our flights. Primarily jet flights use the Air Canada code; the balance use just our own internal code.
Ms. Val Meredith: Okay. My understanding is you no longer have this agreement with Air Canada—that you've pretty much been set loose.
Mr. Robert Davis: No. We explained this to the committee the last time we appeared. It's a very difficult concept to understand.
Our principal competitor is in fact what we term a virtual airline. Canadian Airlines provided all the aircraft, the people, the maintenance, and the infrastructure to run the service in the north, so we were effectively competing against Canadian Airlines. Many years ago we aligned with Air Canada because Canadian was in the north. We're an independent carrier with our own aircraft, people, buildings, all that sort of stuff. So you had a two-airline model in the country and a two-airline model in the north, which was aligned with the two southern carriers. Of course, now what we have is a one-airline model in the north. We're attempting to have a full-service, two-airline model in the north when the aircraft are actually going to be operated by Air Canada. So it's creating a very difficult situation.
Ms. Val Meredith: So you still have this commercial arrangement with Air Canada.
Mr. Robert Davis: Yes, we do.
Ms. Val Meredith: So you have Canadian, which is also Air Canada, providing the service in the north, plus yourselves. You're afraid you're going to get squeezed out as Canadian supplants Air Canada's requirements in the north. Would that be fair to say?
Mr. Robert Davis: Effectively, what we've asked for from day one is a level playing field. To get that level playing field we don't believe our competitor should be able to wet-lease aircraft from Air Canada and Air Canada operate their aircraft. For example, it makes it very difficult for us to compete against pooled purchasing power on fuel or insurance. They're even able to avoid legislation. We have had to hush-kit our aircraft. They don't because Canadian has a much larger fleet, so they can come in under the ratio rules that are required. It gives them a lot of financial advantages we do not have.
Ms. Val Meredith: But the reality is that you're still using Canadian as a separate airline. The reality is that Canadian and the planes it has, the personnel it has, and the conditions it operates under are going to be Air Canada or are Air Canada. So really what you have is Air Canada operating in competition to your own, even though you had this arrangement with Air Canada.
Now, you talk about the legislation being unfair to smaller operators, separating yourselves from Air Canada now, and say that bringing cargo into the regulations and using all fares instead of just a standard fare is not fair to smaller carriers. But my understanding is that those regulations were put in there to benefit competition to Air Canada and to control Air Canada's ability to manipulate air fares. Are you telling this committee that it's working in reverse?
Mr. Robert Davis: First Air actually went through this process because we operate in the north, and we had what people consider a monopoly route. Anybody can fly anywhere in this country. We're the only company willing to take the business risk to fly it. That's what it is.
We've been through the process. It didn't work. The people who complained didn't feel that they got a fair shake. We got a favourable ruling, so I suppose we were happy in the end. But because the customers weren't happy, it didn't really make us all that happy in the end.
We want a clearly defined process. We want to know what information has to be supplied. We want to know what the level of confidentiality is for that information we're supplying. We're asked to supply all kinds of what I call confidential financial information. There was never a determination of how confidential that becomes. We're a private company. There's no reason that should be in the public domain. We want a good process with what information is going to be supplied and what objective ruling criteria are going to be put in place.
Ms. Val Meredith: My understanding is that you want this prior to the legislation going through. You're asking that there be a process that is defined and that people like yourselves know what it is before it actually is started to be implemented through legislation.
Mr. Robert Davis: We think there should be a clear set of guidelines beforehand, yes.
Ms. Val Meredith: That's it. Thank you, Mr. Chairman.
The Chair: Michel Guimond.
Mr. Michel Guimond: I would just like to make a brief comment. Mr. Davis, I would like to congratulate you for your presentation. You clearly understand what this committee is all about. We are studying Bill C-26. Next week, we will have to pass amendments to improve the bill. I would like to congratulate you for the quality of your presentation. You have flagged areas which should be improved and sections which should be amended. I would simply like to thank you and congratulate you on the quality of your brief and your presentation.
The Chair: Thanks, Michel.
Charles Hubbard, please.
Mr. Charles Hubbard (Miramichi, Lib.): I also want to commend you on your brief. I'd like to pick up on a couple of points.
Looking at your map, of course you serve a lot of different communities, and in our discussions we've been concerned with the availability of service in many communities. You talk in your presentation about competition. Then we have this other factor that has come onto the scene in certain areas of cherry-picking. You refer to cherry-picking too. You say that you are able to compete successfully and to maintain service to all this area of the north. That is your present operation. Do you see each route as being profitable, or do you see the whole thing as being profitable in terms of your company?
Mr. Robert Davis: How we structure our company is that we have this scheduled operation, which generates approximately two-thirds of our business. We don't look at individual routes. We look at it as a network pattern. We want to be a one-stop solution for our customers. We don't want them to have to come in and deal with four or five different carriers to get a piece of cargo from Toronto to Resolute Bay or wherever. When we started out as a small airline just operating to the communities, we saw that there was a lack of interest on the part of the mainline carrier into the turbo prop routes. There was a lot of extra handling for cargo and what not. So we've tried to become a one-stop solution providing transportation all the way through.
We do, however, have an additional benefit. We do operate a larger business than just in the north. We have some airplanes that we operate in charter activities outside of the north, which is absolutely necessary to generate some U.S. income to hedge our currency and to make a little bit of money with other airplanes. We see that as being absolutely necessary.
Mr. Charles Hubbard: In terms of the question I asked, you look at this as a collective business rather than as individual routes, which is good. But when you get back to the legislation and the overall philosophy that has pervaded this committee in terms of competition, would cherry-picking be a major concern your company would have? In other words, companies would come in and say that this is a very profitable route and they can fly there with bigger aircraft. Is that a concern of your company? Should you be protected against that?
Mr. Robert Davis: I'm not sure we should do it at this point. As I understand it, there will be further review down the road. I think that then we could have a much more detailed look at the north. I don't think it's necessarily a part of this exact legislation here.
However, the key point of this legislation is that right now we're getting cherry-picked, but by a company that doesn't have an operating certificate. It's Canadian Airlines aircraft and Canadian Airlines people. The people are protected, and all that sort of good stuff. We don't think that's quite right.
If somebody wants to come out and play airline business, we'll play airline business with people who own their own airplanes and want to compete on a level basis. But for people who can avoid hush kit laws and who can have the pool purchasing power of Canadian, their insurance rates would be 10% of ours. We don't think that's fair. There have been a number of people named in the letter of undertaking. That's why, under the guise of small communities, we don't think that's fair.
Mr. Charles Hubbard: Okay. Thank you, Mr. Chairman.
The Chair: Thanks, Charles.
Bev Desjarlais, please.
Ms. Bev Desjarlais: I just want to get some clarification. When you say they don't have an operating certificate, how are they able to operate without an operating certificate?
Mr. Robert Davis: The CTA issued us a licence to sell tickets, and even in the CTA decision it says they understand we don't have an operating certificate. It's Canadian Airlines and Canadian Regional, I believe, for some of their routes. Effectively, they wet-lease the airplanes from Canadian.
Ms. Bev Desjarlais: Is this a new problem, or has it always been the case?
Mr. Robert Davis: It's been the case for the last two years.
Ms. Bev Desjarlais: Okay. So it's not something that came as a result of this merger. It's been in place.
Mr. Robert Davis: No.
Ms. Bev Desjarlais: Okay.
I have a question in regard to the information you indicated you had to give with regard to your finance and all of that. My understanding is that this information isn't part of the public domain, that it's used to review a decision but is not necessarily part of the public domain. Now, did that information you gave them go public?
Mr. Robert Davis: No, but it became quite an issue at the time as to exactly what was and wasn't. Before we sent in the financial data there were letters exchanged as to, yes, we're going to keep this confidential, or no, we're not, what portions we are or aren't. It's just unclear, and I think it should be made quite clear.
Ms. Bev Desjarlais: Okay.
Mr. Robert Davis: And with all due respect, the CTA was proactive. I'm not taking shots at the CTA.
Ms. Bev Desjarlais: Yes. I just wanted to make sure that it hadn't gone public—
Mr. Robert Davis: No.
Ms. Bev Desjarlais: —because my impression of that information is that it usually is kept private.
In regard to the suggestion that it's unfairly protecting your competitor, I don't think there was an intent to unfairly protect one competitor, but rather to ensure that if certain things happen in the airline industry, employees and the people involved would have some protection. Has there been an increase in service being provided by the Canadian carrier? Has there been what would be perceived as predatory practice happening since the legislation or since the merger, so to speak, took place?
Mr. Robert Davis: No. What's happening is it's working in the opposite area, really. What we're seeing is a reduction in our ability to maximize the use of our exclusive commercial agreement with Air Canada. In others words, we're getting less for what we signed up for than....
Part of the problem is that the way that letter of undertaking is written it's open to a very broad range of interpretation. That's why I say at this time that Transport Canada has been listening, and they are working on that issue as to exactly what is meant by that undertaking. That's why I say there are people listening and it's in process. But in the end, should the two majors merge, we don't believe it's right that Air Canada should operate our competitors' jets when we've had a commercial agreement with them for ten years.
Ms. Bev Desjarlais: I guess if they then become the competition for you, and if there's a restriction on Air Canada or somebody being able to operate that airline, then you would have no competition.
Mr. Robert Davis: No. What we're saying is just get your own operating certificate, get on a level playing field with First Air, employ your own pilots, your own dispatchers, have your own reservation system, and all that sort of good stuff—be at a level playing field.
You have to understand that when this agreement was signed it was signed with Canadian Airlines, who were not in a position to negotiate. It's likely a fairly good agreement, but does not cover all the intrinsic costs of operating a real airline.
We just want it level, that's all. We're willing to compete. We don't want any legislative protection. We don't feel a specifically named company should get it either.
Ms. Bev Desjarlais: That's fine. Thank you.
The Chair: Mr. Dromisky, please.
Mr. Stan Dromisky: Mr. Chairman, thank you.
I can understand your concern regarding the letter of understanding signed on December 21, but you understand the rationale and why it was all done and the kinds of things the government was involved in leading up to that December 21 date and the reason for that letter. I can understand why you are concerned. There's a possibility that if Canadian and Canadian Regional too, being competitive with you at the time, were simply allowed to continue as they were and go bankrupt and your competition would be wiped out, then you would be in a position to have a monopoly, providing services for the very same destinations where your competitors used to exist prior to going bankrupt. Would that be a fair assessment of your position at the present time?
It's easy to say we want a level playing field, ignoring the facts that led the government to make the kinds of decisions it did. You're in business, and you know that every businessman says he believes in competition, but every businessman would like to have no competition and have a complete monopoly in any service or commodity they're selling. There's no doubt about that; that's Utopia. So I'm just wondering if a little bit of that kind of thinking was involved in your position regarding this letter of understanding.
Mr. Robert Davis: Quite frankly, I don't understand the government's position on that letter, I'm sorry. We wrote to the minister on October 4 or 5, and we appeared before this committee. We've been consistent in our story from day one. Then in December, despite a letter to the minister, having meetings with MPs, meetings here at the House, that letter was signed. We told you that we serve 26 communities up there, and yet you chose to favour our competitors, knowing our position up there.
So no, I'm sorry, I don't agree on the letter. There should have been more thought. Yes, I agree it was probably done in haste, and let's get it done before Christmas and all that. It's time now to make it right. We have the time to do it.
I think it's academic as to whether Canadian would have gone bankrupt or not. I don't know. I'm only going to talk about what's a known fact, where we are today. Yes, if they had gone bankrupt our competitor would not have had a supplier for its aircraft. Maybe he could have got it from somewhere else; I don't know. So maybe he still wouldn't be in business. So I don't think we could presume that we would be without competition.
On some routes we fly, such as Edmonton-Yellowknife, we believe that if our competitor ever went away we'd have competition the next day on that route. There's enough volume there. It's right in WestJet's home town and all that.
I'm sorry, I don't agree. The letter was done in haste, and it's time to make it right now.
Mr. Stan Dromisky: Thank you.
The Chair: Thank you, Stan.
Mr. Murray Calder: Thank you very much, Mr. Chairman.
I want to follow up on Mr. Hubbard's line of questioning about the cherry-picking. You went through Bill C-26, and you're probably aware of the fact that we're going to give the Competition Bureau better powers than what they have right now. Do you believe that those increased powers with the Competition Bureau would go a long way to counteract the possibility of cherry-picking?
Mr. Robert Davis: We raised cherry-picking in the context of discontinuance of service to a small community. I've wrestled with this one because I know it's not in the public interest. People don't like to see regulation on how that type of thing can be prevented, but we're going to some small communities trying to serve the whole region with an entire route network pattern. For someone to come in and just take out the best part of the year, well, why should I stick around for the winter months when there's nothing else moving around? Yet on top of that, we're going to be asked to.... The guy can come in and hurt us during the best part of the year, but I still have to give 120 days' notice to leave. He can leave in very short term.
I haven't quite come to grips with that. We've spent a lot of time discussing this with Ms. Dufour and her team, and I don't think we or they have quite got a grip on exactly how we're going to prevent that and still get public acceptance of a regulation or a financial fitness test for a carrier or “If you want to come, yes, you can come in, but you have to stay in for....” I'm almost thinking of it in the reverse: if you come in, you have to stay in for a year.
Mr. Murray Calder: Thank you.
The Chair: Val Meredith.
Ms. Val Meredith: I'm still a little confused. Maybe it's just that I'm a bit dense. You keep telling me that Canadian is supplying aircraft and services to your competitor, but you haven't told me who your competitor is. If it's not Canadian or Canadian Regional, who is your competitor?
Mr. Robert Davis: It's Canadian North, or Nordair. I think they're both named. The corporate name I believe is Nordair, operating under the brand name of Canadian North.
Ms. Val Meredith: Okay, so Canadian North then is leasing its planes. You're saying Canadian North does not have an operating permit.
Mr. Robert Davis: I don't believe they do, no.
Ms. Val Meredith: They do or do not?
Mr. Robert Davis: Do not.
Ms. Val Meredith: So you're saying Canadian North does not have an operating permit, but they lease aircraft from Canadian Airlines. Where do the employees come from?
Mr. Robert Davis: They're all Canadian/Air Canada.
Ms. Val Meredith: In other words, Canadian North is only the front for Canadian Airlines. So your competition really is Canadian Airlines.
Mr. Robert Davis: That's correct.
Ms. Val Meredith: So why do you refer to Canadian Airlines as only being a wet lease to Canadian North?
Mr. Robert Davis: It's a different term. It's like leasing. A wet lease is where you....
We consider Canadian North a marketing company. Its job is to sell tickets and do some tertiary ground handling services. Canadian North wet leases are charters, or I don't know what they call it. All of the operational control, the aircraft, the insurance, the aircrew, the maintenance insurance, and everything to operate the airplanes is all done by Canadian Airlines.
Ms. Val Meredith: In essence that's what competition is.
I go to Mr. Dromisky's comments. You don't want competition. You, as an affiliate of Air Canada, want to have the market completely to yourselves without anybody finding a way of providing competition. Is that a fair assessment?
Mr. Robert Davis: No, absolutely not. We are not an affiliate of Air Canada. We're an independent carrier that has a commercial arrangement with Air Canada.
How can it be a tenable situation that we're an independent carrier with, as I say, all of our own infrastructure, people, and what not, working with Air Canada with joint fares and connected schedules and what not, while they in turn are supplying the operations, the IT services, the reservations, the check-ins, and everything to our competitor? How does this work?
My competitor checks in at Air Canada. My customer checks in at my own counter. It just doesn't seem quite right. I don't know how that can be deemed a level playing field. Our competitor ends up accessing the purchase pooling ability of a $10 billion company. We're $180 million. We'll get smoked.
Ms. Val Meredith: Well, that's why my original comment was, your competition really is the company with which you have a commercial agreement, Air Canada, because Canadian is now Air Canada. If Canadian North has a commercial agreement with Canadian, it really is with Air Canada.
Mr. Robert Davis: In the event they merge, yes.
Ms. Val Meredith: Well, I think you can assume that, in the event of today's reality. So you are competing with the company with which you have a commercial agreement. That's probably more the issue here than anything else.
Mr. Robert Davis: That's correct.
Ms. Val Meredith: Thank you.
The Chair: Thanks, Val.
We'll have a short question from Roy Bailey.
Mr. Roy Bailey: On your map on the back of your booklet you have the Air Inuit routes. Are you in any way associated with that?
Mr. Robert Davis: Yes. The Makivik Corporation owns both Air Inuit and First Air. Air Inuit has about 200 employees and $35 million in revenue. First Air has about 1,000 employees and $180 million in revenue.
Mr. Roy Bailey: Another good point you mentioned was that this company is 100% owned by the Inuit of the north.
Mr. Robert Davis: Yes.
Mr. Roy Bailey: In other words, the airline is operating completely without any form of government grants, municipal grants, or anything else.
Mr. Robert Davis: That's correct. It runs as a business. We borrow money from the bank and we pay it back at standard commercial rates.
Mr. Roy Bailey: There are no government sources of funding at all?
Mr. Robert Davis: No.
The Chair: Thanks, Mr. Bailey.
Mr. Davis, thank you very much for your presentation to our committee.
Mr. Robert Davis: Thank you. Spend your quarter wisely.
Some hon. members: Oh, oh!
The Chair: Yes, we will spend our money wisely. Thank you very much.
Colleagues, I'd like to have a quick meeting of our committee in the room next door, behind me. We're recessed until ten minutes after 12 o'clock.
The Chair: Colleagues, we'd like to welcome Jacques Simard, who is the president of Air Alma.
Mr. Simard, welcome to the Standing Committee on Transport. We look forward to your presentation of between five and eight minutes so that we can pursue a line of questioning with you, sir. When you're comfortable, please go ahead.
Mr. Jacques Simard (President and CEO, Air Alma): Dear Mr. Chairman and honourable members of the committee. This is my first appearance before you and definitely one of the most important appearances I have had to make in defence of my company's interests in the context of the restructuring of the air transportation industry in this country, which has already affected a large number of people.
My name is Jacques Simard and I am President and CEO of Air Alma. With me is Mr. David-André Perez, who will answer more specific questions.
You may remember that our company expressed a number of reservations and wishes when you published your report on October 8 last.
Your constant efforts to find an honourable solution to the problems involved in restructuring Canada's air transportation industry and certain pragmatic solutions which you have made, have been the subject of new hearings since Bill C-26 to amend, among other things, the Canada Transportation Act was tabled.
My purpose here today is not to discuss each of the proposed amendments, but to outline the dangers and consequences of this restructuring effort because, instead of promoting healthy competition, it is merely strengthening the control of Air Canada and its affiliated companies. I will discuss concrete facts and the serious consequences for the industry as a whole in general, and my company in particular.
First of all, I would like to briefly describe Air Alma Inc., which was founded some 40 years ago in 1959 as a small local carrier serving the needs of its community and of the neighbouring areas in the Saguenay-Lac-Saint-Jean region. In the ensuing years, Air Alma expanded and introduced new service to Montreal in 1979. That service has now been provided without interruption for 20 years and is still meeting the needs of our regional population, who are thus able to leave the region in the morning, attend to their business in Montreal during the day, and return home in the evening.
Over the years, Air Alma has had to face competition from Quebecair and all its successors, InterCanadian, Intair, Air Alliance, the new InterCanadian in 1991, Air Nova and Air Montreal, and has managed to keep the trust of its customers.
In 1990 Air Alma became one of the first signatories to commercial agreements with a major carrier, Canadian International (Regional).
This partnership agreement has been renewed a number of times and has given both parties an increased presence in the regions they do not directly serve. Passengers have benefited as well, from centralized ticketing and a range of fare products from Canadian such as low rates, expanded international routes (Oneworld), frequent flyer points, etc. This agreement, which is considered a model, is the result of synergy and mutual trust.
That trust was sorely tested last February, when we tried to ascertain the intentions of our partner Canadian International (Regional) regarding the renewal of this agreement. We had a number of discussions, and it was not until February 21 that we were officially informed the agreement would not be renewed beyond April 30, 2000, although that deadline has recently been extended to May 31. Copies of the letter were sent to officials of Air Canada (Air Nova), from whom we had previously received a letter, dated February 9, stating that all commercial agreements were subject to general reviews. We have appended copies of these two letters to our brief here today and draw your attention to all the restrictions set out in Canadian's reply regarding the regions we may serve if we want to use the Air Canada code, the obligation to talk to another affiliated carrier and, especially, the splitting of routes. All these conditions are anti-competitive, in our view, and restrict our right to do business. In particular, they are not consistent with the commitments Air Canada made to the Competition Commissioner on December 21.
Consequently, we ask you in your proceedings on Bill C-26 to give careful consideration to all the serious and the persistent impediments that have been raised to the free right to do business.
Your bill should contain provisions to restore, in all its forms, the status quo prior to December 21, 1999 with respect to the number of flights offered in the regions, capacity offered, flight frequencies which should be adjusted to prevailing conditions and commercial agreements signed in good faith, the previous frequent renewal of which now appears to be subject to the dominant carrier's monopolistic considerations. I see no other explanation for this failure to renew the agreement.
Your bill should provide that all the conditions that existed at the time Air Canada made its commitments should be maintained for a period of three years or for any other reasonable period that would enable us to find alternative solutions. This period of time could be the same as that granted to Air Canada for the purpose of integrating Canadian into its network.
With respect to the clauses of the bill before you, we believe that, contrary to the avowed purpose of promoting healthy competition, certain provisions will attenuate and restrict it. We support the bill, but certain clauses, which we refer to below, should be reviewed and amended, in particular clauses 64 and 66.
Clause 64, which proposed to extend from 60 to 120 days the period in which notice must be given for suspending or discontinuing service, is incompatible with market realties. Providing a new service requires extensive effort and investment and we should have the freedom of movement we need, failing which this bill would be tantamount to a new form of regulation.
The present 60-day period is sufficiently restrictive not to have do double the time period allowed. Instead of promoting competition, this proposal would merely maintain dependence and the current monopoly on certain routes.
Clause 66 proposed a new concept of "range of prices or rates" which would function within an entirely random and subjective legislative framework. It would also give the Canadian Transportation Agency an enormous veto over rates.
On aircraft such as those we operate, what would be the suggested range and why should it be imposed on us? Operating an air service on routes such as Alma-Montreal, Chibougamau-Montreal or Bagotville-Montreal, on which we nevertheless offer varied rates, cannot justify a full range of prices, whatever that range might be, given the travel habits of passengers in our regions. Could this obligation to provide a range of rates be transformed into a requirement to provide service and thus a requirement to provide additional services? It should not be forgotten that our services are not subsidized and must break even. We have no opportunities for corporate interfinancing. This provision should therefore be simply deleted.
Regardless of whether there is a commercial agreement, and if we consider only Air Canada's commitments to providing various services such as joint rates, inter-carrier agreements, Aeroplan points and so on, we believe that these services should be provided upon request and within reasonable periods of time, in exchange, of course, for payment of a reasonable rate such as, for example, that in use as the internal exchange rate between Air Canada and its affiliates. Providing these services in the shortest time periods possible should help provide passengers with real choices, particularly as regards frequent flyer points.
Thank you for your attention and I am now ready to answer your questions.
The Chair: Merci, Monsieur Simard, for your presentation to our committee.
Colleagues, we'll go to questions. Val Meredith, please.
Ms. Val Meredith: Thank you, Mr. Chair, and thank you, Mr. Simard, for appearing before the committee.
I have listened to your presentation, and I am interested in what you have to say, in that the controls that were placed in the legislation to prevent a dominant carrier from price-gouging and that sort of thing, from going in and providing a service and then leaving without giving notice, are actually affecting smaller airlines such as yours in a very negative way. Is there some way we can reach that balance where we're not penalizing you but we're still able to put some restrictions on the dominant carrier?
Mr. Jacques Simard: In my comments about rates, I said that we should be careful about one thing that could be used by a dominant carrier to lower or raise prices and make them fluctuate, whereas smaller carriers charge a unique price basically set according to a given hourly-operational cost and a given number of passengers per year. We must be careful to avoid producing the opposite effect from what was intended.
Currently, Air Canada is using every means to arrive at something that we do not know. We know that the bill will set some frameworks, but Air Canada seems to be beside the track or to be using some elements to produce the opposite effect. Rates must not be dictated by a government organization. We must have a competitive environment. If we understand correctly, this exercise is intended to avoid a monopoly.
In Canada, a specific situation arose with one carrier. We must be careful. If we try to solve the problem from above we risk creating a problem below. We are giving to an organization powers that a dominant carrier could use to the disadvantage of smaller carriers.
Ms. Val Meredith: Thank you.
The Chair: Thanks, Val.
Mr. Claude Drouin: Mr. Simard, Mr. Perez, thank you for your presentation.
Mr. Simard, I would like you to give a concrete example to allow us to really grasp the problem. I seem to understand that you wanted to extend your agreement with Canadian Airlines for three more years, since it has expired and that you must renegotiate it with Air Canada. Within the current negotiations, has there been any suggestion to take away from you the services that you offer? I would like to really understand this problem.
Mr. Jacques Simard: Air Alma and its partner Canadian had reached an agreement that expired two days ago, on April 30. This agreement had been renewed several times and we had amended it to reflect the changing environment. To sum up the situation, let us say that we have had 10 years of relative stability in this area. When InterCanadian withdrew, Canadian International asked us to offer the Bagotville-Montreal route, and we never expected that this agreement might not be renewed. Canadian had asked us to provide this service because one of its affiliates experienced some problems and had to stop serving this route.
On December 21 there was a change. The rules were changed and Canadian advised us that we should henceforth agree with Air Canada, or more specifically with one of its affiliates, which made things very complicated.
Its affiliate, Air Nova, told us that it wanted us to do certain things and that we would no longer be serving certain regional routes, a decision to which people in our regions are opposed. The definition of regions here, in Ottawa, is somewhat different from our definition in Lac-Saint-Jean. For you, this word means provinces, whereas for us, it means isolated regions.
Mr. Claude Drouin: Why do they want you to withdraw from those places? Do we want to be the ones to offer the service?
Mr. Jacques Simard: Air Nova already has affiliated companies with whom we are competing. Therefore we must solve the problems created by the affiliates and by Air Nova. Air Alma wants to deal directly with Air Canada. We agree that there should be competition in the regions, but we must be aware of the fact that there is a dominant carrier with major infrastructures providing some reservation services and Aéroplan points, which we would like to share its, of course in return for certain fees that we are prepared to pay. Whether the dominant carrier be an affiliate of Air Canada or some other entity in competition with it, this carrier will feed our national carrier, namely Air Canada. This is what I am driving you at.
Mr. Claude Drouin: Thank you. You also mentioned offering the same rates as Air Nova or the other affiliated companies, and this position seems interesting. However, I don't think it will be easy to implement this recommendation because of the discounts offered by some carriers. It would be good if independent companies could benefit from this and go on providing service in the regions to avoid creating monopolies everywhere in the regions and a lessening of service. How can we control this?
Mr. Jacques Simard: Usually, provisions that applied to Canadian should apply to all affiliates. We should be able to offer the same gates for the same service. I suppose that Air Canada intends to follow the same procedure. It should not be difficult to set a fair price. We don't want Air Canada to subsidize us, because that is not its role. It has become a private company.
Mr. Claude Drouin: Thank you very much. Thank you, Mr. Chairman.
The Chair: Thanks, Claude.
Mr. Michel Guimond: I will be quick, Mr. Simard. I will only ask you one question because I want to give the floor to my colleague, Stéphan Tremblay, the member for Lac-Saint-Jean, so that he can ask you some questions during this first five-minute round.
Thank you for your presentation. The problems you have raised correspond in every way to what we have heard. I do not mean that this is redundant. It really has a specific flavour, because you were an affiliate of Canadian Airlines for over 20 years, for 21 years. After what happened, if nothing happens in the short or medium term, you may be pushed out of the market. In that sense, your presentation is in the same vein as the presentations we heard from Air Transat, Canada 3000, Régionnair and Skyservice. Thank you.
You seem to allude to an agreement with Air Canada. I'd like you to take the time to answer my question after I've given the floor to Mr. Tremblay. I would like you to explain how you would envisage an agreement with Air Canada.
I give the floor to Stéphan Tremblay.
Mr. Stéphan Tremblay (Lac-Saint-Jean, BQ): I have two questions, Mr. Chairman. My first question will be for Mr. Perez. I'd like you to share with us your views on the disguised regulations in clause 64. If you have the time, Mr. Simard, I would like you to tell us about the social impact that this could have on my region, if an agreement is not reached within a few months. If you were to wake up tomorrow morning without a reservation system, what would that mean for your company and for my region?
Mr. David-André Perez (Consultant, Civil Aviation Solutions): First, regarding clause 64, in our opinion it is not realistic to extend the notice from 60 to 120 days for small third level carriers. Even if this clause is meant for protecting passengers, I think that in the long term, it will have the opposite result. Let me explain.
This even goes so far as to discriminate against small carriers. Withdrawing from a market within 60 days is already very expensive, and we are asking a carrier who does not have the financial means to stay on for another 60 days, which would practically devastate him, or even drive him to bankruptcy. For a large carrier, this is only a small expense. A rule has been established that totally penalizes small carriers, and I would even venture to say that it literally benefits large carriers who have the means. We know that they have the means to serve a route for 120 days.
Mr. Jacques Simard: In reply to your question about the impact of Air Alma being pushed out of the market, on your fellow citizens in the region, let me tell you that Air Alma operates on small markets, where transportation fits the needs of our population. This is what we have done uninterruptedly for 20 years. As we do not have access to a structure like the one we had 10 years ago, we can predict the demise of Air Alma in the weeks following December 31st. This would involve the loss of about 70 jobs and of $2 to 3 millions in annual income for the town of Alma. This is what happens when a carrier decides not to give access to something. Before Air Canada's privatisation, the citizens of Canada paid for Air Canada.
I would like to mention a model that we might want to consider, namely Bell Canada. When Bell Canada was deregulated, it was forced by the CRTC to make sure that we could use telephone lines. We are somewhat talking about the same thing. We are in competition with affiliates of Air Canada and we want to stay that way. We want to speak to Air Canada to find a way to use, if you will, the telephone pole. The only thing we are asking for, is for no interference with the market forces.
Once this matter is settled, we will compete with Air Nova in our region. We are used to competition. We have been doing it for 20 years and Air Alma for 40 years. Some things we sell or do differently. Usually, the decisions concerning our clients are made in the region. This gives the citizens in our regions two options. Air Canada used to be a Crown corporation and it has acquired expertise and it has set-up reservation systems. Air Alma pays taxes and, as a citizen, I have the right to make use of it in Canada to serve our citizens, in competition with another carrier.
The Chair: Thank you.
Bev Desjarlais, please.
Ms. Bev Desjarlais: Just to clarify my understanding as to what appears to be implied in proposed section 64, Mr. Perez, you mentioned that it's not possible sometimes to continue because of financial reasons or whatever. But my understanding of proposed section 64 is that there is leeway for companies to get out of their area in an earlier period of time if there are particular problems, that this flexibility is there. Where the 60 to 120 days comes in is, if just for the sake of it not being quite so profitable or if a company just wants to set up somewhere else even though they're financially viable, they have to stay the 120 days.
So in my understanding, it's not a matter of a company being financially incapable of operating and being forced to do so.
Mr. David-André Perez: I would like to add that you are right about this point. But what is much more serious, is that this clause would discourage any new entrant from competing on a route because of this rule for discontinuing service, since the investment in that case is much larger than if we are committed to 60 days. Thus, this would discourage any new competition on a route.
Ms. Bev Desjarlais: It's interesting to know, because we actually had a presentation this morning that was suggesting increasing it to a year to ensure that a company doesn't just go willy-nilly into an area and leave them stranded. So we certainly have opposite ends of the picture here.
That's fine for now, thanks.
The Chair: Thanks, Bev.
Roy Bailey, please.
Mr. Roy Bailey: A dimension of your presentation is rather interesting, on page 2, in which you stated that you have been able to survive over 40 years with a large number of competitors, and having done that in the past—with that in your back pocket, so to speak, as history—now you seem to be more concerned about what is about to take place than you were in the previous 40 years, if I understand what you're saying.
What you're saying is that there are two main things you would like to have removed from Bill C-26. First, the present 60-day period is sufficiently restrictive, and second, you don't think there should be any veto over the rates being charged.
I guess what I'm saying, then, is that you have had 40 years to prove the veto portion, because obviously you've been charging your own rates. Nobody told you what you would have to charge in fares before. If someone were to come in and say “Look, we want you to bring those rates between x and y down from a $300 flight to a $150 flight”, you could go this way. Is that correct?
Mr. Jacques Simard: Yes.
Mr. Roy Bailey: All right. Thank you.
Mr. Jacques Simard: Yes, if the price is controlled by an agency to remove, in certain markets, very small.... You have to understand that we operate in small communities, and over the last 20 years we've designed a model of operation in which the price is always the same or increasing with the cost of living. It's a very special structure because, you have to understand, it's a very, very small volume. But we design things to supply the citizens in the region with an adequate service, and if there is no competition with Air Nova, for instance, those services will disappear and will not be offered by an Air Canada subsidiary, because the market is too small. So we are returning 20 years back in time.
Mr. Roy Bailey: Merci beaucoup.
The Chair: Thanks very much, Mr. Bailey.
Mr. Simard and Mr. Perez, thank you very much for your presentation to our committee. We appreciate your answering our questions today.
Colleagues, we are adjourned until 3.30 this afternoon.