TRAN Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Transport

EVIDENCE

CONTENTS

Monday, May 5, 2003

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1535

The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.))

Mr. J. Clifford Mackay (President, Air Transport Association of Canada)

The Chair

Mr. J. Clifford Mackay

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1540

The Chair

Mr. J. Clifford Mackay

Mr. Warren Everson (Vice-President, Policy, Air Transport Association of Canada)

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1545

The Chair

Mr. Warren Everson

The Chair

Mr. Warren Everson

Mr. J. Clifford Mackay

Mr. Warren Everson

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1550

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

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1555

Mr. Warren Everson

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. James Moore (Port Moody—Coquitlam—Port Coquitlam, Canadian Alliance)

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1600

The Chair

The Chair

Mr. J. Clifford Mackay

Mr. James Moore

Mr. J. Clifford Mackay

Mr. James Moore

The Chair

Mr. James Moore

Mr. J. Clifford Mackay

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1630

Mr. James Moore

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. Marcel Proulx (Hull—Aylmer, Lib.)

The Chair

Mr. Marcel Proulx

The Chair

Mr. J. Clifford Mackay

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1635

The Chair

Mr. Roger Gallaway (Sarnia—Lambton, Lib.)

Mr. J. Clifford Mackay

Mr. Roger Gallaway

Mr. J. Clifford Mackay

Mr. James Moore

Mr. J. Clifford Mackay

Mr. Roger Gallaway

Mr. J. Clifford Mackay

Mr. Roger Gallaway

Mr. J. Clifford Mackay

Mr. Roger Gallaway

Mr. J. Clifford Mackay

Mr. Warren Everson

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1640

Mr. Roger Gallaway

Mr. Warren Everson

Mr. Roger Gallaway

Mr. J. Clifford Mackay

Mr. Roger Gallaway

Mr. J. Clifford Mackay

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1645

The Chair

Mr. Jim Gouk (Kootenay—Boundary—Okanagan, Canadian Alliance)

Mr. J. Clifford Mackay

Mr. Jim Gouk

Mr. J. Clifford Mackay

Mr. Warren Everson

The Chair

Mr. Marcel Proulx

Mr. J. Clifford Mackay

Mr. Marcel Proulx

Mr. J. Clifford Mackay

Mr. Marcel Proulx

Mr. J. Clifford Mackay

Mr. Marcel Proulx

Mr. J. Clifford Mackay

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1650

M. Marcel Proulx

Mr. J. Clifford Mackay

M. Marcel Proulx

The Chair

Mr. Stan Keyes (Hamilton West, Lib.)

Mr. J. Clifford Mackay

The Chair

Mr. James Moore

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1655

Mr. J. Clifford Mackay

Mr. James Moore

Mr. J. Clifford Mackay

Mr. Warren Everson

Mr. James Moore

The Chair

Mr. Warren Everson

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

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1700

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

»

1705

Mr. J. Clifford Mackay

The Chair

Mr. J. Clifford Mackay

The Chair

The Acting Chair (Mr. Stan Keyes)

Capt Dan Adamus (Vice-President, Canada Board, Air Line Pilots Association International)

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1710

»

1715

The Chair

Mr. Jim Gouk

Mr. Art LaFlamme (Senior Representative, Canada, Air Line Pilots Association International)

Mr. Jim Gouk

Mr. Art LaFlamme

Mr. Jim Gouk

Mr. Art LaFlamme

The Chair

Mr. Stan Keyes

The Chair

Mr. Roger Gallaway

»

1720

The Chair

Mr. Art LaFlamme

The Chair

Mr. Art LaFlamme

The Chair

Mr. Art LaFlamme

The Chair

Mr. Art LaFlamme

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CANADA

Standing Committee on Transport

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NUMBER 025

l

2nd SESSION

l

37th PARLIAMENT

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EVIDENCE

Monday, May 5, 2003

[Recorded by Electronic Apparatus]

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[English]

    The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.)): This is the first open forum to consider Bill C-26, an act to amend the Canada Transportation Act and the Railway Safety Act, to enact the VIA Rail Canada Act, and to make consequential amendments to other acts.

    We will be leaving in about twenty minutes for a four o'clock vote, but we welcome Mr. Mackay and Mr. Everson again. Who is before this committee more than you folks? We always love to see you.

    Do you want to start giving your presentation, Mr. Mackay? There will be a couple of questions, I'm sure, but then we will come back right after the vote.

    Mr. J. Clifford Mackay (President, Air Transport Association of Canada): Sure. Thank you, Mr. Chairman.

    The Chair: We don't have many members here for some reason or other. It's a Monday, I guess. I have no excuse for it other than the fact that the evidence you give will be in Hansard and can be read and referred to as evidence before the committee.

    Mr. Mackay.

    Mr. J. Clifford Mackay: First, thank you for seeing us again. Normally, when I come before this committee I try to be calm, cool, and collected, but I must tell you, Mr. Chairman, having reviewed this bill, we're almost embarrassed to be here. Frankly, I am personally angry to have to be here in front of you today.

    Last year in November we as an organization published a white paper saying the industry was facing a crisis in costs. We urged the government at that time to move quickly to lower costs to consumers, especially those costs that were directly within their control. In April this committee examined the issue in detail and added its voice in a very powerful statement to the government on cost reduction called “An Industry in Crisis: Safeguarding the Viability of the Canadian Airline Industry”.

    Four months later we have seen no real response. Costs continue to rise and many of the government-imposed costs continue to rise. The federal budget rescheduled one cost item, the air travellers security charge, and I say “rescheduled” because it didn't roll it back, it simply found another accounting way to spread the cost to be paid for by the passenger over a longer period of time. This was a useful but frankly minor move compared to the size of the problem. Since then, Air Canada has been forced to seek protection under the Companies' Creditors Arrangements Act.

    WestJet, one of the most efficient airlines in the world, issued first-quarter results last week showing a bare profit of 1¢ a share with sharply reduced revenues and passenger traffic. Many of our members are telling us that this season is the worst they've ever seen, and they are very concerned about how things are going to go this summer. I should say to the committee, the summer season is the most crucial season in terms of the financial viability of our industry. If you have a bad summer, you have a bad year, period.

    Now the government tables this legislation. It has nothing to do with any of this. Frankly, these problems are crippling our industry. In fact, if you look at the legislation carefully, you'll see it will likely increase the cost imposed on the industry.

    Faced with all these serious threats to air service in dozens of communities and to thousands of jobs for Canadians, we really are amazed the government would be proposing sweeping re-regulation of the airline industry, increasing yet again the power of the bureaucrats to micromanage in what is supposedly a free market.

    This legislation is frankly an insult, Mr. Chairman, to both the customers and to the workers in this industry. It's an insult, I believe, to this committee, which has spoken out strongly about the critical issues, yet the government just isn't paying any attention at the moment.

    I want to talk about three points and there are others; we are obviously quite prepared to talk to other provisions in the bill as well, but I wanted to talk about three specific ones.

    The first is what is referred to as the “Agreements” section in the legislation; that's proposed section 85.2 of the Canada Transportation Act. This proposes sweeping bureaucratic powers to intervene in the market and impose commercial agreements on private companies, even setting the terms of those agreements and dictating the price of the agreement. The intention of the bill's architect is to shift commercial advantage from large carriers to smaller ones by forcing large carriers to share the benefits they have attained through investment in infrastructure and in service offerings.

    Here's how it's supposed to work. A customer may be faced with two carrier offerings. One is a small, local operator whose price is quite low but who doesn't really offer any amenities. The second may be an Air Canada or a CanJet or a company of that nature. Their price might be higher but they offer certain features that make their service more attractive. They have frequent flyer points, they have a larger network, and they are interconnected through international alliances so they can feed you through in a seamless sort of way. These advantages persuade the customer to choose the network carrier over the less expensive smaller operator. Transport Canada would view that as an unfair advantage, and it proposes a huge new power for federal bureaucrats to force the larger carrier to sell its service to the smaller carrier at a rate that could be set by Ottawa.

    We have two points of criticism on this approach. First, it's expropriation. Carriers invest millions, sometimes billions of dollars building networks in these services so they can in fact differentiate their product, yet the Crown proposes to control how they use those assets, who they sell them to, and how much money they'll be worth.

    It's a very curious strategy to pursue when it's generally agreed that the survival and growth of most of the carriers in this industry depend on the support of the investment community, which is at the moment lacking. If I were an investor and I were facing that kind of bureaucratic uncertainty, I'm not sure I'd put my money into that kind of company.

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    Government expropriation can only be justified in the most extreme cases of monopoly abuse. Everybody on the committee knows Air Canada doesn't really enjoy a monopoly. If they did, they wouldn't be in CCAA protection today. Two years ago the government gave the CTA enormous powers to act against Air Canada if it abused its alleged monopoly powers, but the agency has found almost no occasion to take action.

    Notwithstanding that, under proposed section 66 this bill also proposes that the powers the CTA was given be extended in perpetuity, and it goes even further. It says that the CTA should have the power to investigate monopoly pricing practices even if they haven't had a complaint. If that's not a fishing expedition, I don't know what is. It's certainly an invitation to grow the staff of the CTA since they will have to be busily investigating things.

    Second, coming back to proposed section 85.2, we oppose the provision because of what's generally referred to as the law of unintended consequences. The architects at Transport Canada, chasing what we would call the great white whale of perfect competition, have designed a law that could cause chaos. This provision can be used by operators against WestJet, CanJet, or Bearskin, carriers of any size or shape. Discount carriers, as I know you know, Mr. Chairman, do not interline, and they don't for a very good reason. They're trying to keep their costs down. This provision would force them to interline as the result of a bureaucratic decision.

    Mr. Chairman, the logic of this provision is this. The government is arguing that small operators want this because they need it to counterbalance the power of the larger guys. Well, Mr. Chairman--we gave the document to the clerk and I hope it's going to be circulated--we went out and asked our small operators, and to a man not one has responded who isn't vehemently opposed to this.

    Here are some examples: HawkAir, Trans North Helicopters, Transwest Air, Keewatin Air, Canadian North--or Air NorTerra, as some of you might know it as--Alta Flights out of Alberta, WestJet--it just goes on and on and on, one after another. We are really quite mystified as to why this provision was put forward.

    I hope I've communicated to you that I'm almost speechless about this, and I'm not speechless very often, Mr. Chairman.

    The Chair: Are we to gather, Mr. Mackay, that you're not happy with this legislation?

    Mr. J. Clifford Mackay: I think that's the short answer, Mr. Chairman. Let me stop there, though, and turn to one other provision. I've spoken to proposed sections 66 and 85.2, and I'm going to ask my colleague, Mr. Everson, to speak to proposed section 60.1, which is on the advertising.

    Warren.

    Mr. Warren Everson (Vice-President, Policy, Air Transport Association of Canada): Thank you.

    Obviously, we consider that proposed section 60.1 is also very ill-considered. It's an openly political measure. It's very, very intrusive into private business and comes at a potentially very high cost to carriers and to their customers.

    Airline marketing tactics can be very aggressive, and the pressures of the last few years have made that worse. We're not more aggressive in our industry than advertisers are for cellphones, retail fashion, or car dealerships, yet the government is not proposing to regulate the advertising of any of these industries or even of any other part of the transportation sector, such as buses or rail. They are just proposing to regulate the advertising of the airlines.

    One has to ask why, and we think the reason is pretty clear. Last year, when the air travellers security charge was introduced at $24, it represented a very significant markup from the advertised fare, which is what the airline gets of the final cost the consumer has to pay. All of a sudden consumers were looking at 10%, 20%, and 30% increases over the advertised price that had brought them to the travel agent in the first place, and they indignantly began writing to the Minister of Transport. Transport officials reflected to us that the minister was jolted by the number of protest letters he got. This section is directly a result of that protest. It isn't based in principle, this is just a one-off attempt to silence the complaints.

    I would point out to the committee that we don't think this legislation would normally be presented by Transport Canada or should be. The issue of advertising practices belongs to Industry Canada, which has in the Competition Bureau an entire branch specifically dedicated to questions of fraud, and we've never heard anything from them. I'm going to suggest the committee may wish to call the Competition Bureau and ask them what their view is of current airline marketing practices and indeed what the wisdom would be of having one law for marketing in the airline industry and another one for every other industry in the country.

    Now, ATAC does support the idea of reform to our marketing practices, and you'll remember that last fall we did start the process of a voluntary code for our members to clean up advertising practices. We got agreement from our membership but that process died when the legislation appeared. There is obviously a big difference between a private association organizing something because it's good for business and the government passing laws and setting up a team of bureaucrats to review the advertising and make sure we're not annoying our customers.

    Now, Cliff referred to the law of unintended consequences, and here I think we see an example. We passed out a handout, which I hope all the members have, a little advertising I drew up on the weekend. These are real prices and real itineraries, although the advertising probably isn't what one of our companies would use. On a $400 fare out of Halifax over Toronto, these are the taxes I can find that would be applicable. If we follow the legislation, if it passes, we would have to post the price we expect to receive, the $400, and then we would have to demarcate each of the taxes and charges that is levied after the price.

    Obviously, there's a significant markup that's available for the consumer to see, and I wonder about the political wisdom of showing people the degree to which the government is in their pockets. But more to the point, there's just the basic administrative function of trying to make advertising and buy the advertising space with this many charges.

    We have two of them here. The other is Australia and it's a Calgary-Australia return. These are not complicated itineraries. It is easy to get much more complex itineraries with pages and pages of add-on charges. These are just straightforward.

    I'll get to the point. Whoever is selling this, the travel agent, the tour operator, or the small airline in some small community that has an interline agreement, they have to post these and have to post them correctly or be in violation of the law. It's a very odd mission for the government to take on for itself.

    In fact, I think it is so odd that we can understand better what the motive is. We don't believe the government is going to expect us to do this.

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    The Chair: You've shown us something here on Halifax-Toronto-Orlando. I've done a quick calculation, and almost half of those charges have their genesis in the United States. We have no control over that.

    Mr. Warren Everson: Except for the advertising.

    The Chair: I understand, but $60 of the $126 is--and all we're doing is landing in Orlando.

    Mr. Warren Everson: It's even worse on the other one if you look at it, Mr. Chairman, the one for Australia. Because of the distances involved, we have to land in Hawaii, and the law says you have to enter the United States and exit again. Just for the privilege of landing at two o'clock in the morning in Hawaii last year, my family and I had to stumble through the airport and pay $60 of extra taxes because of entering the United States.

    However, the law before you would compel us to display all these charges, regardless of whether they're from Canada or any other country.

    Mr. J. Clifford Mackay: Mr. Chairman, I'd make one comment just so nobody gets any wrong impressions. Our colleagues in the ATA in the States are just as virulent about these cost problems as we are, and they've been fighting hard in Congress to get some of them out of the system.

    Mr. Warren Everson: I don't think Transport Canada is stupid. They can do this exercise themselves, and I don't think they expect us to run ads that show all these taxes. This is a thinly veiled attempt to force us to put the taxes into the fare, all-in pricing, which was where Transport Canada started last summer in their first consultations with us. We responded by saying, we will not conceal the GST and other taxes; government after government had decided to specifically have the GST displayed after the price.

    But this is unworkable. It's incredibly expensive, and there are also a raft of technical issues the committee needs to know about. If we advertise a package deal with hotel and airfare, the law is not clear to us as to whether or not we have to display all the hotel taxes, or is just bundling those services illegal? What exactly is the definition of the “service” in this clause? Service for the CTA is normally air service, which is just the provision of commercial air travel, but that's obviously not what this proposed section intends because the service here is everything it shows on our ticket. These ads would also have to be changed as the exchange rates change because the amount of money being charged by the U.S. or other countries for taxes would change.

    A very interesting one, you'll notice, is the one where as we go to Australia, we pass over Vancouver airport, but we don't collect for Vancouver airport, so it doesn't show on our ticket and we don't have to display that one. But if we passed over Toronto airport, since we do collect for Toronto, we'd have to display that. Does the consumer get served in this matter? It's transparent in one case but it's concealed in the other. There are numerous complexities of this kind.

    For any change in the itinerary such as the Halifax over Toronto, if that passenger decides to stay in Toronto for the afternoon and then catch a flight that evening, everything about the advertisement becomes untrue. There is an extra ATSC applied and there are different taxes from GST to HST.

    Proposed section 60.3 of the bill asks you to extend federal authority to the many people who advertise air travel but who are not governed by federal jurisdiction. The bill orders licence holders, those who are federally regulated air carriers, to put these rules into contracts they have with tour operators. I would ask the committee to seek some legal advice as to whether or not that is legal and enforceable, conscious that the federal government is extending its jurisdiction out into provincial jurisdiction.

    If tour operators or, say, the United States carriers don't have to abide by this or flout the law, they will be posting prices that are 20% 40% cheaper than those posted in the advertisements in Canada. And if a small carrier in Canada, such as a small charter operation, tells a large tour operator in the United States or a cruise line that this is how they have to do it, that this is how the advertising has to be, it leaves no leverage whatsoever. If he insists on it and they don't care to comply, he'll simply lose the contract. We just don't understand how it's possible for the federal government to assign someone to enforce federal law outside their jurisdiction.

    Our conclusion, which will come as no surprise, is that we find this proposed section to be very poorly designed. We find it deceptive as to its intent and likely to cause significant difficulties for the airlines, and we ask the committee to strike it from the bill.

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    Mr. J. Clifford Mackay: Mr. Chairman, I'll just conclude.

    Obviously, we are very unhappy with this piece of legislation. It's ill-conceived and it's not well designed, and we're not sure the intent is as stated in all cases. It certainly does nothing to address the absolutely crucial problems facing the industry today.

    Our request to the committee, Mr. Chairman, is that you look at this and hopefully that you send it back to whence it came because it needs a lot of work if it's ever going to see the light of day. We see it as an attempt by a number of officials to introduce a whole bunch of their favourite hobby horses because we can't see it coming from anywhere else. We went and read the CTA review and none of this was in the CTA review. This is frankly just an ill-conceived piece of legislation that should be consigned to that round thing in the corner.

    Thank you very much, Mr. Chairman.

    The Chair: Thank you, Mr. Everson and Mr. Mackay.

    Before I get to the questions, maybe you'd like to explain to the committee the amount of consultation that was held prior to this legislation being introduced. It seems that we are always involved, as we are told by Transport Canada, in the consultative process and that this truly reflects an accommodation of both the wishes of the industry and the protection of the consumer--you know, the balancing act. Would you explain the consultation process leading up to the presentation of this legislation.

    Mr. J. Clifford Mackay: I'd be happy to, Mr. Chairman.

    I've said before to this committee from time to time that we have commended Transport Canada on their consultations on other issues. On this one it was abysmal. We essentially had one conference call called at very short notice. We were asked to coordinate not only our members but also people from the Canadian Airports Council and people from the tour operators' association.

    It wasn't a consultation, it was an explanation of what they intended to do. When we asked if we were going to have some further meetings and if we were going to be able to sort some of this out, the answer was no, no, we're in too big a hurry; that's it, see you in Parliament. It was frankly terrible. This happened on a Friday and the bill was introduced the following Tuesday.

    That's the sum total of it, Mr. Chairman.

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    Mr. Warren Everson: There were some discussions through the summer on the advertising issue. I don't think we had a meeting, but I did have some phone calls from Transport Canada indicating they were concerned and that they were trying to regulate the transport advertising side. On that aspect of it we had a little more lead time.

    Mr. J. Clifford Mackay: By our standards, Mr. Chairman, it was frankly awful, certainly not something we're used to generally as an industry either on the safety and security side or on commercial issues broadly written.

    The Chair: Can you please comment, Mr. Mackay, on the CTA Review Panel.

    Mr. J. Clifford Mackay: As I'm sure committee members will know--I'll probably have my timeline off here, but--about a year and a half or two years ago the Minister of Transport initiated a review of the Canada Transportation Act, which was a requirement under the legislation. There was a panel established under the chairmanship of Mr. Brian Flemming that did an exhaustive job, we think a very good job, of reviewing the act and dealing with a lot of issues, not just air but right across the board: bus, rail, and other issues. They held extensive hearings around the country and did a fair bit of analysis, both academic and practical, and basically produced a good report.

    The major focus was on two or three areas on the air side. It focused and made some specific recommendations on competition policy, particularly as it relates to international travel, and it essentially concluded that the government should stay the course at the moment in terms of its current international policy framework, i.e., bilateral agreements. It also specifically recommended that the government give consideration to moving the foreign ownership provisions from the current 25% to 49%.

    It also focused on some of the broader governance issues that had arisen as a result of the devolution of infrastructure in our industry, in particular with respect to airports. It made some specific recommendations to the effect that the governance model in the airports needed to be addressed and likely needed to be studied in detail and upgraded.

    Those were the major recommendations coming out of the CTA report as it related to air. There were a number of recommendations associated with rail and other modes, but on the air side those were the two large recommendations that came out of it. As to the provisions with interlining and that sort of thing, well, they just weren't there.

    The Chair: Thank you.

    Mr. Moore.

    Mr. James Moore (Port Moody—Coquitlam—Port Coquitlam, Canadian Alliance): Thank you.

    Maybe the committee would like to reconsider Mr. Gouk's 898 witnesses.

    Just so both of you know, the Canadian Alliance will be offering amendments on all the things you've criticized, so we will get a chance to see whether or not the government will consider them and take your concerns seriously.

    When David Collenette, the minister, was before the committee, I made a point to him about these provisions on providing truth in advertising, saying the industry is doing that itself voluntarily. He said, well yes, the industry's going to do it now because they know it is going to come into law, and that's the only reason they're doing it.

    Can you rebut that?

º  (1600)  

    The Chair: Could you please save the answer. We were just told we have to go to vote now.

    The meeting will be adjourned and will reconvene ten minutes after conclusion of the vote.

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º  (1626)  

    The Chair: Mr. Moore, you had posed a question as we adjourned, and Mr. Mackay was going to respond.

    Mr. J. Clifford Mackay: Now, I just have to remember the question.

    Mr. James Moore: When David Collenette was at this committee, I put a question to him, why do you need this provision about semi-truth in advertising--it's not actually about truth in advertising--when the industry has done it itself? He said that the industry hadn't been going to do it; the industry only did it because they heard the rumbling feet of bureaucracy and Liberal soldiers coming to enforce it. Then they did it but not until this law appeared, so we needed it in law in order to make sure it had sustaining power.

    Mr. J. Clifford Mackay: When we announced we were going to do it, we said there were two things driving us to do it. One was feedback from our customers. We were getting feedback from a number of different sources, from our customers, saying, life is just too darn confusing here; we want it simpler; we want to be able to know what the price is. Then second, that was focused by Debra Ward's report; she came to the same conclusion.

    That's really what started to motivate us, and frankly it wasn't the threat of government legislation. When this first came up, we told them we thought it was a silly idea; it was something the industry needed to address itself, and if we ever did need any help, we would be back to see you.

    The only place I could see where we would ever need any help on this would be in trying to ensure that international companies, companies that are not Canadian-based and that we have difficulty in influencing, would follow the same practices. But frankly, we have written to IATA and we have written to ATA, who are our sister organizations in the U.S. and internationally, and IATA is moving down this road anyway. We don't really need government help to do this.

    Mr. James Moore: It's one of my ideological predispositions, I guess, but one of the things I always find obnoxious about the state in this regard--or, I suppose, about politicians flexing the state's muscle--is a scenario like this. It's as though a citizen wants to buy a ticket from air carrier x, actually goes to buy it, and then says, oh, my God, it's a lot more because of the taxes. Then the state in all its I-feel-your-pain full throttle wants to protect the citizen from the--gasp--deemed disappointment. This is actually a provision made by the state in trying to assuage citizen disappointment, and I just think that's so obnoxious.

    The Chair: Are you looking at me, Mr. Moore, for approval?

    Mr. James Moore: I have one open question I could ask, and you are here to give constructive criticism to legislation, but is there anything vis-à-vis the air industry that is redeeming to Bill C-26?

    Mr. J. Clifford Mackay: There are a couple of things, technical amendments. There is an amendment that changes the definition of what an air operator is. We've had a couple of instances in the last few years where there was a bit of a loophole there. It's allowed certain companies to get into business, ones that frankly weren't as solid as they should have been financially and otherwise, and there is some provision in this act that closes that loophole. There is nothing wrong with that.

    There are also some technical, definitional amendments that tidy and clean up some things, and again, there's nothing wrong with that.

    But the fundamental provisions of this act are all intrusive. They re-regulate the industry and they do it in a way that just makes no sense at all from our point of view.

º  (1630)  

    Mr. James Moore: Thanks so much for coming today.

    The Chair: The witnesses stated the following as a result of my questioning. They are very much opposed to most of the legislation that concerns the airline industry and/or this review, so I asked, was there no consultation process with respect to the industry? The answer I got was that there was one conference call--and correct me if I'm wrong--that included the airport councils the Friday before the introduction of the act on the Tuesday. And when Mr. Mackay asked for some consultation time, the reply was, we are in too big a hurry in order to have any consultation on this process.

    I then asked a question about the ongoing review by the Canada Transportation Act panel, which produced a report. The report from that panel, in which they were participants, dealt only with foreign ownership, the question of ownership between 25% and 49%, and the competition policy. There was nothing in the Canada Transportation Act panel report with respect to the legislative changes that are presently before the committee.

    Is that a fair and accurate assessment of the evidence we've heard today, Mr. Mackay?

    Mr. J. Clifford Mackay: Yes it is, Mr. Chairman, in the sense that the recommendations out of the panel did not address some of the details that are here. Now, there were some studies done, but the panel did not recommend that we go in the direction that's in this legislation.

    The Chair: I don't know, Mr. Proulx, whether you want to respond to that at this time or respond to it at a later time. I'm not trying to put you on the spot.

    Mr. Marcel Proulx (Hull—Aylmer, Lib.): No, that's fine.

    I'm very surprised to hear this because my understanding--I will go to sources and next meeting I'll comment a little bit more on it--was that there was broad public outreach by the Canada Transportation Act Review Panel. Also, in 2001 and 2002, as part of the transportation blueprint process, Minister Collenette held a series of round table discussions with stakeholders right across Canada.

    But we'll look into it, and next meeting I'll come back with more details on this, Mr. Chair.

    The Chair: It was a broad public outreach by whom, Mr. Proulx?

    Mr. Marcel Proulx: It was in regard to the Canada Transportation Act review; there was a panel that was formed. And then during the preparation of the transportation blueprint that was later tabled, the minister had a series of round table discussions with the stakeholders throughout the country, whether it be Halifax, Montreal, Ottawa, Toronto, Edmonton, or Vancouver.

    I'll check into it and come back to you with a more precise answer, Mr. Chair, at the next meeting.

    The Chair: Would you like to be present, Mr. Mackay?

    Mr. J. Clifford Mackay: I would be happy to if it was helpful to the committee.

    I'll just comment on Mr. Proulx's statement. We have no criticism to offer the panel. We think they did a very good job; it was very comprehensive, very open, and very transparent, with lots of consultation. We've been involved in the blueprint exercise.

    What surprises us about this legislation, sir, is that what's in this legislation wasn't in the conversations we had. We didn't talk about interlining. We didn't talk about advertising codes. We didn't talk about all that stuff. That's what surprised us about all this.

º  (1635)  

    The Chair: That's what committee hearings are for, to get to the bottom of issues like this. We don't want anybody to go away without feeling they've been properly heard and their concerns properly addressed.

    Mr. Gallaway.

    Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you, Mr. Chairman.

    You referred to having participated in the consultations of the panel group. Consultations are words that are meaningless in terms of Parliament, but they have great meaning in terms of bureaucracy. As I understand it, you participated in this transportation panel. Do you know if there was a record of the proceedings of the panel? Would you know? This is not a test.

    Mr. J. Clifford Mackay: No, I understand.

    My understanding is yes, there was a record in the sense that if anybody made a submission, that was duly recorded. Their hearings were relatively informal. I don't think they kept a verbatim record like a parliamentary committee does, but I think they did keep summaries of their hearings.

    We met with the panel itself twice and we also submitted a brief. We were quite pleased, and a number of our members and others also met independently with the panel as they went across the country.

    Mr. Roger Gallaway: Before we were interrupted by bells earlier, you had made reference to a telephone call that was placed by somebody at Transport Canada on a Friday, and it was alleged that it was a consultation--and once again I'll say, whatever that means; I'm not certain. Can you tell this committee who called? Do you know?

    Mr. J. Clifford Mackay: We were called by the policy branch of Transport Canada and asked if we would facilitate setting up a conference call to brief us on what they were thinking of doing with the amendments to the Canada Transportation Act. We were asked if we would also help out by not only bringing our members together but also asking the CAC, the Canadian Airports Council, and the Canadian travel operators' association to see if they would also have people on the call.

    The impression we had was that they were anxious to talk, so we got in touch with our colleagues in these other groups and said there was a call set up. That conference call took place on the Friday--now I'm struggling with memory--and I would say there were probably ten or fifteen people from various parts of the industry on the call.

    Essentially, the way the call went was, they just went down the various provisions and told us what they were; then we gave them an earful, but it made no difference whatsoever.

    Mr. James Moore: When was the outreach made to arrange the conference call?

    Mr. J. Clifford Mackay: I would say probably a week or so before. I'd have to go back and check when we received it, but I received a phone call saying, would you help us out with this. Of course, we do this sort of thing all the time.

    Mr. Roger Gallaway: In terms of that so-called consultation, you were not asked to submit a brief or there's no record of this.

    Mr. J. Clifford Mackay: No.

    Mr. Roger Gallaway: Could you name the individual you dealt with at the policy branch?

    Mr. J. Clifford Mackay: I think it was Mr. Brian Carr who was dealing with it.

    Mr. Roger Gallaway: In terms of all these things you've raised today, particularly the interlining section, where did it come from? Are you aware of anyone within the industry who requested it?

    Mr. J. Clifford Mackay: No. It has not been requested by any of our members, as you can see in some of the documentation we've left you. If you talk to anybody in the business, you'll hear it's a fairly silly idea, but Mr. Everson may want to comment.

    There have been some academics who have done studies and who have observed that this kind of relationship is probably better for competition. But for anybody who's actually in the business, you don't enter into these kinds of deals unless they make good business sense to you on both sides. Even for the smaller companies who are supposed to benefit from this, it just doesn't make a lot of sense.

    Mr. Warren Everson: If any of our members wanted this and asked for it, they didn't tell us, which of course could happen.

    It has to be understood, this is monopoly-busting legislation, that's what it's for. But it missed the window; the monopoly is in a busted state already.

    The reason we're surprised that it would have come up in discussions in the field is that for small operators to get an interline relationship, you need to have access to a big reservation system and you take on enormous amounts of costs. What it means is, some small airline like Blackfly Airlines in northern Ontario now sells the whole trip.

    In fact, the legislation is very queer because at the same time they want to put that capacity in the hands of small operators, then they go and say okay, when you sell, you also have to advertise, and when you advertise, you are responsible for displaying all of these taxes; and if you get it wrong, you're in violation of the law.

    It took me all weekend to get all these taxes. It's not easy for a small operator to make use of this, and that's why most of our members are saying, I'm not going to force an interline onto another company. Other companies have of course called us and said, are you saying I would have to do a business relationship with a guy even though I knew his credit was pretty shaky? And I'm saying, well, yes.

    You can always argue. You have an appeal process. You can argue that you will be at risk of financial hardship, but then that's a reverse onus clause. You're going to do the business deal unless you come to town with your lawyer and prove that the business deal might be excessively risky. We don't normally force people into that kind of defensive play anymore in a deregulated market.

º  (1640)  

    Mr. Roger Gallaway: On the advertising aspect of it--once again, I'll ask the question, but I know the answer--where did that come from? Is this expert-driven?

    Mr. Warren Everson: It started in May or June last year, right after the security tax was introduced, and I got calls from the policy branch at Transport Canada saying there was a deluge of new complaints coming to the minister. They said that there was gouging going on because the airfare was advertised at $400 but the actual price was $570; this was a very serious problem, and they were exploring legislative models from Europe, where all-in pricing is required.

    Mr. Roger Gallaway: That then begs the question, of course. I'm not arguing with you in any way. We could force Wal-Mart to sell whatever on a tax-included price also, or alternatively we could force VIA Rail to advertise a price that included the public subsidy in it. I'm trying to find a rationale for all of this.

    Mr. J. Clifford Mackay: The only conceivable rationale we can come up with is exactly what Mr. Everson has just said, that people want to bury these costs; they want somebody else to take the heat for it. I think there is a little bit of legitimacy in his last point, and that's why we as an industry responded to it.

    Our customers were telling us that life was just too confusing, so what we were doing was moving to a system where we would voluntarily abolish any surcharges that were related to our costs--fuel, insurance, NAV fees, whatever--and the only surcharges that would be out there would be the ones that were third-party. That would hopefully clean up the market and make it easier for the customer. The customer would at least know what part of the whole thing had to do with the carrier, the guy they were getting this service from, and what part of it had to do with everybody else. That's why we were moving in that direction.

    Mr. Roger Gallaway: I have a final question. Now, I buy my airline tickets all the time; I just go online and do it myself. I know one airline I fly in particular where, when I buy a ticket, it lists everything, but I must say I'm not flying through Hawaii or other American jurisdictions. Sometimes I think it would be easier to fly through Detroit to get here. Do they advertise all these fees anyway or only when you purchase online?

    Mr. J. Clifford Mackay: The answer is complicated because it depends on whether or not you're flying on a charter and doing a package, because the pricing gets very complicated there, and whether or not you're going into the States. The standard practice in the States, particularly with leisure travel markets, is that you advertise one-way fares even though you're not selling a one-way fare, you're selling a return fare. What's put in the newspaper is the one-way price because they're trying to get people to actually make the phone call, and they'll get all the details when they make the phone call.

    But in Canada that's not a normal practice; most fares in Canada are advertised as return. Most companies do that for a scheduled fare. If it's advertised for one-way, they'll give you a price and they'll say “each way”. The other thing we normally do is, if there's an indication in the ad that there are add-ons and charges, then you'll get that information from your travel agent or your ticket agent if you're buying it directly from an airline. It's absolutely required that everything must be itemized when you go to buy that ticket.

º  (1645)  

    The Chair: Thank you.

    Mr. Gouk.

    Mr. Jim Gouk (Kootenay—Boundary—Okanagan, Canadian Alliance): Thank you.

    I just have one question. I certainly agree with what we've talked about in the past and I agree with what you've brought forward.

    In addition to the problems you've said this bill brings to you and to the troubles the airline industry is in, can you tell me what effect it will have on the airline industry, particularly in Central Canada here, if VIA Rail, which is already highly subsidized, gets $3 billion to put high-speed rail between Toronto and Montreal? What impact will that have on the airline industry?

    Mr. J. Clifford Mackay: The short answer, sir, is simple. It would probably devastate our market in what we call the triangle, which is Ottawa-Toronto-Montreal, and we would probably have to vacate that market pretty much entirely.

    The longer answer is, that is one of the most lucrative markets in the country because there's a lot of business travel and there's a lot of last-minute travel, that sort of thing. That commands much better margins than some of the other markets we serve.

    Mr. Jim Gouk: Do you think the industry would be in a better position to compete against that if VIA were sold to the private sector and then made whatever investment was necessary if they wanted to go into that? Would that balance the market out a bit?

    Mr. J. Clifford Mackay: Absolutely. We have never objected to VIA Rail being a competitor. We're in business. But we object vehemently to VIA Rail competing against us with taxpayers' money when we're being told we have to do it all ourselves.

    Mr. Warren Everson: There is one item to add. A very immediate concern in the discussion about VIA Rail is, there's an enormous amount of money, about $6 billion or $7 billion right now, in debt at the three major airports in the corridor, Montreal, Ottawa, and Toronto. Standard and Poor's has already issued a notice on the debt of these airports relative to the possibility of a high-speed rail financing, so the rail doesn't have to be in place and working before it has a big impact on those facilities.

    The Chair: Mr. Proulx.

    Mr. Marcel Proulx: Mr. Mackay, when we're talking about the voluntary code of conduct of your association, am I right in saying that this code will not become a mandatory requirement for your members or for carriers?

    Mr. J. Clifford Mackay: What we had agreed to at the time we announced it was that carriers would publicly commit to the code and that in the event a carrier in fact breached the code, it was clearly understood that the breach would be a matter of public record. The carrier would then have to deal with their customers and their market since they were not adhering to the code while their colleagues were adhering to the code. So the sanction is a market-based sanction. It certainly wasn't a sanction in the sense that we would levy fines and that sort of thing.

    Mr. Marcel Proulx: So there's no enforcement mechanism as such except the public perception and the pressure.

    Mr. J. Clifford Mackay: Which works pretty well in our world.

    Mr. Marcel Proulx: Does it address foreign carrier practices?

    Mr. J. Clifford Mackay: We attempted to do that, and the way we did that was, we wrote to both the ATA and IATA, which represent all the other people who work in this country, and asked them if they would voluntarily become a part of the code. In both cases we had responses back that they'd like to talk about it and consult on it. We never got to a point where there was an agreement.

    In particular, we were concerned about the American practice of advertising one-way fares, which is a very standard practice in the U.S. What we were trying to do was get that process harmonized so anything coming into or going out of Canada would be compliant with our code. It was less of a concern with IATA because many of their carriers are European-based, and we don't have the same issues to deal with in terms of practices.

    I must tell you, we never really got to full implementation because we got into this.

    Mr. Marcel Proulx: Does your voluntary code, if I could call it that, call for the amounts of add-on charges to be identified by your members for consumers?

    Mr. J. Clifford Mackay: It calls for any charges that are associated with our costs to be buried in the ticket price--fuel, insurance, those sorts of things--and with any other, third-party charges, for the customer to clearly know that there are third-party charges. It doesn't call for an itemization of all these. The ad must say, other charges such as GST, airport taxes, and security taxes apply.

º  (1650)  

    M. Marcel Proulx: But you are solving the problem of fuel surcharge by saying that the price advertised will have to include all of the charges.

    Mr. J. Clifford Mackay: That's correct, you could no longer engage in those practices. For example, if the code was in force and if you were a member of the association, you could not announce a fuel surcharge; you'd have to bury it in your price.

    M. Marcel Proulx: Thank you, Mr. Chair.

    The Chair: Mr. Keyes.

    Mr. Stan Keyes (Hamilton West, Lib.): Just briefly, Mr. Chairman, I want to thank Mr. Mackay and Mr. Everson for appearing before the committee. What they offer us is always insightful and usually very direct, as their report to us today has been.

    Mr. Mackay, I'm at a loss to explain it myself. Brian Flemming's report, the CTA panel report, was one and a half years in the making with a cross-section of the industry on the panel. I didn't see a single one of these issues in any of the recommendations the CTA panel made, be it frequently flyer points, joint fares, or interlining, yet we have this before us contained in the CTA amendments package.

    Given the recent problems of Air Canada, can you enlighten me as to how much of that has to do with what they're attempting to do here. What is the opinion of the other carriers, who are just looking for a level playing field in order to pursue their business interests and their very viability against Air Canada, as to what's happened there?

    Mr. J. Clifford Mackay: I wish I could enlighten you as to what motivated all of this, because we've been trying to figure it out. When I step back and look at it, I have to conclude that this was a misguided attempt to try to deal with what was perceived as a monopoly power in one carrier, Air Canada.

    Frankly, one, it doesn't do that, and two, it has all kinds of unintended consequences, which are all negative. When we go and talk to our members about this act--and that's why we've been so vociferous today--we can't find anybody out there who thinks this is a good idea. We've gone so far as to actually ask them to put it in writing because it's really quite unusual to have a piece of legislation that is central to this industry where there's been such unanimous opposition among our members.

    Even for those people it's supposed to benefit, well, it doesn't, and the perception is, it won't. If anything, it will just simply add more regulation, and the thing that really concerns us is the implication that somehow or other, if you give a number of bureaucrats the power to intervene in the market in the way this act says they can, that's going to make the market work better.

    I can tell you, to a man our members just think that's a horrible idea. They'd rather take their chances in the market, thank you very much, than have somebody tell them, well, you have to go and work with this guy over here even though you don't think it's a good business proposition.

    The Chair: Thanks, Mr. Mackay.

    Mr. James Moore: I want to go back to the issue of the truth-in-advertising semi-provisions of the bill. This is one of those times where I'm just going to make a statement and ask if you agree.

    Even though your industry was going to self-impose and self-regulate in terms of having truth in advertising vis-à-vis the fees and taxes, isn't this completely driven by the market in this sense? Suppose a person who wants to fly goes to an air carrier of some description and feels they're getting ripped off at the point of purchase of the ticket relative to the point of advertising. Suppose that for some reason, in the eyes of the consumer the air carrier is somehow playing games with the consumer in terms of the pricing. That therefore hurts the air carrier in the free market by burning their trust capital with the consumer, which is not in the interest of the air carrier and which then means that this whole idea of regulating it is completely irrelevant because market forces and bottom lines are far more powerful than any good wishes imposed by government through regulation.

º  (1655)  

    Mr. J. Clifford Mackay: I think you've put it very well. That's our view. The reason we were moving where we were moving was because the collective wisdom of our members was, this surcharge thing has gotten out of hand and we're hearing from our customers that they don't like it, so we have to fix it.

    Mr. James Moore: To make sure you're not pointed to as the bad guy.

    Mr. J. Clifford Mackay: Exactly.

    Mr. Warren Everson: The bill that's in front of you contains a new purpose clause for the act, proposed section 5, and it says that “regulation occurs only if it is necessary to achieve economic, environmental or social outcomes that cannot be achieved sufficiently by competition and market forces”. So what on earth are these proposed changes to section 60 doing in this legislation?

    Mr. James Moore: The interlining portion of the bill, though, might have made sense--might--if one believed in that approach to regulating market forces in the Canada 3000 environment.

    As you say, this is monopoly-busting stuff. When Air Canada was being pointed at as engaging in predatory practices, etc., this could have been seen as forced interlining with Canada 3000 or with other people rather than as engaging in predatory activities in order to reduce capacity rather than flood it--

    The Chair: Thank you.

    Mr. Warren Everson: The forced interlining provision is particularly jolting because it can be used against anyone, any Canadian carrier. CanJet just announced that it would be issuing frequent flyer points, the only one of our carriers after Air Canada to do so. I don't think CanJet is envisioned as a monopoly even in their own region, but this would allow other carriers to come and say, you must allow me to sell your frequent flyer points, and if you don't allow me to do so, we'll trot off to Ottawa and their officials will set the price and will value that asset for you.

    The Chair: Mr. Mackay, I'll close it off by thanking you both, you and Mr. Everson, for coming today. I'm sorry for the delay and for the fact there was some confusion at the outset.

    I just have one question before you go. You handle and you are responsible for all the airlines in Canada.

    Mr. J. Clifford Mackay: Their members, yes.

    The Chair: You represent all your membership, and it has always been your contention that the government couldn't come to the assistance of one airline without coming to the assistance equally and fairly and equitably to all the airlines in the country. Are you still of that position?

    Mr. J. Clifford Mackay: The short answer, Mr. Chairman, is yes.

    In our view, the market forces should prevail, and if there's going to be government involvement in the marketplace, it should be as balanced and as non-competitive as possible.

    Now, that's always a difficult proposition because there's always someone who is going to get a little more advantage from some measure than someone else, but to the degree to which measures can be taken--as we've been proposing--measures that stimulate the market and allow the competitors to compete, we're all better off.

    The Chair: In fact, the raison d'être for the review of the airline industry--not on the transportation bill, but prior to us getting Bill C-26--was basically that it was government policy that all airlines in the country should be treated fairly and equitably right across the board.

    Mr. J. Clifford Mackay: And we would subscribe strongly to that and go beyond it. In the “Straight Ahead” document Mr. Collenette released recently, the policy statement of modal neutrality is made, and we subscribe very wholeheartedly to that. We just hope that in practice that policy would be implemented.

    The Chair: That policy, then, by logic would apply to any other quasi-governmental agency that owes its very existence to Transport Canada or the Government of Canada?

»  (1700)  

    Mr. J. Clifford Mackay: Again, we would hope so. Because of the nature of the business, as I'm sure you know, there are some natural monopolies like the air navigation service and the large airports. I wouldn't say the small airports have monopoly power because they don't, but large airports do, and you have to add that into your public policy framework. But that being said, allowing the market to work to the greatest degree you can is by definition a better approach.

    The Chair: Well, you bring up a good point. The navigation system cannot favour one airline over another airline by saying, we're going to charge you half of what we charge airline A since we're operating airline B and we're operating a 767 across the country. You just don't do things like that.

    Mr. J. Clifford Mackay: That's exactly right, and that's an example of where we think good public policy is necessary.

    The Chair: Therefore, you wouldn't have some other agency of the government involved in transportation entering into a deal with one airline to the exclusion of all the other airlines?

    Mr. J. Clifford Mackay: We would hope not.

    The Chair: I would like you to be more specific on that answer.

    Mr. J. Clifford Mackay: Well, there have been some governments--not the federal government as far as I know, but some provincial governments and other governments--

    The Chair: No, we're just talking about the feds: airport authorities, navigation authorities, and whatever other regulatory agencies there are out there that deal in this area. It would be very unfair for one quasi-governmental agency to assist a private enterprise and not offer that same agreement to others.

    Mr. J. Clifford Mackay: Absolutely, and earlier today in the testimony we talked about some of the propositions that are around at the moment with regard to VIA Rail. We find that frankly quite distasteful in the sense of any kind of balanced transportation policy.

    The Chair: Let's just carry it one more step. WestJet is based in Calgary, I think. It would be very unfair for the Calgary airport authority to make some agreement with WestJet in Calgary that was not competitive, not offering that same agreement they made in that airport to the other airlines.

    Mr. J. Clifford Mackay: Again, Mr. Chairman, I would say you're correct.

    We have advocated and continue to advocate that pricing in airports, just like with NAV Canada, has to be first, transparent and second, cost-based and equitable to all users. With any other system you get yourself into the swamp pretty quickly.

    The Chair: If you found that this was indeed happening, where one airline was favoured by a quasi-governmental agency that had been set up to administer navigation or airports in Canada, what would the position of your organization be?

    Mr. J. Clifford Mackay: We've been pretty clear, and it's been that this would be a practice we would not support. We think, particularly with regard to common infrastructure--and this is not new; this is a practice that's gone on worldwide in our industry for 50 years--that cost-based, equitable pricing is the only way you can do it and make sure you don't introduce distortions into the marketplace that make no sense in the long term.

    The Chair: So if the Vancouver airport authority offered Air Canada a special deal on rent or picked up some of their expenses or something, that would be unfair to the other airlines in this country.

    Mr. J. Clifford Mackay: We think so, if that was a long-term arrangement. Now, there are circumstances where particular airports, because they're out there competing and they're trying to attract more carriers and that sort of stuff, will offer a discount on the first year or something like that. Frankly, that doesn't concern us, but if it's endemic and systemic and if over time one particular carrier has a significant advantage in the pricing for that basic infrastructure over everybody else, then it starts to skew the market, and it's not where you want to go in the long term.

    The Chair: Thank you.

    That would apply even if you structured an agreement by way of a loan or something. If you gave Jets Canada a $2 million loan or something, it would be very improper.

»  (1705)  

    Mr. J. Clifford Mackay: In some parts of the world what happens is, carriers look at that...the U.S. model, for example. There are many, many large carriers in the U.S. who actually build and own their own terminals; that's the alternative they have. If they want to do that and they want to use their shareholder capital to do it, then they can go off and do it. But if they're using common infrastructure, they have to pay based on the common price.

    The Chair: So it would be improper for a government or a quasi-government agency to enter into any transaction with one of the carriers in this country to the disadvantage of others.

    Mr. J. Clifford Mackay: The answer to that in general is yes, Mr. Chairman. We want to see the market work.

    The Chair: Thank you, Mr. Mackay and Mr. Everson.

    Now we'll have the Air Line Pilots Association.

    Stan, would you take the chair, please.

    The Acting Chair (Mr. Stan Keyes): Colleagues, I'm just filling in for our chairman for a moment as we continue on Bill C-26.

    We have representatives of ALPA, the Air Line Pilots Association International, its vice-president of the Canada Board, Captain Dan Adamus, and the senior representative for Canada, Art LaFlamme.

    Gentlemen, welcome to the committee, and we look forward to hearing your presentation. I assume, Captain Adamus, you're going to be making that for us today. Please proceed at your leisure, sir.

    Capt Dan Adamus (Vice-President, Canada Board, Air Line Pilots Association International): Thanks, Mr. Chairman.

    I'm Captain Dan Adamus, and I'm here representing the Air Line Pilots Association International. I'm the vice-president of ALPA's Canada Board; as well, I am a pilot for Air Canada Jazz. With me today is Art LaFlamme, ALPA's senior representative in Canada.

    On behalf of the Air Line Pilots Association, I would like to thank the committee for this opportunity to comment on the proposed legislation.

    The Air Line Pilots Association International, or ALPA, represents more than 66,000 professional pilots who fly for 42 airlines in Canada and the United States. Both as our members' certified bargaining agent and as their representative in all areas affecting their safety and professional well-being, ALPA is the principal spokesperson for the airline pilots in North America. ALPA therefore has a significant interest in the economic health and well-being of this industry, and we welcome this opportunity to provide input into this new legislative framework for transportation in Canada.

    As a general matter, with the country's major carrier and its various subsidiaries in the midst of restructuring and bankruptcy protection, we urge extreme caution initiating legislation that could affect the airline industry. Before we know what will emerge from this process, it is simply not an appropriate time to be setting out restrictions on the redevelopment of this deeply troubled industry. We believe that the approach taken by the government ought to be one that is supportive of the efforts of the stakeholders in the restructuring process, which include our members at Air Canada Jazz, to once again make this industry an economically viable and productive one and to continue to serve the interests of all Canadians.

    ALPA has recently had the opportunity to make detailed representations to this committee, and I will not repeat the general comments here. I will simply refer the committee to the submissions we made to the committee on April 3 of this year. Our specific comments on the bill before the committee will focus on the proposed amendments that would provide carriers interlining access to Air Canada's network.

    ALPA wishes to express its strong objection to the addition of proposed section 85.2 to the Canada Transportation Act, contained in clause 28 of the bill, whereby domestic carriers could be obligated against their considered interest to enter into interlining agreements with other carriers. Despite the general language used in the amendment, it is apparent that this amendment attempts to target Air Canada's network, an important part of which is operated by the pilots at Air Canada Jazz we represent.

    We believe that as a matter of principle this targeting of a network carrier is unfair. As a practical matter, the targeting is inaccurate in that it will serve primarily as an impediment to the potential profitability of Air Canada Jazz. Under the present circumstances, imposing onerous “doing business” requirements on a network carrier in the midst of its restructuring, when we don't know in what form or even whether it will survive, simply makes no sense. We respectfully request that the committee recommend that the government delete this proposed amendment, amend it as we will suggest, or at the very least table it for future consideration once the nature of the restructured carrier becomes apparent.

    Air Canada is a network carrier. It provides critical linkages from small communities to hubs and through its transborder operations, through its international services, and by means of its allied carriers to literally thousands of destinations around the world. Not surprisingly, the infrastructure cost for a network carrier such as Air Canada is considerably higher than for a point-to-point operation, but only a network carrier will serve small centres as well as international routes. As in any industry, you do not get something for nothing.

    While we do not suggest that Air Canada be protected from competition, the fact of the matter is that the existence in the market of point-to-point carriers erodes a network carrier's ability to perform the international and smaller centre flying, which is the hallmark of the full service carrier. The proposed amendment, we suggest, is nothing short of legislatively institutionalizing this process of erosion. It would permit small, point-to-point carriers access to and the ability to take full advantage of the Air Canada network without fully participating in the attendant costs. And, as can be seen from Air Canada's current situation, it would shield these competing carriers from the entrepreneurial risk involved in establishing an airline network. In short, it would permit them to be free riders.

»  (1710)  

    An airline such as Air Canada is more than just the sum of its parts. It cannot simply be replaced with a multiplicity of new entrants, nor can the role it plays in the Canadian transportation system be meaningfully reduced to a route-by-route analysis. We believe this important perspective is lost in the formulation of this proposed amendment and with it any semblance of fairness. We believe that this perspective must be borne in mind when the government is imposing additional burdens affecting this airline's profitability.

    As the committee is of course aware, the amendment's origins are found in the undertakings made by Air Canada to the government upon its purchase of Canadian Airlines in December 1999. These undertakings have been incorporated into the current legislation.

    However, it is important to point out that the proposed amendment would have a dramatically adverse impact on the regional operations performed by Air Canada Jazz in particular. Air Canada's undertakings in 1999 required it to give access to its network to carriers that were members of the International Air Transport Association, IATA, and hence of a certain stature, reputation, and size. By contrast, the proposed amendment drops the IATA limitation and provides access for any airline that is eligible to establish the minimum regulatory requirements to operate in Canada.

    As a result, the competitive impact of this amendment will be felt primarily not by Air Canada but by Air Canada Jazz, which provides connection from smaller regional centres to larger hubs. This, we respectfully suggest, is not rational targeting by the proposed legislation. Air Canada Jazz is operated as a separate entity with its own licence. It has a distinct group of employees, who are not employed by Air Canada. However, it is part of the Air Canada network, and its fundamental viability in large part depends upon its exclusive interlining and code share arrangements with Air Canada. This basic business function of the company would be seriously undermined were its regional competitors to have access to the Air Canada network.

    We do not believe that a case has been made that would justify this government force-feeding of competition into the regional sector of the industry. Along with the rest of the industry, the regional sector of the industry has been hit by the various evils affecting our industry, such as the decline in business travel, international terrorism, the war in Iraq, and now SARS. In addition, the regional industry has been disproportionately affected by the various government-imposed surcharges, the most notorious of which is the security surcharge. Air Canada Jazz has lost $88 million in the last year and along with Air Canada is in the midst of bankruptcy protection.

    Placing the additional burden contemplated by the proposed legislation makes no policy sense at all, and for that reason the proposed amendment should be rejected. At the very least, we respectfully submit that the legislation should provide for the consideration of the interests of Air Canada Jazz. Proposed paragraph 85.2(2)(a) of the amendments provides that upon an application for interlining by a third-party carrier, the Canadian Transportation Agency is to consider the financial interests of the carrier required to interline, i.e., Air Canada. There is no similar requirement that the financial interests of a carrier currently operating under an interline agreement, i.e., Air Canada Jazz, be considered.

    While it is our view that this legislative initiative ought to be rejected in its entirety, should the committee continue in this direction, the language ought to be amended to provide for the consideration of the adverse financial impacts of a proposed interlining agreement upon carriers already performing that function.

    Our last point is, we respectfully submit, an obvious one. Air Canada along with Air Canada Jazz is in the course of bankruptcy restructuring. The fate of the airline and with it its 40,000 jobs are in the balance. It is simply impossible to know what impact the legislation would have after the restructuring. Although the future is obviously uncertain, one thing we do know is that the carrier emerging out of bankruptcy protection will be entirely different from the one we know today. Under these circumstances it would be entirely inappropriate to press ahead with legislation that may have entirely unintended consequences. We therefore respectfully submit that the proposed amendment, if not rejected completely, should be shelved until a rational assessment of this situation can take place.

    Once again, I'd like to thank the committee for the opportunity to make this representation today, and we'd be happy to answer any questions you might have.

»  (1715)  

    The Chair: Thank you very much, Captain, and welcome. I'm sorry I was not in the chair when you began.

    Mr. Gouk.

    Mr. Jim Gouk: It's just a short thing. I don't disagree with the points you've raised--and I apologize, I missed part of it; they get us in three different places at the same time, often. Tonight was my lucky night, there were only two different places.

    We've heard the things you don't like about the bill, and as I said, I don't like those things either, so you're in good stead there. I assume that in coming up with those you basically read through the entire bill. Are there any redeeming points in the bill? Are there any things in there that would actually help the airline industry, anything at all?

    Mr. Art LaFlamme (Senior Representative, Canada, Air Line Pilots Association International): Yes, Mr. Gouk. First of all, proposed section 5 in the bill is a rewriting of the objectives of the Canada Transportation Act. We are essentially in agreement with those and feel it is a good restructuring of the act in itself. I draw your attention to proposed paragraph 5(d), that “the price paid by users for transportation services better reflects the full cost of services chosen”. We feel that's very good, and when you are looking at the VIA Rail act, you might want to check its mandate versus this section of the act.

    By and large, we would agree with the comments of ATAC with respect to the good things about the act, and I'll leave our comments at that.

    Mr. Jim Gouk: So if this bill were tabled--I won't say indefinitely, but for a time until the airline industry is on its feet and we can better judge how this bill would impact--or alternatively, if this bill were withdrawn, would there be nothing there you would be sorry to see go?

    Mr. Art LaFlamme: I don't think it would have any impact on the airline industry per se. We're not as familiar with the portions that relate to the railway sector and so on. However, I believe you should construe our comments to mean this section of the bill should be tabled, not the whole bill.

    Mr. Jim Gouk: No, because don't think for a moment that this bill is going to get VIA paying its own bills.

    Mr. Art LaFlamme: No, we weren't naive enough to think that.

    The Chair: Thank you, Mr. Gouk.

    Mr. Keyes.

    Mr. Stan Keyes: I'll just speak briefly to thank the witnesses, Mr. Chairman, because not only did they come forward with an extremely well-thought-out rationalization of the implications for their industry of Bill C-26, but they have also come forward with considered amendments. That's what we want to see as a committee, recommendations or suggestions from our witnesses as to how exactly they would like to amend any portion of the bill, and I want to thank them for that.

    The Chair: Mr. Gallaway.

    Mr. Roger Gallaway: There is nothing in what was just said I would disagree with.

»  (1720)  

    The Chair: There has been some discussion, Mr. LaFlamme or Mr. Adamus, about the consultative process prior to this bill being introduced. Could you shed some light on how much if any consultation was held prior to these recommendations. They're obviously not your recommendations or the airline pilots' recommendations. Were you brought into the process--or was there a process?

    Mr. Art LaFlamme: In this case, Mr. Chairman, unfortunately not. It is sometimes the case that we are not included in the stakeholder group, and we've been trying to better educate certain areas of Transport Canada in that regard. However, in that regard we were not consulted at all, nor were we offered an opportunity to make comment.

    The Chair: And were you at all consulted on the CTA panel that spent a year or two on it?

    Mr. Art LaFlamme: This predates my time with ALPA, Mr. Chairman, but it is my understanding that it was quite an open process and that ALPA did have the opportunity. However, we were not staffed or in a position to take part actively in that process.

    The Chair: And had you been involved in the consultative process, these recommendations you're making to us today would have been made through the consultative process and would maybe have affected the legislation such that it would have been different from the way it is presented. Is that a fair statement?

    Mr. Art LaFlamme: That is quite correct.

    The Chair: I thank you all.

    I very much apologize. Sometimes we're not as alert and as precise as we should be--we're accused of this a lot--but we have no control over when someone calls a vote in the House of Commons and we have to attend. So there was a delay from that and there was a bit of a delay in getting a quorum and starting.

    I thank you for sitting through the proceedings, and I hope that before we come to the final conclusion on what we're doing, we'll have the good pleasure of having you before us again. Thank you so much.

    Mr. Art LaFlamme: Thank you.