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37th PARLIAMENT, 2nd SESSION

Standing Committee on Transport

EVIDENCE

CONTENTS

Monday, May 12, 2003

1535

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

Mr. Randy Williams (President and Chief Executive Officer, Tourism Industry Association of Canada)

The Chair

Mr. Randy Williams

The Chair

Mr. Randy Williams

The Chair

Mr. Randy Williams

The Chair

Mr. Randy Williams

1540

The Chair

Ms. Jennifer Demers (Director, Government Relations, Tourism Industry Association of Canada)

The Chair

Ms. Jennifer Demers

The Chair

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

1545

Mr. Randy Williams

Mr. Jim Gouk

Mr. Randy Williams

Mr. Jim Gouk

1550

Mr. Randy Williams

Mr. Jim Gouk

Mr. Randy Williams

The Chair

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

Ms. Jennifer Demers

1555

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

1600

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

Mr. Randy Williams

Mr. Roger Gallaway

The Chair

Mr. Joe Fontana (London North Centre)

The Chair

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

1605

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

1610

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

Mr. Joe Fontana

Mr. Randy Williams

1615

Ms. Jennifer Demers

Mr. Joe Fontana

The Chair

Mr. Randy Williams

The Chair

Mr. John Cannis (Scarborough Centre, Lib.)

1620

Mr. Randy Williams

1625

The Chair

Mr. Reg Alcock (Winnipeg South)

Mr. Randy Williams

Mr. Reg Alcock

The Chair

Mr. Jim Gouk

Mr. Randy Williams

Mr. Jim Gouk

Mr. Randy Williams

Mr. Jim Gouk

Mr. Randy Williams

Mr. Jim Gouk

Mr. Randy Williams

Mr. Jim Gouk

Mr. Randy Williams

1630

Mr. Jim Gouk

Mr. Randy Williams

Mr. Jim Gouk

Mr. Randy Williams

Mr. Jim Gouk

Mr. Reg Alcock

Mr. Jim Gouk

Mr. Randy Williams

Mr. Jim Gouk

Mr. Randy Williams

Mr. Jim Gouk

Mr. Reg Alcock

Mr. Jim Gouk

The Chair

Mr. Jim Gouk

The Chair

Mr. Jim Gouk

The Chair

Mr. Randy Williams

The Chair

Mr. Randy Williams

The Chair

Mr. Randy Williams

The Chair

Mr. Randy Williams

The Chair

1640

Mr. Bill Rowat (President, Railway Association of Canada)

The Chair

Mr. Bill Rowat

The Chair

Mr. Bill Rowat

The Chair

Mr. Bill Rowat

The Chair

Mr. Bill Rowat

The Chair

Mr. Bill Rowat

The Chair

Mr. Bill Rowat

1645

Mr. Mario Brault (President, Genesee Rail One, Railway Association of Canada)

1650

Mr. Gord Peters (President, Cando Contracting Ltd.; Railway Association of Canada)

1655

Mr. Bill Rowat

The Chair

Mr. Bill Rowat

1700

The Chair

Mr. Bill Rowat

The Chair

Mr. Bill Rowat

1705

1710

The Chair

Mr. Jim Gouk

Mr. Bill Rowat

Mr. Jim Gouk

Mr. Bill Rowat

Mr. Jim Gouk

Mr. Bill Rowat

Mr. Jim Gouk

Mr. Bill Rowat

Mr. Jim Gouk

Mr. Bill Rowat

Mr. Jim Gouk

Mr. Bill Rowat

Mr. Jim Gouk

Mr. Bill Rowat

Mr. Jim Gouk

1715

Mr. Bill Rowat

Mr. Jim Gouk

Mr. Bill Rowat

Mr. Jim Gouk

The Chair

Mr. Reg Alcock

Mr. Gord Peters

Mr. Reg Alcock

Mr. Gord Peters

Mr. Reg Alcock

Mr. Gord Peters

Mr. Reg Alcock

Mr. Bill Rowat

Mr. Reg Alcock

Mr. Gord Peters

Mr. Bill Rowat

Mr. Reg Alcock

1720

Mr. Bill Rowat

Mr. Gord Peters

Mr. Reg Alcock

Mr. Bill Rowat

The Chair

Mr. Bill Rowat

Mr. Reg Alcock

The Chair

Mr. Reg Alcock

Mr. Bill Rowat

Mr. Reg Alcock

Mr. Bill Rowat

Mr. Reg Alcock

Mr. Bill Rowat

1725

Mr. Reg Alcock

Mr. Gord Peters

Mr. Reg Alcock

Mr. Bill Rowat

Mr. Reg Alcock

Mr. Bill Rowat

Mr. Reg Alcock

Mr. Bill Rowat

Mr. Reg Alcock

1730

The Chair

Mr. John Cannis

Mr. Bill Rowat

The Chair

1735

Mr. Bill Rowat

The Chair

Mr. Reg Alcock

Mr. Bill Rowat

The Chair

Mr. Reg Alcock

The Chair

Mr. John Cannis

Mr. Bill Rowat

Mr. John Cannis

Mr. Bill Rowat

1740

Mr. John Cannis

The Chair

Mr. Roger Gallaway

The Chair

The Clerk of the Committee

Mr. Joe Fontana

Mr. Roger Gallaway

The Clerk

Mr. Roger Gallaway

The Chair

Mr. Roger Gallaway

The Clerk

Mr. Roger Gallaway

The Chair

Mr. Roger Gallaway

The Chair

Ms. Liza Frulla (Verdun—Saint-Henri—Saint-Paul—Pointe Saint-Charles, Lib.)

Mr. Bill Rowat

Ms. Liza Frulla

Mr. Bill Rowat

1745

Ms. Liza Frulla

The Chair

CANADA

Standing Committee on Transport

NUMBER 027

2nd SESSION

37th PARLIAMENT

EVIDENCE

Monday, May 12, 2003

[Recorded by Electronic Apparatus]

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[English]

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

Today we have as our witnesses the Tourism Industry of Canada and the Railway Association of Canada.

Mr. Williams, welcome. This is not the first time you've been here, sir.

Mr. Randy Williams (President and Chief Executive Officer, Tourism Industry Association of Canada): No, it isn't, and it won't be the last either.

The Chair: That's good to hear. You've brought Ms. Demers.

Mr. Randy Williams: Yes. She is our director of government relations and public affairs.

The Chair: Welcome, Ms. Demers. I want you to feel free to enter the discussions at any time.

We have to welcome back our vice-chair, who has been under the weather for the last couple or three weeks. When he decided to take the medication I recommended, he started to get better.

Monday is sometimes a difficult day to get members of Parliament activated, and the only salvation, Mr. Williams, is that everything we do will be recorded in a transcript, and hopefully the other members of the committee who are not present with us today will take the time and read the transcripts as they are presented.

The normal practice is for you to make some introductory remarks, and there will be questions, I'm sure, from our colleagues. I'd like to then be able to talk to you a little while about tourism and how we can get something moving. I think that's why you're here, isn't it?

Mr. Randy Williams: Exactly.

The Chair: So please begin.

Mr. Randy Williams: Thank you, Mr. Chair and other panellists.

It's a pleasure to speak to you again. As you know, I've addressed the committee before, most recently during its examination of the viability of the airline industry in Canada. I must say, our industry was very heartened by your report on those hearings, and our fingers are crossed that the government will act on your recommendations.

The Chair: Any move by you to bring pressure on those decision-makers would be very much appreciated by the committee.

Mr. Randy Williams: We're trying the best we can to do that. We were attending Mr. Rock's reception in Toronto on Friday, and we've certainly been doing a number of activities. Anything you can do as well to speak to your colleagues about listening to the committee would be appreciated. It is definitely needed. Your recommendations were right on the mark, and we appreciated that you heard us and other witnesses in making those very strong recommendations.

We also appreciate the opportunity to present the Canadian tourism views at this time on Bill C-26, the proposed Transportation Amendment Act. I thank the committee for inviting me to appear today. I also want to make a few comments about “Straight Ahead--A Vision for Transportation In Canada”. After all, C-26 was framed as a concrete step towards fulfilling a number of commitments the government made in that document, as indeed it appears to do.

I must register the Tourism Industry Association of Canada's disappointment with “Straight Ahead”. Overall, we believe the government missed some important opportunities in it to address Canada's transportation challenges head on. It maintains instead that federal transportation policy is moving in the right direction and simply requires some fine tuning. More specifically, “Straight Ahead” deals with the various transportation modes largely in isolation from one another, a kind of silo effect. Sure, it gives the nod to intermodality, but it fails to propose convincing measures to link the different modes--air, train, light rail transit, highway, marine--to form an integrated, multimodal passenger transportation system. From a tourism perspective, we need leadership and vision that promote the seamless transportation of people in Canada.

Having got that on the record, I turn now to C-26 itself. It's a pretty hefty bill, and I just have a few minutes, so I will limit my comments to several of its key provisions. I will focus on what we see as some of its strong points and a couple of areas where there is clearly room for improvement.

First, I want to point out that TIAC supports the bill's provisions confirming VIA Rail's mandate in legislation. The corporation has been operating without its own act of Parliament since 1977, and this has posed several challenges. In the past VIA has been criticized for ongoing changes to what was seen as its mandate. Now it can focus on managing and providing a safe and efficient passenger rail service in Canada while maintaining its corporate structure and operations.

We are also pleased with several other rail provisions we feel could potentially be good for tourism, specifically the change to the way companies can dispose of railway lines, spurs, and sidings that are no longer required for freight service, making them available to urban transit authorities without lengthening the discontinuance process, and measures to ensure the continuity of existing public passenger service agreements when railway lines are sold or transferred.

We are also pleased that the bill deals with the authority to approve the construction or alteration of international bridges and tunnels. We see its provisions in this area, which we hope will lead to an efficient and speedy process, as recognition of the growing importance of border infrastructure. Transportation infrastructure also remains an important priority for Canada's tourism industry.

As for the air transportation provisions of Bill C-26, TIAC supports the bill's consumer focus, including new rules stipulating that airlines must include the total price of air travel, including all airline-generated surcharges, in their price advertisements; new rules prohibiting carriers from advertising products they do not actually sell, for example, quoting one-way prices when only return tickets are available; and the new requirements that flight terms and conditions be posted on Internet sites used to sell air travel.

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The Canadian Transportation Agency will also have the power on its own initiative to investigate unreasonable or discriminatory terms and conditions for travel on domestic air services.

We believe these measures, particularly those targeting price transparency, will help improve communications between airlines and consumers, and thus reduce deterrents to air travel.

TIAC also supports the bill's transportation data reporting and collection provisions. The availability of transportation information is essential, not only for policy development purposes, but for the business development of all transportation stakeholders. TIAC recommended in its Flight Plan for Tourism! report earlier this year that the government enact a policy to collect required aviation data, as predetermined by air travel stakeholders, in a timely and cost-efficient manner. We would therefore propose amending the bill's provisions regarding data collection to ensure that the data is released in a timely manner.

We are also concerned that Bill C-26 signals a move towards re-regulation of the transportation sector, particularly the airline industry. The new review process it proposes for transportation merger proposals is a case in point. It is unclear to TIAC why a requirement is being introduced that mirrors the Competition Bureau's mandate. We have been told by Transport Canada officials that the new review process does not confer any new powers but will operate in parallel with the Competition Bureau.

My question is this: Why do we need to establish another level of bureaucracy and another layer of duplication? Simply put, the new merger review process constitutes overkill. Perhaps the government believes most transportation mergers are about unfairly squeezing market share and abusing market power. I think it should be reminded that in many cases mergers are part of normal business conditions, a means of achieving greater efficiencies and improving productivity.

Honourable members of the committee, thank you very much for allowing me to present to you today on Bill C-26.

The Chair: Thank you, Mr. Williams.

Ms. Demers, would you like to add something to that?

Ms. Jennifer Demers (Director, Government Relations, Tourism Industry Association of Canada): No. I think Mr. Williams covered it sufficiently.

The Chair: You're sure he covered everything, did he?

Ms. Jennifer Demers: Yes, he did.

The Chair: Mr. Gouk.

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

I'm surprised and a little alarmed that you have voiced such strong support for VIA Rail, coming from the tourism sector.

I personally believe—and I'm sure the next group may have something to say about it as well—from my perspective that rail in this country is primarily, in terms of viability, freight, commuter, and tourism. Those are the functions, with exceptions. There is little justification as a regular passenger system, other than, as I say, in the commuter sense.

From the tourism point of view, VIA Rail used to operate the Rocky Mountaineer in British Columbia; it was not very successful, but they ran it nonetheless. They sold it off in 1989 and a private sector organization built that into a very great company that does wonders not only for themselves but for the whole tourism sector in British Columbia, in terms of Kamloops, Banff, Jasper, and cruise packages. They've raised that from a capacity of about 4,500 people a year to over 70,000. It's high end, so it brings a lot of tourists in from Europe and Asia who spend a lot of money in the tourism sector in that region of the country.

Entrenchment of VIA only serves to undermine that. The minister has openly talked of, first, taking the move that's in Bill C-26; secondly, putting VIA back on the southern route in direct competition with the Rocky Mountaineer. I wonder why, as somebody representing the tourism sector, you would support those kinds of activities.

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Mr. Randy Williams: We support the activities of VIA Rail. It provides a good service in Canada, obviously a valued service in Canada. We also support tourism competition, so we wouldn't want to advocate a monopoly situation anywhere.

So regarding competition, obviously our case has been made before this committee and other committees that competition, we feel, is good, and where it makes sense and is sustainable, obviously we would like to see as many services as possible provided for tourism.

Mr. Jim Gouk: I'm quite open to competition in British Columbia. The more people who go in there and bring better service, the better. But I question how the tourism sector can say there's value from VIA Rail going into competition with the private sector subsidized by the taxpayer in the amounts of $500,000 a day; that's your subsidy from the taxpayer. How in hell is the private sector supposed to compete with somebody who gets that kind of incredible subsidy?

Further, in the case of VIA in British Columbia, we have a train that you get on and you go straight through. You don't stop in Banff, unless you only take it there, but in terms of going from Alberta to British Columbia, which is the route of the Rocky Mountaineer, you just drive right through, and there is no tourism spinoff for those regions at all. And in terms of value, of the three modes of transportation, it is the most expensive way to get from Edmonton to Vancouver—it currently starts from Edmonton; it is 37% higher than the airline, 16 times longer than the airlines. It goes through the Rockies at night, so it's not even to get a good view of the Rockies, and it's the least environmentally effective method of travel per passenger mile of travel.

So why exactly are you in support? By all means, I don't say we shouldn't have competition, but it should be honest competition, not taxpayer-subsidized competition. So why would you support VIA under those circumstances?

Mr. Randy Williams: It's a difficult question, but I would suggest... I was just on the Rocky Mountaineer, actually, a couple of months ago and enjoyed their service. It's an excellent service.

But looking at the VIA Rail annual report, which came out just in the last month or so, it has indicated in this report that its reliance on public funding has dropped I think every year. I don't have that in front of me, but every year at least for the last five years, if not longer, their reliance on public funding has become steadily less and less. So I think they're headed in the right direction. The worst thing we can do is do what they've done in Britain, for example, where they privatized the rail service before it was sustainable and now they're dealing with a mess.

I would like to see us move to a fully sustainable rail service in Canada, as I think VIA is also mandated to do and trying to get to. Let's help it get there. I agree we shouldn't be putting public moneys competing with a successful private business. I agree 100% with that. That's the position of our industry as well, but at the same time we do need rail service. It's a valuable service for tourism. It's a valuable service for travel in Canada. It's a valuable option for attracting visitors to our country. So if it needs help—and we should make sure we're doing the due diligence and make sure that public funds are being minimized. But if we're doing our job on that side, let's give them time to reach that point where it reaches a break-even point and can be privatized, possibly, in the future and be sustainable as a private organization.

Mr. Jim Gouk: In actual fact, about three years ago the minister guaranteed them stable funding for a 10-year period—that is the $500,000-a-day operational subsidy—and provided them with an additional $400 million in capital expenditure revenue, and it is openly talking now of spending $3 billion toward high-speed rail at least between Toronto and Montreal.

That is in competition with the bus lines, with the airline. Do you think it's the kind of thing that's good for our economy and good for the transportation sector to subsidize one sector of government-operated service to take business away from the private sector?

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Mr. Randy Williams: There's obviously a balance that needs to be put in place there, and obviously the airline sector, when it first started out many years ago when we had Air Canada as a publicly funded organization, needed that to get it off the ground—sorry for the pun.

There is a time when we need to set these organizations free and have them run privately, but I think in our country, with its small population and so on, we need to look at public support to get some of these things off the ground. I know there's a balance that needs to be set between the private interests versus public funding. Obviously, we're not in support of killing private business for the sake of having a perfectly run public facility. So there's that balance that must be struck. What's the right answer, I couldn't tell you.

Mr. Jim Gouk: I'll ask one last question for now, if I can. I emphasize that.

I agree there's viability in commuter rail. There are lots of private sector companies prepared to take on the Quebec-Windsor corridor, but they're not going to go into competition with a subsidized railway.

Tourism is working just fine in British Columbia and can expand, but it's hard to expand in the face of possibly having somebody come in and run a subsidized service in your place.

As for the transcontinental—because that's where they're losing their shirt—what value do you feel there is in VIA Rail operating that run? People can go cheaper by other modes, to travel across the prairies. Should the taxpayers of the entire country be funding that particular system? Without that, even VIA would be making money, but of course if they're making money there's no justification in the government running it.

What justification is there for the taxpayers of Canada to fund VIA to operate across the prairies, where other modes of transportation are available? I'm not suggesting that it be taken away from those few examples of isolated communities that need it.

Mr. Randy Williams: I think your question is very valid and on the mark. I think the challenge is that VIA Rail is a public facility that has a mandate to service communities that possibly are not profitable, and they've had that mandate for quite a while, similar to what Air Canada was burdened with for many years.

There was a public will and good that was seen in serving communities that weren't profitable. That's residual today. That still resides I think with Air Canada to some degree, even though that's been gone for a couple of years now since the troubles they've been in.

But certainly I think with VIA Rail there's still some of that residual thinking. The problem we're saying with this “Straight Ahead” document is that it needs to tackle these very questions you're asking in a multi-modal fashion. Let's look at the challenges of rail, let's look at the challenges of air, let's look at the bus, and so on. Let's take them all and see if we can say to various communities with stakeholders, what is it that will meet the quality-of-life standards we've set? And who has defined those? I don't believe they exist. And then we can say what transportation needs must be in place to meet that quality-of-life standard.

We need to go through that process, and that's why we don't like the “Straight Ahead” document. It doesn't deal with multi-modality.

The Chair: Thank you, Mr. Gouk.

Mr. Gallaway.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Mr. Williams, you made a comment I'm going to follow up on, but I first want to ask you something. We've heard from a number of witnesses from a cross-section of transportation sectors who have talked about the Canada Transportation Act review panel. They've also talked about other so-called consultations that came about by people within Transport Canada.

Did your association, TIAC, participate in any so-called consultations or reviews in the run-up to Bill C-26?

Ms. Jennifer Demers: Yes, we did. We sent in a submission to the Canada Transportation Act review panel, and we sent letters to the minister with respect to his original small blueprint document that came out I believe in 2000. We participated in Debra Ward's hearings quite extensively—she was the independent transition observer on airline restructuring. We also held our own air travel issues forum last year in which the minister, Mr. Collenette, participated, and Debra Ward did as well. We've been involved at least since I've joined the association in 2000.

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Mr. Roger Gallaway: You've made reference to your endorsement of the so-called consumer protection provisions with respect to airlines. Did you recommend that to either the review panel or in some other consultation?

Mr. Randy Williams: Yes, that was part of our submissions in the past, this notion about making sure the advertising reflects the price the consumer will pay, so there's no sticker shock once they get the final price.

Mr. Roger Gallaway: I wrote down what you said about the surcharges that are airline generated. Can you tell me what surcharges are airline generated?

Mr. Randy Williams: Surcharges that are airline generated would be a fuel surcharge.

Mr. Roger Gallaway: All right. Could you tell me then, in listing these, if indeed this were a requirement of airlines, what additional charges are government generated?

Mr. Randy Williams: Government-generated surcharges would be the ATSC, the air traveller security charge, or Nav Canada fees.

Mr. Roger Gallaway: What about airport improvement fees?

Mr. Randy Williams: Airport improvement fees are generated by the airports themselves.

Mr. Roger Gallaway: As a direct result of government.

Mr. Randy Williams: As a direct result of their--

Mr. Roger Gallaway: What about GST on those charges?

Mr. Randy Williams: The GST on the airport improvement fees are government generated.

Mr. Roger Gallaway: The Nav Canada fee and the ATFC.

Mr. Randy Williams: They are government generated.

Mr. Roger Gallaway: So what we're sitting at is essentially four government-generated fees--the AIF, the Nav Canada, the ATSC, and the GST--and one fuel surcharge in the case of certain airlines. I'm not certain they all charge it.

Do you think it's fair then to impose that upon airlines? What about the government's obligation to advertise the fees it has generated? Why throw it on the industry? It's my question to you.

Mr. Randy Williams: Maybe we're trying to take a leadership role here in obviously suggesting that the industry must present a price. There's also insurance, and they have cancellation fees. They also have now—Air Canada has an Aeroplan booking fee if you do it—a $25 booking fee. Those are also airline fees.

Mr. Roger Gallaway: Aeroplan, with all due respect, is a contractual matter between an individual and Air Canada. I'm talking about somebody who's just buying a ticket.

Why should the airline bear the costs, notwithstanding your view that you're taking a leadership—

Mr. Randy Williams: Our industry should take a leadership role in presenting—

Mr. Roger Gallaway: What I'm trying to flesh out is that the airlines for whom you say you're taking a leadership role are totally opposed to it. In fact, they're wondering—and you've answered the question—where did this come from?

Did you talk to the airline industry with respect to this?

Mr. Randy Williams: Yes. The airlines are members of ours, so they are contributing to the input we get.

Mr. Roger Gallaway: If that is the case, why would they come here then? I'm trying to get some understanding of this. Why would they come here and say the opposite of what you've just said?

Mr. Randy Williams: They only represent a segment. When we make a position, we look at what's going to benefit travel and tourism as a full sector. They obviously look at it from an airline sector perspective only.

Mr. Roger Gallaway: How do you think all of this so-called transparency is going to help the airline traveller?

Mr. Randy Williams: We believe the airline traveller will be better served by knowing that what they'll actually be paying for a ticket, once they see it advertised and then make the decision to buy, is a price that should be close to what they actually get a bill for.

If it isn't, then it heightens the frustration. It lessens price integrity. Those things, from a consumer's point of view, we think, are damaging. Anything that damages consumer confidence or price integrity, or increases their anxiety level or frustration level, we don't feel is good for the travel community as a whole.

Mr. Roger Gallaway: Couldn't you apply the same rationale to the purchase of any goods where there are a number of taxes? If you buy a tire in Ontario, there's PST, there's GST, there's a disposal surcharge--all of those things. I think that's true also with respect to air conditioning on cars. There are federal taxes, GST, all kinds of them.

How far do you take this thing, particularly when they're government imposed? We're talking about the majority of these charges being government imposed.

I get back to the question, why do you want to say this is a problem within the industry itself? This sounds to me like a problem within governance. Why shouldn't the government advertise at airports, “Here are the charges we're extracting from you or that you're paying”?

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Mr. Randy Williams: In the requirements here, we're talking about detailing the costs, so that's the way to do it. Either include it in the price or at least detail it when you're quoting the price; show the breakdown of the additional costs you'll be paying.

But I don't know why it would make sense to argue the fact that you'd want to have various prices, and I don't understand the reverse of the argument.

Mr. Roger Gallaway: I'll give you an example that was given to us. There are a number of charges that are imposed upon airlines if they're landing in L.A. The legislation would require that they post an up-to-date exchange rate. But as you know, the Canadian dollar is a little volatile these days, so the exchange rate on the posting could change between the date of purchase and some other date.

There are a number of other charges with respect to Nav Canada, so if you're flying over this airport, there's an additional charge, but if you're not going into that.... It becomes an administrative and technical nightmare for them. So why would you impose that on them?

Mr. Randy Williams: What we are trying to do is say that these fees should be included in the price, and if they can't be—

Mr. Roger Gallaway: I see.

Mr. Randy Williams: It's gone crazy with the amount of additional fees that are added to the price of the ticket. What we are suggesting is that, where possible, all prices should part of the base ticket price. Where they cannot be, they at least should be shown. When you are advertising the price of a ticket it should be shown as something you have to pay. There's no option here as to whether you pay it or not. You have to pay it, so it should be included in the price of the ticket.

Mr. Roger Gallaway: I have one final question. Then you would also argue that GST should be included in the ticket price?

Mr. Randy Williams: It needs to be shown, and I think GST is seen by all Canadians as something they expect to be added to the price anyway. It goes across all product lines.

Mr. Roger Gallaway: What about tourists who come from out of the country, particularly from the U.S.?

Mr. Randy Williams: Yes. GST is shown at the quote of all prices.

Mr. Roger Gallaway: Thank you.

The Chair: Thank you, Mr. Gallaway.

Now we have Mr. Fontana.

Mr. Joe Fontana (London North Centre): I want to pick up on—

The Chair: I'm sure, Mr. Fontana, that in your questioning you will certainly want to talk about the committee you chair on the national highway program.

Mr. Joe Fontana: Of course. I'll get to that part.

I have a couple of comments with regard to what Roger was saying in terms of the price. If in fact tourism is all about attracting people and not causing any frustration or ticket shock when they approach, then what you're saying is the price ought to be all-inclusive and therefore not create pages and pages for the consumer to understand what in fact he is going to be paying, especially if he has a complicated routing itinerary that could include four or five places in his itinerary. Then you're talking about a ticket that's going to be five to twelve pages long for someone who is going to have to read the fine print and understand all this mumbo-jumbo airline stuff.

So I understand what you are saying is that you want a price. I show up at the airport; $300 is all I'm going to pay, so there are no surprises with security taxes, fuel taxes, and everything else. Is that what the tourism industry is talking about? That's what's good for consumers. Consumers don't like surprises. So what's the matter with advertising that this is the price you are going to pay all-inclusive of taxes? That's what I thought you said, price all-inclusive.

Mr. Randy Williams: No.

Mr. Joe Fontana: That's what you said.

Mr. Randy Williams: No, what I have in my presentation here is that the advertised price should be showing all the costs the consumer will pay when they go and buy the ticket.

Mr. Joe Fontana: Isn't that what I just said, all the costs the consumer will pay?

Mr. Randy Williams: But you are saying that the price be inclusive of all the costs, so if the ticket is $200 and that includes the ATSC, the taxes... We are not suggesting that the price has to include the ATSC, the GST, the airport improvement tax. We are not saying it has to. What we are saying is that the price can show the breakdown, but you shouldn't be able to advertise a $99 ticket one way, for example, when you have to buy two-way ticket, which has been happening. I think we all agree with that—

º (1605)

Mr. Joe Fontana: Right.

You are answering my question; forget about what Roger was asking for a second—

Mr. Randy Williams: Yes.

Mr. Joe Fontana: —because you have me confused. You say all-inclusive of costs. Now you are saying it could, but you have a list, and therefore you can't advertise a $99 fare unless you do a number of things. Now I'm confused as to what you mean exactly by all-inclusive.

Mr. Randy Williams: What we are asking for is that when you advertise the price of an airline ticket you show all the costs that have to be paid as part of that ticket purchase. In other words, don't put in the paper that the cost of the ticket is $99 and that's it. When the customer goes to buy the airplane ticket they expect to pay $99 and they find out it's $199. They should advertise it at $99 plus whatever other mandatory costs should be shown as additional to that. If you can't include it in for whatever reason, then at least show the price clearly in the advertisement so that there is no sticker shock.

Mr. Joe Fontana: So what you are saying is you can't advertise $99 unless you are prepared to show the $100 worth of charges that—

Mr. Randy Williams: That are added to the $99.

Mr. Joe Fontana: Or you should be able to advertise $199 and say everything is included?

Mr. Randy Williams: Correct.

Mr. Joe Fontana: You either do one or the other.

Mr. Randy Williams: That's right.

Mr. Joe Fontana: Some of the charges are government charges, right? Most of them are. Okay.

Can I go on, because we can get hung up on this one?

I know where Jimmy comes from with regard to rail. Unfortunately, I guess this is a philosophical problem that exists. The fact is there isn't a passenger rail service in the world that pays for itself. We know that. There isn't one in the world that pays for itself, especially if you want to essentially have competition, choice, and service to communities. At the end of the day, of course, it would be nice.

Along the spur, there was Rocky Mountaineer. I've known them longer than Jimmy has known them. They had a great deal from VIA Rail when Mazankowski sold them Rocky Mountaineer. They built an absolutely fantastic business.

At the end of the day, that's good. The more private enterprise that comes to the table is good. At the end of the day, someone has to be responsible for providing national passenger rail service. That's what VIA is all about.

Therefore, you think about the consumers and about competition. In the absence of any competition, I haven't seen a lot of people come to the table saying they want to run a national passenger rail service. I've been here 14 years. I don't know how long you've been here, but I don't see them knocking on my door saying they're prepared to run a train service.

At the end of the day, VIA is doing an absolutely fantastic job. We've brought them down from $500 million worth of subsidy to $100 million.

Do you know what? At the end of the day, their ridership is going up, and we have a choice. It's a philosophical debate, but it's a good one.

Can I ask you this, though? I'm a little puzzled. You talked about re-regulation, especially as it relates to mergers. Again, whose interests are we trying to protect? There is the private sector, the consumer, who hopefully is us, and competition.

What do you have in terms of competition? How do we ensure that the consumer is protected and there is competition, unless you have some mechanism to ensure that mergers will not cause a dislocation to your marketplace?

Mr. Randy Williams: We've said in our presentation that the Competition Bureau is here to evaluate whether a merger is going to be harmful for the public good or for consumer choice. We don't know why, from what we can see and in our discussions with Transport Canada, Bill C-26 calls for another merger process to be evaluated by Transport Canada.

Mr. Joe Fontana: You would want to be convinced within CTA that the Competition Bureau, or whatever other mechanism, was there to ensure that the consumer was protected.

Mr. Randy Williams: That would satisfy us.

The other thing about re-regulation is how they've handled interlining and looking at forcing companies to interline. We feel that the marketplace should dictate whether an interline agreement between two commercial businesses happens. The government should not be involved in forcing interline agreements.

º (1610)

Mr. Joe Fontana: There are two other modes, airlines and cars. What is your view with regard to airlines?

As we look down the road, two, three, or four years from now, God knows what's going to happen with Air Canada, who's going to get serviced, and so on and so forth. If we want to bring tourists, because that's your department, I want to make sure that my constituents and Canadians get the air service they require. At the end of the day, I think people want price and service.

Do you know what? I don't think they care whether it's red and white, or red, white, and blue, or red, white, and green. I don't think saying you have a national air carrier matters to the average person who wants to pay, not get overcharged, and get service.

What's your view with regard to opening up the Canadian market on a reciprocal basis with that of the Americans in North America?

Secondly, as you know, people will continue to want to drive. Although we'll do everything possible to get them on a train, a plane, or a boat, the fact is that Canadians love their cars. Therefore, the national highway infrastructure program, to which certain moneys have been dedicated, is also key for us to be able to move people and goods through our country.

What do you think the CTA has to say about highways and what we should be doing with regard to our highway infrastructure?

I think you talked a little about the border, but I'm talking about across the country, and specifically about what our new airline policy should be.

Mr. Randy Williams: We've been on record in front of this committee before, saying that reciprocal cabotage is something we would support, although it doesn't exist anywhere. Maybe the EU has it, or a form of it, I suppose. Reciprocal cabotage is something we would support.

The reciprocity, I guess, is something that Minister Collenette is saying doesn't exist, or the same sense of wanting to do that doesn't exist, south of the border with Canada. There's a willingness on Canada's part to do it. I think Air Canada is open to it. We feel that Air Canada would compete very well in other jurisdictions. We certainly would look forward to a reciprocal cabotage arrangement.

One of the things I said in a previous committee meeting was that our association would support perhaps blocking out markets. We talked about cherry picking. We had suggested that the government should look at blocking out our eight key markets, like a Toronto-Vancouver market, in a reciprocal arrangement to open up a Saskatoon-Calgary market or to look at a Saskatoon-Winnipeg route system with American carriers able to service them.

Mr. Joe Fontana: Why? If there is competition and you want to make sure people can get the best price, what's wrong?

You spent half an hour talking about how great competition is and how great it is to make sure people can get served with a good price. What's wrong with opening up the system in this North American market to VIA, Air Canada, WestJet, or any new entrants that might want to come and do transborder routes across the country? Who cares? At the end of the day, wouldn't it be better to attract tourists with low prices between the north and the south, no matter how you get them here?

Mr. Randy Williams: I think in a broad brush stroke it's fine to say that. I just don't know. Our industry has dealt with this now for a few years. We've talked about this back and forth. We're not sure if we should open up our doors.

Should our country be the first country in the world to open up our doors, carte blanche, to anyone who wants to fly here and transport Canadians from one Canadian port to another Canadian destination? We're not sure whether or not that would actually, at the end of the day, kill our industry.

Mr. Joe Fontana: Kill what industry? The airline industry or the tourist industry?

Mr. Randy Williams: It could kill our airline industry.

Mr. Joe Fontana: I thought you would speak for tourists.

Mr. Randy Williams: We do.

Mr. Joe Fontana: Could you comment on highways?

Mr. Randy Williams: We're pleased with the $600 million, I believe, that was provided for highway infrastructure. Some of the announcements that have been made, mostly for British Columbia, the twinning through the prairies, and particularly Saskatchewan, are good news for tourism.

We obviously look at other enhancements to the highway infrastructure in Canada, but those are good first steps. There's still a big need for enhanced highway infrastructure in Canada. We need a national highway transportation system that has some coordination between provinces and the federal government that doesn't exist today.

º (1615)

Ms. Jennifer Demers: In fact, that's one of the weaknesses that we've found with this piece of legislation. The minister had an opportunity with his blueprint to address a lot of the work that this committee has done in the past, all the way back to 1997 with Mr. Alcock's report on a national highway strategy.

There were a number of different alternatives presented. This government, the minister, basically brushed everything aside and looked at everything, as Randy said, in silos. We feel that has really weakened this because that's a major component of our tourism industry. Rubber tire is huge for us.

Mr. Joe Fontana: That's what we're fixing. What the Minister can't do, hopefully the committee will do.

The Chair: Before going to Mr. Cannis, though, Ms. Demers, you've hit a soft spot here, because Mr. Alcock did the first report on the national highway program, followed up by Mr. Fontana. I think somewhere in my career I did one also.

The unfortunate part—let's just put it where it is—is that a national highway program, which is in essence the four-laning of a trans-Canada highway system across this country, with limited access and with particular emphasis on the 11 major border crossing points, has been discussed through a committee for the last several years.

I talked to Minister Rock about this the other day. He said bring your committee and tell me what's happening. I said we've been talking to you about this for the last five years.

The sad part is simply this. We need, from the federal contribution, somewhere between $525 million and $600 million a year. That really equates to 1¢ per litre of the excise tax we collect on gasoline and fuel oil. We're spending that money, as you've just said. We spent $600 million on a little piece of highway in British Columbia, some in Saskatchewan, a little bit in Quebec, and we're going to spend some money in New Brunswick. It's piecemeal. There's no grand plan, no national highway program; yet we're spending the money every year on these individual projects, without taking the need for a national highway program—knowing we're presently spending that kind of money, but putting it into some kind of focus where it becomes government policy... I think that's a sad, sad commentary on what we've been doing on this side of the table with respect to filling one of those very important tourism needs across this country.

I won't say any more on that. I guess I've said enough.

Mr. Randy Williams: Your comments are right on as far as there being no long-term strategy, provincial and federal, to develop a national highway program is concerned. Then, to further exacerbate that issue, the strategic highway infrastructure program is not done by looking at other modes of transportation, that multi-modality we've been talking about.

The Chair: We'll go to Mr. Cannis, then Mr. Alcock, and then Mr. Gouk to wrap it up.

Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Mr. Chairman.

I'm glad Mr. Fontana touched upon two or three points I wanted to make, because I believe your mandate and our effort is, number one, to promote the country and attract tourism from outside the country, and also to encourage Canadians to travel within our country. But there seem to be many, many obstacles.

On the $99 ticket, the two ways you've described it, I would sense as we move forward that from what Canadians have told us with respect to the GST, for example, they really want to see a one-price item—$9.25 at the shelf, $9.25 at the cash register.

Just as a comment, I'm inclined to believe they get angry when it says $99, as you said...and I didn't know; I've never seen these, and I'm surprised and do want to ask... It's probably illegal to advertise if it's not at least noted in fine print that it's a one-way ticket. To me, it's misleading advertising. Has your association ever formally filed a complaint expressing that this is misleading advertising? It is misleading advertising. So I would like you to answer that for me.

Secondly, I would suggest that if it's advertised, it should be advertised as a one-price ticket. It's $199, as Mr. Fontana said, as opposed to $99 plus, plus, plus. It's not that I'm trying to go to bat for the government, but the consumer will not complain about the airline expense of running the business, but more so, they'll say, here goes the government, and they don't see that an airport has been rebuilt, and so on.

In trying to attract tourists to Canada and to move within Canada, you talked about rail and various modes of transportation. You've probably heard of the Europass in Europe. Why can't we put something like that together? Is it difficult to do that, where a Canadian can travel from one end of the country to the other? What would be the obstacles to doing that? Is it feasible, first of all?

I'll just ask my questions and then you can answer them all.

You talked about regulation of the industry. We heard from other presenters in other committees that we're overregulated. We're just trying to find... what is it? Should we regulate or not regulate? I tend to lean with Mr. Fontana, who says, hey, let's have some competition.

I'll close with this. A friend of mine came from Toronto to Ottawa a couple of weeks ago. He paid about $300 with an airline—I think it was Tango. I paid almost double the price to come with another airline. What is the difference? Did one go 850 kilometres to the other's 400 kilometres? Why is there that difference?

I have heard from consumers out there that they want to travel, but it's cheaper to go to England, Spain, or Italy than from Toronto to Quebec City. Can you give us any comments on that?

º (1620)

Mr. Randy Williams: There were four questions there. One was, did we ever complain about the pricing? We have been working with our industry members and our industry at large to try to make sure the pricing to the consumer in the advertising was done in a fairer and obviously clearer, more transparent form, but we've had limited success there. We think this legislation will give the meat behind it and force them all to do it.

The challenge is, one says, well, we would if the other one did, because if they don't and we do, we're going to lose market share. So this legislation mobilizes everyone to do the right thing, which is why we support it.

We're not necessarily in favour of one price. These folks who run private businesses have market savvy. If they determine that it's going to be better to position the ticket at $99 and clearly show the additional costs and where they come from, and that's the best way to do that, so the price is $199 but it's clearly shown as $199, but they feel the consumers will better buy if everything is broken down, then let them do that. We would be supportive of that. But if they also feel it's better to promote it at $199, everybody is doing it, and it's all-inclusive, and it makes sense to say “all-inclusive”, as some resorts and some packages do now, then that's fine too—either way. But let's not show it at $99 without any indication that there are other costs. Even if they are in small print, it's not acceptable.

On the Europass, in my dealings with VIA Rail—maybe the committee members know better than I, but I believe VIA Rail already has a price for a Canadian to go coast to coast, and those kinds of packages are already in place. I think that exists already. I would be surprised if it didn't, but I'm pretty sure it does.

On the last question, about price integrity, you talk about different airlines themselves, Tango and the other carrier, being $300, $600, or $800. It can happen on board the same plane in some situations. In a full carrier plane, there can be somebody travelling free on Aeroplan, someone paying $3,000 in business class, and everything in between. I think I read that there are 24 different pricing structures. Conceivably, on any given plane—let's say, Air Canada—you could have 24 different prices being paid, obviously that kind of yield management, and there's a reason that was done. It is based on a yield management model.

Obviously there is evidence in the marketplace—WestJet, for example—that this yield management model did not work and isn't working, and it destroys price integrity. That's part of what Air Canada is challenged with now in changing its business model. It's a big leap to go from a yield management model to a different model altogether.

I hope that helps answer your four questions.

º (1625)

The Chair: Thank you, Mr. Cannis.

Mr. Alcock.

Mr. Reg Alcock (Winnipeg South): Thank you, Mr. Chairman.

As tempted as I am to follow up with your obviously very well-read companion, Mr. Williams, I just want to follow up on the comment you made about interlining.

Could you define for me what you mean by interlining?

Mr. Randy Williams: Interlining is the forcing of the two different carriers to handle each other's baggage and the flow-through of baggage, and the ticket, and so on and so forth, not code sharing.

Mr. Reg Alcock: Okay, that's fine.

The Chair: Thank you.

Mr. Gouk.

Mr. Jim Gouk: Mr. Williams, do you think the federal government should establish stagecoach lines across the country and that the taxpayer should pick up any deficit they get in operating that?

Mr. Randy Williams: No, I do not.

Mr. Jim Gouk: How about paddlewheel ships up and down the rivers, and pick up the deficit on that?

Mr. Randy Williams: No, I do not, unless there is a real public good being served there.

Mr. Jim Gouk: I think it's a Liberal policy, because Joey over there went out of his way to point out that passenger rail doesn't pay, yet everyone seems to feel that the taxpayers of this country should pick up the tab for running a passenger rail system across the country where it isn't viable.

Where it's viable, the private sector will run it. Where it's not viable, why are we running it?

From a consumer point of view, I agree. You don't want to see something advertised for $99 and find out it's $200. On the other hand, you represent...in the tourism sector, at least, it's tied in with hotels, with restaurants, with the cruise ships. Hotels advertise rooms for $99.95, yet after you get there, that's plus PST, GST, room tax; the restaurants have PST, GST, gratuities; the cruse ships will say it's $595, plus, of course—and they don't add that in the price—port charges, customs charges, and various other taxes.

So I guess the question the airline industry is asking and the question we have to answer is, why are they being singled out? And in company with that, do you happen to know if American Airlines, which, given our close proximity to the border, are often competition for Canadian air carriers, are covered by the same requirement to put every cost they encounter—including Nav Canada fees when they come up here, various airport improvement fees, that sort of thing—in their pricing?

Mr. Randy Williams: I'm not sure what the American law is regarding truth in advertising or pricing in advertising. I can't answer that question.

Obviously, when hotels advertise their room rates and car rental companies advertise their daily rates, they clearly put in their advertising that it's plus GST and PST charges, plus taxes.

Mr. Jim Gouk: Okay. Could not the airlines then put $99.95 plus all applicable non-airline charges?

Mr. Randy Williams: You see, that's the problem. There have been so many surcharges and fees added on to airline tickets in the last 10 years that this has become a maze. It's more than just GST and PST now. It's fuel surcharges, the Nav Canada fees, the AIFs, the ATSCs. If it were just GST and PST, we wouldn't be having this discussion.

Mr. Jim Gouk: We had somebody here at our last committee meeting, the head of ATAC, who said the way the legislation is written, they are required to spell out what all of these charges are under penalty. As I believe Mr. Gallaway pointed out, sometimes they don't even know what some of these charges are because of changing rates, because, especially with smaller airlines, there are so many fees that have some variation that they have no idea exactly what they are going to be charged with.

So they could just say, it's $200 that we want, and we know it's not going to cost more than $400, so let's charge $400. And because they haven't spelled out the fees, if this act passes the way it sits right now, they are going to break the law.

So would that be a recommendation of yours, that they shouldn't have to spell out the specific charges, just the total charge?

Mr. Randy Williams: I'd find it hard to defend the fact that we would support advertising not knowing what we're selling at what price.

º (1630)

Mr. Jim Gouk: So they should itemize everything on the ticket and put all that in there?

Mr. Randy Williams: We believe if you're advertising a ticket or a product at a certain price, the price of that product should be clearly presented to the consumer. It shouldn't be a guess.

Mr. Jim Gouk: There should be a breakdown?

I mean, again—

Mr. Randy Williams: There should be a breakdown, that's right. If the company decides or if it's best for the airline industry to not show government-imposed fees, that's fine. Show it separately. But you have to show it.

Mr. Jim Gouk: The point is, why are we going to the airline industry and saying they have to provide this goddamn list that's a page and a half long when no other industry is required to do that?

Mr. Reg Alcock: One way or the other, as long as it's clear what you're going to have to pay.

Mr. Jim Gouk: Well, that's what I just finished asking, and I thought I got a different answer again.

So we don't have to itemize what those are, but we have to have the exact dollar figure. We can't just say $200 if in reality it's $197.

Mr. Randy Williams: Well, I thought I was clear. Going through the transcript it would show, I'm sure, that I said I don't think we'd be comfortable suggesting that any product be advertised to a consumer at a guessed price.

I think we want consumers to be able to know, when they're quoted a price in the newspaper or on radio, that that's the price they're going to pay. If the company feels they want to break it down in whatever medium they're using, then that's what they should be able to do. But it should be broken down so that the consumer doesn't get sticker shock when they actually make the decision to buy.

Mr. Jim Gouk: If someone, instead of selling you a ticket at $99.95, says, okay, there are about $100 worth of add-ons through other taxes... if he just says, look it's $200—not it's sort of $200; it is $200—and that includes all your taxes, and it doesn't give a breakdown of what all those taxes are, are you okay with that?

Mr. Randy Williams: That's fine. They've concluded the total price, and they can say “inclusive of all” if they choose to do that.

Mr. Jim Gouk: I think we've had so many variations on it that there was some confusion.

Mr. Reg Alcock: Stagecoach tickets would be different.

Mr. Jim Gouk: Well, I mean, the government would probably just pick up the whole thing, Reg.

The Chair: Are you through, Mr. Gouk? You have a couple of minutes.

Mr. Jim Gouk: Yes, unless Joey comes back and has something to add.

The Chair: You're talking about Fontana, not about Joey in the chair?

Mr. Jim Gouk: No, I was talking about Joey over there.

The Chair: Okay.

Thank you, Ms. Demers and Mr. Williams. I want you to know you survived very well.

Mr. Randy Williams: Thank you very much.

The Chair: This committee is, I think, getting notorious. Everybody on the committee has been in transportation for about eight or ten years, except that we've asked Ms. Frulla to come in because we needed some new ideas and new thinking.

Mr. Randy Williams: I found the attendance a little bit lower than usual today, but they were certainly a feisty group.

The Chair: Thank you.

I wanted to ask some questions, but the next group of witnesses is here and we want to get on.

I'd like to talk to you in the next day or so about a particular tourism issue that's reciprocal between one of the U.S. states and Canada that they're very interested in pursuing. I wanted to talk about that.

Mr. Randy Williams: I'll be in Europe, but Jennifer would be pleased to meet with you.

The Chair: Are you travelling with CATSA tomorrow?

Mr. Randy Williams: No, I'm off to Portugal for the world travel and tourism summit.

The Chair: Thank you very much.

I'm told we're going to suspend for two minutes. I don't want anybody to leave the room. Come right back.

º (1633)

º (1639)

The Chair: I'll bring the meeting back to order. We are a few minutes late.

The next group of witnesses, ladies and gentlemen, is the Railway Association of Canada, with Mr. Rowat as the president. Mr. Brault is the president of Genesee Rail One; Mr. Peters, the president of Cando Contracting Limited.

I think it would be helpful, Mr. Rowat, if you would just start with the presentation you are going to be making. Mr. Rowat, would you explain who the Railway Association of Canada is and whom you represent?

º (1640)

Mr. Bill Rowat (President, Railway Association of Canada): Our first slide will deal directly with that, just about.

The Chair: They need a few minutes.

Mr. Bill Rowat: As to who we are, the Railway Association of Canada now represents 60 railways across Canada; that is virtually the whole railway industry in Canada.

We represent not only the class one railways, CN and CPR, but over 40 short lines across Canada as well, many of which have come into existence over the last five years as a result of the policy change in 1996. We also represent the passenger sector, primarily the commuters: AMT in Montreal, GO in Toronto, West Coast Express in Vancouver, and most recently, OC Transpo here in Ottawa. We have the intercity member, VIA Rail, and beyond that we have eight tourist members. It's actually 15, but a number of them are freight operations running ancillary tourist operations; there are eight pure freight operations running in the organization.

So 60 members, representing virtually everything that runs on steel in Canada, form the association.

The Chair: Is the voting equally weighted, or does class one have extra-special rights at your directors' meetings and so on?

Mr. Bill Rowat: The class one railways account for half of our board of directors, so it's half and half: four represent the non-class one railways and four represent the class one members. Then there is me, the ninth director.

The Chair: Mr. Brault is here. Is Genesee Rail one of the short lines?

Mr. Bill Rowat: I should mention that the focus we wanted to give in our presentation today was very much on the short-line freight sector. CN and CPR, I understand, will probably be witnessing later on—each of them—themselves. We really wanted to put the focus today very much on short-line freight. That's why I have my two colleagues here.

I should mention that Mr. Brault is the chairman of our short-line committee, and, as I mentioned, there are 40 short lines in Canada that belong to the Railway Association.

The Chair: And Mr. Peters would be representing...

Mr. Bill Rowat: Mr. Peters is another one of our short-line members from western Canada, representing Cando Contracting.

The Chair: Okay. It's always nice to hear the evidence knowing who's who.

Mr. Bill Rowat: Absolutely.

The Chair: Thank you.

Mr. Bill Rowat: If you move to page 2 in the hard-copy deck you have in front of you, I'll deal with the first three or four slides. Then each of my colleagues will deal with three or four slides, and I'll come back to do the final three or four slides. We've divvied it up in that way.

The CTA, in 1996, was a success. For freight, it was a deregulation success story. The class one's rates have declined. They're the lowest in the world. CN and CPR, as most of you are aware, have the best operating ratios in North America and are considered to be the leaders in class one railroading among the six big railroads in North America.

Labour productivity is up significantly since 1992. Freight subsidies have been virtually eliminated after 1995. We have the lowest level of accidents and incidents in North America. We also have a very significant level of investment—I'll show you in a second—and are the most capital-intensive industry of any industry in Canada.

The next slide, at the bottom of your page 2, shows that the freight rates in revenue per tonne-kilometre are down 21% since 1992 and 35% since 1987—and as I said, we have the lowest rail rates in the western world.

The next slide, at the top of page 3, indicates CN and CPR investment from 1996 to 2001. We're trying to tabulate a table that would include short-line investment as well. That's a bit harder to get a handle on, because there are more of them. We hope to have a number like that soon.

The bottom line with this chart shows that over $10 billion has been invested since 1996. Prior to 1996, I think the recent CTA panel indicated the class ones were not even keeping up to their rates of depreciation. After 1996, for the first time in many years, they exceeded that rate of depreciation and have seen this very significant level of investment.

The slide at the bottom of page 3 indicates labour productivity and what's happened over the last decade. It's up 127% since 1992. It's worth noting at this point, given that significant increase in productivity—127%—that the panel noted 75% of those benefits were passed through to shippers in Canada. They noted secondly that of the remaining portion a significant part of it was reinvested in capital equipment in the industry.

Turning to the top of page 4, even though we've had this very significant success story—growth in the industry, efficiencies introduced, productivity increased, and the pass-through of reduced rates—the fact is we have not been keeping up with the growth rate in export traffic to the U.S. under NAFTA.

You're all aware of the significant growth in NAFTA following the signature of that deal in the late eighties and early nineties. Total freight activity grew from 1990 to 2000 by 56% overall. That's in tonne-kilometres: by weight, not value. For-hire trucking activity over that same period grew 112%, double what the total growth was.

Railways, in contrast, grew by 38%. What that shows in our two pie charts is that rail in 1990 had 75% of the activity in terms of tonne-kilometres, and that has decreased to 66% over that ten-year period, even though both trucking and rail were growing significantly.

At this point I will pass the presentation over to Mario Brault.

º (1645)

[Translation]

Mr. Mario Brault (President, Genesee Rail One, Railway Association of Canada): Thank you, Bill.

As a consequence of the changes made to transportation policies in 1996, the number of short lines tripled, from 15 to 45. A great number of these businessmen took up this challenge in a regulatory contest they found positive at the time.

Important changes to the regulations would change the deal at this stage and could deter some operators in this moment of the life of their company.

Of course, these results were made possible thanks to a solid partnership with the class one railroads. On the table at the bottom of page 4, you see in fact that a good part of the traffic originated by carloads in 2000, some 24%, can be attributed to the short lines in Canada.

As for the Canadian short lines total revenues, at the top of page 5, the general higher trend from 1997 was caused by the acquisition and creation of these short lines. As for 2001, the lower trend seems to indicate we have reach a plateau. The future growth of short lines will be almost entirely dependent on their revenue growth, which will be only possible if they have the capacity to attract some road traffic.

As for the table at bottom of page 5, short lines operating ratios, contrary to class one railways, have been the same for five years. This reflects inherent limits of short lines, a limited territory, and the general state of the railways network when they took possession of these lines. An operating ratio of 87 means that short lines have no money to invest in their networks. The gross margin of 13% before taxes simply cannot generate the necessary capital to maintain and upgrade railways infrastructure.

The present uncertainty, coupled with our relative incapacity to generate fresh capital, would hamper development and expansion of our infrastructure.

º (1650)

[English]

Mr. Gord Peters (President, Cando Contracting Ltd.; Railway Association of Canada): Thank you very much. My name is Gord Peters. I'm president of Cando, which owns three short lines: Central Manitoba Railway and Athabasca Northern—one in Alberta and one in Manitoba—and we operate a couple in Ontario just outside of Toronto.

I really feel our industry—the short-line industry—is today at a crossroads. We got into the business several years ago, but because of increased carloadings and the whole 286 issue coming forward in the railroad industry today—the 286 has increased loadings on the class ones, and actually on any North America-based railroad—the short lines find, in a lot of cases, that our tracks are not in a condition to handle 286. So we need to invest in our infrastructure today; it's a critical moment in our history.

The short-line industry definitely wants to be part of the solutions. We are a dynamic group of franchisees—I like to use this terminology—with the class one railroads. The class ones asked us to do a lot of certain things. We're in the rural areas; we look after all the shippers in the rural areas. In customer service, we're quite a bit different from the class ones because our mandate is different. A lot of times they use the same explanation as GM with their franchises in the GM dealerships on why GM would not own the whole network all the way out. I think the CNs and CPs of the world have realized our value and have encouraged us to expand and to work, and I'm supportive of that.

Our competition in the rural areas is not other railroads. It's the asphalt itself; it's the trucks. Our issue, if we do not increase our infrastructure and if we do not get modal balance, is that we're going to end up in trouble because of it.

I think the short-line industry—as shown in the tables we have here—has infrastructure needs. There are opportunities for short lines—transloads, sidings—to grow our business out in the rural areas. As mentioned earlier, we originate some 24% of the traffic for the class one railroads in Canada. We're here today to ask the government of the day—and this is all levels of government—to broaden the investment not just in roads and highways but also in rail infrastructure if we're to survive as an industry.

On the bottom of page 6 in your handout you see that we show emissions comparisons on the different modes of transportation. As you can see, the railroads are best in class. There's no doubt there are advantages we can offer, in a Kyoto environment, for rail transportation.

We have one interesting example in northern Alberta. We just completed a transaction with a large logging company. We signed a deal for ten years that removed 10,000 trucks per year from Highway 63 going into Fort McMurray, which was typically taken by trucks. We've now moved that to the rail industry. That has removed 10,000 truckloads a year from the highway, and we did that on a straight competitive basis.

There's another example I'd like to move on to, an example of what we're faced with today concerning infrastructure. It's on the top of page 7. It's a particular example that our railroad is involved with into the Athabasca oil sands in northern Alberta. Just to highlight it, ANY is a wholly owned subsidiary of Cando.

I'd just like to point out the importance of this opportunity to the committee. Everyone is aware that the oil sands contain huge oil deposits, as large as Saudi Arabia. The oil industry says that 50% of Canada's oil will come out of this area within five years. The whole thing is a huge issue for our friends to the south.

Our railroad comes up short of where we can make this area successful—about 35 or 40 miles south of where the Syncrude and Suncor upgraders are. We have to cross a huge river there, the Athabasca River, to bring an expansion of this line to the resources. The chart shows there are three options we've looked at with CN. They range from $155 million to $187 million to push the railroad forward up to there.

The solution to this is going to have to be a multi-modal solution. We're prepared to put money into construction of the bridge, as an industry, but the bridge we're talking about to go around Fort McMurray could be used as a combination rail-road bridge to satisfy the wish of the municipal government. We would like to see it happen, even possibly with a pipeline corridor off the bottom of it.

Of the $187 million, approximately $130 million to $140 million of it is for the bridge itself, to get into the oil sands.

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To reach this opportunity in the north, I don't think there's any doubt that everyone is going to have to come to the table. I guess we'd ask for support from all levels of government.

Not only this one, but all short lines face different opportunities like this that are going to have to see a balance between road and rail. We need a balanced approach, as we move forward, if we're going to succeed in the short-line industry going forward.

Mr. Bill Rowat: I'll handle the final few slides.

At the top of page 8, we'll now turn our focus to views on the bill and what it means particularly for the short-line industry.

The RAC members, particularly short lines, would like to see this legislation passed through the committee by the summer recess. In several important respects, the “Straight Ahead” vision in Bill C-26 represents good new public policy and refinements of the policy that was passed in 1996 that led to the growth of the short-line sector.

Bill C-26 is, in our view, very much in sync with the public desire for rail to play a larger role in achieving public policy benefits. We've mentioned congestion, emissions, fuel consumption, accidents, safety, and so on.

Where we feel, as an industry, we were heard in the short lines...we had laid out the societal benefits accruing from better modal balance and bending towards more use in rail for public policy purposes. That includes competition, greenhouse gas emissions, congestion issues, particularly in urban areas, and cost to governments.

It is far less costly to use short line and invest in short-line railways than it is to invest in parallel highways. There are significant benefits in terms of land use, and also very significant benefits in terms of overall safety in both freight and in passenger trains. We like the fact that modal balance in government infrastructure investment was something that was featured in the “Straight Ahead” document.

Again, continuing along with the list of where we felt we were heard, there is no regulated, open access to short-line track and customers by competitors. This is the access issue that I think so many are familiar with.

The bottom line is that this sector, as Mario pointed out earlier, has grown significantly. It has tripled over a period of three to five years since 1996. The short-line sector invested under a set of rules. They are extremely concerned, at this point, that those rules not be changed five years later.

The document acknowledges that rail has a higher cap.

The Chair: Mr. Rowat, you just skipped over that. You said you made substantial investments based on government regulatory control in 1996. Do you want to expand on that?

I'll give you more time. I think that's very vital, if you invested huge amounts of money on a regulatory regime.

Mr. Bill Rowat: If you flip back to page 4, the short-line sector, as Mr. Brault pointed out, had been growing through the early nineties, but after the change in the Canada Transportation Act in 1996, when there were 15 short-line railways, within a period of four years it jumped to 45.

So the bottom line is, over that period there was a very large number of railways that—and I guess they'd have to explain it themselves—through their bankers and other sources of funds, invested in the industry by buying from and doing deals with CN and CPR where they divested track. So these short-line operators have made a significant investment in short-line operations throughout Canada, particularly serving rural and remote communities, as Gord explained in the example he just gave.

That's why, just five years later...we know you review the act every five years, but they did make a significant commitment.

In terms of the access issue, I guess the question remains as to the kind of competition that would pose on their own lines by people who would not have to invest in the lines the way they have and face the significant problems they're facing, which Mr. Peters just outlined. They have challenges in the short-line sector for investment.

Actually, I wouldn't mind, now that you've asked, if you would let me expend just another minute or two on that.

If you go back to page 5, I'll point out the fundamental difference in economics, which Mr. Brault pointed out. I'll just reinforce it using a different perspective.

On the left side of that bottom sheet, you'll see class one operating ratios, and in the case of CN and CPR, CN's was down to 68.5% and CPR's was at 77% in 2001. What that means is that out of all of their revenues, they spent that much, 68% and 77% respectively, on their operating costs. That means they have a gross margin left over to deal with capital acquisition, upgrades, and investment in running stock.

If you now turn to the chart on the right, it indicates the short lines have roughly around 84%, 85% in terms of an operating ratio. In other words, unlike the class ones, which have a lot left over—a gross margin that is fairly significant—the short lines have only about 13% to 14% left over to invest in their railways. In other words, it's maybe around half what the class ones have to invest in capital.

By the way, as you'll see in the small print, over half of that 13% or 14% they have left is actually paid in taxes, and the majority of that is fuel and property taxes to the province.

So we were making the argument earlier on that there is a significant capital shortage in the short-line sector to deal with the major investment challenges they have in upgrading the track to the new North American standard at carloading weights of 286, as well as creating new initiatives, as Mr. Peters talked about, into the Athabasca.

I apologize. That was very long-winded.

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The Chair: You say that could change by regulatory control in Bill C-26, which is before us today?

Mr. Bill Rowat: Bill C-26, we are satisfied, has captured... basically, on the access issue, Bill C-26 decided to set it aside and said the rules as they exist now, which the short lines are satisfied with, would stay in place, that they would not change the access regime. That is satisfactory to the industry.

Should I move on?

The Chair: Yes. Thank you for that.

Mr. Bill Rowat: Also, on page 9, bullet 3, the document and the legislation recognized the need for improved data collection on all modes. The legislation endorses road pricing and full-cost accounting for all modes.

We're supportive of that comment. We may be a bit caustic on it. They're supportive words, but we're also very cognizant of the fact that this is an issue the federal government has to work out with the provinces. There are ten of them, and progress may be very slow.

On the second-last bullet on that slide, we think the view that the transportation system must respect the environment is a good criterion to add to “Straight Ahead” as well as the legislation.

The final bullet on that slide says intermodalism is critical for the future. The bottom line is that highways alone can't meet the growth requirements in terms of exports and traffic within the country.

Having made those reasonably positive remarks, we have a number of concerns. First, on noise, the existing legislation reads “least possible noise”, and we find this is unduly harsh and may constrain rail operations. Our preference would be the wording “not produce unreasonable noise”. I can come back and explain that if members like.

Second, noise regulations require a balancing of the interests. The Railway Association of Canada and its members have worked with the Federation of Canadian Municipalities over the last 24 months to establish a voluntary proximity accord that incorporates noise, emissions, vibrations, and so on.

We are working out a set of guidelines that would call on both parties in any of these disputes to solve issues at the local level and to search for solutions not only on the railway side—although we would accept our measure of responsibility—but also communities have to meet a certain set of guidelines, like better land use planning. Don't locate your apartment houses within a few yards of a railway track. Put berms in, use triple-glazed windows, and so on. The solutions to these debates are on both sides of the argument.

We've worked out a dispute resolution mechanism. The new legislation says they recognize the efforts we have put into this; nevertheless they are recommending that they put a noise clause into the new legislation. We have concerns with that.

The third bullet down is on the failure to recommend the commercialization of the grain handling and transport system. This was an area in which I think the government didn't quite take the advice of the CTA panel.

The final bullet is on the strengthening of shipper protections when the system is working very well. I outlined earlier that the panel overall said the system was working well for most shippers most of the time, that they found no evidence of excessive profits, and that fundamentally, the system was competitive and efficient. They emphasized the need for investment. While we find the new shipper protection measures liveable, we felt the previous measures were probably quite adequate.

I would like to turn now to the top of page 10, just to come back to the infrastructure issue. There is an infrastructure dilemma in this country. We've centred on three areas.

One is the central Canadian corridor, and it's very clear to all who have looked at it that the 401 system and the other 400 series in Ontario, also connecting through Quebec, are seriously under capacity at this point as a highway system.

Major investments will have to be made in that highway system. Rough estimates put it in the order of $10 billion to $20 billion, if you merely want to put an extra lane both ways on the 401, for example. Our argument is that for a fraction of that cost, you could be putting a lot of extra commodities onto the rail system to depressurize, decongest, what is turning out to be a serious congestion dilemma.

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Similarly, the Cascade corridor, running south of Vancouver into the U.S., is running into similar kinds of congestion and capacity problems. We think again, at a considerable cost saving, investment in rail assets with short lines, and in some cases with class ones for certain kinds of things, could solve the problem. Finally, there is the short-line network, which I think I covered off earlier with my colleagues.

“Straight Ahead” has supportive words but no funding. If we have one disappointment, our view—as well as many of my other modal colleagues in trucking, and so on and so forth—is that we would have preferred to see an infrastructure fund that was similar to T21 in the U.S. They have $200 billion, as you've undoubtedly heard. We have a fraction of that dedicated to transportation, probably less than 2%. We're simply not in the same ballpark as the U.S.

I should point out that Quebec is the single and only province in the country that has an infrastructure program for short-line railways. It is for the 286 upgrade. It is for overall improvements to the system, as well as sidings and reload centres.

Our bottom line is that the government must invest and assign more significant dollars to infrastructure requirements in the country for all modes, but it must also invest in rail. Rail is one of the modes. It can't be all about highways. It has to be a balanced investment approach. In “Straight Ahead”, while the words were good, we're worried that no significant progress is being made in this area.

In conclusion, on balance, the government has promoted a vision in Bill C-26 of a modern, multi-modal sustainable transportation system based on greater transparency and a more fulsome understanding of the economic and social cost of each mode. The federal government has promised to seek the support of the provinces in implementing this new vision. That's a difficult challenge in this country.

The government has acknowledged that the rail system is working well. Freight rates are down. There is little evidence of genuine shipper captivity. The key is a stable, regulatory framework and a progressive investment environment.

We are looking to overcome the uncertainty that the existing situation poses. We would like to see the existing draft legislation passed to bring this uncertainty to a close. While the package isn't entirely to the satisfaction of the railways, and particularly the short lines, it is a package that we can live with overall.

Thank you.

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The Chair: Mr. Brault, are you okay? Mr. Peters?

Mr. Gouk.

Mr. Jim Gouk: I have a couple of things. Could you, for my own information, tell me specifically what you refer to as the Cascade corridor?

Mr. Bill Rowat: It's not one that I developed myself. It's a broad definition of the highways and rail systems heading south from Vancouver. I suspect that you could probably give me a better definition, being from the area, than I could.

Mr. Jim Gouk: That's fine; that tells me.

You listed VIA in your front page. You specifically referred to intercity rail. Could you tell me exactly what that involves?

Mr. Bill Rowat: Intercity in this country, as you're aware, is VIA in terms of rail. VIA is our one and only intercity member as a result of that.

Mr. Jim Gouk: It's their national operation, though.

Mr. Bill Rowat: It's their national operation, correct.

Mr. Jim Gouk: You also mentioned eight tourism members across the country. That's rail tourism.

Mr. Bill Rowat: That's rail tourism, exactly.

Mr. Jim Gouk: Who would they be?

Mr. Bill Rowat: There are many small operators. As an example, there is Trillium Railway in southwestern Ontario. I don't know if they're doing it this summer, but for the last few summers, as an example, they ran a Sunday tourism operation, basically picking people up in one small community and delivering them to another.

Mr. Jim Gouk: Okay. Which company is the largest member? You specifically mentioned eight that you have.

Mr. Bill Rowat: The Rocky Mountaineer would be our biggest single tourism member. It's a successful operation, as you're aware.

Mr. Jim Gouk: Yes.

Where would your organization stand then? I realize this is a conflict for you to answer, given that you have VIA and Rocky Mountaineer as members.

With VIA being subsidized and going back on the southern route of Calgary to Vancouver, that would put it into competition with Rocky Mountaineer, but subsidized. What would be your organization's position on that?

Mr. Bill Rowat: You strike to the heart of the association business. It's a unique opportunity to run an association that has everyone in it, but it also poses certain dilemmas. Within an association, with all the members in it, we try to sort out as many problems as we can between members. We do a reasonable job of that.

You can imagine, between class ones and short lines, class ones and passengers, and so on, there are a number of issues where we simply can't get a resolution. As in most associations, we take the position that we have no position, or we cannot develop a position, that reflects the interests of all of our parties. We remain silent on those issues.

Mr. Jim Gouk: Okay. I think by doing so you've answered my question. Thank you.

On page 9 it says “the view of the transportation system must respect the environment”. There is a bit of a misnomer that I'd like your comments on.

I recognize and accept very strongly that nothing can beat rail for long-haul freight in terms of the environment, fuel efficiency, and everything else. There is, unfortunately, a tendency for people to carry that over into everything that involves rail, with perhaps the exception of commuter rail in the high-density corridors like Quebec-Windsor, the lower mainland to British Columbia, and some other places.

Passenger rail is the least fuel efficient in terms of fuel consumption per passenger kilometre of all the modes. Do you accept that?

I want to make sure that people don't confuse the economy and the environmental friendliness of freight versus the same thing for passenger rail, except where you have a high-density operation.

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Mr. Bill Rowat: I think you struck at the heart of the issue. It depends very much on the ridership. Where you have an extraordinarily high ridership, on a per passenger basis—and that's what it's all about—you get some very good numbers in terms of the overall reductions in greenhouse gases, who is lowest, and so on.

For VIA, I simply don't know the numbers compared to air, although I would think it would be lower than air. Compared to the bus, I would think it would be somewhere in the same ballpark. Again, I haven't looked to those numbers.

Again, it's all in terms of the ridership. If VIA is running at—to pick a number out of the air—60% capacity instead of 100% capacity, it simply means their numbers on a per passenger basis are going to be higher. I don't know the occupancy rate or the ridership on buses, but, again, if they are running flat out at 100%, they are going to have some pretty good ratios.

Mr. Jim Gouk: I have looked at it very closely in the west, of course. It's going to make a big difference whether you are running across Saskatchewan or through the Rockie Mountains. It makes quite a difference, but passenger rail, VIA specifically, is the least environmentally friendly by miles. Ridership can't even offset it because the difference is so great.

Mr. Bill Rowat: On a national run, it is in terms of long distance.

Mr. Jim Gouk: I am more concerned, of course, in one sense, about the possibility of VIA going back on the southern route with no logical justification whatsoever. It's not there for passenger purposes; it's there for tourism purposes. There is no other reason. That puts it in competition with your other member, with one being subsidized and one not.

That's all, Mr. Chairman.

The Chair: Thank you, Mr. Gouk.

Mr. Alcock.

Mr. Reg Alcock: Thank you, Mr. Chairman.

Let me clarify a couple of terms in your presentation, and then I'd like to ask a couple of questions.

You talk about modal neutrality. I think modal neutrality was the term, or it was a term like that. Do I take that to mean things like tax regimes, depreciation write-down regimes, and investment regimes that would provide some equality between trucking and rail? Is that essentially what you are talking about?

Mr. Gord Peters: Yes. I wouldn't mind commenting on that, Mr. Alcock.

I can give you an example of the Central Manitoba Railway in the Winnipeg market. We pay $10,000 a mile in property taxes to the city of Winnipeg. If we step one mile outside of Winnipeg, we pay $400 a mile. We pay close to $40,000 worth of road fuel taxes a year for our locomotives in central Manitoba and don't use the roads.

Mr. Reg Alcock: I believe, having heard the discussions from CP and CN in the past, that for things like the ability to depreciate power and equipment, the depreciation regimes are different to what they are for trucks. There are a variety of tax measures and other things that create part of this competitive imbalance.

Mr. Gord Peters: Yes, especially when you're looking at NAFTA on the U.S. side. It gets worse when you go across the border and look at the U.S. roads.

Mr. Reg Alcock: Right. Of course, they would argue that they're competing down there also.

Have you had a chance to identify in Canadian terms... The one you mentioned, about property taxes and such, has been a problem right across the country. It's not just one that affects the short lines. There's a million dollar bridge somewhere in British Columbia, as I recall, at least some years ago. But I think those have been largely a municipal or provincial jurisdiction. They're not something that we have been able to affect through legislation. Am I correct in that?

Mr. Gord Peters: On property taxes, you're right. Fuel tax is different.

Mr. Reg Alcock: Fuel tax would be one that would fit into this issue of trying to rebalance the various modes of—

Mr. Bill Rowat: Fuel tax and capital cost allowance is the other one.

Mr. Reg Alcock: So that's fuel tax and capital cost allowance—and depreciation rates?

Mr. Gord Peters: That's what I meant, capital cost allowance—

Mr. Bill Rowat: And depreciation rates.

Mr. Reg Alcock: When you talk in your comments at the end about there being little evidence of shipper captivity—I believe, Mr. Rowat, that was one of your closing comments—you may not be able to produce it right now, but can you give us some evidence of that? Is this anecdotal evidence from a few people, or has some study been done of this?

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Mr. Bill Rowat: I'll just comment very briefly on that, and then maybe Mr. Peters would like to comment. I took great care to actually use the analysis in the CTA panel report, and the quotes I gave you were from that report. That's where I mentioned that the system is working well for most shippers, most of the time. There's no evidence of excessive profits. It's fundamentally competitive and efficient. I took great care to use their analysis, because people are familiar with that analysis.

Gord.

Mr. Gord Peters: Just to add to that, as to how the industries change in a short line, we are different from the class ones. For example, once again in the Winnipeg market, there was a customer, Imperial Oil, that both CN and CP serviced years ago. We took over the CN portion, and just in the last four months we've also taken over the CP portion. So we handle freight out of Imperial Oil's operation, and we handle both to CN and CP. It doesn't make any difference to us; it's the same price whichever way it goes.

Another big customer we have is Magna International in southern Ontario. We do all the switching of truck frames in the plant. Every night we hand off 25 carloads to CN and 25 carloads to CP. That's the part we like playing in, the short lines.

Mr. Reg Alcock: I'm sure there are all sorts of examples like that across the country, given the growth in short lines. So you're saying the only evidence for this or the little evidence of shipper captivity is from the CTA panel report. You don't have anything beyond that?

Mr. Bill Rowat: I think we could provide you with information and the submissions we made to the CTA panel. I felt that in preparing ourselves for this session you might consider it maybe slightly biased in one direction that we would be telling our story favourably. So I thought I would refer to the panel assessment and report, and I would encourage anybody to read it, because it's a fairly good piece of analysis and very thorough. Five commissioners in essence spent one full year reviewing these various issues and drew a balanced conclusion.

The Chair: What is that named?

Mr. Bill Rowat: It's the Canada Transportation Act review panel, which conducted the five-year review of the Canada Transportation Act. They completed their report to the government about a year and a half ago.

Mr. Reg Alcock: I have it, Joe.

The Chair: Thank you.

Mr. Reg Alcock: I'm not sure that's quite the conclusion, given that they did come forward with a recommendation.

Are you familiar with the term Ramsey pricing?

Mr. Bill Rowat: I am, but I would be hard pressed to explain it to anybody.

Mr. Reg Alcock: I believe it is a model that was developed for CN and is used to establish their pricing, because they operate in two markets: one where they have a group of captive shippers and one where they have strong competition from, say, trucking and other forms of transportation in the eastern Canadian corridor with the seaway.

So they underprice where they have competition and they place heavier demands on those shippers that are captive—largely in western Canada and rural Quebec—to make up the difference. They do in fact push their competitive inefficiencies in the central Canadian corridor onto the backs of shippers that have less access to competition.

That's the principle behind Ramsey pricing. It was developed by an economist named Ramsey, and I think they've used it at least since 1994 or 1995.

Given that they have a pricing model that demands captive shippers, how can you say there's little evidence of captive shippers?

Mr. Bill Rowat: I think you immediately equate the pricing model to the fact that it equates to captive shippers.

Mr. Reg Alcock: It's based on having captive shippers. It doesn't work without them.

Mr. Bill Rowat: There are varying degrees of so-called captivity that you're talking about. I think in the assessment the panel conducted, their view was that where the degree of captivity was serious enough, the shipper protection measures in place were adequate to deal with the kinds of captivity competition issues that were raised.

As you're aware, it's everything from the right to quote a rate, to level of service... there are interswitching processes you can call on. The competitive line rate has been refined into a new CCR rate. The substantial commercial harm test in this legislation has been removed. There is a fair and reasonable clause and final offer arbitration.

The view, as I take it from the document “Straight Ahead”, was that when you go through that long list of shipper protections, they were adequate to deal with the issues of captivity where it existed.

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Mr. Reg Alcock: We're in the process. I suspect we'll have a fair bit of evidence on that question over the next little while.

One of the concerns that gets raised in rail in particular is the tremendous amount of regulation that exists, and we hear continually from organizations that they'd like to see the regulatory environment reduced so people can “get on with business”.

It strikes me that one way to do that or to achieve that, to untangle some of the complexity in these services, is to bring about a more competitive regime, one where actually one has competition.

What I don't understand is the reluctance on the part of your organization to embrace such a position. What do you fear from competition?

Mr. Gord Peters: I don't fear anything from competition, Mr. Alcock, but I think our competition is sure not the railroads. We go through it. We're under succession laws in Manitoba and so on. Our trucking competitors are not. We talk about this road tax.

The railways, the class ones, from what I see, do not want to run, and they've switched their equipment. They have a saying in the class ones now—long and heavy. Six axle units, everything like that.

The reality is that most of those can't even come on our lines—and they wouldn't want to come on our lines. We wouldn't let them on our lines for costs, the whole thing. I know we wouldn't be in support of it because it would damage our lines, the whole thing, having class one there.

Class ones look to the short-line industry to do something for them. We are the franchise for them of customer service. Producing the right franchise agreement is more important than getting carloads on the rail. We're an employee-owned company. Our people who drive the locomotives own part of the railroad. That's the format that I think will produce results.

Mr. Reg Alcock: And you don't fear competition, you said. You don't think you'd have competition from the class ones in particular. You recognize that a modal neutrality would be a good thing in terms of your investment patterns and your ability to remain competitive.

Then why would you oppose an access provision?

Mr. Bill Rowat: I think there are two elements to the question, and I think Gord has covered one well, and that is the relationship with class ones.

The issue for short lines is that they invested in many small railways. I'll just take another example; let's say the Goderich-Exeter line. It runs from Goderich to Exeter into Stratford and Kitchener. They would have probably two or three main customers. When they bought that line, they were buying, in essence, the access to those business customers. Their concern, and the concern broadly of short-line industries, is that some new operator can acquire a train, get a certificate of fitness, and be eligible to run on their lines, which they are responsible for in regard to investing in the roadbeds and investing in the rails.

Mr. Reg Alcock: And paying them a fee for doing so.

Mr. Bill Rowat: Paying them a fee is one thing... And by the way, the track record of the Government of Canada on those kinds of issues has not been stellar. That's from a long-term bureaucrat. That's one issue: the system doesn't always work well.

The second issue is, how many competitors can you have on a line that has limited business? If I were on a line like the one I just quoted, with two main customers, and a competitor came in, paying less for capital costs than I had to pay, and stole my best customer, the bottom line is that I wouldn't be in business particularly long.

Mr. Reg Alcock: Isn't that true of any business if they make lousy decisions?

Mr. Bill Rowat: In any business, you have what's called fair competition.

Mr. Reg Alcock: Right.

Mr. Bill Rowat: It doesn't mean that I can walk into your corner Tim Horton's and say, move aside, I'd like to use your capital equipment and, by the way, I'd like to pay you a little less than it costs you to actually maintain that capital equipment and start selling coffee out of Tim Horton's.

I think that's a more appropriate analogy than the one you are talking about, which means head-to-head competition where competitors pay for their own capital costs, their own operating costs, and so on.

So that's the fundamental flaw in the access issue.

Mr. Reg Alcock: It's a fundamental flaw that has been recognized and recommended by virtually every study of rail that has taken place in Canada since the Second World War. It's been called for over and over again by people who spend a great deal of time studying the rail network.

I'm not surprised. No business comes to the table and says, give me more competition. We all want to protect our markets, and it would be wonderful if we didn't have competition so it would be easy to do business, but in this environment in the year 2003, I just think it's passé. It's time to look for a competitive solution.

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The Chair: Thank you. I'm sure this will be discussed with other witnesses.

I have Mr. Cannis.

Mr. John Cannis: Thank you, Mr. Chairman.

This question is on page 10 of your presentation, in “Other Concerns”.

You indicate on your second point on the minister's paper, “Straight Ahead”, that it has supportive words but no funding. If I recall, Mr. Chairman, when the minister was before the committee he indicated that there was now stable funding. I can't remember the actual dollar figure, or maybe the clerk would look it up and we can get clarification, but if I remember correctly, the minister did indicate that now we are in a better position because there is stable funding for a certain term.

That leads me to my second question, which is on the infrastructure dollars for transportation, which you say is inadequate. Earlier on we had the Tourism Industry Association of Canada and they were very complimentary about the types of funds that were going... Could you recommend what type of funding you would be suggesting to this committee?

Mr. Bill Rowat: I think—

The Chair: Pardon me, I must interject here because there are a couple of housekeeping items I thought I should mention.

As a result of the rather quick termination of the meeting when we had CATSA here, the Canadian airline traffic people, the other day, we asked them to come back with their lawyers. I have asked the clerk today to ask the CATSA people to come back tomorrow. I thought we should get that part of the estimates over very quickly. Hopefully, they will attend tomorrow.

I want to advise the committee members that this has not been on the agenda at this particular period of time, but it's a part of the estimates and the estimates have to be concluded by May 30.

I'll make my third point, and then I'll go back to the questioning. On page 8, Mr. Rowat, you say you would like this legislation passed by June 2003. I understand that, but you have to understand that the committee has been meeting often; we've had 29 meetings in the last month and a half. The legislation came late.

We've had the subcommittee on the seaway, which hasn't interfered with our work. But the overall problem the committee felt had to be faced was the crisis we have in the airline industry. We've made several recommendations and we have several more meetings to handle because of what we consider is a crisis in the airline industry.

There's that, and it is coupled with the fact that as members of Parliament we heard what happened with the way a government agency operated on the gun registration and about how you can spend almost half a billion dollars without anybody knowing about it, which embarrassed us all; therefore, we have decided to ask the Auditor General's office to talk to us not only about a post-audit review but a pre-audit review of what their concerns are with respect to all areas of transportation so we can address those during the estimates. So the estimates are taking us a considerable amount of time.

When you look at that, coupled with the fact that we get a week off next week, and we come back the week after... I don't know what's happening in June. They're talking about breaking now in the first or second week of June. Already on this bill we have people who want to talk to us out in western Canada about all these issues.

I have to be very frank with you. I don't know how we're going to do it, unless we just say let's pass Bill C-26, no more discussion, and that's not the way it's going to happen.

I hear what you're saying, but I don't hold out a lot of hope.

» (1735)

Mr. Bill Rowat: You've explained very well the kind of pressures the committee is under by receiving the legislation late.

We'd encourage you to look at all options, even if it included separating the bill or something--the rail package. You can understand our frustration. I think it was Gord Peters and myself who made presentations over two years ago. We've gone through an intensive two-year process, bringing it to a conclusion on a package about which, while we didn't find it entirely to our liking, we basically said, look, we've gone through the process, due process has been followed, there is a package that's put forward that we can live with, so let's get it settled so that the uncertainty will be put to death and we as an industry can move on.

Our fear is exactly what you're talking about, that if it isn't passed in June, given the other circumstances around leadership and so on, it could well be another two, four, six months, maybe even a year. We've all seen it happen in the past. So the uncertainty goes on.

That's the only reason we emphasized and stressed and wished and hoped that you could find a way, a creative way.... If it involves separating the legislation, if it involves somehow getting the rail package through, that would be very much our priority.

The Chair: There's been a lot of heat, Mr. Rowat, in the last little while because of whatever they're printing about us, which I've tried to dispel. It may happen; I am not sure. I can't comment on other areas. This committee has been working very hard.

I have to tell you this. We were sitting around twiddling our thumbs in November, December, January, and February. We had nothing to do. Then all of a sudden we get all of this stuff. I just wanted to make that point.

Yes, sir.

Mr. Reg Alcock: Mr. Chair, I agree with Mr. Rowat. We should pass this quickly as amended. We could get it through rapidly if we all put our minds to it.

Mr. Bill Rowat: That wasn't quite what I said, but I agree with you.

The Chair: What does “as amended” mean?

Mr. Reg Alcock: Whatever you want it to mean. That's for a different discussion

The Chair: Anyway, I just don't want you to think we are not trying our best to do what's right here.

Mr. Cannis, I apologize.

Mr. John Cannis: Not at all, Mr. Chairman.

Mr. Bill Rowat: Back to your two-part question. Number one, where we said “Straight Ahead” has supportive words but no funding, I probably should have been clearer on that. Our view was, given the importance of transportation as recognized in the U.S., there should be a dedicated fund for transportation—that's number one—and the fund should be considerably higher even than the amount of funds dedicated across the board for all purposes now.

I didn't read or hear his testimony, but where the minister finds himself now is in the same situation as many of us, I suppose, in that rather than having a fund for transportation that he can make decisions about on where to invest in transportation, he has to line up in the queue with everyone else to make a pitch to Minister Rock, who is in charge of the fund.

The last round of splitting up the $2 billion was a very good example, where regional ministers and provinces had their highest priorities taken care of. If you look at the overall analysis, you will find that, generally speaking, transportation fits somewhere down the line in terms of priorities.

That's not to be critical of the convention centres in B.C. or the harbour clean-ups in St. John's, Newfoundland, or Halifax. Those are all high priorities, but I think when the transportation minister has to go to another minister who has a whole slew of competing priorities, then transportation, generally speaking, will come out somewhere down the list.

Mr. John Cannis: Would you agree, then—and I'll close with this, Mr. Chairman—seeing that transportation crosses the border between the federal and the provincial responsibility, that the money that is there today for Minister Rock and whatever is there in the future should be leveraged with the support of the said provinces?

Mr. Bill Rowat: Yes. Where you bring the partners in as a partner, it should be leveraged.

I guess our argument is, separate from those federal, provincial, and third-party investors—private sector investors—we think the federal government should also be able to do deals directly with the private sector in Canada without always having it conditional on the approval and the support of the province. In a nation like Canada, why shouldn't a federal government be able to do a direct deal with an industry like ours, where literally you can meet national policy goals—and it's a federal jurisdiction—by working directly with it? Why do you have to have the conditional support of a province?

» (1740)

Mr. John Cannis: Jurisdictions...

Thank you, Mr. Chairman.

The Chair: Mr. Gallaway.

Mr. Roger Gallaway: Actually, I think my question has been answered, so I'll leave it at that. I hate to step in front of the witnesses here.

I'd like to know, following on the suspension of our last meeting with respect to the estimates, will CATSA be here tomorrow?

The Chair: Mr. Clerk, what is the disposition of the invitation to CATSA to attend with their lawyer tomorrow?

The Clerk of the Committee: Mr. Chair, when I inquired with CATSA's parliamentary relations person, she told me that Mr. Duchesneau and the other witnesses who were here on Wednesday, May 7, will be in Europe this week to talk about insurance of CATSA and will not be available to appear this week.

Mr. Joe Fontana: I'm sorry?

Mr. Roger Gallaway: Because they are in Europe doing what?

The Clerk: They're discussing insurance issues for CATSA.

Mr. Roger Gallaway: Insurance issues for CATSA! Do you have, then, a date for them?

Do you know, Mr. Chair?

The Chair: I don't know. All I did was advise—

Mr. Roger Gallaway: Perhaps the clerk can indicate if they have freed up a date.

The Clerk: Not yet.

Mr. Roger Gallaway: I might conclude, then, that insurance rates are more important than a parliamentary committee to account for their spending. Is that correct?

The Chair: I think when we left last week, we wanted them back this week to handle the issue.

Mr. Roger Gallaway: Yes.

The Chair: Thank you.

To summarize, then, they're in Europe this week—all three of them—to discuss insurance.

Ms. Frulla.

Ms. Liza Frulla (Verdun—Saint-Henri—Saint-Paul—Pointe Saint-Charles, Lib.): I have to come back, Mr. Rowat, because I see that you say you need a program like Quebec's. Does that mean there's only one province that takes its responsibilities? Since I have my colleagues here, I'm sure they can stress that their own provinces to do the same.

When you say, why shouldn't we go, and why do we have to ask for the... It does work. It does work in a system that is used to work...

Mr. Bill Rowat: It's a good question. I would simply say that the majority of railways in Canada are under federal jurisdiction. There are a few short lines, since they came into existence, that were created under provincial jurisdiction. That is primarily where the program was aimed in Quebec, but they decided to broaden the terms of reference to include all railways operating in the province. As you're aware, the Quebec Railway Corporation has seven railways operating in Quebec and northeast New Brunswick.

I would say that, as a province, they understood a very interesting equation that we are trying our best to draw to the other provinces' attention as well, even though they don't have jurisdiction. That is that Quebec drew the conclusion that for every dollar invested in assisting the infrastructure requirements of small railways, they could save a multiple of that on highway construction.

It's the same across the country. When you see the kind of damage trucks do in the spring on paved roads and in outlying communities, the equation works. For every dollar you put into a small railway in those communities, you save a multiple of it in maintenance costs.

I personally think Quebec was very far-sighted and showed some leadership in terms of what needed to be done to meet those kinds of economic policy objectives.

Ms. Liza Frulla: Why can't it be applied to other provinces then?

Mr. Bill Rowat: We would love to see it applied to other provinces, but Quebec probably has a higher ratio of provincially regulated small railways. Many of the other ones in other provinces are federally regulated, so their interest isn't quite as high, even given our attempts to encourage them in that direction.

We have been blatantly using the Quebec example with all of them, especially in Ontario and B.C. It's a good question.

» (1745)

Ms. Liza Frulla: Thank you.

The Chair: Thank you, Ms. Frulla. You see? You have one question and our witnesses said it was a great question. That's very good.

I thank you, Mr. Peters and Mr. Rowat and Mr. Brault. I again wanted to explain to you that we're under some pressure to comply with the requests you're making on your page 8; I want you to understand that. I don't think we're going to break up this act.

You can hear from Mr. Gouk that he wants to spend a lot of time. We have 200 witnesses already in British Columbia and Alberta who want to talk about passenger rail service. I don't know how we can.... I don't know, first of all, why we got it all together, but that happened before our committee came into being. We're going to do our best, but hang in there for the long haul. If you want to work this summer, we may work this summer.

The meeting is adjourned.