Mr. Chairman and honourable members, good afternoon. Thank you for inviting me here this afternoon to speak with you on the matter of Bill C-11.
Let me first take a few moments to familiarize you with our organization. The Air Transport Association of Canada was founded in Ottawa in 1934 as the national voice of Canada's fledgling aerospace and aviation industry. ATAC today is composed of a membership of over 200 companies of all sizes that collectively account for over 95% of commercial aviation revenues in Canada. We would like to address this committee, however, from the passenger's perspective, for it is the passenger's interests that ought to be at the heart of everything we do.
In Bill we see a bill that ostensibly deals with many issues related to passengers' concerns: air travel complaints, reviewing mergers and acquisitions, airfare advertising, and the use of airline data and passenger information. The sad reality, however, is that none of these measures actually address any of the real issues of concern to our passengers. You know yourselves what those are. You travel by air more than most Canadians. You know that what passengers want more than anything else from their air travel experience is safety, efficiency, and the right balance in the price and service mix. So that is the proper perspective from which to view these measures.
Indeed, it is a perspective that casts this bill in a less than flattering light, not for what it addresses, but for what it does not. It purports to introduce measures that are friendly to consumers, but does not actually help to lower costs, does not help to improve efficiency, and does not help to improve value.
For more than a few years now, ATAC and its members have been pleading with successive governments on behalf of our passengers to reduce the crippling effect of government ground rents due by passengers at airports. Established in the mid-1990s in conjunction with the development of airports, these rents have contributed approximately $300 million annually, and $2 billion since their inception, to general government coffers. The total contribution has already exceeded the net worth of those facilities at the time of their transfer, which was approximately $1.5 billion, a figure, by the way, which in no way accounted for the significant upgrades to those facilities, since most of them were practically falling apart.
Transferring the airports allowed the government to offload that cost to the local authorities, which recouped the investment costs from the users, namely, airlines and passengers. In short, it is a misnomer to label these payments as rent. They are actually a simple but brutal tax on flying, and they make the system about $300 million a year more expensive than it needs to be or ought to be. We respectfully submit that if Parliament is truly interested in pursuing the best interests of passengers, it should first and foremost occupy itself with this pressing matter.
Still, we are presented with a series of measures in this bill that require our scrutiny. It is probably fair to say that the most high profile of these measures is the proposal to fold the activities of the air travel complaints commissioner into those of the broader Canadian Transportation Agency mandate. From our perspective, this is a sensible move, insofar as the existence of that office represented little actual value for taxpayers' money. This has been an institution that stands out from other sectors in its purpose and role. There is no complaints commissioner for other modes of transportation, nor is there such an office for practically any other sector of the economy. The reason is self-evident. Clearly, there can be no better arbiter of the consumer interest than a healthy and highly competitive aviation sector.
Let's recall that when the office was created, it was in an era of much hand-wringing about the future state of competition in this industry. Air Canada had just completed its acquisition of Canadian Airlines in 2000, and many observers, including many parliamentarians at the time, expressed significant concerns about Air Canada's potential dominance in the market.
Despite this industry's assertions at the time that the marketplace would in fact provide the appropriate level of service and competition demanded by consumers, the office was established, among a series of other measures, in an attempt to create by legislation a regulatory framework that would protect consumer interests in the perceived absence of competition. But as we said it would, the marketplace did in fact return to a level of providing competitive service that responded to the demands of consumers. Anyone doubting that assertion need look no further than the fact that WestJet's market share today, for example, is at approximately 40%, higher than any level previously achieved by Canadian Airlines.
While there will always be some level of service disruption in our industry from time to time, we respectfully submit that a careful analysis of the role and value of the complaints commissioner since the position has existed clearly demonstrates that a healthy and competitive marketplace, and not another layer of government bureaucracy, can best respond to the need of consumers.
Similarly, the proposed authority granted to the minister to review mergers and acquisitions in all sectors of transportation is another example of a legislative tool introduced during the hysteria of 1999-2000 that has little, if any, practical value for passengers. Unlike the previous measure, however, this one actually does offer very real harm to the interests of passengers.
Nearly all stakeholders in commercial aviation, from consumer groups to infrastructure service providers to airlines, support lowering the barriers to investment in this sector.
We all recognize that ours is a very highly capital-intensive business, with large start-up and operational costs that are required to support, ultimately, a low-yield business climate. If a healthy, competitive aviation sector is the goal, why put in place regulations that cast doubt on Canada's openness to investment in this sector?
Moreover, this authority vested in the minister runs counter to the stated principles of the CTA, including those that say that “competition and market forces are, whenever possible, the prime agents in providing viable and effective transportation services”.
As with the previous measure discussed, since this was a tool introduced to deal with a perceived problem that never materialized, parliamentarians should rightly be asking themselves: what is this for and what does it do for consumers?
As to the matter of empowering the minister to regulate airfares, we encourage parliamentarians to remember where this came from and to ask themselves what value it represents to passengers. Indeed, some of our own members may tell you it has some value. Carriers who primarily distribute their tickets through provincially regulated tour operators and travel agencies, for instance, may see some value in a federal standard that would apply throughout Canada, while others who market their services directly to consumers question the need for this measure in the first place.
Certainly we are all united by the common interest of ensuring that consumers are fully and directly informed as to the makeup of their ticket cost. ATAC's concern with this proposal in regulating airfares advertising simply rests with the potential for abuse. As you well know, the final average cost of a discounted airline ticket in this country is comprised of anywhere between 25% and 40% in additional various government and government-created monopolies' taxes, fees, and charges. I don't think it would be fair to consumers in any way to hide information from them as to who is getting their travel dollar. They have a right to know.
While we take no specific view as to the propriety of this measure, we question the focus on disclosing the full price when the real focus should be on helping to reduce it. After all, shouldn't we be more concerned with making a $99 fare to Toronto more sustainable in the long run than wringing our hands about whether or not that $99 fare includes all the various government fees and charges?
In a similar vein, this proposal also purports to empower consumers by giving the CTA the authority to regulate the display of its terms and conditions for international services on the carriers' websites. We would certainly agree with the notion of ensuring that consumers are fully informed of the terms of carriage, which is why we clearly state the restrictions applicable on any ticket prior to the completion of a sale. We would caution the committee, however, to seek clarification on the meaning of this measure.
As some members may know, the full tariff is a legal contract consisting of thousands of lines of detailed text, spelling out every travel eventuality and arrangement known. The full text of a tariff rule can run over a hundred pages. We respectfully submit that it is in keeping with the spirit of the legislation to clarify this clause in order to provide consumers with practical and clear information as to the terms of carriage, rather than a requirement to publish the full text of the tariff itself.
As to the matter of sharing aviation data between government agencies, our industry takes no specific view as to the merits of these provisions. This is a broader social question, which is not limited to the commercial interests of airline service providers. From our members' perspective, our limited concern rests with the integrity of that data, which rightfully belongs to our passengers. We urge government to proceed cautiously when sharing data information and to do so only to the extent necessary, and to ensure the integrity of our databases by limiting any data-fishing exercises.
Finally--and to be fair--this legislation proposes a few housekeeping measures, which the industry can support. It contains clauses to require that persons acquiring an air service from another licensee must themselves hold an unsuspended licence. It exempts operators of seasonal service from the obligations of providing notice when suspending a service, for obvious reasons. And several other sections are also amended to provide the CTA with greater flexibility in making its determinations on a number of regulatory matters. The industry, by and large, supports these measures in principle.
So while this legislation is not entirely without merit, I return to my opening statement about assessing the bill from the passengers' perspective. If we can agree, more than anything, that passengers want safety, efficiency, and value in their travel experience, we have to ask ourselves what, if anything, this bill accomplishes from that perspective. Sadly, the answer is very little.
Ultimately, motherhood statements about airfare advertising rules, air travel complaints, and reviewing mergers and acquisitions do nothing to lower the costs at airports or improve the travel experience for passengers.
As some parliamentarians may recall, this bill is the third incarnation of this legislation. For some strange reason, Transport Canada keeps focusing on these measures that offer words in place of action to actually address the cost structure of this industry and the interests of passengers.
With that, I can only conclude by saying that the aviation industry in Canada is disappointed in this legislation but looks forward to discussing issues of meaningful reform, including those contained in the Canada Airports Act. Also, we hope to finally see some meaningful airport rent reductions for our industry and passengers.
Thank you. I look forward to your questions.
:
Thank you, Mr. Chairman.
Mr. Gaspar, I listened to your presentation. I think I understood your point of view on this bill, however, I do not think I fully share it. I consider myself a client, and from that perspective, I have reservations regarding a possible connection between Quebec and Sept-Îles. If there were to be only one air carrier for that flight, tariffs would be very high. People would then say something which we hear quite frequently, in other words that the flight from Quebec to Sept-Îles is more expensive than that from Quebec to Miami. You may say that, in this case, there are more passengers, but as legislators, it is important for us to give organizations control mechanisms to ensure that there is competition. In that regard, I would say that your arguments were not compelling to me.
That being said, as my colleague said earlier, gas falls under federal jurisdiction. It costs 87¢ a litre, and that includes everything. Some may choose to kindly point out that three quarters of that cost are due to taxes. Further, it would be good for people to know that a ticket will cost $172.50 rather than $99. I think we have to be fair to the client. That what they expect from legislators.
Moreover, when there is a merger between two carriers within one airline, I think it is incumbent on the legislator to defend the public interests and make sure that there is some control over tariffs. It is possible we may see an increase in mergers. We have to make sure that they remain competitive, or at the very least, that profits remain reasonable.
I could take you out in the field. You would most probably enjoy the experience. But for the time being, I believe that this bill has merits and I hope we will be able to bring it to fruition rather quickly.
You referred to airport tariffs. Perhaps you find there are some aspects missing from the bill. I would invite you to apprise the committee of that, if the committee is willing.
:
Actually, you may be surprised to hear that we don't disagree as much as you think we do. I actually agree with your perspective in terms of routes where there's only one service provider. To borrow the Quebec Sept-Îles example, you mentioned that if there's only one carrier flying in there, there's a lot of concern about whether the right level of service is being provided and whether the fares are too high relative to other routes. I guess the question to ask is what you ultimately think is the best way to ensure that the fares aren't too high, to ensure that the service levels in fact reflect the actual demand.
I would suggest to you that the history of this industry in this country shows that the market is really the best way to do it. If you make it cheaper for someone to start an airline, they will. Warren Buffett had the famous line that someone should have shot down the Wright brothers, because this industry just has a history of losing money.
People start businesses in this industry even when there are minimal prospects of making money, so I would suggest to you that if you want to improve choice and service in Quebec's Sept-Îles, irrespective of the fact that it's actually probably pretty good compared to where it is in other comparable markets, I would suggest to you that the best way to do so is to make the industry a lot more affordable to operate.
I'm not trying to be disingenuous in terms of the merits of the legislation, I'm just trying to say that if we want to address these issues, we need to be courageous and really deal with the cost drivers in this industry: the cost of the airports there and the cost of the fuel excise tax every time a person fills up their plane. If you make it cheap for someone to start an airline, they will, and then your issues will be addressed.
To your concern about the ability to review mergers, people have a genuine and reasonable right to understand what the effect of a proposed merger is going to be on fees and fares. I think that's absolutely right, but the question I again ask you is one of efficiency. Doesn't that already exist? We have a competition bureau in this country. Certainly, if there is a merger that is proposed that will have a dramatic serious and negative effect on the level of competition in this sector, you can bet your bottom dollar that they will be commenting on that.
I just come back to the efficiency of this measure. Is this something that really adds any new value? Really, is it something that empowers consumers to a level at which they don't currently already have it?
These are things that I would suggest are window dressing elements that look good on the surface of it, and that's why I understand why some people are very much in favour of them. But the more you peel away the layers of the onion, the more you realize there really isn't that much there.
:
Good afternoon. Thank you for allowing the Travellers' Protection Initiative the opportunity to make a submission today.
My name is Michael Pepper. I'm the CEO of the Travel Industry Council of Ontario, which is known as TICO. We are responsible for regulating travel agents and travel wholesalers in the province of Ontario. There are over 2,500 registered travel agencies, which generate over $7 billion in gross sales per year.
The Travellers' Protection Initiative is an alliance of several organizations. Our goal is to persuade the Minister of Transport to make necessary changes and amendments to Bill . In addition to TICO, our members include the Public Interest Advocacy Centre, represented today by Michael Janigan; Option consommateurs, represented by Marie-Hélène Beaulieu; and the Association of Canadian Travel Agents, represented by Christiane Théberge. Christiane will provide an address following my overview.
These four organizations, together with the Canadian Association of Airline Passengers, represent the interests of consumers, professionals, and small businesses from across Canada. A full list of members can be found in the appendix to our written submission, which I think has been provided to you. The focus of the Travellers' Protection Initiative is consumer protection, and our submission deals not only with what's in the bill, but also with what's not in it.
There are a couple of issues in the bill we want to talk about, but we're also asking the committee to consider making some amendments to include some other things in the bill. We think the bill provides an opportunity for the Government of Canada to take a leadership role in the world by improving consumer protection for its citizens who travel by air. There are a few fundamental issues that we'd like the government to address.
First of all, we would like stronger financial criteria for air carriers, together with published information on airline service and financial performance. The issue of airline advertising has been mentioned. We have experienced full price disclosure in the three major provinces. We are advocating full price disclosure including all of the auxiliary charges, with the exception of the GST and the PST. The final issue is the continuation of the air travel complaints commissioner.
I'd like to outline our biggest concern with the airlines—the financial criteria. My colleague Christiane Théberge will outline our concerns regarding the advertising disclosure and the continuation of the complaints commissioner.
Our first concern is the financial plight of the airline industry. Many airlines in the world today are undercapitalized and unprofitable. A number of factors have contributed to this, including bad management, overcapacity, the cost of fuel, and an ever-increasing overhead cost that airlines have to incur, collect, and pass on to their customers.
In Canada, however, the airline industry is currently stable. Canadian scheduled and chartered carriers are well managed and profitable. But this was not the case in recent years. Two large carriers in Canada failed, namely Canada 3000 and Jetsgo. Both of these airlines provided a mix of scheduled and charter services.
On the scheduled side, neither of these airlines were subject to financial oversight from the government. While we understand and agree that the Canadian government is not in the airline business, and is a strong advocate of free enterprise, it has to take a leadership role in how air carriers are allowed to behave. Scheduled carriers in Canada are not subject to any ongoing financial criteria. There are neither working capital requirements nor any requirement to hold consumers' advance payments in trust.
As an example, I want to go back to Canada 3000, which failed in November 2001, and the Jetsgo failure of March of last year. Both of these carriers were permitted to sell seats in advance in order to generate cash to pay their operating expenses. This was to the detriment of consumers. When these airlines finally ran out of money, it was the unsuspecting consumer who felt the brunt. Thousands of consumers were either left stranded or did not receive the travel services for which they had paid.
Who bailed them out? Not the federal government, and certainly not the bankrupt airlines. The lucky ones received compensation from provincial compensation funds, credit card charge-backs, or insurance companies. Many, however, received nothing at all.
Unlike provincial consumer protection against travel agency failure, there is no federal compensation fund that reimburses consumers. And yes, I understand, and we understand, why the stronger airlines, like Air Canada and WestJet, would not support such a compensation fund scheme. But there is another remedy available, which needs serious consideration, that would go a long way to improving the financial plight of airlines.
Now is an opportune time to at least introduce stronger entry requirements, requiring ongoing financial criteria such as minimum working capital and trust accounting of consumer advance payments until the services are provided. These requirements would go a long way to improving the financial health of the industry. And why now? Because the Canadian airline sector is in good financial health and it should not have difficulty meeting minimum financial criteria. This would in turn benefit existing carriers, because any new entrants would not be able to do as they have done before, which in the past has diluted the marketplace and put consumers at risk, in addition to bringing down the level for the whole sector.
These financial provisions and the ability of the minister to make regulations in respect of a national compensation fund we think need to be firmly entrenched in the act. I'm saying the ability to make regulations for a compensation fund because perhaps down the road things might turn out differently.
Those are my main issues on the financial side. I would now like to ask my colleague, Christiane Théberge, to conclude with regard to advertising and the complaints commissioner.
:
The second concern we would like to address is with respect to airfare advertising transparency. We were here earlier on and heard a great deal about the matter. We believe that the proposed amendments in Bill will only give the minister power to prescribe regulations sometimes in the future. TPI does not believe that the airlines will willingly change their advertising practices. We see every indication that they increasingly tend to break up their airfares and announce one way fares when these are not even available. We have seen cases where consumers, upon completing the transaction, had paid 25%, 50% or even 90% more the amount initially advertised by the airline.
In the past, the airline industry has promised to take voluntary measures, but they never delivered the goods. We are therefore skeptical of arguments put forward by the airlines, in other words that the airline industry can be self-regulating with respect to consumers' interests. Despite years of discussions with the airline industry and a series of false starts, the airline industry has not moved voluntary on this issue.
We believe that the requirement to full disclosure, with details, should be firmly entrenched in the legislation and apply to all airlines which advertise in Canada. After all, air carriers providing services in United States are already subject to these requirements. There is indeed American legislation requiring that air carriers disclose their fares in full. It is stipulated that any advertising or solicitation by an air carrier or by one of its agents or middlemen will be considered an unfair or deceptive practice, unless the price stated is entire price to be paid by the customer to the air carrier, or the agent. In subsequent interpretations of this requirement, the US DOT has issued notices to clarify that the intent of the rule is to ensure that members of the public are given proper fare information on which to base their airline travel purchasing decisions.
It should also be noted that the US DOT just recently refused to change its rule and enforcement policy that have been in place for 21 years. The Department concluded that the current practice protects consumers and helps them compare prices. It also found that the current rule promotes healthy competition while leaving airlines with freedom to innovate.
Because Canadian airlines are not covered by any provincial regulations, they perpetuate a situation where consumers often experience “sticker shock” when they see the final travel bill. As was mentioned earlier by Michael Pepper, several provincial jurisdictions including Quebec and Ontario, already require that travel agents and wholesalers be fully transparent when it comes to their advertising, something which air carriers are not subjected too, I might add. In Ontario, there is the requirement that the advertised price indicates clearly and in an obvious manner to the consumer all additional fees , with the exception of provincial sales taxes and GST. The same applies in Quebec.
It is important to remember, when we refer the healthy competition within this industry that the current situation gives airlines an unfair advantage over , in many cases, largely small businesses, creating an uneven playing field at the expense of travel agents and wholesalers and also consumers.
TPI is therefore of the view that transparency in advertising needs to be entwined in the legislation and not left to the discretion of the Minister of Transport and the agency.
One other issue is with respect to the air travel Complaints Commissioner. TPI members certainly supported the position and role of the airline Complaints Commissioner when it was created. While we believe that the Commissioner was hampered in his/her position by a lack of powers to take substantive action, having a visible place for consumers to voice their concerns and issues, and having the Commissioner annual report, added an element of transparency to the system, that cannot be replaced by the officials at the Canada Transportation Agency. While we have confidence that the CTA can adequately carry out this function, we are concerned that the issues will loose their public focus., through what was referred to earlier as the “embarrassment” that such an annual report could bring about. We do believe that this balance is important to the consumer, in a way, finally giving consumers some power.
For these reasons, we are prepared to take a “wait and see” approach with respect to this new way of dealing with complaints. However, we expect that the CTA will take a proactive role in ensuring that passenger complaints are appropriately addressed, and that this role is well-known to airline passengers,so that they may know where to lodge their complaints.
In closing, we recognize that this bill addresses many important transportation issues. TPI believes that it is in the public interest that these consumers' concerns about air travel have a proper hearing and debate. By adopting our recommendations and amendments to Bill C-11, we believe that it is possible to adopt measures that would booster consumer confidence and promote competition by ensuring a stable market with transparent and measurable standards applicable across the board. We have all seen the statistics with respect to our main air carriers and that the numbers have been rising from month to month. So this is a stable industry, at the moment.
We thank you for your attention.