TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, April 12, 2000

• 1534

[English]

The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good afternoon, colleagues. Pursuant to an order of reference of the House dated March 31, 2000, this is consideration of Bill C-26.

Colleagues, we welcome our witnesses this afternoon. First, from the Competition Bureau, is Konrad von Finckenstein. Welcome back to the transport committee, sir. Thank you very much for appearing before us. We look forward to your presentation. Would you introduce us to your assistant and senior commerce officer? Begin when you're comfortable, sir.

Mr. Konrad von Finckenstein (Commissioner of Competition, Competition Bureau): Thank you, Mr. Chairman. Thank you for inviting me to come and testify on Bill C-26. I would like to briefly highlight the principal amendments to the Competition Act in Bill C-26, and then my colleagues and I are ready to answer your questions.

• 1535

With me I have Ray Pierce, the deputy commissioner in charge of mergers, and Richard Annan, the senior analyst on the airline file.

First let me talk about the temporary exemption from the Competition Act for travel agents. This will allow travel agents to negotiate collectively with a dominant carrier for commission on domestic ticket sales. In this context, you should recall that travel agents are by far the most important distribution mechanism for air travel, accounting for more than 75% of ticket sales by scheduled airlines in Canada. However, this exemption is temporary and will last only as long as a dominant carrier has 60% or more of the revenue passenger kilometres on all domestic service over the preceding 12-month period. In all other respects, the Competition Act will continue to apply to travel agents.

[Translation]

Secondly, the bill provides for defining, by regulation, of airline-specific anti-competitive acts.

I am tabling before you today a draft copy of the regulations which will be pre-published once the bill is enacted.

[English]

Mr. Chairman, with your permission, I would table these regulations so that members have an idea of what will be enacted.

[Translation]

The regulations outline the type of behaviour, including predatory pricing, that is likely to be challenged. What is pro- competitive behaviour and what is abusive behaviour is often a fine line to distinguish. The tabling and publishing of these regulations will set out the boundaries for the industry as to what is acceptable behaviour. We invite all stakeholders to send their comments to the Bureau.

[English]

Thirdly, the act provides for a new cease and desist power. This power will allow the commissioner to take swift action to stop predatory or other anti-competitive behaviour before there is permanent damage.

The airline industry is unique in Canada in that it has a carrier that is overwhelmingly dominant. Moreover, this is an industry with highly mobile assets and low variable costs. A cease and desist order made by the commissioner can only be in place for up to 80 days while we investigate, and it is reviewable by the Competition Tribunal. It's worth mentioning that the bureau has consulted the Department of Justice to ensure that these powers are consistent with the Charter of Rights and Freedoms.

[Translation]

Fourthly, the bill introduces new merger review procedures for airlines.

The bill sets out a step by step procedure for notification by merging airlines with the Canadian Transportation Agency, the Minister of Transport and the Competition Bureau. It places the responsibilities for final approval with the Governor in Council. This process thus allows for both competition and public interest issues to be addressed at the same time.

In addition, the bill enshrines into legislation all of the undertakings agreed to by Air Canada in negotiations with the Competition Bureau before Christmas. It deems the merger to have been approved under this new procedure. As a result, the undertakings will become legally binding and enforceable. Put simply, any contravention of these commitments can now result in fines and imprisonment.

[English]

Finally, the bill provides a mechanism to allow the commissioner and the Minister of Transport to share confidential information on airline mergers. This will eliminate the current restriction that pertinent information required by both my office and that of the Minister of Transport cannot be exchanged or compared. It will provide for a more efficient process, and the sharing is only for the purpose of approving an airline merger.

However, this legislation alone does not seem to attract new competitors into the market. While the undertakings provided by Air Canada lower some of the barriers to entry—for example, the freeing up of airport access—they provide no guarantees that new entrants will come forward or that an existing carrier will expand.

[Translation]

I take some comfort in the fact that the Minister of Transport has liberalized Canada's international charter policy, essentially along the lines of our recommendations.

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While these amendments, the policy changes made by the Minister and the closing undertakings provided by Air Canada address many of the recommendations put forward by the Bureau, I remain concerned about the state of competition in Canada's airline industry.

To illustrate my concerns, let me add some perspective. With this transaction, which has yet to be finalized, Air Canada will emerge with more than 80 per cent of domestic passengers, more than 90 per cent of domestic passenger revenues and a jet fleet exceeding 230 aircraft.

Clearly, emerging carriers and new entrants flying domestic routes will face a formidable competitor. I don't harbour any fears about the future financial health of Air Canada.

[English]

In February of last year, the airline reported the following financial results: a record high operating income of $503 million; an operating margin of 7.7%, the highest in 27 years; a share price of more than $15, up from just $6 last summer.

So I'm not concerned about the financial health of Air Canada, but I maintain that its truly competitive environment can only be achieved by opening our domestic market to competition. You will recall that in my letter of October 22 to the minister and in my discussions with you in my previous appearances, I made three recommendations in this regard, one of which requires regulatory change while the other two require legislative change.

Let me just reiterate them briefly. First of all, the limit on foreign ownership of voting shares of Canadian carriers should be raised by regulation to 49% from the current 25%.

Secondly, the Government of Canada should immediately attempt to negotiate reciprocal modified sixth freedom rights with the U.S. for passenger service. This would allow U.S. carriers to market, as a single ticket, travel from one Canadian city to another via a U.S. destination.

Finally, the Canada Transportation Act should be amended to allow for the licensing of Canada-only carriers, and these carriers should be free of any Canadian ownership or control restrictions. Under this system, which is similar to what's in place in Australia right now, carriers would be restricted to serving points within Canada and would not be allowed to fly to foreign destinations. They would just provide competition in the domestic market to Air Canada.

To sum up, Mr. Chairman, in my view the best remedy for protection of the consumer is competition in the Canadian market, and these three steps that I just outlined should be taken.

Thank you for inviting me today. I'm ready to respond to your questions.

The Chair: Thank you very much for your presentation to the committee.

We'll get right to it.

Val Meredith.

Ms. Val Meredith (South Surrey—White Rock—Langley, Canadian Alliance): Thank you, Mr. Chairman.

Thank you, Mr. von Finckenstein, for appearing before the committee.

We have heard a number of witnesses who are expressing a concern because the dominant carrier appears not to be willing to support contracts that Canadian Airlines had with them. I think the description would be “wholesale contracts” for services that Canadian provided to them, either ground handling or training processes, equipment, and procedures.

We've also heard from individuals outside of committee hearings who are running into the same problem, who have wholesale contracts with Canadian Airlines and are running into some really restrictive negotiations with the dominant carrier. Not only that, we also heard from airports that are acting almost as a back door to the dominant carrier in restricting air carriers like WestJet and Canada 3000 from using the Dorval airport.

My question to you is this. In your investigating the effects of this deal post-merger, will you be considering these other aspects as predatory behaviour or can you impose predatory behaviour with regard to third-party contracts and airports?

Mr. Konrad von Finckenstein: First of all, you are speaking about Canadian. As you know, Canadian right now has sought the protection of the courts under the Companies' Creditors Arrangement Act. Any contractual relations are subject to the protection of that act. To the extent that Canadian refuses to live up to its contractual obligations, the remedies, to some extent, are circumscribed by the bankruptcy proceedings.

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But post-bankruptcy, once they emerge out of it and there's one whole merger, i.e., Air Canada owns Canadian outright, at that time, if there are any complaints made to us regarding the behaviour of Air Canada and allegations of abuse of dominance or refusal to supply, etc., we will investigate them to the extent that we have jurisdiction.

Now in some areas that you mentioned, they may not actually be subject to the Competition Act and we can do nothing about it. For instance, you mentioned local airport authorities. A local airport authority is essentially a local monopoly created by the divestiture of federal airports, of the land, etc., to the airport authorities.

If the airport authority owns its facilities and can dispose of them as they see fit, there's really no way we can step in—unless there's a collusion or conspiracy between Air Canada and the airport authority—because this is a local monopoly created through the sale of these airport facilities. The Competition Act is there to ensure that the competition is not being diminished, but there you don't have any competition to begin with because there's only one airport serving this locale.

Ms. Val Meredith: So what you're telling me, really, is that the Competition Bureau will not be in any position to protect new carriers from access to airports if the local authority deems that with 90% of their revenue probably coming from one dominant airline, you can't prevent that dominant airline from using its spending powers or its financial strength to dictate the terms of airports.

Mr. Konrad von Finckenstein: Well, no. That's overstating it. If the dominant air carrier uses its power and says to the local airport authority that it doesn't want them to do this and this, or it wants them to take the following actions to, in effect, make life difficult for WestJet, etc., yes, then we can step in.

Ms. Val Meredith: Okay.

Mr. Konrad von Finckenstein: But if it is just using their bulk, their size, in order to get volume discounts and get a preferential rate, no, then we can't do anything.

Ms. Val Meredith: With the other issue of, say, air miles with a contract with Canadian... With Canada 3000, which has a training arrangement, and have had for a good number of years... The understanding I have is that the management of Canadian Airlines has changed, that Air Canada is now more or less managing Canadian Airlines, and that these are changes in policy from Air Canada to Canadian Airlines—in essence cancelling all contracts.

Mr. Konrad von Finckenstein: First of all, there are existing contracts. In your situation, Canada 3000 has contractual rights. These contractual rights may be terminated or restricted by the bankruptcy proceedings. I don't know what the outcome will be of those. Assuming they survive, then of course they have those contractual rights.

If, once these contracts expire, Air Canada refuses to continue those, at that time it would be a question of whether the refusal by Air Canada to do this amounted to a refusal to supply within the four corners of the Competition Act and whether a proper case could be brought against Air Canada or not. Without the specific facts and without knowing what the situation is, I can't answer the question.

Ms. Val Meredith: So if a company were to claim a case under the Competition Act, what kind of timeframe... Let's say that Canada 3000 were to appeal to the Competition Act, that they felt the treatment they were getting was to keep competition out, what kind of timeframe are they talking about in order for you to investigate and make a decision on it?

Mr. Konrad von Finckenstein: I don't want to appear evasive, but it depends so much on the facts; the kind of investigation we have to do depends on the evidence. Sometimes the evidence is fairly straightforward and the investigation can be done very quickly. In other cases, you have to dig deeper; you have to get the evidence. You may have to resort to formal inquiry and in effect search somebody's premises to get the evidence. It really depends.

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Ms. Val Meredith: So with the 30-day cancellation notice, there's really not much you can do for them.

Mr. Konrad von Finckenstein: No. First of all, Air Canada may have a right to cancel. I don't know what the contract says. It may have been breached for performance, etc., so you may have a perfectly normal legal dispute as to whether they have the right to counsel or not.

Secondly, let's assume they do have the right to cancel or the contract expired and they don't want to renew it. At that point in time, the only way would be, in effect, making a claim and asking us to investigate and having us come to the conclusion that this amounts to what's called a refusal to deal under the act. They are willing to pay, they are credit-worthy customers, and the airline is unwilling to supply it. The unwillingness to supply makes it impossible for the airline to continue.

Those are all questions of fact. For instance, in the situation you posited, Canada 3000 and the flight training, can they buy it somewhere else? Can it be bought in the States? On what terms, etc.? Without going into those details, I can't give you an answer.

Ms. Val Meredith: Thank you.

The Chair: Thank you, Val.

Just as a bootleg on Ms. Meredith's question, Mr. von Finckenstein, I received a letter today that there have been additional termination letters advising Canada 3000 that Canadian Airlines wishes to withdraw from handling their aircraft at Edmonton, Winnipeg, and Whitehorse as of June 2, 2000. Just to follow along the theme Ms. Meredith put to you, I think the suspicion here is that given Air Canada's monopoly position, we're in a bit of a pickle because it's the company, Canadian Airlines, that's cancelling its contract with Canada 3000, not Air Canada.

At the completion of that cancellation, Air Canada, under the new act, comes forward as the monopoly airline. Canada 3000 comes back and says to Air Canada that they need the services, ground handling, etc., that were provided to them by Canadian. Air Canada says that was a deal you had with Canadian, not with us. There are certainly a lot of doors they can hide behind in order for them to achieve through the back door what they obviously will not be permitted to do through the front door.

I suppose if Canada 3000... Is it up to them alone to come forward and tell the Competition Bureau what the scenario is as it's being painted to them? Here is the problem we are dealing with. We are behind the doors because they are saying they're not the company. I suppose you'd have to make the investigation show how Air Canada has actually dictated to Canadian through policy that it has to shut down these services or whether it was Canadian that shut down the services, etc.

Mr. Konrad von Finckenstein: I don't think that's going to be much of a problem. Air Canada's aim here is to merge the two companies. The reason they want to merge them is that Canadian has a huge tax loss. It's $6 billion. That will be reduced to the extent that the debts are decreased by the bankruptcy procedure and the tax loss is correspondingly cut back. So it won't be $6 billion.

This whole thing only makes sense if you merge the two companies. At the end of the day it will be the action of Air Canada. The shenanigans you suggested, hiding and saying this is not my company or I don't control it, etc., I don't think will be an issue. The issue will be whether the activity of the merged company is in contravention of the Competition Act. Is it anti-competitive behaviour designed to hurt your competitor and injure them and drive them out of business, or is it vigorous competition that you do ordinarily, day to day, between competing airlines? That's a very difficult line to draw.

The Chair: That's where I think members of this committee and others are fearful. By the time the Competition Bureau is approached to investigate the merged airline and its actions, or inactions in the case of Canada 3000, it will be too late for Canada 3000. They will have had to do whatever they have to do in order to survive, probably, as outlined by the company president, Angus, at a tremendous cost.

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Mr. Konrad von Finckenstein: I share your fear. That's why I repeated in my opening remarks that I think the best remedy to the situation is to produce competition in the market, and that's by lowering the entries. I pointed out the three policies that I think would materially contribute to entry and to competition in the domestic market.

That being said, this is not being done at the present time. We have other, secondary means. One is that hopefully some of the existing carriers will extend. There's also Canadian Regional, which is being offered for sale. We'll see whether somebody buys it and whether they manage to attract a partner or an alliance with considerable monetary means.

There's also the cease and desist power we are asking for in this legislation, for the very reason you mention. I'm worried that by the time we normally step in, it will be too late. Under these powers, basically we start in, we get a complaint, we look into it, and we come to the conviction that it's a serious matter. We then go to what's called an inquiry, which is basically where I authorize my colleagues to seriously look into it. At that point we can issue an order to cease and desist this action. That order is valid up to a period of 80 days.

In your example of Canada 3000, if we come to the conclusion that any one of these actions is anti-competitive, we could order it. We would investigate it, and within those 80 days we would decide whether to go to the tribunal, if we decide it is indeed a true case. First of all, Air Canada has to stop the activity, whatever it is, during those 80 days. We would go to the tribunal and we would say we want an order from you to have them stop this on a permanent basis. In the meantime, while this is being litigated, we would want an interlocutory injunction to stop them, etc.

Before that whole procedure gets involved, we are asking for this ex ante power, i.e., the power to tell Air Canada that this is under investigation by us and to stop right now. We are afraid that by the time our investigation is done, this company will be out of business or they will be so chastized that they will be driven away. That's the whole rationale behind the cease and desist power.

The Chair: All the more need for us to complete our work as quickly as we can, I suppose.

Mr. Dromisky.

Mr. Stan Dromisky (Thunder Bay—Atikokan, Lib.): Thank you very much, Mr. Chairman.

In light of the kinds of questions that have been raised by colleagues here, I'd like to follow through. I'm not a lawyer, so I'm just wondering how you would interpret this type of behaviour.

First there's the situation the chairman has introduced, where companies have already been notified that at a certain date support services are going to be curtailed and ceased. Another situation would be where third-party contracts have been signed with the company and they in turn have been notified that the terms are not the best terms. Therefore at such and such a time, when your contract ceases, a new contract will be presented to you at a much lower rate. In other words, we're not going to be paying for the services you're getting at the present time.

In those two scenarios, is it possible for the dominant carrier to say “No, I'm not going to sit down and discuss it with you. I'm not going to negotiate. These are the terms. If you want it, take it; if not, lump it.” How would that be interpreted?

Mr. Konrad von Finckenstein: I have asked my colleague, Dave McAllister, to come to the table. He is our expert on refusal to supply and whether something is just ordinary competition or whether it amounts to a breach of the act. As I mentioned before, it's a very difficult determination. Mr. McAllister is not a lawyer, so he can explain it to you in very straightforward terms.

Mr. Stan Dromisky: Okay.

Mr. David McAllister (Acting Assistant Deputy Commissioner of Competition, Civil Matters Branch, Competition Bureau): I would just start off by saying that we too have heard a number of the concerns the committee members are raising around the table. In the post-merger scenario, there's some restructuring and some dislocation in contracts. The competitive dynamic that existed between Canadian and Air Canada is no longer the same as it once was. So we're seeing some dislocation.

• 1600

People are raising concerns, and in a number of these examples we know they are exploring other market alternatives or are in negotiations with Air Canada to try to resolve these concerns satisfactorily. We have to net out what sort of disruption is occurring post-merger and where it is going to end on these specific issues.

If a firm is unable to access a necessary service at an airport, where there are no other market alternatives available to them and Air Canada refuses to negotiate, or offers terms and conditions that are extremely onerous, we certainly stand ready to entertain any such complaints, act as quickly as we can on them, and go to the Competition Tribunal.

As the commissioner mentioned, these are fact-driven, and the complaint certainly has to be made out. It's not enough to just say, “I don't have the same terms I had with Canadian for baggage handling in Whitehorse”. Well, maybe there are third-party baggage handling firms or other ways you can solve this problem. But at the end of the day, if Air Canada is the sole supplier—and this is a critical element—then we will deal with it under the act.

Mr. Stan Dromisky: Very good. Thank you.

The Chair: Thank you.

Michel Guimond.

[Translation]

Mr. Michel Guimond (Beauport—Montmorency—Côte-de-Beaupré—Ile-d'Orléans): Thank you, Mr. Chairman. I'm pleased that you recognized me at this point in time, rather than Mr. Discepola, Mr. Lincoln, Ms. Folco or Ms. Jennings, who aren't here today to hear questions.

The Chairman: Now Michel...

Mr. Michel Guimond: Mr. von Finckenstein, I'm disturbed about one thing. You may have heard the testimony of Mr. Collenette or perhaps one of your assistants reported back to you, but before I get to the crux of the matter, I have to admit that I'm concerned about a particular piece of unfinished business that I would like us to attend to immediately.

As I understand it, your role is to act more or less as a consumer watchdog. Through this bill, the government is enacting legislation which you suggest can be improved upon because, by definition, no legislation is perfect. There is always room for improvement. I would like to understand your watchdog role, because there's one thing that's bothering me.

When I attended the Prime Minister's press conference announcing the tabling of Bill C-26, I noted that you were also in attendance. The date was February 17. Do you normally attend press conferences? Do you think it was a good idea to be there? I'm asking because I wasn't expecting to see you standing next to Mr. Collenette, given his status as minister.

I didn't consider you to be in a conflict of interest position, but regardless, I'd like you to clarify why you were in attendance at the press conference?

Mr. Konrad von Finckenstein: The independence of the office of Commissioner of Competition is provided for in the legislation. I am responsible for the administration and implementation of the Competition Act, the aim being to maintain a competitive system in Canada.

The bill now before you proposes amendments to the federal Transportation Act and to the Competition Act.

I attended the press conference along with Mr. Collenette to explain the proposed changes to the Competition Act. The minister, on the other hand, was there to explain the proposed amendments to the Transportation Act.

At the press conference, as I'm doing here, I suggested ways of improving competition in the airline industry. I made the same three recommendations as I mentioned here today. By law, I also have the mandate to act as a competition watchdog and to promote ways of facilitating competition in the marketplace. In my capacity of competition watchdog, I have made some recommendations today with which the Transportation Minister may not necessarily agree. It was normal for me to attend the press conference, given that proposed changes to legislation for which I am responsible were being discussed.

Mr. Michel Guimond: I understand. When Mr. Collenette testified before the committee, he repeatedly told us to address our concerns to Air Canada. Several times, he told us to speak to the National Transportation Agency or to the Competition Bureau. I even wondered if the legislation had anything to do with transportation.

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Let me give you some specific examples. I'll choose my words carefully, because sometimes, words can lead to different interpretations. However, I find it amusing to read the following on page 6 of your statement: "I don't harbour any fears about the future financial health of Air Canada."

I have to agree with you. It's like admitting to oneself that one grows a day older with each passing day. However, do you have any concerns about the future financial health of small carriers such as Air Alma and Regionair, or of charter airlines? Do you have any concerns about these players? I can give you some specific examples and I will list them quickly because I'm running short of time.

I'd like to know if this case fall within your area of responsibility and if your draft regulations apply to it specifically? Régionair has begun to provide services in Bonaventure, in the Gaspé region. Air Nova has not provided services to this region for many years. However, it now decides to get back into this market, but is prepared to provide service for $75 or $100 less than Régionair.

Large carriers can afford to operate flights on a particular route at a loss because their revenues from other sources are substantial. The minister has told us that his bill will control price fixing on monopoly routes. However, in the case of routes where carriers are competing for business, when a large carrier moves in and begins to offer Montreal-Toronto round-trip flights for $99, the situation is much like when the large carriers killed off Nationair.

That's one example of discounted fares and I'll come back to it later. I can give you two or three other examples.

Mr. Konrad von Finckenstein: Let me answer your questions in sequence.

First of all, you asked if I was concerned about other air carriers and why I don't harbour any fears about the future financial health of Air Canada.

Air Canada is now the country's dominant carrier. The company explained to us why it was important for it to dominate the market in order to ensure its financial future. I quoted three figures to you to indicate why I don't accept this explanation. In the future, Air Canada stands to be a highly profitable, highly lucrative company.

As Commissioner of Competition, I have a responsibility to maintain competition in Canada, particularly in the airline industry. Naturally, I'm concerned about the financial health of small carriers. If problems arise as a result of anticompetitive acts by Air Canada, then it's my duty to intervene. If these carriers encounter problems because they fail to operate efficiently or because they are not soundly managed, then competition will be their downfall.

Now then, with regard to the case you mentioned, we have drafted regulations to ensure that if Air Canada and a small carrier find themselves competing to provide service on a particular route and if Air Canada's offers service at a voidable cost, then the airline's behaviour will be deemed monopolistic and we will step in.

However, if the cost is higher, then the environment will be competitive. In essence, these regulations are a code of behaviour for Air Canada. If the airline fails to act in a certain way, then we will step in. If it complies with the code, then it won't have any real problems with the Competition Act. That is the real purpose of these draft regulations.

The Chairman: Thank you, Michel.

Go ahead, Mr. Drouin.

• 1610

Mr. Claude Drouin (Beauce, Lib.): Thank you, Mr. Chairman. I see that Mr. Dumas from the Bloc Québécois isn't here today. Neither is the research officer for that matter. Should I take that to mean this meeting is of lesser importance?

Mr. von Finckenstein, you had this to say about the fourth major proposed amendment to the Competition Act:

This process thus allows for both competition and public interest issues to be addressed at the same time. In addition, the bill enshrines into legislation all of the undertakings agreed to by Air Canada in negotiations with the Competition Bureau before Christmas. It deems the merger to have been approved under this new procedure. As a result, the undertakings will become legally binding and enforceable. Put simply, any contravention of these commitments can now result in fines and imprisonment.

Can you give us some examples? What kind of fines could possibly ensure that it would be in the best interest of a company to uphold its commitments?

Mr. Konrad von Finckenstein: As you may recall, we reached an agreement with Air Canada whereby mergers would be approved under certain conditions. Among other things, we anticipated that Canadian Regional Airlines would have to be sold, that along with the experts, we would determine its sale price, which naturally would not be disclosed, and that if a potential buyer seemed willing to pay a higher price that the reserve price, then Air Canada would have to sell Canadian Regional Airlines to that potential buyer. That was one of the commitments made by Air Canada.

Mr. Claude Drouin: And what if Air Canada contravened these regulations?

Mr. Konrad von Finckenstein: Then I would take the matter to court and ask it to order Air Canada to comply with the undertakings agreed to in the contract signed with the Competition Bureau. If Air Canada failed to uphold its commitments with respect to Canadian Regional Airlines, then I would seek permission from the court to sell the company.

Mr. Claude Drouin: I understand. In this particular instance, fines can be imposed. Have you established any specific criteria in so far as fines are concerned, or will you establish them as you go along? Does the company realize that if it contravenes a particular regulation, it will be fined x number of dollars?

Mr. Konrad von Finckenstein: The bill now before the committee spells out clearly the fines and penalties which would be imposed on Air Canada if it failed to uphold its commitments.

Mr. Claude Drouin: I see. It's in the bill. Although you say that Air Canada is complying with several of the recommendations made by your office, you also express concern about the fact that some of your recommendations were not retained. Were these major recommendations? If so, what impact could this have on the traveling public?

Mr. Konrad von Finckenstein: No. You should remember that the agreement concluded before Christmas with Air Canada came on the heels of an in-depth investigation of the status of Canadian Airlines. We all agreed that Canadian was on the verge of bankruptcy and we had to decide if it was preferable for the airline to file for bankruptcy and sell off all of its assets, or whether it would be better to allow a merger between Air Canada and Canadian, provided certain conditions were met, in particular conditions having to do with airport landing slots and the sale of surplus aircraft. It was our view that the undertakings made by Air Canada provided a solution more conducive to ensuring a competitive environment than Canadian filing for bankruptcy. That's why we preferred to conclude an agreement. However, I'm still convinced that this is not an ideal solution. When one player holds an 80 per cent share of the market, this is not a scenario conducive to competition.

• 1615

That's why our main concern was to force Air Canada to meet all of its commitments. Moreover, I think we should modify some of the conditions that prevent new players from entering the market to ensure that there is more competition.

Mr. Claude Drouin: Have you identified some of the problems that currently exist? Apparently, one of the complaints air travellers have is overbooking. Are you aware of complaints of this nature and are you looking into this problem?

Mr. Konrad von Finckenstein: No, this is not my area of responsibility. My job is to focus on anticompetitive acts, for example, on misleading advertising. Reviewing questions relating to service delivery does not fall within my purview. However, I think the best way to deal with problems of this nature is to ensure that we have healthy competition.

Mr. Claude Drouin: Thank you, Mr. von Finckenstein.

[English]

The Chair: Thank you, Claude.

Bev Desjarlais, please.

Ms. Bev Desjarlais (Churchill, NDP): Thank you. I can't help but notice that we're getting a somewhat different approach to things now than in our previous meetings where you appeared. I have to say that maybe I missed it, but this is the first time I've ever heard about ordinary vigorous competition versus anti-competitive behaviour.

Through this whole process we've been assured that we can put rules in place; that between the Competition Bureau, the CTA, and all these other wonderful groups we have in place, we'll be able to control the monopoly. I have to wonder whether it's even possible now—if we have a situation where it's hard to define ordinary vigorous competition, compared to anti-competitive behaviour.

My question to either of you—since you were the non-legal expert on the issue—is what can we do to make things clearer, if there's a situation out there, or do you prefer to work in that foggy area of deciding whether it's anti-competitive or vigorous competition?

Mr. Konrad von Finckenstein: Before my colleague speaks, let me just say one thing. I am not saying anything different now than I said in December. If you look at my statement in December in the testimony, you will find that I said precisely the same thing. I said I was worried; I felt that barriers should be lowered; and there were three acts that should be taken. I repeated that here.

I then explained to you that what we needed was special power to deal with issues such as abuse of dominance and predatory behaviour, which are very difficult to define.

What you have before you in this draft regulation is, in effect, a code of behaviour saying these are the things we will consider anti-competitive. David will walk you through them in a second.

Essentially, if Air Canada does any of these things, we will look into it. If they refrain from doing any of these things, most likely they are not anti-competitive, just vigorous competition.

David, do you want to explain the regulations in detail?

Mr. David McAllister: Sure. These regulations you have before you really build on what is already in the—

Ms. Bev Desjarlais: Can I just ask—

Mr. David McAllister: Sure.

Ms. Bev Desjarlais: My question was, what can we do to make things clearer? If you're saying these regulations are going to clear it up, that's fine. I don't want to have the answer to my question used up on the regulations. If there's something beyond these regulations that we need to do, that's what I want to know.

Mr. Konrad Von Finckenstein: I hope these regulations will clear that up to a large extent. That's why I asked David to walk us through it.

Mr. David McAllister: That is precisely what my point was going to be. I think the regulations build on what is already in the Competition Act. In a body of jurisprudence under the abuse-of-dominance provisions of the Competition Act, we know what the test is for anti-competitive behaviour.

These rules will go a long way to clarifying what the boundary should be within the context of the airline industry. In addition, once these regulations are finalized, we anticipate that we'll put out an enforcement guideline that will more precisely say how the bureau will enforce these provisions. So I think there's a lot that can be done, and I don't see it as an insurmountable problem.

At the same time, each of these cases has to be looked at on an individual basis, and you have to take account of all the facts and all the market circumstances. There is an element of judgment to be brought to bear. That's what we get paid to do, I suppose.

Maybe I could just take a second to summarize essentially what you have before you. I like to think of it in a simplistic way. If we look at these various paragraphs, paragraphs (a) to (c) are intended to deal with anti-competitive predatory pricing behaviour, either on existing routes by adding capacity, or by Air Canada introducing a low-cost, discount, or fighting brand carrier. That's intended to try to address that concern.

• 1620

Paragraphs (d) through (f) deal with potential concerns that Air Canada would try to pre-empt facilities, hoard facilities, or keep off the market facilities at airports and services that competitors would require to enter the market and offer competition to Air Canada. So we're trying to deal with those types of concerns.

Ms. Bev Desjarlais: Just on that particular issue, Ms. Meredith commented on the situation we heard was happening, for example, at Dorval airport—only because no other one popped into my mind—where Air Canada has the bulk of the business. They're in a position to negotiate a cheaper rate for spots at Dorval—because the airport authority has control over that—than WestJet could negotiate, because they only have a few flights. How does that put them on a level playing field?

Mr. David McAllister: I think we would have to look at the entire context of what was going on—if there was an element of price discrimination or something going on between the airport authority and the various carriers, and so on.

Ms. Bev Desjarlais: But what I'm hearing from you is that they're allowed to have price discrimination, based on the fact that they're the biggest user, so they can negotiate a better deal. We're getting ten boxes of macaroni, so you can have them a little cheaper than if you're buying just one.

Mr. David McAllister: That's correct. Volume discounts because you're a large competitor are not, in and of themselves, necessarily anti-competitive.

Ms. Bev Desjarlais: But it doesn't leave people on a level playing field, and that's what I'm asking. What can we do to make sure things are on a level playing field?

Mr. Konrad von Finckenstein: But that's the nature of a competitive market. You may have to pay more, but you have lower operating costs because you're smaller, you're not unionized, etc. Everybody has different competitive advantages and disadvantages.

In your example, if they just got volume discounts, that would be fine. If they tried to somehow use their power to lean on the airport authority to discriminate against WestJet, to give them inopportune times for landing or artificially high prices, then it would be anti-competitive. That's sort of the difference.

Ms. Bev Desjarlais: Thank you.

The Chair: Thanks, Bev.

Bill Casey, please.

Mr. Bill Casey (Cumberland—Colchester, PC): Thank you.

I'm sure you've noticed recent newspaper articles that were critical of the Competition Bureau. I'd like your comments on them.

One of them said:

In Canada's case, the Competition Bureau has given the appearance that it has been susceptible to political meddling or has had political meddling thrust upon it.

As a result:

Canada, alone among G7 countries, now has a monopoly airline.

I just wonder what your thoughts are on that. Do you feel it was political meddling in this case, or were you given the authority vested in the legislation to do your job in the proper way?

Mr. Konrad von Finckenstein: As you know, the Competition Act was suspended for 90 days. When there was a takeover bid by Onex, certain portions were suspended and we could not exercise our full powers. Notwithstanding that, we were asked to give advice to the Minister of Transport, which I tabled here. I think it became one of the pieces to the solution.

Secondly, once the 90-day suspension was over, we were responsible for overlooking the merger. We negotiated with Air Canada, and there was certainly no political meddling. On the contrary, I think we expected as much out of Air Canada as we could. As I mentioned, in answer to one of your colleague's questions, we didn't exactly have a strong bargaining point because we had to choose between bankruptcy and takeover by Air Canada with concessions. Neither solution was optimum, but I think we made the best we could out of a very poor situation.

Mr. Bill Casey: Do you think the 90-day suspension should have been imposed in the first place?

Mr. Konrad von Finckenstein: The legislation provides for such a mechanism. It's done by governor in council. It's a government decision. You have to ask the decision-makers whether they should have done it or not.

Mr. Bill Casey: Do you think it should have been?

Mr. Konrad von Finckenstein: It is a disposition in the law; it's a provision of the law. I abide by the law; I am paid to apply the law.

Mr. Bill Casey: I know that. But what I don't know is—

Mr. Konrad von Finckenstein: You asked me if the act should be amended to take away the power. That's a different question.

Mr. Bill Casey: Should it be?

Mr. Konrad von Finckenstein: It provides for a firmer—

The Chair: Excuse me, gentlemen. Bill, we have to try to stay on topic here. It's not the Competition Bureau that's here under cross-examination, it's their role in the business of the airline merger.

Mr. Bill Casey: Oh, I think this has everything to do with it.

The Chair: I'm going to make a ruling on it, Bill, so you can try the next question. If I don't like it, I'll cut you off.

• 1625

Mr. Bill Casey: The next question refers to page 6, where you said you weren't concerned about the future financial health of Air Canada, with an operating margin of 7.7%, the highest in 27 years. I would think it would be safe to say that they have increased margins because they have increased capacity or increased ridership. Is there a limit where you would step in with a monopoly? If they increased their margins by double, would that attract your interest, or doesn't it matter?

Mr. Konrad von Finckenstein: The only reason I cited this here is that Air Canada has advanced the case that they need to be strong in order to fight international competition, and that even with this merger, they are still in a vulnerable position. I don't accept that. I think it's an exceedingly healthy airline, as you can see from these figures.

Mr. Bill Casey: If the figures increase, if the margin increases beyond anything they ever had when there was competition, does that attract your attention?

Mr. Konrad von Finckenstein: What attracts my attention is not size, not profit. What attracts my attention is the action you take vis-à-vis your competitors.

If you grow because of your success, bully for you. We will step in if you do something that is anti-competitive.

Mr. Bill Casey: Another international airline approached me and said that under the present circumstances, there are 12 cities within Canada that now have monopoly routes to the U.K. by Air Canada. Do you have a comment on that?

Mr. Konrad von Finckenstein: I don't know whether this is correct or not. As you know, international routes are negotiated on a bilateral or multilateral basis. So if that is so—assuming it's correct, and I actually don't know that—it would be as a result of negotiations that have been carried out pursuant to international bilateral agreements.

Mr. Bill Casey: I think there's a connection between the ability to allow feeders as well. It's not practical for an international airline to service these areas because Air Canada now has exclusive monopoly on feeding the route.

Mr. Konrad von Finckenstein: Well, that's a different question.

A feeder airline... I don't know what cities you're talking about, but clearly, before, you had the choice of being fed by Air Canada or Canadian, and we had those two alliances, as you know. Now presumably you're talking about former alliance partners who now find themselves without feeders.

Mr. Bill Casey: Oneworld, yes.

Mr. Konrad von Finckenstein: They'll have the choice of either striking a deal with another small airline, such as WestJet, etc., to become their feeder, or they can buy Canadian Regional, which is another alternative—of course, in connection with a Canadian partner, because of our ownership restrictions—or they can attempt to negotiate a deal with Air Canada.

But yes, there is less competition now than there was before. That's one of the reasons I'm worried, one of the reasons I'm saying open up the market. Domestic competition that will also feed into an international one is the answer. If my suggestion of a Canada-only carrier were to be adopted, within a very short while we would have Virgin airlines here starting a Virgin Canada, the same way they started a Virgin Australia, which would provide competition in Canada and could also serve as a feeder to anybody else. This is one of the reasons I keep returning to the point of opening up the market.

Mr. Bill Casey: Maybe you could just expand on that, because I don't understand why that would be such an advantage. Explain the fact that it would be totally within Canada's boundaries.

Mr. Konrad von Finckenstein: Right now our international air traffic is subject to multilateral or bilateral agreements. We have open skies with the U.S., which means our carriers can fly to U.S. cities and vice versa. With other nations we have bilateral agreements, for example with the U.K., Germany, or France.

For each of them you designate what are your national carriers that can avail themselves. In Canada, national carriers are carriers that are Canadian owned and controlled—no more than 25% foreign, and Canadian controlled.

That's for that world. Now we're talking about the post-merger world, where Air Canada has 80% of the market share. What I'm saying is create a carrier that can be 100% foreign owned but be restricted to fly within Canada, so it cannot avail itself of any of the bilateral or multilateral agreements that we have for air service. But within Canada, it would compete with Air Canada on the same cost basis, subject to the same regulatory regime, same labour costs, paying the same taxes, etc. It would make sure there is competition within Canada and that Canadians get the best possible deal. Of course, such a Canada domestic-only carrier would most likely be owned by a foreign airline, such as Virgin airlines, and serve as a feeder to them.

• 1630

You would have, in my example, Virgin airlines flying from the U.K. to Canada. But they can only fly to Canada; they can't fly within Canada to pick up that service. So they would fly London-Toronto, but to go from Chicoutimi, from Moose Jaw, from Vancouver, etc., to bring the feeder to Toronto, it would be Virgin Canada. That would be the situation. Therefore, Air Canada internationally would be competing with Virgin airlines. Domestically, to the extent of feeder traffic, it would be competing with Virgin Canada.

Mr. Bill Casey: I have another one, if I have time.

The Chair: It's a 10-minute round. You have a few minutes left.

Mr. Bill Casey: Do you have any comments or opinions regarding the scope clauses that are commonly found in the pilots' collective agreements? Do they impact on the Competition Bureau at all?

Mr. Konrad von Finckenstein: The Competition Act, as you know, exempts labour collective agreements from the scope of the act, so you wouldn't find the exact... Ray, can you read it out, the exact provision?

Essentially, anything to do with labour unions is not part of the purview of the act.

Mr. Raymond Pierce (Assistant Deputy Commissioner of Competition, Mergers Branch, Competition Bureau): It exempts collective bargaining activities. In essence, it says nothing in the Competition Act applies in respect of combinations or activities of workmen or employees for their own reasonable protection. In other words, legitimate collective bargaining activities are exempt from the provisions of the act.

The Chair: Murray Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): One of the things I'm wondering about here is that when this is all put together, we have to come back and see what we've done and how it's working. Under the legislation right now, it's my understanding, three years from now there's going to be the process of review. I'm wondering if you have any ideas of what should be in place when we go through that review. I'd like your comments on that. We're talking about independent advisers being appointed. Who and how? What credentials should they have when they're appointed? What about independent ombudsmen in this process? I'd like your comments on that.

Mr. Konrad von Finckenstein: I think it's very important that you have adequate information to know what's going on, how this merger and the restructuring of the air market proceeds. Part of it is going to be having adequate information. The primary possessor of the information is going to be Air Canada. The Department of Transport will have some information. We have some information, but we are restricted in terms of how we can use it, which is primarily for the enforcement of our act.

If you're looking at an ombudsman, a statutory-based ombudsman would have the advantage that he could be given powers of access, powers of getting the information—demanding it, filing it, etc.—so there would be no question that you would have an independent verification or presentation of evidence. He'd also be able, presumably, to publicize issues, and if he looked into something and suggested changes that weren't adopted, he could make them public and thereby shame the company into compliance.

The downside, of course, is you'd be putting on another supervisory agency and a cost burden on Air Canada. Would you be restricting their ability to compete, both domestically—I doubt it—and internationally? That's a good question. Air Canada would presumably say, yes, you are; and others, no. This is a value judgment that you have to decide.

In all of these situations where you have a monopoly or quasi-monopoly, the key issue is always having accurate, up-to-date information. And the monopoly or quasi-monopoly is the principal holder of the information. You can get supplementary information from other sources, such as airports, users, and travel agents, etc., but some parties may be reluctant to give you that information because they fear reprisal by the dominant airline. Also, there's a time delay.

• 1635

I can't really tell you more than that. I know the Minister of Transport is going to appoint an expert to give you a report. I'm sure Air Canada will cooperate with that person. To what extent they will cooperate and to what extent the information will be timely and up to date, it's hard to speculate at this point in time.

Mr. Murray Calder: Is there anything we could put in place to make sure this information flow is current and accurate and everything so that when these evaluations and reviews come out they also are credible and accurate? Is there anything you can think of that could be put in place for that?

Mr. Konrad von Finckenstein: I must say, you're catching me off guard with this question. I didn't expect it.

I don't know what powers the Department of Transport has right now to be able to order Air Canada to provide such information. It might be a question you want to pose to them, to make sure that's there.

Mr. Murray Calder: Thank you.

The Chair: Thanks very much, Murray.

Just as a bootleg to Mr. Calder's question, does the Competition Bureau or the CTA want people calling them to say, for instance, I lost my bags, or my flight was overdue, or a flight was overbooked and I had to stay in a hotel, or I had to spend a little too long in a line and it was too hot and I fainted?

Does the Competition Bureau want calls like that? Are they equipped to handle calls like that?

Mr. Konrad von Finckenstein: The answer to both questions is no, it's not part of our mandate. Our mandate is to make sure there are no anti-competitive acts that are principally trying to do something to hurt your competitor, or no misleading advertising. That's basically what we look at.

When you talk about lost luggage, service, quality, etc., that's not us. If you phoned us, we presumably would refer you to either Air Canada or to the CTA. Now, whether it's the CTA's mandate or not, you'd have to ask them.

The Chair: I would imagine the CTA would probably give us the same answer you're giving us. But that's a guess.

Mr. Calder asked you about an ombudsperson. In order to have an ombudsperson with full statutory powers, etc., I think the direction we were heading in, with the minister and with some of the others, was an ombudsperson who could take the front-line calls on the baggage, on the lineups, on the problems with the airline, etc. This ombudsperson and his or her two staffers don't need an entire floor or a whole new bureaucracy in order to operate. They take these things, they filter all this stuff out, and then, if necessary, they pass on the concerns to the Competition Bureau, or the CTA if that happens to be the case.

You understand the minister. When he was before us, he told us, look, we don't need another level of bureaucracy. The Competition Bureau or the CTA will handle all that kind of stuff for us.

But I'm not so sure you can. Well, you've told us you won't, or you don't want to.

Mr. Konrad von Finckenstein: No, no, I will do what I've been charged by law to do.

The Chair: Right.

Mr. Konrad von Finckenstein: Lost luggage is not part of my mandate. It's as simple as that.

The Chair: That's what we assume too.

Mr. Konrad von Finckenstein: I knew there had been questions on the ombudsman, and we actually looked at it. The only comparable I've seen is that the Minister of Finance, when he announced his new financial services package, suggested the creation of something called the “Canadian financial services ombudsman”, who would be independent of the financial institutions and have independent directors. The Minister of Finance approves letters of patent and they have the power to recommend awards to aggrieved customers. They can make non-binding recommendations, basically, and will report annually to the minister.

That would be a light ombudsman, one who basically has the power to investigate and make public, etc., which is, I gather, something you have in mind.

The Chair: Would that kind of individual be of assistance to the Competition Bureau?

Mr. Konrad von Finckenstein: No, I don't think it would have anything to do with competition. It's for you to decide whether you feel this is something that is required for customers of airlines.

The Chair: Thank you.

Roy Bailey, please.

Mr. Roy Bailey (Souris—Moose Mountain, Canadian Alliance): Thank you, Mr. Chairman.

Gentlemen, to use a metaphor, on this committee we sit on here I think we're on a rather long airplane ride at the present time. We've already experienced a great deal of turbulence, and I suggest the captain has just told us to expect a whole lot more.

• 1640

I don't say that out of disrespect to you or any of you here. It's just that in terms of what this committee is attempting to achieve, we just don't seem to be able to get the answers.

I suppose I could use the analogy of Question Period, where we ask questions and sometimes don't get answers.

I'm not going to quarrel with the point you made that there will be new cease and desist powers given to yourself. As our chairman had mentioned, this committee had looked at an ombudsman. We thought of an ombudsman who would be quicker to get to and to solve the problems, and to get back to whoever they're reporting to. The minister assured us that this would not be proper, that we didn't need it because we had the CTA and so on.

One of the problems, sir, is this. The third recommendation you have there is for “swift action to stop predatory or other anti-competitive behaviour”. Herein lies the problem, as I see it. That problem is simply this: What this committee sees as anti-competitive behaviour may not be seen as anti-competitive behaviour by your group.

You say, and quite rightly so, well, we're not empowered to do that, but right now this committee is asking itself—and maybe I'm not as sharp as the rest—who do we talk to get something of a more concrete nature as to what is anti-competitive behaviour? If it's just what's spelled out in documents...

I'll admit that in the last paragraph you say, “These regulations would provide a non-exhaustive list.” I'm not doubting that for a moment, but the point is, because of this monopoly situation in Canada we could give you fifty examples right now. You could probably say—and rightly so, according to the powers—that they're not anti-competitive, and yet we see them as such.

What advice, then, do you have for this committee?

Mr. Konrad von Finckenstein: When we speak of anti-competitive at the bureau, we are speaking of competition between airlines. What you are really talking about sounds to me like consumer protection. You want to ensure that consumers and users of airplanes get the best deal and the best service, that they are not bumped around and their luggage doesn't get lost.

Mr. Roy Bailey: No, sir, it isn't that at all. We've had witnesses here already pointing out that some of the actions that have been taken openly, or we suspect have been taken, can easily destroy current routes that are now in existence.

I myself have experienced the act of a competitor in not complying with what is normal passenger travel. I had to shack up in a hotel only to be woken up at six o'clock in the morning because the plane was overbooked.

So where do you go? That is anti-competitive behaviour.

The Chair: That's an abusive dominant position.

Mr. Roy Bailey: Right.

That's why we're hitting all this turbulence up here. We have lots of examples.

Mr. Konrad von Finckenstein: To my mind, what you're talking about is unresponsive behaviour by the airline to customer complaints, etc., that because they have a dominant position, they don't have to. But this is not what is the law and what the jurisprudence talks about as anti-competitive.

You have two models, basically. You have the regulatory model, where you prescribe what they do and prescribe what they can charge. What they can charge has a built-in profit margin. That's a fully regulatory regime. We used to have that.

We then liberated the market and said, okay, if the companies are free to compete with each other, they will generate enormous efficiencies. It will result in better service and also lower prices for consumers. That's what we've had for the last ten years.

Unfortunately, one of the airlines now has failed. The other one has bought it up, and we have, at least for the time being, complete dominance by one airline. That airline now, not feeling the spurs of competition, is engaging in activities that you call anti-competitive.

It is not my mandate to... It may be partially the mandate of the CTA now under these amendments. That's for you to decide. But essentially, as I keep telling you, the only cure I can see is making sure that there is competition, and to make sure there is competition, change the rules so that there's money to be made and others will enter into the market.

I don't think you can have it any other way.

• 1645

Mr. Roy Bailey: Okay. I have just one quick comment then, sir. I appreciate what you're saying, but maybe in order to have competition, either CTA, or you may have to step in—including the government through the regulatory parts—to say, look, ground service has been here and you must share that ground service or you're going to deny flights into the Arctic and northern Quebec and so on... That falls into a ministerial responsibility. I, on this committee, am not about to sit by and watch what I foresee—because the captain has warned me that there's turbulence ahead. We can't allow that to happen.

Mr. Konrad von Finckenstein: The one example you give of somebody serving up north that gets its ground service through Air Canada but Air Canada cuts them off and therefore they can no longer service the north—

Mr. Roy Bailey: That's a good example.

Mr. Konrad von Finckenstein: Take that as an example. I'll have David walk you through what we would do in such a case. Maybe that will—

Mr. Roy Bailey: Okay.

The Chair: Mr. McAllister.

Mr. David McAllister: Thank you, Mr. Chair.

Section 75 of the Competition Act would, in my mind, be the most obvious thing to look at. That's dealt with under refusal to supply. A complainant would come forward and say they're unable to get this type of service in the relevant market. We would have to demonstrate that they're substantially affected in their business because: they can't get this service; they're willing to meet the usual trade terms of the supplier to supply that service to them; and there's no constraint of capacity or so on in Air Canada to provide that service.

If those elements are met and there's a specific situation, then we can go to the Competition Tribunal and get an order against Air Canada to supply that service. But again, we have to be satisfied that they don't have any other market alternatives.

That's the sort of situation we look at. There is a provision of the act that could deal with that if a specific complaint is brought forward.

Mr. Roy Bailey: So they get a 30-day notice and you can put on a cease and desist for 80 days. Is that correct?

Mr. David McAllister: We don't have the cease and desist powers at this time.

Mr. Roy Bailey: No, I know.

Mr. David McAllister: But conceivably, if those powers were in place in the future, yes, that's how it would work.

Mr. Roy Bailey: Thanks, Mr. Chairman. I think I'm over the time.

Thank you, gentlemen.

The Chair: What Mr. Bailey is illustrating for all of us is the confusion that lies, I think, in what the minister's position is and what the jobs of the CTA and the Competition Bureau are. What I think is clear is that if it has to do with airline versus airline, then the Competition Bureau can be there. If it has to do with the price of a fare on an airline, the CTA will be there for that.

But I think the crossover for the committee is what happens to the consumer who goes up and has problems with the airline. Well, you can go to the airline with your problem, okay, but the fox is in charge of the chicken coop. I mean, what's the point of going to the airline? You hope to get satisfaction from the airline, but if you don't, where do you turn? What's clear is that it will not be to the Competition Bureau or the CTA.

And here's what we might have to ask ourselves about these two independent people that the minister says he'll put into place to handle these kind of things: (a) will they be able to handle these kind of things, and (b) when they do, and if they do, what do they do with them once they're handled? Being independent, how much muscle are they going to have to go back to the airline to tell them, hey, we have a problem and you have to fix it up? But anyway...

Thanks, Roy.

Claude Drouin, please.

We're in two-minute rounds.

[Translation]

Mr. Claude Drouin: Thank you, Mr. Chairman.

[English]

The Chair: Time is short.

[Translation]

Mr. Claude Drouin: I'm still concerned about one thing, sir. When we discussed the problem of overbookings earlier, you stated that this did not come under the jurisdiction of the Competition Bureau. I realize that lost luggage comes under the category of customer service. However, when a new company enters the marketplace, it's not necessarily on solid ground. It may be difficult for it to compete with a firmly established company, which overbooks and which woos away some of its customers, which could ultimately force the fledgling company to fold. I'm not convinced that the whole issue of overbooking falls outside your area of responsibility. It's understandable that an airline may overbook two or three seats, but I don't think this practice should be commonplace. Airlines know how many seats are available for booking. I realize companies know that there will always be some last-minute cancellations, but they shouldn't be able to force a new company from gaining a foothold in the market. In my view, practices like this are anticompetitive.

Mr. Konrad von Finckenstein: There are two things you need to consider. First, what happens to passengers when flights are overbooked? Are there no seats available to them on another flight?

• 1650

Mr. Claude Drouin: Their departure and arrival are delayed, sometimes by as much as one day. Let me point out, however, that in the meantime, they do not avail themselves of the services of the new carrier. How is this new airline expected to stay in business for six months if the other airline issues reservations which it doesn't honour until a day later?

Mr. Konrad von Finckenstein: According to the provisions of the legislation respecting abuses by the dominant carriers, specifically to clause 79, when a carrier systematically resorts to the kind of practice you mentioned, then we can intervene.

Mr. Claude Drouin: Thank you, sir.

[English]

The Chair: Thanks, Claude.

Michel Guimond, two minutes.

[Translation]

Mr. Michel Guimond: Thank you, Mr. Chairman.

Mr. von Finckenstein, I'd like to focus again briefly on the examples I gave earlier. In response to my question on discounted prices, you referred me to your draft regulations which spell out acts deemed anticompetitive in the airline industry. I'll give you another example and let you tell me which regulatory provisions would apply in this instance.

Consider the case of a small regional carrier which has been affiliated with Canadian Airlines for 20 years. Air Canada informs it that it appreciated the ties it had with Canadian and assures it that Canadian will continue to exist as an entity. However, it also informs the carrier that as the current owner of Canadian, it will not respect past agreements. One has to understand that this small carrier was in direct competition with Air Alliance/Air Nova for many years. Is this not a clear case of a competitive situation? If the small carrier is forced out of the market, the competitive climate will be altered. Where is it stated in the regulations that this would be a case of anticompetitive behaviour so that we can advise the carrier to invoke these particular provisions?

My second example has to do with the frequent flyer program.

Mr. Konrad von Finckenstein: Could we answer the first question now?

Mr. Michel Guimond: No, I would prefer to put both of my questions to you in succession, because the chair will interrupt me after two minutes.

I've read and re-read section (g) - no, I'm sorry, I believe it's section( h) - of the regulations which pertain to overly generous frequent flyer programs. The case I'm about to relate to you isn't covered under the regulations. Consider the example of a small regional carrier competing with an Air Canada affiliate, that is with a flight number beginning with the letters AC and offering a frequent flyer program to travellers. When the small regional carrier that has been in business for many years tells Air Canada that in order to compete, it would like to be part of the frequent flyer and Aeroplan programs, it is told that it will likely get an response in June, but that the agreement will not take effect into January 1, 2001. The small carrier replies that if it has to wait until January 2001, it will probably go out of business before then. Therefore, certain types of behaviour can hinder competition. Which provisions in the draft regulations that you have tabled would apply to these two particular cases?

[English]

The Chair: Thanks, Michel.

[Translation]

Mr. Konrad von Finckenstein: My colleague Mr. McAllister will answer your first question, while Mr. Annan will tackle the second one. Alright?

[English]

David.

Mr. David McAllister: Maybe I'll just refer to Richard Annan. I think this is dealt with within the undertakings provided by Air Canada with respect—

Mr. Konrad von Finckenstein: The first question was on refusal to supply.

Mr. David McAllister: If there's a refusal to supply an interlining arrangement or frequent flyer points... There are specific provisions in the Air Canada undertakings for Air Canada to provide interlining and frequent flyer programs.

[Translation]

Mr. Michel Guimond: I think you should answer the question, Mr. Finckenstein, since you may be the only one in a position to do so.

Mr. Konrad von Finckenstein: I'll let Mr. Annan answer the second question, and then we can come back to the first one.

[English]

Richard.

Mr. Richard Annan (Senior Commerce Officer, Mergers Branch, Competition Bureau): I understood your question to be asking essentially what there is in the bill or the regulations to help small carriers. I think you have to look at the undertakings that Air Canada gave to the commissioner, which are now going to become part of the regulations or the law.

In particular, for example, on the frequent flyer program point that you mentioned, one of the undertakings says that Air Canada should, commencing as soon as reasonably possible and in no event not later October 1, 2000 and continuing for a period of five years, offer the Aeroplan basically to smaller Canadian carriers. If you actually have a look at the provisions there relating to the undertaking—it talks about the frequent flyer plan of Air Canada—I think they would go a long way in resolving those sorts of concerns for smaller Canadian carriers. They can actually get access to Aeroplan on commercially reasonable terms for a period of five years.

• 1655

In addition to that, of course there are other provisions in the undertaking that will help small carriers. For example, there's an obligation for Air Canada to provide joint fares and interlining arrangements. There are also some slots and gate facilities that are going to be made available back to the airport authorities. They could be reallocated to smaller carriers that wanted to start a service. So there are a number of provisions in the undertaking that will actually be of direct assistance to smaller carriers.

Mr. Michel Guimond: What if it was not an original Canadian carrier, if it was not about the frequent flyer program?

Mr. Richard Annan: Well, it says “eligible Canadian air carriers”, which would include a former partner of Canadian, for example.

[Translation]

Mr. Konrad von Finckenstein: Getting back to your first question which, as I recall, concerned a small carrier that previously was affiliated with Canadian and now, since that agreement has been terminated, is not in a position to compete if it cannot renew its contract with the new owner. Its contract with Canadian was crucial to its survival.

Mr. Michel Guimond: That's correct.

Mr. Konrad von Finckenstein: In that case,

[English]

if it is a refusal to do a deal with a situation...

Mr. David McAllister: I think the situation would be largely similar to the example we discussed earlier about the provision of baggage handling services. If those services are essential to the small carrier and there's only really Air Canada as a viable source of those types of services, then it can be dealt with under the refusal to deal provisions of the Competition Act. We would certainly act quickly if we were to receive such a complaint.

The Chair: Thanks, Michel.

Val, do you have one question before we let the witnesses go?

Ms. Val Meredith: Yes, thank you, Mr. Chair.

I just want some clarification. You inferred earlier that while Canadian is under bankruptcy protection, you in essence still consider there to be two companies competing with each other, Canadian and Air Canada. Is that correct?

Mr. Konrad von Finckenstein: Not quite. What happened is that Air Canada has not bought Canadian. A numbered company has bought it. A numbered company has put Canadian under the protection of the Companies' Creditors Arrangement Act for the purposes of getting court approval for the reduction of the debt load this company is carrying. Once the court has approved the restructuring of the debt, then Air Canada will merge with that numbered company and therefore will merge with Canadian.

Ms. Val Meredith: I appreciate that, but for your commission, do you see Air Canada as owning Canadian and it being a dominant carrier at this time? Do you need to wait until the numbered company deals with the debt restructuring and Air Canada merges with that numbered company and only at that time will you consider there to be a monopoly in the airline industry?

Mr. Konrad von Finckenstein: No. I have to be careful here. First of all, Air Canada has given us a lot of undertakings. With regard to those Air Canada undertakings, they are also signed by the numbered company. So there's no question that they have to live up to it, regardless of whether they are delivered by Air Canada or Canadian or the numbered company.

In terms of a dominant carrier, legally speaking, Air Canada at this point in time does not own Canadian. The numbered company does. We have not had any investigation or any complaint in terms of what's required to address the point.

Does Air Canada at this precise point, before the merger, control the numbered company in everything that's going on or not? I would imagine it wouldn't be very difficult to establish the evidence, but we'd have to establish that Air Canada does indeed control the numbered company and therefore controls Canadian. Given that they have restructured the routes, that they've announced joint flights and they've announced that the frequent flyer plans from one to the other can be interchanged, etc., I think it would be relatively easy to establish. Formally speaking, we haven't done that yet.

• 1700

Ms. Val Meredith: Does the Bankruptcy Act take precedence over the Competition Act?

Mr. Konrad von Finckenstein: Yes, it does take precedence. Obviously what the bankruptcy judge orders will be the ruling at the end of the day. The undertaking with the Competition Bureau states that if there is an intervening bankruptcy and as a result of that bankruptcy or the bankruptcy proceeding, which includes the Companies' Creditors Arrangement Act, the situation is substantially the same as if Air Canada bought Canadian, then the undertakings will continue. If as a result of the bankruptcy there is a forced sale and somebody else picks up the assets of Canadian, then the undertakings would no longer pertain.

Ms. Val Meredith: Thank you.

The Chair: Thanks, Val. Good questions.

Mr. von Finckenstein, thank you very much for your submission to the committee. Gentlemen, thank you all for answering our questions. We appreciate it.

Mr. Konrad von Finckenstein: Thank you.

The Chair: Colleagues, without delay we'll invite Adrienne Rosen to the table so that we can hear her presentation and ask questions of her too.

• 1701

• 1704

The Chair: Colleagues, we want to welcome to the table Adrienne Rosen, who is with International Courier.

Ms. Rosen, thank you very much for coming to our committee and making your submission. We look forward to it. You have five to eight minutes and then we can ask questions of you. Thank you.

Ms. Adrienne Rosen (President, International Courier): Honourable members, committee members, and members of the public, I appear today as a businessperson with a keen interest in the changes that have occurred in the air transportation sector as it affects the air cargo industry.

• 1705

As the president and CEO of a small air courier corporation, I have become acutely aware of the negative impact the merger between Air Canada and Canadian Airlines has already had on our industry, and I am well aware of potential problems down the road for all Canadians.

Let me take you on a brief excursion through the air cargo and courier marketplace. Air cargo and air freight designations denote an industry that has the capacity to move large volumes of shipments that generally do not have a time sensitivity component. In other words, these goods do not by their nature necessitate an immediate delivery. These shipments may take one to three days to reach their ultimate destination, and they are generally commodities that are not considered to have special handling requirements, nor would they be considered dangerous goods. These sorts of shipments make up the bulk of the air cargo industry, and they involve the routine movement of tangibles that Canadians or Canadian corporations use and purchase on a day-to-day basis. Some examples might include car parts, books, printed materials, and electronics.

This industry is serviced by air freight forwarders or by corporations that have a direct account with the airline itself. If the air freight company is regulated by IATA, then some pricing and tariff codes are governed by IATA.

The air courier industry, however, is broken down into two or three different markets: one, those air courier companies that own their own aircraft and service Canada overnight; two, those air courier companies that may or may not own their own aircraft. They may utilize commercial or charter airlines and service Canada in one to two days. Number three is air courier companies that definitely do not own their own aircraft yet service Canada and the world on a next-flight-out basis. Domestically, these services would accommodate Canada with same-day service.

I will not deal with point one, those couriers that own their own aircraft, because for obvious reasons they are oblivious to this merger.

I will deal with points two and three together.

No one can say with certainty when the courier industry first began. The Greeks would tell you it was with Pegasus and the flying horse story, and the Canadian post office would tell you it began in Canada in the seventies during a postal strike. The government would table the question for further study. We don't need to solve that today.

First of all, let me tell you about my company. You may then wish to compare it with the companies that would fall under point two, which might include such corporations as Purolator, DHL, and Emery.

The International Courier. In 1984 I founded The International Courier along with Helen Mills and Myra White. We already had substantial experience in the courier industry when we noticed that the changing economy necessitated moving goods and services and information at a faster speed than was already available. We cornered a niche market that operates 24 hours a day, seven days a week, and is entirely customer service driven. Canada and the United States are serviced same day on a next-flight-out basis, and every other city in the world is serviced on a next-flight-out basis.

Our client base includes financial printers with earth-shattering IPOs that must reach their destination immediately; biopharmaceutical companies that are in the middle of clinical trials; heart valves that must reach an operating room within hours to be transplanted to a dying child; and something as trivial as pancakes that have to be delivered to an African nation so that oil executives can celebrate the Calgary Stampede when they're away.

One thing, however, that all these corporations have in common is the need for immediate service, special handling, and a personal recognition that their package is time sensitive and will be treated with expediency. If any of these commodities are delayed, they are of no value. It is imperative that International Courier has access to space on aircraft, and for that to happen we pay a premium rate to the airlines in order to receive a guarantee that our shipments will travel.

The airlines. The airlines have a cargo rate structure that is based on the following: the level of service. The most usual and lowest level of service is referred to as general cargo, denoting that it will move sometime. Air express denotes that it will move faster than sometime but slower than guaranteed, which guarantees that the shipment will travel on a particular flight at a particular time.

The rate structure is also dependent on how much volume is tendered to the airline and what sort of contractual agreement has been put in place by the airline. The airline gives its biggest and most favoured clients the best discounts. For example, client X might pay the airline 90¢ per kilo for express service and client Y may pay $2 per kilo for the same service. To remain competitive, both companies must charge their clients similar prices, but clearly client X has the profit advantage.

• 1710

International Courier and the airlines. For all next-flight-out shipments to U.S. destinations, International Courier utilizes airlines based in Detroit or Buffalo in order to expedite customs formalities and because of the number of different airlines available to move urgent shipments.

In Canada we have moved all our shipments domestically through Canadian Airlines for the past several years. We have tried to use them whenever we had a choice for the following reasons: the commitment to rigorous customer service, the ability to make a guarantee and move heaven and earth to see that it happened, an almost negligible failure rate, and good prices.

Our experience with Air Canada in contrast was: no commitment whatsoever to customer service; rudeness, including hanging up on us; a 20% failure rate on all guaranteed shipments; and expensive prices.

We are resolved to the reality of the merger, and we know that embracing bitterness would be pointless. We are, however, concerned about two major points that I believe the federal government overlooked when the merger talks were in progress. These two points involve the potential unavailability of cargo space and pricing.

Cargo space. Appendix A in your brief lists copies of domestic airline schedules as they appeared on April 10, 1999, as well as on April 10, 2000. These flight schedules concern domestic travel from Toronto to Vancouver, Calgary, Edmonton, Winnipeg, Halifax, Montreal, and Ottawa. The number of flights that have been cancelled since the merger is of great concern to me, and it should be to you. Most domestic aircraft in Canada are 737s; A-320 Airbuses; and, rarely, 767s. The 737 aircraft are bulk load only, which means that they are not large enough to hold shipping containers that can be mechanically loaded, but that someone physically loads the cargo into the belly of the airplane. The A-320 Airbuses, by contrast, are capable of holding a total of seven LD 345 containers. Each container is capable of holding a maximum of 1,052 kilograms, or, in dinosaur language, 2,319 pounds. Multiply that by seven, and each plane has a maximum carrying capacity of 7,364 kilograms, or 16,233 pounds of cargo. Each Airbus cancelled represents a loss of 7,364 kilos of available cargo space. That is an awful lot of peaches, machine parts, printed matter, or grapple-grommets. That is a lot of stuff that has arrived in Halifax harbour or Vancouver by ship that now has to be distributed throughout this country.

To put this loss of space into context, imagine what this means by market. Last year there were 17 flights a day to Vancouver. This year there are 14. Last year there were 14 flights to Halifax. This year there are 11. Last April 1 I had 41 opportunities a day to move cargo to Montreal. Today I have 32. Last April there were 33 flights to Ottawa. Now there are 26.

Canada represents the second largest land mass on the face of the earth. With this stupendous loss of cargo space, how will we move Canadian goods throughout our beloved country? I can imagine a day when domestic products will be more expensive than imported products.

Pricing and access to space. Who will have access to the precious little space that is left open on the aircraft? Many huge air freight companies buy up airline space in advance at bargain rates so that they will always have space available to their clients at the best price. Will huge air freight companies dictate what moves around this land in concert with a single airline? With a premium on space, how will the rest of us move time-sensitive items that absolutely must fly? What, for example, will happen to the Canadian public's purse if the price of peaches and apples suddenly skyrockets because of scarcity in the marketplace?

• 1715

We received our new contracts last week from Air Canada and Canadian Airlines. Our Montreal and Ottawa rates were increased by a remarkable 65%—65%, Mr. Chairman.

When I complained to the Competition Bureau I was told there was no competition so they couldn't help me. When I complained to Air Canada I was told “We're not raising Canadian's rates, we're just putting things in line with Air Canada's rates”.

This is somewhat true. It is the price that Air Canada offers to its run-of-the-mill clients, not to the clients with the highest shipping volumes. At Canadian I was considered a high-volume shipper and now I have to earn that status with Air Canada. I am going to pay, Mr. Chairman. There are certain qualities that were not merged with the airline.

I raised these fears with the Hon. David Collenette in a letter during the merger talks and never received his response. Mr. Gerald Schwartz, however, did respond to a similar letter that had a definite understanding of my concern. He suggested that when consolidation took place he would use higher-gauge aircraft with a greater cargo lift capacity to solve any such problems.

It is clear that neither Mr. Milton nor Mr. Collenette have considered these very real problems. In terms of pricing, I can actually imagine a scenario where it will someday be less expensive to ship goods to Vancouver through Detroit or Buffalo to save on costs.

In summary, Mr. Chairman, I am concerned that we are the second largest land mass in the world and that our greatest need, that of transportation, has been allowed to fall into the hands of one corporation that sits unrestricted in terms of pricing and mandate. I have a fear that one such monopoly has the ability, if unfettered, to drive up domestic prices of all goods and services.

I would ask that you look at the big picture here. It extends far beyond Susie's winter holiday seat price to Fort Lauderdale. It concerns the transport of food from the ground to our dinner tables. It concerns the machinery that constructs car parts. It concerns getting transplant material to the hospital on time.

I challenge you today not to let this industry be modelled and shaped by the dreams of one corporation, by the egos of one group of shareholders, or the aspirations of one man who boasts that this thing is just too big for most people to imagine. We can imagine it, Mr. Chairman. It is too big and it needs regulation.

Thank you.

The Chair: Thank you, Ms. Rosen.

Val Meredith, please.

Ms. Val Meredith: Thank you.

I gather from your presentation that you have made some contact with Air Canada in the recent time, let's call it post-merger, even though it would appear that the merger isn't there. Is this when they gave you the new price range, a 65% increase, or have they always been that much higher than Canadian Airlines?

Ms. Adrienne Rosen: They have offered their best clients the same price that I'm paying with Canadian now. I am now being bumped up to a general person-on-the-street rate that you would pay, for instance, if you were to walk in and ship a letter home to your parents.

Ms. Val Meredith: So would you consider your arrangement with the airline to be wholesale contracting? In other words, you wholesale contract space in the cargo hold as opposed to seats in the plane?

Ms. Adrienne Rosen: No, it's neither one of those things. We use their premium services, which means that our shipments, because they're so crucial, travel most of the time as baggage, so we are given special rates by Canadian Airlines, which Air Canada also offers to our competition.

Ms. Val Meredith: No, I guess—

Ms. Adrienne Rosen: We don't buy space in advance.

Ms. Val Meredith: So you don't buy bulk space.

Ms. Adrienne Rosen: No. We're not an air cargo company; we're a next-flight-out emergency service. We never know until we get a phone call when the next emergency is.

Ms. Val Meredith: So what you're saying is the volume that you have with Canadian has not been acknowledged at Air Canada, that Air Canada is in essence making you start from—

Ms. Adrienne Rosen: Scratch.

Ms. Val Meredith: —day one, and to earn the volume on that aircraft.

Ms. Adrienne Rosen: That's right.

Ms. Val Meredith: But in the event that you've proved the volume, you would get the preferred rate from Air Canada?

Ms. Adrienne Rosen: Possibly in a year, but since there will be such space scarcity, I doubt that we would do that in a year. I doubt that we would get all of the space we will require in order to meet that crucial place.

• 1720

Ms. Val Meredith: Is there another airline in Canada—WestJet, Canada 3000, Air Transat, Royal, whatever—that can offer some scheduled services that can meet any of your requirements?

Ms. Adrienne Rosen: No, none of them, because we need access to the next flight out. Even if Canada 3000 had the next flight out, they have a five-hour window close-out to bring freight to the airport because they generally operate air freight only. They don't have this expedited service.

Ms. Val Meredith: So then, in essence, Air Canada, as the dominant carrier, monopoly carrier, is the only service you and your company can use.

Ms. Adrienne Rosen: That's right, and we have no alternative now but to pay them 65% more than we're paying them.

Ms. Val Meredith: When you went to the Competition Bureau, they told you they couldn't help because there—

Ms. Adrienne Rosen: There is no competition, they said. They said the Competition Bureau isn't in the practice of setting prices, and since there's no competition to compare Air Canada to, because Air Canada now owns Canadian, there's no such claim.

Ms. Val Meredith: So they weren't concerned that you had... Did you have a written contract with Canadian to provide you those services?

Ms. Adrienne Rosen: Yes.

Ms. Val Meredith: When was that contract to expire?

Ms. Adrienne Rosen: Actually they kept reinforcing the contract. We usually had a yearly contract, but when they went into the merger talks, the contract was only good for two months at a time because they were anticipating that there might be price changes.

Ms. Val Meredith: So it would be safe to say then that at the present time you don't have any contract with anybody, because I would imagine... or do you have a—

Ms. Adrienne Rosen: No, we do. We were handed a new contract last week with a 65% rise, asking for my signature on the dotted line to accept it.

Ms. Val Meredith: Is there any room for negotiation? Have you contacted Air Canada to see if that 65% increase is negotiable?

Ms. Adrienne Rosen: They said it was totally non-negotiable.

Ms. Val Meredith: Thank you.

Ms. Adrienne Rosen: Thank you.

Ms. Val Meredith: That pretty much says it all, doesn't it?

Mr. Ovid L. Jackson (Bruce—Grey, Lib.): Thank you very much for your good presentation. Do you have any suggestions you can give us in terms of how... Obviously you have their charges. How is that going to affect you? How is that 65% going to affect your business?

Ms. Adrienne Rosen: It's going to have a great impact on my clients. We do have competition in our industry. Even though we're a niche market, we have two or three other competitors. Unfortunately, they have been dealing with Air Canada for many years, so they will not be charged a 65% surcharge.

Besides being very depressed about this, I do have a couple of suggestions. I would suggest that you think how to, in some way, through an ombudsman or a separate agency, find a way to ensure that Air Canada, if they're going to cut all these duplications of services to the same market... that they do use higher-gauged aircraft that can carry a lot more cargo, or there's going to be a severe scarcity of space. I'm not just talking about us. What we move is earth shattering and has to move very quickly. I'm even talking about the run-of-the-mill things like produce that gets onto your dinner table. I think if they don't use bigger, wider, aircraft to all of these markets, we're not going to be able to move much of anything. It's going to be a case where the air freight company that buys the most space and has been most loyal to Air Canada will get first shot at the pie.

There has to be some sort of regulation about the size of aircraft, and also someone has to monitor the price tariff codes that Air Canada can charge. If we're going to have a monopoly on something so important, they should not be able to gouge smaller companies.

Mr. Ovid Jackson: You're saying then that Air Canada has enough of these bigger aircraft in sufficient numbers in order to do that, to use these higher-gauged planes?

Ms. Adrienne Rosen: They will now if they start using some of Canadian's. I suspect, though, that they're going to try to use some of the smaller aircraft. They haven't enlarged any of the aircraft yet, and I suspect the smaller aircraft will accommodate the passenger load. But no one has put a great deal of thought into the space required for cargo. I think the whole focus on this merger has been passenger and saving money on filling seats and not looking at the capacity for cargo. It's an important thing to look at.

Mr. Ovid Jackson: Thank you.

The Chair: Thanks, Ovid.

Michel.

• 1725

[Translation]

Mr. Michel Guimond: Thank you, Mr. Chairman. Thank you for your presentation, Ms. Rosen. You have focused our attention on a serious problem.

By the way, I'd like to make a brief comment. You say that Mr. Schwartz answered your letter and acknowledged your concerns. That's all well and good, but one cannot live in the past. A court has ruled that his offer was illegal. I can appreciate your being nostalgic, but that's the way things are.

The facts of the matter are clear. Air Canada now owns Canadian Airlines and we, as legislators, must pass legislation that sets out the new rules of the game. Continuing in somewhat the same vein as my colleague Ovid, we hear testimony from witnesses to find out what they would do to improve this piece of legislation. All of my colleagues seated here at this table would, I believe, agree with me that the issue you're discussing involves the very survival of your company. I'm convinced your company does not have the means to assume a 65 per cent increase. Nor can it pass costs on to users. I understand that. I'd like you to forward to our clerk at the earliest opportunity any suggestions you might have for amending this bill which should be discussed in committee.

On the question of an ombudsman, I've already stated my position. I'm still convinced that with Bill C-26, the Minister is not complying with the committee's wishes and I will be announcing my plans to table, on behalf of my party, amendments calling for an ombudsman to be appointed to deal with such issues.

We're open to your suggestions. In your conclusion, you ask us to examine this chart and not to abandon you. However, you're merely expressing your wishes. Suggest to us ways of amending Bill C-26 that we can discuss in committee and, if need be, in the House. I'm making this request of you. How about it? Are you agreed? Do you think it's a good idea?

[English]

Ms. Adrienne Rosen: I don't think it makes much sense to ask me today to formulate some amendments, because I didn't come prepared to do that.

Mr. Michel Guimond: Not today.

Ms. Adrienne Rosen: I came prepared to tell you a story, and not a story about nostalgia. I have to tell you, I'm not much for nostalgia. I am more concerned about doing good business and watching the country work well.

I have a major concern about the country not working well if we don't find a way, and you, ladies and gentlemen, are the experts here on the committee and you're charged with a very important duty of listening to people like myself and coming up with some learned ways of solving this problem.

I've made a couple of suggestions that I think are important. The ombudsman idea is a very good one, and I hope that happens. I can't think of another way, except possibly a piece of legislation—I don't know how it would be structured—that commits Air Canada to use enough aircraft to move cargo throughout this country and finds a way to legislate against price gouging when one is a monopoly in the country.

I'm not an expert in these matters; I'm a business person. Those are the only two suggestions I can give you. I'm sorry if I'm not meeting up to your expectations, but it's the best I can do.

[Translation]

Mr. Michel Guimond: I just want to clear up one thing.

[English]

I don't have to have those changes today.

Ms. Adrienne Rosen: Oh, good.

Mr. Michel Guimond: We'll have to make our decision as a committee or as individual members, but if you're able to send in something, I would want that before the clause-by-clause study on May 8. If not, okay, we will consider your comments.

[Translation]

Thank you, Mr. Chairman. I have no further comments.

[English]

The Chair: Thank you, Michel.

• 1730

Following up on Michel's comments, Ms. Rosen, you said you were a business person. I think as a business person you would appreciate that the government doesn't intend to be in the business of running a business.

Ms. Adrienne Rosen: Yes.

The Chair: I'm just playing devil's advocate here.

You are a company that is in competition with other companies.

Ms. Adrienne Rosen: Yes.

The Chair: You put your eggs in the Canadian basket. Your competition put their eggs in the Air Canada basket. As a business you would appreciate that if you no longer can do business with Canadian, you'll be forced to move over to Air Canada.

We have not received any complaint, call, or request to appear before this committee from those you compete against for the same business, probably because, as you have suggested, they may be getting some kind of preferred treatment over you when it comes to the cost of doing business with Air Canada, because of their loyalty to Air Canada.

Ms. Adrienne Rosen: Actually, that's not the case. I've had a lot of calls from people. We're starting a new organization that has its first meeting on May 1, called the Air Courier Association of Canada. And I'll tell you right now, I'm sorry that maybe people don't read the papers or listen very well, but no one I've spoken to in the air courier industry or in the air cargo industry actually knew about this committee.

The Chair: No, the air cargo industry is very aware of this committee.

Ms. Adrienne Rosen: The courier industry, then, perhaps has not been aware of it—not the air courier industry, not the people we've spoken with, and they include people like DHL, Federal Express, and Purolator.

The Chair: That aside, I don't think it's our responsibility to make sure you—

Ms. Adrienne Rosen: No, and I'm not suggesting it is.

The Chair: Exactly.

Ms. Adrienne Rosen: But people do not know about it.

The Chair: Anyway, my point is, you are in competition with other businesses trying to do the job that they have been successfully doing, and they're involved with Air Canada at the present time.

Ms. Adrienne Rosen: Yes.

The Chair: You will probably pay more than they do doing business on Air Canada, as you have suggested earlier in your statement.

Ms. Adrienne Rosen: Yes, but I have nowhere to run, because there's no more competition.

The Chair: Well, that's the nature of competition.

You compete with the others. The others have a leg up on you, so that's the nature of the competition. As much as you are in competition with the others that have been with Air Canada, as much as you're in competition with FedEx, UPS, and Purolator... Purolator especially, because they deliver the next day and they try to get the parcels. I've seen them deliver hearts as well. So you are in competition.

Ms. Adrienne Rosen: I'm not in competition with those people. I think you've misread this. We're in a different sector entirely. Some of those people you've just mentioned have their own aircraft; in fact, Purolator does.

The Chair: Yes.

Ms. Adrienne Rosen: We're not in the same business. We're into utilizing the next flight out. These are things that must absolutely fly every hour of the day. We don't wait until 8 p.m. and fly something overnight. We never close, and the flights never stop, and we look at a screen with 250,000 flights on it, around the world.

The Chair: All right. Leaving them out of the equation, you said there were three other companies doing the same job as you are?

Ms. Adrienne Rosen: Yes, smaller companies.

But I'm complaining that if there is a monopoly that is so important to the country, to the structure of the country, to the infrastructure of the country, surely there should be some sort of way of mediating prices and making sure space is available for things that are absolutely crucial.

The Chair: I hope you talk to these other companies. If you can get a consensus with all these other companies that this is so, then this committee would be bound to hear from you as a group and get from you some kind of a suggested amendment to the legislation.

Otherwise, if the other companies say, you know what, we're doing the job and we don't have a problem, then you can't regulate a business to carry out business it's already doing with its favoured clients or with people it has been doing business with over the years. It would make it very difficult to regulate.

Ms. Adrienne Rosen: I'll get back to you in May.

The Chair: Great. I look forward to hearing from you.

Ms. Adrienne Rosen: Thank you.

The Chair: Mr. Calder, please.

Mr. Murray Calder: Thank you very much, Mr. Chairman. Actually, you're running along what I was going to ask.

I crunched down some of your figures here in your comparison from April 1999 to April 2000. From Toronto to Vancouver, by your figures, we're down over 22,000 kilograms worth of cargo space. From Toronto to Halifax, we're down another 22,000. From Toronto to Montreal, we're down over 66,000, and from Toronto to Ottawa, we're down over 54,000. This is all in kilograms.

• 1735

Now, was this cargo space flying empty before?

Ms. Adrienne Rosen: No, in fact we've sometimes had difficulty getting cargo space, even on Canadian, at the time we... our client tells us when they need something to get somewhere. So if Canadian didn't have space available, we would use Air Canada. At times there was no space available—none—because they were both crammed to the rafters. Now, the seats were empty. There weren't any passengers on those planes. But both flights would be absolutely full. That's my concern today, that, okay, we may have the right plane, the right size for the right number of passengers, but what if there's no cargo space left? Then what?

Mr. Murray Calder: Well, it would seem to me then, if there was this cargo space in the planes before, when they were flying wing tip to wing tip, when the passenger seats were empty but the cargo bays were full, there's obviously a marketing opportunity here and somebody's going to jump in and fill that void. Would you not agree?

Ms. Adrienne Rosen: It depends whether it's just-in-time freight that has to move immediately on the next flight out or whether it's something that can wait. It depends what's moving on those particular flights. There will be times when, even if WestJet gets involved, there won't be enough cargo space unless the gauge of the aircraft that flies to these centres is increased in size.

Mr. Murray Calder: What about the regional carriers themselves? One of the things in the proposal that was put forward here is that you will be using the Hamilton airport. We've affectionately referred to it as “Keyes International”.

An hon. member: Right on.

Mr. Murray Calder: They will be taking on eastern flights, and if WestJet decides to move out of Mount Hope, who knows, they could be connecting from that area on out west. Have you looked into the possibility of the regionals carrying air freight, or do they do that?

Ms. Adrienne Rosen: We've always used regionals. We use anybody we can use.

Mr. Murray Calder: Yes.

Ms. Adrienne Rosen: Let me put that to you very strongly. If we need to get a heart somewhere, or body parts or pharmaceuticals, we use the very next flight out. I don't care if it's Pem Air; I don't care who it is. If they have the next flight, we want to be on it. It will be a little more difficult sending someone with an earth-shattering emergency from downtown Toronto in rush hour to Hamilton. But I suppose if it's the only way it's going to happen, we'll do it.

Mr. Murray Calder: Okay, so obviously there's been air freight space that's been taken out of the market, from the figures I've just quoted here, but it's not like you're dead in the water too. There are still other options open to you.

Ms. Adrienne Rosen: It's unknown right now what's going to happen. Things are changing every day. Flights are cancelled every day; flights are added every day. Everything is up in the air right now when dealing with both of those airlines—or one airline, depending on how you're seeing it and what particular day of the week it is. Some days Canadian exists. Some days it doesn't. But let me tell you, if you're talking to the Competition Bureau, it doesn't exist.

In any case, they may provide more aircraft. They may not. It's an unknown in uncharted water. But this committee, with the right input, might make sure that those sorts of space requirements are there. I'm only here to give you important information so that you can consider it as things take shape in the air.

Mr. Murray Calder: I'll leave it at that, Mr. Chair.

The Chair: Thanks, Murray.

Mr. Asselin.

[Translation]

Mr. Gérard Asselin (Charlevoix, BQ): On page 10 of your presentation, we read that there are three fewer flights a day to Vancouver, three fewer flights to Halifax, one less flight to Montreal and nine fewer flights to Ottawa. Each lost flight, on which you could have loaded seven containers, represents an overall loss of 16,233 pounds of cargo. I would assume that airlines are trying to maintain the same passenger volume and passengers carry luggage.

• 1740

Airlines have laws respecting load restrictions. When airlines calculate the weight of passengers plus their luggage, there is much less of a weight allowance available. I don't imagine that an airline operating flights from Montreal to Vancouver would leave 20 passengers stranded at the counter because it has seven cargo containers to load on the aircraft. The weight of these containers is equivalent to 20 passengers and their luggage. Perhaps the airline's overriding concern is to fly passengers and their luggage to Vancouver and then, if the aircraft is not over the legal allowable weight, to transport a number of containers. Is that it?

[English]

Ms. Adrienne Rosen: Well, of course that's the situation. That's always been the situation. I don't know what the point is. Of course, passengers move.

This is how it goes. Passengers move, baggage moves, then the Canadian post office has the next dibs in, then everybody else milks the exclusive cargo that goes through, baggage travels next, and then everyone else. So no one is suggesting at any point, anywhere, that we leave people's baggage behind. I don't think anything I said would point to that.

[Translation]

Mr. Gérard Asselin: What I'm saying is that given the decrease in the number of flights, the fact that there are nine fewer flights per day out of Ottawa, as you mention in your report, means that many passengers are not on these nine flights. If current growth levels had been maintained, we would have seen passengers, their luggage and mail, as you stated, on various aircraft, with room left over for a number of containers. Perhaps the problem stems from the fact that there are now fewer flights. By reducing the number of flights, the airlines is assured that all, or virtually, all seats will be filled. There is also passengers' luggage to consider. If weight restrictions allow, some containers can then be loaded. But often, because of load restrictions, that's not possible.

[English]

Ms. Adrienne Rosen: Well, that's my point. My point, in fact, is to use bigger aircraft. It's not like cargo doesn't make someone money. Cargo makes lots of people lots of money. In fact, it probably makes more money than people do, if you look at the numbers. Canadian Airlines' premium cargo services did earn, point by point, more than Air Canada. So we're not looking at losing money if we do cargo. We just have to be a little bit more clever about the distribution, and that's my point.

[Translation]

Mr. Gérard Asselin: Then you're recommending that the committee call upon Air Canada to increase or maintain the number of flights and to increase the size of the aircraft it uses so that more cargo can be transported. I'm wondering if we are in a position to make this kind of request of a company like Air Canada. Can we tell them to use larger aircraft, to increase the number of daily flights, all the while bearing in mind cargo and passenger volumes?

[English]

Ms. Adrienne Rosen: Well, you probably could not, but you might be concerned enough about this that you might want to put together a subcommittee that would look at cargo space in Canada. This might be an important thing to study before you talk about it.

The Chair: Thanks, Mr. Asselin.

Just before we adjourn, I have one more question, Ms. Rosen.

I first have a point of information for you on your discussion about pricing. In Bill C-26—you have a copy of it—clause 4 amends section 66 of the Canada Transportation Act. It would give them the ability to review all passenger as well as cargo rates. In that review, you would also be able to contact the CTA and discuss this with them, so they would have the opportunity to bring this into question, if need be. So we can put that aside, as far as the rates are concerned.

• 1745

On cargo space, I can understand where you're... Let me ask you this question about the issue of your product that has to be on the next flight, in the next hour. What percentage of your shipments must travel that quickly?

Ms. Adrienne Rosen: Oh, 100%. That's our company.

The Chair: Wait a minute. You mentioned peaches, machine parts—

Ms. Adrienne Rosen: No, no. I'm talking about the whole country in terms of scarcity at that point. I've made the distinction there. I'm not transporting peaches or machine parts except in the odd case where there is a machine down and people are losing hundreds of thousands of dollars a day.

The Chair: So we are agreed that as far as that kind of cargo goes, we're not going to be regulating an airline to ensure there's space for this kind of stuff.

Ms. Adrienne Rosen: No. I would call it the perishable industry, which would include transplant material and biopharmaceutical material. It's also what I would call machine-down situations, where people were losing hundreds of thousands of dollars. I would include that in the concept of perishables.

The Chair: I'm going to be argumentative with you again. I dare say that if you're talking about pharmaceuticals or if you're talking about GM needing a part that's as big as a box in order to make sure that hundreds of thousands of dollars in down time isn't lost... They're going to make sure that thing goes out and they won't give a darn how much it costs. It'll get there and it'll get there fast.

Ms. Adrienne Rosen: Yes, I agree with you. Our clients usually don't care about cost. But I take exception that out of the clear blue sky, my prices are being raised 65% in the marketplace. I don't think that's right. It just doesn't strike me as being right.

The Chair: This is where I'm going to come back to my request. It's your prices that have gone up 65%. If you could come back to this committee with the other couriers in your industry who all agree with your particular position, I think then we have something. If it's strictly competition between you and them and they're charging you more because you weren't on the AC team ahead of time and these other companies were and they're getting a better deal because they've been there, or they're shipping more than you are, or whatever the reason is, you know—

Ms. Adrienne Rosen: It's very easy for me to prove. I can bring you contracts. That's not a problem.

The Chair: It's not them; it's the others.

Ms. Adrienne Rosen: Yes, I understand.

The Chair: I think this has to be a team approach rather than an individual company's complaint that their rates have gone up. As far as the rates go, as I've said, you have the CTA to go to on that, so you don't need a regulation on that. You're asking us to do something about the space issue.

Ms. Adrienne Rosen: Yes.

The Chair: I have a problem with regulating an airline, whether it's WestJet or Air Canada or any other new competitors that we hope will come into the market. I have a problem telling them we're going to regulate them to the extent that we are going to be monitoring what size aircraft they're going to fly from Toronto to B.C., that it will have to be a little larger so that Ms. Rosen can put packages on it.

Ms. Adrienne Rosen: That's not what I'm saying, Mr. Chairman. I'm raising, on my time as well, a concern I have about moving goods from coast to coast on the second biggest land mass in the world. It's a country I care very much about—

The Chair: No question.

Ms. Adrienne Rosen: —and I'm very worried that we won't be able to move the things we all need to use every day as consumers, as Canadians living in this great country.

The Chair: That's where we have to break it down, though, Ms. Rosen. We've already established that the peaches and grapple-grommets are going to move. It's just that they won't be moving in the next hour, and there's probably no need for them to move in the next hour. We're talking about what your company moves: heart material, bio—

Ms. Adrienne Rosen: No, you've missed the point on this one. If there's no space, if it's cut down by that amount of space, then there's an accumulation of no space that will build up day after day so that things that moved in two days or three days will now move in a week. The peaches are going to start looking pretty bad in a week. I'm talking about the accumulation of lost space and what it might mean. You might wish to look at it.

The Chair: All right. Ms. Rosen, thank you very much for your presentation. We appreciate it, and we look forward to hearing from you through our clerk with any kind of information you can provide as a group. You probably want to leave out the price thing because it's been looked into, but on the space we'd be interested in hearing what you might have as a group with the other couriers.

Ms. Adrienne Rosen: Thank you very much.

The Chair: Thank you very much.

Colleagues, we're adjourned until tomorrow morning at 9. Thank you.