STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 23, 1999

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[English]

The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good afternoon, colleagues.

Pursuant to Standing Order 108(2), this is our 26th meeting to study the future of the airline industry in Canada. We have as witnesses Joe Randell, Air Nova, Air Ontario, and Air BC president and CEO; and Laurel Clark, vice-president, customer advocacy and organizational development.

Welcome to the Standing Committee on Transport. We look forward to your presentation of between ten and twelve minutes before we get to some questions.

Mr. Randell.

Mr. Joseph D. Randell (President and CEO, Air Nova; Interim President and CEO, Air Ontario and Air BC): Thank you.

[Translation]

Mr. Chairman, honourable members, thank you for the opportunity to appear today before this committee.

[English]

Thank you for the opportunity to appear before you today to discuss the future of the industry from the perspective of the Air Canada regionals. I am pleased to represent the 3,000 employees of Air Canada's regional carriers: Air BC, Air Ontario, and Air Nova.

The Air Canada regionals play a significant role in the Canadian airline industry. Each regional has its origins with local entrepreneurs who focused on regional routes and meeting the needs of local communities. Our success continues to be based on that same focus on regional markets along with the feed relationship with Air Canada. An open dialogue with our customers ensures that we meet their needs.

Today the Air Canada regionals operate over 660 flight sectors every business day, more than either of the major airlines. We operate to 83 destinations and carry 4 million passengers annually. Combined, the Air Canada regionals contribute approximately $800 million in revenues annually. The regionals are vital supporters of economic development in the communities they serve. In 1999 the regionals will contribute $600 million directly to the economy, and this does not include the significant economic spinoffs.

Among the scheduled carriers, regionals generally have the greatest staff productivity and the lowest costs on many critical measures. Reputed as having the best aircraft utilization in the world, the Air Canada regional fleet of 82 aircraft includes ten Bae 146 77-seat jets, 67 Dash 8s, and five Beech 1900Ds.

Although feed is an essential role of the regionals, we also offer extensive local service. For instance, Air Nova's markets are approximately 60% to 70% local. There are some great examples of partnering with communities to promote economic development.

In several communities, especially in northern or remote locations, the Air Canada regional provides the only scheduled service. The fares of high-priced monopolies that have been circulating in the media recently cannot be further from our experience. We've worked closely with the stakeholders in developing pricing strategies and tailoring the product to meet the needs of the markets, ensuring the ongoing viability of the service.

In communities north of 60, Canadian Transportation Agency regulation provides an added avenue for customers concerned with pricing.

Regional carriers specialize in meeting the needs of business customers by providing convenient connections and flight frequency among smaller communities and hubs or larger centres. Smaller-gauge turboprops and regional jets are the aircraft that best meet this type of market demand. This type of frequent service cannot be provided cost-effectively by a major airline, and neither is the market demand adequate for larger-gauge equipment offering the same frequency.

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However, regional carriers are not low-cost carriers. This has to do with market size. We operate in markets of lower passenger demand and yet offer the advantage of frequency that larger communities enjoy.

Though there is in general a 20% to 30% differential in wage costs and productivity rates with the majors, the per-seat cost of flying small-gauge aircraft is higher. Regionals are also harder hit by costs related to airport charges and landing fees due to the number of flight movements.

In addition, regionals owned by a major airline face labour pressures on wage costs and pay benefits. As a result, owned regionals have wage costs that are approximately 20% higher than independent regionals.

The Air Canada regionals have seen a number of changes in the last twelve months. On November 12, 1998, Air Nova and Air Alliance announced their intention to consolidate, and by April 1999 the corporate and commercial consolidation was completed.

The objectives of the consolidation were to improve the service in eastern Canada and to provide the growth opportunities that were not open to the organizations as separate airlines. Air Nova was facing geographical and fleet restrictions and Air Alliance was experiencing a financial crisis primarily as a result of the downturn in the Quebec market.

I'm pleased to report that the consolidation has been judged a success by the vast majority of our customers, our employees, and our shareholder. Through improved utilization of both aircraft and resources, we've been able to increase our service to the Quebec market by up to 35%. As a result of increased flying and enhanced customer service levels, we have created employment in both Quebec and Atlantic Canada. In the first year of consolidation, Air Nova will surpass the income level originally budgeted for the two airlines separately.

Based on the early success of the Air Alliance and Air Nova consolidation, I was asked to lead a review of potential opportunities from further consolidation of the regionals. During this review, I've been named interim president of Air Ontario and Air BC. Although we had hoped to have an approved action plan by this fall, decisions regarding the future of the airlines have been postponed until the structure of the industry is clear.

The regionals strongly support Air Canada's plan for restructuring. The plan ensures the continuation of a vibrant regional airline sector. It guarantees regional service to all communities currently served by either of the two major airlines or their subsidiaries. Communities not currently served will have the opportunity to negotiate with the airlines for service. Together with Canadian Regional, we will optimize our schedules where surplus capacity exists. Our employees have been given assurances of job security, so important during these times of uncertainty.

Air Canada has publicly stated that it intends to continue to own the regionals. The regionals want to retain the present relationship, as it is critical to both Air Canada and the regionals. In 1998 the regionals accounted for 12% of Air Canada's passenger revenues and contributed $283 million in annual passenger fees to Air Canada.

The regionals also provide local market knowledge and expertise. Working together with Air Canada, we are able to design the schedules and products to best meet the needs of these regional markets.

The relationship with Air Canada and the Star Alliance provides the regional carriers with access to a global network and the customer loyalty program Aeroplan. This has extended these products and services to small communities. Benefits also include access to Air Canada's distribution systems, technology, and purchasing power, as well as shared resources in such areas as ground services.

Should a sale of the regionals ever be contemplated, we agree with Air Canada that any sale must be conducted on a proper and orderly basis and that maximum shareholder value must be realized.

Although Air Canada's plans will make significant inroads to ensuring a strong airline industry in Canada, a number of very serious issues face the regional airline sector. I'd like to take this opportunity to highlight these and to ask that you take them into consideration as you help shape the future direction of the industry.

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The main issues are growth restrictions and escalating costs resulting from devolution of airports and airport services.

The future of the Air Canada regionals is very much tied to a growth strategy. The ability to grow is very much dependent upon gaining flexibility with respect to fleet. Simply put, the regional airlines need to be operating regional jets. Air Canada's management supports this goal, and we are committed to working together to overcome the hurdles, specifically the scope clause between Air Canada and its pilots, that prevent us from operating to our potential.

Although scope clauses are a fact of life for regional carriers with relationships with a major airline, we have the most restrictive scope clause in the industry. The scope clause restricts the regionals to flying turboprops of 70 seats or fewer, with the exception of the existing five jets flown by Air BC and the five flown by Air Nova.

In the United States, Proposition RJ is a lobby effort aimed to rule scope clauses as anti-competitive. Studies by GMKG Consulting suggest that if the current scope clauses in U.S. carrier agreements remain unchanged, over 800, or half, of the potential regional jet markets would be unable to receive new service.

We've identified a significant number of new or supplemental services, translating into up to 26 additional small jet aircraft, that could be introduced to the benefit of Canadian communities and businesses if we had the flexibility to operate additional jet aircraft.

Ironically, Air Nova was the first airline in the world to have options on the CRJs, and we worked closely with Canadair to develop and design the aircraft to best meet the needs of the regional markets. We look forward to working with Air Canada to overcome these restrictions.

Growth of the regionals is also dependent on cost containment. We must be cost competitive with the U.S.-based carriers and other regionals. Customers must feel that the value we provide outweighs the cost differential vis-à-vis alternate modes of transportation. And we must continue to provide a low-cost feeder service for Air Canada. Although this is key to our continued success, we are operating in an environment of escalating costs, mainly due to the commercialization of airports and air services.

I had the opportunity last week, with fellow ATAC members, to present many of these issues to some members of this committee. I'll highlight them again briefly and provide some examples of the financial impact these have had upon the regional carriers.

On airports, the regional airlines support the principles behind commercialization. However, the devolution of costs has been alarming. We are concerned with Transport Canada moving to full cost recovery and the lack of fiscal support for smaller airports. Air carriers will face decisions regarding reduced service or abandonment, given the economics of operating into these locations. It may be time to look at a model such as Essential Air Services in the U.S., which was developed to ensure service on non-compensatory routes.

I'll briefly run through the rest of what's in the paper. I have outlined that airport costs have escalated by 64% since 1995. As regionals, we pay an additional $18 million annually to operate into these airports. At some airports we have airport improvement fees that are now close to $20. Although we support the Nav Canada model, we believe the rate structure penalizes the Dash 8.

Explosive detection systems are presently required to meet international security requirements. They should be funded by government and not added to the operating costs.

On security, we are very concerned about the latest proposals that would require us, as regional carriers, to have three security personnel, versus the more reasonable two, at selected smaller stations. In some cases we'll have more security personnel than passengers boarding the airplane. That will cost us roughly an additional $1 million in 2000.

We pay for policing services now $750,000. We have harmonized sales tax on airfares in three of the Atlantic provinces, adding another 8% to leisure trips. We pay the fuel excise tax, which is inconsistent with the principles related to GST and adds another $7.5 million.

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When you add all these together, people talk about the high level of airfares at the regional communities we serve, but you can hardly be surprised when you look at what we've been faced with.

In this environment, we find we are forced to compete with other modes of transportation, such as VIA Rail, which receives a heavy level of subsidization, and of course roads, which are heavily subsidized as well.

I want to highlight a couple of points here that are really important to get across. The industry review comes at a critical time, and the Air Canada regionals have worked extremely hard to build the strong franchise that exists. It needs to be maintained.

Air Nova and Air Ontario are financially strong, and it would be unfair to their employees, who have exhibited tremendous focus and commitment, to see the value and future success of these airlines diminished through a loss of the exclusivity of the Air Canada franchise. In the west we recognize the need for rationalization due to financial challenges that exist in that marketplace.

We play a vital role in the industry. We have a significant amount of expertise in this business and are critically affected by any restructuring of the industry that may occur.

Merci.

The Chair: Thank you very much, Mr. Randell.

We will now move to questions of the witnesses.

Val Meredith, please.

Ms. Val Meredith (South Surrey—White Rock—Langley, Ref.): Thank you, Mr. Chair.

Thank you, Mr. Randell.

I find some of the comments in your presentation interesting. On page 4 you make a comment about growth restrictions. You imply that part of it is the scope clause that prevents the regionals from flying jets. You say Air Canada's management supports this goal, but its pilots prevent you from operating to your potential. Who runs the company, the pilots or the management?

Mr. Joseph Randell: Management runs the company, but the inclusion of that scope clause was done a number of years ago. Different circumstances existed in the business at that time.

A collective agreement was negotiated between Air Canada and the pilots, which saw wage rollbacks at the time, as a result of the economic pressures that existed. It was included in the collective agreement. I can't say that as a regional carrier I agreed with that. However, it was included at that point and still exists in the collective agreement today.

Ms. Val Meredith: But my understanding is that the regionals have taken Air Canada to court on common employer status. It is in a hearing. Has that been resolved yet? If it has not been resolved, why would you feel that Air Canada, with a monopoly, would treat the regionals any differently from the way they treat them right now?

Mr. Joseph Randell: It makes economic sense for regional carriers to operate regional jets. When we look at the structure of the industry, it is generally accepted that that is where these aircraft are operated. In terms of Air Canada's determination to make this happen, that's probably a question you can ask Mr. Milton. However, from my discussions with him, I know he really believes it is necessary to make a change in this agreement.

You are right about the present decision before the CIRB with regard to common employer. There are two aspects to common employer, however, in the present application before the CIRB. The CIRB application specifically talks to the bargaining unit, the integration of units, and the integration of seniority lists, which is something we as regional carriers have objected to, as it will serve to increase our costs.

What we're really looking for as a result of this change, and hopefully as a result of whatever decision comes out of the CIRB, is the flexibility we need to operate, as regional carriers, regional jets.

Ms. Val Meredith: But that has been before the CIRB for two or three years now. Has it been settled?

Mr. Joseph Randell: It's been at least that long. The decision was due this fall, and I understand it was extended for another 90 days. It is yet to be made available.

Ms. Val Meredith: Thank you.

The Chair: Thanks, Ms. Meredith.

Mr. Fontana, please.

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Mr. Joe Fontana (London North Centre, Lib.): Thank you, Mr. Chairman, and thank you to Mr. Randell, who happens to head up one of the finer regional carriers, coming from London, Ontario: Air Ontario. They're appreciated very much. The fact that I have to take 55 airline trips a year makes all the difference in the world. I like the Dash 8, but I'm telling you, I'd love to have RJ service between Ottawa and London, Ontario.

The Chair: You have one minute less in your questions, Joe, so far.

Mr. Joe Fontana: Let me get to the crux of the issue here. Regionals started off, really, as independents, until such time as both airlines, Air Canada and Canadian, thought ownership was a way of building that relationship, building that market. As you said, you carry an awful lot of their traffic that will go on to other places, both domestically and nationally, but you also bring their people back to their homes. That's why regional services to the communities are absolutely essential if we are to think about the consumer in this whole equation.

Over the past number of years—and I will ask Mr. Milton this—there's been a concerted effort, in my opinion, to keep the regionals from growing too fast, because in some cases you even compete directly with them. Let's face it: when they own you, they control you. They tell you what your schedules are, they tell you what equipment you can use, and they tell you how much you have to charge the customer. You in fact are at the mercy of Air Canada, albeit that I'd like to think you have some sort of autonomy, and therefore I would agree totally.

That's why I want to ask you, and then Mr. Milton, how is that going to be different under his new proposal if he hasn't allowed you to get the RJs? The customers have demanded that. If you want to grow the market, and the market says you need additional flights to other destinations, you need better equipment, and you need all of this.... You've been prevented from doing so. Can you clarify that position for us?

Mr. Joseph Randell: Well, first of all, in terms of competing, you're right: we do not compete with Air Canada. We work very closely with Air Canada in the development of schedules and in the development of the network, and we do have significant input in terms of the schedules. A lot of the regional efforts and the new routes that have been developed have been a result of the work that's been done at the regional carrier level, and not at Air Canada. But in terms of competing, we do not compete with Air Canada—you're absolutely right—because we operate a complementary product, and that is the way it is designed for customers.

The issue has been—and it's not unlike any other major in a relationship with its regionals, whether they're owned or non-owned—where the demarcation line lies between the role of the regional carrier and the national carrier. What I'm suggesting is that in the case of the Air Canada regionals, it would be nice if the demarcation line were in a little different place so that we had the flexibility to operate the regional jets.

But in terms of new markets, in terms of working with Air Canada, we have in the past worked and I've worked in an environment where Air Canada was not the controlling shareholder and others were. We still worked with Air Canada very much in the same way, doing things on a complementary basis. If you're in a partnership or an ownership, generally it works a lot better if you cooperate rather than compete.

Mr. Joe Fontana: You've indicated that Air Canada would like nothing better than to give you RJs. I beg to differ. The fact is they've had ten years, or even five years, to offer you RJs. I know Bombardier is very busy. I know if you order one today, you're going to have to wait three years anyway to get one, so it's not as if you can get one tomorrow. But your customers have been demanding it.

If Air Canada, as your so-called partner, as your owner, is really concerned about the customer.... At the end of the day, that's who I want to focus on, the customer in those communities you serve, those 83 communities across the country you are bringing service to, because in some cases there's no other alternative. I'm a little worried if there's only one alternative at the end of the day, that dominant carrier that controls everything from domestic to international to regional, and even a discount airline. That's one big boss calling the shots on pricing, scheduling, and everything else. I'm getting a little nervous, especially based on the record of this boss in the past five years in terms of giving you the equipment you need.

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So I'm just wondering about these scope clauses and whether or not Air Canada is really on the same page when it comes to giving the regionals what they need and want in order to provide service at the community and regional level.

Mr. Joseph Randell: To respond to that, as I say, there has been a change of leadership at Air Canada over the last number of months. Based on my discussions with Mr. Milton, I'd say he is determined to make this change. However, he has to respect a collective agreement that was negotiated in good faith, of course. No party in this country is unable to do that, and discussions and negotiations would definitely have to occur to influence it. The decision that may be coming down from the CIRB—we're not sure at exactly what time—may have the ability to influence that decision as well.

But the determination is there. The circumstances Air Canada went through in the early 1990s, in terms of the financial crisis the airline faced at that time, did require some very difficult decisions. Unfortunately this was one decision made that actually hurt us, but it was made in the interest of improving Air Canada's viability.

In terms of the country and the feed—and I speak about the exclusivity here—as an industry, we have been put in this position ever since proposals were put forward a number of months ago that essentially said that in this business, you can't fail. When you can't fail in this business, it presents some real problems for us all.

The Chair: Mr. Guimond, please.

[Translation]

Mr. Michel Guimond (Beauport—Montmorency—Côte-de-Beaupré—Ile-d'Orléans, BQ): Thank you, Mr. Chairman.

Thank you for your presentation, Mr. Randell. You realize that the objective of this committee is not to scrutinize closely all of the offers on the table, but rather to try and identify certain components for inclusion in a policy framework on the airline industry in Canada. That's the role I see for our Transport Committee, which will be asked to make pertinent recommendations to the government.

However, it's hard not to talk about the offers on the table because they affect to some extent our perception of certain services. That's why I'm confident the chair won't interrupt me and will allow me to ask you the following question.

Last week, a group headed by Mr. Deluce, who was testifying on behalf of Regco, implied that if Air Canada became the dominant industry player, it should be forced to divest itself of its three regional carriers and of Canadian Regional.

I'd like you to comment on this position because ultimately, Air Canada will retain 100 per cent ownership of the regional carriers. Do you think the government should force Air Canada to sell off its regional carriers?

[English]

Mr. Joseph Randell: No, I do not think there should be a forced sale of the regionals. The relationship between a main-line carrier and its regionals goes far beyond ownership. As regional carriers, we extend the brand and the presence of the national carrier in the marketplace with regard to the code, the frequent flyer program, etc.

The relationship between the regional and the main line in that regard has to be a cooperative one. If it isn't a cooperative one, then the customer won't make the proper connection, won't achieve the benefits of having access to that network.

For people in smaller communities in this country, it's absolutely necessary that these smaller communities have access into this network. Whether it is owned or non-owned, there are all sorts of examples of this in our industry. What it comes down to, though, is the importance of that business relationship between the regional carrier and Air Canada, or the national carrier, the main line, and their ability to make it work from a cooperative point of view. It's very difficult to do that and be in full competition or in a non-cooperative environment, because as a result of that, I really do believe the consumer will suffer.

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[Translation]

Mr. Michel Guimond: Mr. Randell, in your submission, the French version of which does not contain any page numbers—no matter, we're used to that—, you state that together with Canadian Regional, you will optimize your schedules where surplus capacity exists.

Perhaps it's merely a question of semantics, but I'm worried about your choice of words. You talk about optimizing schedules, but perhaps you're also implying that you will optimize the type of aircraft used to provide service to the regions. As I pointed out to you in April when Air Nova and Air Alliance merged, I'm convinced that in order to have viable regional services, we need proper aircraft and quality services. You use Beech 1900 aircraft on some Quebec routes, with no flight attendants, which could compromise passenger safety. We mustn't forget that the primary responsibility of flight attendants is not to serve passengers meals, but to ensure their safety while in flight.

It worries me and scares me to hear you say things like this. Anytime a reference is made to surplus capacity, the implication is that the number of aircraft in service will be cut, that some services will be eliminated and that cuts will be made to ensure a better return on investment.

Would you care to respond to this?

[English]

Mr. Joseph Randell: Well, first of all, as a result of the Air Canada proposal where the regional carriers would be feeding both Canadian and Air Canada, there's a difference. In the west you have two wholly owned subsidiaries of both Air Canada and Canadian Airlines.

In the west there are significant financial difficulties in the industry. There is excess capacity. It's a different operating environment, and it is necessary to rationalize the schedules in the west. I think the example has been given before as well of where you have both carriers operating, and really the opportunity is to operate a larger aircraft on a route, rather than having two smaller airplanes operating at the same time.

Exactly how the west will be rationalized I don't know. It requires a lot of thought.

The east is a different situation. In the east the only wholly owned subsidiaries are Air Nova and Air Ontario. As such, being able to feed both Canadian Airlines and Air Canada, which is the Air Canada proposal, would as well allow us to potentially look at up-gauging the equipment and increasing the size of the equipment we operate.

In the present environment, yes, we do operate five Beech 1900s. They are operated primarily within Quebec. A number are operated in western Canada by other operators that are non-owned. These Beech 1900s have proven to be very reliable. Although there is no flight attendant, we've put an in-flight service on board, etc.

The difficulty is the operating costs are such that if we didn't operate those airplanes, there would actually be no service, because the economics and the costs of operating the Dash 8 are such that we would not be able to operate some of the routes on which we operate today. The Beech and its economics allows us to do that. In some cases we actually increase, and as a route develops, replace the Beech with the Dash 8. So the Beech has also proven to be a good developmental airplane in entering new markets. For example, we just entered Montreal to Portland, Maine. Eventually we hope that route, for instance, would grow into a Dash 8 route. So it's really driven by economics.

From a customer service point of view, I'm sure generally speaking larger jet airplanes are what customers would prefer. But you have to remember we're operating in a different economic environment in these markets and in these routes. It's a matter of what the total offering is of revenue versus what your costs of operating are. That's the balance we try to achieve.

The Chair: Thanks, Mr. Randell.

Mr. Dromisky, please.

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

I would like to continue and follow through with the kinds of thoughts Mr. Guimond was expressing. But before I go on with my main question, I'd like to get some information from you.

We're talking about three different air carriers right now. Who owns them? Are they separate corporate entities? I'm talking about separate entities. Because many people think Air Canada owns those three companies. Could you clarify that?

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Mr. Joseph Randell: Air Canada does own all three companies. They are wholly owned subsidiaries of Air Canada. Each company has its own board of directors, the majority of whom are outside directors. These directors carry full fiduciary responsibilities related to these regional carriers. They are 100% owned by Air Canada.

Mr. Stan Dromisky: That's a very important point. In your brief you indicate you are quite willing to carry on with this relationship you have with Air Canada, although you have separate boards and so forth. However, I'm wondering if you would have any specific objections to a move by a dominant carrier such as Air Canada getting to the table and saying, “Okay, fellas, we're going to separate. We're going to sever the relationship. You're going to become separate entities, and you'll have to start negotiating all over again with absolutely new contracts.” I'd like a reaction to that.

Keep in mind though what the Competition Bureau has stated. The Competition Bureau has already told us that if divestiture does not take place, competition is not going to be there—the kind of competition we would like to see. So could you respond to what I have said?

Mr. Joseph Randell: We are very much integrated into the Air Canada network, as is I'm sure Canadian Regional into the Canadian network. In terms of starting over and renegotiating agreements, what is fundamentally most important to us is the whole issue of the exclusivity of the feed arrangement. We are best equipped in this business to feed the major carrier, and we have the expertise and the necessary structure to do that. It's very important we retain that.

At the same time, one of the things contemplated in the Competition Bureau document is the issue of access to the major carrier by others. That would be a very significant concern to us, because in effect by doing that, we lose our franchise as regional carriers. Especially the carriers in the east become very vulnerable to attrition. Being wholly owned subsidiaries, we would actually be at a disadvantage because of primarily our costs. You have to realize that in general, the subsidiaries operate at higher cost levels than the independents.

Mr. Stan Dromisky: Okay, thank you.

The Chair: Thanks, Mr. Dromisky.

Just as a point of clarification, the competition commissioner, who did appear before us, did not say the dominant air carrier would be forced to divest the regionals, in their opinion. In fact they were very cautious in their approach and said it would take a much more detailed study or review before they would even suggest the regionals should be divested from the dominant.

Ms. Desjarlais, please.

Ms. Bev Desjarlais (Churchill, NDP): Thank you for that clarification, Mr. Keyes, because that's exactly what I thought had taken place as well. So I'm glad that's clarified.

I'm going to try to fit as many questions in here as possible, so if you can give me the shortest answer possible while still getting the answer out there, I would appreciate it.

Did you support the devolution of the airports in Nav Canada?

Mr. Joseph Randell: The principles associated with the devolution, yes, we did support.

Ms. Bev Desjarlais: Okay. When were you named interim president of Air Ontario and Air BC?

Mr. Joseph Randell: I was named interim president of Air Ontario in March and interim president of Air BC in June.

Ms. Bev Desjarlais: Okay. And I just want to clarify something. When you were talking about the security at airports, you said there are situations where you'd have more security than passengers. My understanding is there was a rule in place that if you had below so many passengers, you were able to have fewer security guards, if it were just an airport where, say, one flight was going out. Is that not still the case?

Mr. Joseph Randell: Actually, there is a rule that states we don't have to have security at all. But we believe in providing security for the benefit of our passengers. One of the issues is that when people operate or fly into these major airports, it becomes very problematic if they have to operate—

Ms. Bev Desjarlais: Okay, I'm going to stop you there, because you gave the impression there was a requirement to have more security guards or security there, even if you only had one or two passengers. Yet you verified what was going to be my next question.

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I know security was taken out of a number of airports in Canada, which created some concern amongst smaller communities. I just want to clarify exactly where it was. There is a rule in place at a number of airports that there's no security required. Is the other rule still in place, then, that if you have only so many passengers, you can have less security available?

Mr. Joseph Randell: No. The regulation we're faced with is that as long as we have security, we have to have a minimum of three people at the security clearing station. It's either zero or three minimum. We're suggesting the three is excessive.

Ms. Bev Desjarlais: Previously, when the other rule was in place and there was security at all airports, including a number of smaller airports that no longer had to have security, was there not a rule in place that if you had only so many passengers, you could have fewer security guards?

Mr. Joseph Randell: I'm unaware of that rule. I don't know.

Ms. Bev Desjarlais: You mentioned the operating cost of the Beech compared to other aircraft. Is that lesser operating cost simply because you're carrying fewer passengers and so you have a smaller aircraft? Or would a prop plane such as the Dash 8-300 be more economical than a Bae 146?

Mr. Joseph Randell: It's all a function of the market size. If you have a very small market, your trip cost becomes very important. But you have to realize that the smaller the aircraft, the more expensive it is to operate on a per-seat basis. Then you get into this trade-off on the per-seat operating cost versus the trip cost. That's the balance we always strive to attain in our business.

Our philosophy in regional markets is to go with high frequency. Rather than sending one flight a day with a big aircraft, it's to operate six times a day, because we believe that's more in the interests of the travelling public.

Ms. Bev Desjarlais: So on top of the scope clause that would restrict RJs from going into areas, by that restriction being in place, there's also an increased cost for the consumer in smaller areas, simply because of the type of aircraft that can be flown in there and the number of trips that have to be made.

Mr. Joseph Randell: We believe if we had the flexibility to operate regional jets, that would help to actually lower our costs in providing some of these services.

Ms. Bev Desjarlais: Between the Dash 8-300, with a capacity of 50, and the Bae 146, with a capacity of 77, apart from the pilots and the flight attendants, which has a greater operating cost?

Mr. Joseph Randell: The jet certainly has a greater operating cost.

Ms. Bev Desjarlais: Okay. Thank you.

The Chair: Thanks, Bev.

Mr. Sekora, please.

Mr. Lou Sekora (Port Moody—Coquitlam—Port Coquitlam, Lib.): Thank you very much.

You have Air Canada and Canadian Airlines in the big plan in Canada, and then you have the regionals that are either part of Air Canada or Canadian. Is that right?

Mr. Joseph Randell: That's right.

Mr. Lou Sekora: If you had, let's say, separation of the small regionals away from Air Canada and Canadian Airlines, how do you see that being a different company altogether?

Mr. Joseph Randell: We operate as a separate corporate unit at the present time. In whatever new structure comes from the reshaping of this industry, the relationship between regional carriers and the main-line carrier in terms of access, code, feed, and all of those things is critical, because we have to extend the network into the smaller communities. The major airlines can't do it. We are best equipped to do it.

Mr. Lou Sekora: But you're not really operating separately when your boss is the boss of Air Canada. How can you say you're operating separately if the guy who is your boss holds the whip and hammer over your head and says, “Thou shalt not do this” or “Thou shalt not do that”? How can you say you're independent? You're not independent.

Mr. Joseph Randell: We are not independent to the fullest extent in terms of having total control over our destiny. That is true. But at the same time we have a role within the airline group, and that is what we focus on and that is what we do.

Mr. Lou Sekora: I'm talking about a total divestiture from Air Canada and Canadian to where your boss is not the boss of Air Canada; your boss is somebody else who operates at arm's length from those other two.

Mr. Joseph Randell: As long as we have the role of feeding the main-line carrier, whether or not we're owned, we will have to negotiate with the main-line carrier to provide the feed and the access to services that are required for these markets.

• 1615

Mr. Lou Sekora: There are also discounts in the west with regional airlines. How do you think it would work out in the east?

Mr. Joseph Randell: It's very clear that WestJet has had a significant impact in western Canada, and it has created some significant issues in the regional airline business and also for airports. We're struggling with that. Western Canada is a significant financial issue for the industry right now, no question.

Mr. Lou Sekora: What about pricing? I'm from the west coast. Sometimes I go on a 10-minute flight, and it will cost me about $300 return. If you go, let's say, from Vancouver to Prince George, it's something like $700 return for about a 45-minute flight. That seems awfully expensive. It seems to be a little lopsided. To me it seems like gouging.

Mr. Joseph Randell: I hear this constantly from small communities and short-haul air travellers. A few moments ago I attempted to outline the cost pressures we face as regional carriers. We operate high-frequency service using smaller airplanes. That in itself is more expensive. Our per-seat operating costs are actually higher than for larger aircraft, and so much of the cost is associated with getting the passenger on the aircraft and getting the aircraft off the ground.

When you look at what has happened with our fixed costs, it has created tremendous cost pressure for the short haul. The very concern I was trying to put forward here is that we do run the risk of actually destroying the short-haul business in this country.

Mr. Lou Sekora: Are you saying that if you had all jets, even the small F-28s, they would be more efficient?

Mr. Joseph Randell: Only on certain stage lengths, because operating jets on 100-mile stage lengths would be extremely inefficient. Their fuel prices, etc., would just be too high, and there's very little difference in the flight time in any event. It has to do with the costs associated with operating the airplane.

We were faced with a lot of price resistance in some of our markets in terms of the regular fares. In Quebec and Atlantic Canada within the last year to two years, we introduced a complete system of what's called last-minute discount fares for business travellers, whereby you get a 60% discount. You can book anytime within two days of flight departure, non-restricted, no penalties, etc. For us the whole effect was revenue-neutral, but we carried more passengers as a result.

We're getting to the point of diminishing returns where we're pricing ourselves out of the market, but we can't afford not to put up fares. And people have other modes to choose from. This is where we become very concerned. In the air mode, especially in the short haul and in smaller airports and services, our costs are just out of control. We really need to look at how we service these communities and what the other modes are, because we're doing a very good job of driving people out of the air and into using their cars and other modes. If that's what we want to do as a country, then we're succeeding, unless we address some of these issues.

The Chair: Mr. Casey, please.

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

Good afternoon.

A few minutes ago you said you wanted to keep the feeder franchise, because regional subsidiaries operate at a higher cost level than regional independents. Why is a regional subsidiary more expensive than a regional independent?

Mr. Joseph Randell: A regional subsidiary is generally more expensive because our collective agreements are more expensive.

Mr. Bill Casey: If you were a member of Parliament and not the president of Air Nova and you were trying to come up with the best answer for Canadian consumers, wouldn't you recommend independent regionals rather than the more expensive subsidiaries?

Mr. Joseph Randell: That's probably why I'm not a member of Parliament.

Some hon. members: Oh, oh!

Mr. Joseph Randell: Yes.

Mr. Bill Casey: Another thing that concerns me is that you don't mention Canadian Airlines regionals. They're going to be part of this big new monopoly here, and the regionals at Canadian Airlines are just as important as the regionals at Air Canada.

Also, Canadian Airlines has some independent regionals. I don't know if Air Canada has any. Yes, they do have independent regionals. There's a whole group of people who aren't in your discussions or projections of what's going to happen here.

• 1620

Where do you see the Canadian Airlines group fitting into this picture? There's no mention of them here.

Mr. Joseph Randell: There is a mention in that Canadian Regional, which is a wholly owned subsidiary of Canadian Airlines, is part of the Air Canada proposal. That is included in here.

On the issue of the regionals in the east that are not owned by Air Canada or InterCanadian, there are other options to pursue. The experience has been a significant amount of financial difficulty in eastern Canada. Air Atlantic was shut down, for instance, and replaced by InterCanadian. It's my understanding that these financial difficulties continue.

While I sympathize with their financial difficulties, we have competed aggressively, long and hard, in these regional markets in building a very high-quality product. Frankly, representing the Air Canada regionals and the value for the shareholder, I really believe that for us and our employees to be asked to give over a significant amount of our business and what we've built up is unfair.

Mr. Bill Casey: It also doesn't sound very fair in that if Air Canada is proposing to merge these two, to treat the Canadian Airlines people and company as if they are the enemy still doesn't make it sound as if the Canadian Airlines group is going to get very good treatment. That's the impression I draw from what you're saying.

Mr. Joseph Randell: You're speaking of the non-owned regionals?

Mr. Bill Casey: Yes, and perhaps even of the owned ones. Your allegiances are definitely towards Air Canada and the Air Canada employees, but if this is a merger that's supposed to see you hand in hand, tiptoeing through the tulips together, it doesn't sound as if it's going to be very fair.

Mr. Joseph Randell: Mr. Casey, my allegiance is to the Air Canada regional employees, very clearly. As Air Canada regionals, we recognize that we have some problems out west. We have built very strong market share in eastern Canada, at 75% or 80%. We are higher-cost, and if we are going to allow for others and independent regionals and give them access to this one large carrier, it will potentially have a very negative effect on the Air Canada regionals.

Mr. Bill Casey: So you advocate total control, total access, while eliminating everybody else from access to the dominant carrier?

Mr. Joseph Randell: When you look at the world and at major carriers and the relationships they have with their feeder companies, I can think of no case where there is not exclusivity—none.

The Chair: Thanks, Mr. Casey.

Mr. Comuzzi, please.

Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.): I have a question, Mr. Chairman.

In order that we don't leave this room not clear about the role of the airlines you operate, you are a wholly owned subsidiary of Air Canada.

Mr. Joseph Randell: That's correct.

Mr. Joe Comuzzi: The directors of your three companies, Air Ontario, Air Nova, and Air BC, are under the direction of Air Canada.

Mr. Joseph Randell: Air Canada owns the company, and the shareholders have the fiduciary responsibility to guide management and to guide the company, that's correct.

Mr. Joe Comuzzi: I don't know why you would have a board of directors for Air Canada and a board of directors for the three other airlines, but those directors on the three other airlines from the dominant airline are appointed by the management of Air Canada, right?

Mr. Joseph Randell: That's correct, yes.

Mr. Joe Comuzzi: You're just wholly owned. There's no franchising. There's no independence. At an operational level, you run your companies, but you do not do that outside the parameters as set down by Air Canada. Is that correct?

Mr. Joseph Randell: That's correct.

Mr. Joe Comuzzi: If tomorrow morning, Mr. Randell, you said, “Jeepers! We're having trouble out west. I think I'm going to go with Canadian Airlines. I'm going to feed Canadian Airlines until January”, that ain't going to be done, is it?

Mr. Joseph Randell: No.

Mr. Joe Comuzzi: So you're part of the Air Canada system.

Mr. Joseph Randell: Yes.

Mr. Joe Comuzzi: Thank you.

• 1625

The Chair: Mr. Bailey, please.

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

I'm having some real problems here, Mr. Randell, but not because I didn't get much rest last night or because I'm an owly person. I really suspect there's some contradiction within your presentation. On page 3, in the second-last paragraph from the bottom, I read, “The Regionals strongly support Air Canada's plan for restructuring.” Of course you're referring to the regionals that are owned and controlled by Air Canada, is that correct?

Mr. Joseph Randell: I can only speak for the companies I manage, yes.

Mr. Roy Bailey: All right. If you strongly support—and I'm not denying that you do—Air Canada's plan for restructuring, we'll keep that point in mind as we turn over to the second paragraph at the top of page 4. It says, “Should a sale of the Regionals ever be contemplated, we agree with Air Canada”—that's Mr. Milton now—“that any sale must be conducted in a proper and orderly basis”.

Mr. Joseph Randell: Yes.

Mr. Roy Bailey: Then it seems to me we have a conflict here, in that I see your boss's proposal right now—what you might say is a takeover of Canadian as such—as anything but proper and orderly. On one hand you're saying this should take place. I'm having real difficulty there, Mr. Randell, because the regionals—and we in the west rely very much on the regionals—are every bit as important to the operation of Canadian, as we know it today, as they are to Air Canada. The only real difference is that we have the entry in western Canada of WestJet and so on.

You are assuming in this restructuring that the regionals of Air Canada will be taking over Canadian regionals, eh?

Mr. Joseph Randell: No.

Mr. Roy Bailey: What are you going to do with the other regionals in this restructuring program?

Mr. Joseph Randell: It's my understanding that we do have significant issues in the west with regard to overcapacity and the economics of the regional services that are in the west. We now have three operations in the west. We have Canadian Regional and Air BC, along with WestJet. As a result of this proposal, there would be a rationalization of the services between Canadian Regional and Air BC, such that capacity would be changed, perhaps redeployed, or perhaps new markets would be entered into in combination. But you would still have these two regionals operating in the west as separate companies.

In the east, we're suggesting that Air Nova and Air Ontario, being wholly owned regionals, are the best, and in an owned environment, we need to have exclusivity with regard to feeding Air Canada and the new merged carrier.

Mr. Roy Bailey: Then let me get the picture here. We're going to have this restructuring, and through restructuring they'll have the regionals for Air Canada and they'll have the regionals we know now, which are those of Canadian. What in the world are we going to do when we have three or four different regionals all controlled by Air Canada in the restructuring? I just think that's very bad news for Canada.

Mr. Joseph Randell: All I can tell you is the relationship between regionals and the main line and the feed that exists is in all cases exclusive in terms of the carriers. You don't have carriers competing together to feed a main-line carrier. I know of no example in the world where that works or even exists. In Canada this situation is created by the fact that we would have one airline.

To believe we can separate the regionals and have competition amongst the regionals in terms of who feeds that airline is completely foreign to our business. It will create all sorts of issues related to ownership versus non-ownership, and could cause some changes in that regard.

• 1630

There are issues related to customers. If you have an Air Canada ticket, which counter do you go to? Where do you arrive at the airport? Actually, there could be two carriers leaving side by side at the same, connecting to the same flights.

So I don't think we're creating the type of competition we really need. As long as these customers have access to that network at a reasonable price and charge, the same as on the main line, that's our mandate.

The Chair: Thanks, Mr. Bailey.

Colleagues, we have to move on to our next witness, but I have four people who have asked for one question each: Guimond, Meredith, Desjarlais, and Casey.

[Translation]

Mr. Michel Guimond: Mr. Randell, I have a relatively simple question about the language issue. Ms. Dyane Adam, the Commissioner of Official Languages, has testified before this committee and this morning, we heard from representatives of the Association des gens de l'air du Québec. Both witnesses stressed the same point, namely that Canada's Official Languages Act must apply to regional carriers in deference to the 1.5 million francophones outsides Quebec who are airline users. The Maritimes are home to many francophones, including the Acadians of New Brunswick, Nova Scotia and Prince Edward Island.

I'd like you to tell me clearly, yes or no, if you agree with the Commissioner of Official Languages that the provisions of the Official Languages Act should also apply to regional carriers operating in our bilingual nation—a nation from which we wish to separate, although that's not the issue here.

[English]

Mr. Joseph Randell: First of all, three regional carriers operate across the country. In the case of Air Nova and Air Alliance, we very clearly operate within the intent and spirit of the Official Languages Act. It makes good business sense, it is important from a safety point of view, and it certainly is vital given the number of francophone customers we have in these marketplaces. If we don't do that, we are not being responsive and responsible in the marketplace.

We have had very few complaints. We differ with the official languages commissioner for a couple of very good reasons. First, if you look at the complaints that have come forward to the official languages commissioner, in my view some of those complaints have been driven by small newspapers in places such as Prince Edward Island. They are concerned about the amount of French advertising that may occur in their newspapers, and they are driven by their own limited interests. In terms of the true complaints that come from customers about not being served in the official language of their choice, our number is less than one complaint per 100,000 passengers, which is very good.

With regard to Air Ontario and Air BC, these carriers went from being independent regional carriers to becoming wholly owned subsidiaries of Air Canada. As such, they operate primarily in markets where there is limited demand for service in both official languages. However, while flight attendants are not totally bilingual, through on-board announcements, safety announcements, etc., we certainly do respect the requirement that we must provide service in both languages.

In terms of being totally in compliance, we are not. With the issues that would create from a cost and also from a labour point of view, the implications of applying that act would be huge.

The Chair: Thanks, Mr. Randell.

Val Meredith.

Ms. Val Meredith: Thanks.

Mr. Randell, I want to deal with a comment you make on page 3:

Together with Canadian Regional, we will optimize our schedules where surplus capacity exists. And our employees have been given assurances of job security, so important during times of uncertainty.

From what you were saying earlier, Canadian Regional carriers are only going to be in western Canada, as I understand it. Air Canada carriers want the exclusivity in eastern Canada. So my question to you is, where is the job security and where are the job assurances for the Canadian Regional pilots, employees, and staff in eastern Canada? When you say, “Our employees have been given assurances of job security”, does that include Canadian Regional employees' jobs as well as Air Canada regionals?

• 1635

Mr. Joseph Randell: That includes the employees of Canadian Regional Airlines in western Canada, yes.

Ms. Val Meredith: So only in western Canada.

Mr. Joseph Randell: In the east, there is not an ownership relationship. In the east, InterCanadian operates under a licence, as does Air Georgia, and they're in a business relationship with Canadian Airlines. So these employees are not employees, either directly or through subsidiaries, of the owned company in this case.

Ms. Val Meredith: So it's only western Canadian employees who are protected.

Mr. Joseph Randell: And the employees of Air Nova and Air Ontario, that's correct.

Ms. Val Meredith: Okay, thank you.

The Chair: Thank you, Val.

Bev.

Ms. Bev Desjarlais: I'll follow on Mr. Guimond's questioning on the language issue.

We all have come to recognize that flight attendants aren't just waitresses out there; they perform a very important safety function. On your Beech 1900 that operates, as you said, mostly in Quebec, you don't have any flight attendants on that flight. Who looks after the safety issue?

Mr. Joseph Randell: The first officer and the captain.

Ms. Bev Desjarlais: Okay, so on top of their piloting duties, they then carry out all the duties...?

Mr. Joseph Randell: The duties associated with briefing customers with regard to safety exits, etc., yes.

Ms. Bev Desjarlais: Okay, thank you.

The Chair: Thanks, Bev.

Mr. Casey, a single question.

Mr. Bill Casey: A single question.

You earlier said you don't know of anyplace that operates independent subsidiaries that feed the national airline. What about Air Ontario, First Air, and InterCanadian? Those are right here in Canada, and they have worked. They're independent, but they have fed the national carrier. Why can't that system work?

Mr. Joseph Randell: I'm sorry; I was probably misunderstood. I was talking about where you had multiple carriers on the same routes serving or feeding the one carrier. If you're independent and not owned, you can still have a feed relationship with the major carrier, yes. There's no reason you couldn't. Those examples exist all over the place. As a matter of fact, in western Canada, with CMA, that exists.

The Chair: Mr. Randell and Ms. Clark, thank you very much for your presentation and for answering our questions. We appreciate the time you've taken to be here with us today.

Colleagues, we'll suspend for two minutes only so that we can change the witnesses and move on quickly, because we do have a vote at 5:30.

• 1638

• 1643

The Chair: Colleagues, we resume our hearings.

We welcome to the table Ronald Poupart, who is special adviser to Montreal International; and Françoy Roberge, director of public affairs and communications, Montreal Metropolitan Chamber of Commerce. Both are with the Montreal Airports Development Support Group.

Gentlemen, welcome to the Standing Committee on Transport. We invite your presentation of between ten and twelve minutes, and then we can get to some questions. When you're comfortable, please begin.

Mr. Françoy Roberge (Director, Public Affairs and Communications, Montreal Metropolitan Chamber of Commerce; Montreal Airports Development Support Group): Thank you, Mr. President.

First I would like to tell all the members of this committee that we fully respect and appreciate the work you are doing.

[Translation]

We recognize that you are an important democratic institution.

Before I begin my brief presentation, I'd like to state for the record that we are not airline industry experts, although we do represent the economic and political interests of Montreal, a city that is home to a little over 10 per cent of Canada's population.

The Montreal Airports Development Support Group is a federation of 17 partner organizations, all of which are listed in our submission. The heads of these organizations would have liked to be here, but unfortunately, they had other commitments, given that this is a very busy time of the year. Most of them are very active members of the business community. One is presently in Hungary, while another is in the United States. Several were unable to change their schedule in order to be here at 4:30 p.m. rather than at 6 p.m.

• 1645

The Montreal Airports Development Support Group represents most of the major businesses in the Greater Montreal area. These businesses employ nearly 70 per cent of the 1.7 million people that make up the area's workforce. Our message stems from our economic vision, namely that airport activity and air transportation are key components of the Montreal area economy.

Metropolitan Montreal, which boasts a population of between 3.4 and 3.5 million people, also represents between 10 per cent and 11 per cent of the population of Canada. Its GDP represents over 13 per cent of the national GDP.

The Montreal area economy is driven by knowledge-based sectors such as the aerospace, information technology and telecommunications industries. As with Toronto, these sectors account for nearly 22 per cent of all employment.

Montreal is also an international city. A total of 72 international agencies based in this metropolis, including major international aviation organizations such as the ICAO, the IATA and ATIS, employ 5,000 people. In fact, ATIS recently announced the creation of 200 new jobs. There's no question that Montreal is an international city, a major economic centre and a metropolis driven by the new economy.

The airline industry is very important to us. We're here today to speak to you, among other things, about the sharp decline in air traffic in Montreal over the past 20 years, ever since the opening of Mirabel airport and the institution of a two-airport system in Montreal. This trend has been slowly reversing itself over the past two years and we hope to continue seeing signs of a turnaround. Any change in the structure of Canada's airline industry concerns us.

I will now call upon my colleague Ronald Poupart to talk to you briefly about the air transport industry as such.

Mr. Ronald Poupart (Special Adviser, Montreal International, Montreal Airports Development Support Group): In recent months, major changes have been launched in the Canadian airline industry. In light of these changes, the business community and Greater Montreal wish to reaffirm the right of this major region to the dynamic, ordered development of its air transport industry and air services.

Rather than seeing its airports feed hubs of other North American carriers, Montreal wants the region to become a hub, not necessarily as large as Toronto - the laws of the market dictate otherwise - but a hub all the same, one that complements Toronto by offering North American travellers a choice of connections suited to all types of needs.

[English]

The Chair: Monsieur Poupart—

Mr. Ronald Poupart: Yes?

The Chair: You'll have to slow down a little bit for us.

Mr. Ronald Poupart: Sorry.

The Chair: The translator is trying to keep up with you. It makes it very difficult.

Mr. Ronald Poupart: I thought we had only ten minutes. That's why—

The Chair: Well, you have ten minutes. You're going to have to shorten your remarks, rather than trying to get through a twenty-minute presentation in ten minutes. Thank you.

[Translation]

Mr. Ronald Poupart: The joint Onex-American Airlines offer to merge Canadian International and Air Canada into one corporation with a view to streamlining air transport sparked some concerns in this regard.

We know that American Airlines is a dominant carrier in some markets where Montreal wants to increase its presence, specifically, Latin America and Europe.

Today, the prospect of seeing a dominant carrier emerge under the aegis of Air Canada prompts us to urge the Canadian government and Air Canada to do whatever is necessary to ensure that conditions favourable to the growth of Montreal's airport activity are maintained and improved.

• 1650

The guarantees set out in Air Canada's privatization act with respect to keeping its headquarters and aircraft and motor maintenance base in Montreal must be maintained, as well as its obligation to provide bilingual service to passengers.

Montreal area leaders would also like to see other Air Canada activities remain unchanged, specifically flight plan and frequent flyer program management. They would also like any future dominant carrier to continue working closely with the Montreal business community and airport authorities to develop new connections to such destinations as Mexico, certain major North-American cities, the Caribbean, Italy, Spain, Western and Eastern Europe, the Middle East, North Africa and certain destinations to the Orient.

The withdrawal of the Onex offer has not changed these fundamental issues, the importance of which we are underscoring to the Government of Canada.

By temporarily suspending certain laws a little over three months ago, the Canadian government, in its bid to stave off the bankruptcy of Canadian International, whose fate still hangs in the balance, acted somewhat hastily and, we believe, without carefully analyzing the fundamental issues. By intimating that it was ready to amend the section of Air Canada's privatization act prohibiting anyone from holding more than 10 per cent of the national carrier's stock, the Canadian government gave further credence to this impression, while leading some to believe that it was very much in favour of the Onex-AMR offer.

The Canadian government must address the following issues: Should two national and international competing carriers be maintained in Canada? To maintain this competition, is it advisable to grant one or more carries more control over a Canadian airline? Should we grant one or more airlines cabotage rights on the Canadian market? Or, on the contrary, should we create a near monopoly, to the detriment of Canadian International? Should Air Canada be granted more international routes? Should we promote the creation of a new discount Canadian carrier? In such a context, should the provisions of the Air Canada privatization act be maintained? What will be the effect of a near monopoly on service to remote destinations? How does the Canadian government intend to modify route assignment in the future? What will be the effect of a near monopoly on already high airfares?

All of these questions must be debated at length, allowing leading Canadian experts and interested parties to express their opinions. For these reasons, the GSDAM submits that it is necessary to convene more than this committee on transport. We are not questioning the honesty and commitment of this committee, or the desire of its members to serve their constituents. However, we are asking the Canadian government, as it did during its study of the banking industry, to form a task force consisting of leading Canadian air transport experts from Vancouver, Toronto, Ottawa and Montreal to participate in serious deliberations on the Canadian airline industry and to present to the government the best solutions in the interest of all Canadians.

After all, as the century draws to a close, air transport is a priority for all communities in this vast and sparsely populated country. It is a matter of public interest, just like the air rights the Canadian government arbitrarily granted many years ago to selected carriers. These rights belong to all Canadians.

[English]

Mr. Françoy Roberge: In regard to what we just said, we are asking five things of the Government of Canada, which you represent.

First, we ask you to create a task force similar to the task force that studied the question of banks owning, because this is a very strategic industry, like the banks.

• 1655

Second, we ask you to make sure the rights of the consumers are protected and the service is maintained at a good quality and reasonable price.

[Translation]

Thirdly, we are asking the government to carefully study the possibility of offering non-Canadian carriers cabotage rights on Canadian routes, which would create heated competition on the busiest lines to the detriment of necessary but less profitable connections to more remote communities.

Fourthly, we are asking the Canadian government to ensure that regardless of the outcome of the current restructuring, all of the regions of Canada, and specifically the Metropolitan Montreal region, maintain favourable development prospects and not have to be content with the status quo.

Lastly, we are recommending that steps be taken to ensure that Metropolitan Montreal maintain both its dominant position as an air service and airport centre, and its growth potential, a potential tied to its role a player in the international air transport sector.

Thank you.

[English]

The Chair: Gentlemen, thank you for your presentation.

On the heels of your comments, Mr. Poupart, I want to assure you, sir, that our deliberations are very serious. Unfortunately we didn't have the luxury of time on our side, and that's why we elected to do the work here through the Standing Committee on Transport, and not strike a task force that might take months to do its work. So because of the crunch of time, it was given to us as our responsibility to do that.

Rest assured that having already heard, as of tonight, some 100 witnesses representing 46 organizations in some 27 meetings, we're taking this issue very seriously.

Ms. Val Meredith, please.

Ms. Val Meredith: Thank you, Mr. Chair.

Thank you, Mr. Roberge and Mr. Poupart, for your presentation.

I appreciate that you're here representing Montreal. I appreciate that perhaps you feel Montreal hasn't played a significant role as far as being a hub. But to be quite honest with you, gentlemen, my concern is not for Montreal but for Vancouver, because I see Vancouver, which has earned the right to be an international hub, is being questioned during this airline restructuring.

I have watched over the years while past federal governments—I won't blame this federal government—have certainly showed favouritism and protection towards Montreal in the aerospace industry and in the Air Canada Act, which has the only legislative specification of where a head office has to be. I don't think there's any other piece of legislation that specifies where a head office has to be.

So my question to you—and it's an honest question—is do you think Montreal can compete internationally without the protection and favouritism shown by the federal government?

[Translation]

Mr. Françoy Roberge: Yes, Montreal and Vancouver can be competitive centres because of the size of the market they serve. Vancouver is a natural gateway to the Orient, while Montreal is also a natural departure point for travellers heading either west or to Europe. Canada's major hub is Toronto, perhaps in view of the size of its market.

There are several hubs in the United States. The biggest airlines usually concentrate passenger traffic in two, three or four centres. The Canadian government hasn't done much to promote Montreal's growth. For example, it has systematically denied Air Canada access to certain routes and instead, awarded these routes, which by right belong to all Canadians, to Canadian International. It's not that we have anything against Canadian International. I've frequently flown on this carrier and each time, the experience has been very positive, but one region should not receive preferential treatment, except when it comes to aircraft maintenance operations. Montreal is home to a vibrant aeronautics industry and nearly 59 per cent of Canada's aeronautics industry workers are employed in Montreal. Logically, maintenance operations should continue to be carried out in Montreal.

• 1700

Mr. Ronald Poupart: I'd just like to say that we don't really want to compete with Vancouver. As Canada's airline industry undergoes restructuring, our concern is with our neighbours to the South. We're afraid of losing any advantages we have. That's what worried us about the Onex proposal. Our airports would have become feeders for US hubs. We all would have lost out. I think there's room in the market for Vancouver, Toronto and Montreal, but the interests of each centre must be safeguarded.

[English]

Ms. Val Meredith: But Vancouver doesn't lose in that. It's an American feeder that feeds Vancouver airport through to the Asian market. Air Canada doesn't feed any traffic to Vancouver. It feeds its traffic to L.A. and to San Francisco. So in this restructuring scenario where Air Canada is literally taking over the market, Vancouver does lose its hub.

We're not afraid of using the United States airlines as a feeder into our Vancouver airport, so I don't think we should be afraid of American carriers. But we have to really look at using the Canadian hubs, using the Canadian airports, and maximizing their potential. I would suggest that's something we should be looking at as a committee, rather than feeding our airlines down into American airports.

The Chair: Thank you, Val.

Monsieur Roberge.

[Translation]

Mr. Françoy Roberge: We're not airline industry experts, but we do have the impression that combined American Airlines-Canadian activity has transformed airports in Western Canada, particularly the Vancouver one, into feeders for US hubs. The US carrier is the dominant player in this region when it comes to transborder flights. Perhaps that's because it has more resources and equipment, but we don't think this experience has necessarily benefitted Vancouver. Perhaps there are better options for Vancouver.

[English]

The Chair: Mr. Sekora, please.

Mr. Lou Sekora: I'm here as an MP for all of Canada, not for a certain part. I'm going for pricing on airlines, service, and employees. I can tell you that if some airline is good for the east and bad for the west, it gets no attention of mine whatsoever. Nor does some airline that's good for the west and not good for the east. I want something that's going to be good across Canada.

To me, what's scary about Air Canada is that they feed everybody to Asia and the Pacific Rim through Los Angeles. They don't have a hub in any city in Canada where they feed. It's Star Alliance, and that's where it goes. The headquarters are in Los Angeles. So if there were the one airline and Oneworld were gone, there certainly would be no connections from Vancouver to Asia or anywhere else. That's where the west would lose.

We have to be very careful. I'm saying this very strongly, because we seem to be very good at having certain people, from the east to the west, pit each other against each other for some reason. Dammit! We're all Canadians. We're all one. We're Canada. We're not something where it's, “I am sorry. I am from Quebec, so I'm not Canadian. I am from somewhere else.”

I remember being in Quebec—

The Chair: Question, Lou.

Mr. Lou Sekora: Okay.

I would hope we are here today to do what's best for Canada and not pit ourselves against each other, because, boy, I'll tell you, you get my back up awful fast when you start pitting one against the other or drawing these flowery pictures or airy-fairy pictures that are not of any value to anybody.

That's all I have to say.

• 1705

The Chair: Thank you, Lou.

Mr. Lou Sekora: Thank you. I'm glad you called me early.

The Chair: You're lucky I called you at all.

Mr. Lou Sekora: I might have gotten madder if you'd called me five minutes from now.

The Chair: Good. I'm glad we worked that out.

Michel Guimond.

[Translation]

Mr. Michel Guimond: Thank you, sirs, and congratulations on an excellent presentation. As representatives of the busiest airport in the country, I think it was quite natural for you to appear before the committee at this time, all the more so given the importance of the aeronautics industry to Montreal's airport and to Greater Montreal.

I don't want to get into a partisan debate over this, but it should be recalled that before Air Canada was privatized, the corporation's head offices were located in Montreal. We haven't forgotten. The head offices of VIA Rail, which was privatized by this government, must, by law, remain in the Greater Montreal area.

Having said this, in response to the chair's comment on your first recommendation, which called for the government to form an independent task force, I'm intrigued by the idea. You mentioned the study of the banking industry. The government struck an independent task force last spring to examine the banking industry. I for one am tempted to try and convince my colleagues that this recommendation should be part of our report, but how should we react when we're told that Canadian's financial situation is very tenuous indeed?

When he first testified before the committee, the President of Canadian, Mr. Benson, told us that his company had enough money to stay in operation another few weeks or at most, another few months. I found that to be a very inflammatory, ill-advised statement, but he will have to deal with his administrators and with his own decisions. How do you react to the statement that Canadian may not survive long enough for an independent task force to submit recommendations?

Mr. Françoy Roberge: It would appear that Canadian's US partner is actually prepared to help keep the airline in business for some time yet. We first made this recommendation six or seven weeks ago. We were not necessarily thinking about a task force on the same scale as the MacKay task force, but we felt that there should be some way of bringing together some very knowledgeable individuals. I know that some of these individuals have presented testimony to the committee, but there are others who could be consulted. In Montreal, we ourselves have consulted with three experts apart from Mr. Gaudry, who appeared before your committee. You have already done a considerable amount of work and all of your transcripts are available. A task force could be ready with a report within two months' time.

We can imagine a group of independent experts, perhaps academics, drafting a report similar to the MacKay report, one that would be of interest to the public. No one could say that it was a government document reflecting the position of Transport Canada or that the position taken in the report was determined in advance. I know the committee is doing its work honestly, but personally, I would like to see a report by a group of independent experts, and I think that's what we would all like to see.

Mr. Michel Guimond: Would you care to add to that, Mr. Poupart?

Mr. Ronald Poupart: I'd like to respond to Mr. Sekora's comment. We need a genuine Canadian air transport policy, one that takes into account the concerns of consumers, of remote and isolated regions and overall industry requirements. We need to take the time to formulate a policy that addresses more successfully the needs of all Canadians.

• 1710

Mr. Michel Guimond: Your second recommendation...

[English]

The Chair: Thank you, Michel.

Mr. Dromisky, please.

Mr. Stan Dromisky: Thank you very much, Mr. Chairman.

Your document is very interesting, but I'd like to go to page 8, where you have your five recommendations. I find the third suggestion very interesting, that we go ahead with the possibility of offering non-Canadian carriers cabotage rights.

I would like your rationale as to why you're recommending that we do something of this nature. This implies that you would support the possibility of introducing cabotage rights. If that becomes a reality, then the whole ball game changes dramatically. It could have a tremendous impact.

For instance, it could have a very strong and negative impact on Dorval and the aviation industry in Montreal. If you really, truly believe in open skies, and if you really, truly believe in competition—which the two major airlines don't really believe in—once you get cabotage going in, Montreal's aviation industry could be wiped out. There's no law saying that competitors coming from south of the border, who would be far more powerful than anything we would ever possibly conceive and create in the aviation industry in Canada, could survive. So they could maybe make Winnipeg the main hub, or they could make some other community the main hub.

Did you think this out? Did you look in that direction?

Mr. Françoy Roberge: Yes. In fact we asked the government to study it very carefully, because at first glance we were not at all favourable to immediately opening that.

[Translation]

I believe it was the head of Canada's Competition Bureau who suggested that cabotage rights be granted to American carriers. Some newspaper columnists have also started to make this suggestion. Also, things could change in the matter of Air Canada and Canadian International. The latter might just accept an offer from Air Canada, with American demanding substantial compensation in return. Ultimately, won't the Canadian government be tempted to let Air Canada take control of Canadian, but with American Airlines being granted cabotage rights on Canadian routes? This possibility is worrisome to us and we want the government to carefully study this proposal. As things now stand, it could be harmful to the industry.

I know Mr. Poupart has a few more things he'd like to say on the subject.

Mr. Ronald Poupart: If we grant cabotage rights to the American carriers, they would have to extend the same courtesy to us. Judging from what's been said, even if Canadian carriers were granted cabotage rights in the United States, unless they had the proper airport landing slots, they wouldn't be any better off. However, there is a very real possibility that US carriers will be granted cabotage rights. From an economic standpoint, that could prove dangerous. That's why we are asking the government to study this proposal very carefully.

[English]

Mr. Stan Dromisky: Thank you very much.

The Chair: Thanks, Mr. Dromisky.

Ms. Desjarlais, please.

Ms. Bev Desjarlais: I have a couple of quick questions here.

You note on page 4 that IATA does not look with favour at having two airports, such as Mirabel and Dorval, operating so closely. Why would that be the case?

[Translation]

Mr. Ronald Poupart: When the Canadian government decided back in the 1960s to build Mirabel airport, the IATA made it very clear that such a move would threaten the harmonious development of Montreal's airports and that a choice had to be made between the two facilities. Unfortunately, the two airports were kept opened, which resulted in a decline in traffic and activity, as everyone well knows.

There are many other reasons for the declining fortunes of the Montreal airport, such as the fact that aircraft can fly longer distances, and the more liberal regulations allowing carriers to land anywhere in Canada.

Basically, the IATA strongly recommended that there not be two airports servicing the Montreal area.

• 1715

Mr. Françoy Roberge: According to the IATA, cities that are bigger than Montreal, such as Toronto, New York, London and Paris, can support two airports. In Montreal's case, the existence of two airports hindered the growth of the air transport industry.

[English]

Ms. Bev Desjarlais: Okay.

With regard to your concerns about an independent report by industry experts, you've indicated there are three others in Montreal we haven't heard from, but you've been able to listen to them. We've heard from a number of experts in their fields, so to speak, and from different groups representing different stakeholders in the airline industry. Without question—without question—almost every group has come representing their own particular area. Very few, if any—and let's take you, for instance—have come before us and said, “Because Montreal has the headquarters for Air Canada, I think the headquarters for VIA should be somewhere else, because we want to be fair, and we want to make sure everybody benefits from this.” We didn't get those kinds of proposals with regard to the airline industry.

As a result, I'm not convinced that, no matter how many different industry experts we heard from, we wouldn't get this single-minded “I'm just looking after this group” instead of experts looking at the whole picture.

I represent a remote northern area, and as a result, I will do my darndest to make sure there is fair representation. I find it hard to believe the City of Montreal is really and genuinely concerned that I'm going to be able to ensure there is fair service to northern Manitoba. I just find it hard to believe. I guess that's why I'm elected to represent that area and Lou is here representing his area, so that we bring that broad spectrum.

I hope we are able to take everything we've heard and ensure that we come up with a better plan, because I believe it's because of a lot of the industry experts that we're in the mess we're in. They didn't do the right things initially.

The Chair: Do you have a comment, Mr. Roberge?

[Translation]

Mr. Françoy Roberge: I don't know if these experts were consulted. To my knowledge, they were not formally consulted. Our 17-member organization would have liked to see highly knowledgeable persons working on a day-to-day basis with the airline industry to achieve a consensus on a new long-term policy for Canada's airline industry.

I also want you to understand that we are truly attuned to the problems associated with service to the regions and to the interests of Canada's various regions. We wouldn't want to see Vancouver become a secondary airport or see any job losses in Western Canada. We want regions like ours... Travellers to Quebec's northern regions pay dearly for the privilege and for local residents, the airfare is prohibitive. We are certainly mindful of all of these considerations.

Of course, the focus of our attention is rather narrow. That's because we are essentially a group of businesses from the Montreal area and we are defending the interests of this particular group. That's our job.

[English]

The Chair: Thank you, Mr. Roberge.

Mr. Calder, please.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you, Mr. Chairman.

Over the last few weeks I've put together ten points that I think we have to address.

First, you were talking about cabotage. If there is going to be cabotage, I like to refer to it now as having to be reciprocal. That would be the only way I would agree to that.

I wanted to ask you questions on three points.

First, we currently have with Air Canada the 10% clause on ownership and also the 25% clause on foreign ownership. Do you think any changes should be made to those two clauses?

• 1720

Another issue that has come up during our questioning concerns time slots at the airports. Do you think a policy should be put in place, once we come up with this, to deal with that issue? I'm beginning to see now that if an airline wants to establish a monopoly, if they have control over the time slots at the airport, they in fact have that monopoly.

[Translation]

Mr. Ronald Poupart: The government and the House of Commons have adopted the 10 per cent ownership rule for certain sectors. We haven't stated our position on this issue, one way or another. That's why we're asking the experts to help us and to help Canadians decide whether the 10 per cent rule should be maintained.

Once comparisons have been made with international laws and some consideration has been given to what the future holds for international alliances such as Star Alliance and Oneworld, then we'll be in a position to see if the 10 per cent rule should be maintained for the sake of a strong, dynamic company, one that is prepared to contend with a range of global changes. That is why we are urging the government to take all the time it needs to study the matter and decide whether to maintain, or modify the 10 per cent ownership rule.

As for time slots, unfortunately, I don't know enough about the subject to answer your question properly. Perhaps my colleague can give you an answer.

Mr. Françoy Roberge: I'm sorry, but I'm afraid I can't either.

[English]

Mr. Murray Calder: What about the time slot issue?

Mr. Françoy Roberge: In terms of the other questions, I think it's clear; cabotage, oui, if we have reciprocity, but we doubt we can even exercise that reciprocity. For instance, if we had the right to serve O'Hare in Chicago, I don't think we could have time slots or physical gates or whatever.

Mr. Murray Calder: Okay.

Thank you, Mr. Chairman.

The Chair: Any further questions, colleagues?

Mr. Guimond, you have a question?

[Translation]

Mr. Michel Guimond: For your second recommendation, you maintain that the Canadian government should ensure that the rights of consumers to quality, reasonably priced service are respected. Can an organization like the Competition Bureau act as a watchdog and, to some extent, protect consumer rights? That's my first question.

Secondly, yesterday and last week, various consumers groups, including Transport 2000 and Democracy Watch, took part in a panel discussion. These groups have formed a coalition and are talking about coming out with a airline passenger and user bill of rights. In making this recommendation, are you saying that the government should also give some thought to adopting a bill of rights?

Mr. Françoy Roberge: No. At first glance, there appears to be many kinds of bills like this. Is one needed for every type of costly service? No. I think the laws of the market should prevail.

The Competition Bureau does indeed have a role to play, but the fact remains that there are several airlines in Canada and granting US carriers cabotage rights on Canadian routes is not the way to increase competition. The way to do that is by ensuring that the airlines get together and adopt a reasonable fare structure. Increasingly, regional carriers are doing just that. I don't think they're doing it simply out of concern for making a profit or because they are reaping incredible profits at the moment. They must also think about renewing their fleet to operate cost-effectively over shorter distances. This kind of transition takes place over a period of time.

• 1725

[English]

The Chair: Mr. Roberge, Mr. Poupart, thank you very much for your presentation and for answering our questions.

Colleagues, if the bells ring, we're adjourned until after the vote. If the bells do not ring, we'll resume at 6 o'clock.

Thank you.