Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 3 - Evidence, November 2, 2011
OTTAWA, Wednesday, November 2, 2011
The Standing Senate Committee on Transport and Communications met this day at 6:47 p.m. to study emerging issues related to the Canadian airline industry.
Senator Dennis Dawson (Chair) is in the chair.
The Chair: Honourable senators, I declare this meeting of the Standing Senate Committee on Transport and Communications open and I would like to thank you for being here.
We are continuing our study on the Canadian airline industry.
We have with us today Mr. Bernard Bussières, Vice-President, General Counsel and Corporate Secretary, as well as Mr. George Petsikas, Senior Director of Government and Industry affairs, of Air Transat.
Mr. Bussières, you have the floor.
Bernard Bussières, Vice-President, General Counsel and Corporate Secretary, Air Transat: Thank you very much for the opportunity to appear before your committee. The presentation of my topic is a little particular and different.
I congratulate the committee for its initiative, as the state of the airline industry is very fragile and has been without true policy review for some time. My colleague George Petsikas and I appreciate the opportunity to introduce you to our company and highlight a very unique problem brought around by policy and regulatory background. A founding member of the National Airlines Council of Canada, of which my colleague is the president, Air Transat fully endorses the position the council has taken previously in these committee hearings.
Let me provide an introduction. Transat is one of the largest integrated tourism companies in the world. It is a leader in Canada's holiday travel industry. It is headquartered in Montreal and has approximately 6,400 employees, 5,400 of whom are located in Canada.
Transat is first and foremost an outgoing tour operator. We offer more than 60 destinations worldwide. We have a substantial inbound tour operator business where we bring foreign tourists to Canada. We do that through brands like Canadian Affair, Look Voyages and Jonview Canada.
Air Transat is our air transportation unit and Canada's leading holiday travel airline. Every year it carries some 3 million passengers to nearly 60 destinations in 25 countries. We also partner with CanJet to service communities such as Halifax, Regina, Thunder Bay and Rouyn-Noranda.
This evening I would like to address how travelling Canadians are receiving inadequate consumer protection because of a disjointed regulatory framework. As you may know, the travelling public in most parts of Canada is completely unprotected in the event that their airline or tour operator goes bankrupt. While not well known, consumer protection as it relates to the travel industry is woefully inadequate. Three provinces have stepped up to provide consumer protection in certain circumstances. Although structured a bit differently in each jurisdiction, British Columbia, Ontario and Quebec have well established compensation funds to protect the consumer where service was not rendered by the tour operator. If the travel was bought through the travel agent, it could even cover suppliers such as an airline company. There have been a number of examples where the services of these provincial entities became important to the consumer: Canada 3000, Jetsgo and, most recently, Conquest Vacations. With varying degrees of success, consumers had their tickets reimbursed and they returned home after the bankruptcies of these companies.
In a time when the airline sector is under threat, it seems illogical that the vast majority of Canadians are not protected by a government entity. Depending on the time of year and the operator in question, a major failure could result in thousands of Canadians stranded overseas. It is unacceptable to think that only a portion of them would be repatriated.
Why is this the case? There exist a number of contradictory policy and regulatory frameworks. Airlines are regulated federally. Travel agents and tour operators are regulated provincially. Consumer protection is the responsibility of the provinces. This disjointed regulatory framework leaves most Canadians without government-backed consumer protection. Canadians purchasing tickets directly from an airline are unprotected should the airline go bankrupt.
The majority of the challenges facing our industry, other than the tax cost competitiveness that you have heard about from many stakeholders appearing before you and such things as fuel costs and general economic conditions are well beyond our control. However, here is an area where we, collectively with government, can make some real change.
We propose that a national compensation fund be created to harmonize this disjointed regulatory framework and provide consumer protection for all Canadians who need to be repatriated or reimbursed in case their travel agent, tour operator, airline or online travel provider goes out of business. This is not a unique suggestion. Australia, Denmark, the U.K. and the EU are considering similar initiatives. Some of them have existing schemes that could be examined.
A national compensation fund with the collaboration of the three regulated provinces would harmonize the three existing funds to ensure an efficient use of existing resources to manage the program. Travel agents across Canada could collect a small contribution on each travel purchase by a consumer and deposit it into a national compensation fund. This is how the Quebec provincial fund has been created. In only four years, with a contribution of $3.50 on every $1,000 of travel purchased and a small fee to the travel agent, the Quebec fund has grown into a $60 million fund.
For illustrative purposes, if we use Statistics Canada information of 109 million passengers landing and taking off from airports in Canada in 2010, let us assume that half are Canadians. Applying the Quebec approach nationally, with an average ticket price of $1,000, this fund would be in excess of $190 million in one year, for 65 million travelling Canadians. This fund would be a good first step to protect consumers in case of major default or event and ensure consumers would not have to face significant losses and expenses.
You are likely wondering why we are being so altruistic in our request. This disjointed consumer protection regime has significant financial impact on tour operators and airlines like ours. In recent years we have seen credit companies duplicate the responsibility to compensate consumers for services not rendered. If a consumer purchases a tour package or an airline ticket with their credit card, they may be reimbursed by the credit card company should they not receive these services.
However, this quasi-insurance is nothing more than a marketing incentive to use their credit card over others. I would also point out that the benefits of this quasi-insurance are generally not guaranteed in writing. I dare you to take your credit card agreement and you will see you have nothing with respect to that, unless you have an extra premium card. Consumers are taking a risk in relying on this service; they do not have the information. Credit card companies can take the decision to reimburse after the financial impact is determined, and that is through a press release. The credit card companies only reimburse for the cost of what the consumer purchased, not the cost of repatriation or replacement travel.
Most importantly, this quasi-insurance is also causing some extreme economic distortions for our industry. Because of the bankruptcies referenced earlier, this quasi-insurance has been utilized a number of times. Credit card companies, instead of paying for this insurance themselves, actually transfer the financial liability as a result of potential failures to the card processors that manage the payment transaction between travel operators and airlines and the consumer — the electronic middle man, if you will. Given this, processors now request onerous terms and conditions for processing credit card transactions from travel companies. This is a further transfer of this financial liability down the chain.
These demands take the form of letters of credit, other securities or the withholding of monies received from consumers for an undetermined amount of time. They severely compromise the financial health of many travel operators and airlines. You may remember that Conquest Vacations went out of business after 20 years citing the unrealistic demands of the credit card companies and their processors as one of the primary reasons. It is also becoming a barrier to entry for those wishing to start new airlines or travel companies.
Travel operators and airlines have little choice but to bend to these demands given that over 90 per cent of travel packages are now purchased with credit cards. You may ask what happened to the three provincial compensation funds. You would be right to point out that the quasi-consumer protection provided by credit card companies is the responsibility of these provincial organizations. If you reside in any of the three provinces and did not receive service, you would be entitled to receive compensation from the provincial funds. Only these three regulated provinces will pay for the cost of repatriating consumers when the tour operator has failed. We submit that this causes significant confusion and risk for the consumer. You may have consumers residing in Nova Scotia, Alberta and Saskatchewan, where there is no protection. If a national compensation fund were created as a first resort for stranded Canadians in time of default, there would be less risk in the overall payment system for the travel industry; processors would demand less; and travel operators or merchants would have more financial flexibility.
Credit card companies could still operate this quasi-insurance. The key difference of inserting a national compensation fund into the financial cycle is that in times of failure, credit card companies would reimburse a consumer for services not received in a manner of a true insurance product. Credit card companies would then access the national compensation fund to reimburse themselves, as opposed to transferring the financial liability to the processors and then to the tour operator or airline company. Processors would then feel more confident in their financial role in the cycle and would eliminate the demands placed on travel operators and airlines. We submit that this would be a fairer balance of the financial risk in the system between all participants, consumers included.
We have had active discussions with the consumer protection office in Quebec, the Travel Industry Council of Ontario, Transport Canada and Industry Canada concerning the creation of a national compensation fund. These discussions continue, and we hope that this is the mechanism to harmonize this challenging, disjointed regulatory framework.
There is also a Consumer Measures Committee of all provinces chaired by Industry Canada, which is exploring the concept of a national compensation fund. This process, however, is very slow and needs policy and political direction from the federal level to move forward.
Further, I recognize that your colleagues on the Standing Senate Committee on Banking, Trade and Commerce have already undertaken a broad consultative study on how credit card companies may exert undue economic influence in all merchant transactions. Certainly, a number of solutions are being explored through the Competition Bureau and Finance Canada's task force on the payments system. We would welcome an opportunity through the work you are undertaking for a more thorough examination of this issue with the provincial compensation funds, who have been advocating for a national approach to their jurisdictions.
In conclusion, I would like you to consider that the airline and tour operator sectors face significant risks at this juncture. Due to the fiscal burden placed on the air sector by government in tandem with an insufficient consumer protection framework, companies like ours are compromised in our abilities to innovate, contribute more fully in the economy, and to keep and create meaningful jobs for Canadians.
Thank you once again for your attention to this matter.
We welcome your questions.
The Chair: Thank you, Mr. Bussières. I will start by introducing the committee members in attendance this evening: Senator Merchant from Saskatchewan, Senator Verner from Quebec City, Senator Greene from Halifax, Senator MacDonald from Cape Breton, Senator Martin from Vancouver, and Senator Zimmer from Manitoba.
Senator Zimmer: First of all, thank you for your presentation. I have two questions.
It has been said that many people flying internationally are crossing the border because of the lower cost of flights from U.S. airports. Has this been affecting Air Transat? If so, how do you intend to keep your relationship with your passengers?
Mr. Bussières: The answer is clearly yes. We do have ex-clients going to Plattsburgh and taking a flight, and then they go down South. How do you track that? It is very difficult.
The levies and cost that many of you have heard of already clearly has an impact. You do try to seduce your clients and keep them with you, but unfortunately in our domain, loyalty from the client is something we fight for every day.
Senator Zimmer: Also, the Asian economy has been slowing growing in Canada for the past nine years, roughly. Has Air Transat ever considered entering into this market?
Mr. Bussières: Mr. Petsikas and I did in 2005, and it was very difficult to compete with airline tickets that Chinese companies were offering at that time. In reality, we did not have the right plane because we had to remove certain seats on our aircraft. It is something that we are still looking at very actively.
Senator Zimmer: I saw a smile between the two of you. Is there a hidden secret there somewhere?
Mr. Bussières: No, it is an incredible market.
George Petsikas, Senior Director, Government and Industry Affairs, Air Transat: Are we on the record?
The Chair: You are not only on the record, I would like to remind you that you are on television. That is the real record.
Senator Greene: Do your customers pay the exact same fees and taxes that regular airlines pay on the price of their ticket?
Mr. Petsikas: Let us be clear: All of our operations are international. We do not fly domestically in Canada. Second, a vast majority of them operate under scheduled international licences, just like Air Canada or anyone else.
Third, in answer to your question, yes, as a general rule, a passenger buying a ticket from Toronto to London Heathrow will be charged the air transport security charge, and is subject to any other applicable charges or taxes — for example U.K. passenger duty, et cetera. Our passengers are subject to the same fee and tax structure as the major network operators.
Senator Verner: I would like to ask some further questions to follow up on the questions Senator Greene asked. I would like to come back to the matter of taxes. I would like to share a personal experience from a week ago.
I tried to book flights to Florida from Quebec City. I was advised to use a regular flight because if I used reward points, I would pay less tax on a regular flight, either with WestJet or Air Canada, than with Air Transat. Is it because I am using reward points?
It would cost almost twice as much in taxes if I took Air Transat rather than using my Visa points, for example, to pay for my ticket with Air Canada or WestJet.
Mr. Petsikas: It does not have to do with the reward points. I think the use of reward points is subject to a different system when it comes to taxation than paying full price with us. We need to compare apples with apples. If you buy a one-way ticket Toronto-Orlando with Air Canada for $299, you will be subject to the same applicable taxes for the same trip with Air Transat, including the airport improvement fees for Pearson, the security taxes and so on. Now, there may be differences in the surcharges included that are not related to the taxes, for example fuel surcharges. There may be differences, but no, we are normally subject to the same taxation rates.
Senator Verner: I simply wanted to say that this is what a travel agent told me.
Senator Greene: With regard to competition from American airports, from charter services and companies like your own in American airports, how much business do you estimate that they draw from you in Montreal and Toronto that you would not ordinarily lose?
Mr. Petsikas: You are referring to border airports? We call that phenomenon cross-border leakage. The big draws are Plattsburgh and Burlington for Montreal, Buffalo for Toronto and Bellingham and Seattle for Vancouver. We are estimating right now that approximately 3 million to 4 million passengers a year take their automobiles or other forms of ground transport to fly out of those airports as opposed to Toronto, Montreal and Vancouver.
There are a variety of reasons, but the central one is cost. In many cases, those airports are highly subsidized. For example, I can tell you that the Plattsburgh airport was built by the U.S. Air Force; the runway and the tarmac area was all built. When the U.S. Air Force pulled out a few years ago, they came up with a great idea and said why not make it a passenger airport?
The state of New York and Clinton County basically built the terminal free of charge. I know the people at Plattsburgh; we have met on several occasions. They are very entrepreneurial. They come up to you with a straight face and say why not have Air Transat take off from Plattsburgh on your way to Cancun or wherever because I can offer you a landing fee and airport costs about one tenth of that at Trudeau airport.
It is hard to say I am not interested. There are reasons why, of course, we do not want to be drawing traffic away from our base, which is Montreal Trudeau, as it should be. One of the problems we have is we have made multi-billion dollars of investments in airport infrastructure in this country. We should have airport infrastructure that people want to travel in.
People say this is a great airport; it is very convenient, it serves my purposes and the cost is right. That last part is getting tougher and tougher because of the costs in the system, the tax and fiscal policy that is applicable, as you have heard from other witnesses. Frankly, it is also the user-pay mantra as far as airport infrastructure is concerned, where 20 years ago we basically said that airports should pay for everything. We told them to do it through debt financing because that is the only thing you have as an option to build what was dilapidated infrastructure. Then it is your problem to go collect it from your users — end of story.
You cannot compete on that model versus a highly subsidized one, where you say we will pick up all the costs; you guys just try and get the passengers in for whatever you think you can charge on top.
Senator Greene: Over time, if we do not do anything, if we do not make changes up here with the way we conduct our business, what do you see 10 years from now?
Mr. Petsikas: The problem with cross-border leakage is not necessarily the aggregate numbers. They are relatively small compared to the total number of enplanements at Canadian airports. The problem is the trend. As pollsters will tell you: Never mind the numbers; look at the trends.
The trend, in my opinion, is essentially underlining what is a symptom of a larger problem. The symptom is that we have a Canadian air transport system right now that is losing ground. Travel and tourism in Canada supports approximately 650,000 jobs, coast to coast. We are talking tourism, hotels, lodging, airlines, et cetera.
Canada used to be in the top 10, number 8 in international tourism arrivals, not even five or six years ago. They are now number 13 and falling rapidly. This is a problem. One of the symptoms is what is happening right now with people, as I like to say, fleeing the jurisdiction in their cars and saying: I will not pay these taxes and these high infrastructure costs because I can do it so much cheaper elsewhere.
That is a warning to us. If we want to continue to have a piece of the world travel and tourism pie, which is the largest and fastest-growing industry in the world, we will have to step back and focus on having, for once, what I would call a strategic aviation policy in this country.
We have had aviation policies, but we have not had a strategic one that basically has as its underlying objective the ability for the air transport system, as a major enabler and facilitator of broader economic activity, including travel and tourism, to operate in the most cost-competitive and efficient manner possible in order to support that broader economic activity. We have never actually said: Does this policy enable that objective? Does it get us there?
All we have had up to now, as you know, is user pay — what impact it has on cost competitiveness of the system, we really do not care — and a fiscal policy taxation that essentially views us from a fiscal position, meaning great revenue for the fisc, for the centre; we are not going to reinvest it but just keep it for ourselves, and good luck with it.
If we do not change that, we will be in big trouble, because there are some very aggressive countries out there that have identified travel and tourism as strategic growth industries in their countries. They are putting their money where their mouths are, and they are putting their money in infrastructure and setting themselves up to go and get this world and travel tourism pie.
We have seen remarkable success stories; for example, Turkey. We started flying into Turkey this year. I saw that last year, and I said: Why do we want to fly to Istanbul? Then you look at the numbers and you realize that Turkey has gone from I do not know what to number 7 in the world in international tourism arrivals. It has rocketed into the top 10. Why? With their industry, government policy and all stakeholders, they said, ``We want people to come to Turkey and spend money. This is good. It is foreign income and helps pay the bills here. We like this.''
What do we need to do to work with the stakeholders — meaning the industry, airlines and airports — to get a good product out there and to get people to say, ``I want to go to Turkey. This sounds like an interesting place to spend my hard-earned after-tax dollars''?
They figured it out and the results are there. I do not want to reinvent the wheel. The examples are there. Let us sit down as stakeholders around the table and let us do that.
Mr. Bussières: We do not sell many airline tickets, per se. We are essentially a travel holiday provider and what we sell is a package. This has given us a small advantage, pertaining to your question, when people leave from Plattsburgh or elsewhere. It is not only an airline ticket, but a lot has changed with technology today.
If you take an online travel provider, you can go to an online provider, either a dot-com or dot-ca, and package your own trip. You choose the components. You may choose an airline ticket because it is cheaper from Plattsburgh. You buy your hotel room and create your own package.
That becomes, for us, a real competitor. If you do not have the cost and fees associated with it, you will not be able to compete, because that will be cheap for the consumer. I am trying to frame it. If we do not, as Mr. Petsikas is inviting us to do, revamp the policy, 10 years from now I am not sure we will be there.
Senator Merchant: I come from Regina, and you people know where Regina is. I am so pleased. We do not have a lot of competition out of Regina.
Mr. Bussières: That is good for us.
Senator Merchant: I know that you are a charter service. Do you fly any routes just within Canada?
Mr. Bussières: Not yet.
Senator Merchant: Would you like to do that?
Mr. Bussières: It may well be, but we are not announcing anything yet.
Senator Merchant: Are you looking at some change that would facilitate that? Competition is good. There are other companies. We have heard from WestJet and Porter. You, I assume, are making money, operating flights here. You might not want to answer the question, but I assume you are a successful company too, that you make money.
Mr. Bussières: We are trying to be successful and we are working hard.
Senator Merchant: One company that seems to me to have many advantages is Air Canada. Am I allowed to speak about it? However, from time to time they do not make money.
Is there something different in your structure, in your work ethic, or in your unions? Why does Air Canada have problems and yet these other small companies seem to be able to manage and make money?
Mr. Bussières: I will try to answer your question this way. Our company has been around for a long time, and its cost structure increases from year to year. In our industry, the industry of leisure holiday travel, if we compare a package that was sold in 2001 with the same package on sale today, it is approximately 38 per cent cheaper according to the studies by the Conference Board of Canada.
To remain competitive, we must constantly reinvent ourselves. We need to change our business model, which is what we are trying to do. I have been with Air Transat for over 11 years, and I would say that this is the fourth time the company has reinvented itself. And to do that, we need to be flexible.
The rules need to be established to that effect and if they are not, the company is clearly destined to disappear. Senator Zimmer just referred to the fact that I was smiling. He was right. Since we are a public company, our results for the last quarter have been rather disappointing.
Once again, we are in the process of reinventing the company. We have made some very difficult decisions recently, which is public information. Earlier, I spoke about credit card processors. I would say that the transfer fees are as high if not higher than our profits in the transaction, and they are not the ones taking the risk.
When we talk about trying to work together for a more balanced approach, we do so with the goal of staying in business longer. I cannot speak for Air Canada, a company that has existed for a long time. The challenges and difficulties that Air Canada is facing, we are facing, too, because we also have staff. Some of them are unionized and others are not. Finding the right combination and the right balance is a constant challenge.
Senator MacDonald: I want to pursue a line that Senator Merchant just raised. She asked whether you were going to consider domestic routes, and you coyly responded ``perhaps.'' It begs the question: You have been in business for 25 years, which seems to me to be a long enough time to make up one's mind. I am curious as to why you have not gone into the domestic market in the past 25 years.
Mr. Petsikas: Actually, we have. I think it was in the 1990s that we had a not insignificant domestic program. However, the company strategy is based primarily on long-haul leisure holiday travel with wide-body aircraft. We only have wide-body aircraft at Air Transat. Unfortunately, that did not necessarily at the time give us the flexibility to serve city pair routes, where a wide body is not the best aircraft.
There are many reasons why a domestic service presents challenges to a company of our structure and focus. You have to have a certain amount of frequency. You have to be prepared, for example, to interline and work with other companies. We have not developed the systems to do that at this time. Will we do that, or possibly do that in the future? I think what we can say tonight — without obviously going into details about our commercial planning, which I do not think our shareholders would be particularly pleased about if we announced before they were ready — you could probably assume, given the challenges Mr. Bussières talked about in terms of our recent results, we understand that we have to look at all possibilities and opportunities in terms of developing our business. Hopefully you will see some of that coming down the pipe in the future. I cannot say what, like I said, but I think we will be very open to looking at opportunities.
If there are opportunities on the domestic front, and if we have the right fleet and determine that there are some places where we can add some value for the consumer, of course, and for our shareholders, there is no reason why we would not consider that.
To answer your question, we have operated domestically, with mixed results.
Senator MacDonald: When did you withdraw from the domestic market?
Mr. Petsikas: We withdrew in the early part of the last decade.
Mr. Bussières: It was following the events of September 11. We had to reduce our fleet by 25 per cent and cut down 25 per cent of employees. There were difficult decisions.
Senator MacDonald: I will make a leap of logic here. I am assuming that charter flights have a better return on profit than regular scheduled flights. If I am wrong, please correct me. I am curious: Where does most of your business come from, charter or regular scheduled flights?
Mr. Bussières: For us, regular or charter flights, this is not the heart of our business; we really offer leisure holiday travel. As George explained, what we basically do is bring travellers to Canada or take Canadians abroad, essentially under the umbrella of leisure holiday travel. It is the heart of our business. So, for us, regular or charter is a regulatory issue; but the legislation has evolved to the point that we have several frequencies, given that we have the opportunity to take many Canadians abroad or bring people to Canada or even bring Canadians home, it is really important to look at it under the umbrella of Transat. Transat is essentially a holiday maker. And that is what we sell to our people. It is the heart of our business.
Senator MacDonald: As a consumer from the East Coast, it is frustrating to see great flights out of Toronto and Montreal, but it costs us a day and a fortune to get there from Halifax. What can you do, within the limits of a business model, to create more regular southern travel in the winter in particular? We are all snowbirds.
Mr. Bussières: We tried to address this question through our agreement with CanJet, which has headquarters in Halifax. This partnership is very good. We greatly value the relationship and we are trying to use their aircraft with our clients to bring them to certain destinations, so the planes are shared in relation to the demand.
Senator Mercer: Gentlemen, thank you for being here. I apologize for being late.
You have a fleet of wide-body jets, but if you are going to move into any other market, you will have to move away from that model of wide-body jets because it is not practical, economical or environmentally friendly, et cetera.
Are you currently considering the purchase of other aircraft that are not wide body? If so, are all aircraft on the table? I am particularly interested in hearing if you are considering Canadian-made aircraft. It obviously is in all of our best interests if the airlines in this country will buy aircraft, if they can buy aircraft made in Canada and employ the Canadians building them.
Mr. Bussières: It is an interesting question. As we explained earlier, our current business model is basically leisure holiday travel and, as you explained quite well, this is a greater distance than what a Bombardier plane, for example, would do. In an undetermined future, if we were to decide to cover Canada, it is clearly an option that we will have to consider.
But, to answer part of your question, the partnership we developed with CanJet gives us access to a fleet of Boeing 737-800 planes and, through this relationship, we can round out our offer of products, but always within the realm of holiday travel.
Senator Mercer: Others who have come before you have told us about being able to do flights to South Carolina, Florida, and other points from Canada, particularly from Eastern Canada, not using wide bodies but using regional jets and also, in the case of Porter, using turboprops to reach Hilton Head and other areas. Obviously these are the types of aircraft made here in Canada, regional jets and all of the fleet that Porter uses.
If you change your business model to accommodate that, does it make sense to think about using short-range jets as opposed to the longer-range jets? The market may be more limited but more frequent, if that makes sense.
Mr. Bussières: I am not sure I will totally answer your question, but I can say that we have experienced that it is important to try to have a fleet that is essentially composed of the same aircraft. When I joined Air Transat, and that was before the events of September 11, we had five types of aircraft. The maintenance was completely ridiculous.
There are many components to the answer, and today we focus essentially on the Airbus 310, 330. The 310 will come ``due'' in three to five years from now. We are trying to find an aircraft that will replace it. We do not have that, but it is long range, as Mr. Petsikas explained.
This is not to say that our agreement allows us to enter, if you will, smaller types of aircraft, but it is a concern. If we go into what we used to have, which were three, four, five types of aircraft, clearly the business is tough right now, but that will add costs, which is something our business people will want to avoid.
Part of why we have this partnership with CanJet was essentially we did not want to introduce into our fleet a third type of aircraft. At the same time, this is not to say that with time you do not revisit decisions. We always revisit decisions. Today we try to limit the types of aircraft that we have.
Senator Mercer: Everyone who has come to us, every airline that has come to us, even non-airline people have talked to us and complained about the excessive taxes that are paid in whatever form. Whatever disguise they may have, they are taxes on travellers. They say we should probably find a way to get rid of that in order to eliminate what you call the cross-border leakage.
I think that industry, you and the others, need to demonstrate to us — not just the committee but the government in general — that if you do this, if you remove these taxes, if you reduce these fees, here is what will happen.
As I have told my colleagues before, I am not anxious to defend the tax policy of this government, but if you take the money away from somewhere, it has to be replaced from somewhere. There is a need for industry to come together collectively and say: If you do this, this is what will happen, this is what will increase. The spinoff will be that the taxes will be paid on other things, whether they are retail sales, hotel, car rentals and all the other things that come with travel. It seems to me that is a key that seems to be missing.
I do not think you will find a senator around the table who has not bought into the idea that we need to fix that cross-border leakage issue. Other than those of us from Nova Scotia, the three of us who are here at the table, everybody else has seen leakage at an airport close by.
Is there any thought within the industry, not just at Air Transat, of everybody coming to the table and saying, ``How do we explain this? How do we demonstrate that there is a good business model for government to let us get rid of these charges?'' We know airports are guilty in this process as well, so we need to be able to demonstrate that there is a cash benefit to everybody by making a tax change.
Mr. Petsikas: Senator, let me say, without reservation, that I totally agree with you. The good news is, we have done that. I have been in this business quite a while, and I have been lobbying for many years against many of these things. For many years, including with our former association, it was always, ``Give us a tax break. This is not good. Get rid of that tax. Get rid of ground rent; it does not make sense. Get rid of fuel excise tax; we do not like it.'' It was always about the airlines wanting a tax break. My God, that is a new one! Why do you not just get in line with everybody else, and we will get to you?
We formed the NACC just over three years ago now. One of the first things we said is, ``We have to change the tune about tax breaks and why this does or does not make sense.'' What we did was very simple; we said that it has to be about a return on investment for the taxpayer. This has to be about recognizing that if we ask the taxpayer to forego certain revenues, the taxpayer is, essentially, investing in our business.
We hired an eminent professor of economics, Fred Lazar, who may be well known to a number of you. He put together an economic-impact analysis for us last year and, essentially, crunched the numbers in terms of what the industry, primarily the four NACC members, represented for the economic well-being of this country. He also crunched numbers as to when we take into account the direct and indirect secondary, catalytic impacts of our industry on the broader economy, in terms of improved productivity, trade and commerce, and exports and imports. What would be gained if we cut those input taxes? He put numbers to all of that. We made our case. We went to the finance department and said that we were making a business case. It is a business case that, unfortunately, will not have results in one, two or three weeks. It is one where you basically have to buy into supporting an industry in terms of what it does for the broader economic picture in this country. It is broader support of the broader economic activity. You have to ask, ``Do we think it is a good idea to reduce the input tax burden on that industry, in order for that industry to be able to support greater economic activity, which means that we get it on the back end in terms of consumption taxes?'' A lot of economists will tell you that that is the way it should be done with an industry like ours.
Senator Mercer: It would be longer term too.
Mr. Petsikas: It is something that will take a few years to work through the system, absolutely, but we have made the case. Obviously, there are challenges, as we know, in terms of the current economic situation. There are also fiscal challenges. However, fundamentally, we believe we are an industry worth investing in, in that sense. We have made our case, and we hope that the finance department, and all of government, will agree with what we are trying to say here.
The Chair: I want to thank you both for your presentations. You have brought in some new issues and have answered questions that, as you know, have been bothering the members of the committee for over the last six or seven months to a year. I will reiterate to you what I said at the beginning, if there are issues that have not been addressed, and you feel that you want to report them to us, or if, along the way, you want to comment on some of the issues that are brought before the committee, we will be more than happy to take those comments into consideration.
I want to tell the members that today the committee was sent Bill S-4 on railway security, so we will be dealing with that when we come back. I think we have some witnesses already committed, but I will talk to my deputy chair. As you know, legislation goes before committee reports, so we will be most likely dealing with that when we come back. Thank you very much.
(The committee adjourned.)