Transport Committee on April 30th, 2024

[Karl Moore]

If the demand is there, in our system competitors will come along to make money and become rich. This is how the system works. There are some unusual dynamics there, otherwise some of the competitors in Canada would be there to service that market. Partly it's the difference from their home base and some issues like that, but the system largely works in much of the world. It's a lack of demand and of support, and part of it is the sheer distances, getting pilots and planes there. There are some physical things as well, sir.

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

Professor Gradek, in your research, in the work that you've done, is there a region anywhere where you believe that competition in regional connectivity is higher or of better quality than we have here in Canada?

[John Gradek]

I don't think so. The world is having a problem serving regional markets that have insufficient densities, as Professor Moore mentioned. If you don't have the travelling public there to support an essential service you're not going to get direct service. I think there is no region in the world that has a characteristic that we should model.

The U.S. has what we call the essential air services act, which is part of their mentality. They identified a couple of hundred city fares in the U.S. that.... The U.S. government is, in fact, subsidizing air service. That doesn't exist in Canada. That is an opportunity for us, if we want to go down that path, to look at identifying which city fares should be considered as requiring essential air services and to act accordingly.

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

Mr. Ebrahimi, what are some of the barriers to more competition and not just excuses from airlines, “Our innovation, technology and all these investments go...”, etc.? What are some things that you think could be removed to improve competition?

[The Chair, Liberal, Peter Schiefke]

There are 30 seconds left.

[Mehran Ebrahimi]

Thank you for your question.

First, I want to pick up on the lack of consistency.

On the one hand, people have been saying for years that there is no competition, while on the other hand, company mergers have been accepted. For example, WestJet's purchase of Sunwing was approved. That means that WestJet automatically gets 52% of all sun destinations, as they are known in Canada, and 72% of destinations in the west. Airline services became concentrated. That was accepted. Yet this flies in the face of competition.

Things changed a few years ago because of the COVID-19 pandemic. Air Canada's purchase of Air Transat was approved. So once again, an acquisition was approved. Canada's Competition Bureau approved it, but the European Union's directorate general for competition sounded the alarm.

So we see this inconsistency and lack of awareness of the repercussions. That is a significant obstacle.

[The Chair, Liberal, Peter Schiefke]

Thank you, Professor Ebrahimi.

Mr. Barsalou‑Duval, you have the floor for six minutes.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Thank you, Mr. Chair.

I want to thank the witnesses who are with us today.

I want to pick up on something Mr. Rogers touched on and that Mr. Ebrahimi said, namely, the presence of big players.

I am glad to see that companies of a certain size can base their operations here and serve international markets. I am thinking in particular of WestJet and Air Canada.

I am nonetheless concerned that a threshold could be reached under certain circumstances, which could be too influential. I do not have the exact figures, but if I recall correctly, Air Canada accounts for about 60% of the air traffic at Dorval in Montreal.

If I go to the grocery store and 60% of the merchandise on the shelf is made by the same company, is that a healthy market?

Should there be restrictions or at least restrictions on the number of time slots or the number of arrival and departure gates that are used?

Mr. Roy, could you speak to that?

[Dr. Jacques Roy]

I don't think Air Canada's activities need to be restricted since it is the main carrier in Canada. It is our flagship carrier in a sense. Traditionally, Air Canada has always been dominant and it now accounts for roughly 50% of the market.

It is true that Air Canada accounts for a lot of activity at the Montréal-Trudeau international airport, but that has not always been the case. In the past, Air Transat had more international destinations than Air Canada did. So there is already competition in international flights. I don't think that is the concern.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Mr. Ebrahimi, would you like to add something?

[Mehran Ebrahimi]

As my colleague Mr. Roy just said, weakening a national company is not a good idea. It naturally has a major presence in all countries.

The question we have to ask is what we are doing to make room for competition and other options. Canada does not have a national strategy for the airline industry, so it improvises. The money from the airlines, passengers and airports does not go back into the airline sector to improve infrastructure, for instance.

As my colleague Mr. Gradek said, Canada could establish measures such as reserving a certain number of time slots for small companies. The issue of taxes or taxation is extremely important. It is a major barrier that is under the government's control. It can take action directly.

A number of countries including Norway select regions in which they want to intervene. They choose regions they consider important, that is, where air travel helps drive economic development. They intervene in various ways using various models.

The idea of weakening the national airline does not necessarily help other companies grow if there are weaknesses in the tax systems and infrastructure. I think we need to look at all of that as a whole and reflect on a national strategy.

In closing, Canada is nearly the only country that has good companies, significant know-how and expertise in the field but does not have a national strategy for the airline sector.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

I do not want to talk about restrictions, but I would like to briefly discuss the threshold.

What is the threshold at which a company is too influential in relation to others or becomes a monopoly or a duopoly?

In terms of competition, when does that become a drawback? Would it be 70%, 75%, 80% or 90% of activities?

Is it possible to state a level or is it unlimited?

I would like Mr. Ebrahimi to answer first, followed by Mr. Roy.

[Mehran Ebrahimi]

Among national companies, British Airways has sustained operations at Heathrow in London; in Frankfurt, it is Lufthansa; at the Roissy airport, it is Air France. These companies are very important.

I don't think there is a threshold. What we have to consider is the effect it has. We now know that Air Canada accounts for 50% of the activities at Montréal-Trudeau airport. That is a fact. What can we do about it? It is not the 50% that is problematic. British Airways accounts for a higher percentage of activities at Heathrow. What are the other conditions under which low-cost airlines can develop? That is the issue.

We have to address various factors, such as poor departure or arrival time slots, very high taxes, poor weather conditions, large distances to be served and a labour shortage.

These are the issues that become decisive. It is not necessarily the percentage of activities conducted by a national airline at a given airport. Moreover, those are issues that can be addressed, although Canada has not done so.

I don't know if we have to focus on a certain percentage. I also don't know whether my colleague Mr. Roy, who is an expert on operations, could say. In any case, I don't think such a percentage exists.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Barsalou‑Duval.

Mr. Bachrach, the floor is yours. You have six minutes, sir.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Thank you, Mr. Chair.

Thank you to our witnesses for being here and engaging with us on this topic.

I want to take it in a bit of a different direction. We're talking about competition in the air sector. Ostensibly, part of the conversation is how to resolve this issue of new entrants to the market having trouble competing with the big airlines. We've heard about taxes and fees, yet I think Mr. Roy made the good point that if you lower the bar for everyone, you're not creating a competitive advantage for smaller airlines; you're just making air travel cheaper and, of course, someone is going to have to pick up those costs.

Certainly, we hear the idea being floated that Canada should be subsidizing airports publicly in a greater way. What I want to ask about is the larger public policy objective when it comes to passenger transportation, because what we're talking about isn't how to make flying cheaper, but how to move people. I think it's a very worthy policy objective that we need to think about more broadly.

Only about half of Canadians fly regularly, or at least those were the last numbers I saw. They may be from several years ago. Perhaps more people are flying now. However, there's a significant portion of the population that doesn't fly. We're in a country that has no bus system. One of the least expensive ways to move people around a big country is by bus, yet we have virtually nothing connecting our country since Greyhound pulled out. Our passenger rail system is a shadow of what other countries are capable of having.

When we talk about scarce public finances, where do we invest those finances in the way that has the greatest benefit for the greatest number of people when it comes to transportation?

Is investing public subsidies in airports the direction we should be looking in, so that we can get more people flying more cheaply? Is that the primary public policy objective that we should be considering in this conversation?

I'm happy to direct that to whoever wants to answer it. Perhaps we'll start with Mr. Gradek and then we can go to Mr. Moore here in person.

[John Gradek]

Thank you, Mr. Bachrach.

I think you've hit the nail on the head in terms of where we, as Canadian people, ought to be putting our dollars and cents in trying to support transportation in this country.

The railways built this country 140 years ago. We've evolved the Canadian air transportation system over the last 110 years to the point that I now consider that Canadians feel air travel is an essential Canadian human right and we need air travel in order for this country to survive. Without air travel, how do you get to Vancouver from Toronto or Ottawa? There is no viable alternative that's really competitive with what's going on around us in the world.

Air is really an integral part of making our economy work. Now, the question becomes one of who pays for it. We've made a decision over the last 25 years, as Canadians, to basically say the users pay. Those people who use air services should be paying for air services. That's the model that's created all of these taxes that my colleagues and I have been saying over the years are a barrier to entry for many carriers into Canada.

However, that's a fundamental question. User-pay means that only air passengers should be paying for the infrastructure required to support air services. Unfortunately, while that model served its day, back in the mid-nineties and early 2000s, the world has changed. The world is now looking at air services, airport infrastructure and the whole airport as being an economic weight that has to be borne by the countries themselves.

When I look at investments in airports around the world, I see Saudi Arabia and the United Arab Emirates investing $35 billion to $40 billion in airports because they know that the future of their country and economy is based on airports. If there's one country that is really focusing on airports as a key piece of infrastructure, it should be Canada.

I believe you're right. Canadians have to change the model. The user-pay model doesn't work anymore.

[The Chair, Liberal, Peter Schiefke]

Thank you, Professor Gradek.

Thank you very much, Mr. Bachrach.

Next, we have Mr. Williams.

Welcome to the transport committee. The floor is yours.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you very much.

It's very nice to be here at the transport committee to talk about competition in our airline sector. Yes, we have a major problem with competition. We have a duopoly controlling over 80% of flights in Canada. I'm happy to participate in some of the questions with witnesses here on how to fix this competition problem we have with airlines.

To give perspective, Canada had 85 million domestic travellers in 2019—the year we could track before COVID. Compare that with Australia, which only had 63 million. We had a significant number of travellers domestically. If we include international travel, Canada had 166 million passengers on Canadian airlines in 2019. To say they're struggling is.... They're doing very well. Of course, it's split almost equally between WestJet and Air Canada. There was a comment made earlier that we allowed WestJet to buy Sunwing. That boosted those 166 million passengers into just two airlines, so we have a major issue with that.

Professor Moore, you talked about the demand being there for airlines, but I want to focus on the barriers. They are high, it seems, for new airlines to come in. What I want to specifically focus on is competition and what rules we need to change in Canada to enable more competition.

The example I'd give right now is this: If you were going to buy a round-trip flight between Toronto and Ottawa next week in an off-peak time, it's about $585. If you're going to buy a round-trip flight right now between Toronto and Vancouver, it's only $385. The difference is that Flair Airlines is trying to compete in the Toronto-Vancouver market. We have Porter between Toronto and Ottawa. You can see the difference.

What do we need to do to ensure there's more competition and that barriers are lower for any airline that wants to compete against the duopoly in Canada?

[Karl Moore]

It would be great to have some ultra-low-cost carriers.

I've sat down with Skúli Mogensen—who lived in Montreal and founded WOW Air— and the founding CEO of Southwest. I've talked to a bunch of CEOs about this. It's all about costs. This is one of the three basic strategies from Michael Porter at Harvard: low cost. Think about going to Walmart or Costco. The mindset is different when you go to the Ritz-Carlton or Holt Renfrew. You're in a different world. In airlines, ultra-low-cost carriers focus on that. The problem is that the high taxes and other high fees in Canada make it.... The difference between you and a fuller carrier, like Air Canada or WestJet, is much less in terms of the price difference, so you're not rewarded for that ultra-low-cost focus they know how to do.

It would help and encourage those competitors to come in and use their approach. It's interesting, because one of the things they'll ask is, “Oh, do you want water?” I remember asking for water in Icelandair and they said it's $5. I thought it was a human right. They said, “It is, but it's $5.” Air Canada and WestJet are going after charging you for your seat. “Oh, do you want a bag? That will be this much,” and so on. “Oh, do you want a meal?” You are old enough to remember when you used to get meals and all that.

We're adjusting that, but I think ultra-low-cost carriers are a good solution.

[Ryan Williams, Conservative, Bay of Quinte, ON]

I don't know.

[Karl Moore]

I apologize. That was cheeky. For an older man, it's totally inappropriate.

[Some hon. members]

Oh, oh!

[Ryan Williams, Conservative, Bay of Quinte, ON]

No, I am old enough, I believe.

The big thing is that you have competitors. Porter Airlines just expanded. It is a Canadian success story. You mentioned earlier that WestJet had the six plaques of airlines that went bankrupt. Porter has fought tooth and nail to keep on that island and fight its way out. It has 36 jets and is trying to compete. I'm old enough to remember when Porter was giving you a beer for free on the way to Thunder Bay. It was a service Air Canada and WestJet weren't doing—and we're going to hear from those airlines.

There are barriers to expanding—getting into the east side of Canada and going there. What is the government's role? How have they got it wrong? How does the government get out of the way a bit so Porter can expand? On the other side, do we need to look at Open Skies or cabotage to bring more competitors into markets where we don't have a choice?

The idea is that we want choice for Canadians in every market across Canada, because we have 166 million passengers on airlines. How do we do that?

[The Chair, Liberal, Peter Schiefke]

You have 30 seconds for a response.

[Karl Moore]

You can't own all 49% as a foreigner, which makes it much less attractive to invest in the airline industry in Canada. I'm not sure we have a lot of rich Canadians who want to get rid of their wealth by owning an airline. However, we have a lot of rich foreigners who would see opportunities if there were some changes to the rules in Canada. There would be greater investment.

Let's keep the 49% rule so Canadians are in charge, but allowing one organization to have the full 49% would be an interesting and helpful change, potentially.