Submission by the Canadian Airports Council to
The Canadian Transportation Act Review Panel
Introduction
The Canadian Airports Council (CAC) is pleased to provide comments to
the Canadian Transportation Act Review Panel. We agree with the final
statement made at the 41 st Annual Premiers’ Conference in Winnipeg last Fall,
where first ministers attested that:
Canada needs effective and viable air transport services to strengthen
investment and jobs. Canadian businesses must have access to a
modern, competitive, effective and efficient air transport network to
meet the needs of the 21 st century.
The overall economic well being of the Canadian aviation industry – of
which airports are an essential part – must be maintained if the needs of shippers
and travellers, both within Canada and internationally, are to be met. Canada
needs to remain competitive with our major trading partners in terms of
transportation infrastructure and facilitation if the benefits of more open trading
links are to flow back to Canada and to Canadians.
In the late 1980’s and early 1990’s the federal government set out its
agenda to meet the growing needs of communities, business and travellers for
an efficiently managed air transportation infrastructure. The result of that policy
initiative – the creation of not-for-profit, non-share capital airport authorities from
coast-to-coast – has been overwhelmingly successful. But as is often the case,
that success has generated calls from some sectors for the government to jump
back into the management of airports. CAC strongly argues that this would be
counterproductive..Canadian Airports Council submission to the CTA Review Panel
Page 2 of 18
Today, the devolved airports are more responsive to their customers, and
accountable to their communities as never before. They are also significant
facilitators of regional and national economic growth. An economic impact study
by the U.S. based Airports Council International – North America (ACI-NA) in
1998 concluded that
! Over 195,000 passengers each day rely on Canadian airports for
business and leisure travel;
! Canadian airports create over $30 Billion each year in total economic
activity:
! Airports generate over 290,000 jobs in Canada, evenly split between
on-airport jobs and those generated in the support sector in local
communities;
! Canadian airports generate $4.5 Billion in tax benefits to all levels of
government.
As you can see, Canada’s airports are significant economic factors.
However, concerns have been raised vis-à-vis the federal government’s
investment in essential infrastructure, particularly at smaller airports. In addition,
the disincentive effect of the crown rental regime at Canada’s major airports
adversely affects their ability to self finance essential capital improvements.
Federal rent reductions are not the only solution however, and to achieve
levels of fiscal efficiency and productivity enhancements, common ground must
be found in such areas as continuing federal cost downloading and improved
federal and provincial tax structures..Canadian Airports Council submission to the CTA Review Panel
Page 3 of 18
The Canadian Airports Council (CAC)
The CAC is an Association of airports across Canada, ranging in size from
Gander, Nfld to the Greater Toronto Airports Authority: airports serving from 90,000 to
over 26 million passengers each year.
Founded in 1991 by the first four airports in the devolution process, the
Association’s central office is located in Ottawa. Today, CAC’s role is to represent and
advocate the interests of Canadian airports to the federal government and other industry
stakeholders on strategic issues, and provide a forum for information sharing and
development of best practices which promote safe and secure operations across the
country.
While CAC is acknowledged as the “Voice of Canadian Airports”’ the Association is
membership driven and consensual in approach. And while the issues I will discuss
today have been agreed collectively by the CAC Board, there are nuances on some of
these issues which reflect the diverse economic situations and stages of development of
CAC’s membership. To get these nuances I would encourage you to talk to as many
individual airport authorities as possible.
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CALGARY
VANCOUVER
VICTORIA
EDMONTON
WINNIPEG
THUNDER BAY
OTTAWA
MONTREAL
MONCTON
HALIFAX
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SUDBURY
HAMILTON
KELOWNA SASKATOON
REGINA
ST. JOHN’S
CHARLOTTETOWN
Canadian Airports Council
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GRANDE PRAIRIE
* NORTHWEST TERRITORIES
JOHN *SAINT
* WINDSOR
** SYDNEY
LONDON
QUEBEC
ABBOTSFORD
GANDER
NORTH BAY
SAULT STE MARIE
PRINCE GEORGE
30 Airport members
across Canada
TORONTO CITY
GTAA.Canadian Airports Council submission to the CTA Review Panel
Page 4 of 18
The Canada Transportation Act Review
Section 53 of the Canada Transportation Act (the Act) requires the Review
Panel to assess whether the legislation provides an “efficient, effective, flexible
and affordable” transportation system for Canada and Canadians. It is the
general intent of the policy, rather than specific regulatory provisions of the CTA,
that is of particular importance to Canadian airports.
CAC is pleased to note that Minister Collenette has asked that the review
panel also consider issues such as:
• the effectiveness of the legislative and regulatory environment to
sustain capital expenditures required to enhance productivity and
promote innovation;
• support for Canadian transportation stakeholders in meeting global
logistics requirements and adapting to the new e-business
environment; and
• public policy issues that may emerge from newly arising industry
structures.
The Panel has also identified related issues requiring further research
which the CAC considers especially pertinent, including:
• emerging market structures among transport carriers;
• sustainability of capital spending; and
• governance and accountability of newly-commercialised transportation
infrastructure providers.
Taking into consideration the general principles under review, and the
specific issues identified by the Minister and the Panel, we have identified 5
primary areas of concern to Canadian airports, specifically:.Canadian Airports Council submission to the CTA Review Panel
Page 5 of 18
• the National Airports Policy and re-regulation of the airport industry;
• governance and accountability of commercialized airports;
• small airport viability;
• competition and emerging market structures; and
• international air policy agreements and Free Trade.
Each of these issues is covered in detail in the attached issues statements.
In summary, we would like to reiterate that the economic well being of the
Canadian air transportation industry is essential to meet the needs of shippers
and travellers and to contribute to the overall growth of the Canadian economy.
While we continue to proclaim the overwhelming success of the airport
devolution program, there are increasing, federally imposed restrictions on
airports which threaten to compromise financial sustainability and limit
opportunities to meet consumer demands.
It is our considered opinion – shared by many others in the industry – that
re-regulation would negate many of the advantages achieved through the
devolution process.
Air travel in the 21 st century is no longer a luxury, but a necessity to
economic growth and a large trading nation, such as Canada, must continue to
invest in its transportation infrastructure to ensure continued prosperity. We
believe that the review of the CTA presents an excellent opportunity for the
federal government to reconsider and strengthen its commitment to this essential
industry.
The CAC would like to thank the Review Panel for its consideration of
these issues. We would be pleased to provide additional, supporting
documentation as Panel Members may require..Canadian Airports Council submission to the CTA Review Panel
Page 6 of 18
Issues
1. The National Airports Policy and Re-regulation of the Airport Industry
Position:
CAC and its member airports fully support the devolution process: overall
the National Airports Policy (NAP) has been a resounding success.
However, while the benefits to the federal government continue to increase,
through reduced costs and increasing rents, airports are having to deal
with the offloading of costs and the increase in regulatory burden.
The federal government must recognize the negative impact of escalating
rent, work with airports to establish a fair rent structure, and not reinsert
itself – either directly or indirectly - into the management of operations of
our successful airport authorities.
• Benefits of the NAP include:
• For the federal government, the NAP has meant that 4,000
employees have been taken off the public payroll without loss of
employment; it no longer funds capital improvements at Canada’s
major airports; it has moved from a position of spending at least
$135 million to operate these airports in 1993 to receiving $225
million in rent on those same properties in 2000.
• For communities, the management of the airports locally allows
them to focus on their needs as never before; local accountability
and access to members of the Boards has been enhanced.
• For passengers, it has meant significant improvements in customer
service and a more client-oriented style of business.
• For other airport users and airlines, it has meant a refreshing
business orientation to decision making which better meets their
needs..Canadian Airports Council submission to the CTA Review Panel
Page 7 of 18
• The federal government receives significantly more in airport revenue than
it pays out in support programs. That net receipt is set to balloon in the
next ten years.
• Transportation infrastructure must be funded on a sustainable basis.
Infrastructure investment should be strategic and capitalize on modal
strengths without creating competitive distortions, including the effects of
any taxes, rents or fees and their effects across modes and jurisdictions.
Specifically, it must take account of the significant advantage afforded to
competing US airports through their ability to issue tax-exempt bonds.
• While not identified as part of the Review mandate, the current Crown rent
formula imposes an undue burden on Airport Authorities and should be
considered under the “new arising industry structures”. By removing
significant amounts of capital from the National Airports System, capital
which could be better used to directly fund the necessary investment in
infrastructure required to meet rapidly increasing demands, the federal
government has created an unwarranted burden on the authorities which
were created to mange the airports and enhance regional economic
development. Going forward, the federal rents paid by the NAS airports
should be based on sound business principles.
• The provisions of the current Crown leases between the federal
government and airport authorities should be transparent and
straightforward.
• The federal government should consider liberalizing the rules of ownership
for those NAS airports wishing to assume title on a non-share capital basis
similar to Nav Canada. These airports are currently operated by non-share,
not-for-profit entities under long-term leases from the federal
government. The federal government should be required to demonstrate
what material interest is being served by retaining public ownership of
these airports..Canadian Airports Council submission to the CTA Review Panel
Page 8 of 18
• Adding to the financial burden are increased regulatory impositions. CAC
has brought these issues to Transport Canada’s attention – for instance,
the implications of changes to the ERS regulations – and we anticipate
many more regulatory initiatives which could dramatically increase the
cost of operations.
• The Panel may require consideration of the economic impacts of
regulations for safety purposes, for example, by mandating risk analysis
and cost-benefit justification for proposed risk mitigation regulations..Canadian Airports Council submission to the CTA Review Panel
Page 9 of 18
2. Governance and Accountability of Commercialized Airports
Position:
Canadian Airport Authorities operate in an open and transparent
environment as defined in the comprehensive Public Accountability
Principles and governed through the structure of non-share capital, not-for-profit
corporations, guided by a locally nominated Board of Directors.
Recognizing that there are some differences in the individual application of
these principles, due in large part to changes in government policy, CAC's
Governing Board has adopted eight core principles which it believes
member airports should recognize in drawing up their own governance
procedures.
The CAC's work in this area is predicated on one of the founding principles
of the devolution process: that is, to move decision making into the hands
of authorities accountable through their local boards to the communities
they serve. The former federal airports are more accountable to airport
users, tenants and local communities than ever before. There is absolutely
no policy justification to reverse this process.
• The core principles are attached.
• Anecdotal evidence has been presented in this and other fora which
might indicate that the governance and accountability principles need
to be changed. However, those arguments to date have lacked
substance.
• There is no evidence that airport infrastructure is being over-built. In
fact because the federal government decided not to invest in airports
infrastructure from the late 1980’s onwards there is a significant
backlog of essential capital investment..Canadian Airports Council submission to the CTA Review Panel
Page 10 of 18
• User-pay is an established mechanism to pay for needed capital
investment at Canada’s major airports and the airlines have now
acknowledged the need. In fact to quote from one of your earlier
presenters, ATAC, the airlines’ industry association:
“…The major capital projects undertaken in most cities were critically
needed and probably would not have been undertaken under the
government’s management.”
The airlines have a greater influence on the scope and pace of airport
infrastructure development than ever before.
• The financial markets and bond rating services also provide an
essential review mechanism and discipline with regard to infrastructure
investment. Airport authorities are non-share capital corporations –
any excess that is generated is put back into the business, reducing
the cost of borrowing and translating directly into lower charges for the
consumer.
• And last, but by no means least, the boards of the Authorities have
taken seriously the need to consult with their communities concerning
future development. In a competitive market – and make no mistake
the airport industry is competitive – everyone knows that increasing the
cost of operations will result in traffic diversion..Canadian Airports Council submission to the CTA Review Panel
Page 11 of 18
3. Small Airports Viability
Position:
Canada’s smaller airports are an integral part of the national air
transportation infrastructure yet their financial viability is not secure. It is
important that they achieve financial viability and long term operational
stability without being compelled to penalise their communities or the
regional and smaller carriers in the process. Small airports must be
capable of providing a cost-effective level of service consistent with public
safety and security and, to achieve this, an effective program of capital
assistance must be developed.
• Impediments to viability – such as the imposition of unnecessary
regulation and compliance costs - should be removed as a first step
towards the implementation of a financial relief program.
• Government spending on infrastructure should be treated as an
investment, not a cost, thereby encouraging and facilitating new &
innovative investment vehicles for the public and private sectors.
• Airports are recognized as economic engines for growth and
expansion and should be supported.
• The bankruptcy of InterCanadian, the merger of Air Canada and
Canadian Airlines and other factors have had a negative impact on the
financial stability of many smaller airports. Many have been forced to
increase the fees charged to the remaining carriers flying out of their
locations. These increased user fees have in turn had an impact on
the financial viability of smaller airlines, start-ups and regional carriers.
As this cycle of rising airport fees undermines the financial viability of
carriers, the inevitable result will be that carriers will withdraw services
from less profitable destinations. Inevitably, this will undermine air.Canadian Airports Council submission to the CTA Review Panel
Page 12 of 18
service to some locations and regions and threaten the national scope
of our air transportation network.
• For many small communities, the airport is often the only lifeline to the
rest of Canada. Permitting small airports to decline will have a
significantly harsh impact on Canadians living in rural, northern and
remote communities.
• Having access to a reasonable range of air transport options is a basic
precondition to involvement in the modern economy. Air travel is no
longer a luxury enjoyed by a select few.
• Small airports are a major jurisdictional problem, given the respective
roles of the federal, provincial and municipal governments. There is an
opportunity for the federal government to take an important lead role in
ensuring the sustainability of a national system that serves all
Canadians, and not just those in the catchment area of the NAS
airports.
• Financial and operational constraints imposed by regulations – such as
the transport of dangerous goods, runway contamination, CAR’s 308,
gravel runways and approach bans - are cumulative and, if not
reasonably controlled will have a devastating effect on small airports
that are already facing financial uncertainty.
• The Airports Capital Assistance Program (ACAP) needs to be
revamped to allow airports to have longer-term security where project
approval and funding is concerned. Small airports have limited funding
options and the restrictive ACAP eligibility criteria leave some airports
no available opportunities to invest in much needed infrastructure
improvements. For instance, at present only airside safety projects are
potentially eligible for ACAP funding. Capital investment needs are
much broader..Canadian Airports Council submission to the CTA Review Panel
Page 13 of 18
4. Competition and Emerging Market Structures
Position:
The CAC supports recent statements by the Port of Vancouver that every
traveller and shipper must have effective, competitive options, preferably
through the workings of the marketplace. Effective competition will be
achieved by removing impediments to new entrants, including foreign
ownership restrictions. Competition should be encouraged by public
policy and delivered by the market. Regulation, per se, will not generate
competition. This is an effective way of achieving real competition and
bringing the air mode in line with most other modes of transport, and
businesses generally in Canada.
To support that aim it is also vital the federal government improves the
quality and scope of the data that the airlines are required to provide, both
for passenger and cargo traffic. Access to timely and accurate information
is essential if communities are to access competitive and affordable air
transportation.
• The current CTA, related legislation and federal government policies
should be judged against the ability to provide effective, competitive
options and the reality that the role of government in supporting
transportation has changed fundamentally, from what has been termed
reactive regulation in the past to proactive facilitation today.
• A trading country like Canada must meet global challenges by taking a
thoroughly collaborative approach, and by thinking “outside the box”.
The government needs to define what will be needed well into the
future to ensure the prosperity of all Canadians, and then tailor
transportation policy accordingly..Canadian Airports Council submission to the CTA Review Panel
Page 14 of 18
• In the final analysis, it does not matter who owns an airline, just that it
operates as a good corporate citizen. The foreign carrier issue needs
to be addressed on the basis of what is best for Canada not
necessarily one or other airline. The greater good available from a
competitive industry should prevail over narrow sectoral interests.
• Modification of the rules for foreign ownership of Canadian carriers to
49% is required to facilitate financing. Ownership laws should apply
equally to all Canadian carriers.
• Controlled cabotage, or right of establishment, available to U.S. and
foreign air carriers, should be considered in order to address the issue
of competitive air services beyond Canada’s international gateways so
that a broader base of Canadian communities can benefit and properly
participate in the international air travel market. Australia has
successfully started down this path. The issue of reciprocity for
Canadian carriers also needs to be considered.
• While not directly involved in the CTA Review, Transport Canada’s
decision to allow the airlines – which in most cases is one major airline
– to allocate priority to small airport ACAP applications sets up a real
conflict of interest, and although it may not be anti-competitive in intent,
is anti-competitive in effect.
• One barrier to effective competition is the lack of data available to the
airports and federal government. The CTA should be immediately
changed to require airlines to submit data at least as comprehensive
as that available in the US. Moreover, the analysis and dissemination
of the information which is currently available is painfully slow – and
the base data is stale and has passed its usefulness date in many
cases. If Stats Canada cannot provide comprehensive and timely data
then privatization should be considered.
• Finally, a comprehensive review and monitoring of the impact that
Canada’s airline industry restructuring is having in international
markets is required..Canadian Airports Council submission to the CTA Review Panel
Page 15 of 18
5. International Air Policy Agreements and Free Trade
Position:
In the last several years the Canadian Airports Council has expressed a
strong interest in the development of Canada’s international air policy
because of the substantial impact that air transportation has on the
economic well-being of our communities. Further advances in Open Skies
agreements between the USA and other countries are creating a
competitive airline industry environment for international air services. We
believe these developments, against a stagnant international air policy in
Canada and a single, dominant air carrier regime, do not create the best
situation for airports and the communities that they serve in Canada. It is
important that Canada’s international air policy reflects the needs of its
airport stakeholders and, to that end, Airport Authorities must play a key
role in securing international air agreements, as their US counterparts, and
Canadian airlines, already do.
Cargo is sometimes treated as an afterthought, but in policy terms it
should be at the forefront of the Panel’s mind as it goes forward with
recommendations. Global cargo traffic is projected to increase 5 to 6 per-cent
per annum – or double within 15 years. Canada will only benefit from
these business opportunities and create the associated employment here if
the right environment exists. The federal government has its part to play in
negotiating more flexible ‘open-skies” agreements, adopting customs
cargo clearance and facilitation processes which expedite the movement of
cargo through Canadian airports, and adopting tax and user-fee regimes
which encourage transhipment and value added processes in Canada.
CAC supports the establishment of a government/aviation industry
advisory committee to jointly propose changes to current international air
policy and assist in making recommendations that reflect the aviation
interests of most Canadians..Canadian Airports Council submission to the CTA Review Panel
Page 16 of 18
• Businesses depend on a high level of direct flight frequency and
reliable air transportation. In order to achieve maximum tourism
results, leisure travellers and the tourism industry rely on adequate
airline seat capacity, direct air services and affordable airfares.
• The CTA should facilitate the integration of Canada’s trade and
transportation into the North American and global economies.
Transportation policy has to promote the seamless and harmonized
international movement of people, goods and information.
• Airport Authorities, at a minimum, should have observer status at
bilateral negotiations. There must be meaningful participation by
stakeholders in formulating the agreements that will shape and define
Canada’s international air markets.
• The traditional air-carrier focus of Canada’s international air policy
needs to be replaced by one following the “best interests of Canada”
as a whole, including the important role of Airport Authorities in
attracting and retaining international aviation business.
• Canada has adopted an open trade policy, particularly with
developments such as NAFTA and WTO, that suggests Canada’s
international air policy should be moving in the same, liberalized
direction in order to keep pace with these growth opportunities.
• Issues that may help ensure international competition in Canada are:
• a Canadian Open Skies policy for all cargo services, including
co-terminalization and fifth freedom traffic rights;
• a true Open Skies air agreement between Canada and the US
that includes fifth freedom traffic rights for airlines of both
countries;
• re-negotiation of existing air bilateral agreements to obtain
improved airport access for designated Canadian carriers and
services by newly designated carriers, where current air bilateral
agreements impose restrictions on frequency, capacity and.Canadian Airports Council submission to the CTA Review Panel
Page 17 of 18
named destinations, as a means of moving closer to open skies
regimes;
• reconsideration of the validity of the 300,000 passenger
threshold as it applies to Canadian air charter operators wishing
to provide international services; and
• support for foreign air carriers currently operating in Canada that
may wish to expand their current Canadian operations, and
those that are interested in initiating new Canadian services.
• The federal government should move to enhance system efficiencies
such as passenger processing, transit without visa, intransit passenger
preclearance and other measures to make our airports more
competitive.
• Air-cargo services also are closely regulated between Canada and
other countries, including the U.S. There is a concern that needed
cargo services will not be available to support value-added and e-commerce
growth, because Canadian carriers do not seem to be
interested in providing all-cargo services and the federal government
restricts entry to foreign carriers unless it deems there to be equivalent
“benefits” for our carriers – perhaps at the other end of the country or
perhaps related primarily to passenger rather than cargo.
• The Canada-U.S., open-skies agreement excludes cargo, resulting in
co-terminalization and pre-clearance restrictions that impede the
international movement of goods. These constitute a throw-back to the
days of a Canadian economy protected from foreign competition.
While their removal would benefit some carriers and airports more than
others, these are decisions to be decided by shipper need and
carrier/facility provider performance, not policy makers or regulators..Canadian Airports Council submission to the CTA Review Panel
Page 18 of 18
• Both the new, emerging industries and more traditional manufacturing
and resource industries have common logistics needs for an effective,
competitive and local air cargo system. That applies equally to oil and
gas instrumentation in Edmonton, hi-tech in Ottawa, or lobster in
Bedford, NS.
• There is a significant lack of wide body cargo capacity available. Most
international cargo must move by ULD pallets, requiring trucking
moves to the nearest airport, including US points. If Canadian carriers
cannot, or choose not to provide main-deck cargo capacity, then
foreign carriers must be allowed to do it.