Fred Gaspar
Vice President, Policy and Strategic Planning
Monday, March 7, 2004

Thank you very much, Mr. Chairman.  Good afternoon.  I am very happy to appear before you today, on behalf of the Air Transport Association of Canada, to speak to the issue of air policy liberalization.  Your deliberations will have a profound impact on the future development of our industry so let me first commend the spirit with which you have approached this issue; by holding broad consultative hearings across the country.  You have set out on the right path.  Hopefully we can shed some light to help you find your way.

As you know, The Air Transport Association of Canada, represents the commercial aviation sector in Canada. With approximately 300 members, we represent virtually all scheduled carriers as well as flight schools, regional aviation organizations and other stakeholders.

I would like to make it clear from the outset that we agree with the principle of further liberalizing Canada's air policy framework.  Nonetheless, there is no industry-wide consensus as to exactly how to get where we all want to go.  We do agree however on a few core principles, which I would like to share with you today as a suggested framework to guide your deliberations.

1. A fact-based approach, grounded in sound business analysis must inform and guide the debate.  Let's not rush to grease the squeaky wheel.
2. Win/win objectives must be sought. It's only reasonable to expect that any proposal you bring forward should focus on achieving a ‘balance of benefits'.  That means that Canada should seek to liberalize first  with those countries whose market is large enough to deliver economic benefits to Canadian carriers, as well as the foreign carriers.
3. Reciprocity.  Ours is a proud, vibrant but fragile industry.  While our members shy away from no one when it comes to competition, they expect it to be fair, as would any other business. 
4. Process Matters.  Because you're being asked to come up with creative solutions to a complex issue, there can be no substitute for comprehensive, interactive and open dialogue with stakeholders. 
5. Address the Whole Picture. Ultimately Mr. Chairman, any proposal this committee makes must be workable.  Unless and until we address key issues involving airport governance, airport rents and improve Customs and Immigration efficiencies, no liberalization initiative will deliver any meaningful benefits for Canadians.  Additionally, addressing the whole picture involves looking at the political climate for any proposals you may wish to make, to ensure they are sellable to all stakeholders.

What do we mean by ensuring that facts and sound business analysis should inform this debate?  We refer to responding to passenger demand such as it is, not as we may wish it to be.  It is essential that we put aside notions of this debate offering a panacea to every community who dreams of international flights.  Put simply, international flights from Cranbrook to Cairo or - sadly, Mr. Chairman - even from Sarnia to Seattle are not coming tomorrow just because you may allow it to happen today. 

The principles of sound public policy development dictate that government must use economic forecasting and other analytical tools to understand the consequences, both intended and unintended, of each proposal.

One potential area of consequence lies in the cargo world. Canadian cargo operators are willing to support some degree of increased liberalization so long as it respects the principle of a level playing field and gives them a reasonable assurance of future success.  For example, some carriers are particularly concerned about co-terminalization (the right to serve two or more points in the other country on a single flight from the home country) and seventh freedoms (the right to carry traffic from country to another country without going through the home country), which they fear may unfairly tip the balance of trade in favour of their U.S. competitors.   Their U.S. competitors own large wide body aircraft while Canadian players who serve a smaller market tend to operate differently.  Hence, reciprocity, itself, does nothing to assure the ongoing viability of Canadian cargo carriers.  To compete, Canadian cargo operators would need to expand aggressively into U.S. markets, which would require a significant investment of short-term capital to grow their fleet and increased long term capitalization requirements to manage the larger operation effectively.  Clearly this would take time and money so any proposal you may recommend should include an adjustment period for cargo operations.  Canada's air cargo operators also need assurances that any proposal will provide more than just esoteric opportunities.  Let's recall that many large US cargo operators have strict ‘scope' clauses in there collective agreements, which would prevent any significant sub-contracting opportunities by Canadian carriers.

This leads to my next point; the need to seek win/win objectives.  Again, we refer here to ensuring a ‘balance of benefits' exists in any proposal you may bring forward.  Whether we refer to cargo carriers, small regional airlines or larger airlines, Government must be mindful to draft legislation that does not make losers out of Canadian success stories.  Let's be careful not to liberalize just for the sake of doing so.  Let's pursue liberalization first with those markets which offer something of benefit in return.  Why would we unilaterally spend limited government resources negotiating one-off special access deals with Emirates or Iceland, for example, when the only real benefits to be had are by those countries' home carriers?  While some airports may contend that it doesn't matter who operates into their facilities, we would respectfully suggest that not all traffic is equal.  Canadian carriers, provide a disproportionately massive benefit to Canadian airports and the Canadian economy.  We're here for the long haul, so to speak, whereas niche foreign carriers will not hesitate to leave the Canadian market at the first sign of trouble.  So, yes, let's liberalize but let's talk to our Canadian carriers about where there are reciprocal, long term, opportunities to be found.

Indeed, we are absolutely united in our call for trade reciprocity.  If foreign carriers have access to our markets, government should ensure that our carriers have access to theirs.  We are asking for no more or no less than what is fair.  This principle is a fundamental reality of modern economies.

Another fundamental reality of our modern economy is interdependence. That's why we are asking you to look at the whole picture.  No proposal can exist in a vacuum.  To that end, this committee deserves credit, Mr. Chairman, for examining this issue at the same time they examine the issue of airport rents and governance.  Unless and until Canadian airports are freed of the burden of federal airport rents they will never be able to effectively compete with foreign airports for connecting traffic.  Similarly, unless the long term interests of airports and carriers are re-aligned through meaningful governance reform scarce resources will be wasted in pursuit of goals which carriers may not be prepared to support.

We are asking you as well, to ensure that government service agencies are included in your study.  In Toronto, for example, an in-bound passenger from a small US market, looking to connect to Tokyo, has to ride two buses to three different terminals while clearing Canada customs and be re-screened by CATSA - despite the fact that this passenger has absolutely no intention of entering Canada.  Unless you fix this mess, no liberalization deal will ever attract this passenger to fly through Pearson airport on his way overseas again.  Pearson needs an In-transit facility and Canadian airports must be allowed to establish co-mingling areas, subject to security protocols.

We should also consider this debate in the broader context of the European Union discussions.  Where should government be putting its scarce resources?  Should we undertake a process parallel to the E.U. discussions? Or conversely, should we be focusing on the liberalization talks currently underway with China and India?  Again, respectfully we would suggest that this committee should focus on any and all opportunities that deliver meaningful benefits for Canadians.  And, when confronted with conflicting proposals, you may want to ask yourselves this question: What can we do to provide the greatest benefit to Canadians and Canadian business with the least negative consequences?

In closing I would ask you to keep in mind that Canadians and their businesses depend on a healthy aviation sector. Sadly, the aviation industry, worldwide is rarely far from potential trouble.  In Canada, we have had to deal with the demand shocks of SARS and September 11th.  Air Canada has recently emerged from bankruptcy protection, Westjet has just recorded its first quarterly loss and some carriers are offering the lowest fares ever seen in the marketplace.

Meanwhile oil prices are at historic high levels and airport rents are on a permanent upward trend.  In contrast to these realities, airports are furiously investing in the Field of Dreams approach to infrastructure development; "if you build it they will come".  We would ask you to keep this economic climate in mind when drafting your legislation.  As you go about this important work I would ask you to recall the principle that has guided physicians since ancient times, "first, do no harm."

Once again, I would like to thank you for allowing me this time to present a broad industry perspective on this issue and would like to leave you with one final thought.  Getting a good deal is more important than getting it done quickly.  I invite your questions.