Submission to
THE HOUSE OF COMMONS STANDING COMMITTEE ON TRANSPORT
Regarding
Aviation Security Fees
December 10, 2002

I am Captain Dan Adamus and I am here representing the Air Line Pilots Association, International. I am the Vice-President Elect of ALPA’s Canada Board. As well, I am a pilot for Air Canada Jazz.

I would like to thank you for the opportunity to speak to the Committee today.

The Air Line Pilots Association, International (ALPA) represents more than 66,000 professional pilots who fly for 43 airlines in Canada and the United States. Both as our members’ certified bargaining agent and as their representative in all areas affecting their safety and professional well-being, ALPA is the principal spokesperson for airline pilots in North America. ALPA therefore has a significant interest in the economic health and well-being of this industry.

This submission sets out ALPA’s concerns regarding the Government of Canada’s financial policies in relation to the industry in which our members work. It is our view that the myriad of taxes, charges and additional costs that the Government has imposed upon the airline industry have had a significant and negative impact upon its viability. Of particular, and immediate, concern in this respect is the Air Travellers Security Charge. At a time at which, by any measure, the industry is in a state of crisis, the policy direction reflected by such a tax is seriously misplaced and unfair.

In the aftermath of airline re-structuring in Canada and the September 11, 2001 tragedies, it has become clearer than ever that aviation is integral to the Canadian economy. It is often the most reliable and cost-effective means of moving goods and people around our vast country. This is especially true in respect of remote and northern communities. However, the industry remains in a fragile position.

In Canada, Air Canada lost close to $1.3B in 2001 and, although indicating small profits in two quarters, is not expected to make a profit in 2002. Air Canada Jazz recently cited a 30 per cent decrease in traffic. Canada 3000, which was to be Air Canada’s principal competitor, declared bankruptcy last year. This state of affairs is part of a much larger trend. North American airlines lost a staggering US$6B in 2001 and are expected to lose US$7B more in 2002.

Aviation ties this country together and is important to the economic well-being of Canada. It employs tens of thousands of highly skilled workers who live in hundreds of communities across Canada paying taxes. As the airline industry retrenches, aircraft, engine and avionics deliveries orders are down significantly. The aerospace industry is a major player in Canada’s economic well-being. In 2001, the aerospace industry reported revenues of $23.2B of which $17.8B were from exports ($15.2B of these exports were to the U.S.). It employed 83,600 highly paid and skilled workers in 2001; however, this fell from a high of 91,500 in 2000, and there are indications that further layoffs are taking place.

After years of impressive growth, 2002 will see a significant downturn in revenues, exports and employment. Canadian companies such as Bombardier, CAE and Pratt & Whitney Canada remain very vulnerable to reductions in airline traffic. Under the banner of "Air Industry Turbulence" in last Friday’s Financial Post were the following headlines: "United Closes in on Bankruptcy Financing" and "Bombardier Shares hit by United Woes – Airline’s feeders are major customers of 50-seat CRJ200". The article went on to report that Bombardier’s shares fell 9.3% based on fears of an imminent Chapter 11 filing by United, which would likely result in cuts in Bombardier’s deliveries and profit next year. As we know, yesterday, United Airlines filed for bankruptcy protection.

In part, the doldrums of the North American aviation marketplace are the legacy of the September 11 attacks, questionable airline management practices and the sagging economy. However, a great portion of the industry’s woes is being caused directly by the federal government, which has created a significant and negative impact upon the viability of Canadian airlines by its imposition of a myriad of taxes, charges and additional costs that eat away any potential profit. These costs generally add 7% to 40% to ticket prices, and even more in some instances. Take, for example, Moncton-Halifax (return) on a super low web fare ticket. The base Web fare is $138.00. Now add on the NavCanada fee - $20.00, the Security Charge – $22.44, the Airport improvement fees at Moncton and Halifax - $20.00, and the Harmonized Sales Tax - $28.56, for a total of $91.00 on a base fare of $138.00, or a shocking 66% premium.

In addition, the federal government functions as landlord at most of Canada’s airports — but an abusive one, at best. In 2001, the eight largest airports took in from airlines and passengers $765 million in revenues from airport improvement fees and terminal and landing fees. However, the large airports are required to pay rent to the federal government. This amounted to $250 million last year and will increase another 9.2% in 2003. Notwithstanding that it collects this rental income the federal government does not cover any costs for operating or maintaining airport infrastructure. One may ask who does? The airports are required to do so — passing on the costs to the airlines and travelling public. Airlines are a vital segment of the Canadian transportation infrastructure and the Canadian economy, but the federal government feeds off it rather than cultivating it wisely as a valuable national resource.

It is noteworthy that even though Canada’s economy has been stronger than the U.S. economy, so far this year passenger traffic has declined 10.2% in Canada as compared to 9.9% in the U.S. Higher ticket prices, due in large part to these fees, taxes and charges, together with the "hassle factor" perception of travelling by air, have resulted in significant reductions in passenger traffic. In particular, it is perverse and unfair that passengers should have to finance national security through the Air Travellers Security Charge. Clearly, the status quo is not sustainable within the airline industry itself, nor in the many industries that support it.

As is well-known, the costs of operating an airline have increased dramatically due to market factors outside the government’s control, such as the increase in insurance premiums and the price of fuel. These we do not place at the feet of the Government.

However, at a basic level, the aviation infrastructure recently established by the Canadian Government, highlighted by the devolution of airports and the commercialization of the air navigation system, have resulted in higher costs to the airline industry. Contrary to the accepted market principles regarding pricing and supply and demand, airports and NavCanada are required to raise their charges to offset reduced traffic volumes. As the current situation demonstrates, these increases in costs occur precisely when airlines are least able to afford them. We draw to your attention that the policy of industry self-funding of infrastructure is not present in any of the other transportation modalities to anywhere near the extent it is in place in the airline industry. While such a policy may not have as harsh consequences during periods of economic growth, at times of economic hardship it merely exacerbates the airline industry’s problems. Simply put, it is a recipe for crisis, and it is not fair.

Further compounding this dilemma is the inability of the airlines to reflect these costs in their ticket prices in light of greater competition from other transportation modalities. Given these factors, along with the "hassle factor" of travelling by air in the post 9/11 world, it is no wonder that traffic is down and especially so on the shorter routes, where travelling by car or rail may be viable alternatives.

In this context, ALPA is particularly concerned with the unfair competition provided by Via Rail to airline short-haul routes. In addition to the annual subsidy exceeding $300M, Via Rail was provided with $402M this year to replace aging equipment and facilities. VIA has purchased new passenger cars and high speed locomotives. With this equipment, VIA has expanded its service and charges ticket prices that do not accurately reflect the true cost of the service. Via Rail spent $559 million last year, of which only $254 million came from outside revenue sources. In other words, the taxpayer provided the other $305 million, which amounts to 55 cents of every dollar spent by VIA. Transportation competition must be fair and equitable across all of the modes. It is patently unfair to encourage one mode of transportation over another through government subsidies.

Security Costs

We believe that the Air Travellers Security levy is the prime example of this unfairness. The surcharge is a punitive levy on the Canadian domestic airline industry, imposed at a time when it is least able to withstand it. The security charge is a highly regressive levy as the $24 fee is the same no matter what distance the passenger is travelling. This means that a person flying between Ottawa and Toronto, or Edmonton and Calgary, has to pay the same as a person flying between Vancouver and Halifax. Along with virtually every other observer of the industry, ALPA had predicted in our earlier submissions to the House of Commons and Senate Finance Committees that the surcharge would be particularly crippling to short-haul domestic carriers such as Air Canada Jazz and WestJet. These carriers have worked hard to create markets in which they hoped to get people out of their cars and into airplanes. As anticipated, WestJet and Jazz have seen a sharp decline in utilization of their short-haul domestic routes, and they have therefore had to cut back on some such services.

The "user-pay" concept is entirely inappropriate in the current circumstances. It is important to recall that on September 11^th the terrorists were not targeting the air transport system, but were utilizing it to turn aircraft into weapons of mass destruction against the general public and government and corporate institutions. Of the $7.7B identified to improve security in the December 2001 Budget, it is remarkable that only the $2.2B for aviation security is targeted for repayment through a user charge. In this case, the user is the air traveling passenger. There have been no similar charges for users of marine ports or border crossings where extensive and costly measures have been incorporated to facilitate the flow of goods into the United States.

ALPA again encourages the government, in its review of the security charge, to abandon this levy in its entirety. The application of the "user-pay" concept in the context of the security of Canada is both unfair and detrimental to the already ailing health of the Canadian airline industry.

In the event that this Committee feels it is necessary to continue the imposition of the security charge, ALPA encourages you to consider recommending a graduated fee reflective of the length of the trip and reflective of whether the airport in question will benefit from the security enhancements. However, it remains ALPA’s view that security at airports is in the broader public interest and as such should be funded through general tax revenues and not solely by the travelling public. We find it ironic, to say the least, that this charge to improve the security of air travel in Canada could assist in its very demise, particularly on short-haul routes.

The airline industry has made significant efforts to address the current downturn in air traffic and in the economy. Workers have suffered, as in the case of Canada 3000, or have rallied to assist their airline employers in meeting the present challenges. We are here today asking that the federal government commit itself to getting the airline industry back on its feet and to ensure that there is fair competition in this vital segment of the Canadian economy.

The events of the last year have illustrated the critical importance of the aviation system to the overall functioning of the national economy. Support of this industry, especially at this time, is clearly in the broader public interest and the government should not abandon its responsibility for a integral part of Canada’s infrastructure.

The government must stop treating travelling passengers and the airlines as cash cows by imposing never-ending costs on them. We urge you to first of all, kill the Security Tax and, secondly, to re-think the policy of escalating charges that passengers and airlines are being required to shoulder.

ALPA thanks you again for the opportunity to appear before you today to make our views known to the Committee. I would be pleased to respond to any questions you may have.