9 AIR TRANSPORTATION
MAJOR EVENTS IN 2003
AIR CANADA
Air Canada filed for court protection under the Companies' Creditors
Arrangement Act (CCAA) on April 1, 2003. To facilitate its restructuring,
the airline has proposed cutting its annual operating costs by at least
$2.1 billion, which include annual labour cost savings of $1.1 billion.
On November 8, 2003, Air Canada's Board of Directors selected Trinity
Time Investments, controlled by Victor T.K. Li, to provide the company
with $650 million in new equity to support the airline's emergence from
CCAA protection. This investment provides Mr. Li with a 31 per cent share
of the common equity and 49 per cent of the voting shares in the airline.
Air Canada has stated that it intends to emerge from CCAA protection
by April 30, 2004.
SEVERE ACUTE RESPIRATORY SYNDROME
In March 2003, the World Health Organization (WHO) issued a worldwide
advisory for countries with confirmed cases of severe acute respiratory
syndrome (SARS), including Canada (Toronto). Health Canada was the lead
for implementing several measures to contain the disease. Six Canadian
airports were targetted for special health screening: Toronto, Vancouver,
Ottawa, Calgary, Dorval and Mirabel. Transport Canada supported Health
Canada's initiatives at Toronto and Vancouver airports for inbound and
outbound screening, and played a significant role at the other four airports.
Transport Canada established the necessary infrastructure, selected non-
medical personnel and defined operational procedures for Calgary, Dorval,
Mirabel and Ottawa airports. These staff and operational procedures ensured
that each passenger and crew member had filled a medical self-assessment
questionnaire (yellow card) before seeing a Customs Officer. Summary
data was collected and reported daily to Health Canada's headquarters.
Most of Transport Canada's direct involvement with the response to SARS
took place during May and June. In July, Transport Canada gradually withdrew
from the project, handing over its responsibilities to Health Canada
and Canada Customs and Revenue Agency (CCRA) officials.
AIR TRAVEL COMPLAINTS COMMISSIONER
Ms. Liette Lacroix Kenniff was the Air Travel Complaints Commissioner
throughout 2003. She was re- appointed by the Minister of Transport in
September 2003 for an additional one-year term. The Commissioner released
two reports in 2003 covering the calendar year 2002. The first report,
tabled in Parliament on January 30, covered the first six months of 2002
and cited a decrease in the number of complaints received by the Commissioner's
office over the previous six-month period. The Commissioner's second
report, covering the final six months of 2002, was tabled in Parliament
on June 5. It noted that although the number of complaints continued
to decline, the nature of the public's concerns were more complex, as
the airline industry, faced with declining revenues and rising costs,
appeared less willing to offer settlements that passengers considered
acceptable. The Commissioner and her staff frequently had to enter into
difficult negotiations with carriers to reach solutions acceptable to
consumers.
CANADA AIRPORTS ACT
The proposed Canada Airports Act (CAA), introduced as Bill C-27 in
the House of Commons on March 20, 2003, had not reached the Committee
stage when Parliament adjourned in December 2003.
The objectives behind the legislation were to strengthen governance,
transparency and accountability at Canada's major airports, primarily
those operated by airport authorities. It included a formal declaration
of a national airports policy. It covered the roles and responsibilities
of the federal government, those of the airport authorities and other
airports, the obligations respecting transparency and accountability,
and the mechanisms for users' input. It also addressed competition issues
related to access to facilities and slots, as well as charging principles
and a process for setting airport fees, ancillary activities and enforcement
mechanisms.
AIRPORT RENT POLICY REVIEW
In response to the demands of airports and aviation communities and
to the issues raised by the Auditor General in October 2000, a review
of the rent policy for 22 airports leased to 21 Airport Authorities in
the National Airports System (NAS) was launched in 2001. The review is
designed to assess whether the federal government's airport rent policy
balances the interests of all stakeholders, including the air industry
and Canadian taxpayers. It has been conducted at the same time as, but
independently of, the development of the proposed Canada Airports Act.
During 2002 and 2003, Transport Canada, with the assistance of independent
financial experts, embarked on a number of key studies examining the
value of leased NAS airports, the impact on the air sector and the travelling
public, and the fairness and equity of the current rent model. These
studies are expected to be completed in 2004 and will be subject to government
due diligence and the evaluation of results. Results of the review will
be used as key inputs to a government decision.
FEDERAL SPACE REVIEW AT NATIONAL AIRPORT SYSTEM AIRPORTS
A review of the space occupied by federal departments and agencies
at key NAS airports across the country was launched in 2003. Numerous
federal entities require space at airports to carry out their mandates,
including the inspection agencies (e.g. Canada Customs and Revenue Agency,
Health Canada, Citizenship and Immigration Canada, Canadian Food Inspection
Agency, Canadian Airport Transport Security Authority, etc.) and Transport
Canada. In accordance with federal legislation, space and facilities
are generally provided to these government departments and agencies at
no cost.
Since September 11, 2001, there has been a need to increase the federal
presence at airports to fulfill the safety and security roles of the
federal government related to the processing of passengers and cargo.
The additional demands on free space have created new cost challenges
for the Airport Authorities, and this led to the decision to review existing
federal government policies and determine whether some adjustments are
required. The Federal Space Review at NAS airports is expected to be
completed in fiscal year 2004/05 with the objective of developing a new
policy for approval by the government.
REGIONAL AND SMALL AIRPORTS STUDY
Further to the decision taken by the federal government to continue
its divestiture initiative in early 2002, it was agreed that Transport
Canada would undertake a financial analysis of small and regional airports
to understand the impact of federal government divestitures on their
respective communities. During fiscal year 2002/03, Transport Canada
began a study to analyze the financial viability of regional and small
airports that it transferred since the introduction of the federal government's
National Airports Policy (NAP) in 1994. The NAP provided a framework
that defined the federal government's role in the commercialization of
airports.
AIR TRAVELLERS SECURITY CHARGE
To fund the costs of the enhanced air travel security system introduced
in response to the September 11, 2001, terrorist attacks in the United
States, the Air Travellers Security Charge was introduced and has been
effective since April 1, 2002. It was initially set at $12 per enplanement,
up to a maximum of $24 per ticket, for air travel within Canada, $12
for transborder air travel to the continental United States, and $24
for other international air travel. With respect to domestic travel,
the charge applies to flights between the 89 airports at which the Canadian
Air Transport Security Authority (CATSA) delivers the enhanced air travel
security system. As of March 1, 2003, the charge for air travel within
Canada was reduced from $12 to $7 for one-way travel and from $24 to
$14 for round-trip travel, a reduction of more than 40 per cent.
COMPUTER RESERVATION SYSTEMS
Until the late 1990s, Canadian carriers were very reliant on computer
reservation systems to distribute their inventory of air services to
travel agents for sale to the general public. To ensure adequate competition,
computer reservation systems have been a regulated sector since 1995
under the Aeronautics Act. The emergence of the Internet as a competitive
alternative distribution channel compelled an extensive review of those
regulations by Transport Canada. This resulted in the publication of
proposed amendments to those regulations in part I of the Canada
Gazette on October 25, 2003. Transport Canada began reviewing formal responsesto
the proposed amendments by industry stakeholders and the general public,
and a formal public meeting was held in February 2004 to solicit further
comments before making a final determination on amendments.
ELECTRONIC COLLECTION OF AIR TRANSPORTATION STATISTICS
The national Electronic Collection of Air Transportation Statistics
(ECATS) initiative began in April 2003 with the following objectives:
to collect electronically all operational air transportation statistics
from the approximately 170 domestic, U.S. and other international air
carriers serving airports in Canada; to improve the timeliness of air
transportation statistics to both government and industry; to reduce
the reporting burden and associated costs to stakeholders; and to have
Transport Canada receive air transportation data as close to "real time" as
possible. Implementation of this phase of the ECATS initiative is to
be completed by the end of calendar year 2004. At that time, plans to
expand the ECATS initiative to further include electronic collection
of air cargo, general aviation and carrier financial information will
be initiated.
THIRD-PARTY WAR AND TERRORISM LIABILITIES INDEMNIFICATION
On September 22, 2001, after international insurers withdrew previous
levels of coverage, the federal government announced that it would provide
short-term indemnification for third-party war and terrorism liabilities
for providers of essential aviation services in Canada. This indemnity
continues to be in force, for renewable periods of 90 days. While there
has been some recovery in the insurance markets, previous levels of coverage
are still not available at reasonable prices. Other countries provide
support to their carriers in this area.
PROVINCIAL AND TERRITORIAL INITIATIVES
On January 7, 2003, a three-year agreement between Air Canada and the
Government of Quebec came into effect whereby the airline provides a
large number of seats at reduced fares to non-government users on 15
regional routes and continues service on these routes in return for the
Quebec government increasing purchases of air services from Air Canada.
In June 2003, the Nunavut Territorial Government released the Nunavut
Air Services System Implementation Options Report. As a basis for future
discussions with airlines, the report's objectives are improved air service,
a modernized air fleet and expansion of airport development. The report
concludes that contractual incentives might be the best option to achieve
improvements in air services. Since the Government of Nunavut, along
with the federal government, purchases between 60 and 80 per cent of
air travel, this option suggests that the governments would use their
purchasing power to negotiate improvements. In the short term, the recommended
approach is for the government of Nunavut to set up multiple airline
contracts on selected routes and markets.
The Fredericton Chamber of Commerce successfully attracted Delta Air
Lines to offer twice-daily flights between Fredericton and Boston by
setting up an airline travel bank. Through this travel bank, businesses
commit to using the new service. Demand is developed even before the
service starts and the new route represents less of a risk for the airline.
Delta Connection (Atlantic Coast Airlines) started its new year-round
non-stop jet service on August 15, 2003.
PRECLEARANCE ACT
Following the designation of preclearance areas at Canadian airports
(Calgary, Edmonton, Montreal, Ottawa, Toronto, Vancouver and Winnipeg),
Canada and the United States brought into force a new Agreement on Air
Transport Preclearance on May 2, 2003. This represented the last step
in a process that gives U.S. border inspectors the right to administer,
within the confines of preclearance areas at selected Canadian airports,
certain U.S. laws related to customs, immigration, public health, food
inspection and plant and animal health. Pursuant to the Preclearance
Act, the Minister of Transport, in consultation with the Minister of
Foreign Affairs, is responsible for the designation of preclearance areas.
From Canada's perspective, the entry into force of the preclearance
agreement formalizes in-transit preclearance at Vancouver and allows
for its introduction at Calgary, Montreal and Toronto. In-transit preclearance
allows international passengers destined for the U.S. via a Canadian
airport (i.e. arriving international intransit passengers who have not
cleared Canadian customs and immigration) to go directly into U.S. preclearance.
This will allow Canadian airports to become more effective international
gateways to the United States.
MULTIPLE DESIGNATION POLICY
The Minister announced several new designations as part of the new
multiple designation policy that was announced in 2002. The new policy
allows all carriers to apply to operate scheduled international air services
to any air market. As a result of this policy, the following designations
were made in 2003: Air Canada (Cuba), Air Transat (Dominican Republic
and Mexico), HMY Airways (Mexico), Skyservice (the Dominican Republic
and the United Kingdom) and Zoom Airline (the Dominican Republic, Mexico
and the United Kingdom).
BILATERAL AGREEMENTS
Canada had a total of 74 international air agreements or arrangements
in force at the end of 2003. The federal government participated in 11
rounds of negotiations or consultations with seven countries during the
year. This included the successful conclusion of a first-time air agreement
with Vietnam, which allows for extensive code-sharing rights for airlines.
Negotiations took place with France in an effort to provide more flexibility
to airlines operating in one of Canada's largest international markets.
Negotiations with Russia are ongoing with the view of permanently securing
the right of Canadian airlines to fly over Russian territory. A new arrangement
with Luxembourg was put in place, allowing Cargolux to operate all-cargo
flights to Calgary. Temporary air service arrangements for Israel and
Singapore were extended to allow existing air services to continue. Consultations
with Chile on doing-business provisions were successfully concluded,
allowing that agreement to come into force.
Major Events in 2003
Infrastructure
Industry Structure
Freight Transportation
Passenger Transportation
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