Aviation Policy at 20 Years: Accomplishments, Challenges and the Need for Further Change

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Daniella Harrell
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1 Aviation Policy at 20 Years: Accomplishments, Challenges and the Need for Further Change ATAC AGM 14 November 2012 Presentation by Gerry Bruno, Group CEO InterVISTAS Consulting

2 20 Year Accomplishments

3 Milestones in the Evolution of Air Policy 1944: Chicago Convention established ICAO and framework for exchange of rights in air bilateral agreements : U.S. deregulation and launch of Open Skies policy initiative 1987: Canadian domestic de-regulation under the National Transportation Act : EU evolved to a Single Aviation Market in 3 stages 3

deregulation and launch of Open Skies policy initiative 1987: Canadian domestic

4 Canadian Aviation Policy: the last 20 years 1992: Canada-US Open Skies Negotiations 1992: Initial Local Airport Authorities established 1994: National Airports Policy 1995: Canada-US Open Skies Agreement Part I 1995: New International Air Policy 1996: NAV CANADA established 2002: CATSA established 2005: Canada-US Open Skies, Part II 2006: Blue Sky Policy 2009: Canada-EU Open Skies Agreement 4

Agreement Part I 1995: New International Air Policy 1996: NAV CANADA established 2002: CATSA

5 Global Air Policy Trends IATA Agenda for Freedom Initiative: Launched by IATA to give airlines the commercial freedom to operate like any other global business IATA Conference held in November countries signed a Statement of Policy Principles promoting the adoption of more liberal terms in bilateral agreement negotiations The statement was endorsed by the European Commission Signatories include: USA, EC, UAE, Chile, Bahrain, Kuwait, Lebanon, Malaysia, Panama, Qatar, Singapore, Switzerland. Canada is noticeably absent from this list. 5

adoption of more liberal terms in bilateral agreement negotiations The statement was endorsed by the European Commission Signatories

6 International Air Policy Liberalization Liberalization of International Air Policy has been driven by airline deregulation, globalization of the aviation industry, and the recognition that liberal air service agreements leads to economic growth and jobs. 6

deregulation, globalization of the aviation industry, and the

7 Global Economic Impacts InterVISTAS 2006 Study reviewed growth trends following liberalization of air services between countries: Traffic growth typically averaged between 21% and 35% Growth exceeded 50% in some cases, and almost 100% in others 7

between countries: Traffic growth typically averaged between

8 Global Economic Impacts The Study also modeled impact of moving 320 restrictive bilaterals to Open Skies Liberalizing remaining restrictive agreements between country pairs would: increase traffic growth by an average of 63% create 24.1 million jobs Generate an additional $490 billion in GDP 8

agreements between country pairs would: increase traffic growth by an

9 EU-Canada Economic Impact EU study estimates significant impact 0.5 million additional passengers Year 1 (9 million traveled in 2007) 3.5 million additional passengers in a few years ( 40% increase) 1,000 new jobs in 1 year 72 million in economic benefits in 1 year (C$112 million) 9

5 million additional passengers in a few years ( 40% increase) 1,000

10 Issues & Challenges

11 Economic Benefits Not Being Realized Full economic impacts from Canada-EU Open Skies will only be realized once all aspects are in place The agreement provides for a phased opening of the market, linked to changing foreign investment rules: Cargo 5 th freedoms contingent on Canada raising ownership restriction to 49% from 25% Passenger 5 th freedoms contingent upon Right of Establishment Cabotage rights contingent t upon removal of ownership restrictions Slow progress being made on these issues 11

th freedoms contingent on Canada raising ownership restriction to 49% from 25% Passenger 5 th freedoms contingent upon Right

12 Disconnect in Government Policy Agenda Pro-competitive/efficiency/global policies: International gateway/corridor policy Trade policy Competition policy Domestic air policy Transportation policy Perimeter Security policy Protectionist policies: International air policy: Lost momentum Regression to carrier focus 12

policy Domestic air policy Transportation policy Perimeter Security policy

13 Fees and Taxes: Competitive Disadvantage If the border was a bit further north Montréal would be $253M ahead Vancouver $357M ahead and Toronto $798M ahead 700 Affects both airport and airline costs Due to Terminal 3 Purchase Interest Costs to operate Mirabel Higher Canadian Safety Standards EAS and SCASDP Subsidies $m million NONE Montréal Vancouver Toronto U.S. airports NAV CANADA Asset Purchase GST paid by leisure passengers Air Transport Security Other US Aviation subsidies (non- AIP) Airline Fuel Tax not reinvested Excess Interest due to deferred spending No AIP Funding (subsidy portion only) No Provision for Tax-Free Bonds Must pay GILT/PILT Must pay Ground Rent Source: InterVISTAS analysis

14 US LCC Carrier Advantage: Fees &Charges, Base Fares, No Border Burden YVR BLI YUL YYZ IAG BUF PBG 14

15 US Hub Carrier Advantage PreClearance extends domestic reach Denver Hub All Routes 15

16 Future Change

17 Pursue True Blue Sky Focus on broader economic benefits Promote community development, tourism, exports, industries reliant on air transport 17

18 Deal with Foreign Ownership and ROE Implement 49% foreign ownership regulations Initiate t a review for Right of Establishment t This will allow full implementation of the Canada-EU open skies agreement and realization of associated economic benefits 18

Establishment t This will allow full implementation of the

19 Restructure Fees and Charges Regime Canadian government departments and agencies have become dependent of income stream from aviation sector Eliminating this cost burden will stimulate air travel growth and likely generate economic benefits and tax benefits to government greater than current than fees and charges A transitional strategy needs to be developed by government and industry stakeholders to reduce fees and charges within a short timeframe Any fees and charges collected from the aviation sector should be re-invested in the aviation sector 19

greater than current than fees and charges A transitional strategy needs to be developed by government and industry stakeholders to reduce

20 Implement border policies to streamline connections through Canadian gateways YVR YYC YWG YYZ YUL ORD DCA LA X PH X MIA 20

21 Pursue a Canada-US Single Aviation Market Open Skies/Open Borders: Single Aviation Market has been an air policy topic for decades Main constraints have been cabotage and US border security concerns New Perimeter Security initiatives will make border more seamless Easing of Foreign ownership rules and Right of Establishment s t would lessen need for cabotage rights. Could be phased in like EU Single Aviation Market 21

22 Thank You!

CANADA S GLOBAL OPEN SKIES AIR TRANSPORTATION REGIME

CANADA S GLOBAL OPEN SKIES AIR TRANSPORTATION REGIME MAXIMIZING INTERNATIONAL ACCESS AND CHOICE TO CANADA S MARKETS While Open Skies implies a simplified environment, the business of air transportation