Canadian Transportation Strategy Unveiled: Aviation

UNCLAS SECTION 01 OF 02 OTTAWA 000612

SIPDIS

STATE FOR WHA/CAN - PATRICIA NORMAN, EB/TRA - SUSAN PARSON

STATE PASS USTR FOR JOHN MELLE

USDOT FOR JEFF SHANE, SUSAN MCDERMOTT

FAA FOR KRISTA BERQUIST

TSA FOR SUSAN WILLIAMS

SIPDIS

E.O. 12958: N/A
TAGS: EAIR EINV CA
SUBJECT: Canadian Transportation Strategy Unveiled: Aviation
Focus

REF: A) OTTAWA 00374 (Ambassador's Lunch with Minister

Collenette)
B) OTTAWA 00385 (Air Canada Financial Woes)
C) 02 OTTAWA 2824 (Aviation Report Recommends
Liberalization)
D) 01 OTTAWA 0383 (Liberalization, Foreign Carriers
considered)

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Summary
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1. The Government of Canada's strategic vision for
transportation policy was unveiled on February 25th, 2003.
There appear to be no radical departures from past GOC
positions; gradualism is the key note struck by the authors
of the policy statement. The policy vision addresses all
modes: air, marine, and surface (rail and road). This cable,
however, focuses exclusively on aviation issues (other modes
will be addressed septel). From the US perspective the key
message is that GOC intends further "gradual liberalization"
of Canada's bilateral air agreements. More substantive
aviation developments for the US may arrive, however, via
the "exploratory talks" which Transport Minister Collenette
and his Deputy suggested to Ambassador Cellucci (Ref A).
End Summary.

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Policy Vision in development since mid-2001
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2. The policy vision, with the title "Straight Ahead: A
vision for Transportation in Canada" is the final version of
the Transportation Policy Blueprint initiated in July 2001.
This effort, in turn, was precipitated by the final report
of the independent, blue-ribbon, Canada Transportation Act
Review (CTAR) panel which contained 92 recommendations to
the Minister to improve regulation of Canada's
transportation sector (Ref C,D). The "Straight Ahead"
document, as well as the CTAR panel report and other
supporting documents are available on-line at the following
URL:

http://www.tc.gc.ca/aboutus/straightahead/men u.htm

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Aviation Liberalization
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3. With respect to civil aviation, the key action item of
interest to the USG is that the GoC "will continue the
gradual liberalization of Canada's bilateral air agreements,
using the 1995 Canada-United States Open Skies agreement as
a guide."


4. The authors of the policy vision note that there is
continuing pressure on the government to remove restrictions
on foreign participation in Canadian domestic and
international air markets (Ref C, D) and, "under the right
circumstances, opening Canada's air markets to greater
external participation on a reciprocal basis could introduce
some new competition and lead to greater efficiency." "In
the government's view, however, now is not the appropriate
time to undertake this step" since "the harsh realities of
the current marketplace indicate that the primary effect of
making such a significant change would be to weaken an
already vulnerable industry."

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Airport governance
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5. To clarify the respective responsibilities of the
government and of airports of national significance (e.g.
Toronto, Vancouver, Dorval/Montreal, Calgary) the GoC,
intends to set out detailed rules for airport authorities to
follow respecting governance, accountability and
transparency of economic issues at national airports.
Comment: This is a welcome development, in the past both
passengers and airlines have complained about murky
accounting for the large sums of money airports acquired
through levying a variety of fees on passengers and airlines
(Ref B). End comment.

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Industry comments
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6. Air Canada officials are disappointed in the GoC plan.
They commented that although the new policy vision
acknowledges the unprecedented crisis in the airline
industry, the GoC has offered no concrete relief (read
direct financial aid) to the industry.

7. WestJet, the profitable low-fare operator in Canada also
appeared under-whelmed by the GoC policy vision. The item
pitched directly to the smaller airlines was the GoC promise
to introduce laws forcing Air Canada to offer interlining
and sharing of frequent flier points, in which WestJet, as a
low-cost operator, has no interest whatsoever. WestJet
complained that there was little consultation between the
airline and Transport Canada in the development of the
policy vision

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Comment
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8. With respect to civil aviation the policy vision provides
impetus for a series of low key, incremental developments,
largely administrative in nature. There will be no dramatic
moves to liberalize the aviation sector as has repeatedly
been recommended to the government by independent panels,
observers, parliamentary committees and even the GoC's
Competition Bureau (Refs C,D). Indeed, the announcement in
the February 18 federal budget that the Aviation Security
Fee will be reduced from $24 to $18 per domestic round trip
far outstrips this policy vision in significance (Ref B).
More substantive ideas on aviation liberalization may have
to await discussion in any future "exploratory talks" of the
type broached during the lunch between Minister Collennette
and Ambassador Cellucci (Ref A).

Cellucci