Chair and CEO Scott Streiner addresses the RBC Canadian Automotive, Transportation and Industrials Conference on May 14, 2019
Staying balanced, moving quickly:
Key changes in the operating frameworks of Canada's rail and air sectors
Check Against Delivery
1905 is often referred to as the "miraculous year." Sadly, this is not because it was the first full year of operations for Canada's newly-minted Board of Railway Commissioners – the first incarnation of what is now the Canadian Transportation Agency, the CTA – significant as that event was! Rather, it's because 1905 was the year that an inspector in a patent office in Bern, Switzerland – a man who'd recently failed to get his doctorate in physics – published three papers that would upend our understanding of the natural world.
That man, of course, was Albert Einstein, and the most audacious of his papers asserted that time was relative. The paper was rejected when he submitted it as a dissertation, but it constituted one of the most important intellectual breakthroughs in human history.
Einstein's theory of relativity stated that the faster we move, the more slowly time passes – to the point where, at the speed of light, it stands still. I use this as an opening metaphor because in recent years, the pace of change in the legislative, regulatory, and jurisprudential frameworks in which transportation companies operate has sped up considerably. So today, I'd like to slow things down, and consider the implications of all that rapid change for the freight rail and airline sectors.
Just before doing so, a word on the roles of the CTA, Canada's longest-standing independent tribunal and regulator. The CTA is distinct from Transport Canada – which regulates for safety and security, manages grant and contribution programs, and is the Minister of Transport's principal source of public service advice – and from the Transportation Safety Board, which investigates accidents. The CTA makes and ensures compliance with economic and accessibility-related regulations for the air sectors, in interprovincial and international rail and marine sectors, and, only for accessibility, the interprovincial bus sector. We resolve disputes between transportation service providers and their customers and neighbours, using facilitation, mediation, arbitration, and adjudication. And we provide information to industry, passengers, shippers, and others on their transportation-related rights and responsibilities and our mandates and services.
Of the sectors we oversee, freight rail has the greatest impact on our manufacturers, farmers, retailers, and natural resources industries. Indeed, it is a backbone of Canada's economy. There are over 46,000 kilometres of rail track in Canada. Around 70 per cent of intercity surface freight and half of Canada’s exports are moved by rail. This equates to some $300 billion of goods moving over rail every year. Total operating revenues for Canadian mainline railway companies reached $14.2 billion in 2017, an increase of 21.5 per cent from 2012, while total operating expenses decreased by 7 per cent to $8.7 billion. Rail transportation and related support activities employ about 50,000 Canadians.
So what's changed for that sector?
At the legislative level, the Transportation Modernization Act, which passed a year ago, made several important modifications and additions to the Canada Transportation Act's rail provisions. After those amendments came into force, the CTA undertook consultations with stakeholders on related regulatory changes – as part of our wider Regulatory Modernization Initiative, or RMI – resulting in the publication of proposed regulations in March. Meanwhile, the CTA and the courts have issued a number of important decisions on cases involving railway companies and shippers.
What does all of this mean, taken together, for the framework within which the freight rail sector operates? While there are many takeaways, let me underline five.
The first is reinforcement of the principle that commercial agreements between railway companies and their customers are preferable to litigation. Negotiated agreements help avoid a fraying of relationships and are more likely to produce mutually beneficial outcomes – as long as each party has some power when they sit down for their discussions, those discussions are conducted in good faith, and no one is forced to cede their right to access legal remedies. If a negotiated agreement can't be reached by the parties on their own, the next best options are those that come closest to that ideal. That's why the CTA has built up informal guidance and mediation services aimed specifically at assisting railway companies and shippers reach agreements.
We know, however, that most regions of Canada are served by only one or two railway companies, that power between those companies and their customers is often asymmetrical, and that, for these or other reasons, negotiated agreements aren't always possible. This brings us to the second message: there must be meaningful remedies available to shippers, especially those who are served by only one railway company, if they believe that company isn't offering them adequate service or fair rates. Those remedies should be explained, interpreted, and applied in a way that's as straightforward as possible, and not made so complex that the cost of accessing them becomes prohibitive. Thus, for instance, the CTA has issued its first annual decision on interswitching rates and in the coming weeks, will launch consultations on the methodology for setting those rates over the longer term. And we will soon be finalizing plain language information and application materials related to the complex long-haul interswitching remedy created by last year's legislative amendments – a remedy that, so far, has not been used, though its mere availability may help to create some competitive tension and facilitate commercial discussions.
But recourse doesn't only have to be accessible and meaningful – it also has to be efficient. This is the third point. When a more formal resolution process is needed, it must, of course, be impartial, based on sufficient evidence, and structured in a way that lets both sides have their say. But it should also produce results as quickly as possible. This can sometimes be challenging in rail-shipper disputes where the evidence can be extensive, the questions of law complex, and the stakes high. Still, justice delayed is not only denied – it can also, in the context of commercial relationships, be costly. That's presumably one reason why Parliament established a directory timeline of 90 days for rail service investigations launched by the CTA on its own motion – and it's why we worked so hard to make sure we met this timeline when we undertook our first such investigation -- into rail service issues in the Vancouver area, earlier this year.
When it comes to railway companies' obligations, the message that has crystallized in recent years – building on a century of law and jurisprudence – is that even when railway companies face genuine challenges such as surging demand for service and congestion in their networks, they're required to make every reasonable effort to carry and deliver the traffic offered by shippers, and to do so in a timely way. This is the fourth point. They aren't asked to do the impossible, but as common carriers, they can't restrict or withhold service unless that's unavoidable after all reasonable alternatives have been tried. And if this comes to pass, they must be prepared to provide a clear justification showing that they provided the highest level of service reasonably possible in the circumstances.
Now, some challenges are more extreme than others which brings me to the fifth point. If railway infrastructure is badly damaged by a force majeure event such as a landslide or a fire, a railway company may be entitled to reasonable pause in any service obligations towards those shippers. That pause lasts as long – but only as long – as it reasonably takes to fix the infrastructure. If a railway company doesn't want to undertake those repairs – perhaps because of the associated costs – it must look at transferring or discontinuing operation of the line. It does not have the option of hanging on to the damaged infrastructure, doing nothing to fix it, and making no effort to restore service to shippers.
Let me turn now to the airline sector.
Air travel is integral to modern life. We fly to visit family and friends, do business, study, see new places, and seek medical treatment. In 2017, almost 150 million people got on or off a plane in Canada – a 25.6 per cent increase since 2013. Air transportation contributes about $35 billion to Canada's GDP and employs over 100,000 Canadians.
As in the rail sector, the aviation industry has seen major changes to its legislative framework introduced through the Transportation Modernization Act, new and updated regulations made through the CTA's Regulatory Modernization Initiative, and decisions of the CTA and courts.
Here, too, considering all these changes together, we can identify five key takeaways.
The first is that competition is good. That may sound like an airy truism, but it has real, practical implications. It's one reason the CTA stopped requiring that ticket resellers obtain an air carrier licence, and why Parliament raised the ceiling for foreign investment in a Canadian airline from 25 to 49 per cent – though no single investor can hold more than 25 per cent, and this increase doesn't change the requirement for the airline to be controlled, not just in theory but also in reality, by Canadians. Competition gives consumers choice, spurs innovation, and helps keep prices down. And while the margins in the airline industry have historically tended to be thin, technology is allowing airlines to increase load factors and customize offerings, providing them with greater ability to handle a more competitive environment.
Even as the jostling for passengers' business heats up, it's important that everyone who gets on a plane has a clear and reasonable set of rights if their travel is disrupted. This is the second point: protections for passengers need to be more robust, consistent, and transparent. Canadians expect that for key air travel issues, there will be common entitlements – not that each airline will decide separately what, if anything, to offer, and describe those entitlements in long, legalistic documents. Just days after the coming-into-force of the Transportation Modernization Act – which gave the CTA a specific mandate to make regulations setting out minimum airline obligations – we launched an comprehensive three-month consultation process during which industry, consumer rights groups, and Canadians in general visited our consultation website 31,000 times, attended hearings in eight cities across Canada, and provided us with thousands of submissions, comments, and completed questionnaires and surveys. It's expected that the resulting Air Passenger Protection Regulations will be finalized soon. Among other things, they set out compensation levels for flight delays and cancellations that are fully within an airline's control, particularly high compensation if someone is bumped from a flight due to practices like overbooking. They also set out passengers' right to things like food and water if they're stuck waiting in a terminal for reasons within the airline's control or on a plane, and the obligation of the airline to refund baggage fees and compensate the passenger for costs if their checked luggage is lost or damaged.
But – and this is the third point -- the emerging framework doesn't just improve consumer protection for all air passengers; it also emphasizes the fundamental right of travellers with disabilities to accessible transportation services, including air transportation. In March, draft Accessible Transportation for Persons with Disabilities Regulations developed by the CTA after two years of consultations were published. These regulations integrate and update two existing regulations and six voluntary codes of practice into a single, modern, legally enforcement instrument – and cover everything from wheelchair assistance in airports to the provision of aircraft safety briefings in accessible formats to mandatory training for personnel. Meanwhile, Parliament is considering Bill C-81, the proposed Accessible Canada Act, that will, among other things, give the CTA more tools to ensure industry's compliance with accessibility-related requirements and align the compensation we can grant, when an accessibility-related complaint is found to have merit, with the remedies the Canadian Human Rights Tribunal can award. Accessibility is in the interests of both passengers – who want a barrier-free travel experience – and industry – who want to tap the largest possible market of customers, including the growing numbers who have some sort of disability.
A fourth message is that even as air travellers' rights are clarified and strengthened, the administrative requirements placed on airlines for routine business practices should be as straightforward and streamlined as possible, and should not unnecessarily get in the way of industry innovation. That's why, for example, the proposed, updated Air Transportation Regulations published alongside the Air Passenger Protection Regulations remove the obligation for airlines that want to code share to get the CTA's approval in the vast majority of situations, remove the requirement for airlines to meet financial requirements when applying for a licence to operate a domestic air service using medium aircraft if they already hold a licence to operate such a service using a large aircraft, cut by two-thirds the notification period for seeking approval of a wet lease, reduce the number of air charter types, and eliminate the need for approval when an airline wants to paint a name or logo on its aircraft.
A final point is that passengers are encouraged to resolve any concerns directly with airlines. The CTA won't turn away anyone who seeks our assistance around air travel issues, but if they haven't already spoken to the airline, we'll make the connection and try to facilitate a quick and informal resolution which benefits both airlines and passengers. In addition, the Transportation Modernization Act provided that complaints related to the Air Passenger Protection Regulations must be filed by people who themselves have been adversely affected by any alleged non-compliance with regulatory requirements, though this doesn't prevent those people from being represented. And the CTA has ruled that it is not unreasonable for an airline to require that passengers contact the airline directly to make compensation claims before the airline accepts representations from a third-party claims company.
As the legislative, regulatory, and jurisprudential frameworks for the freight rail and airline sectors evolve, the CTA must evolve as well. Our ability to effectively deliver our mandates depends on understanding how the industries we oversee are changing, and adapting our own approaches accordingly.
With 115 years of experience, we build on strong foundations of expertise, professionalism, and dedication. Since the very first meeting of the Board of Railway Commissioners, we've been deeply committed to making impartial decisions based exclusively on the law and the evidence. In the dynamic world of 2019, these enduring and essential qualities need to be complemented by agility, engagement, and innovation. Such characteristics may not typically be associated with regulatory bodies, but increasingly, they're part of who we are and how we do our jobs.
Agility means monitoring, acting fast, and adjusting course in the face of developments, rather than being more passive and reactive. Engagement means talking to stakeholders, experts, and the general public as we think about how best to discharge our responsibilities, achieve our strategic priorities, and provide clarity and predictability, not hiding in a bureaucratic ivory tower. Innovation means being ready to try new strategies for achieving the objectives Parliament has set for us, not relying exclusively on familiar approaches that may have grown stale over time.
Agility, engagement, and innovation came into play when we moved quickly to launch inquiries on our own motion in the face of the suspension of service by SkyGreece in 2016, Air Transat tarmac delays in 2017, Sunwing flight disruptions in 2018, and freight rail service issues in the Vancouver area in early 2019. They came into play when, in May 2016, we launched the RMI – the most ambitious regulatory review in our history – and during the three years of consultations, analysis, and regulatory development that have now brought us to the cusp of its successful completion. They came into play when we undertook focused efforts to better inform stakeholders and the public about our services, which contributed to a tenfold increase in the number of Canadians seeking our assistance with air travel issues and a sevenfold increase in the number turning to us with accessibility concerns. They came into play last June when, recognizing the growing challenges around the transportation of mobility aids on planes, we convened a forum focused on concrete solutions with representatives of the disability community, airlines, aircraft manufacturers, wheelchair manufacturers, ground handlers, and regulators from Canada and abroad.
In the years to come, we'll continue to combine expertise and innovation, impartiality and engagement, professionalism and agility. We'll issue new and updated plain language guidance material to help transportation companies, their customers, and Canadians in general understand the legal framework and what, practically speaking, it means for them. We'll modernize our compliance assurance program, implementing a risk-based approach to targeting monitoring and enforcement activities. We'll endeavour to make our dispute resolution processes as straightforward and efficient as possible. And we will continue to invite stakeholders and all Canadians to provide us with feedback on how we're doing and suggestions on possible improvements.
These are exciting, important, and potentially transformative times for the transportation industry. Technological, economic, and social changes are all creating new challenges – and tremendous opportunities – for freight rail companies and airlines. Keeping pace is essential to their success.
As a regulator, the CTA is also working to keep pace – by staying attuned to the business environment and the expectations of users, by making sure our regulations reflect current realities, and by providing services that are nimble and responsive. An effective CTA administering clear rules and efficient remedies helps keep the national transportation system fluid and accessible, contributing to Canada's competitiveness, prosperity, and social fabric.
Our friend, Albert Einstein, had a transportation-related way of describing this imperative. "Life," he said, is like riding a bicycle: to keep your balance, you must keep moving."
We will keep our balance, and we will keep moving.
Thank you for your attention.