Speech given by Mr. James C. Cherry
President and chief executive officer, Aéroports de Montréal
June 3, 2003
YUL love our new airport!
Ladies and Gentlemen, good afternoon.
I want to thank the Board of Trade for inviting me to this forum. It's a privilege for me to be speaking to you today.
To start off, I'd like to take this opportunity to explain the critical role the Board of Trade plays with Aéroports de Montréal.
As transferee within the meaning of our lease with Transport Canada, the Board of Trade appoints three members to our board of directors.
Our Chairman of the Board, Pierre Martin, is one of those people. To my mind and I am in a good position to judge Mr. Martin is the grand champion of the renewal that has been taking place at Aéroports de Montréal for the past two years. Most importantly, it was Mr. Martin who spearheaded our realignment. And I would like to express our sincere thanks to him, for his contribution and dedication.
The other two members appointed by the Board of Trade are Richard Drouin and Gilles Labbé. Mr. Drouin is chairman of the Corporate Governance Committee, and Mr. Labbé sits on the Audit Committee. They have a key influence and I want to thank them for their commitment.
The Board of Trade of Metropolitan Montreal also provides tangible support with various projects. Among others, the Board unreservedly supports our position on the need to have a single passenger airport in Montreal. I am referring to an open letter from the Board of Trade published last August. And for that, I extend my sincere gratitude to Benoît Labonté and his team.
When I accepted your kind invitation a few months ago, it was before the war in Iraq, the outbreak of SARS and the restructuring of Air Canada. I find it difficult today to overlook these events, which represent further challenges for the air transportation industry.
Indeed, all those issues affect us, for passenger traffic is declining everywhere. But this is only a temporary setback and we must not let these events cloud our long-term orientations.
In any case, the major military operations have ended in Iraq and SARS is under control in many countries. As for the restructuring of Air Canada, it is an opportunity for our national carrier to align its business model with today's market.
I therefore wish Air Canada every success in the future, because Canada needs Air Canada. And it is especially in the interests of Montreal, where Air Canada's head office and principal maintenance base are located, for the company to get quickly back to prosperity. Thousands of jobs are at stake.
Regardless of the transitory difficulties I have mentioned, on a global scale air transportation is in the midst of a major restructuring, which began long before September 11, 2001 and has already led to the downsizing of many airlines, most of them European.
Among the trends affecting the industry, clearly the most visible and the most far-reaching is the growth of low-cost carriers. In Canada, the best example of this new type of carrier is WestJet, which began a new phase in its development when it started up in Montreal a few months ago.
There is no doubt in my mind that the low-cost phenomenon is revolutionizing the air transportation industry. In grappling with a heavy cost structure and a supply that exceeds the demand, traditional carriers are forced to trim staff, networks and fleets.
But there is a nuance here. The low-cost model is not suited to all travellers, and it does not apply to all sectors. Until proven otherwise, long-distance flights, particularly international flights, are not as affected. Even so, the fact that the supersonic Concorde jet is about to be scrapped is a sign of the times.
The current air transportation crisis extends to all areas of the industry. The difficulties at Bombardier and in the aeronautics industry attest to this. However, I can't help but note the growing use of regional aircraft on numerous domestic and cross-border routes. This is a trend that should bode well for Bombardier in the future.
Of course, airports are also affected. Among other things, all this has resulted in a heightened concern over costs. This is the case at Aéroports de Montréal. We keep close tabs on all our costs and are doing everything in our power to ensure our aeronautics rates are among the lowest in North America. Our airport specialization strategy is another example of our cost-cutting measures.
Since I was appointed at Aéroports de Montréal two years ago (how time flies!), I have come to realize how complex and unknown the realm of airports can be. I would like to take a few minutes to remind you of who we are and where we stand in the air transportation industry.
Aéroports de Montréal began its operations in 1992, after entering into a long-term lease with Transport Canada as part of its policy for transferring airports. A total of 26 airports, which today comprise the National Airports System, have been transferred to local airport administrations like ADM.
Contrary to popular belief, we are not a Crown corporation. We are a non-profit, financially independent company. We pay rent to Transport Canada, we pay municipal taxes and we finance our own capital investment programs without any government grants.
This is a unique model. Most of the world's airports are still operated, managed and developed in one way or another by the State. In the U.S., for example, airport capital investment programs are directly financed by the government or through special tax-free bonds.
To be sure, Canada's Airport Transfer Program was a financial success for the federal government. Not only is Ottawa no longer injecting any money into large airports, but it is now earning substantial revenues from them: $240 million in 2002, versus an annual deficit of $135 million just prior to the transfer. By 2010, it is estimated that the Government of Canada will have collected over $4 billion in rent from local airport administrations, or more than twice the book value of the transferred assets.
Incidentally, one way of helping the air transportation industry to get through the current situation would be to lower the rent imposed on Canadian airport administrations.
Another measure that would meet with wide-scale approval is the out-and-out abolition of the new security tax, which has earned the Government some $400 million since it was introduced. There is no justification for the Canadian government imposing these fees on air transport users, when it assumes the full costs of the new security measures at ports and border crossings.
Let's look at Montreal's airports. When we came on the scene, in 1992, there were two half-airports in Montreal: Mirabel, which had never been completed, and Dorval, which we and Transport Canada had hesitated to invest in for decades. Dividing the traffic between two distant, unconnected platforms was a major constraint for operations as well as development.
With 8.8 million passengers, Montreal clearly does not need two airports. Toronto, which has almost three times the traffic, still has only one major airport. It's the same with Atlanta, with 76 million passengers, Frankfurt, with 48 million, and Phoenix, with 35 million, to name just a few.
The costs involved in maintaining two passenger airports are beyond our means. By concentrating passenger flights in Dorval, we are going to save $11 million a year. In the current economic context, it's an important step.
Dorval has what it takes to succeed as a passenger transportation hub: proximity to downtown, accessibility, easy to link to the rail system, connectivity, very low operating costs, and so on.
We are going to shut down Mirabel to passenger traffic in the fall of 2004, something, as responsible managers, we must do. And even though some people will always be critical of this decision, we won't reconsider!
On the other hand, I can assure you that we are going to continue to work as best we can to develop Mirabel as an industrial, all-cargo airport. To achieve our goal, we are depending on the ongoing support of the Quebec government under the Foreign Trade Zone program. This initiative was a key factor in the success of Mirabel's industrial zone, which currently provides a total of 3,500 jobs.
We would like a little assistance from the Government of Canada in the form of a relaxation of the customs clearance rules. We are looking to have the concept of a free zone introduced into the legislation for Mirabel. This would allow us to develop the value added area of airline logistics, which entails completing the final assembly of a product duty free, and shipping it to the markets.
We are also seeking a new vocation for the air terminal and the other Mirabel buildings a new vocation compatible with the airport's orientation. We are open to all forms of association, from any interested parties including, of course, the Government of Canada.
Let's get back to the topic of Dorval. Many people are unaware that it is currently the biggest construction site in Montreal, and is completely financed with private funds. This summer, when the work is in full swing, over 700 workers and some 150 professional and support employees will take part in the expansion and modernization of the airport.
Phase 1 is just about finished. The new transborder jetty was opened at the beginning of April, on time and on budget, and the new northeast expansion of the terminal will be completed in July. Efforts are now being concentrated on Phase 2, which involves the new international arrivals complex and the new international jetty.
Instead of using words to describe these facilities, I'd like to take you on a short virtual tour.
Commentary virtual tour
The improvements we are making at Dorval are aimed first and foremost at serving our customers better. Most of the facilities are over 40 years old, and it was time to make some major renovations. We were cramped for space. So we had to increase the capacity at departures and arrivals.
I should point out that, while the new Montreal-Dorval airport will be comfortable, it will not be luxurious. Its size will be consistent with the foreseeable medium-term traffic, which is 15 million passengers. The emphasis will be on functionality, particularly for connector flights, and operating costs for carriers will continue to be among the lowest in North America. The entire program was in fact developed in close collaboration with our partners.
A third phase is planned after 2005. If necessary, we will add capacity for domestic flights. This phase will also include a new pre-US customs centre, extra spaces inside the air terminal, and improvements to the drop-off lanes and parking lots.
In partnership with the private sector, we are also considering the possibility of building a hotel integrated into the air terminal. A number of developers have already expressed an interest.
We'll be in Dorval for a long time perhaps not forever, but for a long time. Our runway system has the necessary capacity for at least the next 30 years. And the air terminal has enough space to be expanded on an as-needed basis.
But there's always a snag: the more value we add to Dorval, the more our municipal tax bill goes up. As Dorval is already the most heavily taxed airport per passenger in Canada, we think the existing formula needs to be re-examined, to keep our taxes from skyrocketing. Our taxes should reflect the rise in passenger traffic, not our long-term investments. We have already notified the authorities of the fact and a complete file is being put together.
I'd like to say a few words about ground access to Dorval. This is a major concern for us, because the time it takes to reach the airport is a key factor in choosing to fly as a means of transportation. This is especially true for short flights, which account for most the large majority of our flights.
We are very excited about seeing the road access improvement project come to light. The concept has been defined, environmental studies are under way and we expect to table the impact report by the end of the year. Work could commence at the end of 2005, for completion in 2007. This is not as fast as we would have hoped, but at least we're making headway!
Regarding access by rail, as you know, Via Rail has a station right in the middle of the Dorval interchange. We need to move the station to integrate it into the air terminal and connect Montreal-Dorval directly to Via Rail's inter-city network. This would open us up to the Eastern Ontario market. The project could be completed at the same time as the road project, which shares some of the same infrastructure considerations.
Agence métropolitaine de transport is planning to run a shuttle between Dorval and downtown on these tracks. Just think: using the shuttle, it would take 15 minutes to travel between the airport and central station, rain or shine!
So, to recap, the coming years will be decisive for Dorval airport. Once these projects are completed, Dorval will not only be one of the most efficient hubs but also one of the airports that is best integrated with the ground transportation systems!
I am extremely optimistic about Dorval's long-term future. Montreal's economy is vibrant and our origin-destination market strong. In addition, we see great promise in recent airline service developments.
Let's start with Air Canada. According to its new summer schedule, which was recently sent to us, Air Canada does not plan to reduce but in fact to increase its capacity in Montreal! The new schedule calls for a 17% increase in the number of flights and a 10% increase in seats, which is excellent news.
And, even better yet, Air Canada intends to increase the efficiency of its network in Montreal and make greater use Dorval as a connecting hub. Therefore, as of July 6th, Air Canada will be modifying some existing flights, adding more flights to some business routes to the U.S., and offering new direct flights to destinations in the Atlantic Provinces. Air Canada hopes that these initiatives will significantly increase its connecting traffic and its local traffic in Montreal.
In an article that appeared in the Toronto Star on May 1, Air Canada's president, Robert Milton had already sent a clear message, and I quote: Now that everything takes place at Dorval, Montreal is a more attractive airport. So, we are looking at opportunities there.
The article goes on to mention lower rates in Montreal and indicates that connection times are shorter at Dorval, because it is less congested. The newspaper quotes an expert who stated: There are a lot of passengers who would be happy if they didn't have to connect through Toronto. Interesting!
More good news is that Lufthansa is returning this month, with three flights weekly to Munich. Lufthansa is the fifth member of the Star Alliance network to operate out of Dorval. The others are Austrian Airlines, United Airlines, Mexicana, and of course Air Canada. We have also seen United Airline's activities rapidly growing in Montreal. Is it safe to say that Dorval becoming a hub for Star Alliance? I think we already have our answer.
With Air France, there is also a desire to have the existing regulations amended to favour connecting flights with other carriers in the Sky Team network, like Delta.
Then there was the arrival of WestJet, which I mentioned previously. After only a few months in operation at Dorval, WestJet has just informed us that it plans to increase its flights to Calgary. So things are going well.
Air Transat, our second largest carrier, has seen growth of 20% in Montreal since the beginning of the year. By the summer, the airline should be operating at pre-9/11 levels.
Generally speaking, Dorval is one of the rare airports in its category to serve almost all of North America's and Europe's major airlines: Air France, British Airways, KLM, Lufthansa, Swiss, Delta, Northwest, United Airlines, US Airways and Air Canada all operate out of Montreal.
In total, some forty carriers offer direct flights to about one hundred destinations. This summer, there will be thirteen daily departures to Europe, which is exceptional for an airport the size of Dorval. Yet, there is still room for growth.
At Mirabel, there are now about twenty all-cargo carriers, including the major integrators Federal Express and Purolator. With its long runways, round-the-clock operations, absence of airport congestion, and competitive rates, Mirabel is appealing to clients. Moreover, freight volumes continue to grow year after year.
We're counting on the development of Mirabel's industrial zone to help make the airport profitable. Although new investment projects are few and far between these days, the potential is there. As I pointed out previously, a free zone at Mirabel would be one more advantage.
After spending several years in a fog, we are now seeing a few sunny breaks over Montreal's airports. Our platform specialization strategy, our investments in functional infrastructures and our business approach with clients are beginning to enjoy some success. We still have work to do to realize our ambitions, but we have the distinct impression that we are moving in the right direction!
And we feel certain that YUL love our new airport!
Thank you for your attention.