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2020 Annual Public Meeting - Formal remarks

Published on June 18, 2020

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2019 In Review

Presented by Code Cubitt, Chairman of the Board of the Ottawa International Airport Authority

As you can imagine, the remarks that I would normally be delivering have been altered due to the COVID-19 pandemic, and the effect it has had on the Ottawa International Airport. While I will leave most of the details concerning the operational and financial impacts to Mark, I will take you through a few of the 2019 highlights and the great work accomplished by the Airport Authority team.

First and foremost, we served 5,106,487 passengers during the year. To better serve these clients, the Authority launched YOW+, a multi-pillared terminal enhancement program to offer enhanced on-airport lodging with a connected hotel, enhanced passenger screening, a new and improved retail and food and beverage concession program, and improved public transportation to the airport. YOW+ was first introduced late in 2018, but the projects took flight in 2019.

In January, the Authority announced an agreement with Germain Hotels to build the Alt Hotel Ottawa Airport, complete with state-of-the-art amenities, flexible reservation times and a full service restaurant. The partnership was recognized by the Ottawa Board of Trade as the Deal of the Year – Tourism at its Best Ottawa Business Awards.

We also began the work required to move the domestic/international pre-board screening checkpoint from Level 2 to Level 3. Key to this move was the complex construction of a floor over the Gate 18 area to accommodate the checkpoint. Most impressively, this work was completed in an active and busy airport. The new, and significantly larger space will include CATSA Plus technology, providing a more efficient and effective screening experience.

The space on Level 2 made available by the checkpoint move figures prominently in the airport’s concession revitalization program. We announced our new master concessionaires in June with incumbent retailer, Paradies Lagardère, and newcomer, SSP Canada, for food and beverage. Key to their success in the bidding process was the inclusion of local brands and flavours that represent the best of what our Region has to offer. These, combined with the iconic brands our customers love and expect, such as Relay, Tim Hortons, Subway and Booster Juice, add up to an excellent YOW offering.

We introduced many of these brands at an event in June, and have been moving forward to stage construction over a two to three year period to ensure continued service to the travelling public and to coordinate each construction project effectively.

Finally, the last pillar is the terminal station that will connect the airport to Stage 2 of the City’s Light Rail Transit system. We completed a number of major advance projects, such as the relocation of a water main, to facilitate construction of the station once the City’s partner, TNext, finishes building the track. 

Mark will talk about the impact of the pandemic on the YOW+ program, and more information about each pillar can be found on the airport’s website.

Airside infrastructure improvements continued in 2019. These included work on taxiways B and F, and storm sewer repair at the intersection of runways 14/32 and 07/25. This work was carefully planned to reduce the impact on airport operations, requiring ambitious but careful planning and coordination with approval from Transport Canada, and with the necessary Safety Cases prepared according to the airport’s Safety Management System protocols. All projects were completed on-time and on-budget.

Safety and security continue to be key priorities for the Authority, with our airport taking a leadership role in areas such as drone mitigation and policy development. For example, Mark represented Canadian airports on the Blue Ribbon Task Force on Unmanned Aircraft Systems Mitigation at Airports to examine the issue of drone incursions. The work produced by the Task Force, which was comprised of airports and stakeholders from across North America, confirmed the potential threat posed by drones on airports. It also mirrored the findings of various initiatives the Authority has been involved in with local law enforcement and industry stakeholders which have confirmed the need for Transport Canada’s clarification where detection and mitigation are concerned.

As we await this direction, YOW has adopted a risk-based approach to assess and react to reported drone sightings in the vicinity of the airport. To assist in this effort, the Authority has partnered with NAV CANADA and QinetiQ Canada to trial a micro-Doppler radar drone detection system at the airport. We look forward to examining the results of the trial and sharing them with partners and airports across Canada.

The Authority also maintained its focus on sustainable airport operations. Its efforts were reflected in Level 3 Carbon Optimisation recertification in Airports Council International-North America’s Airport Carbon Accreditation Program. It set us up to reach for Level 3+, which is also known as Carbon Neutrality. While we had hoped to make an announcement in March with respect to this level, it was put aside as we dealt with the pandemic. We will share more when the time is appropriate.

The last achievement I would like to share is an important one for our community. On December 3rd, International Day of Persons with Disabilities, the Authority was joined by the Rick Hansen Foundation to announce that the Ottawa International Airport had received the Accessibility Certified Gold rating under the Foundation’s Accessibility Certification program. The airport was built with a commitment to accessibility in mind, and the team has continued to evolve and adapt as needs and standards have changed. This commitment, which is even more important as new Canadian Transportation Agency regulations take effect in the coming weeks and years, will continue so that we can welcome all passengers regardless of their ability or mobility.

There are so many more highlights and achievements I could share, all of which are thanks to a wonderful team of dedicated and hard-working employees. As impressive as I always find them to be, I am even more in awe in light of how they have responded to the pandemic. Well before it was declared, the Authority was in preparation mode to have employees who could, work at home. Additional health and safety measures were being deployed in the terminal as early as the end of January, and the efforts intensified throughout March and beyond. The rest of the Board of Directors and I also recognize that there are a number of employees still required to work in the airport. Whether at home or on-site, this team has been working hard to handle the changes, to cut costs and save money, and to ensure that the airport is ready when air traffic resumes in a meaningful way. I would like to thank Mark for his leadership, and his entire team for working through these challenges with such understanding and passion.

I would also like to thank my colleagues on the Board of Directors for sharing their time and valuable insights with the Authority. Four new Board Members, Shane Bennett, Bonnie Boretsky, Kevin McGarr and Laurel Murray, joined since our last Annual Report was published, bringing their diverse skills and experience to the table. I am confident that they will be committed to ensuring responsible and transparent governance in keeping with the tradition of excellence set by the current and previous boards.

In closing, I would like to thank the community for their continued support. Trust that the Authority team is working hard to provide a safe airport environment for passengers and staff and that it will be ready to greet you when you are ready to travel again.

 

2019 Financial Review

Presented by Scott Eaton, Chair of the Audit Committee of the Ottawa International Airport Authority Board

The Ottawa Airport Authority’s audited financial statements for its year ended December 31, 2019 are in the Authority’s Annual Report, which is now available in both English and French online.

The Annual Report includes a detailed financial review of the Authority’s financial statements and results for 2019. This financial review discusses changes in passenger volumes and landed seat volumes that impacted the Authority’s results from operations. In 2019, passenger volume of 5.1 million passengers was 0.1% lower and landed seats were 2.0% lower than in 2018.   

The Authority generated revenues of $138 million during 2019, including airport improvement fees of $54 million and landing and terminal fees and other charges to airlines of $41 million. The Authority’s remaining revenues came from concessions, car parking, land and space rentals, and other sources. The Authority does not receive government funding to support its operations. 

The Authority started collecting airport improvement fees, included in the price of airline tickets, in 1999. These fees are used to fund the cost of airport infrastructure and related financing. During 2019, the Authority invested over $36 million in a variety of projects including rebuilding and resurfacing various taxiways and aprons, terminal and central services building improvements, departure check-in upgrades, upgrading of boarding bridges, acquisition of major fleet vehicles and LRT Phase 2 airport station infrastructure.

The Authority incurred total operating expenses of $102 million excluding depreciation.  Ground Rent payable to the Government of Canada, calculated based on gross revenues, amounted to $11 million. Payments in Lieu of Municipal Taxes payable to the City of Ottawa amounted to $5 million. The total interest cost of $21 million was paid on debt incurred to finance the Authority’s capital expenditure programs. 

The Authority generated earnings before depreciation of $36 million in 2019, down from $38 million in 2018 and mostly due to lower than expected passenger and revenue growth. These earnings, in coordination with the long-term debt program, were used to invest in the Authority’s capital expenditure programs in 2019 - expenditures to maintain and improve the Airport. 

The Authority depreciates the cost of its capital assets, including the terminal building and parking garage. Depreciation of capital assets amounted to $31 million in 2019, and was similar to 2018 depreciation.     

The Airport Authority ended the year in a solid financial position with $22 million in cash together with $140 million in bank credit facilities. These credit facilities are essential elements of the Authority’s cash flow management strategy.

During the current year, the COVID-19 has had and will continue to have, a significant negative impact on demand for air travel. The Ottawa International Airport has experienced significant declines in passengers and flight volumes during April and May 2020, as compared to the same periods in 2019. This is due to travel advisories and restrictions by governments, flight and route cancellations and fleet groundings by air carriers, in response to the pandemic. The reduced activity is having a negative impact on the Authority’s business and results of operations, including aeronautical and commercial revenues and airport improvement fees. Mark will be providing more details. Nevertheless, we remain confident that the Authority will be in a solid position to withstand this unprecedented event and engage with the community, passengers and stakeholders throughout the next phase of the recovery.

That concludes my remarks. Thank you.
 

2020 Update and the Way Forward

Presented by Mark Laroche, President and CEO of the Ottawa International Airport Authority

I would like to preface my remarks by thanking my Chair Code Cubitt for providing the overview of the highlights from last year. He discussed many of the items that I would typically cover, which I appreciate, as it allows me to focus mostly on the current situation and the way forward for the Ottawa International Airport.

As Code mentioned, 2019 was a great year with 5,1 million passengers served. We saw this as positive given the impacts of the grounding of the Boeing 787 Max on the entire industry. Scott provided an overview of our financial results, but the bottom line is that we finished the year with 5.1 million dollars in net earnings after depreciation. A relatively positive outcome considering the state of the overall industry.

Early in 2020, we learned about a Novel Coronavirus in China that was beginning to cause concern in different parts of the world. We paid attention and looked to our public health partners from all three levels of government to provide information and direction that resulted in enhancing our cleaning protocols, more hand sanitizer in the airport, and sharing information with employees and passengers.

As the virus reached North America, we increased our focus and took more action, including examining our information technology systems and capacity as we contemplated the needs of our employees should the situation worsen. Again, we were relying on public health authorities to inform our actions.

When the World Health Organization declared the pandemic on March 11th, we were in the middle of March Break, one of our busiest travel times. With the Quebec holiday the week prior Ontario’s the week after, many tens of thousands of our passengers were already at their destination. As border restrictions were announced and quarantine protocols introduced, our focus expanded to facilitating safe return for our travellers, as well as an intense information-sharing exercise to ensure that these travellers were appropriately instructed, upon their return, in an effort to reduce the risk of transmission in the community.

Coincident with these activities, and in the interest of increased safety through physical distancing, we implemented a work from home program to ensure that our employees who could, were equipped and prepared to carry on their duties remotely. Thanks to the efforts of our IT team, and the flexibility of our staff, a large group has been working effectively at a distance since March 16th. 

We also saw the swift impact of the travel restrictions on our passenger volumes – particularly once the repatriation flights began to wind down. Departures dried up in a matter of days, and arrivals gradually fell off to nothing. Our once bustling terminal, that served an average of 14,000 travellers per day, was reduced to an eerily empty building that might process 100 departing passengers on a busy day. In all, our volumes plummeted by approximately 95% in a matter of weeks. Our modelling to the end of the year indicates that we have essentially become a 2.5 million passenger airport. Needless to say, our airline partners have been devastated.

Our tenants also saw their business dry up, resulting in most of the stores and restaurants being shuttered, car rental counters closed, parking lots emptied, and the usual long line of taxis waiting on the curb gone.

To understand the magnitude of the loss of business, it’s important to remember that the Airport Authority is entirely funded through aeronautical, non-aeronautical, and airport improvement fees. With few aircraft movements and little parking and concession activity, these revenue sources have all but disappeared, and the impact has been profound.

The airport is considered critical infrastructure, and is therefore required to remain operational in support of commercial passenger and cargo aircraft movements, Department of National Defence requirements, federal government operations, the Canada Reception Centre, and Ornge Air Ambulance movements. As such, we have fixed costs that cannot simply be eliminated.

So, what has the Authority done since March 11?  Well, we immediately froze all budgets, with the exception of expenditures related to regulatory requirements, safety and security.  Among other things, we reduced heating/cooling, turned systems down or off, consolidated operations to the smallest footprint possible, and cancelled every third-party contract we could to bring the work in-house. Finally, we took a critical look at every capital project to determine where we could slash spending, and we halted what we could. In all, the capital budget was reduced by at least 35 million dollars.

The impact of these cuts will be significant. Programs such as YOW+, which Code mentioned in his remarks, are affected. For example, the terminal concession program that was scheduled over a two to three year timeline will now take significantly longer, and may look very different from the program we presented in 2019. The Master Concessionaires and many of the local restaurants and brands included in the programs have also been affected by the crisis, so their priorities may have shifted. We are working with them to find the best path forward when business resumes.

While our hotel partner, Germain Hotels, remains committed to building the Alt Hotel Ottawa Airport, they cannot confirm a start date. As has been widely reported, the hotel industry has also suffered a terrible blow and needs some time to recover.

The CATSA Plus project that was already quite advanced when the pandemic struck, was temporarily halted due to restrictions imposed by the Province of Ontario. It restarted in late May when restrictions were lifted. The new Level 3 screening checkpoint will play a significant role in ensuring physical distancing in the security queue going forward. This need, coupled with the advanced stage of the project, compelled us to continue and we hope to have it completed in the fall.

On the workforce front we imposed a hiring freeze in April, which unfortunately eliminated many summer student positions. In early days, we implemented an across-the-board wage reduction program, which we reversed when the Canadian Emergency Wage Subsidy program was announced on March 27th.

As we began to understand the scope of the pandemic, its potential duration, and its impact on the industry and the economy, it became clear that our workforce situation would not be sustainable over the long term. We used a 3 million-passenger baseline as a means of determining the workforce required to effectively operate the airport – whether serving 2.5 or 3 million passengers, the fixed costs are the same. I am saddened to say that we completed a round of layoffs to right size our workforce to our new reality. This is the first time since the Authority was formed in 1997 that we have had to impose layoffs. Our sincere hope is that the situation improves sooner than later so that we can recall most affected employees.

While the activities I’ve mentioned will certainly help sustain our business, we will have to do more, including borrowing over the next two years. We anticipate going to the bond markets for somewhere in the neighbourhood of 100 million dollars over the next few years to ensure that we are able to fulfill our obligations. We will be able to do so thanks to two decades of prudent fiscal management, careful planning, and sweating the asset rather than building or expanding too soon. We have and will continue to investigate and where possible, participate in any government programs designed to assist business during these unprecedented times.

We will also need to raise our rates. We have no choice. We have always been extremely careful to only raise aeronautical and non-aeronautical rates when absolutely necessary and as conservatively as we can because we understand the impact on the aviation ecosystem. However, these fees are our only source of revenue, and with severely constricted passenger volumes, we simply will not be able to sustain our critical infrastructure without more funds coming in. We recognize that this will not be viewed positively by our stakeholders, but I can assure them that we will reduce these fees when the situation improves and we are able.

I am often asked if our business will rebound. The short answer is yes. Canadians need to travel. We need an effective air transport system for the movement of goods and people across Canada’s vast geography. That said, it will take several years to get back to pre-pandemic levels and air travel will look very different.

Airlines have cut routes, parked aircraft, and are taking a very careful look at their future network plans. We have lost our European service, but I am hopeful that Air Canada’s London Heathrow flight will resume when international borders open up. I am sad to say that Lufthansa’s service to Frankfurt is now off the table. Our transborder service will take some time to rebuild once the border with the United States reopens. We believe domestic travel in Canada and staycations will be popular option once provincial borders fully open up. I know our partners at Ottawa Tourism are working hard to promote our Region as a great choice this summer, and we will support their efforts as best we can. And I assure you we will continue to work with our airline partners to rebuild the routes as quickly as we can.

When business does resume in a meaningful way, it will look very different. In the absence of a vaccine or other means of dealing with the virus, practicing physical distancing, wearing protective face coverings, and using copious amounts of hand sanitizer will continue to be the norm.

Consumer confidence in the safety of air travel is key. To this end, the Authority has developed and deployed a Physical Distancing Strategy that includes public address messaging, signage, and floor markers throughout the terminal that will remind passengers and employees to stay two metres apart. We have put disinfectant fogging technology to work in the terminal to ensure proper sanitization on a daily basis. We have implemented a mandatory protective face covering policy that has been further strengthened by a Transport Canada Interim Order, and we will maintain our enhanced cleaning and disinfection protocols throughout the terminal.

We have been working closely with airports across Canada and the United States to ensure that we are sharing best practices and applying consistency to our recovery initiatives. Adopting common fundamentals and protocols will add to passenger confidence across the system.

Finally, we will continue to work with our airline and other campus partners to provide the support they need as their business resumes.

Before closing, I would like to thank the Board of Directors for their support as we’ve had to quickly pivot our operation and business – they have put a great deal of faith in our decisions and actions, which at times, happened very quickly. And thank you to the Authority employees who have demonstrated flexibility, understanding, and caring as we’ve maneuvered through the past three plus months.

These times are challenging for everyone, but as I’ve said repeatedly to my team, we will get through them together. Stay safe.

Thank you.

 

Questions/Comments

Answered by Mark Laroche, President and CEO of the Ottawa International Airport Authority

Question:

Does the Airport Authority have any unique plans to earn revenue during the pandemic?

Answer:

As mentioned in my remarks, the airport relies on aeronautical revenues, non-aeronautical revenues, and airport improvement fees to sustain its operations. In the absence of passengers who are parking, purchasing food and beverage or retail goods and paying the AIF, revenues are severely depleted. Passengers on airplanes really go hand in hand with our revenue sources. As such, it’s not a matter of creativity – particularly given the timeline for introducing new projects. So, we set our sights on cutting costs wherever possible to ensure that we were focussed on necessary spending only. That will be our continued approach as long as it takes to see us through the crisis.

Question:

When the LRT spur line opens, will the OC Transpo bus to YOW be abolished?

Answer:

The LRT and OC Transpo buses are a part of the City of Ottawa’s operation, and as such, they are responsible for making any decisions concerning their service. It’s our understanding that the train is intended to replace the bus service, but the timing for any changes remains with them.

Comment:

Delta leaving YOW is a great loss. There are no longer any flights to New York, LaGuardia. Newark with Air Canada is not necessarily a good option.

Answer:

We share your disappointment with Delta’s decision to withdraw service from Ottawa. We do understand that the airlines have also been devastated by the pandemic, and they are re-evaluating their business accordingly. We do feel optimistic that given Delta's stated commitment to its WestJet partnership, down the road there will be an opportunity for WestJet aircraft to take on these routes with a Delta codeshare.

While Air Canada’s service to Newark may not be the perfect solution for all travellers, we are looking forward to seeing it return at the right time so that New York/New Jersey will continue to be served non-stop service from YOW.

It’s worth repeating that airlines make network decisions and airports actually have little influence in their plans. That said, we constantly monitor YOW demand and resulting air service levels to present realistic opportunities to carriers. Due to the pandemic, our priority is working with our incumbents to preserve as much as our network as possible. Once that stabilizes, we will once again pursue new service.

Question:

What is the latest estimate for building then operating another east-west runway?

Answer:

When we completed the last Airport Master Plan in 2018, it was determined that we would not require a third runway for at least 30 years. With the setback in anticipated passenger volumes, we can add another five to ten years onto that estimate. And that assumes that the industry recovers to the degree that we hope it will.

Question:

What are the projections for passenger volumes in 2020, 2021, 2022 and beyond?

Answer:

As for the numbers, we have modelled and remodelled our passenger volumes throughout the pandemic as the situation has continued to change. I can say that this is not an exercise in precision, but we are hoping that if travel restrictions are lifted, we may be able to report between 2 and 2.5 million passengers this year. We are projecting 3 million in 2021 and growth of half a million passengers per year after that until we catch up to our 2019 level of 5.1 million, after which we will settle back to typical annual growth.