Is Air Canada trying to take over VIA Rail?

The submission of bids for the High Frequency Rail project on July 24, 2024 came with a surprise: The Cadence consortium, led by CDPQInfra and AtkinsRéalis (formerly SNC Lavalin) revealed that Air Canada had joined their team, along with French government-owned operator SNCF Voyageurs.

This means that if Cadence is selected as the winning consortium and becomes the “Private Development Partner” for High Frequency Rail by the end of the year, a multi-decade operating concession for all of VIA Rail’s current Quebec-Windsor corridor train services and the new HFR services would be in the hands of Air Canada and its partners, with the handover to the private sector happening some time during the multi-year co-development period.

A common concern of passengers is that travelling with VIA Rail is already a bit too much like flying, thanks to baggage restrictions, airline-style escalating pricing, and queues to board at major stations; and that the redeeming features like generous leg room and world-class customer service might be at risk if any private operator takes over. The growing backlog of air passenger complaints to the Canadian Transportation Agency is also not inspiring confidence. So why might Air Canada now want a stake in passenger rail, after having previously lobbied against it?

Air Canada’s progress on intermodality

Over the last few years it has become increasingly apparent that short-haul flights are unsustainable, with European countries moving to phase out flights between city pairs where fast passenger rail alternatives exist. Air Canada appears to have embraced this new reality, partnering with Austrian, French, German, and Swiss national railways to offer seamless ground connections for its flights to Europe, and with Landline to offer branded motorcoach connections to Toronto Pearson from Hamilton and Waterloo airports. Air Canada said that joining the Cadence HFR bid “will enable the airline to contribute to the harmonious integration of a future intercity rail network with existing airport hubs in the Quebec-Windsor corridor.”

Improved rail-air integration in Canada would be very welcome, building upon the partnerships that VIA Rail built with international airlines flying into Dorval under the leadership of Yves Desjardins-Siciliano, but it is not clear that joining in the HFR procurement is necessary to achieve this, or even helpful. Implementing connections between a commercial airline and a publicly-owned passenger railway is relatively straightforward, as evidenced by progress in Europe, and VIA Rail’s recently modernized reservation system uses European software that has excellent support for doing so. There are also immediate needs for improved VIA Rail services to replace short-haul routes that Air Canada has previously cut like Kingston and Sarnia.

Transparency and Competition Concerns

For one of Canada’s domestic airlines to be aligned with one bidding team raises concerns about potential conflict of interest, ensuring fair competition in the airline industry and about the transparency of the HFR project and procurement process to date. Transport Action Canada contacted VIA-HFR Inc. with these concerns, asking what safeguards had been implemented to address them, and this query was referred to Public Services and Procurement Canada.

Our concerns are as follows:

1. That passenger rail ground connections and codeshares be available on an equal basis to all airlines flying into Canada’s international airports. If one airline owns part of the passenger rail service, safeguards would be needed to ensure that other airlines continued to have equal access, and without any their commercial information falling into the hands of a competitor.
2. That the government may have given Air Canada information that places it at an immediate unfair advantage relative to other domestic airlines like WestJet and Porter, and to VIA Rail. A considerable amount of VIA Rail Canada’s commercially sensitive information was placed in the data room available to the three bidding consortia, which will have included far more detailed ridership forecasts, business plans, and price sensitivity data than are available in published documents.
3. That allowing one of three shortlisted consortia to reveal major changes in its composition only at the moment the final bids were submitted, when it was far too late for the others to respond, was unfair. The three consortia were shortlisted, and others excluded, on the basis of their original composition.
4. That various requests for information about the High Frequency Rail project over the past decade, as a VIA Rail Canada proposal, following the creation of the Joint Project Office, and now under the auspices of VIA-HFR and an outsourcing partner – including taxpayer-funded studies that would have enabled well-informed public discussion – were turned down or heavily redacted on the grounds of commercial sensitivity. Either the previous redactions were spurious, or that information has now been made available to a company that is currently a direct competitor of VIA Rail Canada in the corridor.

We received a response from Public Services and Procurement Canada on August 2, 2024 which partially addressed these concerns, stating that “an analysis conducted by Transport Canada and Public Services and Procurement Canada concluded that the addition of Air Canada meets the requirements specified in the procurement documents.” The response also provided assurances that the government intends to carefully scrutinise the agreements drafted in the co-development process to “ensure that the project interacts with different modes of transportation in a manner structured to ensure fair, open and level competition among the entities in other transportation sectors.”

Unfortunately, the procurement rules appear to prevent Air Canada itself or the Cadence consortium from providing any clarification, and the government’s response did not address our ongoing concerns about the lack of transparency around the HFR project nor about access to competitive information in the short term. 

Procurement process integrity at risk

It is crucial that Public Services and Procurement Canada ensure that the process is fully transparent and beyond reproach, especially important for the procurement of a project of this scale and that is vitally important to Canada’s future productivity and sustainable prosperity.

Transport Action Canada regrets that it can no longer be entirely confident that is the case, and it would be unsurprising if other airlines felt preferential treatment was being given to the former Crown corporation and flag-carrier. The Government of Canada currently holds a substantial stake in Air Canada, approximately $1.6 billion in shares and loans, following the emergency funding provided in 2021.

The government’s perplexing handling of the HFR procurement since 2021 is also making passengers wait years longer for any benefit whatsoever, so we call upon the government to act swiftly to get the project back on track.

The government should release the maximum amount of unredacted information possible for public scrutiny; and accelerate the construction of HFR while reducing the risk premiums and management fees payable to the selected consortium by simplifying the contract and keeping future operations in the public sector.

While private sector engineering firms have the capabilities needed to construct the modern passenger rail infrastructure Canada urgently needs, as originally intended by VIA Rail when the project was first proposed a decade ago, it remains unclear what value for passengers would be added by having another country’s national railway, let alone an airline, take over train operations.

Air Canada should step back

We urge Air Canada to avoid any further perception of conflict of interest by stepping back from directly competing in the procurement and indicating its willingness to work with VIA Rail and the future High Frequency Rail service whatever the outcome.

We would hope that Air Canada’s future participation in rail-air codeshares in Canada is not contingent on successfully bidding to take control of VIA Rail’s operations. Instead, connections through Dorval to rail destinations in Quebec and eastern Ontario could be made available almost immediately, well before the government finally makes its long-delayed investment decision on High Frequency Rail.