Decision No. 490-R-1988

December 19, 1988

File No. D3260-T2

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HEARD AT Hull, Quebec on December 5 and 6, and Toronto, Ontario on December 8, 1988

BEFORE

Hon. Erik Nielsen

Chairman

Mrs. Micheline Beaudry

Vice-Chairman

Mr. Edmund J. O'Brien

Member

APPEARANCES

Ms. Alix Jenkins

Agency Counsel

Ms. Tracey Eisenberg

Agency Counsel

Mr. James K. Allen

Counsel, VIA Rail Canada Inc.

Mr. Don Carmichael

VIA Rail Canada Inc.

Mr. Roy Jamieson

Executive Director, Transport 2000 Canada

Mr. Ernest McArthur

Counsel, Regional Municipality of Ottawa-Carleton

Mr. Andrew Hope

Planner, Regional Municipality of Ottawa-Carleton

Mr. Peter Glynn

Concerned Citizen

Mr. William Peppler

Canadian Owners and Pilots Association

Rev. William Gilbert

Concerned Citizen

Mr. John Chambers

Concerned Citizen

Ms. Ruth Ross

Concerned Citizen

Mr. Douglas Leighton

Director Economic Development, Cornwall

Ms. Audrey Voice

Concerned Citizen

Mr. Darrell Richards

Concerned Citizen

Mr. Harry Gow

Concerned Citizen

Mr. Michael Iveson

Concerned Citizen

Mr. Michael Townsend

Concerned Citizen

Mr. Jack MacKinnon

Concerned Citizen

Mr. David Jeanes

Concerned Citizen

Mr. Reginald Heasman

Concerned Citizen

Mr. Douglas Ainslie

Concerned Citizen

Mr. Michael Jaffey

Concerned Citizen

Mr. Derek Loder

Concerned Citizen

Mr. Edward Lauer

Concerned Citizen

Mr. Richard Howey

Concerned Citizen

Ms. Eileen Mitchel Thomas

Concerned Citizen

Mr. William Blakeman

Concerned Citizen

Mr. Donald Cruickshank

Concerned Citizen

Mr. Thomas Ladanyi

Concerned Citizen

Mr. Roger Timmers

Brotherhood of Maintenance of Way Employees

Mr. Donald Hedrick

Concerned Citizen

Mr. Terry Fox

Concerned Citizen

Mr. D.J. Fader

Concerned Citizen

Mr. John McCullum

President Transport 2000 Ontario

Mr. Bernie Higgins

Brotherhood of Railway Carmen of Canada

Mr. Peter Lambert

Concerned Citizen

BACKGROUND

On June 30, 1988, VIA Rail Canada Inc. (hereinafter VIA) notified the National Transportation Agency (hereinafter the Agency) of a proposed change in its Ottawa-Toronto train service effective October 30, 1988. This notice was given pursuant to an order of the former authority, the Canadian Transport Commission, R.T.C. Order No. R-38000. The subject order prescribes minimum frequencies and routings of passenger-train services. VIA proposed to replace the overnight trains 48 and 49 with an additional daytime service.

VIA was requested by the Agency, on August 5, 1988, to notify local authorities and post public notice of the proposed service change. Interventions filed in response to the notice included submissions by Transport 2000, dated August 24 and 25, 1988. This organization argued that Order No. 119608, issued by the Board of Transport Commissioners January 14, 1966, required retention of the service. In response, September 9, 1988, VIA submitted, to the contrary, that Order No. R-38000 prevailed. However, VIA noted that should Order No. 119608 apply, the Agency could rescind the Order on its own motion pursuant to section 41 of the National Transportation Act, 1987 (hereinafter NTA, 1987).

By correspondence of September 13, 1988, the Agency advised VIA that removal of the overnight service required prior rescission of Order No. 119608. In response, September 16, 1988, VIA maintained that the Order must be rescinded, given its conflict with Order No. R-38000. VIA argued that the additional daytime service satisfied its obligations to provide adequate and suitable accommodation pursuant to section 144 of the NTA, 1987.

The Agency confirmed its previous opinion September 28, 1988 and directed VIA to continue the service pending further decision of the Agency. VIA advised, on the same date, that its correspondence of September 16, 1988 constituted its application for repeal of Order No. 119608. Notice of the application was subsequently published and posted by VIA.

On November 16, 1988, the Agency decided to convene a public hearing to consider the application pursuant to the level of service sections of the NTA, 1987, sections 144 to 147, and section 41 of the NTA, 1987 which would enable the Agency to rescind Order No. 119608. The hearing, convened in Hull, Quebec, December 5, 1988, concluded December 8, 1988, in Toronto, Ontario.

SUMMARY OF ARGUMENTS OF PARTIES

VIA RAIL CANADA INC.

Mr. Don Carmichael presented VIA's evidence in support of its case. The following summarizes VIA's position.

In reference to the requirements of section 41 of the NTA, 1987, which allows the Agency to review, vary or rescind an order, VIA claims that the following considerations all suggest new facts or circumstances.

The combination of an improved highway infrastructure, the retooling of the automobile industry and a stabilization of fuel prices have contributed to make car travel more appealing. Bus operations are different and offer a better product, for example, they also offer an overnight service from Ottawa to Toronto. A network of regional and national air carriers has emerged, adding to the alternatives offered to the traveller. There have been shifts in population and density. There is a declared preference for high-speed, inter city daylight trains.

It is therefore VIA's contention that the market place has evolved. Conditions present in 1966, when Order No. 119608 was issued, have since changed.

VIA also maintains that the overnight service between Ottawa and Toronto must be discontinued and replaced by a daytime service. VIA wishes to discontinue the overnight train for a number of reasons. First and foremost, there is only a 20 % occupancy ratio. In addition, VIA asserts that there is no growth potential for the service; traffic trends all show increases for daytime services while they remain static at best for the overnight. VIA feels cost recovery is insufficient and the prospects of improvement are not optimistic, for example, during the shutdown of the bus industry there was no significant improvement in the service's ability to cover its avoidable costs. Moreover, a breakeven analysis for the overnight service indicated a necessary ridership increase which VIA believes is unattainable. In evaluating the alternatives, VIA examined the possibility of re-routing the Montreal to Toronto overnight train through Ottawa. An analysis of this option suggested that this was not a viable alternative. To summarize, the revenue generated by the overnight service is not sufficient and VIA does not foresee any improvement.

In support of its recent addition, VIA argues that the new daytime service has tremendous potential. It submits that improvements such as reduced travel time, provision of meals and beverages in both coach and VIA 1, better departure times, expanded services for the handicapped, the quality of stations between Ottawa and Toronto, have all contributed to an increased ridership during the daytime. The average passenger load during the day is approximately 10 times greater than during the night. This increasing demand has strained VIA's capacity and it wants to reallocate its resources where it will receive a better return on its investment.

The additional daytime service provides new convenient connections for passengers. Sell outs have become more common during the day. VIA has spent some $38 million on improvements to its infrastructure; this translates in greater land speed which is an asset for the daytime trains but is inconsequential with respect to overnight travellers. Finally, VIA has consulted with most of the communities affected and has acquired their support. VIA contends that the replacement of the overnight service by a new daytime service will ultimately result in a net financial gain for the company.

As a Crown corporation relying on federal funds, and with limited resources, VIA feels it must take this opportunity to increase revenues and meet the demands of the greatest number of passengers.

Transport 2000 Canada

On behalf of Transport 2000 Canada, Mr. Jamieson argued that Order No. 119608 is not compromised by R-38000 as Order No. 119608 establishes an obligation to meet a specific service. Order No. 119608 resulted from complaints that there was a need and market for the service. VIA must prove that there has been a change in facts or circumstances pertaining to the requirements which predicated that Order. The only relevant circumstance bearing on this consideration, asserts Transport 2000 Canada, would be a change in the market or in public demand.

Alleged poor patronage of the service is not sufficient reason to relieve VIA of its obligation if the shrinking market is attributable to neglect, poor marketing and poor management by VIA. The reason for decline in patronage is relevant to Agency deliberations.

VIA has not concentrated its efforts to improve the overnight services as it has its daytime services, has not marketed the unique service as Amtrak has done in the U.S. and has not attempted to identify a market for early morning arrivals. Airport congestion currently experienced by travellers should also be exploited by VIA. Airline capacity of early morning arrivals in Toronto and Ottawa has increased 58% in the past four years. VIA must examine all means of providing and improving the service prior to terminating the subject service.

Transport 2000 Canada does not suggest, however, that VIA should continue to operate at a loss and with limited occupancy. Rather, they suggest that an interim order extending the existing Order No. 119608 for a limited period would be appropriate to permit VIA the opportunity to adequately market the service.

They noted that precedents have been set by the former authority in respect of abandonment applications. Under cross-examination, the witness noted that the 64% cost recovery average for the corridor, as submitted in July 1988 to the Commons Transport Committee by Mr. de Belleval, VIA's President, was a reasonable objective for the service, currently operating at 50% recovery.

In the course of the proceedings, Mr. Jamieson also questioned the passenger volumes presented in evidence, the VIA policy on blocking seats and reservations and market studies which did not address preferred arrival times. Mr. Jamieson queried the omission by VIA to assess the potential for increased losses on daylight trains with larger consists and increased train miles. In view of the current excess capacity on daytime trains, it is incumbent on VIA to show that a sufficient market exists to generate increased net revenues with an additional frequency. Further, if the market does exist, must it be served at the expense of the overnight services.

Transport 2000 Ontario

In addition to the comments of the national organization, Mr. McCullum of Transport 2000 Ontario argued that the Agency, in the public interest, has a broad mandate to regulate VIA with respect to minimum standards of such aspects as frequency, type of service and routes served.

Public convenience and necessity justifies continuance of a service offered at reasonable fares vis-à-vis airline travel or hotel accommodations. This overnight train service also provides the only connections to U.S. destinations.

Financial losses are likely overstated as revenues accruing from short-distance passengers between Brockville and Toronto are attributed to the Montreal-Toronto overnight trains. Lack of patronage of the service is due to the lack of promotion of the positive aspects of the service and to actions taken by VIA to discourage its use.

As an alternative to VIA's proposal, Mr. McCullum suggested that the Montreal-Toronto trains be re-routed through Ottawa. Although Cornwall would lose service under the proposal, he suggested that the majority of Cornwall passengers are pass holders who could be bussed to Coteau. The public interest and the market potential to and from Ottawa is, in their opinion, greater than the need to serve Cornwall commuters.

Mr. McCullum also presented the results of a survey of 18 passengers on the overnight train in late November 1988. Transport 2000 submitted that the results confirmed that patrons supported the service, generally travelled multiple times per year, required early morning arrival and were willing to recommend its use. In view of these results, Mr. McCullum argued that there is a hard core market for this competitive service and that this market could be expanded.

In addressing the current revenue shortfall of the service, Transport 2000 Ontario suggested that an additional 25 passengers per weekday would generate an additional $500,000 in annual revenues. Existing capacity of equipment currently in service could accommodate this increase in usage. Further, the passenger increase could be generated by attracting four percent of the estimated early morning passenger arrivals in Ottawa and Toronto.

OTHER INTERVENERS

During the course of the public hearings, 28 interveners presented their views in opposition to VIA's application. These interveners submitted that the service is convenient, economical, reliable, offers an early morning arrival time and is a timesaver for the overnight traveller. It was also presented that the overnight train service is unique and the new daytime train service is not a substitute for the current users of the service.

While there were some varying views in respect of the passenger handlings on trains 48 and 49 and the cost recovery criteria, many of the interveners acknowledged that the ridership is low and alleged that the situation is a result of VIA's lack of promotion and advertising and general deterioration of on-board service and equipment.

Further, interveners argued that in view of the traffic congestion experienced at Toronto and Ottawa airports, the early morning arrival time of the overnight train service could be an attractive feature to be marketed to increase passenger ridership.

Several interveners presented the alternative of re-routing the Montreal-Toronto overnight service via Ottawa. The City of Cornwall objected to the re-routing of trains 58 and 59 which would result in a bypass of their city, as this would significantly diminish the level of service for its citizens.

On the other hand, the Regional Municipality of Ottawa-Carleton presented its views in support of VIA's proposed elimination of the overnight service and implementation of a daytime train on the grounds that it would increase rail patronage.

In addition, numerous individuals and municipalities provided the Agency with their views through written submissions. Although the vast majority of these interveners opposed VIA's application, VIA did receive support from 14 municipalities and various elected officials.

ANALYSIS

The Agency has considered the overnight service between Ottawa and Toronto in the context of the level of service provisions of sections 144 to 147 of the NTA, 1987, and has addressed the issue of whether Order No. 119608 dated January 14, 1966 should be rescinded pursuant to section 41 of the NTA, 1987. The Agency has reviewed and taken into consideration all of the evidence presented to it and the evidence on the public record and has had regard for all the considerations that appear to be relevant to the Agency. The following is the Agency's analysis of those considerations.

Order No. 119608 was issued on January 14, 1966, as a result of complaints from the public after the agreement between CN and CP for the pooling of passenger trains was discontinued. The Order stated, among other items: "Canadian National Railway shall establish an overnight passenger train service between Ottawa and Toronto as soon as possible subsequent to the date of this Order". The Agency determined by letter decision dated September 13, 1988 that Order No. 119608 still required that overnight service between Ottawa and Toronto be provided by VIA.

Subsequent to Order No. 119608 a succession of orders known as the Passenger Train Service Order(s), culminating in the present Order No. R-38000, were issued by the Canadian Transport Commission pursuant to section 262 of the Railway Act (now sections 144 to 147 of the NTA, 1987.) These orders set out the routing and minimum frequency of services, as well as procedures for railway companies to follow to modify those routings or frequencies. These orders do not deal specifically with the scheduling of trains.

VIA has proposed to substitute the overnight train with a new daytime service. By doing so, VIA continues to exceed the minimum frequency requirements of Order No. R-38000.

The Agency recognizes VIA's particular status as a Crown corporation and its desire to manage its operations and resources as effectively as possible.

The Ottawa-Toronto service is one of the corridor services that operates in a highly competitive market where competition of the modes is the most intense.

By deleting its overnight service and replacing it with the new daytime service, VIA expects to improve its financial situation.

It is the Agency's opinion that VIA's initiatives will better meet the objectives set out in section 3 of the NTA, 1987 which outlines the National Transportation Policy for Canada.

There are other overnight passenger train services in Canada. The overnight train between Ottawa and Toronto is the only service required to operate by a specific order. If Order No. 119608 did not exist, VIA could have given notice to the Agency 30 days prior to the date of the proposed reduction pursuant to paragraph 4 of Order No. R-38000.

The Agency has considered whether the overnight service should be treated differently than any other scheduled service. After careful consideration, the Agency has concluded that Order No. R-38000 should apply to all services indiscriminately, including the overnight service. Any modification to this service should be effected through Order No. R-38000.

Section 41 of the NTA, 1987 empowers the Agency to review, rescind or vary any decision or order made by it if, in the opinion of the Agency, there has been a change in the facts or circumstances pertaining to the decision or order.

Since 1966 there have been many changes in the marketplace and in the transportation industry as a whole. VIA has come into existence as a separate corporate entity established to provide passenger train services. There has been improvement in the highway infrastructure, the private automobile has become a competitive factor, bus operations offer a better product and with the increase of air carriers and frequencies of flights since air deregulation, there are more alternatives for air travel.

Therefore, it is the Agency's opinion, after a review of all the evidence before it, that there has occurred a change in the facts or circumstances since Order No. 119608 dated January 14, 1966 issued and consequently Order No. 119608 should be rescinded.

CONFIDENTIALITY

On the matter of the confidentiality of certain documents to be considered by the Agency pertaining to financial data or passenger handlings and upon consideration of the arguments presented by VIA during the course of an in-camera hearing, the Agency has determined that the Confidential Appendix of VIA Exhibit No. 1 (VIA's written submission) and VIA Exhibit 6(c) (VIA's Breakeven Analysis for Trains 48/49) in its entirety are both to be considered confidential, as specific direct harm to VIA would likely result from public disclosure of these documents.

CONCLUSION

For the reasons stated above, the Agency orders the rescission of Order No. 119608 as set out in the attached Order.

As a result of the rescission of Order No. 119608, any future changes to the frequency or routing of a passenger train service may be made pursuant to Order No. R-38000. With respect to this application by VIA, the Agency allows VIA to modify the operation of its Ottawa-Toronto trains by replacing trains 48 and 49 with a new daytime frequency, effective 30 days from the date of this decision.