Editor's Edition: Chaos hits Canadian airports

The airline industry was among the hardest hit by the COVID-19 pandemic. In recent weeks the situation dramatically improved, as demand for travel soared amid the post-pandemic recovery.

But a new challenge for airlines has emerged in recent days. A shortage of workers, combined with ongoing COVID-19 measures, have created chaos at some of Canada’s busiest airports, with customers waiting hours to get through customs and security.

On this episode of Editor’s Edition, Yahoo Finance Canada’s Alicja Siekierska and the Public Policy Forum’s Sean Speer discuss what the situation at many Canadian airports shows about the post-pandemic recovery, and what the government should be doing about the long lineups. They also dig into what policymakers should be doing for businesses still struggling amid a slow return to the office, and how companies are addressing the tight labour market. They’ll also take a look at why Canadians are growing increasingly concerned about possible recession, and what that means for the Bank of Canada.

If you have any policy-related questions, or feedback about the show, please email alicja@yahoofinance.com.

Video Transcript

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ALICJA SIEKIERSKA: Welcome to "Editor's Edition." I'm Alicja Siekierska. On today's episode, COVID-19 restrictions and benefits are gradually becoming a thing of the past. And as life returns to normal, many companies are saying it's actually not business as usual. So we're going to take a look at what businesses are saying through the post-pandemic recovery. And a labor shortage is creating chaos at Canadian airports. We'll dig into how this may impact the airline industry recovery. And recession concerns are on the rise. What this means for policymakers.

To discuss all of this, I'm joined by Sean Speer. Sean is a fellow in residence at the Public Policy Forum, and he was also a senior economic advisor to Prime Minister Stephen Harper. And he's here to help us dig through the policy issues shaping the post-pandemic recovery. Sean, welcome back to the show.

SEAN SPEER: Thanks for having me, Alicja.

ALICJA SIEKIERSKA: So let's dig into the latest with COVID-19 in Canada. While most restrictions have been lifted, many companies are saying that it's actually still not business as usual. The CFIB says that one in four businesses are still negatively impacted by a slow return to the office, particularly for companies in the hospitality and personal care sectors.

This comes as the last of the federal supports that were given out through COVID-19 have come to an end. And so it seems there are bumps in the road in the post-pandemic recovery, Sean. What do you think this means for policymakers that have been so focused on ensuring businesses make it past the pandemic and to this point?

SEAN SPEER: I think policymakers need to be careful. The purpose of the emergency programs that were created as early as March 2020 was, in effect, to protect businesses that were affected by policy choices in the form of lockdowns from failing. And the thinking there, Alicja, was that the struggles these businesses were facing were not a result of market forces, they were a result of government policy.

But as those restrictions are slowly repealed, then we need to return the functioning of our economy to market forces, you know? It was never promised or guaranteed that no businesses would ever fail. In fact, the way the market system works is that firms that are providing useful and valued services by the market are sustained, and those that aren't are ultimately destroyed, and that capital is repurposed to more productive and efficient uses in the economy.

And so it seems to me the longer that emergency programs are in place, the more difficult it is for those market forces to take hold and, in effect, render those judgments about different firms and different companies in the economy. So I guess that's a long way of saying-- it might sound a bit harsh, but at the end of the day, I think policymakers will have to be very careful. We don't want an economy that is sustained by government. We want an economy that functions according to these market forces.

ALICJA SIEKIERSKA: Now the CFIB has been pushing the government to kind of extend repayment deadlines for its loan programs as well as forgive a larger portion of that program. And they're not alone. The Ontario Chamber of Commerce is also calling on provincial parties in the current election to commit to no new tax hikes on businesses because, as CEO Rocco Rossi says, it has never been more important for public policies to support business predictability and economic growth.

But do you see that as a little bit different from the kind of pandemic supports that we saw through the pandemic, through COVID-19 is this asking for no new tax hikes? Is that something that's a little bit different?

SEAN SPEER: Yes, absolutely. As those business support programs fall away and businesses are forced to face the market on their own, it seems to me that it's not the time for government to make that transition even more difficult by imposing new and higher costs on them.

So I think there is substantial difference between the continuation of emergency programs on one hand and recognizing that businesses are facing a degree of precarity due to some of the issues that you raised, including, for instance, the slow return to office work in places like Toronto and other major cities. And it seems to me it's quite reasonable for policymakers to refrain from making that transition and, in turn, making those firms even more precarious given those circumstances.

ALICJA SIEKIERSKA: So how much should the government be helping out or doing on the other side of the pandemic and through the post-pandemic recovery? What role do you see them playing here?

SEAN SPEER: That's a great question. You know, there may be specific sectoral issues that justify some kind of intervention, some kind of support, you know, and just being illustrative. But I think we've seen in some provinces, for instance, the creation of tax preferences for people to vacation or spend money in the hospitality sector in different provinces or within the country, though there may be a justification for that kind of temporary stimulus to help with that transition from what was in effect the kind a government-backed guarantee against bankruptcy to a return to the normal functioning of the market.

But beyond that, we can't stand in the way of markets doing what markets do, which is ultimately to determine which firms will grow and which firms will fail. That's the way our economy works. And at this stage in the kind of arc of the pandemic, it seems reasonable to me that we would return to something like the normal functioning of the market economy.

ALICJA SIEKIERSKA: Yeah, that's definitely something that I'm keeping an eye out on, the bankruptcy numbers, because you saw those dramatically fall in that companies weren't filing for bankruptcy in the same amounts as before in the kind of peak of the pandemic when there was a lot of support for businesses. So it'll be interesting to see now that the supports are gone and the economy is reopened if those bankruptcy numbers return to what was kind of a normal prepandemic level because, as you mentioned, these market forces kind of figure that out-- which businesses can survive and

Fail. But Sean, you did mention tourism specific support, and I want to talk about the travel industry because there is a lot happening there right now. And it was obviously one of the hardest hit by the COVID-19 pandemic, but things have been looking up lately, especially for the airline industry. But there's a new challenge that has emerged in recent days, and that's a shortage of workers specifically at airports.

Labor issues combined with ongoing COVID-19 measures have created chaos, it's safe to say, at Canadian airports, as you can see in this video from Toronto's Pearson International Airport. Now, there's a lot of finger pointing happening here at the airports, as outlined in a story by "The Globe and Mail,"

But operators of some of the airports say that government agencies are to blame, and then those agencies are saying private contractors were not prepared for a rebound in travel. Nonetheless, it seems overall airports were not ready for all these travelers to come back. And the levels are interestingly still less than prepandemic levels. So Sean, what do you think this specific problem shows about our return to so-called normal?

SEAN SPEER: This is a case where the airlines have such a legitimate grievance against the airports and the government. Canadian Airlines, International Airlines, pay some of the highest fees to land and fly out of Canadian airports. And ostensibly, those fees go towards the financing of the operations of our airports.

And so if on one hand you're being subjected to relatively high fees and on the other hand poor services in those airports are actually creating a competitive disadvantage whereby passengers are increasingly flying out of Buffalo, parts of Washington State, and so on, you know, it seems to me the airlines are rightly unhappy. It's hard as you say, Alicja, to make sense of who's ultimately to blame. But this is a big deal.

You know, I'm a sports fan. I suspect a lot of viewers are sports fans and will know that the Toronto Maple Leafs and the Toronto Blue Jays are flying out of Buffalo, not out of Pearson, in large part to avoid the need for testing. But when you layer on all of these circumstances from unreliable security lines to COVID testing that distinguishes us from other jurisdictions around the world, it's a serious problem. And as I say, I think Canadian airlines have a good reason to be displeased with everyone involved.

ALICJA SIEKIERSKA: And so pressure does seem to be building on the transport minister to do something about this. Minister Omar Alghabra met with the CEO of CATSA, which is that crown corporation that handles airport security, to discuss these long wait times. And the minister said that there's going to be a working group struck to deal with this, but it's unclear what will actually come of that and especially as this is an ongoing problem that I think needs an immediate solution. So aside from I guess meeting with CATSA to discuss this, what are the tools at the government's disposal here to deal with this issue?

SEAN SPEER: Well, I think in the short term, there's the case of reducing-- temporarily reducing the fees that we're charging airlines for landing and flying out of Canadian airports. You know, if we can't guarantee service standards commensurate with those fees, I think there's a legitimate case for, at least on a temporary basis, some kind of forgiveness or reduction.

You know, I think in the short term, there's probably not a lot can be done, especially if these issues reflect this combination of long-term trends around labor shortages and the kind of general security framework that shapes and guides air travel in Canada. But you know, it seems to me the one area where there can be progress is on COVID related restrictions and policies which, as you alluded, remain more stringent than we're seeing in a lot of peer jurisdictions.

And that's not causing people to travel less, it's just causing people to change how and where they travel from. And it seems to me in that case it's defeating the purpose and actually doing harm to Canada's economy. So that would be the area where logically the government ought to focus its attention in the short term.

ALICJA SIEKIERSKA: And it definitely does add more work for specifically the airlines which often end up being responsible for doing some of these vaccine checks, and I know it's something that they have been pushing for the government to lift. I'm just going to throw this out there because it is something that comes up every few years-- the idea of airport privatization.

The federal government owns 26 Canadian airports, which are managed by non-profits like the Greater Toronto Airport Authority. Do you expect if these issues continue for a while that maybe that crops up again, the idea of privatizing our airports if we're seeing this go on for a longer time?

SEAN SPEER: Yeah, it's a really great question, Alicja. My short-- the short answer is yes. You know, as I understand it, there are some number of Canadian airports where there's probably a market case that they could function as fully private entities that would be self-financing. There'll be others in other kind of secondary markets where that's probably not likely, where there'll need to, at minimum, be some form of non-profit or public private partnership that reflects the fact that there's just not a kind of sufficient market case.

But Pearson, [? Charlevoix ?] airport, the Vancouver airport, and others, you know, I think your instinct is right that there was probably a long standing need to sort of rethink the role of government in managing those airports. And the experience of the past several weeks will only reinforce that in the minds of a lot of key stakeholders in tourism and aviation.

ALICJA SIEKIERSKA: Especially as the travel season continues because just based on the schedules that Air Canada and WestJet and other carriers have released, it's only going to ramp up from here for the summer. And so if there's an influx of travelers coming to the airports facing hours of lineups, I'm sure it's going to crop up again, this idea. And we'll keep an eye out for it as the travel season heats up.

SEAN SPEER: Can I just make a quick point? Can I just make a quick point, Alicja? You know, we're having this conversation the night of the second Conservative Party leadership debate. Pierre Poilievre, who by all accounts is viewed as the front runner of the leadership, has sort of staked his leadership campaign on the idea that so-called gatekeepers are standing in the way of development and economic progress in the country, and this idea of privatization strikes me as a great issue for him.

It's kind of a case of, you know, where it seems to be the kind of gatekeepers narrative broadly defined might apply. And so for a campaign that thus far has been mostly policy-free, here's a good example of a policy that's timely, relevant, and consistent with the overall messaging of Poilievre and some of the other leadership candidates. And perhaps we'll see it emerge over the next several weeks as that race unfolds.

ALICJA SIEKIERSKA: Yes, and maybe it'll also become an issue on the Ontario campaign trail because those lineups at Pearson are among the worst that we've seen across this country. But speaking of labor shortages, I wanted to dig into the idea of retaining talent and making sure you have enough people on staff.

RBC has decided it will spend more than $200 million on pay increases, retirement benefits, and other incentives in a bid to try and retain talent. Workers in the four lowest levels of the company's pay scale will receive a 3% raise to, quote, address the market pressures and the rising cost of living.

RBC's CEO said a tight labor market and that massive imbalance we're seeing between supply and demand is one of the biggest issues facing businesses right now. And RBC is not alone. TD has also signaled before that it will offer a 3% pay raise to employees. Sean, what do you think this response from the banks shows about how difficult it is not only to attract talent these days but to retain them in such a tight labor market?

SEAN SPEER: It's a big signal, Alicja. You know, the story of the Canadian labor market really since the baby boomers graduated and entered the workforce has been one of surplus labor. You know, we've had through the 1970s into this century relatively high rates of unemployment, which was a reflection of this supply demand disequilibrium that put a lot of power in the hands of employers.

And due to aging demographics, that power dynamic, at least in theory, ought to flip as the baby boomers retire and aren't fully replaced for various reasons, that workers ought to have greater power in a labor market where supply is not meeting demand. And so that's what economic theory tells us. And I think a lot of people have had the position that they're waiting to see if theory translates into practice.

And what these two examples show is it is starting to translate into practice, and that should lead to upward pressure on wages, not just in the financial services sector but really across the economy. The one area that I'm especially looking at, Alicja, is the care economy, you know, that I think one of the things we learned in the pandemic is that those in long-term care homes, those in other parts of the health care system, including roles like personal support workers, were long kind of undervalued in the labor market.

And as the gap between supply and demand only continues to grow, we ought to see upward pressure on wages in those occupations as well, you know, which it seems to me is a good thing. So you know, I think this is something we've talked about in the past, but this change in the relative power of workers is probably one of the most important economic stories in the country, and it's a story that's just unfolding-- just starting to unfold. It's going to be with us for a long time.

ALICJA SIEKIERSKA: And so what are some of the knock-on effects of this fundamental change in our labor market, this shift in power from kind of the companies to the employees themselves?

SEAN SPEER: Well, I'd say three things. The first is what we've just talked about. It should put upward pressure on wages, which is a really good thing. We've had, you know, something of wage stagnation for the past couple of decades, which partly reflected this dynamic between labor supply and demand. And as that dynamic changes, it should result in take-home pay going up for workers.

The second is it will probably translate into companies not just competing for workers in the form of wages or financial compensation but in other ways as well. One example, Alicja, is the growing tendency on the part of businesses to adopt what one might describe as political positions or political postures, which is, at least in part, a reflection on the part of these companies to view the values of the workers that they're competing for in this tight labor market.

The last thing I'll say is it should, in theory, lead to more investments in technology as well as companies are forced to do more with less. We've had something of a productivity problem in this country for a long time. Viewers will have read and heard about that for years. In theory, the kind of tight labor market that we're not just seeing today but we'll see for the foreseeable future ought to tip some of those investment decisions before companies in favor of those investments and, in turn, ought to lead to higher rates of productivity.

So this is a really fundamental issue that really, as I said earlier, is kind of at the-- ought to be seen as the sort of story of Canada's economy for the foreseeable future. And it's going to have all of these various effects in our economy and society.

ALICJA SIEKIERSKA: And just a fundamental issue. I'm glad you brought up the word transitory because it brings us to our next topic, which while the job market in Canada is seeing such a high demand for talent, there are still persistent and, in fact, growing concerns that a recession may actually be around the corner. Most economists in Canada have not signaled that a recession is coming, but it doesn't mean that Canadians are not getting nervous.

With inflation running high, food and gas prices on the rise, interest rates going up, and stock prices, dropping many are concerned that a recession is coming. A Nanos research poll also found that 4 in 5 Canadians are worried about the possibility of a recession. So Sean, how do you think this concern could shape policymakers and the policy landscape in the coming weeks and months?

SEAN SPEER: Yeah, it's such an important question. Let me just say, it's not-- it's not just ordinary Canadians that are raising concerns about a possible recession. Former US Treasury Secretary Larry Summers has predicted a 50% chance of recession this year, a 75% chance of recession next year. The Bank of England has raised the prospect of a recession in the United Kingdom.

And as we hear from voices like former Bank of Canada Governor David Dodge that the Bank of Canada needs to accelerate interest rate hikes in order to manage the inflation that you alluded to, the prospect of a short-term recession increasingly seems not just plausible but inevitable.

And you know, I will just say this, Alicja, that in recent days, Tiff Macklem, the bank governor, has in effect recognized or acknowledged that choices that the bank made over the past couple of years have contributed to these high rates of inflation and that now necessitate the significant interest rate hikes to bring inflation under control, even if it comes at the expense of recession.

Well, I think that-- while I think that thinking is probably correct, you know, I can't help but think that many Canadians have reason to be unhappy that mistakes on the part of the Bank of Canada have put us in this kind of unenviable position.

ALICJA SIEKIERSKA: Yeah, I think you've seen, you know, the Bank of Canada mandate is that 2% inflation rate, to keep it at that. And of course, over the last several months, we've had record highs. And I think the last CPI figure was something around 7.5%. So clearly they're not fulfilling their mandate or haven't been in the last few months, and it has kind of put the Bank of Canada on a bit of the defensive. What do you-- what do you make of that? Is that something that's justified for this institution?

SEAN SPEER: I think it is. You know, there's this tendency in the Canadian commentariat to-- to discourage any and all debate or criticism about the Bank of Canada due to its independent nature and that criticism amounts to a threat to the Bank of Canada's independence. You know, people-- the people I'm referring to would probably disagree with that characterization.

But in effect, the way they talk about the bank and the way they talk about criticism amounts to a kind of chilling effect on debate or discussion about the bank's monetary policy. It screwed up. I mean, let's just put it bluntly. Tiff Macklem has implicitly acknowledged that it screwed up. You know, one can debate how and why it screwed up. Maybe it was justified in screwing up because of the extraordinary challenge represented by the pandemic. But it did. And it's now going to have to take action to try to bring inflation under control.

And it seems to me, Alicja, that it only reinforces the case that we need as a society, as a country to create the space for more robust debate and discussion about our independent institutions. That's not saying that politicians ought to be interfering in the day-to-day functioning of the bank, but surely it shouldn't be off top-- off surely it shouldn't be an issue that can't be debated or discussed in the public domain. It seems to be one of the reasons the Bank of Canada made the mistake in judgments that it has over the past couple of years is in large part because it was mostly free from scrutiny.

So I guess that's a really long way of saying I hope one of the lessons of this whole experience is that we are more inclined to kind of challenge and pressure test the choices and decisions being taken by independent parts of our government, including the Bank of Canada or the Supreme Court of Canada visa. These organizations are not infallible. And it seems to me it behooves us all to subject them to the same scrutiny that we would subject to any institution in our society.

ALICJA SIEKIERSKA: We have seen through the pandemic one of the trends has been an erosion of trust in our public institutions. Do you see this as separate from that, or do you see the criticism of the Bank of Canada's decision as perhaps not reflecting that greater trend but being a little separate? How do you-- how do you see that fitting in here?

SEAN SPEER: Yeah, I actually think it is part of that trend, Alicja. You know, as you know, as viewers will know, perception is reality when it comes to these issues of inflation. And because of the extraordinary policy choices of the bank over the past couple of years and then I think the lack of urgency around inflation and interest rates over the past several months, the choices it's now going to be forced to make are going to hurt. They're especially going to hurt for low income households.

And that's, I think, naturally going to contribute to diminished trust. I'm not saying that-- you know, I'm not saying anything radical here. I'm not suggesting that Tiff Macklem be forced to resign or that somehow we fundamentally rethink the role of the Bank of Canada or its relationship to the government. Merely that there's something in our kind of political and policy culture that causes us to sort of take a hands-off approach to some of these independent institutions.

And I actually think it's-- it's at their detriment that they're not subject to more debate and discussion that doing so would actually lead to better outcomes. And so I hope that's one of the lessons here. We can kind of walk and chew gum at the same time. We can be committed as a society to an independent central bank free from political interference on one hand but on the other hand be prepared to test and question and debate the choices that it's making. I think that would be a far healthier scenario and one that would contribute to higher levels of public trust.

ALICJA SIEKIERSKA: Well, I'm sure the debate will continue, especially as the Bank of Canada looks to continue to hike interest rates over the coming weeks and months. But Sean, that's all the time we have for today. Thank you so much for joining us.

SEAN SPEER: As always, thank you, Alicja.

ALICJA SIEKIERSKA: And if you're looking for the latest business news, please check out the Yahoo Finance Canada website. And if you have any questions or feedback about the show, please feel free to email me. I'm at Alicja@YahooFinance.com. Thanks for watching.

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