Business Voice Magazine
What Now? How will the tragic events of September 11, and their many aftershocks, affect Halifax business?
In the days following September 11, when TV stations endlessly replayed the footage of hijacked planes crashing into the World Trade Towers, fires still burned at the Pentagon and investigators combed through the wreckage in Shanksville, Pennsylvania, one thought reverberated in every pundits’ mind. The Economist magazine put it most succinctly on its cover the following week: “The day the world changed.”
Halifax’s business community feels that as profoundly as anybody else. When authorities in Canada and the U.S. closed their airspace after the attacks, 40 planes and about 7,500 passengers and crew were diverted to Halifax. But even without their stay, it’s likely Haligonians would still feel great kinship with the U.S. during this crisis. Our ties to the States run back for centuries, becoming more visible in crises. The Americans’ assistance after the devastating 1917 Halifax Explosion is entrenched in the city’s collective memory.
But beyond the emotional bonds, Halifax also does a significant amount of business with the U.S. “We’re a hot spot of international trade,” says Brian Lee Crowley, president of the Atlantic Institute for Market Studies (AIMS). “Beyond the business ties, Canada and the U.S. are bound together by affection and emotion.”
And, while the shocks of September 11 ripple through the global economy, Halifax and Canada will feel them more profoundly than most, as America is our largest trading partner. “The principle effect is universal,” Crowley says. “The primary fuel of the economy is confidence in the future. Consumers want a reasonable chance of the future looking like the present. September 11 undermines all of that.”
Tim O’Neill, executive vice-president and chief economist with the Bank of Montreal, was in Manhattan the day of the attacks, and reported on them at length for local news media. The Bank of Montreal, like many economic prognosticators, is rethinking its financial forecasts. “The near-term prospects of our major trading partner have weakened considerably,” O’Neill said in a press release. “That has forced us to reassess our outlook for the Canadian economy.” The release also predicted that “the most direct and immediate impacts are expected to be felt by airlines, travel agencies, major tourist destinations and insurance companies.”
Since Halifax International Airport is a regional hub, things have been different there ever since the day of the attacks. “We’ve seen a lot of changes in the last month,” says Reg Milley, president and CEO of the Halifax International Airport Authority. He’s referring to heightened security for both passengers and staff. Areas that staff could access easily in the past now require passing electronically locked doors. Passengers are now searched longer and more often, asked more questions and are required to demonstrate that carry-on items like laptop computers and cameras are what they appear to be.
Milley admits that these factors are putting the brakes on growth but he doesn’t see it as a huge problem. “Before September 11 growth was slowing,” he says. “Those events just exacerbated all of that. We’re feeling somewhat of a hitch but I’m quite optimistic.”
He still feels positive because the air-travel industry is cyclical, with schedule and route cuts every autumn that are often reversed the following spring. And Halifax, as the preeminent regional airport, is insulated from the most severe shocks hitting the rest of the nation. “The other airports boom and bust,” he says. “We get lower peaks and smoother valleys. The fact is, if you’re in Ottawa and want to get to Toronto, you can take the train. If you’re in Halifax and want to get to Toronto, you don’t have a lot of options unless you have a lot of time.”
At the moment, however, the travel industry as a whole is reeling. It’s losing business, both from Americans who aren’t venturing far from home, and Canadians curtailing their own travel. The Conference Board of Canada has examined the situation. “The travel industry was already suffering a slowdown before the attack,” says David Redekop, principal research associate with the board.
A recent report from the board says that before the attacks, researchers expected Canadian travel outside the country to grow by four per cent this winter. Now it expects a five per cent decline. And unfortunately, past experience indicates that there’s no quick fix to the sector-wide downturn. “We know from the 1991 economic recession and the Gulf War that it takes the industry a year or more to recover from these sorts of events,” Redekop says. “Travel businesses should be reducing costs and preserving capital.”
They’re heeding that advice, as travel agencies and airlines lay off staff and cut back their operations. Since the attack, Air Canada has, as of press time, scheduled 9,000 layoffs nationwide. Air Transat and its related businesses have let another 1,300 go nationally. With new safety fears and an economy threatening to tip into a recession, people just aren’t travelling as much. “Canada’s travel agents, tour operators and airlines traditionally count on having 50 per cent of winter travel booked by Christmas,” Redekop says. “That seems unlikely this year.”
However, Halifax’s hospitality industry seems to be faring fine. “We saw an immediate impact with the cancellation of conferences and that sort of thing,” reports Lynn Ledwidge, manager of marketing development for Halifax’s tourism department. “People simply couldn’t get here in the days after the attack.” But she says that appears to have been a short-term effect. “Right now this city is at capacity,” she says. “It’s hard to get a room. We’re doing well and will still do well in the long term.”
She and Milley share that positive outlook. “Americans on the east coast are still going to want to travel,” Milley says. “They’re just not going to want to go overseas. They consider Canada a safe place to visit and with the way we handled things on September 11, our stock has just gone up.” Ledwidge agrees. She says that Halifax also draws a lot of tourist traffic from around Atlantic Canada, and there’s no reason to expect that, or the American traffic, to drop off. “The whole of the North American market views Nova Scotia as a safe, close destination,” she adds.
But the airline industry is hurting. Ottawa recently moved in with an aid package to offset the effects of closing Canadian airspace for several days during the crisis. The government calculated the industry’s losses from that period at $150 million, so it’s offering a $160-million bailout. “We are acutely aware of the impact of this crisis on our air industry and its workers,” said federal transportation minister David Collenette when he announced the scheme. “This package will help Canada’s air carriers begin to address their financial concerns.” However, that’s all it is: a beginning. It’s intended to deal with the direct results of the airspace closures in September.
Milley concedes that the airlines’ agonies mean that airport revenues will no doubt take a hit, both as a result of the airport being effectively closed for those days in September while no commercial planes were flying in North America, and from a reduced number of flights coming through. Although he didn’t have any revenue projections, he doesn’t feel it will be long lasting or drastic. “I’m very optimistic,” Milley says.
It’s hard for the experts to peer in a crystal ball and predict all the long-term impacts from this disaster. There are many intangible factors to consider, including how soon-if ever-consumers will regain their confidence. Will there be more attacks? What policy shifts will this trigger in Washington and Ottawa?
A renewed emphasis on border security is one result that’s already playing out. Although there is currently no proof that the terrorists entered the U.S. through Canada, the attacks have made American lawmakers cognizant of just how insecure their northern border is. American Attorney General John Ashcroft admitted on CNN that the border is “rather porous” and “a transit point for several individuals involved in terrorism.”
His comments, and similar ones from other politicians, sparked a public outcry in the States and demands for tighter security. For example, an editorial in the Boston Globe criticized Canada for lax and under-funded security services, citing the example of Algerian Ahmed Ressam. American border officials caught Ressam trying to get into Washington state with a carload of explosives, coming from Canada where he had escaped the attention of police and security officials.
It seems inevitable that it will be harder to get into the U.S. from now on. The Americans will establish a tighter perimeter around their country. The only question is: will it be a national perimeter or a continental one?
“If there’s going to be a North American perimeter, we must be on the inside,” Crowley says. “I think we were going that way even before September 11.” The biggest fear of many in the business community is that Ottawa will act too slowly to bring Canada’s security policies and practices on side with new American policies, making the 49th parallel an obstacle to trade. That would be disastrous for business-trade between the two countries is worth more than $422 billion annually.
Crowley puts little stock in the fears that aligning Canada’s security and immigration policies with the U.S.’s signals some sort of surrender to American control. “I don’t agree with that loss-of-sovereignty argument,” he says. “You haven’t lost sovereignty by doing the right thing. It’s our decision.”
He feels it is, simply put, a matter of behaving ethically. “What’s in our self-interest is also the right thing to do,” he explains. “We have to make it clear to the Americans that we feel those attacks were directed against us, too.” Crowley isn’t empathizing just to be nice, he’s talking about the natural response we feel when a friend and ally is attacked.
As unbelievable as it may seem now, some positive things may come out of these events. For starters, these attacks give renewed emphasis on the airport’s ongoing campaign for American customs pre-clearance.
Ever since Milley took over at the airport in January, he’s been trying to get a system in place, like that at other major Canadian airports, in which travellers en route to the States can clear U.S. customs in Canada, before they ever board their flight. “Pre-clearance increases our flexibility,” he says. “With the Americans allocating more money for customs and immigration, it’s even more plausible.”
And if it does lead to the establishment of a North American perimeter, that’s even better for Halifax International Airport. “That would put Halifax in a very positive light,” Milley says. “If you have this perimeter, you need points of entry. Halifax is an obvious one.”
Crowley also sees some opportunities. “Canada can draw some important lessons,” he says. This ought to be a new spotlight on Canadian security and defence spending, for example. “Our military and security efforts are clearly inadequate,” he says. “The world is a less predictable and safe place than it was during the Cold War.”
That should prod the federal government to reinvest in security infrastructure and personnel. “Canada will likely be a more responsible world citizen now,” he says. “We’re an adult member of the global community and we ought to act like one.”
Even John Manley, the federal foreign affairs minister, recently commented that Canada is trading on a decades-old peacekeeping reputation to get away with underfunding its military, and is making an inadequate contribution to global security.
In addition to defence, Crowley feels there is another role for the government there but he’s not talking about aid packages and financial bailouts. “The biggest problem is this growing fear,” he says. “All levels of government must reassure people.”
There is always a temptation for government when the economy falters to try to do something radical to fix it. The Bank of Canada has already cut interest rates drastically in an effort to incite worried consumers to continue spending their money. Crowley urges the provincial government in particular to resist the impulse to make any sudden policy shifts, however. “The provincial government needs to keep the economy on an even keel and not make any sudden policy shifts,” he advises. “Steady as she goes.”
The Bank of Montreal’s Tim O’Neill seems to agree. “Despite the near-term economic pain, the stage is set for a powerful rebound in the North American economy by next spring,” O’Neill said. “The U.S. economy is also expected to benefit from an anticipated massive dose of monetary and fiscal stimulus.”
Milley agrees and states it more enthusiastically. “I’m optimistic and even confident,” he says. “We’re going to come roaring back.”