Speaking notes

Halifax, August 29, 2012

MARC LAL IBERT , PRES IDENT AND C EO RA IL CAN ADA HALIF AX CHA MBER OF COMMERCE CHECK A GAINST DEL IVERY

Mesdames et messieurs, bonjour! Monsieur Boswell, merci pour cette gnreuse prsentation. Im delighted to be with you in Halifax today at the Chamber of Commerce. In fact, weve just completed two days of board meetings of VIA Rail in your great city. Each quarter, we hold our board meetings in a different region. It allows us to connect with the communities we serve. It also allows us to invite many local stakeholders to our train station to hear firsthand their concerns and interests. On Monday evening close to 50 people attended such an event at the Halifax train station. As some of you may know, VIA Rail brings thousands of tourists on its Ocean service each summer to experience Maritime hospitality. This reminds us of the important role played by passenger rail service in support of the tourism industry, all across our country but especially, here in Atlantic Canada! Indeed, Halifax is one of Canadas great arrival cities. As the Canadian Museum of Immigration at Pier 21 attests, many new Canadians arrived by ship in Halifax. They continued on by train to their new homes across Canada. In the Second World War, many brave Canadians traveled to Halifax by train before crossing the Atlantic. Passenger trains are part of our history, from Confederation to the present day. In many ways, the idea of Confederation may not have even been possible without the train. As our country approaches its 150th anniversary, in 2017, passenger rail service can play a vital role again. VIA Rail operates a huge network. It stretches over 12,500 km, twice the length of Canada itself. Last year, 4.1 million passengers racked up 1.4 billion kilometers of travel on our trains. In other words, nearly 500 trains per week served 450 Canadian communities. But at this time in our history, VIA Rail, like most commercial and government organization, faces large economic challenges. And, if it is to deliver the full promise of its potential, it must adapt to changing times. I joined VIA Rail in January 2010 after 30 years in the railway business. With the support of a board of men and women from across the country and the dedication of a management

team qualified to meet this challenge, we went about transforming VIA Rail. The first step was to recognize that we do not serve one homogeneous market but actually, VIA Rail serves three different markets. First, the remote services to communities such as Churchill, Manitoba, White River, Ontario and Senneterre, Quebec are called remote because these communities have limited, if any affordable alternative transportation options. Due to the very small populations served and the very high operating costs, these services are all highly subsidized. Last year on those mandated services, we served only 109,000 passengers. These services lost $45 million. Secondly, the long distance services that you may know by their brand names: the Canadian, that goes from Toronto to Vancouver over a 4-night, 5-day, 4,500 km journey and, of course, the Ocean from Montreal to Halifax that currently runs overnight, at close to 21 hours, a 1,350 km journey. Last year, together, these two trains served 243,000 passengers. Combined, they lost $81 million. The Ocean alone lost $35 million. But as I mentioned in my introduction, maybe these two services are not homogeneous either. That is to say that, if we are to take a market view of our services, we should make a distinction between the performance of these services during peak tourist season and the rest of the year. That is what happened in the early 90s when the Canadian went from 6 frequencies per week, to 3. That strategy reduced overall operating costs by offering fewer frequencies all year-round. In the off-peak winter season, fewer frequencies met the lower demand while in the peak summer season, higher demand was accommodated by longer trains. That approach recognized the types of travelers on that route, their traffic patterns and their reasons for taking the train in most cases, to experience the journey and not to get there! But that approach also recognized that on that route, there are other transportation options available. On June 27, we announced that we will be implementing the same approach for the Ocean starting at the end of October. So, allow me to address that decision in the broader context of the market served by the Ocean. Lets start with our customers. Who uses our Ocean service? Our research shows that close to 80 per cent of our passengers travelled on the Ocean for leisure purposes and vacations in 2011. 85 per cent of the Ocean passengers are Canadians and half of them are from Ontario and Quebec. Why are they choosing the train? They are taking the train for the experience of the journey: the quality of our on-board service, the comfort, the food, the scenery. That last point explains the traffic pattern: most of them travel in the peak summer months of June, July and August. In numbers, it means close to 50,000 of last years 134,000 passengers travelled during these 3 months alone. As a result of this decision, we believe that in 2013, VIA Rail will carry as many of those passengers on its Ocean service and hopefully, more.

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The conclusions we draw from the above are: First, these travelers are not schedule-sensitive. This means that they adjust their trip plans to the schedule of their chosen transportation option. Secondly, the nature of a train is that it can meet market demand in as much as, contrary to airlines or bus lines, it can add capacity to its trains by adding more cars. In the off-peak season, we currently use less than 10 cars whereas in the peak summer months, we can double that number and meet market demand. So, what about the other passengers, those who travel on VIA Rail between towns from Nova Scotia to New Brunswick or within? One word: inter-modality. Or maybe its two words and a hyphen! But before I address Intermodality, which is a strategy that all modes of transport are adopting around the world, allow me to describe VIA Rails third market: the Corridor. This service stretches from Quebec City to Windsor. It accounts for over 90 percent of our passengers, the majority of them in the Montreal-Ottawa-Toronto triangle. It also accounts for 75 percent of our revenue stream. Last year the Corridor service served 3.8 million passengers. It lost 135 million dollars. In summary, last year, despite generating $283 million in revenues, these three services lost $261 million. But to really understand the relative size of these losses, lets look at the subsidy required from the Government of Canada in order to carry a passenger over 100 miles on each of these services. On the Remotes, the subsidy is $144 for each one hundred miles traveled by a passenger on one of the Remote routes. On the Canadian service, it is $36. As for the Ocean, it is $73 for each one hundred miles traveled between Montreal and Halifax. Finally, in the Corridor, it is $21. Moreover, the good news is that on some Corridor routes, like Ottawa-Toronto, the service almost covers its costs. This is why we must continue to increase our productivity and grow our revenues by focusing on market opportunities to reduce our deficit. Matching services to markets is an essential element of a successful plan. In terms of the Montreal-Halifax route, the fact is that ridership on the Ocean has declined by nearly 50 percent in the last 15 years, from 250,000 passengers in 1997 to 134,000 today. Absent significant and sudden growth of passengers, which we do not foresee, the Oceans current schedule of 12 departures per week, six days a week in each direction is not sustainable nor is it an acceptable use of taxpayers money. The service adjustments taking effect on November 1st are meant to keep the Ocean in service, while enabling VIA Rail to reduce the operating costs of this train by close to 40 per cent. As a matter of fact, much of the savings generated from reducing the number of frequencies will be redeployed on the Ocean to make it more attractive: On-board WiFi service; a dome car year-round; accessible washrooms and sleepers; and, longer trains when demand warrants. As Canadians, we understand that services to remote areas, where there are limited alternative modes of transport are highly subsidized. But we should also be able to agree

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that where there is market demand like on the Corridor - and when there is a market like on the Ocean and on the Canadian in peak tourist season - VIA services should cover their operating costs. While on the issue of costs, you may wonder whether more could be done to reduce costs. In the early 1990S, VIA Rails network was reduced by half and its government operating subsidy reduced by 58 per cent. As a result, the company has worked constantly to improve its cost structure. Proof is that since that time, VIA Rail has almost doubled its revenues, while maintaining expenses at 1990 levels. Our cost recovery has increased from 29 per cent in 1990, to 52 per cent in 2010 while maintaining service quality and an enviable standard of safety. How significant is that achievement? Consider this: in January 1990, when the VIA cuts were implemented, gasoline cost 55 cents per liter in Halifax. This summer it peaked at $1.40. Over the 20-year period, the price of diesel fuel, which our trains run on, increased by 74 per cent. Yet we have maintained our 1990 cost levels. On that point, I must share with you another significant accomplishment. In 2008, the Government of Canada provided $118 million to VIA so it could rebuild its locomotives. The resulting efficiency of the newly rebuilt engines has resulted in an 18 per cent reduction in GHGs and a 16 per cent reduction in fuel costs, a saving of $12 million. Over the last two years, we have further reduced our operating deficit before pension costs by $30 million, through increased revenue and productivity enhancements. We have reduced management ranks by 15 per cent. The June 27 announcement alone means a reduction of about 31 of the 133 jobs in Nova Scotia, mostly by attrition and under conditions outlined in collective agreements. Earlier, I mentioned the support and commitment of the VIA Rail Board and management team. But another reason to be optimistic lies in the demonstrated commitment of the Government of Canada. Since 2007, it has invested close to $1 billion for capital improvements to VIA Rail services. Over $400 million of this funding was enabled under Canadas Economic Action Plan. It was meant to help the country recover from the 2008-2009 recession. And we must recognize that it did. Canada has regained all the jobs lost in the recession and then some, and VIA has played a positive role in that. In fact, not far from here in Moncton, again thanks to the Government of Canadas investment in VIA Rail, it awarded over $130 million of contracts to refurbish its fleet while creating jobs in a town that was once a centre of excellence for railway works. As many of you may know, that plant is currently under receivership. We have been working with the receiver and the Government of New Brunswick over the past few months in the hope that the plant will soon re-open to complete some of the work. So let me return to the strategy of inter-modality and its application here in the Atlantic. Despite the recently announced closure of Acadian Bus Lines, we believe there is a clear

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market opportunity to develop intermodal partnerships with both bus and even, airline players in the region. So, as it has done over the past 12 months in Ontario, Quebec, Alberta and BC with bus lines and recently with Air Transat, we propose to integrate web ticketing, harmonize schedules and cross-promote intermodal services to increase the mobility of Canadians and help them make the most efficient use of the transport system. This strategy means that by making its Internet ticketing service available to Atlantic bus operators and inviting them to use our stations as bus stops, travelers could book travel with one-click, including bus and train service, at an all-inclusive price and on an harmonized schedule. This approach could even allow a PEI bus operator to offer a connection with the train service at a pick-up and drop-off point at a New Brunswick VIA Rail station. Moreover, an intermodal partnership with a bus operator could even reduce the travel time between Halifax and Montreal by 4 hours, by facilitating the use of the Moncton Edmundston route. Carriers must look at their networks not as a whole, independent and separate from other modes of transport. Carriers must see their networks as part of the passenger transport eco-system. As Canada has changed over the last 150 years, so has the role of its passenger train service. 150 years ago, Canada was a rural country. Most of its population lived in small towns and villages. The train was often the only mode of transport between them. The car had not been invented and there were no roads outside of urban centers. As cars, planes, highways and buses were introduced, Canada urbanized itself and today, most of its population lives in large cities. This fact radically changed the role and efficiency of cars. It also brings about a new role for our network and, more importantly, it brings about a future where all modes of transport must be integrated in order to optimize their individual advantages. There should be no doubt about VIA Rails commitment to its Ocean service. Over the past few years, it has invested over $25 million to improve its infrastructure in the region and improve the accessibility of its cars. The Renaissance fleet now offers a fully accessible washroom and a fully accessible bedroom suite on each trainset for passengers in wheelchairs. Over the coming months, our world-class mobile WiFi system will be made available on the Ocean service as it is in the Corridor. With our neighbours, we are developing plans to capture the commercial potential of the land next to the station here in Halifax. But what about the future of passenger rail in Canada? The $1 billion invested by the Government of Canada over the last 4 years is a good foundation for better passenger rail service in Canada. If VIA Rail is to improve its service, it must start by changing the way it carries on business. And as I tried to demonstrate earlier, it starts with making VIA Rail financially and commercially viable. We must agree on a VIAbility Action Plan, a new business model for VIA Rail. There should be two main points to a VIAbility Action Plan.

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First, it should make VIA Rails Corridor and peak season services on the Ocean and the Canadian break even. That means revenues should cover operating costs. Second, it should limit government funding as much as possible. To be clear, government funding is key to the existence of a passenger rail service. All over the world, governments fund completely or partially their passenger rail service. The same is true for Canada. But we must challenge ourselves to improve passenger train service while limiting the use of government funding. As a matter of fact, we must find ways to redeploy some of the current subsidy to service enhancements. That may be one of the best ways to increase the number of travelers on VIA Rail trains. Enhancements that lead to shorter trip times with more frequencies between Ottawa and Montreal as well as Ottawa and Toronto. That is where there is the most passenger traffic potential and where road congestion is the worse. Many Canadians would gladly leave their cars behind and choose these trains, particularly if they are available every hour, on the hour. Such an approach would also benefit travelers to and from the Atlantic. As mentioned earlier, most travelers on the Ocean come from or go to Ontario and Quebec. Part of their journey would include a shorter trip time to destination and make the service more attractive. It would also benefit all modes of transport. Around the world today, we have seen that the introduction of better train service has led to greater mobility of people which in turn has increased the use of all modes of transport. The partnership between VIA Rail and Air Transat is all about increasing the number of people taking both the train and the plane, not one over the other. As it becomes more convenient to take the train, more Canadians will take the train. If close to 150 years ago, the train brought Canada together and allowed its settlers to build a resource-wealthy, free and prosperous society, it may be that 150 years from now, it will have helped keep it one of the most environmentally-friendly, free and rich country on earth. In conclusion, as someone once said, and I quote: Rail will be the transportation mode of the 21st centuryif it survives the 20th. As VIA Rail has survived the 20th century, we are hopeful for its future. I hope you are as well. Thank you very much. Merci beaucoup.

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