The equivalent of the sixth largest Canadian airport is driving across the border every year and taking flights from the United States.
Canadian airlines continue to see strong demand, but about five million Canadians are flying out of the U.S. rather than Canadian airports, a new report by the Conference Board of Canada says. That would rank it sixth behind the six million-plus travellers flying annually out of Edmonton.
The catalyst for the cross-border bleed, as the industry calls it, is the estimated 30-per-cent cost advantage U.S. airlines have over Canadian carriers. The report details the structure in which the Canadian air-travel infrastructure is paid for by users rather than all taxpayers. The flip side is that changes to this policy and subsequently lower fares could draw two million more travellers per year to fly through Canadian airports, the report said.
The government and the airline industry differ on which system is better.
Canadian fees and taxes make up approximately 40 per cent of the total price difference between higher Canadian and lower U.S. fares. “You can’t add on another fee and pretend it doesn’t have an impact,” said Vijay Gill, principal research associate at the Conference Board.
On the American side, certain fees for flights are applied only to international routes, not to U.S. domestic-only fares, the report says.
Millions of Canadians regularly take advantage of the price differences. And while airports from Bellingham, Washington or Buffalo, N.Y., deck themselves in Canadian flags and offer low parking fees to welcome the cross-border business, the Canadian airlines have been complaining to Ottawa for years about the problem.
Twenty years ago, fees to upgrade Canada’s airports were needed, and they were charged travellers. “Now we have amazing airports, everybody recognizes that, but they are expensive,” which necessitates in turn high charges incurred by the airlines using them, argued Marc-Andre O’Rourke, director of the National Airlines Council of Canada.
“In a nutshell, it’s the way our government views our industry. They see it as a system in which they can charge the user, get some money out of it, as opposed to treating it like an engine,” he said.
A Senate committee report in June made a similar argument, saying “the government of Canada should stop treating airports as a source of public revenue, such as toll booths, and start treating them as economic spark plugs,” said Senator Dennis Dawson, chair of the committee.
The Conference Board report argued that the government should the cost differences faced by Canadian airlines and their U.S. competitors, as well as charge a flat rate, rather than one based on revenue.
Transport Canada said in a statement Wednesday that Canada operates on a user-pay principle, in which all tax payers aren’t forced to subsidize air travellers.
“In the United States, key elements of the aviation system are government owned and operated. In Canada, those who fly pay for the system. Our government will continue to keep taxes and fees as low as possible, while ensuring the ongoing sustainability of our airports,” the ministry said.
It also argued that the rent paid to the government by the airport and ultimately paid by travellers is not a major factor in pricing. “Airport rent accounts for less than one per cent of the total ticket price for air travel and is not likely to be a key factor in a traveler's decision to choose a U.S. airport over a Canadian airport,” Transport Canada said.
Mr. Gill of the Conference Board added that the American aviation system isn’t paying for upgrades in the same way as in Canada. Therefore the current airfare advantage might not be sustainable.
“It’s not just a matter of us having a user-pay system and the U.S. subsidizing their infrastructure. They [the U.S.] are also underfunding it. So at some point, they are going to have to increase their subsidies...or they are going to have to increase their user fees,” he said.