JOHN LEHMANN
Taxes and fees on domestic airfares have crept up to record highs in Ontario and British Columbia, crimping a fragile rebound in the travel sector and hurting Canada's competitive position in the global airline industry.
A relentless accumulation of small increases in taxes, fees and other charges - two in the past six months alone - has boosted consumers' cost of flying by as much as 70 per cent in some cases. The resulting uncompetitive rates threaten airlines' continued growth, which in turn affects the ability of Canadian airports to become global travel hubs, or even regional centres.
The results have been most marked for Toronto's Pearson International Airport, which ranks 34th among the world's busiest airports, a disappointing placement considering how similar-sized foreign cities have been able to turn themselves into global hubs, says a new study of the issue.
In the past six months, there have been increases across the country in the Air Travellers Security Charge levied by Ottawa, while the harmonized sales tax was implemented on domestic base fares in Ontario and B.C.
A July flight from Toronto to Montreal, for instance, bore taxes and fees of $77.31, raising the total Air Canada ticket price to $236.41, a jump of 49 per cent over the one-way base fare of $159.
"Each decision to impose or increase or expand the scope of a tax or fee is usually made independent of all other such decisions. Therefore, while each is viewed on its own as small and benign, the combined result is anything but benign," according to the report on Canadian aviation policy by Fred Lazar, a professor at York University's Schulich School of Business.
Prof. Lazar prepared his report for the National Airlines Council of Canada, which represents Air Canada, WestJet Airlines Ltd., Jazz Air and Air Transat.
"Without the continued success and growth of these airlines, no Canadian airport is likely to join the ranks of international gateways or regional hubs, with their significant economic benefits for Canada," he writes in the 53-page report, to be released next week.
His survey shows taxes, airport improvement fees and other charges easily increase the base fare advertised by airlines, often by at least one-third or even 70 per cent in some cases, depending on the base fare, route flown and province of departure.
"There appears to be considerable scope for both Air Canada and Pearson airport to become more important players in the global market. But there is also the very significant risk that both could become marginal players in the future," the report said.
Air terminals in Toronto, Vancouver, Montreal, Calgary, Ottawa and Edmonton are being held back by the federal government's aviation policies that siphon money out of the airline and airport sectors, Prof. Lazar said.
Canada's major airports paid $257.3-million in rent to the federal government last year. In its rent formula, the government effectively takes 12 per cent of airport improvement fees levied by the largest air terminals.
Transport Canada said it regularly monitors the financial performance of airports, and there are no immediate plans to review the rent issue.
In April, Ottawa raised the Air Travellers Security Charge by 53 per cent to $7.48 for each one-way domestic ticket, and continues to place excise taxes on jet fuel at 4 cents a litre.
"Without the right policies, Canada risks losing the economic and social benefits of an increasingly integrated global marketplace," the report said. "The starting point for the new policy direction is the termination of the ground rents, the Air Travellers Security Charge and the excise tax on jet fuel."
Many Canadians are now driving to U.S. airports to take advantage of lower taxes on airfares there, Air Canada CEO Calin Rovinescu said in a speech this week.
Brent Jang