The Conference Board of Canada estimates that 5 million-plus Canadians drive across the border annually to fly out of airports in the United States. Most of them are looking for a bargain; the North American competitive landscape is heavily tilted in favour of U.S. carriers and airports and against those in Canada.
The 1995 Open Skies agreement with the U.S. has had a profoundly positive impact on consumers and carriers in both countries, more than doubling transborder routes (from 67 to 150) in less than two decades. But the benefits have been lopsided because of the imbalance in fee structures.
Passengers flying from within Canada carry much more than their baggage. Fees and surcharges for airport infrastructure, for air traffic control and for security, along with a special fee to screen travellers to U.S. destinations, are included fully in the prices paid by passengers. Other charges levied on airlines in Canada are passed through on ticket prices as well.
In the U.S. — the land of the sequester — roughly half of these fees are absorbed either through direct subsidies to the FAA (Federal Aviation Administration) and TSA (Transportation Security Administration) or by other “public service” offsets such as funding from the Airport Improvement Program, money not collected from passengers.
As a witness before the Canadian Senate Committee recently observed: “In the U.S., they see their airports as economic spark plugs. In Canada, we see them as toll booths.” A Conference Board study on fees charged in Canada and the U.S. shows a difference of more than 100 per cent ($81.13 versus $32.42).
The complex array of charges applied to airfares in Canada not only make us uncompetitive in terms of consumer choice but are also extremely damaging to the economy. Over and above the reduced revenue and income for Canadian airports and airlines resulting from the competitive imbalance on fees, the direct economic loss to Canada’s GDP from this passenger leakage — foregone airfare and traveller spending at Canadian airports for retail, food and beverages, etc. — is estimated by Deloitte as totaling more than $1 billion in 2010. That’s no small change.
Money lost by airport concessions and service operations in Canada is diverted instead to airports like Plattsburg, Buffalo/Niagara and Seattle/Vancouver that focus on attracting passengers from Canada. In fact, Plattsburg, N.Y. has been labelled by some as “Quebec’s fastest growing airport”.
Given that no other form of transportation (rail, highway) is set up so that passengers are obliged to pay more than 100 per cent of the infrastructure and operating costs, the current fee structure is also incoherent public policy.
To add to the discrepancy over fees, U.S. carriers advertise only the airfare price — without fees — while their Canadian counterparts are obliged by law to advertise all inclusive rates, a Boy Scout approach that may be commendable in principle but is damaging in practice.
Patriotism clearly has its limits even for the most stout-hearted nationalist. No one wants to pay more than necessary for what has become a commodity service. Air flight passengers are no different from cross-border shoppers who chase lower retail prices in U.S. border cities, especially when the loonie is close to par.
However, when it comes to airline passengers, the major differences stem from costs imposed by government. To presume that Canadian authorities can set fee structures and regulations oblivious to the normal forces of competition — and especially against a market more than ten times our size — reflects an island or igloo mentality that makes no sense.
The Beyond the Border initiative calls for regulatory harmonization and other measures to remove differences that undermine the efficient flow of goods and services across our shared border. It’s time that the regulation of people-flows by air in North America adhered to a similar objective. If we expect Canadian carriers to compete effectively in North America, we need to bring better balance to the fee and fare structure.
To make air travel from Canada more affordable and more competitive, taxes and fees need to be reduced. That would help curtail the leakage, generate more traffic for Canadian carriers and make more money for Canadian airports and related businesses.