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Clipping the Wings of Canada’s Aviation Industry

October 06, 2008

David Redekop
Principal Research Associate
Canadian Tourism Research Institute

Canada’s major airports have undergone a huge transformation since the federal government devolved the responsibility for airports to local authorities. Many of Canada’s major airports are now bright, clean and modern facilities. They have also become very expensive to operate.

When it costs a Canadian carrier three times as much to land a plane at a Canadian airport compared with a major airport in Europe, you know something is wrong. According to the President and CEO of Transat A.T. Inc., one the world’s largest tour operators, “It costs three times as much to land at Pearson in Toronto as at Charles-de-Gaulle in Paris”. High landing fees in Toronto and other major airports in the country has made Canada “among the most expensive in the world” for a carrier to fly to according to the head of Transat.

In August Canadians witnessed the failure of another Canadian carrier. Zoom Airlines joined a long list of Canadian based airlines that have failed over the past twenty years. Preceding Zoom’s failure was Canada 3000, Jetsgo, CanJet, Canadian Airlines International, Greyhound Airlines, Roots Airlines and City Express to name a few.

It would be wrong to attribute the failure of these airlines solely to Canada’s non-competitive airport landing fees. Untimely management decisions had more to do with Zoom’s failure than the inability of the carrier to control costs. Zoom chose to expand capacity at the same time that its costs were escalating and the market for overseas travel was softening. In stark contrast to Zoom, Air Canada and many other international carriers was cutting capacity while Zoom was increasing its seat capacity.

Canada’s airports have responded to the challenge of modernizing the country’s airport infrastructure with more than $9.5 billion having been spent on airport improvements since 1992. Most of these improvements have been funded by the airports themselves and the carriers, passengers and concessionaires that use the country’s airports. Airports have also paid $2.5 billion in rent to the federal government since 1992 although the airports were valued in 1992 as being worth only $2 billion. The annual rent bill for Canada’s airports now exceeds over $300 million a year. Toronto Pearson alone was charged $153 million in rent by the Federal Government last year. This rent has to be paid for by the revenues collected by the airports with the carriers forced to shoulder a large percentage of the $300 million ending up in the Government’s coffers. This bonanza of revenue is quite a turn of events for the Federal government. Prior to 1992, the Federal government subsidized airports to the tune of $135 million a year. Now they are collecting more than $300 million a year in rent. But in charging such rents, the Federal government has made Canada’s airports uncompetitive with other international airports. When carriers are forced to pay three times to land at a Canadian airport compared with an airport in Europe, Canada comes out on the losing end.

The aviation industry by its very nature is a competitive global industry. Despite vast improvements in Canada’s airport infrastructure, the country has lost its competitive edge. International arrivals worldwide nearly doubled between 1990 and 2007. Meanwhile international arrivals to Canada grew by less than 18 per cent. Canada’s share of international arrivals fell from 3.5 per cent in 1990 to just 1.9 per cent in 2007 according to World Tourism Organization figures. For Canada’s travel industry to compete for the 1.6 billion international arrivals forecast for 2020, it will need to encourage not discourage carriers to fly to Canada. Canada’s airports have done their job by fixing up the airport infrastructure that had been neglected by the government for decades. Now it is up to the Federal government to change its view of Canada’s airports to that of an important piston in the engine of growth rather than as source of unchecked revenue.

Need to learn more about Canada’s international travel markets and travel industry trends, then check out the products and services offered by the Conference Board’s Canadian Tourism Research Institute at www.conferenceboard.ca/ctri.

 

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