Last year, three out of four passengers at Plattsburgh International Airport in New York were Canadians. What can explain such a high figure?
According to a report by the Canadian Senate released June 5, a big part of the answer is that the high tax burden of Canadian airports is stifling their full potential. The Senate suggested the federal government should, slowly but surely, reduce the amount of money it takes from the country's airports. The government has 150 days to respond to this report and one hopes that its main recommendations will be seriously considered.
In the 1990s, when the federal government began leasing airports to the private sector, it required the payment of large rents, surpassing the amount of $3.3 billion from 1992 to 2009. When we compare ourselves with the U.S., which is our de facto competitor in this context, the cost of the airport rent gives our southern neighbours an advantage of $25.70 for each overseas trip, according to the National Travel and Tourism Association — an association of Canadian stakeholders.
While it is true that the federal government still owns the airports, it doesn't provide any services for the rent it collects. It is simply a tax, to which we must add other taxes like a security fee, jet fuel tax and municipal tax, all of which the passenger ends up paying. Taken all together, these taxes explain why 43% of what we pay for a flight ends up in the pockets of the federal government. Overall, when we sum up these taxes, it leads up to an advantage of $165 for U.S. airports on each overseas trip.
This means that, all other things being equal, Canadian consumers are probably flying less than they would otherwise if these taxes weren’t so high. And when they do fly, more and more of them fly out of U.S. airports. Indeed, the number of travellers departing from U.S. airports along the border has increased dramatically in recent years. For instance, at Plattsburgh International Airport, there was a 200% increase in the number departing passengers between 2007 and 2011. At Niagara Falls International, where 85% of passengers are Canadian, the increase over the same period was 965%.
If these taxes became more competitive, airports would be less likely to resort to higher parking charges, more expensive commercial leases for areas inside terminals and high airport improvement fees to fund the investments they must otherwise make. Moreover, if the airports became privately owned, rather than leased, it would provide greater certainty for potential investors who wouldn’t have to worry about the leases being turned back over to the government when they end.
These changes would allow Canadian airliners to be more competitive and more Canadians would travel from Canadian airports, rather than U.S. airports. There might even be something in such reforms for the federal government revenue-wise. Indeed, even if taxes went down on a per traveller basis, the increased total number of travellers could potentially more than compensate for the initial reduction.
Michel Kelly-Gagnon is president of the Montreal Economic Institute (www.iedm.org)