Carney’s airport investment plan doesn’t go far enough in privatization

Jake Fuss and Alex Whalen are directors of research at the Fraser Institute.

During the recent Canada Investment Summit in Toronto, the Carney government announced plans to open up Canada’s four largest airports to private investment. The move has sparked concerns about ticket price increases. But Canadians pay relatively high prices for airfare precisely because of government’s involvement in the industry – and Prime Minister Mark Carney’s plan does not go nearly far enough to change that reality.

First, some context. Ottawa owned and operated all of Canada’s major airports for several decades. Then in the 1990s, the Chrétien government leased the airports to not-for-profit airport authorities while the government maintained ownership of the land and assets. Airport authorities then make deals with individual airlines to serve air travellers.

The Carney government’s plan to seek private investment in airports will not change this arrangement, though private investors will likely have some involvement in the operation of airports (full details have not been disclosed). While the media calls this move “privatization,” the ownership structure, dominated by government, remains largely unchanged. Consequently, Canada’s airports will still lack incentives to compete, serve customer needs, lower costs and become more efficient because they are largely unaccountable to customers.

What could airport privatization mean for travellers in Canada?

But if the federal government instead sold the land and assets of the airports and allowed them to operate as private for-profit institutions, it would help create incentives (through the generation of profits) for airports to serve more routes, reduce ticket prices for passengers, innovate and produce a better customer experience. High-volume airports in the European Union already embrace this ownership model.

Again, the Carney plan may introduce elements of this model, but the plan still keeps Ottawa in the airport business and falls well short of privatization.

Ottawa will also continue to extract substantial revenue from airport authorities through rental fees, which currently total more than $500-million each year. The airports then recoup this lost revenue by imposing punitive fees on passengers (e.g. airport improvement fees) that drive up the cost of airfare and make it expensive to travel in Canada compared to costs in other countries including Australia and in Europe.

And there are other problems that only the government can fix. Ottawa continues to hinder competition by imposing policies that inhibit the creation of new airports, new airlines and other investment. Ottawa restricts foreign ownership of Canadian airlines and forbids foreign airlines from flying domestic routes within Canada (e.g. Toronto to Vancouver).

This leaves little choice for Canadians when booking their travel plans. Canada also has some of the most expensive air travel taxes and fees, which raise the price of airfare. Approximately 25 to 35 per cent of ticket costs in Canada originate from government taxes (e.g. sales taxes, fuel taxes) and fees imposed by airports for security, landing and more. Put simply, we are an expensive country for air travel in part because Ottawa wants us to be.

If the Carney government wants to help improve the air travel industry, it should remove restrictions on competition, reduce taxes, cut unnecessary red tape and fully privatize airports.

Airline industry group opposes privatization of Canadian airports

Altogether these reforms would help airlines provide more choice to consumers, reduce airfares and improve service quality. But don’t hold your breath. The Carney government recently nixed an airport expansion plan at Billy Bishop airport in Toronto, demonstrating that politics rather than sound policy continues to dominate decision-making on Parliament Hill.

And the government has ignored its own Competition Bureau’s recommendations to improve air travel in Canada. All this means Canadians will likely continue to endure expensive airfares, poor service and limited choice.

Mr. Carney’s announcement about private investment in airports will generate headlines without actually solving the real problems that exist in Canada’s air travel industry. And if you fly in Canada, you’ll likely see no change in your travel experience.