Why is flying in Canada so expensive? Sky-high airport fees don’t help

Canada imposes user fees on passengers and airlines that are the most expensive in the world, according to WestJet CEO Alexis von Hoensbroech

Alexis von Hoensbroech’s airline career has spanned the globe and beyond. The new WestJet Airlines Ltd. chief executive has worked in the business in Asia and Europe, moving people and cargo in the world’s most dense and competitive markets. Before that, he obtained a doctorate at a German school that focuses on astrophysics, the galaxy and the skies above.

But it was in Canada, where Mr. Hoensbroech, 52, took the helm at Calgary-based WestJet in February, that he made a surprising discovery: A vast country highly dependent on air travel imposes user fees on passengers and airlines that are out of this world.

“I don’t know a single country in the world that’s as expensive as Canada. Landing fees, gate fees – this is far, far, far more expensive than any other country,” he said.

He is referring to fees charged by Canada’s airports for gate and apron use, security checks, navigation services, landing charges, taxes and airport improvement. Many of these are customary in other countries. But Canada’s are higher, and they’re the main sources of revenue for its airports.

This is surprising, Mr. Hoensbroech said, given the reliance on air travel in such a huge country. You’d also think Ottawa would do all it can to help passengers save money and Canada’s airlines – large and small – to compete.

Europeans enjoy plenty of bargain air-travel options, from upstart discount airlines and established carriers, as well an extensive railway system in a densely-populated region. The U.S. air travel market is also intensely competitive. But Canadians don’t have that much choice.

“You can’t avoid airplanes in Canada. Without airplanes, many communities in Canada would just not be able to sustain. So, airplane flying is a critical infrastructure,” said Mr. Hoensbroech, who was an executive at Lufthansa in his native Germany and CEO of Austrian Airlines. “In a place like Calgary, how many people will be living [here]? What would the economy look like in Calgary without airplanes?”

Toronto’s Pearson International Airport, the largest in the country, has long been known as one of the most expensive in the developed world for airlines and passengers. And the cost is about to go higher.

After a chaotic summer of travel, Pearson set plans for a $5 increase to its airport usage fee on Jan. 1, raising the amount each departing passenger pays to $35 plus tax. That will put the airport in line with its counterparts across the country, Pearson said when it announced the hike in September.

Another five dollars doesn’t sound like much. Even $35 doesn’t seem like a game changer. But for airlines and passengers, the coming increase at Pearson is yet another fee on top of a long list of other costs charged by airports that make Canada an expensive and difficult place to fly.

“It’s one of the things that make Canadian airports and Canadian air travel so uncompetitive,” said Olivier Rancourt, an analyst at the Montreal Economic Institute.

Moreover, if anything, the latest fee hikes are almost certain to make the situation worse – much worse.

Analyzing the impact of airport fees on ticket prices isn’t rocket science, but it is complicated. Comparisons between Canada and other countries are stark – and they add up.

Toronto Pearson’s $35 airport improvement fee for departing passengers is much higher than the standard US$4.50 ($6) at U.S. airports. In addition, the federal government charge for security checks at Canadian airports runs as high as $25.91 per passenger. The standard U.S. rate is just US$5.60 ($7.56). All these costs are ultimately borne by travellers.

Other Canadian airports have also raised passenger fees during the COVID-19 pandemic: St. John’s raised its fee in 2021 by $7 to $42. The Winnipeg Airports Authority raised its usage charge, called an airport improvement fee, by $13 to $38 in June, 2020. On Jan. 1, 2020, Vancouver raised its airport improvement fee by $5 to $25 for passengers not flying within British Columbia or to Yukon.

Then there are the charges passengers do not see but have to cover anyway. These are aeronautical fees airlines pay to airports. They include separate fees for landing, using a gate and a terminal, baggage facilities, air navigation fees, U.S. customs preclearance, apron charges and fuel taxes.

“Everything from landing fees to the fees for gates and [service] counters is much higher in Canada versus the U.S.,” said Duncan Dee, a former Air Canada executive.

the globe and mail, Source: governments and local airport authorities

Canadian airport fees for landing and terminal use, paid by airlines, are 35 per cent to 75 per cent higher than those at U.S. airports, according to a 2015 submission by Air Canada to a review of the Canada Transportation Act headed by David Emerson. When the per-passenger fees are included, Canadian airport costs are 83 per cent higher per seat than in the United States.

“This uncompetitive cost environment is not only causing the leakage of Canadian passengers to the United States, but also the loss of international traffic travelling to or via Canada,” Air Canada said in its filing.

Peter Fitzpatrick, an Air Canada spokesman, said charges paid by passengers – airport improvement fees, security charges and taxes – can account for more than 35 per cent of total costs of a flight. That doesn’t include levies on the airline, such as navigation fees, rent and payments to municipalities.

As an example, Mr. Fitzpatrick used a family of four flying to Montreal from Toronto and back. Airport improvement fees to depart Toronto and then Montreal would total $300 for the round trip.

“Airport fees and taxes add significantly to fares, creating a disincentive to fly,” Mr. Fitzpatrick told The Globe and Mail. “Airport costs are also a factor in the profitability of a route and, given the industry’s relatively low margins, can make a route unsustainable, limiting growth.”

Critics say the problem is that Canadian airports aren’t accountable to anyone when they set fees. “The airports are just charging what they want to charge,” said John Gradek, who teaches aviation leadership at McGill University. “There’s no oversight.”

Experts say high fees in Canada also discourage airlines from serving small centres, which limits competition there and drives up airfares. U.S. discount carriers are notably absent. They serve many U.S. cities near the Canadian border, but only JetBlue Airways flies into Canada, after it added Vancouver to its schedule this year.

People who run the country’s airports say the fees allow them to run on a user-pay model, mostly unsupported by taxpayers, but funded by travellers and airlines. Canada’s 26 major airports are owned by the federal government, but in the early 1990s, it divested control and financing to not-for-profit local airport authorities.

Those authorities pay rent to the federal government, and amounts in lieu of taxes to their local municipality. U.S airports do not pay rent.

But Canadian airport authorities are now calling for their rent cheques to be invested in the airports themselves, rather than going into government coffers.

Tori Gass, a spokeswoman for the Greater Toronto Airports Authority (GTAA), which runs Pearson, said the hike in aeronautical fees is the first in more than a decade, and is needed to keep up with the debt payments, inflation and economic uncertainty that came with pandemic shutdowns.

She noted that government-owned airports in the U.S. receive billions in yearly funding from Washington in addition to US$40-billion in emergency aid during the pandemic. This is “40 times what Canadian airports received,” Ms. Gass said.

Monette Pasher, president of the Canadian Airports Council, which lobbies on behalf of the airports, said measuring fees charged by Canada’s commercial airports against those of the largely government-owned U.S. system is comparing “apples to oranges.”

“There are very distinct differences,” Ms. Pasher said from Ottawa. “It’s very difficult to compare the fees.”

Canada’s major airports paid about $420-million a year in rent to the federal government before the pandemic, for a total of $6-billion since the hubs were divested in the early 1990s. The airports also took on $3.2-billion in debt to survive the pandemic, on top of $15-billion they already owed. They now must raise fees to cover the higher payments, Ms. Pasher said.

But that is shifting onerous burdens to airlines. Peter Cerda is vice-president of the Americas at International Air Transportation Association, which is based in Montreal, and represents carriers in more than 100 countries. He says Canada’s aviation fees are higher than those of most countries, posing “a huge challenge” for the airline industry.

Fees charged by airports and Nav Canada, the non-profit national air navigation service provider, rose during the pandemic, even as Ottawa and the airports pressed airlines to reduce their schedules to relieve strains on congested terminals, Mr. Cerda said.

Nav Canada raised its fees to airlines by almost 30 per cent in September, 2020, seven months into the pandemic. The hike was meant to generate an additional $242-million from customers, Nav Canada said, and reduce its deficit as its revenue plunged.

WestJet accused Nav Canada of “burdening” travellers and undermining the economic recovery. The increase amounted to a $6 to $9 increase per passenger, and the airline passed most of the cost on to customers. WestJet later lost its appeal of the Nav Canada increase before the Canadian Transportation Agency.

Studies in recent years have shown Canada is among the highest-cost countries in the world for flying, though comprehensive data are limited.

Recent figures from airline industry data company Cirium show Canadian airlines charged an average of 18 US cents for every seat mile, 10 per cent more than their U.S. counterparts charged on their domestic routes. However, this represents only the airlines’ take and does not include taxes, airport improvement fees and other charges, which are also far higher in Canada.

In Mr. Emerson’s 2016 report to the government, he found market domination by Canada’s big airlines contributed to the higher cost of flying. “Canadians continue to pay relatively high airfares, in part due to the lack of competition on many routes,” the report said. Air Canada and WestJet shared 64 per cent of the domestic market in 2022, according to Cirium.

In addition to the direct costs, high fees are insidious because they reinforce that domination, rather than promoting competition. Domestic discount airlines are trying to gain a bigger foothold in the Canadian market, but it’s tough for them to make money.

Vijay Bathija is chief commercial officer at Lynx Air, a self-described discount airline that flies from Toronto and Calgary to domestic destinations with six 737 Max aircraft and more than 200 employees. He says airport fees are a factor the airline considers when choosing a destination.

“Generally, the fees are higher in Canada,” and account for about 10 per cent of the cost of flying, Mr. Bathija said. Even so, the airline places more weight on market conditions and price levels in any given area.

Lynx recently offered one-way fares to Halifax from Hamilton for $59. After the airport improvement fee of $25, a $7.12 security fee for the federal government and sales taxes, Lynx’s base take is $20.09. The same Lynx flight will cost $249 on Dec. 22, amid the busy holiday travel season. Mr. Bathija says the airline has lower costs than traditional airlines, and the route is a money maker.

But McGill’s Mr. Gradek does not see how the $59 Lynx flight is anything but a loss leader. The base fare does not cover the $30-per-passenger cost for fuel alone. He says the airline is trying to stimulate demand, regardless of the cost. It’s a strategy used by another discount carrier, Flair Airlines, which recently flew from Toronto to Halifax and back for $99, he noted.

“They’re not making any money,” Mr. Gradek said. “That’s the price they pay to stimulate the market,” and get people flying.

He also points to the faltering launch of Canada Jetlines, a one-plane upstart based in Toronto that tried to get off the ground starting in 2018. This year, the carrier delayed its first flights three times, including legs from Toronto to Winnipeg and Moncton. Jetlines finally took off on Sept. 22, flying twice a week to Calgary from Toronto, but the Winnipeg and Moncton flights never happened. Jetlines did not respond to requests for comment.

Mr. Gradek said Jetlines apparently chose a busier, more competitive market with the promise of higher passenger volumes over the higher risk of smaller markets.

So, again, consumers in smaller markets are left out. They are forced to pay more, with often only one choice of airline and a small number of direct flights.

“Carriers will stay away from those markets that have a high cost of entry, [airport improvement fees] and landing fees. They’re going to markets that have a high density, high volume of traffic and they’re going make it up on volume rather than on price,” Mr. Gradek said.

For discounter Flair Airlines, the added fees can make or break a sale. “There is a hypothetical passenger in Canada that will fly with Flair Airlines for $50 but not if they are charged $75,” Garth Lund, the airline’s chief commercial officer. “That jump in fare keeps them on the couch.”

“The tax and fee structure in Canada is one of the most expensive in the world and, while there are some airports in Canada like Abbotsford or Kitchener-Waterloo with a low-cost fee structure, there are others where taxes and fees are so high that it is prohibitive to serve them with our low-fare model. While the demand is there at a certain fare, it may not be there when the fees are added in,” he said.

But the choices for airports are limited. Their only sources of revenue are fees they charge to airlines, passengers and tenants. The other source of capital is debt.

The federal government charges rent to the airport authorities, generally as a percentage of revenue on sliding scale. Rents paid for 2019, the last full year before the pandemic, included: Saint John $22,500; Vancouver $60-million; Calgary $44-million; Aeroports de Montreal $76.6-million plus $40-million in municipal payments; Quebec City $4.3-million plus $5.7-million in municipal payments; Toronto Pearson $171-million plus $38-million in municipal payments.

Mr. Gradek says Canada’s airport model was innovative in the 1990s, but is now unsuited to funding the large terminal investments and low-carbon modernization the facilities require. In Europe, airports are run by for-profit companies, including Groupe ADP of France, that pay a market-rate concession fee to the government. In turn, the companies can take on investments from infrastructure funds, governments and airlines to expand and update their facilities.

In the U.S., most airports are government-owned, supported by taxpayers and do not pay rent.

Ms. Gass, the GTAA spokeswoman, said Canada’s non-profit airport model is financially sound, even though it came under “stress” when people stopped flying in March, 2020. “With passenger volumes expected to return to prepandemic levels by 2024, the model remains financially sustainable and equitable. Canada’s airports are paid for by the passengers and airlines that use them,” Ms. Gass said. But she added that now is the time for governments and airports to review the way the facilities are financed, including redirecting rent toward investments.

The federal government came to the aid of airports in the pandemic, waiving or deferring rent. Ottawa has also made recent one-time payments to airport authorities that had fewer than one million passengers a year before the pandemic. In October, Windsor International Airport received $180,000 to buy a snowplow; Waterloo Regional Airport was also given money for a plow, on top of $3.9-million it received in 2021 for repairs to taxiways, aprons and other work.

Since 1995, Ottawa says it has spent more than $1.2-billion on improvements at 199 airports, including repaving runways, installing new lights and erecting wildlife fences.

However, as the pandemic took away airports’ main source of revenue – passengers – they added to their already large debt burdens to get by.

Toronto Pearson’s operator, the GTAA, owed $6.8-billion in total debt as of September, 2022. This is down from $7.2-billion debt in December, 2021, but up from $6.4-billion in 2019.

Halifax International Airport Authority’s long-term debt at the end of 2019 was $283-million, and increased to $433-million by the end of 2021. Like most of its cross-country counterparts, Calgary International Airport sought deferrals of interest and principal payments on its debt, increased its line of credit to $200-million, restructured its debt and sought relief from some agreements. The airport’s long-term debt rose to $3.3-billion by the end of 2021, up from $2.9-billion in 2019.

Mr. Dee, the former Air Canada executive, said airports have become “debt vehicles” to pay for runway construction and terminal improvements. “All they can do to raise money for their very very expensive construction projects is to raise debt,” Mr. Dee said. “The only way their debt is financeable is because they’ve got a monopoly over the charging of airport improvement fees.”

Editor’s note: (Dec. 6, 2022): An earlier version of this article incorrectly said Pearson’s airport improvement fee jumped to $40. In fact, it increased to $35. This version has been corrected.