High airport fees ....and more

[Kip Powick]

As travellers bear the increased cost of airport fees, the Canadian airline industry could become less competitive, warns the chief executive of Halifax-based Jazz Air Income Fund.

Several airports will begin paying rent and policing costs to the federal government and some airports are passing on the costs to travellers, Jazz CEO Joseph Randall said during a conference call Friday.

"At the end of the day, it's airline passengers that will bear these costs and, as a result, our industry could become less competitive on the global stage," Randall told analysts while discussing the company's third-quarter results.

He noted that the Ontario government has proposed an aviation fuel tax while a federal excise tax on fuel already exists.

"We are doing our part, as are many carriers, to reduce our costs and improve efficiency. We need all stakeholders to make the same commitment," Randall said.

However, McGill professor Karl Moore said consumers are the "cash cow," not just for airport authorities and governments, but also for airlines that are all looking for ways to either make or save money.

"All three players – governments, airport authorities and airlines – are all under enormous pressure because of the recession," said Moore, who teaches at McGill's Desautels Faculty of Management.

Bruce Cran of the Consumers' Association of Canada said both airport authorities and airlines hit consumers with fees that end up adding to the cost of travelling.

"Between the airports, the government fees for security and the airlines nabbing us for little bits and pieces, that's got a very solid effect on the end price of a cheap ticket," said Cran, CAC's president.

The Greater Toronto Airports Authority, which runs the country's biggest airport, defended itself by saying it just charges an airport improvement fee.

"That's the only fee that goes directly to the passengers," said authority spokeswoman Trish Kale. The fee for departing passengers is $25 and $8 for connecting passengers, she said.

Krale said the authority has announced that its landing fees for airlines will go down 10 per cent on Jan. 1.

Jazz, the regional carrier spun off from Air Canada, reported Thursday that its third-quarter net income fell to $25.3 million, down 20 per cent compared with $31.7 million for the same quarter last year.

Jazz also said that labour negotiations with its unions are advancing.

Randall said maintenance and engineering employees have ratified their collective agreement and the airports group is having a ratification vote on its tentative agreement. Negotiations are continuing with the remaining groups, including crew schedulers, flight attendants, pilots and dispatchers.

"We are well down the road in our labour negotiations," Randall said.

The fund said the last two months of the quarter include the financial impact of amendments made to the capacity purchase agreement between Jazz and Air Canada, its former parent.

Air Canada now purchases essentially all of Jazz's capacity and uses the smaller airline to provide connecting flights between the main hubs and smaller destinations in outlying areas. Operating revenue fell 13 per cent to $379.7 million from $437.4 million last year.

Jazz said the drop was primarily attributable to a $60 million reduction in revenues relating to pass-through costs under the capacity purchase agreement.

Randall said that Jazz is open to acquisitions and taking equity positions in other airlines to diversify its business.

"We have to actively pursue those opportunities to be open to them and, ultimately what we're looking to do, is to diversify our business and to provide a stronger company for all stakeholders going forward. I won't rule anything out."

He noted that publicly traded regional airlines in the U.S. have been doing this in various ways.

Jazz was originally a wholly owned subsidiary of Air Canada. After Air Canada reorganized under court supervision it became a separate subsidiary of the same parent company. Later still it became a separate public company while maintaining capacity sharing agreements