AC..aims at "sin" taxes

[Kip Powick]

OTTAWA — The federal government treats air travel like a “sin,” allowing travellers to be hit with a slate of fees that is costing Canada a place as a global air hub, a senior Air Canada executive says.

“Air travel is considered a sin. It’s like a sin tax, much like cigarette smoking and alcohol,” Duncan Dee, Air Canada’s executive vice president and chief operating officer, said Tuesday.

“There are a lot of these glaring fees which are simply collected for the purpose of collecting fees with no benefit to Canadian travellers,” Dee said.

Appearing before the Senate transport committee, Dee said policy-makers too often have a “Pan Am” vision of air travel, referring to the new television show that portrays the early jet-set days when going by air was reserved for the rich and famous.

But the hodgepodge of fees that drive up ticket prices highlight the fact that Canada has lacked a long-term vision for its commercial aviation sector for “decades,” Dee said.

“As a result, aviation infrastructure in Canada is disjointed, poorly understood, full of divergent interests working at cross purpose,” Dee said.

Add to that high infrastructure and service costs he said has actively discouraged growth in the industry.

Travellers on a Canadian domestic flight pay an average of $65.56 in fees, compared to $28.71 for a U.S. domestic flight, according to an Air Canada analysis. The differences are less pronounced on international and trans-border flights but Canadian travellers still get stuck with a higher tab.

Those costs include fees to pay for airport improvements, air traffic control, airport security, landing fees and terminal charges. In all cases, comparable U.S. charges come out cheaper.

As well, the federal government also forces Canada’s major airports to pay ground rent even though they are locally run. In the case of Toronto’s Pearson airport, that added up to $120 million in 2010.

As a result, price sensitive passengers are flocking to airports in Buffalo, Niagara Falls, Plattsburgh and Bellingham, Wash., where fees on a per passenger basis are 229 per cent lower than at competing Canadian airports, the airline says.

By 2015, Dee estimated that as many 3.4 million Canadians a year will be flying out of these four facilities alone, costing the Canadian economy an estimated $2.3 billion.

But Dee said Canada should learn from places like United Arab Emirates, Germany and the United States which have fostered their aviation markets and as a result today have airlines with a broad global network and airports that serve as mega-hubs.

The potential exists for airports in Vancouver, Toronto and Montreal to serve similar roles but only if the fee structure is overhauled.

He singled out federal rents as a top priority, saying eliminating those would help reduce airline overhead costs and spur more flights that otherwise might not be profitable.

“These ground rents don’t even come back to the industry. They flow into the coffers of the government in the form of general revenue and are spent for no benefit at all to the airline industry,” Dee said.

“I’m confident that Toronto and Vancouver will not be able to punch above their weight until such time as they get these costs under control and the airports are allowed to operate more efficiently,” Dee said after the committee hearing.

He urged senators, who are reviewing the country’s airline industry, to take aim at the “high-cost” environment with an eye to cutting costs and fees.

Meanwhile, the operators of Pearson International Airport announced Tuesday a 2.5 per cent drop in the overall fees it charged airlines.

[DEFCON]

I've heard, only 15 - 20% of the Canadian population actually engages 'directly' in air travel? If so, should the taxes of the 80 - 85% not partaking cover the costs of aviation's infastructure?

[dagger]

I've heard, only 15 - 20% of the Canadian population actually engages 'directly' in air travel? If so, should the taxes of the 80 - 85% not partaking cover the costs of aviation's infastructure?

Currently, the aviation sector pays for its infrastructure and then some. The feds collect airport rent, they collect an excise tax on domestic jet fuel, they recover more than 100% of security costs, etc. They don't put any money into the major airports, which charge passenger improvement fees to cover part of the capital cost of improving those airports. Nor do they provide air traffic control services any longer. If anything, there is a surplus being generated by commercial aviation which is subsidizing government programs.

[Jumpy]

If Aviation is a "sin tax" is train travel the "welfare state" of transportation? Well done Duncan saying what eryone was afraid to say.

[dagger]

If Aviation is a "sin tax" is train travel the "welfare state" of transportation? Well done Duncan saying what eryone was afraid to say.

The airline industry has hammered away at this theme over and over again. The problem is the government doesn't want to give up its cash cow. And that applies to the current Conservative government as well as the previous Liberal government.

[Spinnaker]

Well said Mr. Dee!

[jkavafian]

Back in the day I was told by a transport minister not very popular on this forum that the airport infrastructure was a $600 million a year "tax grab" by the government. Probably a lot more today. That said, all the airport authorities were very eager to take possession of their local airports knowing what they were getting into. I'm afraid the airport rent argument sounds very much like buying a house by the airport and complaining of the noise later.

What I'd like to see is a public audit of the GTAA accounts from inception to when Terminal 1 was built. Particularly the price at which the old Wardair hangar and the Trilium terminal were acquired. There's a lot of finger pointing towards the government because that's a safe target but I'm sure there's a lot more in Toronto that hasn't been said.

[DEFCON]

Although I'm sure the government isn't playing ball with the fee's collected, we should also include the 'public' cost of items such as crash investigations, and environmental damage in the equation, which can eat up a pile of the governments cash in a hurry.

[Seeker]

Although I'm sure the government isn't playing ball with the fee's collected, we should also include the 'public' cost of items such as crash investigations, and environmental damage in the equation, which can eat up a pile of the governments cash in a hurry.

OK, but if you want to start playing that game the aviation industry should get credit for the benefit it provides to the overall economy.

[DEFCON]

That's a fact for sure Seeker.