The federal government seems to be seriously considering the privatization of Canada's major airports. It has asked Credit Suisse AG, a top investment bank, to analyze several privatization options. This would be good news indeed for the Canadian air travel industry, and ultimately for Canadian travellers.
A form of privatization happened in the 1990s, when the federal government transferred the management of airports to private non-profits through long-term leases. However, the federal government retained ownership of the land, and these airport authorities must pay steep rents, as high as 12 per cent of gross revenues, on top of spending money to maintain and improve their airports. If fully privatized, airports would pay taxes on profits only, like any other company, thus spurring economic activity in the sector.
Today's high costs are passed on to Canadians indirectly through higher landing fees, which increase the base fares they pay. When combined with the numerous taxes imposed by the federal government, Canada ranks 130th out of 138 countries with regard to ticket taxes and charges imposed on airports.
As my colleague Alexandre Moreau recently wrote, higher prices in Canada have the effect of reducing demand for flights on Canadian soil, since certain travellers cross the border to save money, while others simply choose not to travel. This explains why a Canadian Senate committee and the recent Emerson report argue that privatization is necessary in order to improve the competitiveness of the country's airports.
Airport privatizations are nothing new. Many airports around the world have been privatized over the past couple of decades. Indeed, a consortium including the Ontario Teachers' Pension Plan, the Alberta Investment Management Corp., and others purchased England's London City Airport this past February.
Replacing the current system of excessive rents based on a percentage of gross revenues with a tax on companies' profits would encourage airports to invest more and to reduce the fees charged to carriers and consumers. Any short-term decrease in government revenues after the initial windfall from airport sales would be counterbalanced by the long-term economic gains made possible by the increased competitiveness of Canadian airports. The government deserves credit for pursuing this path to freer air travel.
Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute. The views reflected in this op-ed are his own.