Montreal, Thursday, March 27, 2014 – With 75 per cent of Canada’s population living only 90 minutes from the U.S. border, many Canadian airports are competing for passengers with their northern American counterparts. This geographic proximity has made prices one of the biggest competitive advantages of airports in their quest to attract more passengers. According to a Viewpoint on Canada’s High Airfares and Passenger Leakage published today by the Montreal Economic Institute, taxes and surcharges are to blame for the cost difference between Canada and the U.S.
The MEI illustrates this phenomenon by comparing two typical flights for a passenger leaving from Montreal with one leaving from just across the border. When breaking down the prices of flights from Montreal to Fort Lauderdale or New York City and their equivalents from nearby U.S. airports, it’s impressive to observe that Canadian base fares are actually lower or of equal value, even if Montreal is farther away from both destinations. In opposition, Canadian taxes and fees are more than twice as high as U.S. taxes and fees for equivalent flights from Plattsburgh and Burlington. These additional charges account for roughly a quarter of the Canadian airfares.
“On the same day, a passenger flying from Montreal to Fort Lauderdale will pay 36% more than if he had left from Plattsburgh. Similarly, the flight to New York City is 10% more expensive from Montreal than from Burlington,” says Michel Kelly-Gagnon, President and CEO of the MEI and author of the study.
Estimates show that Canada’s airline industry is losing approximately five million travellers annually who choose to cross the border into the United States to begin their journeys from an American airport largely due to the high prices of airline tickets at their local Canadian airport. The trend is more present than ever and is costing Canada nearly 9,000 jobs and $2.4 billion a year in economic output.
Many studies have demonstrated that the higher costs in Canada’s aviation supply chain are mainly the result of government policies, through the form of taxes, fees and other charges. Eliminating airport Improvement fees is one of the changes that should be made to help reduce passenger leakage. “An alternative solution could be to eliminate airport rent to increase passenger traffic. Even if such a measure would deprive Ottawa of the $280 million it collects each year from rents, this would be mitigated by an extra $50 million in revenue from increased passenger traffic. To recover these losses in revenue and much more, the federal government could sell airports off to private investors,” concludes Michel Kelly-Gagnon.
The Viewpoint titled “Canada’s High Airfares and Passenger Leakage” is written by Michel Kelly-Gagnon, President and CEO of the Montreal Economic Institute. This publication is available on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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