Reality check: Will new foreign ownership rules make flights in Canada cheaper?

Click to play video: 'Liberals promise to boost foreign ownership cap on airlines, passenger rights regime'
Liberals promise to boost foreign ownership cap on airlines, passenger rights regime
Liberal Transport Minister Marc Garneau promises to boost foreign ownership cap on airlines, passenger rights regime – Nov 3, 2016

The federal transport minister says he is planning to drive down the cost of air travel by loosening restrictions on foreign investment in Canadian airlines.

Transport Minister Marc Garneau said he will introduce legislation allowing international companies to own up to 49 per cent of an airline in Canada, up from the current limit of 25 per cent.

Is this enough to make flying more affordable for Canadians? It could but there is no one factor responsible for the cost. Rather, the high prices are a consequence of a laundry list of fees and taxes, coupled with low competition.

Several reports have found that flights originating in Canada are considerably more expensive than those taking off from American airports – a fact that won’t shock most Canadians.

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The bid to relax restrictions on foreign investment falls in line with recommendations in a June report from the Organization for Economic Co-operation and Development.

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Doing so, the report suggested, can increase “competitive pressures,” increase productivity and reduce prices for consumers.

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“One of the big reasons Canada has struggled to have competition … is because of those foreign ownership rules,” said Todd Crawford, senior economist with the Conference Board of Canada.

Through these changes, “we’re allowing companies to go out and get financing from wherever they need to bring competition into the low-cost segment of the Canadian [air travel] market,” he said.
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What about the other factors, though? It’s the suite of fees airlines pay keeping the costs of air travel high for Canadians, according to Air Canada.

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“The number one issue faced by the Canadian aviation industry is the uncompetitive level of government and infrastructure rates, charges and taxes, including airport rent and related charges,” Air Canada spokesperson Peter Fitzpatrick wrote in a statement to Global News on Thursday.

“These need to be urgently addressed above other factors to create a truly competitive industry and reduce air fares meaningfully.”

Similarly, WestJet said addressing the “rising cost of aviation infrastructure” is the key to lowering airfares for Canadians.

“We are disappointed the government has not signalled more clearly a willingness to meaningfully review aviation taxation and cost structure,” WestJest president and CEO Gregg Saretsky wrote in a statement.

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Local airport authorities have been paying rent, scaled based on their revenue, to the government since the early 1990s, when Ottawa handed over airport responsibilities but maintained ownership. And that’s no small bill.

Between 1993 and 2003, national airports in Canada paid more than $2.5 billion in rent to the federal government, according to a 2003 Senate report on competitiveness in Canadian airline travel.

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On top of rent, airport authorities also have to maintain and modernize their services and infrastructure. Since they don’t receive any federal subsidies, revenue comes through a host of fees and taxes.

One such fee is the landing and parking fee charged to airlines – a fee often passed down to consumers. And flights landing in Canada pay some of the highest fees in the world, according to a 2014 report from the Institute for Governance of Private and Public Organizations entitled The Governance of Canadian Airports.

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Toronto had the most expensive landing fees in North America, according to data published by Air Transport Research Society in 2011.

Landing a Boeing 767-400 at Pearson cost $6,000 US that year. The second most expensive airport was New York’s LaGuardia, at half the price — $3,000 US.

Similarly, landing an Airbus 320 at Pearson cost almost $2,250 US in 2010. Again, the second most expensive place after was LaGuardia, where the fee in 2010 was about $1,250.

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A spokeswoman for Garneau told Global News that air transportation is based on a user-pay principle, which ensures taxpayers do not subsidize the industry; the private entities operating navigation services and airports are, therefore, responsible for generating revenue through fees.

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“That being said, the government is continuing its analysis on the issue of air industry costs and the minister will have more to say on this in the new year,” Mélany Gauvin wrote in an email.

Still, taking a step toward increasing competition among airlines is a step in bringing the cost of air travel down for Canadian consumers, said the Conference Board’s Crawford.

“High landing fees don’t necessarily help, but competition is ultimately what works to keep prices low,” he said in an interview Thursday. “The goal, ultimately, is to bring as much of a diverse service to Canada as you can find anywhere else, and that’s going to be the driving factor that keeps the air prices down.”

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