Travelers check the status of their flights at Pearson Airport in Toronto on Feb. 23.Sammy Kogan/The Globe and Mail
Prime Minister Mark Carney is signalling he is open to fully privatizing airports. This is welcome news, because if properly executed, privatization could improve Canadian airports and keep soaring fees in check.
When asked about airport privatization last week, the Prime Minister said Canada is wide open to foreign investment. Mr. Carney said the goal is to make airports “better serve Canadians,” and that money raised could be reinvested in other ventures to grow the economy.
Changes to airports were also vaguely referenced in the federal government’s spring economic update, saying it was looking at “alternative models of ownership.”
Critics warn that privatization would result in airports that are costly and unaccountable. But they are glossing over the fact that the current model – where large airports are controlled by private, not-for-profit airport authorities – is already costly and unaccountable.
Fees paid directly by passengers and indirectly by airlines already make up 30 cents or more of every dollar that passengers in Canada pay for airfare.
Other countries have either government-run or private airports, but Canada has an unusual model. In 1994, the federal government transferred the management, operation and development of 22 large airports to non-profit airport authorities, while retaining ownership of land and fixed assets.
Airports run by governments are accountable to voters, and those run by private businesses are accountable to shareholders. The current system has neither avenue of accountability.
Board members are nominated by various levels of government, boards of trade, or local organizations such as provincial law societies and accounting associations. They may have hefty resumes, but not necessarily airport experience. Management often calls the shots.
There’s little accountability to passengers or airlines. Former Liberal transport minister Doug Young said in 2004 that he deeply regretted handing control of airports to these regional agencies, saying they gouge travellers and allow costs to escalate.
High landing fees for airlines and airport improvement fees added to airfare contribute to Canada’s high ticket prices. Toronto Pearson, which is currently kicking off a large expansion, has an airport improvement fee that is now an eye-watering $40.
As a monopoly without any regulatory oversight, there’s nothing stopping airports from raising their fees tomorrow other than public push back, says airline expert Duncan Dee.
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For privatization to succeed, it would need to avoid the obvious pitfall of allowing new owners to abuse their market power by jacking up fees. Like a privatized utility, airports need a strong regulator to approve or reject fee hikes above inflation.
The federal government would also need to make a clean break, and not try to convert the lease rent it currently gets into dividends or royalties that new owners would need to pay. The current high rents – Canadian airports paid the federal government $525-million last year – are one of the main reasons air travel is so expensive in this country.
If costs could be kept in check, privatization would be a big boost for the Canadian economy. Privatized airports routinely upgrade their facilities, as they are able to attract more investment and want to grow to compete with other airports.
Building Canadian airports into global hubs would increase international cargo shipments, helping Canada reduce its trade dependency on the U.S. Canada could grow into a major transit point for goods going between Europe and Asia. With many Middle Eastern air hubs, such as the Dubai International Airport, losing business because of the Iran war, there are opportunities for Vancouver, in particular.
Privatization coupled with other reforms, such as a loosening foreign ownership rules for Canadian airlines, would spur competition and bring down prices. The Competition Bureau says that increasing the current 49-per-cent limit for a single foreign investor would help small airlines successfully launch here.
A properly managed privatization process, with guardrails in place to ensure passengers and airlines are treated fairly, could spur economic development, tourism and trade – and keep air fares from soaring higher.