Canadians love crossing the border for bargains, and increasingly their shopping list includes cheaper flights from American airports.
A Conference Board of Canada report says the higher air fares in Canada are often blamed on fees and taxes, but these are only part of the reason that roughly five million Canadians now cross the U.S. border by land every year to fly out of American airports.
“Cross-border air fare shopping is being driven by a ‘perfect storm’ of factors that also includes differences in wages, aircraft prices and industry productivity as well as U.S. aviation policies,” said Vijay Gill, Principal Research Associate, Transportation and Infrastructure. “But for air carriers flying from American airports, these add up to a 30 per cent cost advantage.”
The report, Driven Away: Why More Canadians Are Choosing Cross Border Airports, suggests that even small reductions in the air fare differential could lead to traffic gains for Canadian airports and carriers.
“Government and industry don’t need to take an ‘all or nothing’ approach to this issue, but reducing taxes and fees or even changing how they are assessed and collected could make a difference,” added Gill.
The analysis focuses on three Canadian airports: Vancouver International Airport (YVR), Toronto Pearson International Airport (YYZ), and Montréal-Trudeau International Airport (YUL), along with their cross-border competitors.
“The fact that Canada’s largest airports are losing traffic to cross-border competitors matters because it undermines their role as national and international hubs,” said David Stewart-Patterson, the Conference Board’s Vice President, Public Policy. “When a Canadian hub airport loses passengers, it can lead to reduced flight frequencies, higher travel costs and poorer service for all Canadians.”
The report finds that Canadian fees and taxes contribute to roughly 40 per cent of the total air fare difference in the markets that it examined. While other factors are beyond Canada’s control, the report estimates changes to Canadian policies alone could bring more than two million passengers a year back to Canadian airports.
The report recognizes that in Canada, airports and navigational systems are for the most part paid for by users and have been recently upgraded and maintained. In the United States, user fees do not cover all of these costs. Major investment is needed in U.S. airport infrastructure and an increase in fees, subsidies, or both will be required in the near future in that country.
While lower Canadian fees and taxes would reduce government receipts in the short term, much of this loss could be recaptured through direct and indirect tax revenues generated by the additional traffic originating in Canada.
“Cuts in Canadian fees and taxes will not be effective, however, unless airports and airlines cooperate in passing through the benefits to passengers,” said Stewart-Patterson.
The report was funded by The Conference Board’s Centre for Transportation Infrastructure. This research centre aims to guide public policy and private sector decision-making on the development, maintenance, and efficient operation of transportation networks.