Various government policies, taxes and fees comprise a large share of the cost of each airline ticket sold in Canada. It’s time for the federal government to reduce the regulatory burden, increase competition, and lower fees and taxes.
iStock-1759465637
While the strike by WestJet mechanics lasted only a few days, many Canadian air travellers faced long delays and cancelled flights. More broadly, according to the Canadian Transportation Agency, customer complaints have hit an all-time high.
Yet many dissatisfied travellers likely don’t realize that Ottawa heavily contributes to their frustrations. Let’s look at the various ways federal policies and laws make air travel worse in Canada.
First, federal laws insulate Canada’s airlines from competition. Foreign airlines are subject to highly restrictive “cabotage” laws which, for example, dictate that foreign airlines cannot operate routes between Canadian cities. At the same time, foreign investors are forbidden from owning more than 49 per cent of Canadian airlines. By restricting international participation in the Canadian air travel market, these laws both deprive Canadian consumers of choice and insulate incumbent airlines from competition. When consumers have more choice, incumbents have a greater incentive to improve performance to keep pace with their competitors.
Second, a wide array of taxes and fees heavily influence the cost of airline tickets in Canada. Airport improvement fees, for example, average $32.20 per departing passenger at airports in Canada’s 10 largest markets. In contrast, airport improvement fees in the United States cannot exceed $4.50 (U.S.). Last year the federal government also increased the “air travellers’ security charge” by 32.85 per cent. This fee, which now ranges from $9.94 to $34.82 per flight, is higher in Canada than the U.S. across all flight categories. On the tax front, in addition to fuel taxes, including the federal carbon tax, the federal excise tax on unleaded aviation gasoline in Canada is 10 cents per litre compared to 6.9 cents per litre in the U.S. And the U.S., unlike Canada, does not apply sales taxes to aviation fuel.
Third, air travel is a heavily regulated sector. Federal legislation generates thousands of provisions airlines must follow to operate legally in Canada. Of course, some regulation is necessary to ensure passenger safety, but each regulation adds administrative and compliance costs, which ultimately affect ticket prices. To lower the cost of air travel, the federal government should reduce the regulatory burden while maintaining safety standards.
Lastly, the ownership model of Canada’s airports results in a yearly transfer of rent to the federal government. The federal government used to own Canada’s national system of airports until they were transferred to private not-for-profit corporations in the early 1990s. However, these airports must still pay rent to the federal government — nearly half a billion dollars annually, according to the Canada Airports Council. As with the other examples listed above, these costs are ultimately passed on to consumers in the form of higher ticket prices.
While a precise estimate is difficult to obtain, various government policies, taxes and fees comprise a large share of the cost of each airline ticket sold in Canada. With complaints from travellers at all-time highs, the federal government should reduce the regulatory burden, increase competition, and lower fees and taxes. Policy reform for air travel in Canada is long overdue.
Alex Whalen and Jake Fuss are economists at the Fraser Institute
Comments are closed.