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The trouble with Canadian airport privatization

Calin Rovinescu is the president and chief executive officer of Air Canada.

There is an irony not lost on us where, as a former Crown Corporation celebrating 30 years of privatization in 2018, Air Canada emerges as distinctly anti-privatization when it comes to Canadian airports – in effect, public facilities that airlines such as Air Canada have invested billions in helping to develop.

But it is not inconsistent for us to make this argument.

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Yes, some changes are in order. Airport security needs to be streamlined if not overhauled. Governance of airports needs to change to provide more accountability. And, above all, the federal government needs to reduce the infrastructure fees, taxes and charges imposed on aviation that make many of our airports uncompetitive and drive up airfares. Privatization will not fix this and, indeed, risks exacerbating it.

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In our view, airport privatization is likely to further drive up the already high usage costs of Canadian airports and, with it, ultimately airfares. Therefore, it's not a good thing for airlines or our customers.

According to a Conference Board of Canada survey, airport and navigational fees, taxes and charges already account for approximately 40 per cent of the total airfare difference between the United States and Canada – and that does not include the difference in after-tax fuel costs. Canada ranks 130th of 140 countries when it comes to governmental taxes, rates and charges, as ranked by the 2015 World Economic Forum Tourism Competitiveness Report.

This is the real problem with Canadian airports, and privatization would only make it worse. The monopoly position that "for-profit" airports would hold virtually throughout the country, together with necessary return on investment requirements, would very quickly drive up the costs both for airlines and ultimately, our passengers. Privatized airport models in other parts of the world are often situated in geographically small countries surrounded with high-density populations, allowing for real competition between airports. In contrast, with our vast geography, our ability to provide direct international service to Canadians (largely from hub airports) relies heavily on having a fully integrated system with feed traffic from regional communities. Privatizing key airports risks destabilizing this critical balance.

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A fundamental principle of the National Airport Policy, which was introduced in 1994 and which currently governs the operations of airports, is its not-for-profit cost-recovery structure. Some airports are better than others at keeping costs down while creating efficiencies. This is an area where support on improving operations could be useful. However, as we have witnessed in previous airport privatizations, the seller of the asset does profit while the other stakeholders and users of the airport (i.e. airlines and consumers) carry the financial burden indefinitely.

In addition to streamlining airport security infrastructure and reducing rates and charges, another area of reform we would support is around airport governance and accountability. This is an issue that should be addressed, and a privatized model is not needed to do so.

The Canadian model is not broken, only dented. It does not need to be fixed by a quick solution of selling our public airports to the highest bidder. Improvements may be needed but, in general, the National Airport Policy still provides a sound foundation and one that all stakeholders could work toward reinforcing.

With some smart thinking and thoughtful improvements, the Canadian model can be enhanced to become an example for the industry worldwide.

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