Taxes and fees chasing flyers south of the border
One Victoria Day weekend a few years ago, Calgarians Dave Ferguson, his wife and two kids drove down to Great Falls, Montana to fly to Las Vegas. Ferguson said they saved $3,000.
Ferguson admitted his example doesn’t represent the cost difference in the off-season, but said “on a regular basis it is cheaper to fly out of the States.”
Ferguson, who has a senior position with a Toronto-based company, has driven four or five hours down to the United States to fly, three times now. He said he and his family make a weekend out of it by staying overnight and doing some shopping. This ends up costing less than flying out of Calgary.
Mckelvey Kelly, a student at Mount Royal University, flew out of Kalispell, Montana in July. She and some friends went to the Electric Daisy Carnical, a music festival in Las Vegas. Kelly said they saved a couple hundred dollars on flights, and she got to fit in a visit with her family in Fernie, B.C. on the way to the airport.
“The drive isn’t bad at all when you split it up like that,” she said.
Airfares in Canada can cost up to 30 per cent more than in the United States. Dave Ferguson, and Mckelvery Kelly are two of an estimated 5 million Canadians who flies out of an airport across the border yearly.
Canada has one of the most expensive air travel fees and taxes in the world. In 2012 the World Economic Forum posted a report ranking Canada 136 out of 140 countries for the highest cost of ticket taxes and airport charges. Only the Dominican Republic, Senegal, United Kingdom and Chad had higher costs.
Currently there is a review of the Canada Transportation Act, a process to ensure that policies and regulations meet current and future needs of Canadians. It started on June 25, 2014 and is due to finish in 18 months, or 2016.
One economic research organization is hoping a review of the Transportation Act might reduce fees for consumers.
Vijay Gill, director and researcher at the Conference Board of Canada, said this review is a chance for the recommendations he made in his 2012 report “Driven Away: Why Canadians are Choosing Cross Border Airports” to make Canadian airfares more competitive.
The report said that Canadian airfares were more expensive than those in the U.S. largely due to fees and taxes such as airport ground rentals, payment in lieu of taxes, no access to tax-free bonds and making up for deferential capital spending, among other things. But on the other hand Canadian airlines pay their employees better.
In Canada, fees are collected to cover airport costs and the federal and provincial governments collect taxes. These added costs are the primary reason for the differences between prices of plane tickets in Canada and the United States.
A 2013 paper by the Canadian Chamber of Commerce said, “the tourism sector is intensely competitive and Canada is not successfully competing.” One of the reasons being “our excessive air travel costs.”
There isn’t one solution to make Canadian airfares more competitive, according to Gill.
“That is also the tyranny,” he added. “Governments seem to be enticed to add an extra $2 and $4 here and there thinking it doesn’t make a difference, but it is that attitude that has actually created this large difference to begin with.”
According to a Statistics Canada report, in 2011 and 2012 airfares stayed relatively the same. Marc- André O’Rourke, executive director of the National Airlines Council of Canada, agrees that the base fares are fairly competitive.
On top of federal and provincial sales taxes, many other fees are added on to the base fare:
Air traveller security charge. O’Rourke said it varies from $7 to $25, depending where you are going.
Airport improvement fee, charged by the airport itself. In Canada, airports are required to gather all of the money they need to operate as well as pay for any improvements.
Airport land lease fees, the government owns the land and charges a rental fee, which the airport then charges to the airlines.
Security and immigration costs, when flying into the U.S.
Jet fuel taxes. The provincial government also decides these. O’Rourke said, despite the Council’s recommendations, Ontario recently increased the jet fuel tax.
Lauren Armstrong, a spokesperson for Canadian Transport Minister Lisa Raitt said, via email, “Canada’s air transportation industry is based on the user-pay principle, which ensures that taxpayers do not subsidize air travel, and that infrastructure is sustainably funded.”
When asked, via email, for a more detailed base fare breakdown a representative from WestJet said pricing is “highly material”.
Photo courtesy of Dave Ferguson.In an email, a representative from Air Canada declined to be interviewed but wrote, “On any given route, fares will reflect among other things, supply, demand, day and time of travel, how far in advance one books, and overall market conditions.”
Gill said that because of the fees and taxes we pay to fly that our aviation infrastructure is in good shape, but he and O’Rourke agree that our system isn’t the best.
“We don’t see the industry as an economic engine, we see it as a source of revenue for the government,” O’Rourke said.
There is a chance that American prices could soon be on the rise because, while the added fees and taxes cover renovation costs and technology upgrades in Canada, the U.S. is falling behind in these areas, Vijay Gill said.
The American aviation infrastructure needs a lot of money to be brought up to next generation standards, Gill explained. Many larger American airports are experiencing extreme congestion, and out dated air navigation systems, he added.
“We will probably see an increase there, in fees and taxes, at some point, by how much it is hard to say and how that gets distributed is another factor as well,” Gill said.
Still, five million Canadians a year can’t be wrong. And they find the price difference is just enough incentive to hit the road south of the border.