TVO: Should we privatize Canada's airports?

Ontario’s two major airport authorities — in Toronto and in Ottawa — come down on opposite sides of the debate

  The federal government could reap as much as $16.6 billion selling off Canadian airports, according to a 2017 C.D. Howe report. (CabecaDeMarmore/iStock)

The federal government could reap as much as $16.6 billion selling off Canadian airports, according to a 2017 C.D. Howe report. (CabecaDeMarmore/iStock)

Although it wasn’t included in this year’s federal budget, the government could still move on privatizing Canadian airports. Recent reports reveal the Liberals have asked consulting firm PricewaterhouseCoopers to advise on how the feds could “act as a commercial adviser assisting with additional analytical work with respect to advancing a new governance framework for one or more Canadian airports” — in other words, how changes to the way Canadian-owned and -operated airports might be made.

Canada’s eight largest airports have since 1992 been run by private non-profits on land leased from the federal government. According to a report by the C.D. Howe Institute released earlier this year, Canada is the only country in the world that does things this way.

“The Mulroney government had us going down the path of full [privatization], but the Chrétien government made a promise to halt it in the early 1990s,” says Benjamin Dachis, associate director of research at the C.D. Howe Institute. “What they came up with instead was a classic Canadian comprise of starting along a path but not going all the way, because nobody was sure at the time what fully for-profit airports would look like.”

Disagreements over the best path forward have persisted ever since. Even airport authorities disagree: Ontario’s two biggest airports, Toronto’s Pearson and Ottawa’s Macdonald–Cartier, are on opposite sides of the fight.

The federal government is contemplating everything from maintaining the status quo to selling airport land to corporations. Canada’s Transportation Act Review, chaired by former federal cabinet minister David Emerson, tabled a report in February 2016 recommending that airport authorities incorporate and issue shares, with all or part of the equity sold to institutional investors, such as pension funds.

“Canada was a leader in commercializing airport operations, but airport ownership models have changed worldwide in the past 25 years,” the report says. “For-profit corporations with share capital predominate, making the antiquated Canadian model somewhat unique and international comparisons, along with benchmarking, very difficult.

“The Review heard from many of the original authors of the Canadian model, who considered it to be a first step towards fully private, for-profit airports; independent analysis and international examples show the benefit of increased private sector discipline in the management of large airports.”

Ottawa’s airport authority is firmly against privatization and has even joined forces with its counterparts in Vancouver and Calgary, launching an advocacy website — noairportselloff.ca — earlier this year.

“Canada is recognized as having the best infrastructure and most efficiently run airports in the world in terms of design, innovation, safety and security and customer service,” Krista Kealey, spokesperson for the Ottawa International Airport Authority, wrote in an email. “All of this has been done with no financial support from the government — in fact, airports return more than $1 billion per year to the government in the form of rent and other fees.

“This is a model that is clearly not broken and therefore does not require fixing,” she says.

(Ottawa’s Macdonald–Cartier has, in fact, won several awards in the past 15 years for customer satisfaction. As to what bodies have recognized Canadian airports for their infrastructure and efficiency, Kealey did not comment.)

While Emerson noted the substantial infrastructure investments that Canada’s airport authorities have made, his report says the model now threatens our ability to compete — presumably (though Emerson didn’t specify) with U.S. airports. The Canadian Airports Council estimates more than 5 million Canadian passengers travel to American airports for their flights, drawn by lower fares.

“The World Economic Forum ranks Canadian airports among the best in the world for infrastructure quality (16th overall), but 135th for cost,” the Emerson report says. “Air carriers note that in addition to government-imposed fees and taxes, the continued and rapid escalation in airport infrastructure costs significantly affects their ability to offer customers competitive fares, to grow their services and to compete internationally.”

But as a non-profit, Kealey says, Ottawa’s airport authority reinvests revenues in operations and does not pay shareholder dividends. “We believe that private ownership will result in higher fees for travellers while eroding service levels and innovation as private entities will be required to provide a return to their shareholders,” she says.

Some economists contest this. A 2017 C.D. Howe study compares flight charges at Australian airports (which were privatized a decade ago) with ours. “Although Canadian and Australian airports raise about the same amount of revenue per passenger on average (about C$28 in 2015), they do so from very different sources,” the report states. “Canadian airports focus on airline charges, which passengers experience as mandatory ticket fees. Australian airports have been successful in raising revenue elsewhere, including from innovative retail services.”

Kealey is also concerned about losing local, non-political representatives on airport authority boards. “We believe that a private shareholder model will remove these local representatives who speak for the community and ensure that local interests are served.”

For its part, the Greater Toronto Airports Authority has said it's open to letting private investors buy a stake in Pearson, to help fund the GTAA’s plan to turn the airport into a transit mega-hub.

“We believe that any change must support and accelerate Toronto Pearson’s progress toward mega hub status and deliver transit investments, while also assuring passengers and carriers that costs will remain competitive,” said Robin Smith, spokesperson for the GTAA, in an email.

Regional airports are a different story: some are federally owned and some are not. Emerson recommended that the federal government sell its smaller airports and let them compete on a level playing field with other locally owned facilities (that can access federal infrastructure funding).

Selling the airports could mean big money for the feds: between $7.2 billion and $16.6 billion, according to the C.D. Howe report, which also disputes the idea that involving private investors would increase passenger costs. “Selling equity stakes would not change the incentives airport operators face from competition from other airports and modes of travel,” the report says. “Air travellers are highly price sensitive … This means that an airport that seeks to maximize revenues needs to boost its value proposition through improved quality or lower prices.”

Even so, “Institutional-investor-owned airports may act like monopolies and, therefore, require some price regulation,” the report says. “The government should adopt price-monitoring regulation based on the Australian system, with the ability to impose price caps if it is found that airports are abusing market power.”

The federal government has said it could use potential selloff funds to invest in other infrastructure projects, but a Transport Canada spokesperson told TVO.org she was “not in a position to speculate as to when a decision may be made.”