If the leaks are true, the upcoming federal budget will include an ill-advised move to sell off Canada’s airports, which would result in both travellers and governments paying a heavy price.
If the leaks are true, the upcoming federal budget will include an ill-advised move to sell off Canada’s airports, which would result in both travellers and governments paying a heavy price.
The potential sale of Canada’s airports is part of a larger trend of “asset recycling,” the politically popular term describing government sales of public assets to investors who then control prices and quality, often with little to no competition.
There is little rationale for taking airports out of public control. Financially, Canada can afford to maintain ownership: both the federal debt ratio and interest rates are near all-time lows.
As it stands, Canadians get a better deal through publicly owned airports than if they would be controlled by private companies.
Canada’s airports are not funded by the taxpayer. Funding comes from airport improvement fees directly on tickets, landing and other charges to the airlines (which are charged back to travellers), parking lot fees, and concession/retail rents. Travellers can’t avoid the first two, but they may be able to avoid the second two.
In fact, airports pay the federal government $305 million a year for land rental (as estimated by a recent C.D. Howe study) in addition to paying city property taxes.
The first thing to recognize about this plan is that the federal government can’t just sell off airports wholesale. In fact, airports aren’t actually controlled by the federal government — they are controlled by airport authorities with representatives from a variety of sources.
The Greater Toronto Airports Authority, which operates Pearson, has representatives from the federal government, the province, the City of Toronto and regions of York, Halton, Peel and Durham, in addition to reps from several boards of trade.
All of the above would have to agree to this sale, which seems pretty unlikely. Even if they did agree, they might want a piece of the action. The federal government does own the land under the airport, which it could sell to a private investor. But this seems like an even worse idea.
What is lost in all this is that airports, like Pearson, are natural monopolies. Whoever operates them has no real competition because it’s just too expensive to build several international airports in Toronto. It only makes sense to build one. As such, there is no market here, only market failure resulting in a monopoly, which is precisely when you want a non-profit in charge.
For-profit companies, on the other hand, love a good monopoly. When consumers have few convenient choices, prices can be far higher in order to “extract value” from the monopoly. If you don’t like it, buckle up the kids for the three-day drive to Winnipeg.
Australian airport privatization perfectly illustrates what monopolies are good at. In the past decade, every one of the four main privatized airports in Australia has managed to substantially increase average travel prices while customer satisfaction has declined slightly.
And it doesn’t stop there. Across almost every time frame and in every Australian airport, they’ve managed to increase parking fees faster than inflation. This is exactly what you’d expect from a monopoly: higher prices and lower quality.
Incidentally, this is the opposite of what you’d expect from a well-functioning market that offers lower prices and higher quality. Investors have “unlocked the value” in Australian airports, by unlocking travellers’ wallets through jacked up fees. Travellers pay more for less — something Canada would be wise to avoid.
The worst of it is that there is no need to sell airports to raise money for much needed infrastructure in Canada. Proponents estimate the potential sale of all of Canada’s airports would go for a price tag ranging from $7.2 to $16.6 billion, which is nothing to sneeze at.
You could reach the upper end of the range if there are fewer impediments to higher fees (legal or otherwise) but you would also lose $195 million in annual payments to the federal government, net of new income taxes — although that loss would be bigger if accountants manage hide new monopoly profits from taxation.
Is there another way to raise the best case scenario of $16.6 billion without gouging every family flying home for a wedding and every student heading home for the holidays? Yes, but it doesn’t include privatization.
In fact, selling bonds instead of selling airports is the far better option. The federal government could easily raise $16.6 billion through bond sales tomorrow. The interest rate on a five-year federal government bond is 1.16 per cent or $193 million a year on our $16.6 billion.
So for the same cost the choice is ours: selling our airports to private investors who’ll use their monopoly control to jack up fees or keep those airports in non-profit hands.
David Macdonald is a senior economist with the Canadian Centre for Policy Alternatives. Follow him on Twitter @DavidMacCdn. This op-ed was fist published in the Toronto Star.
