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Multiple airport fees hurt YVR competitiveness

32% of Canadians say they expect to travel first to the U.S. before flying in 2013
John Korenic, VIAA director of aviation marketing: frustrated that costs make YVR flights more expensive than in U.S.

The increase in Vancouverites flying out of U.S. airports is frustrating aviation executives because it is impossible for them to pinpoint a fee that could be cut to level the playing field.

A Hotel Association of Canada (HAC) survey last month revealed that 18% of Canadians said that they travelled first to the U.S. before boarding planes in 2012. That's up three percentage points from 2011.

The survey found that 32% of respondents said that they planned this year to fly out of U.S. airports as a way to get a cheaper fare.

"The problem here is that there are so many little fees that it's difficult to point a finger and say, 'If we get rid of this one fee, we've solved the issue,'" said John Korenic, director of aviation marketing at Vancouver International Airport Authority (VIAA). "It's more the philosophical direction that Canada has gone in through the decades."

The combination of fees prompted the World Economic Forum in 2011 to rank Canada 125th out of 139 countries for ticket taxes and airport charges.

Higher fares in Canada are largely the product of:

•the general higher cost of doing business in Canada;

•fees and taxes levied by individual airports and the federal government; and

•fees the U.S. government imposes on Canadians, including a $5.50 customs levy that is not charged when Canadians use land-border crossings.

The $39.1 million that VIAA paid the federal government in rent in 2012 is a major hidden tax that is bundled into the price of a ticket because the airport authority has to generate the money to pay that cost from its operations.

Landing and terminal fees that VIAA charges airlines, for example, get passed onto the consumer.

Given that nearly 17.6 million passengers passed through Vancouver International Airport (YVR) last year, the rent cost is the equivalent of $2.22 per passenger.

Ottawa collected $270 million in rent from airports in the 2011-12 fiscal year, and it expects that to rise to $282.6 million this year.

In contrast, U.S. airports do not pay rent because most are owned either by cities or, in the case of Bellingham International Airport (BLA) and Sea-Tac International Airport (SEA), by port authorities.

"Infrastructure projects quite often are at least partially funded by the U.S. Federal Aviation Administration (FAA) through grants," Korenic said. "BLA upgraded its runway and the FAA paid 90% of that. In Vancouver, we pay all of the infrastructure improvements and enhancements by ourselves."

Simon Fraser University marketing professor Lindsay Meredith recently told BIV that the federal government's approach to airport rents is both shortsighted and greedy.

"It's simple economics that you can either sell a lot for a little or a little for a lot," he said. "If you decide that you'll charge a lot of money, you've got to expect that the quantity you sell will drop off. Consumers check what's available out of Bellingham and the spread might be 10% to 15%, where I can swallow and make it go away. If it goes up to a 25% differential, it's a different story."

The rising spread in fares between Canada and the U.S. has also elicited calls from airlines for the federal government to rein in charges.

"It is perverse that our industry is treated like a cash cow given its extremely modest profit margins," Air Canada CEO Calin Rovinescu said in a speech earlier this year.

"Air travel is directly linked to economic growth, whether that is travel for business or tourism. Yet, governments are still effectively imposing 'sin' taxes upon us, penalizing users."