The Sixth Estate

In recent months the Canadian airline industry has been pushing, hard, for lower costs. Not content with having the Harper regime order its employees to work under threat of legal sanction (so much for small government, eh?), Air Canada apparently wants to have that same government give it a variety of other under-the-table handouts, too. This lobbying has resulted in several reports in recent months, including from the Senate and, this week, from the Conference Board of Canada.

In light of the ongoing Margaret Wente plagiarism scandal, it seems only fair to point out that the Conference Board of Canada has a plagiarism problem, too. Unlike the Globe & Mail, though, they more or less dealt with it. I’m not condoning what happened. Some disturbing evidence emerged about corporate influence over report-writing. But on the whole, they did the right thing with regard to plagiarism: they recalled the reports, acknowledged plagiarism occurred, admitted “undue reliance on… a funder,” and contracted an Osgoode law professor to prepare new reports. Bonus points for all that.

Both the Senate report and the Conference Board report have received entirely favourable and uncritical news coverage, of course, which is less a comment on the quality of the reports, than on the negligence of journalists. Even more extraordinary, though, are the ways in which some of the findings contradict one another. There’s really no other way to put this than as follows: the Conference Board is better at producing sound, independent analysis under industry pressure than our own government is. Whether you agree with the conclusions or not, it’s not hard to tell who the more competent research organization is. The Senate report is 21 pages long; the Conference Board report is 43 pages long.

The general argument of both reports is the same: Canadian airports need help getting their costs down so that Canadians living in Montreal, southern Ontario, and Vancouver will stop driving south of the border to catch cheap flights from American competitors. The Canadian Airports Council says 5 million Canadians do this every year, and both reports are based on Council data.

Anyhow, the main thrust of the Senate report was privatization and subsidy. Formerly federally owned airports, you see, have been spun off to independent airport authorities. These authorities don’t have to remit their profits back to the federal government, but they do pay a tax in the form of a “ground rent,” depending on the level of activity at the airport. In total, the federal government makes around $300 million in ground rent revenue from the airport system every year. There are about 110 million passenger-flights in Canada every year, so that equates to about $3 tacked on to every airplane ticket you buy. That’s the Senate’s grand design for lowering Canadian air travel costs.

There are any number of things wrong with this. First, the Senate provided no real analysis of why Canadian airfares were higher than their American counterparts. Second, nobody is going to make any change in their travel plans over a measly three bucks. Such small amounts are only meaningful when they’re multiplied many times over. Hence, what the Senate was really talking about was giving a $300 million tax break to the airline industry.

It’s a very surreal feeling looking at these two reports side by side. One report, written by a pro-industry think tank, argues pessimistically that there is not very much room for the Canadian government to reduce airfare costs without subsidies, and concludes — charitably, I thought — that closing the federal deficit has taken priority over ground rent tax deductions, and even that “the industry must show that it is serious about tackling the issue… [on] its own.” The other report, written by the government, argues enthusiastically in favour of tax breaks and subsidies for industry.

It’s like both reports were written by the same author and then accidentally got put in the wrong envelope, or something.

Unlike the Senate, the Conference Board appears to have put some serious thought into the matter. Labour costs are similar in both countries. So are fuel costs. Around one-quarter of the difference in ticket prices comes from lower aircraft prices and operating costs. The biggest difference, though, does come in higher government fees in Canada. That’s what the Senate zeroed in on. But the Conference Board explains why it’s not really that simple:

• In Canada, Nav Canada fees get charged to airlines, which pass on the costs to consumers. In the United States, the federal government funds similar services provided by the FAA out of general tax revenue and does not charge the airlines.
• In Canada, airports pay taxes to the federal government out of their revenue. In the United States, airports get subsidized by the FAA.
• In Canada, airports that are in city borders pay city property taxes. In the United States, most airports are tax-exempt.
• Canadian airports are currently engaged in a period of greater capital investment in infrastructure. American airports are lagging behind. In addition, Toronto and Montreal airports are still paying off debt from the buy-outs of part of their terminals from Air Canada and other partners.
• Canadian runways are 200 feet wide. American runways only have to be 150 feet wide.

It’s an interesting analysis, more because of what the Conference Board of Canada seems reluctant to say: the American airport sector seems to be quite heavily subsidized, where the Canadian airport sector is not. And even then, they note,”more than half of the difference is because one fare is a transborder movement while the other is strictly domestic.” Translated into plain English, that means that it’s always going to be cheaper to fly from Buffalo to Florida than from Toronto to Florida, because whenever an international flight enters the U.S., the Americans tack on a bunch of extra fees.