The Liberal government raised some eyebrows last week when it mentioned the possibility of privatizing Canada’s federally owned airports, but it’s not the first time the idea has been tabled.
The concept was first pitched in November’s budget but largely flew under the radar. The idea garnered more attention when it was mentioned in last week’s spring economic update.
According to the document, the government is “assessing opportunities to unlock the full value of airports in support of investments in Canada’s long-term growth, including through alternative models of ownership.”
The economic update suggests the plan is still in early stages, and says the government first needs to introduce legislation that would allow it to gather the necessary information “for a comprehensive evaluation of airport reforms.”
Asked about the government’s plan for airports last week, Finance Minister François-Philippe Champagne said it’s about modernizing how Canada views its public assets.
“We really have to modernize how we look at these things to provide better services for Canadians and making sure that Canadians get the full value of these federal assets,” Champagne told reporters.
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The federal government currently owns about two dozen large airports across the country, including main hubs like Toronto Pearson Airport, Vancouver International, Trudeau Airport in Montreal and Calgary International.
The government leases the airports to non-profit airport authorities that are responsible for overseeing their operations. Those lease fees are worth $525 million per year, according to the Canadian Airports Council.
If the government proceeds with privatizing airports, it could open opportunities for investors and infrastructure improvements. But it could also mean higher costs for air passengers.
Infrastructure upgrades
John Gradek, a faculty lecturer in aviation management at McGill University, says the debate on airport privatization isn’t new, but he argues it’s time to rethink how they’re managed, specifically when it comes to financing infrastructure upgrades.
“The whole accountability management structure for Canadian airports has to change,” he told CBC News.
Gradek says the more than $500 million the government rakes in from airports is a “drop in the bucket” in terms of what’s really needed to keep airport infrastructure up to date.
“There’s a lot of work that has to be done, and the government is saying, ‘We’re not going to finance it,’ and the carriers are saying, ‘We’re not going to finance it, we shouldn’t let our passengers finance it, so let’s get somebody else to finance it,'” he said.
Privatizing airports would make both operations and infrastructure upgrades more efficient and responsive to market demand, Gradek argued.
“We need to have individuals running those airports who understand that this is not just about spending money for the sake of building a fancy airport. This is about spending money to make sure that what you’re investing does provide return,” he said.
Privatizing airports could open them up for investment opportunities, including some of Canada’s larger pension funds.
A number of those funds including the Canadian Pension Plan and Ontario Teachers’ Pension Plan have held shares in private airports overseas.
Gradek suggested that privatizing Canadian airports could keep that investment in Canada.
“Why not have those funds invest in Canadian airports rather than invest in foreign airports?” he asked.
A cautionary tale from Down Under
Speaking to reporters last week, Champagne cited Australia and Europe as two areas Canada could look to for best practices when it comes to modernizing key infrastructure construction.
Australia privatized a number of its major airports in the late 1990s and early 2000s. While the government was able to get a good price for those sales, consumer costs went up, according to Rod Sims, former chair of the Australian Competition and Consumer Commission.
“They removed the regulation on the airports prior to privatizing them. That meant those buying the airports knew they had a free rein more or less to do what they wanted,” he told CBC News.
Sims argues that airports in large countries that rely on air travel, like Canada and Australia, operate as near monopolies if there aren’t reasonable, nearby alternatives for flights.
“They’re not 100 per cent monopolies, but under any competition definition they’re monopolies,” he said.
Airports charge operating fees to airlines to cover their bottom lines, and the airlines in turn pass those fees on to passengers. Sims said the fees rose “massively” after Australia privatized its airports.
“What happened in Australia is yes, the taxpayer wins because you get more money, but the travelling public loses big time, over time,” Sims said.
“Whenever a government is privatizing a monopoly and their motivation is to make money, that is just a shocker. You know, the users of that monopoly are going to get it in the neck for years to come. You’ve got to privatize because you think it might be more efficient.”
Sims said if airports are to be privatized, the government needs to keep regulations in place to ensure consumers don’t pay the price. He suggested a price cap on airport fees, indexed to inflation with an option for operators to petition for increases, could be a way to go.
“I can’t give a view on whether you should or shouldn’t privatize in Canada, but do it with your eyes open,” he advised.
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