Stop squeezing air travelers, ATAC says

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Stop squeezing air travelers, ATAC says
High federal fees are grounding Canadians and our economy

OTTAWA, ONTARIO - The Air Transport Association of Canada (ATAC) today released a detailed economic study showing that Canadian Travelers are being crushed by special charges and taxes that are reducing travel demand and undermining Canadian competitiveness.

"The explosion of fees and charges on airline tickets is clearly discouraging Canadians from traveling", said Cliff Mackay, President and CEO of ATAC. "And it's having serious effects on consumers, businesses and the many small communities who need and depend on access to air transportation."

ATAC's report, entitled "A Crisis in Costs - The Canadian Government and Airline Passengers," was prepared by ATAC and Dr. Fred Lazar, a Professor of Economics at York University and an internationally recognized expert on Canadian aviation.

The report shows how an overload of extra costs - like special aviation fuel taxes, airport improvement fees, rising federal airport rents, aviation security charges, and others - are making air travel much more expensive in Canada than in the United States or elsewhere. Excessive taxes and charges are also eliminating the benefits of the lower ticket prices offered by discount carriers. "Canada's airlines are taking the blame for higher ticket prices, but all these extra fees are doing little to benefit the air sector or our passengers," says Mackay. "The government is taking the cash, passengers are paying the bills, and the airlines are left holding the bag."

The report shows how the federal government and some local airport authorities are the biggest beneficiaries of special aviation fees and levies. For example:

Ottawa took $308 million out of the aviation system in 2001/02. Only $77 million was reinvested in aviation - the rest disappeared into federal General Revenues.
$249 million of that total came from airport rents. Over the past six years, airport rents went up 400%, and are scheduled to go up another $23 million on January 1, 2003.
Canada's aviation security fee is the highest in the world. At $22.39 plus GST for a round trip, Canada's security fee is 300% higher on average than the U.S. fee.
Travelers at some airports now pay AIF charges as high as $15 per passenger.
Canada's eight largest airports have amassed a total surplus of over $1 billion.
Canada's smaller airports are struggling to survive in the face of growing costs imposed by governments and shrinking traffic.
Because of high fees, Canadian passenger traffic dropped by 10.2% in the first eight months of 2002. This drop was much deeper than in the U.S. despite the fact that Canada's economy has been stronger than the American economy.
At the same time the federal government took $308 million out of the aviation sector, it gave $310 million to VIA Rail to subsidize rail services to communities that generally have several other transportation alternatives.

Excessive fees and charges are also hurting industries that rely on air service for business.

"There is no question rising air ticket fees and surcharges are hurting hotel operators across the country," says Tony Pollard, President of the Hotel Association of Canada. "In over 30 markets, hotels have seen year over year declines in revenue per available room for the first eight months of the year. The decline is most noticeable for inbound U.S. business Travelers, many of whom are put off by Canada's high ticket fees."

"Canadian airlines are not the only casualties of these fees and surcharges," says Randy Williams, President and CEO of the Tourism Industry Association of Canada. "When people choose to stay at home, because add-ons are pricing plane tickets out of their budgets, tourism communities across Canada suffer."

"Travel agents are definitely seeing a decline in business and leisure travel, particularly on short haul routes, since the government imposed the air security charge," says Marc-Andre Charlebois, President of the Association of Canadian Travel Agents.

"The cumulative effect of increasing taxes and fees are discouraging Travelers, harming our economy and putting air services to smaller and regional airports at risk," says Mackay. "It's time to give Canadian air passengers a break."

ATAC is calling on the federal government to take immediate action in five areas:

1. Reduce the Air Travelers Security Tax from $24.00 to $7.65 per round trip.

This would place Canada's security fee at a level equivalent to the U.S. fee.

2. Freeze the federal rents charged to airports.

The $23 million increase planned for January 1, 2003 should be cancelled immediately.
Rents should gradually reduce to a level equal to federal airport expenditures.

3. Call a two-year moratorium on the Special Excise Tax on Aviation Fuel.

4. Eliminate the GST/HST on fees and surcharges.

The addition of GST/HST to other federal fees and taxes is unfair and must end.

5. Government must develop a realistic, comprehensive approach to taxation/fees.

Although logical cases can be made in support of each individual fee, taken together these fees are destroying the industry and cannot be sustained.

The Air Transportation Association of Canada is the industry association for Canada's airline industry. ATAC has over 300 operator and associate members representing more than 98% of the total annual airline seats in Canada.

The Hotel Association of Canada is the organization representing the accommodation industry in Canada. In 2001, Canada's accommodation industry generated about $10 billion in revenues and supported 238,000 jobs in communities throughout Canada.

The Tourism Industry Association of Canada (TIAC) is the national private-sector advocate representing the interests of Canada's tourism business community nationwide. The Canadian tourism industry generates over $54 billion in revenues annually and employs 560,000 Canadians directly.

The Association of Canadian Travel Agents (ACTA) is the national trade association for Canada's 6,000 travel agencies, which employ 25,000 people. Its mandate is to ensure a healthy business and legislative environment in which the travel retail industry will thrive. ACTA members book about 70% of the airline tickets sold in Canada each year.

The full text of the Report "A Crisis in Costs - The Canadian Government and Airline Passengers" is available on ATAC's Website at http://www.atac.ca .

BACKGROUNDER

Facts and Highlights

Canadian Air Tickets Are Loaded Down With Fees

Canadian air travelers pay a huge premium in fees, surcharges and taxes on their air tickets.
These fees are taking large amounts of money from air passengers - last year, the federal government took $175 million out of the air transport system after expenses.
In Canada, 'extra' fees are a bigger part of the ticket price than in the United States.
For example, Canada's new security tax is on average 300% higher than the U.S. security tax.
The cost of a Via Rail ticket between Toronto and Ottawa carries no surcharges.

Higher Ticket Costs

The cost of a round trip ticket between Vancouver and Edmonton (base price $219.00) goes up more than 21% once airport improvement fees and security charges are added on.
A flight between Halifax and St. John's (base price $298.50) is boosted 14%.
A typical corridor flight between Toronto and Ottawa goes up 6% to 25% after fees.
A comparable U.S. flight between Dallas and El Paso (base price $264.37 C) goes up only 4.7% after American fees and charges are included.
A flight between Baltimore and Los Angeles (base price $632.75 C) has only 3.1% fees.

The Government Is Taking More Money from the Airline Sector Every Year

In 1996/97, net federal revenues from air transportation were only $8 million.
Since 1998/99, Ottawa has taken between $150 and $200 million a year from the air sector.
Most of this money goes to general revenues and does nothing to support aviation or the people and businesses that depend on it.
By comparison Ottawa provided a net subsidy of over $300 million to VIA Rail in 2001/02 - this subsidy primarily benefits inhabitants of larger communities with several other transportation alternatives.

Canada's Airports Need Rent Control

The federal government has also been raising the rent it charges Canada's airports.
In 1996, Ottawa took in $65 million in revenues from airport 'leases'.
By 2001/02 federal airport lease revenues ballooned to $250 million - nearly 400% more.
Only four months after September 11th - and less than a month after bringing in the air security tax - the federal government raised airport rents an additional 13%.
And airport rents are scheduled to go up $23 million more on January 1, 2003.
Since devolution the Vancouver International Airport Authority alone had paid $470 million in rent to the federal government. This money could have completely funded a new international terminal and runway.
Airports receive no goods or services in exchange for their rent payments; they are simply a revenue generator for the government.
The top eight airports still made profits of $140 million in 2001.
Canada's eight largest airports have amassed a total surplus of over $1 billion.
These bills are being passed on to passengers in higher ticket prices, fees and surcharges.

High Canadian Fees Are Discouraging Passengers

Passenger traffic at Canada's top 25 airports fell 10.2% in the first eight months of 2002 compared to the same period in 2001. This means a loss of over four million paying passengers.
In the U.S., passenger traffic went down only 9.9% in the first seven months of 2002.
Canada's passenger traffic decline was bigger than the U.S.'s even though our air transport system was significantly less disrupted than theirs.
High Canadian fees and surcharges were one of the main reasons for this:
- Canada has, by far, the highest security tax in the world.
- Canada's round trip security charge is $22.43 - plus GST.
- The U.S. security tax is on average $7.65 (Cdn); Australia $8.02; France $10.64; and Israel $12.42.
- In Canada the total fee burden ranges from 7% to more than 40%.
- The cumulative effect of U.S. fees is less than 10% regardless of the fare charged.

Passengers Are Paying The Bills... And Smaller Communities Pay the Price

Canada's passenger declines suggest that fees and surcharges are affecting air travel.
High fees - and more planned increases - makes continued air service to thin regional markets economically unviable. For example:
TransWest, a regional carrier on the Prairies has withdrawn service to Winnipeg, Edmonton and Brandon in the past 18 months. Since the security charge was imposed it has reduced its capacity on the Saskatoon-Regina route by 50%.
WestJet has been obliged to cancel 14 flight offerings and has withdrawn from one community altogether.
Air Canada has reduced overall capacity by more than 20% over the past 15 months.
Jazz has cancelled 12 city pairs connections since September 11, 2001, with overall capacity reduced by 26%.

Other Industries Are Also Being Affected

In 30 Canadian markets revenue per available room for hotels is down for the first eight months of 2002 on a year over year basis.

We Need A Solution Now

A more strategic approach to Canada's Air Travel Industry is required: ATAC is calling on the Federal Government to:

Lower the Air Travelers Security Tax from $24.00 to $7.65 per round trip.
- Canada has the highest security fee in the world, this reduction would place our fee at a level almost equivalent to the U.S.
Freeze the airport rents charged by the Federal Government immediately.
- The scheduled $23 million rent increase should be cancelled immediately. Airport rents should be gradually reduced to a level equal to the expenditures made on airports.
Eliminate the GST/HST on fees and surcharges.
- The government currently charges GST on additional surcharges and fees such as airport improvement fees and the security tax. The cumulative burden of these fees is already staggering; adding the GST/HST is unconscionable.
Government must develop a comprehensive approach to taxation/fees.
- While logical cases can be made in support of each individual fee, taken together these fees are destroying the industry and cannot be sustained.
- The federal government - working with industry - needs to develop a realistic approach to charges and fees that takes all relevant factors into account.
Provide a two-year moratorium on the Special Excise Tax on Aviation Fuel.
- Airlines pay $75 million in excise tax on aviation fuel annually, which is payable regardless of the company's profitability. To offset the dramatic increases in other charges and fees the government should provide a two year moratorium on the excise tax while it develops a more comprehensive approach to taxes and surcharges in the airline industry.

FOR FURTHER INFORMATION PLEASE CONTACT:

Air Transport Association of Canada
Mr. Warren Everson
Vice-President, Policy and Strategic Planning
(613) 233-7727, ext. 314

Hotel Association of Canada
Mr. Tony Pollard
President
(613) 237-8928

Tourism Industry Association of Canada (TIAC)
Ms. Margot Booth
Director, Communications
(613) 238-3878

Association of Canadian Travel Agents (ACTA)
Ms. Louise Crandall
Director, Communication and Public Relations
(613) 237-3657, ext. 225

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