Sunday reader: What is an Airport Improvement Fee for?

This is the third of four articles taking a deep dive into the world of airport finances in Canada

An extension is added to Pier D at Vancouver International Airport, adding four aircraft bridges. (photo: Brett Ballah).

They are the fees that no one likes paying, but if you board an aircraft in Canada, you really have very little choice. Once touted by some as a temporary measure, Airport Improvement Fees have become a fixture of the landscape, raking in billions for airports across the country since the first passenger departure charge was levied in 1993.

They’re displayed every time you buy a plane ticked, but buried in the “Fees and taxes” section that also includes the GST and CATSA security fees. And those fees add up. Take an upcoming return booking between Vancouver and Edmonton. The base airfare is $239. The taxes and fees are $79.41, of that, $50 is the Airport Improvement charged at each airport. That’s an added 20%.

Just last year, airports that are part of the National Airports System – the largest and most important facilities in the country – collected $1.39 billion in Airport Improvement Fees, a record in what was a record year for airlines in Canada. The departure fees range from a low of $5 for passengers travelling within British Columbia from Vancouver, to a high of $35 for departing passengers at St. John’s International and Quebec City-Jean Lesage.

Only two Canadian airports – Abbotsford and Thunder Bay – do not charge the AIF.

Five airports collected more than $100 million in AIF in 2018, with Edmonton barely squeaking over the bar to join Canada’s four hub airports, thanks to surpassing more than eight million passengers, driven by a surge in traffic from ultra low-cost carriers, Flair and Swoop.

Toronto, as you might expect, collected the most in AIF in 2018, at $460 million, followed by Montreal ($215 million), Vancouver ($172 million), and Calgary ($164 million).

Toronto, as Canada’s busiest hub airport, was the only facility to charge connecting passengers a fee in 2018, a fact that hurt revenues at other airports, such as Montreal, Calgary, and Vancouver, where passengers connect for free.

Five airports earned between $20 million and $60 million in AIFs last year. Among them, Ottawa, which processed more than five million passengers for the first time in 2018, collected the most at almost $55 million.

This grouping of airports also brings together the two airports with the highest fees for departing passengers, Quebec City and St. John’s, which both charge $35.

Finally, revenues varied widely among the smallest airports in the National Airports System, with Kelowna and Victoria, British Columbia leading the way, and Gander, Newfoundland lagging behind the pack, collecting only $1.9 million in AIFs in 2018.

Several airports also charged different fees for different destinations. Vancouver, for instance, charged passengers outside the province $20, while passengers within British Columbia only paid $5. Regina, Saskatoon, and Halifax had similar two-tier policies.

An aerial view of Calgary’s new runway and terminal expansion (photo: Calgary Airport Authority).

AIF revenues – based on agreements with the airlines – can only be used to pay for airport passenger service facilities development and related financing costs.

While the federal government will sometimes chip in money to improve safety at airports (or, in the case of Thompson, Manitoba, to help cope with a sinking terminal), generally airports – especially the larger ones – are on their own. On the flip side, the AIFs give airports an unfettered source of capital funding irrespective of what government holds the purse strings.

Since 1992, when Canada’s airports were gradually privatized, the Canadian Airports Council, which represents many of the country’s largest facilities, estimates some $30 billion has been spent building new taxiways, runways, terminal spaces, and other major projects that fit the category.

After two years of unprecedented investment in 2015 and 2016, Canada’s airports took a breather in 2018, investing just over $1 billion on capital projects, such as runway improvements, taxiways, and terminals – a drop of more than a third from the highs of the mid-decade.

Since 2015, Calgary spent the most of any airport in the country on capital projects, adding a new runway and a massive new international terminal. Others are on the cusp of massive new investments, with Toronto and Vancouver ramping up spending once more after a couple of quiet years.

While Calgary has followed a boom-bust approach to capital spending (in 2018, the airport only spent $88 million, compared to more than $500 million two years earlier), Montreal has been the most consistent airport in the country, spending between $220 and $255 million over the last four years.

Saskatoon International is in the midst of repaving its runway during overnight closures (photo: Twitter/@SPSAir1).

Smaller airports show similar patterns, based on local priorities. For instance, Edmonton has had fairly consistent expenses over the four years, choosing instead to pay down the debt from previous expansions, the most recent in 2012. Saskatoon is in the midst of a major repaving of the runway, with work being performed during overnight closures. So far, almost 24,000 square metres have been completed.

Quebec City has been the biggest spender over the past four years, with a massive $277 million expansion of its international gates.

By contrast, Fredericton, New Brunswick has chosen to keep its powder dry since 2015, saving money until this year to start the heavy lifting on a $30 million project to expand the terminal by 50% (although it has to be said, Fredericton is an exception to the no-taxpayer-money rule, receiving $18 million from the federal and provincial governments for the project).

Funding capital projects carries risk. Take, for example, the hellish situation faced in Ft. McMurray, Alberta.

In 2011, the Airport Authority borrowed $198 million to build a new terminal with four aircraft bridges and plenty of amenities for passengers. The terminal opened to great acclaim in 2014 and immediately served 1.3 million passengers – a record for the community. Projections showed growth continuing into the foreseeable future.

Then the bottom fell out.

First, the oil market collapsed, a huge blow to the local economy, best known as the home of Canada’s oil sands. Overnight, passenger numbers fell 15%, but the worst was yet to come. In 2016, a wildfire forced the evacuation of the entire city. Three years later, the airport is still rebuilding from the devastation.

Put together, passenger numbers now are less than half what they were at their height, hitting airport revenues hard. The situation has turned so dire, the airport now spends its entire AIF on servicing the debt. Last year, interest payments were the single largest cash outlay at $8.6 million.

“All amounts collected from AIF during 2018 have been allocated to service the long-term debt which was issued in 2011 to finance the new Airport Terminal,” reads the authority’s annual report.

The Canadian Airports Council points out that airports conduct public consultations before they raise (or, in extremely rare occasions, lower) their AIFs, making them a transparent way to fund necessary infrastructure, unlike the way airlines impose fees, such as for checked bags, without asking the public for their feedback.

But when the AIF can add anywhere up to a third or more to the cost of a ticked, passengers notice.

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3 Comments

  1. The upside is that Canada has been able to expand its airport infrastructure to support the tremendous demand in growth for service on existing and new routes, without burdening taxpayers. Airports in many other parts of the world are capacity restricted, which limits competition and new entrants. Airports have invested well over $25 billion into their infrastructure since the transfer of airports in the early 1990s. We could have less expensive airports, but I don’t think most Canadians really want to return to the days in which taxpayers have to shoulder that burden.

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