Regina city council’s executive committee will decide today whether to back the airport authority’s request for more than $1.5 million in tax breaks over the next five years to attract a fight to a U.S. hub. When combined with provincial tax exemptions, the total amount of taxpayer support being sought is more than $2.5 million over the next five years.
“We want to take these dollars, and we want to support our existing airlines by keeping our fees as low as possible, and we also want to use these dollars for incentives toward regaining service to a United States hub,” said James Bogusz, Regina International’s President and Chief Executive Officer in an interview with Western Aviation News.
In particular, Bogusz wants to attract service to Denver or Minneapolis, two of the largest hubs in the Western United States. United and Delta regional affiliates both served Regina until the middle part of the decade. United scrapped service to Saskatchewan in 2015, and Delta dropped its Regina-Minneapolis service a year later, blaming a soft market.
“This has not been a good year, or even really the last two years, in Canada if you’re a tier-two airport trying to obtain, or even hold, U.S. service,” said Bogusz, noting that Victoria International is losing service from both Delta and United.
The phenomenon is not restricted to tier-two airports. Ottawa International, which welcomed a record number of passengers last year, lost non-stop United service to Chicago this spring for at least nine months.
“Without these incentives, there’s really not a lot for the airline to put us high up on their list,” he said. “We’ve been very deliberate looking to market to airlines to consider Denver or Minneapolis, with Denver being the highest priority. That market specifically in terms of where United can connect from really does provide them a real opportunity to have good loads on that aircraft, to be self-sustaining long-term.”
Bogusz notes the price of oil has remained sluggish, along with a Canadian dollar in the 75-cent range, factors that haven’t changed since the U.S. airlines pulled out.
“We have to reduce their risk to bring them back in the market or there really would be zero chance of getting them in the short term, given that the macro economic conditions are not one to lend itself to wanting to have an airline like that grow service without those incentives.”
Bogusz said if an airline were to take a chance on service to a U.S. hub, the money would be used to either lower landing fees – thereby lowering the airline’s risk that it might lose money – or help the airline market the new service to the local community.
“It’s really fuel on the fire,” he said, “to help enable us to continue to market to airlines and give them something that we hope they won’t be able to pass up on in the future.”
Those incentives aren’t cheap. The authority says talks with airlines are still in their early stages, but the airlines are asking for help “seven figures in nature, with the flexibility to extend the support should the airline require it.”
At the same time, the payoff can be rewarding.
A report to city council by the authority estimates that twice-daily service aboard a 50-seat regional jet is worth about $12 million per year to the local economy. Twice-daily 70-seater service is worth upwards of $16 million.
Bogusz said United regional service seems to have the best chance of becoming reality.
“Delta was really clear,” said Bogusz. “It’s not about Regina specifically, it’s really about their expansion into Canada. They’re going to be partnering with Westjet, not doing it in isolation.”
The two airlines have submitted a joint venture that is waiting for regulatory approval. If Regina were to regain service to Minneapolis, Bogusz believes it would most likely be aboard Westjet Encore Dash-8s.
“There’s really no opportunity for me, regardless of incentives, to encourage Delta as a mainline carrier to come back into the airport, it’s going to be really through Westjet.”
A property tax grant would be a return to the past in Regina. From 1999 until 2017, the airport was given a partial subsidy on its property taxes, which was cancelled by the city in the midst of a budget crunch. City staff say tax breaks are a common way for cities to help their local airports.
“The most common form of support is a partial property tax exemption. The cities of Toronto, Ottawa, London, Thunder Bay and Halifax all provide their airports a partial tax exemption,” reads a report to council. “In 2018, the City of Saskatoon entered into a five-year agreement for a partial property tax abatement. Other airports in cities such as Vancouver and Montreal are fully exempt from taxation, however, the provincial governments provide a partial payment-in-lieu-of-tax.”
“We’re really positioning this as less about a tax break,” said Bogusz. “It’s more about their commitment to invest in the airport so we can supplement air service and those types of opportunities, to hopefully reposition us in a way that makes us more financially attractive for an airline to get started on a U.S. city.”
The tax break would be conditional on the airport securing a service commitment to a U.S. hub by the end of 2020.
“I think getting U.S. air service in a tier-two airport, meaning anything smaller than Halifax in this country, is incredibly challenging.”James Bogusz, Regina Airport Authority President and CEO
“It’s a strategy of the airlines, and I can’t fault them for it, to push traffic through their main hubs,” said Bogusz.
“We have a unique challenge, being in Regina. We’re not that far from the U.S. border. And when you look at airports like Minot, North Dakota, there’s clearly some leakage that’s happening where someone may just simply drive to that airport and jump on a United or Delta flight to a U.S. hub. We would hope that by having service out of Regina, we would recapture at least some of that market.”
Regina took in $29 million last year in revenues, and spent almost $20 per passenger on services, near the median for the country, but far higher than airports of similar size such as Saskatoon or Victoria. After two years of contractions, Regina also saw its non-aeronautical revenue grow last year by almost 10%. Airports argue non-aeronautical revenue – from such sources as land rentals and duty-free sales – make their facilities more attractive by lowering landing fees.
The airport authority held the line on landing fees this year, and hopes to do the same in 2020. It was rewarded in Air Canada’s fall schedule with a third daily CRJ-900 non-stop flight to Vancouver, a 44% capacity increase over the summer.