Canada’s airports expect to lose $5.5 billion in revenue because of pandemic, according to latest forecast
Canada’s airports say their financial situation is worse now than even their most dire predictions six months ago. The Canadian Airports Council expects its members to lose $5.5 billion in revenue in 2021 and 2021. That’s $1 billion more than the council predicted in August, a sign of the pandemic’s lasting impact.
Airports will take on $2.8 billion in debt to keep operating, the CAC warned. That’s on top of the $15 billion in debt airports owed before the pandemic even started.
“The reality is that these losses are unsustainable,” said Daniel-Robert Gooch, the CAC’s president. “Without government action, air travel will not only become a lot more expensive, but Canadians everywhere will have fewer choices of routes and destinations, including at the four major hub airports.”
So what’s changed in that time? Well, Canada’s travel restrictions, which were severe at the start of the pandemic, got even tougher with the new year. The federal government imposed new testing measures on international passengers. And it tightened already restrictive quarantine rules on people arriving in the country.
Falling passenger volumes
Data published by the Canadian Air Transport Security Authority show the number of screened passengers at Canada’s eight largest airports fell from a daily average of 19,130 in January to just 11,748 in February. That’s a drop of almost 40% from numbers that had barely recovered from the pandemic’s outset.
What’s even more difficult, a number of provinces have imposed their own restrictions to stop the spread of COVID.
The effect has been startling. On average, passenger traffic declined 72% in Canada between 2019 and 2020. But that average hides significant regional variations. According to airport data, traffic was hit hardest at Charlottetown and Halifax, where the number of passengers fell 81 and 76%, respectively.
Generally, the farther west you go, the less passenger numbers declined over the year. Among airports that have reported passenger data, Kelowna was the least affected by COVID-19 where passenger numbers fell 63.7%
MAP shows the pandemic-induced decline in traffic at Canada’s airports from 2019 to 2020. Lighter red denotes a smaller decline, while darker red shows a larger decline. Note the darker shades in Atlantic Canada where provincial restrictions have had a profound impact on air travel. Hover of the airport to see details. You can also view the map here.
Hurting the bottom line
This decline has had a devastating impact on airports’ bottom line. Canada’s largest airports are funded by passengers and the fees they generate. Operations are dependent on landing and ticket fees, while Airport Improvement Fees pay for capital projects. In 2019, for instance, airports depended on these aeronautical revenues for almost 65% of their budget.
The government has responded with a small financial package aimed at airports. It includes some cancellations or deferrals of ground lease payments for the largest facilities. These payments are linked to airport revenues. The CAC’s analysis shows that will amount to only $137 million in aid, most of it going to just four airports – Toronto, Vancouver, Montreal, and Calgary. The government’s other key COVID response policy – wage subsidies – netted $139 million for airports in 2020. Again, 84% went to the largest four airports. Some 200 municipally-owned airports were not eligible for the subsidies.
“These measures provided some assistance, but not enough to help support airports dealing with higher costs and cratering revenues,” Mr. Gooch said. “In fact, our analysis shows that even their modest impact was far less than the government projected.”
The pandemic has some questioning the very foundations of Canada’s airport policy.
“I think at some stage, they will reevaluate the user pays basis for airports and air traffic control in this country,” Westjet’s Ed Sims said this week during a video session hosted by Eurocontrol. “We’re in lofty company because the only other two user pays jurisdictions are Ecuador and Peru. It just emphasizes for me that we have a reliance on a user pays model. That is fine when you have a plethora of users. But when the users dry up, as they have done during this pandemic, then everybody looks to the government to say we need financial support.”
Airports are facing stark choices if the government does not increase its support, the CAC argues. They can raise fees, cut services, or watch the debt pile up.
Air travel is very price sensitive. Sims in particular has been arguing against fee increases. In January, Westjet lost a regulator battle over a 29% fee hike imposed by NAV Canada, the country’s air traffic control company. The fear is, if Canadian fees rise too much, people will drive across the border once it opens to fly form American airports. That means working together to reboot the industry in Canada.
“I think there’s an argument now to consolidate the foundations of the aviation industry,” said Sims. “To remove the boundaries between airlines, airports, air traffic control. Actually say, how do we all have common objectives and how do we all have skin in the game to encourage each other?”
The CAC is asking the government to work on a plan with the industry to safely restart air travel. It also wants a moratorium on ground lease payments and higher capital and infrastructure funding.
“I don’t think we’ve been treated that well by the regulators,” said Angela Gittens, the former Director General of Airports Council International. She spoke at a panel Wednesday hosted by McGill University. She says airports and airlines are filling a void left by governments. “The messages have to go out constantly and repeatedly, as things evolve, to the potential passengers. Because they’re confused. What are the rules? Where can you go? What do you have to do when you get there? So it’s up for somebody to explain what the conditions are. And the airport and the airlines are going to have to take that on, because no one else is doing that.”
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