Canadian airports and cities

Sunday reader: Canadian airports spent $3.5 billion in 2018 – where did the money go?

This is the second of four reports taking a deep dive into Canadian airports’ operations in 2018.

A YYC Link vehicle transports passengers from the D to C piers at Calgary International Airport in March. The airport spent the most per passenger in Canada in 2018. (photo: Brett Ballah).

Canada’s airports are huge economic generators, eclipsing Prince Edward Island and all three territories in terms of revenues and expenses. In 2018, Canada’s largest airports – all members of the National Airports System – spent more than $3.5 billion to move more than 145 million passengers. And that’s just the airports. These figures don’t include spending by airlines, the companies they contract with, or the myriad restaurants and shops that rent space in terminals.

Western Aviation News did a deep dive into the annual reports produced by 20 of Canada’s busiest airports, that together, handle 94% of all air passengers in the country. A startling picture emerges to highlight local choices, and regional differences between East and West.

First off, the big picture. Airport authorities are private not-for-profit entities that operate the vast majority of Canada’s largest airports. They generally spend their money in a limited number of categories: salaries, contracted services and supplies, ground lease (more on that later), and paying the interest on their debt.

In 2018, airports across the country spent $530 million on salaries just to their employees. That figure does not include contracted services such as maintenance, cleaning, and, in many cases, customer service agents. Generally, the more passengers an airport handles, the more it has to spend on services. For example, more security officers are needed to ensure rapid passenger screening, and more cleaners may be needed if the toilets are used more frequently. But, as the numbers show, it’s not a one-to-one ratio.

Airports were also big spenders on debt last year, doling out more than $666 million in interest and financing charges. Only three airports in the NAS were debt-free in 2018: Victoria, Charlottetown, and Saskatoon.

That’s enough of the big picture, it’s in the details where it gets really interesting. For instance, airports in Eastern Canada spend more per passenger, while airports in the West tend to spend less, much less. There are very few exceptions to this rule.

Calgary International, which is paying for major expansions to the terminal and airfield, is one of the East-West outliers. The airport authority spent the most per passenger in the country in 2018 at $32.44. Curiously, Calgary’s spending on debt servicing was near the median (17.8% of the budget), while the airport spent proportionately the least on salaries, at less than six per cent. The rest was spent on contractors, supplies and services.

The next six highest-spending airports in the country all come from points east of the Manitoba-Ontario border. Montreal, Quebec City, St. John’s, Newfoundland and Toronto round out the top five, before expenses per passenger drop below the $25 per passenger threshold.

On the other end of the scale, you find British Columbia’s four NAS airports. Spending the least per passenger is Kelowna International Airport, just over $11. It was followed by Victoria, which, along with Saskatoon and Charlottetown, which, as the country’s only airports without debt, had no debt service payments last year.

Vancouver rated the lowest expenses per passenger of any of Canada’s four hub airports, spending just $14.58 per passenger last year.

The outlier at the cheaper end of the East-West divide was London, Ontario. The airport authority there spent $7.5 million dollars last year, just less than $14 per passenger, and half what Toronto-Pearson spent, though the two airports are less than 200km apart.

Airports that perform well in this category tend to brag. “Even with the significant increase in the number of passengers in 2018 and the associated increase in cost,” reads Edmonton’s annual report, “management was able to maintain the airline cost per passenger at a comparable level to the prior year. By maintaining the airline cost per passenger at a competitive level, Edmonton Airports will be well positioned to add routes and flights from new and existing airline partners.”

Expanding on the Edmonton example, we see the airport spent $122 million last year, which works out to $14.83 per passenger. Of that, 28% was spent on salaries, and a whopping 34% went to pay interest and capital on the debt. Edmonton reported the highest proportion of debt service expenses in the county, followed by Winnipeg (32%). They were the only two airports to spend more than 30% of their overall budgets on debt.

In fact, of the remaining airports, only Ottawa (28.9%) and Toronto (22%) reported spending more than 20% of their budgets on interest payments and debt service.

Salaries represent another large category of expenses. A 2016 report by the Canadian Airports Council shows airports are responsible for creating 196,000 jobs across the country, though the actual airport authorities represent a fraction of that amount, since most jobs are in restaurants, stores, and airlines that rent the space, or are contracted out by the authorities.

Still, the $530 airports collectively spent on salaries ranged from a high of 48% of the budget at London International Airport, to a low of less than six per cent at Calgary.

Wildlife control staff drive along the perimeter road at Vancouver International Airport (photo: Brett Ballah).

Airports are also a huge generator of local and national taxes. The Canadian Airports Council study found airports and their employees paid $6.9 billion in all forms of taxes to all levels of government.

One particular form of taxation can be calculated precisely. All airports in the NAS are owned by the federal government, and Transport Canada charges authorities rent, based on the number of passengers and overall revenue. The idea is, the bigger and richer airports pay more.

As a whole, Canada’s airports sent $397 million last year to Ottawa in the form of lease payments.

Airport2018 expenses2018 Canada lease payment
Toronto$1,081.0 million$165.2 million
Montreal$576.8 million$69.3 million
Vancouver$378.1 million$59.5 million
Calgary$562.7 million$42.5 million

Even Tiny Gander, Newfoundland, which served only 170,000 passengers, sent $20,000 in lease payments to Ottawa last year. The only exception in the National Airports System was in Kelowna, which has paid $1 to cover the rent until 2034.

Ottawa’s airport authority, which serves the nation’s capital, paid $10 million in rent.

“We pay rent to the government, even though we’ve been rebuilding this airport many times,” Ottawa airport authority President and Chief Executive Officer Marc Laroche recently told city politicians. “It is a sore point, but that’s the deal. We have to pay rent and it’s basically 10% of all our revenue.”

It is a sore point, but that’s the deal

Marc Laroche, Ottawa International Airport

These are all considered operating expenses. They account for about a third of all money an airport spends in any given year, and include amortization (see an accountant for an explanation of that type of expense).

They do not include capital investments – buildings, runways, and the like – which are a whole other ballgame. Last year, airports spent a billion dollars on capital projects, and we’ll take a closer look at those next week, when we look at the charge levied on every flight in Canada, the Airport Improvement Fee.

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