Westjet appealed to air transport regulator to stop a 29.5% fee increase by NAVCanada

The country’s private air traffic control company was justified raising fees to cover costs during the pandemic, regulator rules

Westjet has lost its bid to overturn a massive fee increase imposed by NAV Canada, the country’s air traffic control company.

NAV Canada is a private company that funds operations across the country and the North Altantic through airline fees. When the pandemic hit, air traffic plummeted and NAV Canada’s revenues collapsed. So in August, the company announced it would raise fees an average of 29.5%, to cover costs. The airline appealed the increase to the Canadian Transportation Agency, the nation’s transport regulator.

Westjet argued that NAV Canada didn’t follow the proper procedure to determine its new rates. “WestJet submits that since NAV Canada has a monopoly, its ability to unilaterally increase prices, which ultimately get passed on to passengers, can only be tempered through price regulation, an appeal to the Agency or full privatization,” the CTA said in dismissing Westjet’s appeal.

The increased fees are forecast to bring in an extra $242 million over the year.

“We are disappointed as third party fee increases only serve to undermine recovery,” said Westjet spokesperson Morgan Bell in an email.

A tough first quarter

NAV Canada’s released its first quarter results year Wednesday. They show the agency lost $138 million between September 1 and November 30. That compares to a loss of $36 million the year before.

“Since the beginning of the pandemic, NAV Canada has taken unprecedented measures to drive our operating expenses down,” said Neil Wilson, the agency’s President and Chief Executive Officer. “This includes announcing an optimal staffing strategy, launching rigorous, safety-focused reviews of the level of service for air traffic control towers and aerodromes and restructuring efforts that will impact approximately 900 jobs across the country.”

Since March, NAV Canada has cut staff by 14% and implemented a hiring freeze. As a result, NAVCanada’s expenses dropped 16% in the quarter; from $369 million last year to $309 million in the quarter. A significant portion of that savings was due to Canada’s ongoing wage subsidy. The agency told the CTA it would likely cut staff further in the near future.

It all boils down to how much air traffic is forecast for the coming year. More planes means more air traffic control fees. Fewer planes means less money. And under law, NAV Canada must provide a safe national air navigation system, meaning many costs are fixed.

Larger Canadian airports are also required to cover their own costs. They employ similar logic as NAV Canada setting their fees, sparking airline concerns about widespread increases this year.

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A call for help

NAV Canada said some of its early projections counted on government financial help. But when that didn’t come, it had no alternative but to raise fees. The air traffic control company argued it was up to Westjet to decide whether to pass those costs on to consumers.

“NAV Canada asserts that WestJet’s claim that this matter is a consumer issue and that an Agency decision in WestJet’s favour would align with the Agency’s mandate are baseless and irrelevant,” ruled the CTA. “NAV Canada also argues that WestJet’s appeal is simply a misplaced appeal to the Government of Canada for financial aid.”

The government laid out conditions for the airlines to receive financial aid on November 8. Since then, talks have been inconclusive. And now, the issue has landed in the lap of Canada’s new Transport Minister, Omar Alghabra. He has no background in transportation or at the Cabinet table.

There is also no guarantee that the fee increases are over. “Both parties acknowledge that NAV Canada could seek to recover incremental revenues greater than the $242 million through the revised charges,” said the CTA.