Privatising Canada’s airports – part two: ‘the time is right for change’

The possibility of Canada’s biggest airports being put into the hands of for-profit companies has stirred plenty of debate in the region. Some believe the time is right for change, and argue that the country’s aviation sector is in need of reform.


For part one, click here

Canada

Following an 18-month review of the Canada Transportation Act, Canada is considering ditching its current model of airport ownership, moving from a not-for-profit to a for-profit structure. Nothing is yet set in stone, but it has brought to the fore the arguments of those who are unashamedly backing reform.

In a statement, a spokesperson from Transport Canada said: “This is a complex issue that warrants thoughtful and detailed analysis, as well as consultations with stakeholders that would be impacted by any change in airport governance.”

The concern – as described in Airport Industry Review’s previous article on this topic – is very real, although those in favour are also pursuing their case with vim and vigour.

What are the merits of the plan? In this second and final article, Alexandre Moreau, public policy analyst at the Montreal Economic Institute, explains why he wants Prime Minister Justin Trudeau to give the green light.

Gary Peters: Why, in your opinion, is the government considering this course of action?

Alexandre Moreau: By selling off major assets, it will be a huge amount of money, about $16bn. So, considering that the government is running deficits...maybe there is pressure to go ahead with the plan.

If you look at the UK, there are many airports that are fully or partially owned by investors. In Europe, it's the norm. When we compare our airport sectors, we are not competitive. We have an inefficient airport system.

GP: Is it inefficient because they are run by not-for-profit organisations?

AM: That is one of the major reasons, but there are others. Until recently we were limiting foreign investment in Canadian airline companies – there was a cap at 25%, but that has gone up to 49%. This could help them attract investment.

GP: How challenging would it be to force this plan through?

AM: You have to work with public opinion. Some might think we will lose money and it will be a foreign private investment company who will benefit and they will invest less money so that shareholders can have higher returns. But, at the same time it's important that people realise it's not in the interest of the airport to charge higher landing fees or tickets, as that would result in less traffic and lower commercial revenue.

There is a strong indication that when you go ahead with privatisation, you have more efficient airports. There is a stronger incentive to invest so it increases the revenue of the airport.

Almost 90% of the population lives pretty close to the US border, and sometimes it's cheaper to cross that and buy a ticket in US airports. We're losing money because of that. I'm pretty sure Canadians would see the benefits soon after privatisation.

Politically, I think it's doable. Economically, it would also make sense. It's like a demon when you say private sector; a lot of people are afraid of this word.

GP: On that note, a survey suggests that the public does not support airport privatisation. Why do they have these reservations and how could the government change minds?

AM: Public opinion is very important. The problem is we have to inform people. There is a lot of disinformation. For example, I had a debate on radio and the other person [mentioned] 'imagine if we had private airports, we would have more accidents'. People get scared when they hear this.

This is what we are trying to do; educate people about the economic theory and what is going on outside of Canada, looking to Europe and saying there it’s the norm. It's really important if we want to go further with this reform.

GP: Could privatisation increase air fares?

AM:
People don't realise that it's not in the interest of private investors to increase fees. If there's less passenger traffic, that means less commercial revenue. If you want to increase revenue, [you need to] increase passenger traffic.

GP: I read one commentator who said that privatisation could threaten security. How realistic is something like that?

AM:
I think it's a false argument. We can have a fully private airport and yet keep the same rules in place, to make sure the interests of airlines and passengers are the central consideration.

GP: Also, some major airports have voiced reservations with the idea, so why are they against it? 

AM:
You have people who are working at airports for many years, and if we go forward with privatisation, maybe they lose their ownership. Maybe this is why they are against it.

GP: So, some self-interest there?

AM: Yeah, I would say that.

GP: Are you confident this idea will happen?

AM:
There is pressure on government because of their deficit. The financial pressure will probably be an incentive for privatisation. For the eight largest airports in Canada, it could represent almost $16bn. That's a strong incentive.

Politics is all about communication. It depends on the way the government phrases it.

GP: How would the government do this? Would they go airport by airport?

AM: Well, we're not there yet in the public debate. But, it's important we have a transparent process with as many people included as possible. The government has to be clear on this, with the right price.

If you look at different countries, sometimes a private investor cannot own more than 49% of the infrastructure. There is regulation that can make sure we don't have a monopoly with one investor owning all the airports.

You have different models that can co-exist. You could have a different model for each airport; it’s important to consider the specifics of each one.

GP: Let's say it doesn't go ahead now. Will it have to happen at some point in the future?

AM: It will have to happen. We're the only ones in the world with the structure we have. It's not benefiting Canadians and it's time to modernise our airport infrastructure.

GP: But, why can't the government modernise airports and increase passenger traffic?

AM: When you have private investors, you have a strong incentive to increase the return. If you want to do that, you have to increase passengers and make it comfortable for them. When it's private, there's more competition and more choice for consumers.