BUSINESS

WHERE TO TAKE OFF,EH?

Forget shopping malls, cross-border airports are the hot deal now

KATE LUNAU November 5 2007
BUSINESS

WHERE TO TAKE OFF,EH?

Forget shopping malls, cross-border airports are the hot deal now

KATE LUNAU November 5 2007

WHERE TO TAKE OFF,EH?

BUSINESS

Forget shopping malls, cross-border airports are the hot deal now

KATE LUNAU

A sleepy college town of 19,000 on the shores of Lake Champlain, Plattsburgh, N.Y., hardly seems the place to go for a dose of Québécois culture. But pay a visit to its brand-new airport—complete with bilingual signs, a French-English website, and even the tag line “Montreal’s U.S. Airport”—and you’ll find just that. About an hour’s drive south of Montreal, Plattsburgh International Airport openly targets Canadian flyers. And as of Nov. 16, Quebec snow-

birds will likely flock there in droves: that’s when Allegiant Air starts offering direct flights to Fort Lauderdale, Fla., for as little as US$79 one way.

It’s a model that’s already been successful in Bellingham, Wash.—an hour’s drive south of Vancouver—where well over half of Allegiant’s passengers are Canadian. Buffalo Niagara International Airport, about 90 minutes from Toronto, is another popular departure point; it gets 35 per cent of its customers from north of the border. And with the loonie at par, expect more lineups at the ticket counters across the border.

That Canadians are looking south for cheap flights is nothing new, says James Cherry, chief executive officer of Aéroports de Montréal (ADM), which oversees Pierre Elliott Trudeau International Airport and Mirabel Airport. But that doesn’t make it less of a concern. “I’d have to say [U.S. airports] are competitors, because they’re certainly tak-

ing traffic away from Montreal,” he says.

In Canada, aviation directly or indirectly accounts for over 300,000 jobs, and is a cornerstone of the country’s $62.9-billion tourism industry. Yet “the industry operates on very slim margins, and losing a small number of passengers makes an enormous difference,” says Mike Tretheway, chief economist at InterVISTAS Consulting. He estimates that as many as five million passengers are lost to U.S. airlines each year. Many in the Canadian industry say exorbitant taxes are to blame. “The U.S. views their aviation infrastructure as a strategic tool upon which the economy relies,” says Fred Gaspar, vicepresident of the Air Transport Association

of Canada. “In Canada, airports are a cash cow for government.”

While U.S. airports are government-owned and controlled, local airport authorities began assuming control of Canadian airports in 1992. While the model has been a great success in many ways—improving facilities, capacity, and overall efficiency—it’s a doubleedged sword. Canada is one of only a few countries in the world (along with Peru and Ecuador, Gaspar says) that requires airports to pay rent to the federal government. But “unlike any other landlord-tenant relationship, you don’t call the feds when the plumbing goes,” Gaspar says. “You fix it, and then you pay your rent bill.”

Last year, ADM paid the federal government $22 million in rent, while Toronto’s Pearson International Airport paid a whopping $151 million. “Two-thirds of our costs,” equalling $300 million in 2006, “would not exist in [the U.S.] model,” Cherry says. These

costs are passed along to airlines and ultimately to the traveller, either directly or indirectly— ADM recently announced its improvement fee for departing passengers will increase in January from $15 to $20 plus sales taxes (Toronto, Calgary and Winnipeg also plan to increase their fees to $20).

A new rent policy adopted by the Canadian government in 2005 saw an overall rent reduction of 60 per cent, but critics say more needs to be done, especially given that terminals like Plattsburgh are built with government money and pay no property taxes, debt interest, or federal rent. “In the last 12 months, two Canadian companies shut down because it was too expensive,” says Gaspar, citing Harmony Airways out of Vancouver and Halifaxbased Canjet Airlines (which now offers charter service). New York-based low-cost airline JetBlue Airways is keen to start offering service in Canada, but is “hesitant because of airport costs and taxes,” says JetBlue spokesperson Jenny Dervin. “As we continue to

THE AIRPORT IN PLATTSBURGH. N.Y.. EVEN FEATURES BILINGUAL SIGNS

research the market, it’s not a winning proposition for us right now.”

While Transport Canada has no plans to revisit airport rents any time soon, Ottawa has made some positive moves toward liberalizing the industry. Tretheway points to Canada’s Open Skies treaties, which remove most restrictions on air traffic in a partner’s territory. This year, Canada reached four new agreements—with Ireland, Iceland, New Zealand, and the U.K.-and signed one with the U.S. The EU has also agreed to start talks with Canada. “This is exactly what Canadian airlines, communities and airports need,” Tretheway says, noting that such treaties open new markets to Canadian airlines and bring in fresh competition. (The U.S. has 89 such treaties, including with the EU countries.)

For now, Canada’s major airports focus on their strengths as a means of competing with U.S. rivals. “The most important thing here is frequency; the most important thing is convenience,” Cherry says. “Somebody in Montreal still has to make their way to Plattsburgh; it’s not right next door.” But when winter hits Montreal, and a ticket to Florida’s just US$79, an hour’s drive may seem like a very small sacrifice. M