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BySaket KumarSaket Kumar
December 17, 2024
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Why Canadian Airlines and the Government Driving Airfares Through the Roof– Who’s Really to Blame?

Table of Contents Show
  1. Breaking Down the Costs
  2. The Bigger Picture
  3. More Information and Statistics
  4. Dissenting Voices
  5. Solutions and the Way Forward
  6. Author

A recent tweet by Wyatt Claypool, the host of The National Telegraph, has triggered a heated discussion regarding airfare in Canada. He states that airline companies do not cause ticket price inflation by overcharging their customers but rather by the government’s high taxes such as high fees and corporate tax rates.

With the policy change, amends have been made regarding a far greater issue: how many of our airfares are controlled by government-related acts? 

Breaking Down the Costs

In his tweet thread, Claypool shared his experience, alleging that at least 13 percent of his ticket was government fees and he also disregarded factors such as corporate tax or inflation. Along those lines, he makes it clear that several airlines in Canada operate on a 1 to 3 percent net profit margin, and airlines generally must take cost-cutting measures to survive:

Claypool was countered by some critics who opposed the tax policies adopted by the government. Along the same lines, a 2019 Canadian report issued by the Airport Council of Canada noted that taxes, fees, and even charges make up about 43 percent of the short-haul ticket price.

Countries like the United States and the United Kingdom incur lesser charges as they have reported 25% of their ticket prices being affected. This helps underline the disparate treatment Canadian travelers undergo with the amount of costs imposed on them by the rampant Canadian government being a hurdle in the way of cheaper flight options.

For example, user @brohannes10 encashed on the huge 60-dollar fee tagged as the Airport Improvement Fee at Pearson.

Another user @Pilgrim in Progress pointed out the airport and security fee that is charged.

To further this discussion, Claypool went on and argued that such fees are actually taxes, because, in fact, they are levies charged by government enterprises.

Other users were more specific in their discontent. For instance, the user @TheHangingJowl complained about the high landing fees and communication issues.

Such anecdotes are common, and they make it possible to understand why the price order set by the government does not work.

The Bigger Picture

As the horizons of the conversation expanded, other commentators pointed out issues as well. For instance, @David Portier pointed out that there was a competition deficit among Canadian airlines which was the reason behind the strong monopolizing hold two major players Westjet and Air Canada had over the market.

Furthering the discussion @Paul Winston MD disclosed a scenario where domestic travel flights during harsh weather were priced anywhere upwards of $1800, collecting quite the hefty budget for a single flight from Victoria to Vancouver.

Claypool notes that this contradicts typical public frustration directed toward airlines:

“How did [airlines] go bankrupt if they were gouging customers?” This was his response to the embarrassment that the public feels towards these companies.

More Information and Statistics

According to a study by the Canadian Airports Council, Canada’s taxation of paying customers for air travel is the highest globally. For example, in the U.S., passengers do not pay more than 25 percent which sits within the routing fee and taxes bracket.

Meanwhile, Canadian travelers pay more than 40 percent in average routing taxes, which centers on the studies conducted by the councils. This information is important since it illustrates how expensive it is to fly into Canada as a country when compared to others.

Furthermore, the absence of government support worsens the situation, leading to higher prices for the entire range of air services, but mainly for the consumers. In some situations, taxes and fees may constitute as much as 40% of a ticket’s cost. In contrast, U.S. passengers benefit from lower airport charges and government support which tend to encourage the use of flights instead of other means of transport.

Dissenting Voices

Claypool’s opinion was not shared by everyone. @Dylan openly criticized him because he accused the government but they also did not look at what the idea behind the fees was, oversimplifying the problem. He pointed out these fees are applied to airports that provide services such as business, maintenance, security, and infrastructure development in Canada, where otherwise there is no funding source.

At the same time, however, @Brian Rice argues against the strong impression that tax is a major factor here by bringing up the mega profits of Air Canada into the picture. Rice suggests that the taxes are exorbitant, however, the airlines absolve themselves from being innocent, observing claims of Air Canada who have recently announced record profits.

In Q3 2023, for instance, Air Canada recorded net earnings of $838 million and there was speculation about whether there were additional costs that would be more reasonable for airlines to bear rather than transferring it to the customers. This position also falls within more general criticism seeking to explain the high profits of airlines when the cost of traveling has become more expensive.

According to the Canadian Transportation Agency, airfares have increased over the past decade by more than 7 percent per year faster than inflation meaning that airline pricing policies combined with other factors are causing the increase.

These different views also testify to the complexity of the matter. Taxes and fees certainly contribute to increased cost of the ticket for the passengers but together with them the profitability of the airline and the cost of operations are also important factors.

Solutions and the Way Forward

Claypool has an interesting idea: relocating the funding of airport operations from the sale of air tickets to taxation to increase air travel which will assist the Canadian economy.

Others such as @YYCFree went ahead to recommend deregulation of the airline industry among other protected sectors to promote competition and bring down prices.

Moving away from statistics, @JohnandNatalie1 highlights the complexity and multitude of factors contributing to high airfare costs in Canada. She suggests the issue is far more complex than simply blaming airlines or the government.

This conversation raises a key question: Canadians are unhappy with air travel being grossly overpriced, the problem however, is to picture what the lasting solutions to this conundrum look like. Be it reforming tax structures, heightened competition, or deregulating segments of the sector, it is clear the arguments have just begun.

Last Updated on by Saket Kumar

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