James Moore: The government is exploring airport privatization. Here’s why it won’t fly

The Front Bench panel discusses the government announcing Canada's first national sovereign wealth fund and mulling the privatization of airports.

James Moore is a former federal cabinet minister under prime minister Stephen Harper, and is a contributing columnist for CTVNews.ca.

This week, both Transport Minister Steven MacKinnon and Finance Minister François-Philippe Champagne said the Government of Canada is exploring the privatization of major Canadian airports.

It won’t happen – and it shouldn’t happen. At least, it won’t happen in the pure sense of divesting our airports fully to private interests; and there are good reasons why they shouldn’t be.

The strength of our current model

Ambition is a good thing in public policy, and taking advantage of a majority government timeline to draw in longer-term policy framing and including more contentious ideas for Canada’s consideration should be the norm for a government unthreatened by an imminent election campaign.

Minister Champagne was enthusiastic about needing to “modernize our thinking” and be bold about new concepts of airport ownership. Minister MacKinnon said the government is “in the early stages of a process with airport authorities and other partners to determine the best way forward.” Very well.

One thing I can assure both ministers is that it won’t take them long to realize how full privatization is not a workable solution. Why? Because, broadly speaking, Canada’s current model already works.

While certainly not perfect, Canada’s airports are run by not-for-profit airport authorities that already operate at arm’s length from government. They reinvest revenues into infrastructure rather than distributing profits to shareholders. They are generally governed very well, publicly accountable, transparent in their operations, and firmly regulated in the public interest as the essential public infrastructure that they are. Airports are investing in modernization, maintaining regional connectivity, and operating with some commercial discipline.

International lessons and regional risks

Results from privatization elsewhere in the world are mixed, at best. Some European airports (London Heathrow Airport, Charles de Gaulle Airport, Lisbon Airport) perform well under private or semi-private ownership, but they also operate in dense, competitive transportation corridors that are dissimilar to Canada.

Australia’s experience has been more controversial. On the positive side, major airports in Sydney and Melbourne did see significant capital investment and modernization after privatization. But, the Australian Competition and Consumer Commission has repeatedly flagged concerns about monopoly pricing. Landing fees and passenger charges have climbed significantly and there has been deep frustration from both airlines and passengers about rising costs.

And, worth learning from the Australian experience, regional air service for smaller communities declined noticeably after privatization. Australia’s major airlines (Qantas and Virgin) consolidated their networks around the largest hub airports that were privatized and regional communities’ lost access as a result.

The economics in Canada for small regional airports under full privatization would likely be grim. A private operator’s primary obligation is to shareholders, not community connectivity, so airports like Thunder Bay, Prince George, or those serving northern communities would probably see reduced service, higher fees, or potential closure if they can’t turn a profit. Canada’s geography – and our appropriate commitment to national unity through reasonable connectivity – doesn’t work in a fully privatized model.

And, for a comparison that’s closer to home, American airports are almost entirely publicly owned and operated. Major hubs like LAX, Atlanta, Chicago O’Hare, and JFK are owned by municipal or port authorities. America has not gone the privatization route.

Interestingly, Canada’s airlines have not been particularly vocal in publicly supporting or opposing privatization. They have signalled an openness to dialogue, but there is appropriate skepticism that privatization would lead to clear efficiency or lower costs given what is experienced elsewhere in the world in differing models. Airlines have seen airport authorities raise fees significantly over the years and reason would dictate that a profit-focused private operator with monopoly market access control wouldn’t be their most friendly partner.

The reality is that Canada’s current hybrid system of not-for-profit airport authorities that operate at arm’s length from government – while certainly not perfect – serves Canada very well and should be maintained and modernized.

Partnership over privatization

The government can attract new private partners to participate in the growth of our airports and improve the experience for passengers and the growing demands on cargo traffic. Last year the government issued a thoughtful policy statement on investment at our National Airports System and they should action the recommendations now.

Proposals around co-development with private investors through subleases, creating subsidiaries in partnership with Canadian pension funds, private equity players, commercial banks or private investors can inject capital and market forces into some opportunities associated with our airports without jeopardizing the public interest or continuity of control. These options should be explored, and I believe will likely be realized by the current government.

In the end, growing and solidifying our airports and global connectivity through competitive air service is fundamental to Canada’s future. Full privatization of our airports, when one examines all the readily available evidence, would clearly be the wrong direction for the government to take.

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