A new study by the Toronto-based C.D. Howe Institute says the air transport sector bears greater tax and fee burdens than its competitors both at home and abroad.

Among its recommendations, the report is calling for airport rent formulas to be revised further and a tax reduction so that the industry's effective tax rate is relative to other transport sectors. It also cites a need to balance the federal government's airport security charge revenue with actual spending on security.

It is not the only report urging Ottawa to act. A similar study released late last year by the Montreal Economic Institute, an independent, non-partisan research and educational institute, says Ottawa also needs to reduce the air industry tax level.

"All these studies confirm what we already know, that the government of Canada views commercial aviation as a cash cow to be milked rather than a strategic asset to be fostered in order to grow the economy," says Fred Gaspar, vice-president of policy and strategic planning for the Ottawa-based Air Transport Association of Canada.

While the federal government will not revisit the tax or airport rent issue until the budget is presented March 19, a spokesman for federal Transport Minister Lawrence Cannon says it is looking at the possibility of mid- to-long-term solutions.

Airport officials say changes are needed - and soon.

"More and more, our business is become international in flavour, particularly with the United States," adds Barry Rempel, president and CEO of Winnipeg Airports Authority. "If airports in Canada are to be competitive to airports in the U.S., this rent has got to go."

Canada is one of only three countries in the world that charges airport rent. Peru and Ecuador are the others.

Canada's airports will pay nearly $290 million this year in rent tax, according to the Ottawa-based Canadian Airports Council, which represents the country's 150-plus airports.

While the federal government retains ownership of the country's major airports through long-term leases - to guarantee the integrity and long-term viability of the airport system - it charges local airport authorities rent. But the airports note that while Ottawa collects the rent, they receive no services in return. They add the costs on the individual facilities have long since been paid in full.

In Toronto, the Greater Toronto Airport Authority (GTAA) recently launched a Let's Get a Fair Deal public awareness campaign to ask the federal government to correct what it describes as an unfair amount of rent imposed on Toronto Pearson.

"Toronto Pearson is unfairly burdened. By 2010 it will contribute 63 per cent of all (airport) rents paid to the government, even though Toronto Pearson currently handles 33 per cent of Canada's air traffic," says Scott Armstrong, the GTAA's manager of media relations.

"In 2006, the GTAA paid $151.8 million in ground rent to the government of Canada, bringing the cumulative total in rent paid since 1996 to over $1 billion - none of which was reinvested back into Toronto Pearson."

Despite this, airports are expanding or updating facilities across the country and they're handling more flights and more passengers.

"Certainly, the airline industry is in an up cycle, but as we know, that can change very quickly," says Edmonton International Airport (EIA) spokesman Jim Rudolph.

Adds the Air Transport Association's Gaspar: "Have we forgotten where we were three, four, five years ago? The fact that we're in a boom period right now does not exclude a future bust cycle."

Even though the federal, provincial and municipal governments collected roughly $1 billion in revenue last year from the air transportation industry in Canada - through taxes and fees that are levied on airports, commercial carriers or passengers, according to the C.D. Howe study - the country's major airports are finding ways to remain competitive and profitable.

Airports in Vancouver and Winnipeg have lowered their landing fees to international carriers - in part due to Open Skies agreements the federal government has signed that liberalize air travel between countries. Others such as Edmonton and Calgary don't differentiate their landing fees between domestic and international flights.

"We could have remained revenue-neutral and reduced international fees and increased domestic fees," says Tony Gugliotta, senior vice-president marketing and commercial development for the Vancouver International Airport Authority (VIAA).

"But we didn't want to do that. We're now below our cost-recovery target, but we expect to get back to cost recovery by 2010."

VIAA says other parts of its operation will keep it from going into the red. It also says the lower landing fees could help it to attract more flights.

Edmonton International Airport is moving ahead with what it calls a potentially revolutionary landing fee plan.

The objective is to give airlines more control if they're more effective.

"If you're more efficient in clearing the gates (safely) and more quickly than your competitors, you're going to get rewarded. We're working toward that new model, but nothing is set in stone yet," says EIA's Rudolph. "We want to make sure the model rewards growth and complies with all regulations. It must be easy to understand and air carriers must maintain service levels."

It's expected that a pilot program will be implemented with one EIA air carrier by the end of the year. The program will run parallel to the existing system during part of 2008, then the authority will compare and contrast the two.

If airlines have more incentives, this will mean a more efficient airport with lower administration costs, Rudolph says. In turn, if the airport is used more efficiently, it will mean long-term savings and slow the need to build new facilities, thereby cutting infrastructure costs.

"As far as we understand we're not aware of another airport, especially in North America, who is looking at this," he adds. "If it proves to be successful and mutually beneficial for both parties, we'd be hoping other airports would adopt this model as well."

The GTAA is hoping its new pressure campaign will persuade Ottawa to allow Toronto Pearson to lower some of the highest landing fees in the industry.

The GTAA says that could also help it to recoup some passenger loss, pointing to one million Ontario passengers who use Buffalo, N.Y., because they can find cheaper flights there.

"Airport rent is responsible for 34 per cent of the landing fees charged to airlines operating at Toronto Pearson. The GTAA has committed that any reduction in ground rent will be passed directly to the airlines through reduced fees," says Armstrong.

But airline analyst Rick Erickson, of Calgary-based R.P. Erickson and Associates, says Ottawa must also take into account issues such as the excise fuel tax and security charges if changes are to be meaningful. But for now, he says, the federal government appears to be in a holding pattern.

"There are no signals. I don't see anything on negotiating airport rent, I see nothing on the excise on fuel tax, nothing even on airline ownership," says Erickson. "They've done some little things, but there are far larger things that need to be addressed."

Winnipeg Airport's Rempel thinks he might know the reason behind Ottawa's silence. "It's a hidden cost and what that means is the average taxpayer - other than when a report comes out and is in the media - doesn't see what the impact really is. It's hidden so deep," says Rempel.

"It (the monies) goes into the general revenues. Nobody sees it, so nobody cares. They only way it will be addressed is if pressure is brought to bear by the general public through an election process."

(Laura Severs can be reached at laura@businessedge.ca)