NYTimes.com Article: Sky's the Limit for Canada's Air Taxes

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Sky's the Limit for Canada's Air Taxes

October 1, 2002
By BERNARD SIMON






TORONTO, Sept. 30 - WestJet Airlines of Calgary set out to
prove a point in the summer by offering what it described
as a "ridiculous" fare of 3 Canadian dollars ($1.90) one
way, or twice that for a round trip, on two of its busiest
short-haul routes.

The catch was that the fare excluded taxes. Anyone wanting
to take up the bargain, valid for just one Sunday, had to
pay what WestJet called the equally ridiculous array of
fees, taxes and surcharges imposed on air travel in Canada,
some by airlines but mostly by airports or the government.

All those charges raised the final cost of that 6 dollar
round trip to more than 80 Canadian dollars ($51).

(A typical price for a round-trip ticket on one of the two
routes, between Ottawa and Hamilton, Ontario, was 315
Canadian dollars ($199) in a recent week, or 399.57
Canadian dollars ($253) with taxes and fees.)

Canada's airlines and travel agents are up in arms over
these charges. Though the charges appeared gradually over
the years, they say, they are pinching particularly hard
now, as the travel industry struggles to recover from the
downturn in traffic after last year's terrorist attacks on
the United States.

The extra charges "actually scare the client away," said
Ornan Sharaby, an agent at Travel for Less in Thornhill,
Ontario. "They don't understand how taxes can be so high."

Most nations, including the United States, impose taxes
and fees on air fares, but the airlines say Canada's are
much higher than those in the United States and rank among
the highest anywhere. Six separate charges are typically
added to a basic air fare. Tango, Air Canada's no-frills
arm, offered a bargain one-way Web fare of about 62
Canadian dollars ($39) from Toronto to Ottawa for a flight
leaving today. But passengers must also pay a fee to help
maintain the air traffic control system; surcharges to
cover the airline's rising insurance and fuel costs; an
"airport improvement fee" for Lester B. Pearson Airport in
Toronto; an air travel security tax; and goods and services
sales tax, including tax on the security tax. That brings
the total cost to about 119 Canadian dollars ($75), or
about 92 percent more than the basic fare.

The charges are "insensitive to the carrier's economic
circumstances," said Warren Everson, vice president for
policy and strategic planning at the Air Transport
Association of Canada, an airline industry lobby group in
Ottawa. Airlines, he said, should be taxed on profits, not
on costs.

Travel agents are equally critical of the fees, but they
also accuse the airlines of deceptive advertising, by
headlining only the basic fare and hiding all the extras -
including the insurance and fuel surcharges - in the fine
print. "One of our goals is fair advertising," said Louise
Crandall, a vice president at the Association of Canadian
Travel Agents in Ottawa.

Mr. Everson said that the airlines were "sensitive to the
point," but that including the taxes in the advertised air
fare would be "tantamount to concealing who's getting the
money - it's because of costs that other people are putting
on our tickets."

The airlines complain that because most of the charges are
fixed amounts, they have a disproportionate impact on the
lowest fares, which are typically for short routes where
competition from rail and bus services is most intense.

Whatever the cause, the airlines' pain does seem to be
rail's gain. For example, the number of first-class train
passengers between Toronto and Montreal grew 32 percent in
the first eight months of the year, compared with the 2001
period, said Catherine Kaloutsky, a spokeswoman for VIA
Rail Canada, which runs the country's passenger rail
service. Though a discount air fare between the cities is
cheaper than a first-class train ticket, the two work out
about the same after taxes and surcharges.

Still, Canadian airlines are generally faring better than
their American counterparts. Helped by the collapse earlier
this year of Canada 3000, a discount carrier that had
garnered about a fifth of the domestic market, Air Canada,
the dominant carrier, reported net earnings of 30 million
Canadian dollars in the second quarter and said it expected
to be profitable again in the third.

The brash, low-cost WestJet, which models itself on
Southwest Airlines of Dallas, has reported profits for 22
consecutive quarters.

The airlines say, however, that their financial health is
fragile. The extra charges "are money out of our pockets,
and we don't have much money in our pockets right now,"
said Mr. Everson of the Air Transport Association.

The loudest protests are leveled against the security tax,
which was put in place on April 1 to cover the 2.2 billion
Canadian dollars being spent to upgrade security measures
at Canadian airports.

The security tax is 12 Canadian dollars, counting the tax
on the tax, for each domestic flight or flight to or from
the United States, and double that for each one-way or
round-trip ticket to any other country. According to Mr.
Everson, the Canadian security tax is the highest in the
world, and as much as three times the $2.50 security charge
levied on each leg of an American domestic flight up to a
maximum of $10.

WestJet says that load factors - the percentage of seats
sold - on its Calgary-Edmonton and Hamilton-Ottawa routes
have dropped each month since the security tax was
introduced. The airline canceled 13 flights a week between
Calgary and Edmonton from April to June, and two flights a
week between Vancouver and Kelowna, British Columbia,
another short route.

In response to the complaints, Canada's Department of
Finance, which estimates that it collected 48 million
Canadian dollars from the security tax from April to June,
has hired consultants to review the tax. According to
Jean-Michel Catta, a spokesman for the department, the tax
will be reduced if revenues exceed the costs of new
security projects.

Mr. Catta said, however, that since the Sept. 11 terrorist
attacks, the government had taken over many airport
security functions that used to be the airlines'
responsibility.

Even if the security tax does come down, the drop could be
offset by increases in other fees. The Ottawa Airport
Authority, for instance, said recently that it would raise
its airport improvement fee in January to 15 Canadian
dollars from 10.

http://www.nytimes.com/2002/10/01/business/worldbusiness/01AIR.html?ex=1034477964&ei=1&en=8ba7144ef06a77ac



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