The COVID-19 pandemic has affected every part of the Canadian economy, but few sectors have been as impacted as those related to tourism. Restaurants are in limbo, theatres are shuttered, museums are operating on reduced hours, and international air travel is, for most, grounded. The net effect is that 87 percent fewer tourists visited Canada in 2020 than the previous year.

The federal government has responded with various emergency stopgap measures including direct support to the airlines. But as important as these temporary measures may be, they don’t begin to address the long-term challenges facing the Canadian air travel industry which existed prior to the pandemic and, of course, have been exacerbated by it.

Consider this: according to Deloitte, while Canada was the world’s second most popular travel destination in 1970, it had fallen to eighteenth by 2011. Even before the pandemic, in other words, Canadian tourism was on a secular decline.

Considering all that Canada has to offer, from world-class cities to internationally recognized national parks, it’s a bit perplexing that we’ve experienced this relative drop in tourism. The answer, at least partially, is a relatively unknown bureaucratic nightmare: the National Airports System (NAS).

The NAS is comprised of 26 airports in Canada which handle virtually all of the nation’s air cargo and international passenger traffic, and 95 percent of domestic passenger traffic. These airports, which are designated by Transport Canada as “essential to Canada’s air transportation system,” include Vancouver Airport, Toronto Pearson Airport, and Montréal-Pierre Elliott Trudeau Airport. These aren’t, in other words, small potatoes operations; if you’ve flown commercially in Canada, you’ve flown through a NAS airport.

The operational structure of these airports is unique: the federal government retains ownership of NAS airports through Transport Canada, while the operational, managerial, and developmental responsibilities are managed by Canadian Airport Authorities (CAAs). Airport authorities are not-for-profit corporations governed by a board of directors which include several government representatives, an organized labour representative, and a representative for consumer interests. If you’ve flown through Toronto Pearson Airport, for instance, you may have seen information provided by the Greater Toronto Airports Authority, the CAA which operates Toronto Pearson.

CAAs, by law, must operate self-sufficiently without federal government subsidies by levying fees on travelers and carriers to pay for airport expenses. But that’s not all. They’re also required to provide rental income to the Canadian federal government. As a 2000 Auditor General’s report explains: “as owner/landlord of transferred airports in the National Airports System, the government is entitled to receive rent from each airport authority for the use of land and airport facilities.”

These rent payments, which are passed onto the consumer via ticket pricing, can represent more than 10 percent of airport revenues. The Canadian Airports Council, an advocacy group supported by airport authorities, notes that airports provided “$368 million in federal rent [in 2017 alone]—and more than $5.6 billion transferred back to the federal government since 1992.”

But calling these payments “rents” is a bit of a misnomer. The federal government does not provide any additional services or material improvements in exchange for receiving these rents. Much like a slumlord, Transport Canada enriches itself without improving its rental properties.

So, how does this system impact consumers? The short answer is in the form of higher ticket prices. In 2015, Canada was ranked 130th out of 138 countries in terms of ticket taxes and charges imposed on airports. But the longer answer is in the form of the opportunity costs of passengers who choose to travel elsewhere as a result of these higher travel costs.

While it’s necessarily difficult to measure, the number of Canadians flying out of American airports instead of nearby Canadian airports for international travel is a possible proxy. Buffalo Niagara Airport has a Canadian Info section on its front page, while Plattsburgh Airport proudly advertises itself as Montreal’s U.S. airport. That these airports see Canada’s high travel costs as a market opportunity is ostensibly a sign that there’s a need for change.

As Canada aims to recover from the COVID-19 pandemic, seeking to stimulate economic growth in the restaurant, tourism, and entertainment industries, the federal government should consider eliminating NAS airport rents.

The one major obstacle to reform is the intersection between politics and fiscal policy. Although the federal government generates considerable revenue from these rents, air travel customers only pay modest fees. These small fees are in essence a hidden tax levied on consumers who travel by air. It’s a classic case of concentrated benefits and dispersed costs.

But just because these costs may be small in relative terms, it doesn’t mean that they don’t have individual or collective consequences. Considering that a frequent vacationer travelling to an expensive getaway at an all-inclusive resort and a first-time traveller who has saved up to visit family overseas are subject to the same fees, this hidden tax is, by definition, regressive. Travellers pay a smaller proportion of their income on rent fees as their incomes increase.

Notwithstanding this political economy issue, there may be reason to be optimistic about the potential for reform. The federal government has deferred and waived rent payments from NAS airports in response to the pandemic, and in the most recent Transport Canada Fees Report, the Transport Minister Omar Alghabra writes that “as we continue to review fees, we are considering the economic impacts of the global pandemic and the recovery of the transportation sector.” Perhaps, then, the pandemic may be an impetus to revisit this long-standing policy.

There are also clear impacts beyond tourism. A study by Deloitte from 2013 estimated that a “1 percent increase in international arrivals to Canada… results in total Canadian exports rising by $817 million.” Businesses are more likely to import products from countries that their personnel have visited. Increasing the number of international travelers to Canada increases demand for Canadian products, services, and talent around the world. Lower air travel costs will also incentivize Canadian travelers to use Canadian airports instead of nearby American airports, thereby increasing federal tax revenue.

Cultural industries benefit as well. Tourists visiting Canada go to museums, attend art shows, watch concerts, drink craft beer, and purchase Canadian artisanal products to bring home as souvenirs. Increasing the number of international tourists will necessarily increase the number of cultural customers in the country.

When travel opens up again and we seek to “regain altitude”, one step that Ottawa can take to boost the economy in the short- and long-run is by permanently waiving National Airports System rents.

Ontario Premier Doug Ford has announced another round of measures in yet another attempt to control the spread of COVID.  

In his press conference to justify this new round of the same old measures that Ontarians have been put through two times before, Ford stressed the real reason behind them: “we must do everything in our power to protect our hospitals.” 

Protecting the health care sector was the impetus for every single previous round of lockdowns as well. In a province where the number of hospitals is fixed, this is a logical policy to follow. But after two years of the same excuse being trotted out to close businesses and tell people who they can and can’t invite into their own homes, it’s time to rethink the system of a government monopoly on hospitals. 

Breaking this circuit won’t be a quick and easy fix. But a good place to start would be permitting private hospitals. 

New private hospitals have been banned in Ontario since the early 1970s, with the Private Hospitals Act. Yet attempts to repeal this act would not be unprecedented. As recently as 2018, Kathleen Wynne’s Liberal government tabled an omnibus health bill, which included a schedule to overturn the ban immediately. Intense lobbying, including by public sector unions and their allies in government-run health care, ultimately erased that provision. As a result, the same problems of hospital overcrowding persisted, and are now being used to justify Ford’s fourth lockdown in less than two years. 

While initially promised as a kind of bionic panacea to providing medical care for all, over the decades the government-owned and operated hospital sector has developed to be more like a gangrenous limb in need of amputation. 

Immediately allowing a free market in hospital construction and operation would be just the hatchet to do the trick. 

Very little attention has been paid to the fact that Ontario’s health care system, especially in Toronto, has been overwhelmed for many years before the pandemic. In fact, one can find articles for nearly every year before 2020 talking about our hospitals being overwhelmed by the seasonal flu: 

• Hospitals overwhelmed by surge of flu cases, January 12, 2011
• Surge in flu cases has some overwhelmed Canadian ERs telling would-be patients to stay away – December 30, 2014
• Surge in patients forces Ontario hospitals to put beds in ‘unconventional spaces’ – April 16, 2017
• Surgeries postponed due to severe flu cases overwhelming Toronto ICU – February 13, 2018
• Bodies left in hallways at overcrowded Ontario morgues – December 17, 2019

When the government owns the means of production and systematically under-prices its services, shortages are bound to develop as services get overused. This is the case with “free” health care in Ontario. Government decisions are not made based on profit and loss of market prices. Rather, they are made based on political expediency. 

Hospital construction should be just as easy (if not easier) as building a mall, a condo, or a factory. We can’t afford the lives and livelihoods lost otherwise. Whether they run it for profit or not, or how close they are to other existing government hospitals, or even what kind of doctors they hire, should be entirely left up to the entrepreneur taking the risk of competing with the government. We’ve tried central planning these decisions for the past 50 years, and look where it’s gotten us. 

Ontario has only built one net new hospital (not counting replacement buildings etc.) for its population in 30 years, despite 5 million new residents. During the same period, government spending on hospitals has skyrocketed, from $6.6 billion in 1990 (about $12 billion in today’s dollars) to $22.4 billion in 2019. 

Compare these stats with developments in breast augmentation, laser eye surgery, and other cosmetic procedures fulfilled by the private sector. They have drastically fallen in price while becoming more available. Perhaps those responsible for health policy should take a closer look at the market for mammoplasty for inspiration. 

Repealing the Private Hospitals Act will invite many attacks by those vested in the current system. It will require political courage. That’s why the Liberals should be commended for even trying to overturn this disastrous policy. The first step Doug Ford will have to take is to be as courageous as Kathleen Wynne. 

Too sick; too frail. That’s the Ontario government-run health care system in a nutshell. The only prescription is a radical diet of free markets: private hospitals, private accreditation standards, and the end of lockdowns.