Debt-heavy and pandemic-bruised, why some airports are raising fees
Despite a return of passengers to the sky, many airports across the country are struggling to balance their books, manage their bloated debt levels and raise enough money to make necessary infrastructure repairs and improvements.
In some cases, that includes hiking passenger fees to help alleviate financial pressures.
The largest airports are recovering much faster compared with those in smaller cities, as passenger activity and reduced airline service continues to hamper their financial situation.
In Fort McMurray, Alta., the airport can handle up to two million passengers annually, but currently the facility is on pace to see only about 300,000 travellers this year. The 19 daily flights before the COVID-19 pandemic began three years ago have been reduced to between nine and 11, depending on the day of the week.
The airport authority is carrying what it describes as a “significant” debt of $167 million after a major expansion project was completed in 2014. The organization is running a deficit and relying on its reserve funding to balance the books, as management doesn’t expect passenger activity to fully rebound until at least 2025.
Airports in Canada operate as not-for-profits, relying on passenger, aircraft and fuel fees to generate most of their revenue.
“The [passenger] numbers are still not where we’d hoped they would be,” said Denean Robinson, president and CEO of the Fort McMurray Airport Authority, which received about $36 million in pandemic financial support from all three levels of government.
“We’re struggling as many airports in Canada are,” she said. “The level of debt that we had taken on when this terminal was open was certainly sustainable with the volume of passengers that we had going through with the level of fees. The issue is that we don’t have that top-line revenue now to support that debt payment.”
The airport charges an airport improvement fee of $40 per passenger, which is among the highest in the country. Management will review the fee at the end of the year.
“We do what we can to try to maintain our fee structure. But when all else fails, if we need to raise that top-line revenue growth, we will have to look at raising those fees,” Robinson said, adding that financial pressures could also result in more congestion and longer lineups as airports delay necessary improvements.
Rising costs for airports
Toronto’s Pearson International Airport boosted its fees on Jan. 1, while Regina’s airport is increasing its rates beginning April 1.
“This user-pay system works fine, but when we went into the pandemic there were no users,” said Barry Prentice, a professor at the University of Manitoba’s Asper School of Business in Winnipeg who specializes in transportation. He described the escalating charges as “outrageous.”
The fees are often criticized by airlines and passengers because they drive up the cost of air travel in the country.
“A number of our airports did have to increase their airport improvement fees throughout the pandemic,” said Monette Pasher, president of the Canadian Airports Council (CAC).
The organization estimates the federal government provided about $1 billion in financial support. Still, airports collectively added $3.2 billion in debt to maintain operations during the pandemic, she said, which puts many airports on “challenging financial footing.”
“Pre-pandemic, this model was working well. The people who use the system pay for the system. We had award-winning airports and things were going quite well. It’s really challenging in a not-for-profit model and a user-pay system to get through two years of a pandemic,” Pasher said.
The federal government collects about $400 million annually in rent payments from airports, she said, and the CAC is asking the government to reinvest that amount back into airport infrastructure for the next decade.
Generally, Canadian airports are in a tougher position financially compared with those in the United States because of the level of government aid during the pandemic, according to a recent report by DBRS Morningstar, a credit rating agency.
“We expect air travel recovery to continue for Canadian airports. Nevertheless, the limited financial support from the federal government over the past two years will reduce the financial capacity of the Canadian airports to take on any significant debt-funded capital programs,” the report’s authors wrote.
New technology could be the answer
During the darkest days of the pandemic in Calgary, only about 200 people would walk through the airport terminal, which can handle 60,000 passengers. For Bob Sartor, president and CEO of the Calgary Airport Authority, it was like looking into the abyss, not knowing how long it would take for the hustle and bustle of travel to return.
His outlook has drastically improved, with the airport now projecting to reach pre-pandemic passenger levels this year.
“We’re really happy. We’re the most recovered airport, certainly of the large airports,” said Sartor, who has announced he will step down in the months ahead.
“It feels really good to be able to say I’m leaving an airport that has a great growth trajectory.”
While Canada’s major airports have experienced the quickest rebound, they still face challenges to keep fees in check, while improving the passenger experience.
Technology and other upgrades could be the answer in containing rising passenger fees, Sartor said, such as facial biometrics, self-boarding and self bag-drops.
“They’re low cost, they’re low-hanging fruit and they make a tonne of sense,” he said.
“There’s so many ways in which we can reduce the pinch points at an airport through technology and policy improvements on the part of the federal government that would allow us to not spend more to build a bigger hold room for customs, the check-in area or a bigger security screening area.”
The Calgary airport is not considering raising its passenger fee in 2023.
The airport is carrying about $3.3 billion in debt, but the airport authority has said the pandemic will not have a material impact on the facility’s long-term financial sustainability.
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