Thank you, Mr. Chairman.
Good morning, ladies and gentlemen. My name is Sam Barone, and I'm the president and CEO of the Air Transport Association of Canada, representing Canada's commercial aviation industry.
I would like to first thank the members of this committee for inviting us here today and to congratulate you for your initiative to examine the state of Canada's service sector.
It is probably fair to say that no service sector operates under as much scrutiny and is as vital to Canada's economic interests as our air travel industry. Every day our members connect tens of thousand of Canadians and their products to each other and the world. Put simply, commercial aviation is a vital input into every segment of the economy in Canada.
With this perspective in mind, I would like to share some thoughts with you about how we can best ensure the ongoing availability of world-leading fare and service options for Canadians.
As many of you will already know, Canada's commercial aviation industry is enjoying an upswing in fortunes over the recent past after a decade of often difficult restructuring. Even in these very good times, however, ours is still a volatile business that is highly vulnerable to global economic and geopolitical shocks. With high fixed costs, low margins, and oil hovering at around $100 U.S. a barrel, we must remain vigilant to ensure the sustainability of a healthy aviation sector in Canada.
While carriers have succeeded in reinventing themselves in response to the new permanent reality of a low-cost air travel model, our ability to sustain that service standard, especially in light of growing economic pessimism, is being dragged down by a highly punitive, industry-specific taxation regime that limits investment in new service and fare options for Canadians--goals that, as I suspect you might agree, ought to guide the policy framework for our sector.
The airport rent regime, for example, along with other input taxes drains approximately half a billion dollars a year out of our sector. Every year the Government of Canada collects between $200 million and $300 million in rents from not-for-profit airport authorities for simply having the facilities that they entirely built and paid for on crown land.
As you well know, these airports were transferred in the 1990s as a deficit-cutting measure. Transport used to lose millions of dollars a year running these airports and had no financial means to invest in the upgrades that these increasingly old facilities would require. Once they transferred the responsibilities to these local airport authorities, they absolved themselves of all financial responsibilities while guaranteeing themselves perpetual rents. Unlike any other landlord-tenant relationship, the tenants--more accurately, our customers, the passengers--of the airports are the ones who pay all the costs, including the cost of building the place.
I began my remarks by referring to the strategic importance of our sector to Canada's broader economic interests. Committee members would do well to ask themselves about the effect of such punitive aviation taxes on our tourism and hotel sectors as well as other key service industries.
In addition to rent, the air traveller security charge represents another critical element of taxation policy deserving of reconsideration. The air transport security charge now has a surplus, according to the Department of Finance, of over $80 million. Since its inception in 2002, it has taken $200 million in excess revenues.
The fuel excise tax is another industry-specific tax policy that has to be reconsidered. Originally introduced in the 1980s as a deficit-fighting measure, this surcharge imposes a 4¢-per-litre levy on jet fuel, which is four times that in place in the United States. With fuel as one of our top costs, we estimate that the Government of Canada, on this fuel tax alone, took $100 million. This is at a time when we have $12 billion U.S. outstanding on new aircraft on order.
We should help lower the costs of doing business to encourage a healthy, competitive industry, which should be taxed as all other sectors are, on the outputs of their business activities--namely, profits and wages.
In various policy statements, programs, and initiatives, we hear the right kind of messaging that is very much reflective of what we are calling for here today. Advantage Canada, the Pacific gateway strategy, Transport Canada's own blue skies initiative, slogans such as “A strong economy, a strong Canada”--these are all designed to aid and leverage Canada's international competitiveness.
What we can't figure out, Mr. Chairman, is why these high-minded programs and the principles they are based on are not applied to our sector. Other countries, such as Singapore and the UAE and Dubai, have all figured out the strategic importance of their aviation sectors by addressing their fiscal and policy frameworks first.
Let's recall that we're talking about a tangible and direct contribution to Canada's GDP. Every time a foreigner flies on a Canadian carrier, we are an exporting industry, which shows up on the balance of payments. Canada, on the other hand, chooses to treat its aviation sector as a cash cow.
I hope, Mr. Chairman, that I have shown you a vision of how fiscal and taxation policy in our sector can and should be changed to promote growth and innovation and investment--in short, to promote an advantage for Canada in domestic and global aviation. Policy can and should be used as a strategic instrument to enhance Canada's place in a competitive world and to keep Canadians connected to each other and the world.
With that, Mr. Chairman, I thank you once again for inviting me here today, and I look forward to the panel's questions.
Thank you.