Airport privatization won’t lead to greater affordability

So, it’s stunning that the Carney government is actively considering — indeed, currently holding talks about — the possible privatization of Canada’s major airports.

It’s even more stunning that the government is doing this, as Transport Minister Steven MacKinnon said last week, because its “ultimate goal” is “to keep air travel affordable for Canadians.”

Really? Should someone break it to them that privatization is not the path to affordability?

In addition to exceptionally high tolls, the 407 privatization has meant that drivers who aren’t able or willing to pay the tolls are confined to the main 401 highway, which often resembles a parking lot.

So, Carney’s move to privatize airports is, let’s say, puzzling.

Of course, not all privatizations are as disastrous as the 407. But one feature they all seem to share is that they ultimately cost consumers more — even though this higher cost is typically denied at the outset, when the privatizers often maintain consumer costs will actually fall.

Interestingly, this was the claim made in the case of the 407 privatization. The Conservative government of Mike Harris argued that drivers didn’t need to fear higher costs because the new owners would likely lower tolls in order to attract more drivers.

Rob Sampson, minister of privatization in the Harris government, explained that this is how free markets bring down prices: “The limit is what the market is prepared to pay.”

But Sampson didn’t seem to realize the 407 doesn’t operate as a free market. You can’t just build a competing highway beside it.

Rather, it’s a regulated monopoly. That’s why it’s so valuable. Millions of Ontario commuters, desperate to speed up their daily commutes, form a captive market, enabling the private consortium (407 International Inc.) to charge exorbitant tolls.

Airports are also regulated monopolies, offering lucrative revenue streams that make them highly attractive to private owners who can raise parking rates and charge airlines higher landing fees, which are passed on in higher ticket prices.

Passengers can’t just switch to another airport any more than Toronto commuters can just move to another highway. In both cases, travellers are captives, even though they paid to build these assets through their tax dollars.

The 407 was sold for just $3.1 billion in 1999 (and is now worth about $40 billion). Imagine if the 407 had remained publicly owned, with all the toll revenue going into government coffers. Or the tolls could have been cancelled.

The good news is that in 2098 — only 72 years from now, when almost everyone reading this will be dead or at least no longer driving — Ontarians will be able to drive toll-free on the 407, just like they now drive toll-free on all other Ontario highways.

The 407 is an example of ruinous privatization.

But there’s also well-documented evidence of problems with hundreds of airport privatizations around the world. A 2022 study published by the U.S. National Bureau of Economic Research examined more than 2,400 airports worldwide; about 20 per cent had been privatized. The study concluded that, while airport privatization can increase efficiency, it often makes flying more expensive for travellers.

Oh well, just because there’s massive evidence that privatization — and specifically airport privatization — leads to higher prices, why not just ignore all that evidence and plow ahead with privatization anyway, especially in the middle of an affordability crisis?

Since privatization clearly costs more, let’s stop doing it.

This article was originally published in the Toronto Star.