Most of the cost difference between Canadian and U.S. airfares is attributable to federal tax, fees

MONTREAL At a time when other provinces are moving to encourage airline traffic by decreasing or eliminating aviation fuel taxes, travel agents online Ontario s decision to hike them will likely boost air fares and put the province at a competitive disadvantage, airline and airport officials say. Story continues below
In a budget tabled last week by Ontario s newly elected Liberal government, Premier Kathleen Wynne has proposed to phase in a four-cent-per-litre increase in the aviation fuel tax to 6.7 cents by 2017. The current tax of 2.7 cents per litre has been in place for more than two decades, but would rise by one cent per litre each year.
The increase, which the government has pledged as part of $29 billion it has dedicated to transit and transportation infrastructure uprgrades in the next decade, is expected to add an estimated $100 million in costs for airlines cost that will likely be passed on to consumers through higher fares.
For Air Canada, the estimated $50 million in addition costs represents a fraction travel agents online of the more than $11 billion it spends annually on fuel, salaries, currency fluctuations and other factors, said Tyerman.
Airlines constantly adjust prices for cost increases and declines, but unlike fuel prices and currency fluctuations that can change rapidly, this tax increase is predictable and will be easier to plan for in advance, the analyst added.
He said Ontario s rate would be completely out of whack with other provinces and would be one of the highest travel agents online fuel taxes in North America. The association is calling for the increase to be put on hold while the implications are studied.
British Columbia became the latest province to eliminate its international fuel tax in 2012, joining New Brunswick, Alberta, Quebec and Saskatchewan. Newfoundland and Labrador has no fuel tax for international flights but charges tax for flights to the United States. Manitoba has the highest travel agents online rate at 3.2 cents, but nothing for U.S. and international cargo flights.
B.C. s move to eliminate the fuel tax to match nearby jurisdictions in Alberta, Washington state and California cost the government $12 million in annual revenue. But a report said it generated an estimated $20 million in new payroll and consumption tax revenue in the first year resulting from expanded international flights into the province, said Elizabeth Thomson, public affairs officer for the Ministry of Transportation and Infrastructure.
While some provinces have eliminated fuel taxes on international flights, they all charge for domestic flights, ranging from 0.7 to 3.2 cents per litre. At 6.7 cents, Ontario would be more than double its provincial neighbours. Most U.S. airports charge little or no fuel taxes.
Most of the cost difference between Canadian and U.S. airfares is attributable to federal tax, fees and surcharges, said Susie Heath, press secretary for Ontario Finance Minister Charles Sousa. She said Ontario s fuel tax is significantly lower than what is charged at airports such as London Heathrow and Paris de Gaulle.
We know that these changes affect different communities in different ways, which is why we re working with the Ministry of Transportation to ensure that we are providing relief to vulnerable communities, especially those in remote and northern areas.
That would hamper Air Canada s efforts to make Toronto s Pearson Airport a North American gateway and hurt the smaller airline, Porter Airlines, which uses Billy Bishop Toronto Centre Airport as its network hub.