At a time when other provinces are moving to encourage airline traffic by decreasing or eliminating aviation fuel taxes, Ontario's decision to hike them will likely boost air fares and put the province at a competitive disadvantage, airline and airport officials say.
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 of the more than $11 billion it spends annually on fuel, salaries, currency fluctuations and other factors, said one expert.
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.
However, the association that represents Canada's largest air carriers said the tax increase will put Ontario at a disadvantage.
"I suspect maybe other provinces feel they are more competitive now," said Marc-Andre O'Rourke, executive director of the National Airlines Council of Canada.
He said Ontario's rate would be "completely out of whack" with other provinces and would be one of the highest 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 rate at 3.2 cents, but nothing for U.S. and international cargo flights.
