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I'm going to enjoy the popcorn and watch the whiners come out "http://business.financialpost.com/news/transportation/air-canada-wants-torontos-pearson-airport-to-be-a-mega-hub-but-high-costs-stand-in-the-way" "Canada has long been an afterthought for the global aviation market, an out-of-the-way destination with taxes and fees so high that some five million Canadians a year trek across the border to fly out of cheaper U.S. airports. But Air Canada and the Greater Toronto Airports Authority (GTAA) are determined to flip that view on its head by turning Toronto’s Pearson International Airport into a mega-hub on the scale of Amsterdam’s Schiphol, Singapore’s Changi or Dubai International Airport. Pearson is already well on its way to meeting that goal since it attracts more international passengers than any other airport in North America except John F. Kennedy International Airport (JFK) in New York City. Toronto’s primary airport is now the fourth-largest entry point by air into the United States, surpassing many large U.S. airports, according to National Bank analyst Cameron Doerksen. But to become a true mega-hub comparable in scope and status to the Dubais of the world, a lot needs to change. Pesky taxes and fees make Pearson “the most expensive airport in the world at which to land a plane,” according to a 2012 Senate report. There’s also the problem of congestion — in the airport, on its runways and on surrounding roadways — that will only get worse unless significant investments are made in infrastructure. If these issues aren’t addressed, Pearson could miss out on an opportunity to become part of the exclusive mega-hub club — there are currently only 11 worldwide — and all the attendant economic benefits, including the creation of more than 200,000 jobs in the area. Jack Boland / Toronto Sun / QMI Agency Jack Boland / Toronto Sun / QMI AgencyToronto's Pearson International Airport is a hub for passengers coming into Canada domestically and internationally. The GTAA, which manages and operates Pearson, defines a mega-hub as an airport that processes 50 million passengers a year, including at least 20 million international passengers, and connects to 80 per cent of the global economy. Pearson is pretty close to those numbers. In 2015, it moved 41 million passengers, including 25 million international travellers, and connected to 67 per cent of the global economy. It was recently ranked 19th in the world for its connectivity — sandwiched between Philadelphia, which is not a mega-hub, and Frankfurt, which is — by air-travel intelligence company OAG. There’s plenty of potential for further growth at Pearson. Howard Eng, GTAA’s chief executive, said the airport has the largest catchment area — defined as the population within a 90-minute flight — of any airport in North America, bigger than even JFK or Los Angeles International Airport (LAX). Pearson also has an enthusiastic partner in Air Canada, which accounts for 57.6 per cent of the airport’s seat capacity, according to the Centre for Aviation, and has been pursuing an aggressive international growth strategy using its new fleet of Boeing 787s. To support Air Canada, the GTAA has agreed to fix the airline’s fees for 10 years in exchange for agreed-upon passenger growth targets, and will offer rebates if it exceeds those targets. “They want to be a mega-carrier and, as a result of that, they need a mega-hub to work out of,” Eng said in an interview. “We’re both aligned on the concept.” One of Air Canada’s main growth pillars is expanding so-called sixth-freedom traffic, or traffic from a second country to a third country via an airline’s home market. In Air Canada’s case, that primarily means Americans travelling from their home cities via Toronto to destinations in Europe or Asia. The airline’s stated goal is to attract a 1.5-per-cent “fair share” of the U.S. sixth-freedom market, which would add $600 to $700 million in incremental revenue, but chief executive Calin Rovinescu said it can probably do “much better than that.” “We’ve been basically increasing our sixth-freedom flying by mid-to high-teen (percentages) in each of the last two years,” Rovinescu said in a recent interview. He hopes to turn Pearson into a “world-class hub” comparable to Amsterdam, Singapore or Dubai. Related How you can nab premium flights without paying through the nose Air Canada ready to compete with new, low-cost airlines, CEO says “Those countries don’t have a large population base, but they have built very powerful hubs,” Rovinescu said. “Toronto is still relatively speaking underserved in terms of the catchment area and the market potential for it.” But in order to become a truly successful mega-hub, Pearson will need to overcome two major limitations. The first is those exceedingly high costs that drive so many Canadians to U.S. border airports — the equivalent of 64 Boeing 737s every day, according to a 2012 report by the Standing Senate Committee on Transport and Communications. The World Economic Forum’s 2015 Travel and Tourism Competitiveness Report ranked Canada 124th out of 141 countries on price competitiveness. This is a function of Canada’s “antiquated” national airport model, according to a recent review of the Canada Transportation Act (CTA) by former federal cabinet minister David Emerson. In 1994, the federal government transferred the management, operation and development of 26 major airports to non-profit airport authorities while retaining ownership of their land and fixed assets and charging them rent. The GTAA pays Ottawa $130 million a year in ground rents for Pearson. Add in government security charges and, in Ontario, a jet-fuel tax that will hit 6.7 cents a litre by April 2017, and the airport is at a real cost disadvantage compared to its competitors. Tyler Anderson/National Post Tyler Anderson/National PostHoward Eng, president and CEO of the Greater Toronto Airports Authority (GTAA) Pearson’s landing charges alone are “twice that at Boston Logan, a third more than at Chicago O’Hare,” said David Bentley, chief airport analyst at the Australia-based Centre for Aviation. “You know why that is? It’s because of the ridiculous rents that they have to pay.” Emerson’s review of the CTA concluded that the solution is to move towards a fully privatized, for-profit structure with equity-based financing from large institutional investors. “Will privatization make a difference to Canada? I think it probably would,” Bentley said. “Toronto would become more efficient in terms of its costs to airlines and, therefore, could compete better with the likes of Chicago and other airports in the region.” Eng at the GTAA will not say whether he’d prefer a share-capital structure to the current non-profit system. But he’s quick to emphasize that Pearson is already run like a private entity, paying down $500 million in debt over the past four years and investing $700 million of capital in airport infrastructure and amenities since 2010. Pearson has also frozen or reduced the airlines’ average aeronautical fees per passenger for eight consecutive years, for a total reduction of 30 per cent since 2007. “We run it like a private corporation,” Eng said. “My focus is on how we can generate the revenue in order to pay down the debt, reinvest in the airport and create the facility that’s needed to process the passengers.” The second limitation at Pearson is congestion. The airport’s passenger traffic has grown so rapidly that the airport’s infrastructure — its security and customs checkpoints, runways, de-icing stations and even the surrounding roads — are having trouble keeping up. “A lot of people say there’s no competition for airports because every city has one large airport,” Eng said. “But once you’re into the global hub status, in Pearson’s case almost 35 to 40 per cent of our traffic is what we call transfer traffic, they have a choice.” Passengers who are connecting to another destination are generally looking for the shortest connection time, he said. To that end, Pearson is working to improve the flow of passengers and luggage by offering things such as self-serve baggage drops, automated border kiosks and automatic luggage transfers for passengers travelling from certain global cities to other Canadian destinations. However, Eng stressed that Pearson also needs the government’s help to speed up security and border processing times, which are notoriously slow. Most passengers at Pearson wait 20 minutes for pre-board screening compared to five minutes for 95 per cent of passengers at London’s Heathrow Airport and Hong Kong International Airport. “We’re not asking for a special favour, (just) that they provide their processes in a manner that is equivalent to what the best airports are doing around the world,” he said. Ernest Doroszuk/Toronto Sun/QMI Agency Ernest Doroszuk/Toronto Sun/QMI AgencyTravellers at Terminal 1 at Toronto Pearson International Airport The GTAA is also working with other airports in southern Ontario, including those in Hamilton, London and Kitchener-Waterloo, to encourage them to take some of the burden off Pearson by providing more short-haul, private-jet, cargo and charter flights. Another key part of Pearson’s mega-hub strategy is to improve the notoriously bad road traffic around the airport region. According to the GTAA, only 10 per cent of Pearson’s passengers arrive on public transit compared to 39 per cent in Amsterdam and 63 per cent in Hong Kong. A recent study by the Neptis Foundation found that there are a million car trips per day in and out of the Pearson region by employees and travellers. The recent launch of the Union Pearson Express rail line to downtown Toronto has helped, but “not enough,” Eng said. “We probably need various domestic lines, special lines, high-speed rail lines,” he said, adding that the GTAA is prepared to help fund the development of a ground-transportation hub at the airport, but it will need government support as well. fp1201_mega_hub_transitIf Pearson isn’t able to lower its costs and improve its infrastructure, it could miss out on a huge potential economic opportunity. According to Frontier Economics, becoming a mega-hub will increase the airport economic zone’s GDP by 75 per cent to $62.1 billion and create more than 200,000 jobs by 2030. “Airports are changing from city airports to airport cities,” said John Kasarda, director of the Center for Air Commerce at the University of North Carolina. Kasarda devised the concept of the “aerotropolis,” a notion that airports are far more than just transportation infrastructure, but rather anchors of regional business development. “The 21st-century airport is quite different than the 20th-century airport,” he said. “They’re multi-modal, multi-functional enterprises that attract a substantial amount of commercial development.” This can create a virtuous circle of expansion, Kasarda added. “Not only does the better airline connectivity, the route structure, serve as this magnet for business, but as business grows it generates greater volumes of passengers and cargo, which supports more airline connectivity,” he said. “It’s mutually reinforcing.” Smoother connections can also help keep airlines’ costs down by generating more non-aeronautical revenue from retail, restaurants and other services. “It’s a necessity, not an option,” Kasarda said.