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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

Can ‘smart socialism’ keep our airports alive?

Herb Emery

As Canada faces a second wave of COVID-19, Prime Minister Trudeau recently assured the premiers his government is prepared to offer more support. But he also reminded them that “our resources are not infinite.” So much for Modern Monetary Theory…

The prime minister’s warning continued that “If we have limited resources, we may at some point have to choose between helping one region or another,” something he referred to as “impossible decisions... down the road.” With few COVID-19 infections to create the same needs as other surging provinces like Manitoba, and few votes compared to larger provinces, Atlantic Canadians should be worried that we are likely on the losing side of the prime minister’s “impossible decisions.”

To date, the federal government has shouldered much of the burden of the pandemic economic disruption. Transfers like the Canada Emergency Response Benefit have proven popular, and many called for the CERB to be made permanent. Yet the vast sums of federal borrowing done so far during the pandemic for “me first” socialism have not been particularly stimulating for the economy. If we want to be socialists to “build back better,” then I think we need to rethink how the federal government is using its less-than-infinite resources and do something that we could brand as “SmartSocialism.” After all, putting “smart” in front of any word makes it better, don’t you think?

There is no better application for SmartSocialism than our province’s airports. I recently had the opportunity to tour the renovated YFC terminal and it is an impressive change from the dingy, cramped facility that I last flew out of in February 2020. As hard as it is for New Brunswickers to appreciate, prior to COVID-19, residents of this province had good access to flights connecting them to Canadian hub airports. That’s true even when compared to many Ontarians and Quebecers, who also have to drive for hours or catch connecting flights to those same hub airports.

Could our air services have been better? Sure. We could use direct connections to some U.S. destinations to support business travel. We could have more frequent flights throughout the day. And prices for travel could always be cheaper, right? 

Well, those were the pre-COVID concerns. 

The business model for airports, at the risk of over-simplification, is that of “tolled infrastructure,” where the users pay fees to cover the costs of operations and capital. With the rise of air travel over the past decades, displacing travel by automobile and train, this approach was not that big a problem, other than travelers don’t like paying the fees and would prefer someone else pay for the infrastructure.

Now, however, with air travel in the province down by close to 90 per cent, the airports aren’t generating revenue that is even close to the costs of remaining open. CERB, wage subsidies, loans to business, rent relief and the whole host of other popular “me first” socialist policies don’t resolve this financial pickle for airports, because people simply aren’t travelling. Add to this the fact that, in our Atlantic Aquarium, incoming passengers are required to self-isolate for 14 days, a time tax which further dims the prospect of revenue for our airports. 

Airlines are large, profit-maximizing corporations with head offices that are not in the Maritimes. In the absence of regulation or mandates, they will likely not choose to serve airports that do not generate enough traffic to cover their costs. If a federal solution for bailing out the airlines is to weaken the regulations that smaller less profitable routes be maintained, then our province is at risk of losing air service. And it is my impression that those in the air transportation sector believe that it is much harder to get the service to come back than it is to keep it. 

So what is to be done? Well, Stephen Harper’s approach to socialism for the automakers back in 2008 is one idea. Let’s have the federal government own a stake of the airports and borrow to keep the operations going, whether people travel or not. That could keep airports open, but it may be futile if the lack of travelers results in air carriers pulling out of the market. 

Another application of the Harper socialist strategy would be for the federal government re-nationalizing the airlines and operating them as a crown corporation. This could happen anyway for at least one airline if it starts to go bankrupt, but even with a federally owned Air Canada, with regulations to serve all markets, it is hard to believe that we would have service that we like.

One final option is to socialize the demand and payment for air travel like we do with another favourite federal priority, public transit. Outside of Toronto, most public transit relies on public spending for its operations. This is economically justified because there are important social spillovers from accessible and affordable transportation. Public transportation is a system that needs to operate to maintain ridership, whether or not people ride the buses and trains.

With this final option, the federal and provincial government could guarantee the revenue for flights and airport fees for a set number of seats on flights to and from our airports, whether anyone is on the flight or not. The ticket sales revenue as travel recovers would then reduce the required federal expenditure under the revenue guarantee. With revenues and airport fees guaranteed, this would shield third parties like the airport authorities from the financial harm arising from public preferences for stringent conditions for travelers entering the Atlantic bubble.

With my crazy idea, if the federal government wants to subsidize air travel, then they can do so since they make up the revenue differential. And more pilots, cabin crews and airport workers can keep their jobs, reducing pressure on other federal supports like EI. 

Given that pre-COVID passenger volumes at the three airports were well over one million, the federal government may need to pay airlines up to $250 million to fly the same schedules as last year without any passengers. I am assuming that they would not charge themselves all of the federal taxes they charge us. That amount may seem high, but for comparison, 168,000 New Brunswickers received a total of $1.5 billion in just six months from CERB. And as more people choose to fly, the federal expenditure under the guarantee automatically falls. If this experiment works, then post-COVID-19 the same approach could be considered for securing a regular flight or two to U.S. destinations. 

Many of you will consider my ideas bizarre. Why would the government pay for empty planes to fly? Consider that my SmartSocialism approach creates incentives for governments to find and implement solutions to get the industry back toward recovery and growth. With my socialist proposal, the government will have a big fat incentive to figure out how to get people flying safely to avoid paying out. They will find more reason to invest in rapid testing, more effective contact tracing and other protocols so that they can avoid this tax expenditure on empty planes. As it stands now, governments are content to cut cheques to individuals while our region’s airports circle the drains.

As we keep learning from this pandemic, hope alone is not a very good plan – particularly when you realize that we don’t have infinite resources.

Herb Emery is a Brunswick News columnist and the Vaughan Chair in Regional Economics at the University of New Brunswick.

This article first appeared in a Brunswick News publication - Nov. 18, 2020

The JDI Roundtable on Manufacturing Competitiveness in New Brunswick is an independent research program made possible through the generosity of J.D. Irving, Ltd. The funding supports arms-length research conducted at UNB.