YYC Calgary Airport is a well managed facility, but could it benefit from privatisation? Part two


Canada has always been an outlier where the privatisation of its airports is concerned: facilities there being owned by a state organisation from which the main airports are leased to 'not for profit' stakeholder organisations, with boards consisting mainly - although not exclusively - of public sector members.

Meanwhile, airports take a hit each year off the government, which can charge up to 12% of gross revenue as a property tax.

It is both the best and worst of all possible worlds, depending on how you look at it, but the government, operators, and the public generally favour it.

In 2017 the government instigated an investigation into full privatisation, but with strong opposition - especially from the operators - it fizzled out.

With the CAPA - Centre for Aviation Americas Airline Leader Summit approaching in May-2024 and being held in Calgary, an airport which is doing just fine and was firmly against privatisation in 2017, it is time to consider if this matter should be put back on the agenda.

This is part two of a two-part report.

  • Canada's unique 'not-for-profit' airport ownership and management system is over three decades old now, but is it time to resurrect the airport privatisation study?
  • One of the airports that most strongly stood against privatisation is Calgary.
  • That airport is well managed, and has a board with a wide range of both public and private sector experience.
  • But its original position is starting to look dated now when weighed against successful privatisations in Europe, the US and elsewhere.
  • The CAPA - Centre for Aviation Americas Airline Leader conference will be held in Calgary in May-2024.

Canada has a unique system for ownership and management of its airports, and one that has attracted US interest

In part one of this report CAPA - Centre for Aviation noted that Canada has an unusual 'not for profit' ethos for the (almost exclusively public sector), non-share 'stakeholder' ownership and management network of its major airports, one that dates back to the late 1980s and is not replicated anywhere else, as far as is known.

The CAPA - Centre for Aviation view is that it is high time that privatisation scenarios were revisited in Canada, including public-private partnerships, which seem to be doing the job very well elsewhere. They were never properly concluded in 2017.

As this year's CAPA - Centre for Aviation Americas Airline Leader Summit is taking place in Calgary, Canada's fourth largest city and the fourth busiest airport in 2023, with 18. 5 million passengers, what implications does the current ownership impasse have for it?

Calgary Airport's stakeholder board has a good business balance

YYC Calgary International Airport (as it is now branded to include its three-letter IATA code) is operated by the Calgary Airport Authority, and has been since 1992 (just two years after the authority's formation), with a long-term 60-year lease and an additional 20-year option, which was subsequently exercised in 2011. Since 1997 the authority also manages Springbank Airport.

The authority is governed by a community-based board of directors, whose members, inter alia, include: an ex-not-for-profit helicopter air ambulance service president and CEO (as board chair); an executive director of a global executive search firm; a co-founder of an organisation supporting strategic management of family businesses; and the president of a private oilfield drilling contractor.

The 13-person board does have a surprisingly wide range of membership, including from the private sector, with experience in oil and gas (Alberta's principal industry), construction, real estate, accounting, and private equity.

Oftentimes such boards lack aviation-related experience, but in Calgary's case the board includes, and has since 2021, the vastly experienced Craig Richmond. Mr Richmond is a former president and CEO of the Vancouver Airport Authority, having had a strong track record in the industry, with perhaps the singular exception of that authority's (as YVRAS, and then Vantage Airport Group) 65% investment in and co-ownership of Peel Airports in the UK (Liverpool and Doncaster-Sheffield airports), where Mr Richmond was CEO at Liverpool Airport.

That investment might be regarded as more of a miscalculation by YVRAS than of individual error or underperformance. Doncaster-Sheffield Airport has since closed down.

Some criticism has been made in the past of these Canadian 'stakeholder' boards for insufficient private sector representation and a lack of external airport management experience - but that is clearly not the case at Calgary.

Infrastructure investment in the mid-2000s was high and well directed

Latterly, infrastructure construction there has been manifested in the form of the 14,000ft (4,300m) parallel runway project (to four runways in total), with a tunnel beneath it that was completed in Jun-2014; it became the longest runway in Canada for a time.

Also two cargo facilities built in 2015 and 2016, and the CAD1.6-billion, 186,000sqm international terminal, which opened in Oct-2016 and has a US immigration preclearance facility. It added 24 new aircraft gates, North America's first call-to-gate passenger boarding system, moving walkways, and a people mover.

The terminal was designed sustainably, with principles including 580 geothermal wells for heating and cooling, and an annual rainwater capture capacity of 800,000 litres.

There was also the West Runway Rehabilitation project, one of the largest infrastructure projects in the history of YYC. The CAD200 million project received CAD57.5 million from the Government of Canada's Airport Critical Infrastructure Program and will involve numerous sustainability measures to ensure a resilient runway for decades to come.

The 'Achilles Heel' is poor public transport to the airport

Future capital expenditure may be directed at improving surface public transport - which is considered to be inadequate for an airport of YYC's national status - by extending a light rail line there. Just as in the case of Dublin, Ireland, as reported by CAPA - Centre for Aviation in Will the DART ever hit the bullseye at Dublin Airport? Will the Metro be the weakest link?, this is considered to be a long-term project.

And, efforts are already actively underway to bring transit connection to YYC.

The City of Calgary is currently conducting a Calgary Airport Rail Connection Study to "identify the optimal rail connection and route between Downtown Calgary and the Calgary International Airport". Additionally, the 2024 Alberta provincial budget allocated CAD43.4 million to extend the Blue Line LRT (light rail transit) north to eventually connect to YYC. CAD2 million was allocated to continue exploring the feasibility of LRT connection to YYC.

Passenger growth has been consistent, if not spectacular

Looking back as far as 2009, and to the decade through to the COVID-19 pandemic, passenger traffic growth was consistent at YYC and recorded in each successive year without interruption; but it was not spectacular, averaging 4% per annum. That compares to +5.2% at Toronto Pearson, Canada's busiest airport.

Recovering only very slowly in 2021 from the 5.6 million passengers in 2020, YYC Calgary International Airport grew by 128% in 2022 and 28% in the following year, to handle 18.5 million passengers in 2023 - which was an increase of 2.8% compared to 2019 pre-pandemic figures, and a new record for annual passenger throughput.

Growth in the first month of 2024 stood at +7.6%.

YYC Calgary International Airport: annual traffic, passenger numbers/growth, from 2009 to 2024

Seat capacity is running very slightly behind both 2019 and early 2020 levels presently, but is expected to exceed 2019 shortly.

Mainly a domestic, and low cost-oriented, airport

YYC is mainly a domestic airport, with 65% of seats operated, which is well above the national average of 36%. Hence, 92% of seats are on local (Canadian) airlines.

The LCC WestJet has the highest ratio of seats, with more than 64%, followed by the full service airline Air Canada, on 17%.

Overall, low cost models account for 73% of seats and full service 25% - close to a reversal of the national picture (61%: 29% in favour of full service).

At Calgary 76% of that capacity is on unaligned airlines, with Star Alliance (21%) the only alliance of any significance (21%).

YYC Calgary International Airport: system seats by airline/business model, week commencing 26-Feb-2024

The United States of America is the main international destination, followed by Mexico and the UK.

Route network majors on North America, with few flights to other continents (apart from LatinAm and now Asia)

The route map below shows one of a network heavily focused on Western Canada, followed by the remainder of the country, then the US and the Gulf of Mexico, and with a handful of cities connected directly in Europe - the four main FLAP airports (Frankfurt, London Heathrow, Amsterdam and Paris Charles de Gaulle), plus Luxembourg for cargo flights.

There are a total of 74 nonstop passenger destinations: 33 of them domestic, 23 in North America, 14 in Latin America and the Caribbean, and four in Europe.

But none at all in the Middle East, Africa or Asia Pacific.

This will change in summer 2024. WestJet announced in Dec-2023 that it will offer direct flights from YYC to Seoul, South Korea, three days per week starting in May-2024. The summer network will also include flights to Europe: Dublin, Edinburgh, Rome, Barcelona; Asia: Seoul (South Korea), Narita (Japan) as well as within Canada to St. John's, Quebec City and Montreal.

The network does not show one particularly attuned to Calgary's stature in the oil and gas business; leastways, not outside North America, which can generate high value traffic flows but not always at volume. (British Caledonian is the only airline known to have tried to connect major oil and gas centres globally with a network centred on London Gatwick Airport.)

YYC Calgary International Airport: network map for the week commencing 26-Feb-2024

A connection by, say, Icelandair, an east-west sixth freedom airline, might help redress that balance somewhat.

High utilisation on a daily basis

YYC's utilisation, measured by arriving and departing capacity by the hour, is high and regular. There are no passenger flight arrivals and departures between 0200 to 0600 but that is not due to any curfews in place for flight operations, albeit there are some restrictions on aircraft engine run-ups during overnight hours.

YYC is in fact one of the only airports in Canada that has arriving and departing flights 24 hours per day. Cargo aircraft arrive and depart during night hours when passenger aircraft are less frequent.

The chart below is for Wednesday 28-Feb-2024.

YYC Calgary International Airport: system seats per hour, all airlines, for 28-Feb-2024

Calgary's historic reluctance to formal privatisation doesn't stack up in all departments…

To return to the original question: should Canada's airports, if they can't shake off the heavy rent imposition, find some relief through at least partial privatisation? Calgary Airport has historically taken the view that Canadian airports are "well managed and too important to place in the hands of private business".

There is nothing at all that suggests that Calgary Airport is not well managed, and investment has, in the fairly recent past, been high.

But to state, as the then CEO did in 2016, that "privatisation of Canada's airports is a ridiculous idea that would accomplish nothing", and that "there are many ventures that are served well by private ownership, but it's not apparent that airports are among them", flies in the face of experience in Europe. There, privatisation has transformed what were previously lumpen, moribund, edifices into thriving transport hubs.

And even in the US, where the only lease of a major airport (in the Puerto Rico territory) has proved to be a success.

In support of that statement, he mentioned that YYC is "a shopping mall operator with more than 185 shops and services, and a major land developer and cargo hub with more than 875 acres of land actively leased".

Quite, but that is precisely what privatised entities do extremely well, and they make a profit on it. YYC contributes at least CAD8 billion to regional GDP, but it could be even more if there is the will to 'speculate to accumulate'.

And all that can be done without losing accountability for, say, the formulation of flight paths, which was a major concern at that time.

…but with continuing operator, public and government resistance, the status quo will remain

The key, ultimately, is whether Transport Canada and the government will ever come to see Canada's airports as potentially profit-making enterprises, or just as transport functions.

There is nothing at the moment, with the general public, assorted think tanks, the central government and the airports themselves all ranged against privatisation, to suggest that much will change anytime soon.

CAPA - Centre for Aviation's Americas Airline Leader Summit will be held in Calgary, 9-10 May 2024, and commits to providing unparalleled insight into the strategic landscape of the region.

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