Missing Passengers Signal Leaky Open Skies Pact

Martin Dresner frequently visits family and friends in Canada.

A Washington-to-Toronto flight would have him in his native city in about 90 minutes. Instead, the Smith professor and chair of logistics, business and public policy sometimes lands in Buffalo and drives a rental car to and from his destination, adding four-plus hours to his roundtrip travel time.
“Many others do the same,” he says.

Those “others” recently amounted to 4.7 million travelers over a year, according to the U.S. Department of Transportation. This driving group is diverting to U.S. airports near the Canadian border to save an average of 28 percent of the cost of Canada-based arrivals and departures.

That translated in 2008 to $1.3 billion in missed revenue for airlines using Canadian airports and about $480 million saved by passengers used ground transportation to and from the U.S. airports, according to research by Dresner and Smith co-authors Robert Windle, professor of economics, and doctoral student Omar Sherif Elwakil.

Transborder fares are two to three times higher than those for flights between U.S. cities despite the 2005 U.S.-Canada "Open Skies" agreement. The cause appears to be the lack of low-cost carriers operating on transborder routes, and possibly collusion, according to Elwakil.

More open competition would help right the problem: "Policymakers should revisit the current U.S-Canada Open Skies treaty to re-evaluate the antitrust immunity the carriers enjoy and promote low-cost carrier participation in this market," Elwakil says.

In the meantime, those transborder carriers appear content to let smaller airlines serve the lower end of the market in inflated volume from the U.S. border airports. "And these smaller airlines appear content to serve the Canadian market in this de facto way, even if it inconveniences the customers," said Windle.

By Gregory Muraski