10/03/2012 11:22 EDT | Updated 12/03/2012 05:12 EST

Cut airfare gap to lure back border crossers, group urges

An estimated two million Canadian passengers who use U.S. cross-border airports annually to get cheaper flights could be lured back by reducing the gap in airfares, according to the Conference Board of Canada.

Cross-border air fare shopping is driven by a "perfect storm" of factors that also includes differences in wages, aircraft prices and industry productivity, as well as U.S. aviation policies, said Vijay Gill, a principal research associate at the conference board.

"But for air carriers flying from American airports, these add up to a 30 per cent cost advantage," Gill said.

According to figures from the Canadian Airports Council, about 5 million Canadian passengers chose to cross the border to use a U.S. airport.

The conference board suggests that reducing the difference in airfares paid by Canadians for flights originating here could be enough to lure back about 40 per cent of those travellers.

Passing fee, tax cuts to passengers urged

The board's report mainly focused on three large airports, Vancouver International, Toronto's Pearson, and Montréal-Pierre Elliott Trudeau International, along with their cross-border competitors.

"When a Canadian hub airport loses passengers, it can lead to reduced flight frequencies, higher travel costs and poorer service for all Canadians," says David Stewart-Patterson, the conference board's vice-president for public policy.

The conference board acknowledged that many of the fees paid on Canadian airline tickets go to cover upgrades and maintenance of airports and navigation systems. It also noted that an increase in fees in the U.S. will be necessary to fund future investments there.

The conference board said reducing fees and taxes will cut federal revenue in the short term, but it believes that shortfall could be made up through increased traffic.

However, Stewart-Patterson said cuts in Canadian fees and taxes won't be effective unless airports and airlines pass the benefits on to travellers.

Finance Minister Jim Flaherty said Wednesday the federal government is "concerned" about the issue . He told reporters that federal Transport Minister Denis Lebell "has been working on a consultation project with the airlines, with the airport authorities in Canada to try to see what we can accomplish."