Just Plane Silly?

The Vancouver International Airport (YVR) got some coverage in the Globe and Mail few days ago, click here for the article.

The airport will be holding landing and terminal fees at 2010 levels, while the B.C government will also cancel its aviation fuel tax on overseas and transborder flights. This is an attempt to increase growth. Airport executives were displeased with the fact that people were choosing relatively less expensive, closer substitutes in the U.S (Seattle and Bellingham, Washington). American competitors do not charge fuel taxes on international flights.
In economic terms, the net changes in utility and welfare loss are assumed to be less than the gains from the terminal and landing fees.

The idea is that by giving up the extra revenue from the landing and terminal fees, it will be able to recapture it in the form of increased traffic. (Notice how, in the article, they were careful to not comment on lost revenue specifically from the B.C gas tax, which in itself should be revenue neutral). The increased traffic through the airport will result in increased consumption of goods and services provided in the terminal and with the HST now in effect that means bigger numbers.
As economists, we know there is no such thing as a free lunch and lost revenue must come from somewhere.

So what about the government’s supposed double standards on cutting GHG emissions but yet scrapping the gas tax on international flights? Well it could be that in this case, the tax was not going to be effective. From an environmental perspective, decreased international air travel at YVR could mean a cut in GHG emissions. But if alternative means of transport emerge or shift, then these will also generate GHG emissions.
This rests on a couple of factors, such as levels of emissions released directly by air transport, level of emissions released by the suppliers, level of emissions released by other means of transport and transport related infrastructure, level of emissions released directly by the replacement activity and level of emissions released by the suppliers.

YVR officials claim this is also an effort to boost job creation. Where there is lower growth in air transport, a reallocation of resources to other areas would occur, so that the jobs lost from the decreased levels in air transport would be offset by job gains in other industries. This transfer between sectors does take time. Technologies need to be adapted and workers re-trained, which takes time and investment. Due to this shift of consumers to American airports, jobs at YVR are being lost and the capital envolved is sunk. Short term political solution? Create more jobs with the existing capital.

Note:
Transport related infrastructure here is defined as generally physically large, and inevitably expensive and largely immobile that seldom have uses beyond what it is designed for- in economic terms it can be seen as a ‘sunk cost’. See Transport economics, 3rd edition by Kenneth Button.