Rising Aeronautical Fees and the Unsubsidized Nature of Canadian Airports

In the absence of meaningful and predictable government subsidies or other funding sources, tariff increases appear to have become a necessary move for Canadian airports, and probably the only option left to improve cash flows and reignite future growth. Increased aeronautical fees may gradually erode Canadian airports' relative competitiveness vis-à-vis their U.S. peers; however, DBRS Morningstar doesn't currently expect the impact to be material, as we believe major Canadian airports' pricing power will remain largely protected by their monopolistic status and the resilient demand from the origination and destination traffic sector, both of which lend support to their ratings.

While airports in both Canada and the U.S. are public, being operated under some forms of cost-recovery mandates, U.S. airports have had the benefit of substantial federal contributions during the Coronavirus Disease (COVID-19) pandemic. From a credit perspective, we view such level of government support during times of considerable economic uncertainty to be a strength for U.S. airports.