Why Toronto Pearson’s expansion will increase passenger costs

This time the airport's largest carrier is involved, and an expansion project called LIFT, or Long-Term Investment in Facilities and Terminals, is gaining momentum without much fanfare or controversy.

But there are a few looming questions left unanswered: For starters, how much exactly will it cost? And will passengers using airport services bear the bulk of the bill?

The GTAA, which operates the airport, operates as a non-profit organization and relies on revenue from user fees such as landing and passenger fees, as well as commercial rents to pay bills and upgrades.

Eric Tanner, chief commercial officer for Flair, which is trying to compete on price with major carriers such as Air Canada and WestJet, said the expansion would “inevitably” lead to higher fees for passengers “given how capital intensive the project is.”

“Each airport essentially has a monopoly on its territory in Canada. There is no competition,” Tanner said, referring to major airports in cities such as Toronto, Vancouver, Calgary and Edmonton. “There's nothing that can keep them under control.”

The large-scale project, first announced by the GTAA in April 2024, will focus on the renovation and expansion of Terminal 1, as well as the modernization of Terminal 3, with the possible construction of a temporary terminal.

The airport will introduce new technologies, including biometric scanning of passengers, and add more bridges for passengers to board and disembark. The project will also increase the number of remote “parking spaces” for aircraft at the airport, meaning passengers on those flights will have to use shuttle buses to get to and from the terminals.

This summer, following a competitive procurement process, the GTAA announced the formation of a consortium called the Pearson Accelerator Construction Team (PACT) to lead the planning, design and construction of LIFT's first phase.

This phase, called the Accelerator, includes upgrades to utilities and building systems, as well as improvements to the airport's secure areas.

PACT is currently working with Toronto Pearson to complete the Accelerator project, but the GTAA said it cannot comment on any details without the final design.

The consortium includes Kenaidan Contracting, which has roots in Canada; Alberici Constructors, based in St. Louis, Missouri; Canadian owned and operated Amico Major Projects; and Obayashi Canada, a subsidiary of a large construction company based in Tokyo, Japan.

The GTAA said it will soon issue a request for proposals (RFP) for the Terminals 1 and 3 improvement phase.

But the airport authority has remained tight-lipped about the details of the plan and won't set a price for the LIFT project at all, other than to say it will be in the multi-billion dollar range.

“We have no idea at this point,” said Karen Mazurkiewicz, vice president of stakeholder relations and communications for the GTAA.

The airport uses a progressive design and construction model that fairly new to Canadawhere the client – in this case GTAA – collaborates with contractors on the design and scope of the project to reduce risks such as cost overruns or scheduling difficulties that have become more common for large infrastructure projects during COVID-19 pandemic.

Mazurkiewicz said airport officials have already discussed with airlines how much they are willing to spend, but could not release details.

“It’s like going out and buying a house and saying this is my price,” Mazurkiewicz said. “We will announce the cost once the projects are approved.”

Unlike the United States, where airports have access to federal money for infrastructure, large airports in Canada rely on user fees to fund infrastructure projects and operate the airport. According to Competition Bureau of Canada June report.

“To run an airport… someone has to pay, right?” – said Mazurkiewicz.

“In the United States, the taxpayer bears the burden,” she said. “In Canada, users bear the burden.”

The GTAA said it will reinvest airport upgrade fees into infrastructure to keep Toronto Pearson competitive with other global hubs and meet the needs of growing passenger demand. It also pays rent to the federal government, which owns the airport land, based on a percentage of each dollar of gross revenue generated.

Airport improvement fees at Pearson are already rising: the fee is currently $37 per departing passenger and will rise to $40 in January. Passengers transferring to Pearson pay an $8 fee.

Mazurkiewicz said it would be “purely speculative” to say whether additional fees would be raised to pay for LIFT. But Flair's Tanner said raising fees for passengers is a given.

“Whenever there is a budget hole that needs to be filled, it is very easy for an airport to simply raise fees because it is much easier than cutting budgets or looking for ways to improve efficiencies,” Tanner said. “The customer ends up paying for it because airports know the customer has no other choice.”

The GTAA counters that airport modernization fees do not cover “budget holes” but instead pay for needed infrastructure improvements, “including many cost-effective technology upgrades that help increase capacity and efficiency, and reduce costs for our partners,” according to Mazurkiewicz.

“The day-to-day operations of the airport are restored through aviation taxes, which airlines pay for the services they use to fly in and out of airports,” she added. But Tanner said airlines typically pass those fees on to customers by raising ticket prices.

William Morrison, an economics professor at Wilfrid Laurier University's School of Business and Economics, said that while airport upgrade fees may rise, he doesn't expect them to jump as much as they did during the construction of Terminal 1. Morrison is also chairman of the executive committee of the European Aviation Conference Institute.

Terminal 1, part of Pearson's latest multi-billion dollar expansion project, was built in phases starting in 1999. In 2007, three years after the completion of the first phase, airport upgrade fees increased by a staggering 33 percent.

Around the same time, GTAA's other fees and charges “ranked as the highest of any North American airport,” according to a 2006 report. PricewaterhouseCoopers reportwhich added that the high fees were “largely due to the extensive capital investment program undertaken by the GTAA.”

At the time, the airport was losing money and paying millions of dollars a year to pay off debt on the project, but that's different this time, Morrison said. Airport modernization fees today are more in line with those charged at other Canadian international airports, according to the GTAA.

Solomon Wong, president and CEO of InterVISTAS Consulting, notes that if the expansion is successful and the number of passengers using Pearson increases significantly, the costs will be spread among more users.

Wong has been an independent consultant for 28 years and is currently working with GTAA on several projects.

“It is not a given that there is no choice but to increase user fees,” Wong said. “But yes, it’s a challenge because of the rising costs of construction, supplies, materials, incentives—and things like that have a number of pain points.”

Pearson is just one of many airports around the world responding to the post-pandemic surge in air travel that has fueled billions aboutf dollars investment in new infrastructure in places such as Ethiopia, which plans to build the largest airport in Africa, and Dubai, where Al Maktoum International Airport will be the largest airport in the world when it is completed.

Expansion is also taking place in Europe, but not everyone likes it.

Heathrow has come under fire over a plan to raise passenger charges to an average of 33.26 British pounds between 2027 and 2031, around five pounds more than the current average. The proposal, Virgin Atlantic said, demonstrated Heathrow's “inability to invest capital wisely and effectively.”

And Amsterdam's Schiphol Airport recently sparked anger with an announcement that fees charged by airlines would rise by 41 percent this year to fund new projects over the next three years. The airport is considering scrapping another five percent increase in 2026 after some airlines pulled out and said Schiphol was too expensive.

Montreal-Trudeau International Airport also announced a 10-year plan to increase baggage capacity, build a new pier with more gates and passenger processing areas, and add new taxiways and runways. Unlike the GTAA, airport operator Aéroports de Montréal valued the project at $10 billion.

In the US, planned construction includes the $4.2 billion JFK International terminal in New York, and LAX in Los Angeles just announced it will completely demolish one of its terminals and rebuild it in time for the 2028 Olympics.

“We Look at our competitors: JFK, Chicago, LAX, major US airports, because we are one of the most connected airports in North America,” Mazurkiewicz said, “and they are investing billions of dollars in their airports right now.

“It’s really important for us, and for the economic growth and influence of the country, that this airport continues to develop its infrastructure.”