Roughly five million Canadians drive across the border to fly from US airports instead of using pricier Canadian airlines, according to a report published Wednesday.
The growing trend is due to a "perfect storm" of factors, says the Conference Board of Canada study, warning that if these are not addressed it can lead to reduced flight frequencies at Canadian hubs, even higher travel costs and poorer service for all Canadians.
The report says fees and taxes in Canada contribute to the higher cost of travelling from Canadian airports, up to 40 per cent of the difference in air fare in the United States.
Higher fuel and labor costs, low carrier productivity and the rise in value of the Canadian dollar also make Canadian airlines less competitive than their US counterparts.
"Canadians love crossing the border for bargains, and increasingly their shopping list includes cheaper flights from American airports," the report concluded.
It recognises that Canadian airports and navigational systems are for the most part paid for by users and have been recently upgraded and maintained whereas in the United States, user fees do not cover all of these costs.
Also US airports are in need of major upgrades and an increase in fees, subsidies, or both will be required in the near future in that country to pay for it.
The government is currently consulting with airport authorities across Canada to stem the loss of passengers.
The report's author Vijay Gill said: "Reducing taxes and fees or even changing how they are assessed and collected could make a difference."
Lower Canadian fees and taxes would reduce government receipts in the short term, but much of this loss could be recaptured through direct and indirect tax revenues generated by the additional traffic originating in Canada, he added.