Feature: Airline Update


➔ “But there is no doubt that the global airline industry still faces


tough trading conditions with little relief in the short term, thanks to the ever increasing costs of fuel and taxation.” There’s no doubt that these


“Every dollar increase in the average annual fuel price triggers an additional $1.6billion in costs for the airlines”


two issues are among the most hotly debated issues at present, and that’s no surprise when every dollar increase in the average annual fuel price triggers an additional $1.6billion in costs for the airlines. IATA says the rising cost of fuel is the main cause of reduced profitability for airlines and that it now comprises nearly a third of an airline’s costs – more than double the 13 per cent it accounted for in 2001. One of the upshots of this, of course, is rising


air fares, and it’s corporates that take the hit. But whereas airlines and travel buyers more or less accept the rise and fall of oil prices as a fact of life, the rise of Air Passenger Duty (APD) is sure to raise hackles on all sides of the industry.


WHAT NEXT FOR APD & ETS? APD has been controversially raised several times in recent years, with critics calling into question the way it is levied. Opponents argue that it’s unclear whether it is an environmental tax or not and, if it is, that it only takes into account distance travelled, not other factors, such as the type, age or size of aircraft, and thereby its environmental efficiency. A ‘per plane’ tax has been mooted, but now


the government is under pressure to scrap APD when the new European Union Emissions Trading Scheme (ETS) comes into effect next year. ETS will cover virtually all airlines operating to,


from and within the EU, including non-EU airlines – hence outrage and legal action from the likes of American Airlines – and requires them to monitor and trade CO2 credits.


Japan Airlines


The Guild of Travel Management Companies (GTMC) is one body to have called for the abolition of APD when the ETS comes into play, stating in a recent report: “The GTMC believes that the ETS is the best available option for the future sustainability of aviation. However, once it is in place we


have no reason for APD to continue.” The statement continues: “The business traveller is starting to react to high levels of taxation in the UK by using European hubs where viable. It is important that APD does not further skew the competitive advantage to European competitors.” Anne Godfrey, the GTMC’s chief executive,


adds, “All across Europe we are seeing other economies and governments becoming more competitive in their transport infrastructure and taxation strategies. We are already seeing hubs in Paris, Frankfurt and Madrid benefit from the UK’s short-sighted policies.” APD’s dual effect of hitting corporates in the pocket and affecting Heathrow’s competitiveness as an international airport hub is a concern aired by others in the business travel sector too. HRG’s director of industry and fare distribution,


Tony Berry, says, “All stakeholders think the current system is unfair and there are continuing calls to even things out. Long-haul travel is heavily subsidising short-haul, for example.” He continues, “There are also concerns about


the impact on Heathrow’s long-term competitive- ness versus nearby hub rivals such as Paris, Amsterdam and Frankfurt. The continual application of these taxes will have a major impact on connecting traffic and the number of destinations that Heathrow serves could fall.” The imbalance of long and short-haul levies is a particular sticking point with Virgin Atlantic,


which is also miffed that its Premium Economy passengers fall into the same, higher APD bracket as its Upper Class passengers. The airline’s chief commercial officer, Julie Southern, says, “Historically the rises in this tax, both in percentage and absolute terms, have been much higher for long-haul flights than for short-haul. We strongly believe the burden should be spread more evenly. “The UK’s economic potential is being stifled


by ever increasing levels of APD which is already the highest in Europe,” she adds. IATA’s Bisignani consigned the UK’s APD scheme – the largest aviation tax in the world – to the organisation’s proverbial ‘Wall of Shame’ in his aforementioned speech. It was accompanied on his “hit parade of government tax bandits” by Germany for its departure tax, Austria for copying Germany, and India for its service tax. However, a special place was reserved on the Wall of Shame for the EU’s Emissions Trading Scheme, proving that you can’t please everyone all the time – or anyone, ever, when it comes to aviation. “They [the EU] are ignoring international law


with plans to include international aviation in Europe’s ETS scheme,” said Bisignani. “Globally coordinated economic measures through ICAO (the International Civil Aviation Organisation) are a key part of our climate change strategy, but uncoordinated punitive measures undermine global efforts and distort markets. It is a $1.5billion cash grab that would do nothing to reduce emissions.” He continued, “Taxing aviation does not pay.


The Dutch repealed a $412million departure tax because it cost the economy $1.6billion and the Irish plan to cancel their $165million Travel Tax because it cost $594million and 3,000 jobs. The lesson for governments is simple: don’t kill the goose that lays golden eggs.” The European Regional Airlines Association


➔ 64 I THE BUSINESS TRAVEL MAGAZINE


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