17 Nov 2011

Airline call to scrap duty a ‘smokescreen’

Four UK and Irish airline bosses urge the government to end Air Passenger Duty tax on passengers saying it has a negative impact on the UK economy. But critics say the move is a ‘smokescreen’.

British Airways (Getty)

Ryanair, EasyJet, Virgin Atlantic, and British Airways wrote a letter to Chancellor George Osborne urging him not to raise Air Passenger Duty (APD) on November 29, when he presents his autumn budget statement.

They claim the UK already has the highest aviation taxes in the world, and estimate the tax brings in £2bn revenue for the coalition government.

Carriers currently pay APD on a per-passenger basis with the tariff from £24 to £170 depending on how far the destination is from London.

Aviation and growth

The airlines said the tax, which was introduced in 1994 to combat greenhouse gas emissions, would be “unsustainable” after the introduction of the carbon cap and trade EU Emission-Trading System (ETS) from next year.

A spokesman for the International Air Transport Association, Chris Goater, told Channel 4 News that the ETS would mean an extra 1bn euros in costs to a fragile UK industry next year.

He said he understood that the aviation industry had to “pay its way”, but that costs at tax were already too high at a time when airline profit margins are too low.

“We’re not expecting tax to disappear overnight and we understand this is a time of austerity. But the industry is operating on incredibly thin profit margins and this tax is highest in the world.”

He cited research from Oxford Economics that said the aviation industry supports 921 000 jobs and contributed £49.6bn, or 3.6 per cent, to the UK’s GDP.

Pleading poverty
Profits at airlines will drop by almost a third in 2012, according to the IATA. So what about the health of the four airlines calling for APD to be scrapped?
British Airways: In the first half of 2010 made a £425m profit from revenue of £8bn, a 5.3 per cent profit margin.
Ryanair: Made £319m profit in 2010, after bringing in £3bn in revenue. In the six months to Sept 2011, they reported £467m profit.
Easyjet: Lost £78m in 2010, but recovered in 2011 with half-year pre-tax profits standing at £248m.
Virgin Atlantic: Made £19m in pre-tax profits in the 2010-11 financial year, from a total revenue of £2.54bn.

‘A smokescreen’

The travel journalist Simon Calder told Channel 4 News said he believed the airline’s stance was a ‘smokescreen.’

“This is simple, they’re trying to stifle Air Passenger Duty by making such a fuss that next time they put up fares the public will blame the government.

“They want to make some more profit and there’s nothing wrong with that,” Mr Calder said.

Cait Hewitt, the Deputy Director of the Aviation Environment Federation, said a heavily subsidised and growing aviation industry should be properly taxed.

Read more: BA boss hits out at air passenger tax

“Like car travel, aviation imposes significant environmental costs on society in the form of greenhouse gas emissions, noise, and air pollution. But unlike car travel, airlines pay no fuel tax, and no VAT is levied on air tickets,” she told Channel 4 News.

“The effective subsidy of these exemptions is worth around £10 bn per year to the UK Treasury, according to Government estimates. Air Passenger Duty, by contrast, generates only £2 bn a year.

“In the UK, higher earners fly far more than those on low incomes – only 10% of the population taking 50% of all flights – so it is higher earners who benefit primarily from the sector’s tax breaks,” Ms Hewitt she continued.

She went on to describe additional measures such as the EU carbon cap and trade system – the ETS – as “essential.”