Tuesday, 5 February 2013

"Scrapping air tax would give Britain's airlines a £16bn boost"

From yesterday's Evening Standard:

Scrapping the “destructive” tax on air tickets would give a desperately needed £16 billion boost to the British economy and help create up to 60,000 jobs, a report claims today.

Ditching air passenger duty, which can be as high as £184 for a business-class flight to Australia, would encourage airlines to expand their route networks, increase tourism to the UK and foster business links with the rest of the world.

The study, from consultants PwC, was commissioned by British Airways, easyJet, Ryanair and Virgin Atlantic, which have all campaigned against the tax since its introduction in 1993.


Ahem.

1. The airlines are always wailing that we need more capacity and more runways, because our major airports are running at full capacity (and it would appear that they are).

2. Therefore, whatever happens to ticket prices and APD, they will not be able to "expand their route networks, increase tourism to the UK".

3. We also happen to know, from general observation and economic theory, that APD is not added to the price paid by the passenger, it comes off the price received by the airline. So lower APD = same total ticket price.

4. If it were the case that airlines ran on very tight margins, then they would have to increase ticket prices by the amount of APD (or else they'd be losing money on each flight).

5. But if they were running on such tight margins, then the "slots" (the simple right to fly from A to B once a day) would not be so valuable. And they are very valuable (depending on where A and B are).

6. So we conclude that while APD is not a very good tax at all, it does not make any difference to anything in most cases (yes there is some idiotic re-routing going on whereby people fly from the UK to Amsterdam or Paris to take their connecting flight). Better would be a flat tax for each take-off or landing and best of all would be to auction of the landing slots every year.

13 comments:

Curtis said...

APD is paid by the passenger when booking award flights, which are supposedly "free". For example, BA says you can get a "free" business class flight to New York for 40,000 miles, but then you have to pay about £300. BA is not innocent of course, as they pocket £150 of that and only send £150 to various governments/airports, even if you fly AA.

But if you book the same ticket using AA miles (whether you fly on AA or BA), you get only get charged the £150.

Now if you use the same number of miles to book a ticket on AirBerlin, you pay about £10 from Berlin to New York, and £1 from New York to Berlin. You can get to Berlin and back for far less than £150, so anyone who flies more than once a year and is not amassing miles for the "trip of a lifetime" (only to complain loudly on forums when they discover the £300 taxes) is going to do that.

But other than that, yeah, APD is built into the ticket price, as we see from the fact that APD for the US-bound flight from Belfast is charged at the ROIrish rate (due to threats by UA to pull out).

Quiet_Man said...

Much better to dump fuel duty and VAT on fuel to boost the economy by allowing cheaper transportation of goods.

Mark Wadsworth said...

C, the whole "free flights" thing is impenetrable, but I like this example:

" APD is built into the ticket price, as we see from the fact that APD for the US-bound flight from Belfast is charged at the ROIrish rate (due to threats by UA to pull out). "

Which pretty much illustrates the point.

Mark Wadsworth said...

QM, again, fuel duty is not really a tax, it's a simple and effective form of road pricing, it's "rent for road space".

If they scrapped fuel duty and VAT on fuel, then there'd be a lot more traffic and so journey times would be much longer.

So a haulage company might save £20 on a 100 miles journey.

But if that journey now takes 5 hours not 3 hours because of more traffic and congestion, the extra 2 hours of lorry driver's time etc will cost it more than £20.

It's VAT generally and NIC on lorry drivers' wages which really add to the cost.

Kj said...

But if that journey now takes 5 hours not 3 hours because of more traffic and congestion, the extra 2 hours of lorry driver's time etc will cost it more than £20.

Unless you implement congestion pricing. In where the lorry driver pays, maybe 20£m *if* he drives during congestion. But unlike FD, congestion charges relieve congestion when there is congestion, the lorry driver can adapt and avoid the duty and may very well make transportation cheaper in the long run. In theory, but as you say, FD is simple and effective.

Kj said...

BTW QM, cutting VAT on fuel only for the sake of moving goods cheaply, is a big tax no-no. Cut the equivalent reduction across VAT in general for proper betterment.

Mark Wadsworth said...

Kj, yes, FD is only a rough and ready form of "road pricing" and is not perfect.

But FD is very much a "congestion charge".

If you do ten miles at peak time when there's lots of traffic, you will use twice as much petrol as if you do the same journey earlier in the morning.

So if you drive at peak time, you pay twice as much FD for the same journey.

. said...

The allocation of airport slots is ridiculous, as you point out MW. BA bought FlyBE just for its Heathrow slots. I wonder how much airport congestion would be re-distributed to the non-main-London-hub airports if the cost of a ticket included an implied airport congestion charge?

BE

john b said...

The cost of a ticket does include an implied airport congestion charge. It's BA's opportunity cost.

Also, "Ditching air passenger duty, which can be as high as £184 for a business-class flight to Australia" - my ex's dad flies UK-Australia business class, and pays about £8000 a time. For anyone who can pay that, an extra £200 is barely even noise.

Mark Wadsworth said...

BE, as JB says, the ticket price already includes a "congestion charge", i..e you pay more if you want to fly from an airport at the same time of day as everybody else. It's always cheaper taking off in the early morning or landing after about 11 o'clock at night.

If you want to redistribute this (the income, value or the airplane movements) then what you want is a tax on the value of the landing slots.

JB, good point well made.

Bayard said...

Can't see the budget airlines joining in this special pleading. They add APD to their ultra cheap fares, but don't refund it if you don't fly, which means they get to keep it, unless you are savvy enough to ask for it back, which most people aren't.

Mark Wadsworth said...

B, the article says:

The study, from consultants PwC, was commissioned by British Airways, easyJet, Ryanair and Virgin Atlantic, which have all campaigned against the tax since its introduction in 1993.

Graeme said...

but surely the best solution is to find a company to levy fines upon for doing something we have subsequently decided is "wrong". It works for banks, why not for airlines?