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Germany the latest to jump on the airport departure tax bandwagon

11-Jun-2010

When IATA’s Director General/CEO Giovanni Bisignani, labelled a new departure tax in Germany as "the worst kind of short-sighted policy irresponsibility", he was speaking in the knowledge that, unusually, both the airline and airport fraternities would be as one with him. This is not the first time a national government has chosen to target the aviation sector for a stealth tax and with national budget deficits growing right across the continent it won’t be the last. IATA estimates it will add a EUR2 billion per annum burden on aviation in a region that has just lost that amount to the disruption caused by the ash cloud. The question is: what is less dormant right now, Eyafallajökull or the politicians’ collective desire to tax aviation until the pips squeak?

There were warnings that traffic in Germany could drop by up to 3% as a result of the tax, as passengers seek cheaper fares from neighbouring countries.

Other European countries that have introduced or raised airport departure taxes in the last two or three years include the Netherlands, Belgium, Ireland and the UK. None have been a success except to the governments concerned and even then it could be argued that sufficient numbers of travellers have been put off travelling that collective tourist revenue receipts have actually fallen rather than increased.

The Dutch air passenger tax was abolished in Jul-2010 after representations from airlines including easyJet as traffic at Amsterdam Schiphol Airport stalled and then went into decline. The tax ranged between EUR11.25 and EUR45 and was payable by every passenger departing from airports in the Netherlands with an annual revenue target of EUR312 million.

The Belgian departure tax was announced in Oct-2008 (after Belgian airports had benefitted from Dutch passengers opting not to use their own) and was driven by the government’s need to find up to EUR2.5 billion to balance its 2009 books. It was looking to raise EUR132 million from the new tax, while promoting it as a measure to benefit the environment through an anticipated reduction in carbon emissions.

Perverted logic

The Association of European Airlines (AEA), which represents some 35 carriers and is based in Brussels, called on the Belgian government to admit the passenger tax proposal was “a purely money-grabbing exercise which will have no discernible effect on the environment”. AEA Secretary General Ulrich Schulte-Strathaus stated at the time: “There is a perverted logic here: either the treasury benefits from passengers paying the tax, or the environment – supposedly – benefits from passengers not flying. You can’t have it both ways. Let us be absolutely clear, this is another burden on the Belgian taxpayer and Belgian business.”

It wasn’t a burden for long. The Belgian authorities saw the light and also abolished the tax in Jul-2009, just like the Dutch.

Ireland introduced its passenger departure tax from Mar-2009 and, refreshingly, made no pretence as to its ‘environmental’ roots, with air travellers paying EUR2 for a single flight of less than 300 km (186 miles) or EUR10 over this length. The tax was expected to raise EUR95 million in 2009 and EUR150 million in the first full year (2010) to help pay off an enormous financial deficit, one of the largest in Europe. The new tax is on top of the airport charge of EUR14.60 currently payable by departing passengers to cover airport infrastructure, security and safety costs at the Dublin Airport Authority (DAA) airports (Dublin, Shannon and Cork).

Ryanair has railed consistently against the tax, which it blames for “the collapse in Irish tourism” claiming that independent statistics show traffic growth has returned to those EU countries that do not impose tourist taxes and that the fall in traffic and tourism is not ‘an international phenomenon’. The independent statistics point to a collapse in Irish seat capacity (which drives passenger numbers) by over 140,000 in Apr-2010 and by over 700,000 in the first five months of 2010. Seat capacity continues to decline in Ireland, the UK and France - the only European countries which continued to impose tourist taxes until Germany joined them. By contrast, growth has returned to countries which have scrapped tourist taxes (e.g. Belgium and the Netherlands) or have reduced airport charges, in some cases to zero, (Spain) to stimulate tourism growth according to Ryanair.

Ryanair warned that this downward trend at Irish airports will worsen throughout 2010 as the DAA makes Ireland even more uncompetitive with a 40% increase in the airport charges to pay for its “EUR1.2 billion Terminal 2 white elephant.”

Nirvana UK

Which leaves the UK, the Xanadu or Nirvana for tax authorities and even more so since the recent General Election. Britain’s Air Passenger Duty (APD), an excise duty levied by the UK Government and collected from airlines by HM Revenue and Customs, was increased with effect from 01-Feb-2007 then from 01-Nov-2009 was restructured with new rates specified for 2009/10 and 2010/11. Until 31-Oct-2009 there were four rates of duty, the two ‘standard’ rates being GBP20 for European destinations and GBP80 for all other destinations. The reduced rates were GBP10 for specified European destinations and GBP40 for all other destinations.

From 01-Nov-2009 a four-destination band structure based on geographical distance from London applies, each having two rates of duty depending upon the class of travel, so there are eight different rates of duty. Bands are mostly based on the distance between London and the capital city of the destination country/territory. The standard rates are:

  • Band A (0 - 2,000 miles) GBP22
  • Band B (2,001 - 4,000 miles) GBP90
  • Band C (4,001 - 6,000 miles) GBP100
  • Band D (over 6,000 miles) GBP110

The reduced rates are:

  • Band A (0 - 2,000 miles) GBP11
  • Band B (2,001 - 4,000 miles) GBP45
  • Band C (4,001 - 6,000 miles) GBP50
  • Band D (over 6,000 miles) GBP55

The reductions are based on ‘lower class’ travel.

And they are about to increase again in Nov-2011. Last year’s increase is set to net the Exchequer EUR3.2 billion, rising to EUR4.4 billion by 2012. This is taxation on another planetary level and makes the revenues anticipated in the Netherlands, Belgium and Ireland (but not Germany) look minute by comparison. But there is a complication. The new government prefers a per-plane tax rather than per passenger that would favour LCCs over legacy airlines.

And as if the beleaguered airline industry wasn’t hit hard enough already, the UK’s Environment Agency will ban its staff from flying in England, Wales and to destinations in mainland Europe served by Eurostar high-speed to reduce its carbon emissions by just 30 tonnes per annum. Other government departments are expected to follow suit. Carry on like this and aviation carbon emissions will be zero because there will be no aircraft in the sky.

And what applies to the UK could easily apply to Germany, too.


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