easyJet report paints bleak picture of APD effects

easyJet announced the findings of an independent report it commissioned from Frontier Economics on the UK government's proposed changes to Air Passenger Duty (APD).

Government seeking to reduce tax bands

The government proposed in Mar-2011 to increase APD from GBP12 to up to GBP16 per person for flights up to 2000 miles but also to reduce the rates and number of tax bands on long-haul flights. This is broadly in line with appeals made by tourism bodies, and supported by their governments in countries in the Caribbean and Africa, which felt they were being punished by the application of higher tax bands simply because of the geographical position of their capital in comparison to (for example) the more easterly location of Washington in the US. Some of them called directly for the APD to be reduced to two rates - short/mid haul and long haul.

The structure and rates of APD are as follows:

Table 1

Now	From 01-Nov-2010
	Reduced rate (in lowest class of travel)
Band A (0 - 2000 miles)	GBP12 (GBP13)
Band B (2001 - 4000 miles)	GBP60 (GBP65)
Band C (4001 - 6000 miles)	GBP75 (GBP82)
Band D (more than 6000 miles)	GBP85 (GBP93)

Note; Rates in brackets are HMT estimates of APD rates from April 2012.
These estimates assume an increase of reduced rates by forecast RPI inflation in 2011 (deferred for a year) and 2012,
and are then rounded to the nearest pound. Standards rates are charged to passengers travelling in
other classes of accommodation at twice the reduced rates.

There are four main options for change.

• Option 1. Reduce APD bands from 4 to 2
• Option 1a. Reduce APD bands from 4 to 2. Only flights to EU/EEA countries would be charged at the lowest rate
• Option 2. Reduce APD bands from 4 to 3
• Option 2a. Reduce APD bands from 4 to 3. Only flights to EU/EEA countries would be charged at the lowest rate

The proposed rates for APD, for the lowest class of travel, from Apr-2012, under this options formula, are as follows:

Table 2

Option 1 Band A (up to 2000 miles) GBP13 -16 Band B (more than 2000 miles) GBP65-G75	Option 2 Band A (up to 2000 miles) GBP13-16 Band B (2001 - 4000 miles) GBP60-69 Band C (more than 4000 miles) GBP72-83
Option 1a Band A (EU/EEA flights) GBP13-16 Band B (Rest of world) GBP65-75	Option 2a Band A (EU/EEA flights) GBP13-16 Band B (RoW to 4000 miles) GBP60-69 Band C (more than 4000 miles) GBP72-83

easyJet, which has no long-haul flights but which is gradually increasing its average stage length with routes to Turkey, Israel and Jordan, has long campaigned against APD and instead favours a per-plane tax, which it claims would be "fairer on passengers and encourage airlines to be greener".

Coalition about-turn on per-plane tax

The Conservatives and Liberal Democrats both pledged to move to a greener tax in their 2010 General Election manifestos and the resulting Coalition Government committed to introduce a per flight tax but it appear since to have done an about-turn.

The Frontier Economics report finds that although the changes would reduce the total number of flights they would increase CO² emissions by "encouraging more long haul flights".

APD up by 140% since 2007

easyJet CEO Carolyn McCall called on the government to think again on aviation taxation saying: "This independent report shows that the Government's proposals on APD would be bad for the environment and the economy. APD has already risen by 140% since 2007 on short-haul flights. This report provides convincing evidence that the Government should not impose further increases in APD on short-haul flights and should rethink its policy on aviation taxation. easyJet is in favour of a move to a per plane tax. Four out of five British passengers would be better off under such a tax and, more importantly, it would encourage the industry to fly more efficiently. We believe British families and businesses will join our campaign to 'tax planes not people' and we're encouraging them to sign up on easyJet.com."

easyJet has been upping the ante in what is becoming a fight to the finish with the government launching a public campaign under the banner "Tax Planes Not People - fight the Government's flight tax increase". It aims to unify consumers against the proposed tax increase and can be accessed at http://easyjet.com/taxplanesnotpeople. The carrier launched a multi-media campaign including press ads, a photo opportunity and an online petition. The activity began with the delivery of GBP5 million to the HM Treasury, representing the weekly APD tax collected from easyJet passengers.

In brief, the report's findings are that the government's proposals would:

• Reduce UK passenger numbers by 3 million p/a, a fall of about 1.5%. However, passenger kilometres flown could increase by up to 2.5 billion a year as a result of the proposed changes favouring long-haul operations. Net result, -1.6 million visitors arriving on short-haul flights and +300,000 arriving on long-haul flights;

• Increase CO² emissions by up to 360,000 tonnes per year. The cost of this pollution would be up to GBP19 million, estimated using DECC values of CO² emissions. Benefit of less short haul emissions is more than offset by increased long haul emissions at an environmental cost of up to GBP13 million p/a;

• Reduce tourist spending in the UK by GBP475 million a year;

• GDP will be hit by lower spending by foreign visitors and knock-on effects in the UK supply chain, reducing it by as much as GBP2.6 billion per year. Direct sector effect: -GDP290 to -GDP310 million;

• Lead to the loss of up to 77,000 jobs. "People employed in travel and tourism will be hardest hit'" with 28,000 to 31,000 jobs lost;

• The effects will be proportionately slightly greater in the regions than in London. The effects on London will be partly mitigated by gains for long-haul operations. Scotland (which will begin its official bid for independence soon) and Wales have the opportunity to bid for separate APD rates during the consultation period but the English regions will not, despite growing pressure for that option for regional trade organisations.

Long-haul 'gains' claim overlooks effect of capacity shortfall

On the face of it there are some simplistic conclusions here. The publicly available short report does not make clear how some of the figures have been calculated apart from a brief reference to data sources and methodology at the end and economic impact (eg jobs lost) is a notoriously grey area and one that is often employed by Ryanair's Michael O'Leary when threatening to axe services. But an anomaly that sticks out like a sore thumb is the assumption that long-haul gains will mitigate losses in and around London, where, and again under present government policy, there is no opportunity to increase runway capacity, which is currently operating at close to 100%. Except, of course, by continuing to make it too expensive for small regional/domestic routes to be operated, thus releasing slot space.

The effect of the proposed changes on UK airport numbers is summarised below:

Table 3

Airport	Change in passenger trips (000s)	As a percentage of total
London Stansted	-597	-3.2
London Gatwick	-562	-1.8
London Luton	-249	-2.9
Manchester	-170	-1.1
Bristol	-166	-3
Birmingham	-158	-1.9
Liverpool	-148	-3.5
East Midlands	-114	-3
Edinburgh	-109	-2.3
Leeds Bradford	-67	-2.8

Table 4: Regional Impact of the government's proposals:

Region	Change in Passenger Trips	As a percentage
South East	-1,549,000	-1.4%
North West	-323,000	-1.5%
Scotland	-230,000	-1.3%
South West	-214,000	-2.5%
West Midlands	-158,000	-2.7%
East Midlands	-114,000	-3.3%
Northern Ireland	-104,000	-1.4%
Yorkshire and Humberside	-94,000	-0.9%
North East	-60,000	-1.2%
Wales	-31,000	-1.3%
Channel Islands	-25,000	-2.9%
East	-7000	-0.4%

Frontier Economics concludes that there are detrimental impacts of the proposed changes in all regions of the UK. The South East is most affected despite the offsetting positive effect of reduced APD for some long-haul travellers. Scotland's airports lose up to 230,000 passengers a year, and with the 2011 election success of the SNP in the Scottish parliamentary election it is possible that the Scottish government could lobby to set its own rates. In Wales however, the base passenger numbers are low so, despite negative consequences of the changes, "we would expect less political interest".

Scots edge closer to independence

Again, that might prove to be overly simplistic in a country that, in many places, envies the position the Scots have been able to achieve, ie just one referendum vote away from independence and the break-up of the UK.

The worst effected regions would be the English Midlands, and the southwest, where several airports, notably Plymouth, are already under threat of closure.

Table 5

The proposed timing of the changes is as follows:

Consultation issued	The consultation was issued following government meetings with industry associations and lobby groups, and meetings with some airports and airlines that would be directly affected by the proposal	23-Mar-11
Consultation period	Interested parties consider the implications of the proposed changes and prepare responses to HM Treasury	8 weeks
Consultees respond	Interested parties have the opportunity to submit formal responses to HM Treasury for it to consider when determining the APD tax policy for 2012 onwards	17-Jun-11
Treasury sets policy	Treasury reviews the consultation responses and amends the policy in light of those	Northern summer 2011
Changes implemented	Changes to APD are proposed to be implemented in Apr-2012	Apr-12

This report was made public just as HM The Queen visited Ireland, the first such Royal visit for a century. Running concurrent with that visit was the announcement of the abolition of the EUR3 (previously EUR10) per passenger tourism tax, as long as the airlines, led by Aer Lingus and Ryanair, keep their side of the bargain by opening new routes and boosting passenger numbers.

Northern Ireland has its own claim for reduced APD

The relatively low Irish tax, (whatever the airlines might think of it), which is the equivalent of the APD, has been at least partly blamed for falling passenger numbers in Northern Ireland as air passengers make their way by what is not now an arduous road journey to Dublin. There has been intense speculation in the Belfast media that Continental would axe its daily flight to and from New York Newark in favour of extra capacity at Dublin though the carrier has so far denied it. Northern Ireland is thus another region of the UK that could have a good case for a reduced APD.

The influential British Air Transport Association's (as influential as any such aviation lobbying body gets in the UK) CEO Simon Buck announced he will urge the British government to follow Ireland's lead by scrapping Air Passenger Duty. He said: "It is high time that the government acts further on APD. If the government was serious about stimulating tourism, they would not have increased APD by 16% in the last year, when passenger numbers dipped to their lowest level for seven years. Ireland scrapped its tax on flying because they wanted to boost tourism; we would welcome that the government copies them."

Realistically, there is little chance of that while the Home Secretary Teresa May is jeered by the police at their annual convention after threatening a two-year pay freeze. Relieving the travelling public of their financial misery is so far down the government's list of priorities it is invisible.