Huge government money raising exercises in the Netherlands and the UK this year have put a massive dent in IATA's efforts to combat rising costs for the industry. On their own the Netherlands and the UK air passenger duties will cost carriers €261 million ($350 million) and £2 billion ($3.5 billion) this year.
Recently governments in Belgium and Ireland have followed suit with their own passenger taxes. "We saw two aviation tax proposals on the same day with Belgium and Ireland copying the UK and Dutch examples, and in both cases we know the exercise is all because of trying to tackle national budget deficits," says Jeff Poole, director industry charges, fuel and taxation at IATA. "It almost seems that taxing aviation is a fashionable trend.
"Aviation is seen as a soft touch. The thing that worries us is that Belgium and Ireland have jumped on the same bandwagon as the UK and the Netherlands. But this is actually copying worst practices in economics and taxation, which is why we refer to it as 'collective madness'." The Belgian tax will cost €132 million annually and the Irish one €150 million, estimates IATA. Coupled with the Dutch and British taxes the total bill could be €3.8 billion by 2010.
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The new tax in Ireland will cost carriers some €150 million a year |
These taxes are often revealed as part of national budgets, without consultation. "If there is consultation it comes after the announcement, but our experience is that once announced it is very difficult to get them changed," says Poole. "Aviation is the engine room of economic growth and development so increasing aviation taxes may raise visible revenues for national treasuries but they are counterproductive to the broader economy and overall fiscal revenue."
In some cases, such taxes backfire. In the Netherlands, for example, government estimates for how much would be raised are not being reached as travellers avoid Amsterdam Schiphol and go to airports in nearby Belgium or Germany to dodge the tax, says Poole. Planned revenues of €364 million in 2009 have been reduced to €312 million.
One of the most bizarre tax proposals looks likely to be approved in Italy, where the government plans to add a €1 fee to its "Council Tax" on each air ticket to help fund the redundancies at Alitalia. "Essentially they are expecting other airlines, and passengers, to pick up the social costs of the downfall of Alitalia," says Poole.
IATA is constantly campaigning against all the cost hikes. In the year to September, Poole's group calculates that efforts to either avoid or reduce these hikes total $1.12 billion. This in itself is seen as a good effort, but depressingly is less than half of the $2.77 billion in increases the industry has had to bear.
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"It almost seems that taxing aviation is a fashionable trend"Jeff PooleDirector industry charges, IATA |
IATA works closely with regional airline associations like the Association of European Airlines or the Latin American Airlines Association - ALTA - to fight against these extra costs. Up until now, the airline bodies have had limited success convincing governments in Latin America to peg charges and taxes.
But two years of joint IATA/ALTA campaigning in Brazil has finally resulted in a breakthrough, says Alex de Gunten, director general at ALTA. For the past decade carriers have been paying a fuel surcharge on international flights of 15c per gallon.
The so-called Pis Cofins Tax is being lifted by the Brazilian authorities in a move that will save carriers up to $100 million a year, says de Gunten. "This is a great first step in the region," he says. "Generally in this region carriers are paying much higher into-plane fuel costs than other parts of the world." A coalition of ALTA, IATA, the Brazilian airline association and fuel suppliers like Shell, used several arguments to persuade the authorities to drop the tax.
In response to high fuel prices and the economic crisis, IATA has recently further stepped up its efforts to secure cost reductions and improved cost efficiencies from airport and air navigation service providers. Results so far are encouraging, says Poole. But he does not expect such logic to apply in all governments. "Unfortunately, some finance ministries suffer from myopia when it comes to filling budget gaps or financing government investment in the banking industry: they see gratuitous travel taxes as an easy revenue grab and even try to dress them up as environmental measures."
For more on airport charge hikes in the UK, see our recent news story at: flightglobal.com/airportcharges
Source: Airline Business
