Fri 9 July 2010 – The new UK coalition government’s backtrack on an initial commitment to change Air Passenger Duty (APD) to a greener per-plane duty (PPD) and instead initiate a consultation process has been largely welcomed by concerned aviation industry representatives but greeted with suspicion by environmentalists, who favour a switch. A number of airlines and airports remain alarmed that a PPD could have a detrimental impact on regional flights and airports. According to The Sunday Times, the proposed tax could also spark a diplomatic row with the United States, which voiced its opposition to similar plans mooted in 2008 by the previous UK government. Meanwhile, the UK’s Transport Secretary has announced the setting up of a new group to consider how to make best use of existing airport capacity in the South-East since it scrapped on environmental grounds proposals for new London runways.

 

The previous Labour government had also largely been in favour of the switch but following a public consultation in 2008, decided against it on the grounds that it would harm the aviation industry at a difficult time (see story) and kept the present APD, which is set according to the length of the journey within bands.

 

The European Regions Airline Association (ERA), which represents 65 intra-European airlines, believed an aircraft-based tax would risk penalizing “the many millions of British passengers who need to make a connection between flights.”

 

Andy Clarke, ERA’s Adviser Air Transport Policy, said: “The clear winners of a per plane tax using this model would be airlines that do not offer their passengers connections within the UK. The losers would be the millions of passengers who need to travel from UK regions which do not have non-stop flights to their chosen destinations.

 

“The economic effect on those regions would be significant as some inbound customers would undoubtedly choose cheaper flights to different destinations. I welcome the government’s announcement of a public consultation before pressing ahead with this initiative which could so easily become another government disaster.”

 

One of those “winners” is likely to be leading low-cost carrier easyJet, which has long been a strong supporter of a switch to PPD. The government argues that a PPD provides a greener incentive to airlines to fly fuller passenger and freight loads. Budget carriers like easyJet typically have higher load factors than mainstream carriers that rely on hubbing passengers.

 

“From an environmental perspective, the current airline passenger duty provides a perverse incentive – full planes pay the highest tax while empty ones pay no tax at all,” said an easyJet spokesman. He urged ministers to extend the tax to cover private jets, cargo aircraft and foreign passengers changing planes so that it became “a fairer and greener tax without increasing the tax burden on the flying public.”

 

The Board of Airline Representatives in the UK (BAR UK), which represents over 90 scheduled airlines in their dealings with the UK government, said the failure to rule out the switch showed the government “did not have an effective plan for the industry and that the planned tax will fail its environmental and economic objectives and drive trade and tourism to competing countries.”

 

BAR UK Chief Executive Mike Carrivick said such a tax would destroy the UK’s long-standing position as the leading global transportation hub and the Treasury would “lose millions” as a result of projected passenger and cargo growth to neighbouring countries.

 

The Airport Operators Association (AOA) also warned that a PPD would scare off both freight and transfer passengers from using the UK as a hub. Air freight is outside the scope of APD but air cargo operators would be affected by PPD, although the AOA argues that 65% of air freight travels in passenger aircraft and is therefore included in aviation environmental taxes through APD. It said 20% of all air freight brought to the UK is transhipped elsewhere and if this became less viable then the case for maintaining hub operations in the UK weakens as well.

 

If transfer passengers, currently exempted from APD, were to be included within a PPD and the charge passed on, then this would act as a disincentive for them to travel through UK hub airports and go via other rival European hubs on other European carriers, said the trade association, which represents the interests of UK airports.

 

The AOA noted that in 1990 Heathrow served 227 international destinations, which had fallen to 180 by 2006. The number of international routes from UK airports fell by 18% in 2009, it calculated, and a tax per flight would make it less likely that regional airports would be able to retain and attract long-haul business in particular.

 

The AOA’s Chairman, Ed Anderson, said despite concerns his association would work with the government to ensure the impact of PPD on the viability of routes and regional connectivity would be minimized but called for such taxes to be lifted once European measures to cap aviation emissions came into force.

 

“From 2012 aviation will enter the EU Emissions Trading Scheme (EU ETS), a cap-and-trade scheme where the industry will have to pay for any emissions over its cap,” he added. “We believe this to be the most credible approach, short of a global deal, to tackling aviation’s environmental performance. Unilateral taxes should be phased out after 2012.”

 

BAR UK’s Carrivick said the government’s refusal so far to rule out either APD or PPD when the EU ETS gets underway in 2012 would mean a double taxation on aviation.

 

“Air travellers will be taxed at such exorbitant levels that UK residents will be priced out of flying and overseas visitors will choose to visit other countries instead, resulting in further damage to the UK’s global aviation position,” he warned.

 

According to a report in last weekend’s Sunday Times, the US embassy in London has been privately lobbying the government to “water down” its plans on PPD. It quotes an unnamed UK minister: “The US embassy has made representations siding with their airlines. But the Americans will not deter us from doing what is the right thing both for taxpayers and the environment.”

 

The American embassy would not comment to the newspaper on the matter except to say it was concerned about PPD. A US State Department official told GreenAir Online: “We are, of course, following with interest the new [UK] government’s discussion regarding taxes on aviation.

“As no proposal has yet been introduced, we’re not in a position to offer substantive comments at this time. We don’t wish to get into a speculative discussion. We welcome the announcement that the UK intends to hold a public consultation to gather views of stakeholders to inform its decision.”

 

During the previous consultation in 2008, the US embassy in London sent a diplomatic note (read here) expressing “deep concern” over a PPD, arguing the imposition would be in breach of Article 15 (regarding the levying of fees, duties and charges) of the international treaty on civil aviation, the Chicago Convention, and also the EU-US ‘Open Skies’ agreement.

 

The Aviation Environment Federation (AEF), which supports PPD, is apprehensive that the move to postpone the switch could be an excuse to delay or even go back on the coalition government’s commitment. “At the very least, it gives the aviation industry more time to continue its campaign against tax increases,” it said. “The government has also not yet made clear whether the planned increase in APD, due in November, will go ahead. Given all the cuts and tax rises being imposed elsewhere, it would be inexcusable not to start removing the £10 billion ($15bn) per year tax advantages that the aviation industry currently enjoys.”

 

Meanwhile, having stuck fast to its commitment to refuse approval for expansion and new runways at London’s Heathrow, Gatwick and Stansted airports on environmental grounds, the government has unveiled a new task force to look at how operations at the major South-East England airports, particularly the three in London, can be improved.

 

“Our vision is for better not bigger airports, with new investment targeting improvements in reliability and passenger experience,” said Transport Secretary Philip Hammond.

 

In a statement, Hammond said: “The government believes that aviation makes a vital contribution to the economy of this country and to the lives of our citizens. The aviation sector contributes some £11 billion to GDP and directly employs some 200,000 people. Its true economic value is much greater than this when we consider the importance of air travel to the global economy and to UK competitiveness. But we cannot simply allow growth to continue at the levels it has in the past. Doing so risks unacceptable consequences in terms of noise and local air quality, quite apart from the global impacts in terms of CO2 emissions.” 

 

 

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