16 October 2007

Air Travel - the New Sin Tax

Following the success of the various fees and fees being charged in various jurisdictions – the governments are beginning to use Air Travel as a tax revenue source, sadly with little relevance to the use of the funds.

So let’s look at the issues – it is not very simple. In fact its REALLY complicated.

The facts:

1. Governments need more money
2. Environment is a bigger issue now than it has ever been (thank you Al Gore)
3. Air infrastructure is creaking
4. Post 9/11 security demands are enormous
5. Growing demand (with increased spending) is moving faster than GDS growth
6. Prices of air travel has fallen and continues to fall
7. And one to come….

So with these background facts it is only natural that taxes/fees or other charges are going to be due to be paid by someone.

The US originated much of this via the various post 9/11 fees and as well the allowing of mandated PFCs (Passenger Facility Charges) which allowed individual US airports to levy fees for airport usage. But perhaps one of the most interesting issues is that the US traveling population has been paying into a fund which has been funding the feds nicely every year. It was intended for the things like new airports new runways etc etc. None of which it ever funded.

So the Brits jumped in and started charging the now infamous APD. No pretence – it’s a tax. The French however wanted to charge several taxes for things like saving Africa and the environment. But they got smart about it and actually show how much the fee is for “eco”.

Next up the Dutch… the Secretary General of IATA is now pretty pissed.

So is everyone going to do this? Probably we are going to see all manner of fees and charges emerging over the next few months and years.

You remember my 7th point above…

It’s the Chicago convention. It is supposed to be used to exempt airlines from paying taxes on international travel. Specifically it bans the taxes on fuel. In the past it has been used as logic for avoiding all taxes on international travel as agreed by the Chicago convention which also set up ICAO as a UN Agency. The latter is important because it transcends national laws.

So bottom line… all bets are off and air travel is now a full open source for new taxes. Despite what Mr O’Leary might say – they are here to stay. We should only hope that some international rationalization of the tax regime is put into place. The only way to do that is to file a notice under GATT or some other convention. Otherwise its going to get REALLY messy. Watch for this its going to run and run.


Here is the text of the IATA Press Release

Dutch ticket tax proposal is ineffective and inappropriate- breaches international obligations -
GENEVA -The International Air Transport Association (IATA) condemned the Dutch Government's plans to impose further taxes on air passengers. The government is planning to tax passengers departing the Netherlands by air as much as€45 citing environmental reasons."This passenger tax is ineffective, inappropriate and it breaches international obligations.It is a thinly disguised tax grab that does nothing for the environment. If anything, it is counter productive as it limits airlines' ability to buy newer, more fuel-efficient aircraft," said Giovanni Bisignani, IATA Director General and CEO."Airlines are making great strides to improve their environmental performance. Last year we saved 6 million tonnes of CO2by shortening 350 routes globally. We have improved fuel efficiency 70% over the past 40 years and forecast a further 25% improvement by 2020. The Dutch Government should be looking at what it can do to help airlines limit emissions. It can start by working with other EU governments to implement a Single European Sky that would save 12 million tonnes of CO2each year. It should also look at tax credits as an incentive to improve environmental performance rather than counterproductive taxes," added Bisignani.The passenger tax also breaches resolutions of the International Civil Organisation (ICAO) and Article 15 of the Chicago Convention on International Civil Aviation. "I am surprised that the Netherlands, as an ICAO Contracting State, chooses to ignore its obligations and trample over international agreements," Bisignani commented."We are seeing a worrying trend across Europe with governments cynically taxing air passengers for environmental reasons then failing to use the revenues for environmental purposes. These taxes are blunt instruments that just damage tourism and impact the competitiveness of European businesses. We urge the Dutch Government to rethink this ineffective, inappropriate and misguided proposal," concluded Bisignani.

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