Features

In focus

26 Apr 2011 by Alex McWhirter

If only we enjoyed the “luxury” of a land frontier. If UK travellers could easily cross borders then our government’s much-maligned APD, or air passenger duty (see In Focus, Business Traveller November 2010), would have been scrapped by now.

Evidence from mainland Europe suggests that when governments introduce these so-called “eco” aviation taxes, passengers have defected to airports across the border in countries where taxes are not imposed. Last December, we wrote about how the Dutch government had been forced to scrap its eco tax because canny passengers defected from Amsterdam to join flights in neighbouring Belgium and Germany (see Hub of Holland, Business Traveller November 2010). It meant that the Netherlands as a whole – namely, its airports, aviation industry and businesses – lost more than it gained.

A similar picture seems to be emerging in Germany, which introduced an eco tax on January 1. At the time it was brought in, federal finance minister Wolfgang Schauble predicted it would contribute €1 billion a year to the country’s coffers, which equates to a monthly average of €83.3 million.

But according to Germany’s financial newspaper, Handelsblatt, the tax generated only €59.1 million (or under €30 million a month) during January and February. Here too, perhaps, cost-conscious German travellers are opting to fly from Amsterdam, Brussels, Luxembourg or Zurich. Although more passengers will use Germany’s airports in the summer months ahead, one wonders whether the government’s revenue target will still be met.

This same scenario is a possibility in neighbouring Austria. The country introduced an eco tax on April 1, similar in scope to that of Germany. This has also been criticised. A spokesperson for Austrian Airlines told flightglobal.com that not only would the tax not bring in the sums expected but it would also harm Vienna’s standing as a hub. The tax imposed in the Netherlands, the spokesperson said, “was disastrous, and we say it will be the same here”.

Back in the UK, we find our island status makes APD a money spinner – it currently raises £2.5 billion a year. So the news that the chancellor of the exchequer, George Osborne, had frozen rates until 2012 in his last Budget rather than raise them was positive.

“It is a welcome move,” says Celia Donne, regional director of serviced office firm Regus. “A rising proportion of firms are trading overseas, with particular growth coming from the small entrepreneurial sector.”

Passengers taking off from a UK airport can only avoid APD completely by opting for surface travel. Where passengers have a viable and cheap surface alternative then it would seem they have voted with their feet. No wonder domestic air travel is sickly, judging by passenger statistics from the Civil Aviation Authority, with carriers scrapping flights and routes.

Some passengers could be taking the train, which is inexpensive if you book the right ticket. The price of APD alone can almost buy a standard class advance ticket on some business routes.

When international travel is involved, we find our intrepid readers circumventing the highest bands of APD by starting certain long-haul trips from airports in mainland Europe.

They pay £12 APD to fly, say, to Amsterdam but then avoid the £170 premium cabin APD they would have had to pay when departing Heathrow.

So it could be argued the tax is changing travel patterns. Readers overseas tell us that when visiting several cities in Europe, they will arrange their trips to make the UK their first port of call and return home from mainland Europe to avoid the UK’s highest APD bands. Tour organisers also practise this wheeze because when removing APD from their calculations they can quote a keener price.

It has benefited ferry operator Stena Line, which reckons it will carry 20,000 Indian passengers this year between Harwich and the Hook of Holland – twice as many as in 2011. India is in Band C for calculating air passenger duty, which means the tax doubled at the end of 2010 to £75 for economy class and £150 in other classes.

Lars Olsson, general manager of Stena Line, says: “While I am not condoning the hike in APD, there has definitely been a huge upturn in traffic for Stena Line, particularly from the Indian market.” If 20,000 passengers departed overland, destined for a Band C country such as India, it would cost the UK exchequer £1.5 million in lost APD revenue – more still if some of these were booked in business class.

One point that must be stressed is that APD or eco taxes are not payable by passengers changing planes when using a through ticket. I say “through ticket” because the budget carriers such as Easyjet are disadvantaged by the current system. That is why Easyjet’s chief executive, Carolyn McCall, is calling for it to be changed.

Easyjet does not interline. It means a passenger flying Glasgow-Luton–Tel Aviv must buy two tickets and pay two sets of APD, whereas a passenger flying British Airways on Glasgow–Heathrow-Tel Aviv pays APD to the final destination only.

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