UK carriers may lose sympathy over passenger tax row

Reasons behind the response by members of the British commercial flight sector over the increased departure taxes are a little too obvious to serve anyone's interest

It seems frivolous to be bemoaning new taxes on holidays when the entire aviation industry is reeling from another near-miss after a terrorist bomb plot was uncovered in the UK and Dubai.

But the fragile nature of the aviation industry's profitability means misconceived government levies could inflict a great deal of damage in the long term. That is the fear airline chiefs have over the latest rise in air passenger duty in the UK.

Air passenger duty (APD), a tax levied on all passenger flights from the UK, rose again on the first day of this month for a total increase of 325 per cent in four years.

Short-haul passengers will have their departure tax rise to £12 (Dh71) from £11. Long-haul passengers will pay a 55 per cent increase in duty, to £85 from £55.

A family of four will pay more than £600 in tax on a long-haul trip that starts from Heathrow, while travellers who start their journey in Denmark, Sweden, Norway or the Netherlands will pay nothing.

The UK government collects £1.9 billion a year in APD. That figure is set to double by 2016 to £3.8bn.

Successive governments have tried to claim APD is a green tax that will be used to mitigate emissions from air travel. The truth is, the treasury keeps every penny.

There is not even a promise that APD might be used to fund high-speed rail, the usual coalition answer as to how Britons will get from one end of the island to the other in future.

The tax does not distinguish between empty, old and polluting planes or full, new and more efficient ones. As such, there is no incentive for airlines to replace their oldest aeroplanes or adopt greener technologies.

The owner of Heathrow, the heavily indebted Spanish construction group Ferrovial, is particularly concerned about the impact of a higher APD on their assets.

The tax may prompt more people to travel through Amsterdam where they pay no tax. Not only would this be a loss of valuable shopping revenue to the British Airports Authority (BAA), ultimately it could lead to direct routes disappearing from Heathrow and other British airports.

The increases in duty will also make the UK less attractive as a tourist destination. It now costs a family of four at least £300 more to travel from China to London than from China to Paris or Frankfurt.

There are other anomalies. The tax is banded, meaning a family holiday in the Caribbean costs more than one in the US, even though the Caribbean is considerably closer than the west coast of America.

The airline and airport chiefs are playing the patriotic card in their opposition to this tax by arguing that the latest increase could hit the UK's fragile economic recovery, making it difficult to attract inbound tourists and deterring Britons from flying abroad.

Michael O'Leary, the combative chief executive of Ryanair, was typically scathing of the increase, saying: "It does not make much sense if you are an island on the periphery of Europe to be taxing the only means of getting on and off the island."

But Mr O'Leary would say that, wouldn't he? Ryanair last week threatened to reduce the number of flights from a German airport in protest at that government's new tax on air travel. He is merely trimming his costs to fit market demand.

What if the increase in APD did deter traffic to long-haul destinations? So Britons stay at home and instead spend the money on a leading hotel and spa in the UK, a theatre trip, some new clothes and a few slap-up restaurant meals? Now who would be pumping more money into the British economy?

APD needs to be reformed and the coalition's "per plane" tax proposal is a reasonable place to start.

But the aviation and travel industry risks losing our sympathy in these difficult times when its self-interest is so blatant.