Great debate over airline taxation

Jul 2 2008 By Alistair Houghton, LDP Business

Business reporter Alistair Houghton looks at the airline industry's debate over Air Passenger Duty

RYANAIR boss Michael O’Leary is never a man to mince his words – and airline taxation is one of his greatest bugbears.

So it’s not surprise that he was typically frank when talking about Air Passenger Duty (APD), the levy on passengers flying from the UK.

For him, APD is “using the environment to steal more taxes from ordinary air passengers.” And even Ryanair’s great rival British Airways calls APD a “cash cow”.

APD is a divisive subject. For environmentalists, the duty is a way of limiting the growth of the airline industry and curbing carbon dioxide emissions. But for airlines and airports it is seen as an unnecessary tax that adds to the cost of plane tickets without benefiting the environment.

Economy-class passengers are currently charged £10 for European flights and £40 for long-haul trips. Business and first-class passengers pay twice as much.

The Government is now consulting on its plans to reform the system. It wants APD to be charged on a per-plane basis, rather than continuing to levy charges on individual passengers.

Easyjet, Liverpool’s second-biggest airline, has this week announced it is in favour of the plans. The company says it welcomes the move as it will mean charter passengers and cargo planes having to pay duty.

It is now calling for the tax to reflect emissions and the length of flights and says “dirtier planes should pay more than cleaner ones”.

But it is also warning that the new tax “should not be a Trojan horse for the Government to raise a further £500m.”

Managers throughout the airline industry will have been intrigued by transport minister Jim Fitzpatrick’s recent suggestion that the Government may change its mind on APD reform.

Speaking at a conference last week Mr Fitzpatrick said: “Difficulties surround the decision. There are strong arguments that we should not proceed with the transition.”

That uncertainty makes it even more important for Liverpool John Lennon Airport managing director Neil Pakey and his colleagues from Northern airports to tell the Government their views.

JLA plans to team up with other Northern airports, including Manchester and Blackpool, to tell the Government that any further increases in APD could damage the competitiveness of UK regional airports.