Taxes /Air Passenger Duty/Pollution......any better solution?

This article recently appeared in the aviation press. It gives us an opportunity to open the debate about the Air Passenger Duty applied to all passengers leaving any UK airport, and relook at the whole problem. From 1 January 2021, The Netherlands will levy €7.45 tax per passenger ticket," (Aviation24.be   14-11-20)

https://www.aviation24.be/airports/from-1-january-2021-the-netherlands-will-levy-e745-tax-per-passenger-ticket/

The Dutch have opviously found that the UK ´s tax can be a very useful tool to raise money even though the premise on which the tax is based is wrong.The most eloquent remarks came from the French who are trying to introduce a similar tax to APD, to be decided next year. "France and its new environmental eco tax on aviation", (Business Traveller, 19-11-20)

https://www.businesstraveller.com/features/france-and-its-new-environmental-eco-tax-on-aviation/

France’s Directorate General for Civil Aviation (DGAC) estimated that the tax would cut the number of air travellers by 14-19 per cent, lead to 150,000 job losses, and cost the French economy €5-6 billion in lost GDP.

Alexandre de Juniac, CEO and Director General of IATA responded that,“This proposal cannot be taken seriously. It is not the time to add €6 billion and 150,000 lost jobs to the economic destruction already being levelled on the French aviation sector by Covid-19. And it will all but eliminate the 160,000 jobs that the government is trying to create with €100 billion in its economic re-launch plan." 

This is in addition to the latest French government diktats which have demanded that Air France abolish short-haul domestic flights where alternative train services exist.This was the price to pay for government loans and subsidies to see the airline through the Covid19 crisis in 2020.

Even Greenpeace is jumping on the band wagon to further its agenda. "Greenpeace asks the European Commission to ban short-haul flights", (aviation24.be    25-11-20)

https://www.aviation24.be/miscellaneous/greenpeace/greenpeace-asks-the-european-commission-to-ban-short-haul-flights/ 

Even the frequent flyers are vilicated for ......flying!!!"Frequent fliers cause half of aviation’s passenger emissions: report", (Business Traveller,  22-11-20). This is a questionable propagandistic headline which sounds shocking. However, If I fly 6 times per year to any destination (work or holiday) versus somebody who flies 24 times per year (which is more likely to be for work than for pleasure) then their effect is 4 times times greater than I. Of course what is not taken into account is the net benefit to the country which is likelier to be be higher for the work flights than the pleasure ones.So it is totally erroneous to concentrate on the flights of individuals but one should look at more the effect of the flights themselves - i.e. by the aircraft used.

https://www.businesstraveller.com/business-travel/2020/11/22/frequent-fliers-cause-half-of-aviations-passenger-emissions-report/

How can we look at this problem? To begin at the beginning..........

What is Air Passenger Duty(APD) for?

Initially the tax was introduced to make the airline industry assume part of the cost it causes by its activity, apart from airport usage and air traffic control (air usage) which it pays religiously. As the airline industry did not pay anything towards the cost outside normal usage then this was considered a reasonable application. Add to that the UK government´s international agreements to reduce CO2 emissions then the application of a tax to achieve a reduction was considered acceptable.

How is APD applied?  

The UK government lays out its conditions for the tax in this link.Here are explained the rates that are applied and to which destinations.Basically the planet is divided into short-haul and long-haul flying with a tariff applied according to the distance travelled.

GOV.UK Guidance: Rates for Air Passenger Duty

https://www.gov.uk/guidance/rates-and-allowances-for-air-passenger-duty

What is wrong?

However, is the the APD being applied correctly?After all the kerosene consumption, the fumes produced by flying, and the noise heard on take off/landing or when flying low overhead, these are not caused by the passengers but the aircraft. If I were Superman and able to fly, I would not consume any fuel, produce any toxic fumes nor produce much noise. However, we are not Superman nor will we ever be able to fly independently outside of a machine.

The APD is being applied to the people, the passengers who have no control over the apparatus in which they fly. they are mostly manufactured by Boeing and the Airbus Consortium, plus a few minor manufacturers. Therefore, the passenger has no choice but to accept the limited offer of aircraft for flights. I view a tax based on this as inordinately unfair and wrong.

In fact the APD comes down to being nothing better than a poll tax on people who fly from or within the UK. The Poll tax that Mrs.(later Lady) Thatcher as Prime Minister tried to impose resulted in her downfall. It was shown to be wrong and the solution found by Michael Heseltine has proved to be simple in application, fair, effective, and long lasting. Moreover, if we look at the present situation in autumn 2020 we have a dreaded covid19 virus which has decimated the world´s economy, and the airline industry in particular. In this particular case the millions of passengers who flew long and short-haul routes have been reduced drastically. What was a lucrative source of income for the Treasury has been reduced to an unimaginable all time low. Thus, it is time to question the wisdom of following the present fiscal policy, look at the roots of the questions and find acceptable answers. 

A long list of airlines from large to small has demanded the abolishment of APD. Loganair is the latest to join the list asking for APD to be withdrawn. 

"Loganair calls for APD pause as it announces S21 plans",  (UK Aviation News, 9-9-20) 

https://ukaviation.news/loganair-calls-for-apd-pause-as-it-announces-s21-plans/

Solutions:

1- Abolish APD completely.

2-  The airlines pay no VAT or excise duty on fuel. This is unfair. The airlines should apply the same VAT on the kerosene it burns as do other forms of public transport - such as taxis, buses and coaches.This would apply to all aircraft filling their tanks in the UK. This can go a long way to substituting the income lost by the abolishment of APD.

3- APD should be replaced by a levy on aircraft, to be called Aircraft Pollution Tax (APT) (for simplicity`s sake).

There are two types of pollution - noise and fumes. The amount of noise is created by the type of engine used. Jet engines tend to make much more noise than propeller driven engines.Plus the larger the engine the greater the noise. It is also true that the age of an engine has a big role to play. Engines produced in the 1970s and 80s make far more noise than those manufactured these days to produce the same amount of horsepower. Thus engines should be divided into different categories  between those that can or not achieve limits on the decibels produced. This does not have to be complicated but can be a division into two categories.

Noise is also produced by the aircraft themselves. The more modern models tend to be more streamlined with less drag and thus more efficient producing less noise. The same criteria can be applied to airframes as are applied to engines. 

The other type of pollution concerns consumption of fuel. The latest engines are always promoted by the manufacturers as achieving a certain percentage improvement in consumption - (e.g.)they burn 10 or 20% less kerosene than previous generations of engines thus obtaining a decrease in operating costs. They thus lead to higher profits and/or lower fares.

An illustration of this is the product description on the extended range single aisle Airbus being bought by Iberia, Aer Lingus and other airlines." Airbus says that the next step up from the A321LR will have a range of 4,700 nautical miles, 15% more than the A321LR. The A321XLR will also have a 30% lower fuel burn per seat than its competitor’s previous-generation aircraft,"...

With the abolition of the Poll Tax Michael Heseltine was given the task of coming up with a clear system simple in its application to replace it. This he did and it has lasted since then - for over 30 years now. Such an action is needed now to replace APD. This would result in a   tax being fairer and easier to apply as you only have to apply it to each take off from UK airports and thus collect from each company regardless of the number of passengers being carried.

4- Laws to permit or prohibit something are all very well, but they are somewhat useless without an inspection system which is accurate and fair. 

a)- Therefore, we have to ensure that there is an extensive range of monitors on and around the airfield. These should also be outside the airfield`s limits on the approaches to the runways so that measurements can be taken for take-offs and landings.

b)- Monitors round the perimeter of the airfield are also essential. These would establish the parameters in which to work including any outside influences which could corrupt the data. To give one example: monotoring devices along the northern perimeter of Heathrow airfield can give us a base point for pollutionary effects on a windless day. On a day when the breeze or wind is in a northerly direction that data will tell us the effect that traffic pollution has coming down from the M25 motorway just to the north of the airfield. As a result more detailed data can be compared to real data to reduce the unwanted external effect. 

c)- What cannot be ignored is the airside non-aircraft pollution.In any airport there are vehicles moving about, pushing and pulling airplanes, taking luggage and supplies to and from the airplanes, moving cargo and luggage to and from one airplane or warehouse to another, transport vehicles moving crew and passengers to and from aircraft, and other ancilliary vehicles on airport business.

d)- not to be ignored are the vehicles that operate to and from the terminals from outside the terminals but inside the airfield (i.e. landside). These can be trucks for cargo, buses and coaches for passengers, taxis and cars for passenger and worker use and others. These vehicles at some stage in the future (non-specified) as yet will be prohibited entry to airports,- or at best their entry will be strictly limited. I refer, of course, to those powered by petroleum products. The permitted vehicles will be those powered by electricity or someother non-polluting energy source.

 

Therefore, solutions exist to the problems of pollution and discrimination. Such measures to promote the use of renewable sources of energy while penalising the present overuse of toxic producing forms of energy, are available but need to be improved. Incentives to use better forms of air transport together with penalties to airlines for not putting these measures into use can be applied effectively. All this together with the application in a forced but resasonable time period means that the aims of achieving a greatly reduced production of toxic polluting fuels can be achieved by 2050.Obviously any measures have to applied gradually in a progmatic way. Those airports that have a higher volume of traffic (passengers and/or cargo) would have to come first then on a scale downwards to the lesser used airports.

All of these pointers refer to the institutions who promote their use and the machines used. NONE refer to the customer using these machines. The measures should discriminate between the good and the bad machines. It is not the customer`s fault which is which. Penalise the use of the bad and incentivise the use of the good, then the customer will choose by price or conviction the good to use. 

Such is the case to abolish the Air Passenger Duty.

Adonde vas IAG? (Whither goest thou IAG?)

It has now been confirmed that Willie Walsh is stepping down from being CEO of IAG from 26th March this year and then retire completely on 30th June.

My first minor question is what his role will be in those three months and what power of decision will he have? Normally, if one leaves an important post then that is that as we do not want godfather figures influencing things in the background.There is no worse thing than backstreet drivers.

Willie Walsh instigated the takeover of Air Europa to which this blogger was against initially. This is a Spanish airline flying out of Madrid Barajas domestically, throughout Europe and internationally to Latin America. However, considering that LATAM had suddenly fallen into the hands of Delta (part of Skyteam) while AF-KLM was organising the integration of Air Europa into a joint venture also in Skyteam, the takeover of Air Europa is not after all a bad idea even if the only consideration were to put a spoiler on AF-KLM plans. That is one last ditch action which has still not been completed. Is that the real reason for WW´s departure a long way before the two years prenotice are up?

Air Europa A330

However, we have to take into consideration that it is not a done deal and will not be until the end of the year. There is speculation that the Spanish and/or European competition authorities might well think that the concentration  of the Spanish airline market into basically two big carriers, Iberia (and Vueling and its group) plus Ryanair is a step too far. It is most likely going to be a condition of the takeover that Iberia sheds some routes and most certainly slots at Madrid Barajas from its domestic network. On the international stage they might question the competition available on routes to South America. The takeover could well mean an unacceptable concentration on some routes, meaning Iberia might well have to reduce frequency on some popular routes so that other competing airlines can step in. If the conditions for merger become too onerous then IAG could well call off the takeover, having to pay the penalty clause in the process. 

Air Europa  is part of the Globalia travel group. Its owners are divesting the airline from the group in order to concentrate its future investment in the high-speed rail market in Spain. That would mean they could go back to the original plan of forming a joint venture with fellow Skyteam members AF-KLM on routes to South America. This would be a real threat to Iberia. One has to remember that Air Europa is no minor airline as it flew almost 13 million passengers in 2019. It  might even sell out to AF-KLM. What is IAG s Plan B if there is one?




Let us look at IAG´s situation at the end of January 2020.

-There has been great movement to try and prove that the company is able to operate in Europe despite having a large number of British and non-EU shareholders.That might well get accepted. But what is it now, a Spanish company?

-BA, Iberia, Vueling and Aer Lingus seem to be achieving their financial objectives, though nobody who I have read speaks well of Iberia nor Vueling and few of BA. On the other hand the group seems stuck in a mold and is not moving. Maybe the takeover of Air Europa will give it a push.

-Worse still, nobody speaks of LEVEL. For an up and coming supposedly dynamic company this is not good enough. The structure is inexplicable and a mess. It has one head man (who cannot be called COE) but is run by three companies, Iberia, Open Skies and Anisec. It does not get promoted but now news is filtering out. It stops flying Vienna to London and might close down the base altogether, and suddenly announces the cancellation of sales on its routes from Paris to Boston and Las Vegas. The latest rumour is that LEVEL is even to be closed down altogether. There are no headline advances as there were in the Ryanair and Easyjet formative years. Also the website is very uninformative as it is difficult to see exactly when and where LEVEL flies to the destinations from it bases.

 


-Now the game of musical chairs is falling into place. Willie Walsh is going to be replaced by Luis Gallego as chief executive of IAG, Antonio Vazquez as IAG Chairman, Alex Cruz is COE of BA, while Javier Sanchez-Prieto becomes CEO of Iberia, Marco Sansavini takes over at Vueling. All of these men might well be highly capable and even successful for the company. However, I feel uncomfortable that there is no northern European in the picture, be the person Anglo-Saxon, German or Scandinavian.This is not a racist question but one of culture for me. An international airline needs input from experts with experience from all over the world. In this particular case that means executives with understanding of northern European markets (JUST WHERE IAG HAS A WEAK PRESENCE)

Finnair A350

Is Finnair going to be snatched from IAG´s grasp? Finnair is also a member of the oneworld alliance with IAG. For some time there has been speculation that Finnair would join IAG as it could not go very far on its own. Its home market is small and it is making its mark, quite successfully at the moment, by offering the shortest routes to the Far East over Russia. It flies over 13 million passengers per annum. However, if it were the case that it had to merge with another airline it might be tempted to leave oneworld and the possible IAG orbit. LATAM was firmly embedded in oneworld and forming a joint venture with American Airlines until Delta came along and snatched it away putting a spanner in oneworld plans. The same or similar outmanoeuvring should not be allowed to happen again.

Norwegian B787

SAS A350 (c) ArthurC

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  Has IAG given up on Norwegian or is it just a ploy?

If not Norwegian would not SAS make a good partner? 

Norwegian is still very interesting for IAG. Apart from its network within Scandinavia and from London Gatwick it offers the opportunity to extend its LCC network throughout Europe. The airline is recovering from near bankruptcy 12 months ago and is on the way to becoming profitable. The main advantage of this carrier, apart from its European network, is the long-haul network of routes from Oslo, Amsterdam, Paris, London Gatwick, Barcelona, Madrid, Rome and Athens. Whether it can still remain independent or not is a moot point. It claims to carry 37 million passengers annually.

But Norwegian or not, a very rich area and clientele of Europe cannot be ignored. Thus the alternative of SAS.  This has the advantage of not competing with Finnair, as does Norwegian, at its home base of Helsinki so would make the two airlines complementary. SAS covers Denmark, Sweden and Norway extensively The annual traffic of SAS is more than 20 million passengers.

LOT B787

Condor B757    2020     (C)Alejandro Hernandez Leon

It looks like the brightest sparks on the horizon are at LOT which has just now doubled in size (from 10 million to about 20 million passengers per annum) with its takeover of Condor (this was the German airline in the Thomas Cook Group which went bust in late 2019). LOT is one of the airlines which realises its home market is not big enough for it to survive. Poland is about the same size as Spain with a similarly sized population. However, it does not have the history of a big overseas empire which provides a lot of passengers from Latin America to Europe.LOT has decided to start services from Budapest as well as Warsaw to try to achieve a critical mass from the diaspora of both countries in the USA, thus making it big enough to survive, but that has its limits.There are about 3 million Polish-Americans while about 1 million Hungarian-Americans. At least the management shows ambition. Condor gives it a foot in the massive German and German speaking markets. However, Condor is also essentially a leisure airline transporting tourists to the Mediterranean and worldwide. Can the mix work or is it a massive gamble to change Condor into a regular airline?

 One other area to look at is the role of LEVEL at Paris Orly. In autumn 2019 two French airlines went bust - XL and Aigle Azur - This should open up the opportunity to expand the presence of LEVEL at Paris. Some months previously the holiday company TUI sold most of its French airline, Corsair, to a German investment company. This is a leisure airline like Condor but has more interesting routes which compete with LEVEL, mainly to the Caribbean, connecting French overseas territories to the mother country. Apart from Air France the principal competitor is the Dubreuil group which flies two airlines Frenchbee and Aircaraibes to the Caribbean and other overseas French territories as well as the USA. These in themselves might well be interesting airlines to take over, but I would look on Corsair as less of a mouthful. There should be no competition worries as there is plenty of competition against Air France and the Dubreuil group.  Corsair would also open the door to routes to Africa (an extremely under-represented area within the IAG group) as well as Indian Ocean territories (Reunion, Mauritius and others).

All these companies would all make excellent fishing grounds for talent. But is IAG going to do anything about the perceptions about lack of movement because at the moment it seems to be in a rut. At the very least it needs to change the impressions.

What do I see as the future? In an ideal future this blogger sees the individual companies inside IAG making their headway. In the low cost market Vueling would occupy itself with mostly southern Europe, the Mediterranean and North Africa. Norwegian would mostly occupy the market north of a line from London to Moldova. LEVEL would be the hybrid long-haul airline flying from the cities already mentioned as its exit points as well as those already offered by and instead of Norwegian. It would be neither a full service airline nor a low-cost one - something which has not as yet been developed.  LEVEL would also offer flights from other European cities which are not in direct competition with other IAG airlines - such as Geneva or Lisbon for example. Air Europa would be absorbed into Iberia, and Corsair into LEVEL. Meanwhile Finnair, LOT, and Condor, as stand alone airlines like Aer Lingus, would join the full service airlines of BA, Iberia and Aer Lingus in offering coverage of the vast majority of Europe - something it does not do at present. That way IAG will have ensured itself as a strong all Europe airline group - but would that be enough?