Simon Calder: The man who pays his way
How the law of unintended consequences applies to air travellers
Saturday 09 December 2006
You may go in search of a perfect tan. For Chancellors of the Exchequer, the holy grail is a perfect tax. And from Gordon Brown's point of view, that is how Air Passenger Duty looks. The Chancellor announced, midway through his pre-Budget flight, that the levy on boarding an aircraft in the UK will double from 1 February.
From the Government's point of view, everyone looks a winner. The Treasury will collect £1bn in extra duty from travellers; HM Revenue & Customs need lift not a finger, merely asking the airlines to double the size of their cheques; and the prime minister-in-waiting is able to proclaim his green credentials. In the environment game being played out in Westminster, the strategy favoured by most politicians is to squeeze the air traveller until the lemon pips squeak in their inflight gin-and-tonic. Yet the duty rise resounds with unintended consequences.
* IF EVER a tax were designed to penalise residents of, and travellers to, Northern Ireland, it is Air Passenger Duty. Scotland and Wales have reasonable road and rail links with England, but terrestrial trips to and from the north of Ireland tend to be slow and unappealing. The Chancellor's move adds £10 to return flights between Northern Ireland and the rest of the UK, harming tourism and business. AIRLINES HAVE, predictably, howled at the doubling of duty. No-frills carriers have been especially vociferous because their passengers are so price-sensitive. Roughly half of easyJet's passengers begin their journey at a UK airport. So the extra tax translates as an across-the-board increase of £2.50 per customer, exactly the same as the airline spends on fuel per seat.
British Airways, with its mix of short-haul, long-haul and transfer traffic, is likely to see a 5 per cent increase in overall fares as a result of the new duty levels. Coincidentally, the airline made an operating profit of just over 5 per cent in the three months to the end of September. So will its margins be wiped out? No. BA enjoys dominance at the world's most popular airport, Heathrow. As a result, demand is inelastic - in other words, the 5 per cent price rise is unlikely to trigger a 5 per cent decline in passenger numbers. But BA will certainly lose market share; long-haul passengers on the fringes of Britain could travel to another European capital - Paris, Brussels or Dublin - to avoid the £80 fee to leave the UK in Club class
* THE GREEN and pleasant land that Mr Brown wants to create may get no closer as a result of the tax rise. If a £10 price hike for a return flight from Manchester to London persuades some people to switch to the train, so much the better. But the move actually makes the use of executive jets a more rational choice for business travellers, to the detriment of the planet. While privately chartered aircraft pay no tax, a group of five executives on a business-class day-trip from London to Edinburgh using scheduled flights will face a £200 bill for Air Passenger Duty. That could be significant enough for a switch to a private jet, with all the extra noise and pollution it creates.
A bizarre feature of the tax - that all single-cabin aircraft pay the lowest rate - means that fares on business-class-only planes will look more attractive compared with premium economy on BA and Virgin Atlantic, even though the latter are a lot less damaging per passenger.
The current villains of the climate-change debate are short-haul flights. So I talked to Nigel Turner, chief executive of BMI, which has more UK flights from Heathrow than any other airline. By how much will the tax rise reduce the output of, say CO2, into the atmosphere?
"By not one gram," he says. "Let's suppose there is a marginal aircraft on a marginal route that becomes unviable as a result of the doubling of APD. That aircraft will just be deployed elsewhere."
How many aircraft will Mr Turner ground as a result of the increase in tax? "None." Meanwhile, the dozens of aircraft that the no-frills airlines have on order will still be delivered, and thereafter burn fuel and expel carbon dioxide for 12 hours a day or more. They will simply do so elsewhere in Europe.
* FOR BRITAIN'S tourism industry, the rise in tax is another kick in the teeth. A return economy flight to the UK from outside Europe will cost £20 more. The strength of sterling already makes the UK a very expensive destination - particularly for prospective visitors from the Americas, tied to the weak US dollar.
Domestic tourism will suffer, too; a family of four will pay £20 more return in tax to fly to Scotland or Northern Ireland than to Europe.
* THE SADDEST unintended consequence will be a rise in road deaths. Air travel to, from and within Britain is phenomenally safe; the last fatal crash involving a leading UK airline was at Kegworth, 17 years ago. In contrast, more than 3,000 people die on Britain's roads every year. Travellers who switch from air to road put themselves at significant extra risk.
* TWO MORE victims: first, travel editors, at least those foolish enough to pay their own way. If I fly as much next year as this, I will pay an extra £540 in Air Passenger Duty. And Peter Long, chief executive of First Choice, calls APD a "tax on the tall": travellers opting for extra legroom on his transatlantic flights will have to pay £80 in duty for the privilege.
Mr Long is 6ft 3in tall.
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