Air passenger duty - a tax too far?

Airlines and trades unions representing those employed in the aviation industry are lobbying the British government for a rethink about the proposed increases in air passenger duty (APD).

The duty is currently £10 for short-haul flights and £40 for longer journeys, costs which airlines pass on to passengers. Under the government’s plans, the tax will rise to £85 for Australia and £60 to the US by November next year. The revised APD will be based on four bands set at intervals of 2,000 miles from London. This BBC news article provides a useful background on some of the key economic and social arguments relating to the duty and the views of different stakeholders.

The government and environmental groups believe that aviation is an industry that is under-taxed with no VAT on tickets or duty on aviation fuel and that the polluter-pays-principle should apply when it comes to raising the air passenger duty. The airlines are already struggling because of the effects of higher fuel prices and the global recession. The industry as a whole has failed to make a profit in any of the last ten years and airlines fear that the hike in air passenger duty will cause a further inward shift of market demand and hit an industry that is already struggling with chronic excess capacity. Between March 30 2008 and October 24 2009, as many as 969 weekly direct flights will have been axed at 10 leading UK airports, representing a total of nearly 131,000 seats.

Some of the other issues raised by the article include:

1/ The ability of airlines to pass on higher duty to passengers in the form of higher prices

2/ Equity considerations - will the raise in duty hit lower income passengers and bigger families disproportionately?

3/ Should air passenger duty be based more accurately on the distance that passengers travel?

4/ What are the alternatives to air passenger duty?

5/ The aviation industry aims to become carbon neutral by 2020 - what does this mean?

6/ How might the proposed increase in duty affect the tourist industries of countries classified as long haul destinations?