From January 1st, when the UK officially leaves the EU, the British government has the opportunity to treat its domestic market differently to the rest of the bloc. That means its cripplingly high Air Passenger Duty (APD) levels could no longer be applied twice on domestic flights. But with COVID creating financial turmoil for airlines, many call for reform that goes deeper than that.
Same old problems
The news that Flybe could be making a comeback was not a complete surprise. Many of the airline’s old routes remain underserved or unserved, so there’s still room for a regional carrier in the UK’s airline matrix. However, it will be coming back to the same old problems as before, as well as some new ones caused by COVID.
One of the biggest pressures on Flybe’s operations was the UK’s high level of Air Passenger Duty (APD). Having tax charged at both ends of the journey on domestic routes crippled the airline’s pricing strategy and was undoubtedly a contributing factor in its demise.
As one of the UK’s leading domestic airlines, Loganair feels the same pressures that Flybe had to contend with. Speaking at this week’s Airlines 2050 conference, CEO Jonathan Hinkles commented,
“Removal of APD is something that the industry has been pushing for, for a very long time. And I think the most tangible element of that is around the removal of the double APD on domestic flights, where of course you end up getting taxed twice. That’s something that will become within the government’s power to change. It’s one of the few good things coming out of Brexit, that there is that ability to differentiate between the domestic market and the European market.”
As part of Europe, the UK has had to treat both the domestic and continental markets the same. From January 1st, when, one way or another, Brexit will be finalized, the government has the right to abolish APD on domestic flights, but will it do so?
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The argument for removing APD
So far, there has been no firm commitment to the removal of APD. In fact, the latest news from Chancellor Rishi Sunak is that APD will actually be increased in 2021. While the short-haul rate remains unchanged at £13 per person, longer flights will attract an extra £2, taking the cost to £82.
Conservative MP Henry Smith, who chairs the Air Passenger Duty Reform Group, estimates that the £3.7 billion generated by the tax would be fully replaced and even exceded through additional revenue brought in from more flight connections. Speaking last year to Airport Technology, he said,
“As an island trading nation, and with international trade deals post-Brexit, I think that helping reduce APD so that people can travel more both for business and pleasure is something that will be good for the economy.”
While London is very well served by connectivity worldwide, the regions of the UK are grossly underserved. Airlines UK previously said many new routes could be spurred on to launch if APD was removed or reduced. These included domestic connections such as Bristol to Leeds or Liverpool to Southampton, as well longer haul services like Bristol to Dubai or Belfast to Madrid. Airlines UK said,
“We want the tax to be cut by at least 50% across the board. Our research shows that if APD were abolished as many as 65 new routes from the UK would become viable, both long and short-haul, and from airports mainly outside the south-east of the UK.”
A new urgency
Aside from the potential for the UK’s aviation market, the impact of COVID has lent a new urgency to APD reform. With airlines struggling financially and jobs on the line, numerous airline executives and industry bodies have called on the government to at least waive the charges for a period of time.
During the Airlines 2050 event, CEO of Qatar Airways, Akbar Al Baker, urged temporary relief of APD charges in the UK. Referencing a study by York University for Airlines UK, he said,
“A 12 month air passenger duty waiver would say 45% of the lost jobs, the lost air routes, and potentially 8,000 jobs over the next 12 months. It would also increase passenger demand and enable the sector to stimulate an additional £7 billion in economic activity.
“Global airline connectivity is crucially important for any country, especially an island like the United Kingdom, to keep it connected to global trade and commerce, especially a difficult times like this. Effort must be made to remain flexible in terms of entry restrictions and encourage passengers to travel by simplifying the process and reducing red tape.”
It was hoped that the Chancellor’s November budget would be the platform from which to announce a review or at least temporary relief from APD. However, with Brexit looming, that has been pushed to 2021. From January, the government has the opportunity to remove the double taxation on domestic flights, which would be a step in the right direction, as well as reviewing the charges for non-domestic flights. Whether that happens, we’ll just have to wait and see.