Could The UK Government Cut APD To Boost Airlines?

The Air Passenger Duty (APD) tax applied in the UK has been a bone of contention with the industry for many years. Amid the chaos of COVID and airlines struggling financially, numerous industry leaders have called on the UK government for relief, most recently British Airways boss Alex Cruz. If Boris Johnson did remove APD, at least temporarily, could it stimulate a winter boom for British aviation?

BA Embraer
An APD suspension could stimulate some solid winter demand in the domestic market. Photo: British Airways

British Airways boss calls for APD relief

Yesterday, Alex Cruz, CEO of British Airways, went up in front of the Transport Committee to discuss the job losses at his airline. Among other topics, Cruz was keen to stress the damage that the high levels of Air Passenger Duty (APD) are having on domestic and regional travel in the UK. Early on in the meeting, he said,

“What is wrong today is that [APD] is disabling regional travel. The fact that today more taxes are being paid on a return flight to Glasgow or Edinburgh or Aberdeen or Manchester versus a return flight to Rome or Paris, it’s something that should not be accepted. We need to find ways to stimulate travel. If we were to get a waiver on APD … I think it will make a huge difference in us being able to get travel back up and running.”

Later on in the hearing, when being asked about what he believed was required to stimulate a recovery of the industry, Cruz again turned back to APD. He said,

“I think that the single biggest contributor to re invigorating regional travel will be to take a waiver on the APD tax.”

Alex Cruz
At the hearing, Cruz said APD was “disabling” regional travel. Photo: Parliament.Tv

Air Passenger Duty is a tax unique to the UK, which levies a charge on every passenger when flying from a UK airport. The current rates depend on the length of sector flown and the type and configuration of the aircraft. They range from £13 for an economy seat on a short flight up to £176 for a business class seat on a longer flight.

The issue for UK airlines is that, on domestic routes, APD is applied at both ends of the journey. This means that, before accounting for the actual costs of operating a flight, a trip from, say, London to Edinburgh, would already cost at least £26. It’s far more tax than is paid on a much longer trip, for example, into Europe, which is a major bug-bear for British airlines.

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The Transport Committee had previously recommended a six-month suspension of APD in their aviation report. While even this has not yet been adopted by the government, Cruz is keen that it runs for a little longer. He said,

“I personally believe that the suspension of APD up until we get to the same levels of travel that we had prior to the pandemic … will be a sensible way to address the challenge that we have at hand. I think that generally we are trying to suggest a minimum 12 month period of time.”

He’s not alone either. In recent weeks, Loganair CEO Jonathan Hinkles has repeated his own calls for a reduction in APD, saying it was “imperative” for the government to provide this support. Cardiff Airport’s chief executive Spencer Birns similarly called for an immediate suspension of APD for at least a ‘couple of years’. And Ryanair has been calling for temporary suspension of the tax since June.

The tax disproportionately affects regional operators like Loganair. Photo: Loganair

In parliament, more than 20 MPs previously called upon the government to scrap the tax until at least next summer. Reports suggest that there will be a consultation ahead of the autumn budget, with chancellor Rishi Sunak potentially having something to announce then.

Support at PMQs

Almost simultaneously as Cruz was stressing the need for APD relief in his Committee meeting, Steve Double, the MP for St Austell and Newquay, was addressing Prime Minister Boris Johnson in the House of Commons about the very same issue. During Prime Minister’s Questions (PMQs), Double asked Johnson,

“There is a very real concern that if our smaller airports close at this time, they may never open again which will make the government’s levelling up agenda even harder to deliver.

“So could he ensure that our regional airports get all the help that they need – whether that be through grants, the government backing more public sector obligation routes, and will he carefully look at reducing air passenger duty, particularly on domestic flights?”

MPs have lent support for regional airports like Newquay. Photo: Cornwall Airport Newquay

Johnson thanked the minister for ‘sticking up’ for Newquay Airport and said that he hadn’t ruled out APD relief. He said,

“We will continue to consider applications for public service obligations on routes, such as into Newquay and elsewhere, and we will certainly look at air passenger duty though it would be wrong of me to make any fiscal commitments at this stage.”

With pent up demand for travel and ever-changing quarantine regulations applied to countries in continental Europe, this winter season could be a major opportunity for domestic UK travel. Winter city breaks, Christmas shopping trips and visits to family could bolster UK airlines and regional airports, but with APD still in place, these flights become unaffordable. Removing APD, whether just for six months or even longer, could well be the stimulus British aviation needs.

For now, the jury is out on whether Johnson will enact the recommendations in the Transport Committee’s aviation report. If he plans to, the message from the sector is clear – do it now.