The UK’s APD Increase Continues to Convince People Not to Visit

Just as California likes to bump up the car tax to plug its budget holes, the UK has a soft spot for taxing the heck out of air travel. The Air Passenger Duty (APD) has only been at its current rate for a couple years, but apparently it’s time to increase it again. Just what we need is more taxation on air travel to help further destroy the already declining demand for air travel.

In coach, the tax is currently between £10 and £40 depending upon distance traveled. This will now go up to £11 to £55 in November 2009 and then spike again in November 2010 to £12 to £85. Other classes of service will pay double. Originally, the UK had discussed the idea of making the tax on a per plane basis instead of per passenger to encourage the use of larger planes, but that was ditched in favor of a simple and painful increase.

Just think about the magnitude of this increase. In 2010 it will cost you £85 for a flight over 6,000 miles. As of today, that’s about $130 for this one measly tax. Fortunately, The Global Traveller found that the distance for the tax will be based on the distance from London to the capital of each country. If this is true, then it’s good news for much of the US. The distance from London to Washington is around 3,650 miles so that means that travelers between the UK and US would pay £45 in coach and £90 up front next November. That would go up to £60 in coach and £120 up front the following year. If it was based on actual flying distance, anything west of Chicago and south of Charlotte would be in a higher bracket.

You may remember that the UK likes to position this as an environmental tax to help fight air pollution. Well, I’m sure it’ll thrill you to know that the UK puts none of these revenues to support environmental projects, and even if they did, the amount of revenue collected is far more than the “cost” of carbon. This appears to be the UK’s way to juice some extra revenue without considering the impact on air travel itself.

21 Responses to The UK’s APD Increase Continues to Convince People Not to Visit

  1. Hah! I just booked two tickets from London to LA for next year using BA’s 50% off air miles offer and a free companion ticket. £570 in taxes.

    The whole CO2 emissions thing is a scam anyhow.

  2. Jim says:

    I sympathise with all the above, but I don’t think it’s quite so cut and dried. The UK does not have (with a few limited exceptions) hypothecation of taxes – the ring fencing of one source of revenue to pay for one particular policy or project.

    In this context is it right that a friend of mine flies to France every weekend? Is that sustainable? Perhaps it’s right that either the Government seeks to deter that or seeks to gain some income from someone who generates quite considerably more carbon than the average Briton. I’m not sure.

    We have a tax system that takes a much greater share of the poor’s income than the rich. This is definitely a tax on the travelling rich – me included, and I’m not sure I’m fundamentally opposed to it.

    Unless and until we have a completely flat tax system (for which there is little political support in the UK) the Government needs to raise money from somewhere.

  3. Bob says:

    When traveling to Europe I try to use air miles. Have always flown to other European destinationsbut I though I would try London for a change and stay a few days and travel out by train. Saw the current tax totals and decided to skip that idea, will stick with Frankfurt or other.

  4. CF says:

    Jim – I don’t have a problem with taxes in general, but it’s the hefty nature of this tax that bothers me. Air travel demand will be impacted by this rather large cost increase, and while the rich can continue to pay it, it’s those on the margin who may not be able to fly. If there’s going to be an additional tax, there should be some sort of justification for the new level. We don’t see that here. I also have plenty of problems with the way the US taxes air travel as well. I’m only singling out the UK here because it’s a recent change.

  5. Jim Sack says:

    One more reason not to bother with England. Fly over to Schipol or beyond to Munich or Berlin. They are much more interesting places, any way.

  6. Zach says:

    I just booked a ticket on BA from ORD-DEL via LHR and got slammed with taxes at their current, lower levels (the roundtrip fare was still $300 cheaper than anything else out there, even post-tax).

    Question (might be a dumb one, but I’ll ask it nonetheless): Say I were to make that same trip after November ’09–would I have to pay GBP180 (45 pounds per segment), or just one payment of whatever the tax would be in the ultra-long haul bracket?

  7. Daren S says:

    Although I am not exactly a fan of our tax and spend government, I have to partially agree with Jim. Over the last 15 or so years that I have been traveling regularly throughout Europe and the US the cost of flying has barely changed. The big question is whether without these taxes would the airlines have kept fares low or hiked fares more readily and pocketed the difference? We will never know. All I can say is that air travel has grown considerably in that time, partly driven by the growth of low cost airlines such as Ryanair and Easyjet, offering air fares for a few pence plus taxes. I suppose my main gripe would be that taxing people more for flying longer distances rather than short ones is counter to trying to change people’s behaviour. If you have to fly long haul then you don’t really have a choice of transport whereas if you are going short haul you may then have other options open to you.

  8. Jim Sack says:

    The tax is probably not about changing people’s attitudes, but rather finding another revenue stream. I will just skip over England, but I doubt that will change their behaviour.

  9. A says:

    While this tax hike may not affect corporate travel this can have a big effect on the leisure traveler. Want to take a family of 4 to London to see Big Ben? $130 x 4 isn’t chump change, and will likely make people consider other European destinations, or forgo the trip across the pond all together.

    Air Travel taxes might be an easy revenue stream to exploit, but so is tourism. I’ve left behind a lot of money in the UK directly through VAT taxes on goods and services. I wonder if they’ve studied how significant that revenue stream is?

  10. David says:

    In the UK (and much of Europe), fuel for cars is taxed much more heavily than in the US – it’s partly how we pay for all the social services that aren’t available in the US and also adventures in Afganistan + Iraq. A US gallon of fuel for your car in London on 1 December costs about $5.25 – how much do you pay in LA ?

    Tax is not just about paying for something – it’s also about encouraging / discouraging certain actions. If Govt policy is to be pro-green, then tax can be used to make those who pollute more subsidise those who pollute less. If the voters choose a party for this policy – then we have to accept this.
    Unless you’re flying over 8 hours, the rise in tax is the same as inflation since 2007.

    I fly maybe 10 round trips in Europe per year for pleasure, thus creating an awful lot of CO2 – seems reasonable to at least put some cash up for the environmental damage I’m causing. For a family of 4 who are not wealthy and fly to the beach once per year, the cost goes up by only US$3 – kids under 16 are exempt.

    Under treaty, Govt can’t impose tax on jet fuel. The purpose of APD is to ensure that those flying pay at least some contribution, rather than just those travelling by car alone. For London-Paris, the train takes only 2h30 – do we need a plane for this ?

    30 years ago, flying long haul was only for the wealthy – now we all expect to do so every year !
    If someone is flying from London to California and can afford the air fare and the week or two in the hotel – is paying a little bit of tax really so much to ask ?

  11. Bobber says:

    Happy skipping, Jim – we’ll miss you.

    Ahem. Only fair that we share our enlightened taxation policies with the rest of the World, particularly our American cousins. It is, always, a nice touch that the premiums we are charged in many walks of life here in the UK under the guise of environmental benefits rarely, if ever, manage to go towards dealing with the problems they are originally intended to tackle.

  12. Alex says:

    The tax thing isn’t great, but who really likes paying tax? The thing thats winding me up in the UK at the moment is fuel surcharges. Now ignore the fact that fuel is now back down to a reasonable price, yet the charges haven’t disappeared. Although i can imagine hedging has an effect on if they will be removed.

    Speaking as a BA FF the problem I have is they include the fuel surcharge as a “tax”. Which is basically a devious ploy to make the base price of the ticket look cheaper. The big issue here of course is redemption flights as you use your miles to buy the ticket and then pay the taxes and also the FUEL SURCHARGE. Now correct if me if i’m wrong but i always thought that fuel was an integral part of the ticket you buy, surely “taxes” are only any payments owed to various goverments. When you consider that a 9hr+ business class seat, last time i looked, was $257.00USD in fuel surcharges. Its some sneaky stuff.

  13. David says:

    Bobber – tax exists not just to clear up the existing damage, but also to prevent its occurrence in the first place.

    Govt gives tax breaks on pension schemes to encourage you to save up cash for when you’re old rather than just spending it all now. Tobacco is heavily taxed to make people smoke less or not at all – the money it raises pays for far more than just the health problems of smokers.

  14. David says:

    Alex – the fuel thing is a charge or fee, not a tax. Airlines like to be ambiguous and try to portray the fuel thing as something for which someone else, preferably Govt, is to blame. An airline charging extra for fuel and explicitly calling it a tax is illegal.

    Airlines are loath to lower fuel surcharges for 2 reasons:

    1) The lag effect. Suppose in Year 1 fuel in $50 per barrel, in Year 2 it’s risen $100 and in Year 3 it’s fallen back to $50. Early in Year 2, people thought that fuel being $100 was a temporary blip so airlines couldn’t raise the fuel surcharge too much. Eventually airlines raised the surcharge to cover the costs – but probably several months later than they should have. Now that fuel is back down again, who can be certain it’s not just a temporary blip (e.g. Saudi Arabia has internal dissent) and it won’t go back to $80 ? Airlines therefore like to hang on a bit to try to claw back the previous lost revenue

    2) Fuel surcharge = higher revenue. Unless competitors drop their prices, why would BA want to sacrifice hard revenue just to appear nice ?

  15. CF says:

    Zach – My understanding is that the APD is based on the final destination, so it’s not segment-based.

    Daren S – That’s a good gripe you have. It’s true – long haul doesn’t have many options while short haul flying does have alternatives. A higher tax on short haul would get people to change their mode of travel whereas the higher tax on long haul may get people to cancel their travel altogether.

    A – I tend to agree with your thinking here. Something tells me that they see this as the easiest way to get cash in the door. I’m sure they realize that the negative impact could be real, but they probably see it as the lowest risk. At some point, the amounts will go so high that it will certainly deter leisure travelers from coming to the country.

    David – Right now, we’re paying about $1.90 a gallon here, but I don’t see that as the point here. Let’s look at this. As Daren S says, this tax is not set up correctly if it really is trying to get people to look at alternatives. The short haul flights see an increase of £1 the first year and another £1 the second. The £12 fee is not going to heavily discourage air travel on those routes where truly viable alternatives exist (as is the case with cars vs public transit/trains, by the way).

    On the other hand, the massive increase on the longer haul flights will very likely discourage leisure travelers from going. If these are British travelers, well, they may just have to deal with it if they want to go anywhere. But if these are foreign travelers, they may very well choose to go somewhere else and Britain loses out on the tourist money. Yes, people want to go to London, but there are a lot of other places in the world people want to go. If it does end up costing an extra £400+ to go to the UK over another option, then that could sway the balance. It’s not like there are any alternatives for long haul travel here.

    Alex – The fuel surcharge thing bothers me as well, because it should be included in the price you’re quoted. I know that many governments are struggling with this around the world.

  16. A says:

    30 years ago, flying long haul was only for the wealthy

    David, inexpensive airfare for the masses has only been of benefit to the UK. Every year millions of foreign tourists come to see the sights, pouring millions of pounds into the economy. There’s a serious catch 22 if this tax is being used to discourage air travel because it “pollutes.”

    I do think that we will someday return to the days of air travel being a pleasure reserved for the wealthy, but that will not benefit anyone working in the hospitality business in London or Hawaii or Florida or the many places around the globe that rely on tourism. I’m not sure how big tourism is to the UK economy but if I were making decisions based on keeping people employed and growing the local economy I’d want air travel to be inexpensive as humanly possible.

  17. David says:

    CF – I think that APD even at £12 does encourage train travel where viable. The UK is island-based so apart from domestic trips, Northern France and Belgium, the train will never compete. British Airways is reducing mainline domestic frequencies heavily – a large proportion of UK domestic flights are now on LCCs like Easyjet and Flybe whose margins are more sensitive to tax changes. London-Edinburgh by direct fast train can be done for £12 one way.

    A – Tourism is an important part of the UK economy – but the UK is a NET SPENDER on tourism. In other words, people living in the UK spend more on trips elsewhere, than people from elsewhere spend in the UK. The UK is not lacking in tourist attractions and promotes this heavily, suggesting that Brits spend a HUGE amount of money on trips overseas. Not good for the economy long term – and at some point Govt probably needs to try to penalise those holidays to the Caribbean.

  18. Alex says:

    “2) Fuel surcharge = higher revenue. Unless competitors drop their prices, why would BA want to sacrifice hard revenue just to appear nice ?”

    I understand what you’re saying but when its applied to reward trips that its super sneaky. I was a loyal customer to BA and earned my miles which I want to spend. Surely the point of this is to offer free flights (minus any actual government taxes) in exchange for those miles. However not having redemptions cover the surcharge essentially means that ones mile buys 75% of the ticket cost. It hasn’t always been this way, it just seems like a large scale version of nickel and diming its loyal customers.

  19. The Traveling Optimist says:

    I’m planning trips to PRG and CPT next year. I was considering LHR as a gateway/stopover to visit family as well as boost my FF miles using oneworld carriers. This is sounding more and more like the taxes apply even if my destination is beyond LHR? If so, those taxes will add up to at least two nights accommodation at my final destination if I choose other carriers and alliances. Hmmm.

    Further, I don’t necessarily buy in to being personally responsible for generating additional levels of carbon in the air. If I choose not to travel I believe that 747, 777 or A380 is still going to fly. As part of a large movement, yes but one discretionary traveler? No.

    Seems the APD will ultimately only redistribute the carbon emissions to other parts of the world. Travelers will choose not to fly or find alternate destinations overseas or at home. The British may end up with cleaner air all to themselves but they’ll have to meet up with friends and family in Paris.

    Do taxes of this kind apply to the Chunnel?

  20. David says:

    A – The ideal for an airline is to offer a lure of FF miles / points so as to encourage you to pay for expensive trips when earning miles, but make it as difficult or expensive as possible to actually use as they can get away with. Of course, if using FF miles becomes too difficult, the lure loses credibility and the whole FF marketing thing becomes pointless. Yes it is sneaky but most carriers do this – even when using FF miles, airlines would still like to get as much cash as they possibly can.

    Optimist – Assuming yields are middle-of-the-range, an airline needs occupancy to average around 70% to be profitable. I agree that flight in March 09 will go ahead even if it’s empty, but the route becomes a candidate for reduced frequency or being cut completely in the 2010 schedules. One single person won’t have an effect, but if an additional tax reduces occupancy from 73% to 68%, an airline will reduce the number of flights (and CO2 generated) when planning future schedules. The fact that your personal trips to PRG and CPT become less certain means seat bookins are likely to be reduced.

    If Govt can encourage people to choose destinations closer to home, people are spending fewer hours in the air, long haul routes get discouraged in the future and CO2 emissions are reduced.

    Trains trips on the Channel Tunnel are not subject to any tax like APD. However, trains from London go to central Paris, not the airport. To get to Paris-CDG takes another 45 mins on the subway with accompanying hassle, costs about £6 each way and you lose the cost benefit of making a booking with one travel provider rather than two. Unless going business class long-haul, this is very unlikely to save any money compared to APD.

  21. Bobber says:

    The other issue with Eurostar is that it can be significantly cheaper to book tickets using the French website, or via SNCF, than it is to book via the UK website. So, whilst there may not be a specific tax levied (like APD), we are nevertheless royally ripped off in the UK which makes a mockery of trying to encourage people to take the train rather than fly. I would query if the pricing policy of most train companies in the UK promotes their usage rather than driving or flying – I usually find rail travel prohibitively expensive unless I can precisely specific the exact train times without any margin for change. My flights are virtually always long-haul and whilst I’m not doubting their significant effect on the environment, I strongly believe it is the ridiculous drive towards short haul flights that needs to be curbed.

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