Calls For 'Tax Regimens That Do Not Kill Growth'

The International Air Transport Association (IATA) on Monday issues a call to governments to be stronger partners in maximizing aviation’s economic and social benefits. “Our industry’s license to grow is earned through working with governments to constantly make flying even safer, more secure, and more sustainable. Now we need an agenda to achieve tax regimes that do not kill growth, regulation that facilitates growth, and infrastructure that can efficiently accommodate growth. Doing so will enable the substantial economic benefits—jobs and growth—that global connectivity provides,” said Tony Tyler, IATA’s Director General and CEO. The remarks came in Tyler’s State of the Industry address at the opening of the 68th IATA Annual General Meeting and World Air Transport Summit. 

“Aviation’s benefits are not guaranteed. Aviation is expected to grow about 5% annually to 2030. If that growth is held back by even one percentage point, the global economy will forfeit over a trillion dollars and 14 million jobs. Modern economies cannot prosper and create jobs if they are not connected to global opportunities through aviation. Governments need to unleash the power of aviation to drive jobs and growth. And airlines need to be successful businesses—keeping revenues ahead of costs and generating returns for their shareholders—to deliver economic benefits,” said Tyler (pictured).
 
Tyler said profitable growth would hinge on three key areas: taxes, regulation, and infrastructure.

"Excessively taxing aviation makes no sense. Taxes dampen growth—with a knock-on effect on jobs and the broader economy. Bluntly put, making connectivity more expensive destroys jobs and slows economic growth. The United Kingdom had to admit this when the recent increase in its GBP 2.6 billion Air Passenger Duty (APD) threatened direct connectivity to Northern Ireland. With inward investment and jobs at stake, the government reduced international APD for Northern Ireland. Regrettably, the government increased this job-destroying tax across the rest of the United Kingdom instead of abolishing it altogether,” said Tyler.
 
Tyler also cited the positive impact of low tax regimes. “Hong Kong, Singapore, and the United Arab Emirates are among governments building their economies around air connectivity. The result is a virtuous circle. They are great markets for airlines. Businesses prosper from connectivity. And governments reap the benefits of increased employment and a stronger tax base. Aviation should be seen by governments as a source of revenue—but not as a cash cow. Aviation is a powerful workhorse. Using it wisely will deliver benefits throughout the economy,” said Tyler.
 
Concerning regulation, Tyler said “Sensible regulation that increases safety or enhances competitiveness is good. But too often even the best-intended new regulation can have unintended and damaging consequences." He noted punitive passenger rights legislation in the United States and Europe as examples of misguided regulation, including EU Regulation 261, which forced airlines to compensate passengers for the hasty and unnecessary decision by governments to close European airspace in 2010 when a volcano erupted in Iceland, and the introduction by the United States of heavy fines for long tarmac delays. To avoid potential fines, flight cancellations increased.
 
“Making airlines pay for the mistakes of governments or incentivizing airlines to cancel flights are the unintended consequences of poorly thought-out punitive passenger rights legislation on both sides of the Atlantic. Airlines don’t want delays. And fines don’t address their root causes. The market forces of choice and competition empower passengers and are the best way to drive up service levels so long as governments also do their part,” said Tyler.

Tyler also encouraged stronger economic regulation of infrastructure suppliers. Recently, the South African regulator allowed a 161% increase in airport charges and a 70% increase in air navigation fees. Similarly, the Indian regulator allowed a 346% increase in charges at Delhi. “Both regulators followed prescribed guidelines, but failed to protect the public interest. We must work with governments to build regulation that supports jobs and economic growth by keeping the cost of connectivity reasonable,” said Tyler.
 
On the subject of infrastructure, Tyler said the power of an industry to drive economic benefits depends on its capacity to grow. He took aim at European governments for failing to deliver the Single European Sky (SES). “By 2020, the Single European Sky (SES) is meant to cut air navigation costs in half and increase capacity by 70%—important goals for the European economy. But states are falling at the first hurdle. They watered down the modest 4.5% first stage efficiency target proposed by the European Commission to 3.5%. And the latest Performance Review Board assessment is depressing reading. Most states won’t meet even the unambitious targets that they agreed to. And as a result, airlines face EUR189 million more cost in 2014.

“SES has the strong support of the European Commission, the European Parliament, and Vice President Siim Kallas. They have the full support of the industry to drive a top down approach. This should include severe consequences for states and air navigation service providers that don’t meet their targets,” said Tyler.
 
Tyler also highlighted the need for governments to meet demands for connectivity with airport capacity. “A few kilometers of runway and an efficient terminal infrastructure can put global markets at the doorstep of every local economy. Some governments understand this and are realizing the benefits of prioritizing airport investments. But there is also a long list of countries that are not taking full advantage of aviation’s economic potential. The United Kingdom is not expanding Heathrow’s runway capacity. Germany is banning night flights at Frankfurt. Australia needs a long-term plan to meet Sydney’s capacity needs. And India has not mustered the political will to build a new airport to serve the needs of its financial capital—Mumbai. And this is just the start of a long list,” said Tyler.

FMI: www.iata.org