Report claims travel tax will lose government hundreds of millions

A REPORT into the €10 Air Travel Tax (ATT) has found that it will result in hundreds of millions of lost revenue for the Government and thousands of job losses.

The report was commissioned by Aer Lingus, CityJet and Ryanair, who between them account for 83% of air travel passengers to and from Ireland.
In a joint statement the chief executives of the three airlines, Christoph Mueller (Aer Lingus), Geoffrey O’Byrne White (CityJet) and Ryanair’s Michael O’Leary said the tax, which was introduced earlier this year, is losing money.
“This tax is completely counter-productive and costing the country more than it can ever hope to generate. It does not make sense to sacrifice huge revenues and lose jobs and passengers by imposing a tax that will generate just €116 million. We have always warned that the direct revenue generated by the travel tax would be significantly less than it would cost the State when the adverse impact on business, tourism, jobs and lost taxation receipts were taken into account. This view has now been vindicated by the findings of today’s report.”
The report states that tax alone would be enough to cause a serious reduction in numbers flying, even without a global recession.
“If airline capacity in 2009 had been maintained at 2008 levels and the ATT was to be passed on in full to passengers in the form of higher fares, it is estimated that the total resulting demand reduction would be between 500,000 and 1.2 million departing passengers over the first full year.”
There will also be major job losses, it warned. “There will be a direct loss of jobs of at least 2,000 to 3,000 affecting airports, airlines and the tourism industry dependent upon the extent to which companies are willing to accept the inherent diseconomices of scale from a reduction in demand. The direct consequences of the reduction in passenger demand, as a result of the ATT, would give rise to significant reductions in Government revenues in the following categories; less revenue from income tax (as well as higher unemployment costs), less revenues from corporate tax, less revenues from sales tax (VAT).”
Airlines in Ireland cannot pass on the €10 charge to passengers, according to the report.
“In reality airlines have not been able to pass on the ATT to passengers in the form of higher fares but have reacted by a combination of absorbing the tax by lowering fares and redeploying capacity outside of Ireland to locations where no travel tax is applicable. Consequently, actual revenue losses across the various sectors as a result of the ATT have been significantly higher than might have been expected due to the impact of higher prices alone, estimated at between €428 and €482 million, with ATT revenue estimated to be €116 million.”
Ryanair and Aer Lingus are not equipped to deal with something like the tax.
“Aer Lingus and Ryanair are both volume-driven airlines, which rely on low fares to drive high load factors. In this business model, airlines cannot easily pass on increased exogenous costs into higher fares without detriment to achieving target volumes.”
As a result, it found that the airlines are themselves absorbing the extra charges, to their own detriment.
A similar tax was repealed in Holland when it proved to be loss-making.
“The tax was introduced on July 1, 2008, but abolished one year later. The main reason for the subsequent abolition of this air ticket tax was that it became clear from a study conducted by Amsterdam Aviation Economics that this tax alone had strong negative effects on passenger numbers at Dutch airports, together with negative effects in economic sectors linked to aviation, such as the airlines operating from these airports and the tourism industry. In the months after the tax was abolished, the decline in passenger numbers (year-on-year) was significantly lower than in the months before its abolition.”
It predicted that job losses would be between two and three thousand.
“Whilst a total job loss of 3,500 to 5,000 jobs is possible, in reality the job losses are more likely to be in the order of 2,000 to 3,000 jobs overall, taking into account the extent of fixed costs and the extent to which there is an increase in activity in domestic sectors of the economy due to a reduction in Irish residents travelling abroad. It is nevertheless clear that significant job losses will occur as a result of the ATT and that these job losses will be concentrated in the sectors directly affected by a reduction in air passenger demand.”