Aviation Taxes in Europe: a constraint on economic recovery

These are taxing times for Europe’s regional airports and airlines. With the industry still struggling to shake off the effects of recession, there seems little sympathy or relief at the individual state or EU level. Indeed, the move appears to be to make life harder still for Europe’s air transport business, with the introduction of emissions taxes on intra-European flights and proposed limitations on state aid at regional airports.

Whilst these policies and proposals continue to generate headlines, passenger departure taxes at the state level quietly continue to chip away at the profitability of airline networks. Whilst a number of EU states have made the decision to abolish departure taxes – the Netherlands in 2009, and now Ireland in 2014 – key member states such as Austria, France, Germany, Italy and the UK show no signs of doing so. Indeed, both Italy and the UK increased their tax rates in 2013.

How big a burden are these passenger departure taxes? The table below shows a breakdown of the key charges levied by the state in four EU countries (all per departing passenger);

Air Transport LevyEUR8.00
Civil Aviation TaxEUR4.31
Solidarity TaxEUR1.00
Airport Tax*EUR12.00
National SurchargeEUR1.25
Air Traffic Control LawEUR8.00
Aviation Security Fee*EUR5.24
United Kingdom
Air Passenger DutyGBP13.00

France leads the way in the number of different taxes it levies on passengers, with four. The Airport Tax varies by airport, though outside of the main airports in France it is usually levied at EUR 12.00 per departing passenger. Taken together, these taxes make passengers departing from France the most heavily taxed in Europe.

The state levies two passenger taxes in Germany, a departure tax and a security fee. The departure tax does vary by distance, though for this analysis only the short-haul tax is required. The Security Fee varies by airport of departure, but is usually within the range of EUR 4.00 to EUR 7.00 per departing passenger.

The UK has been steadily increasing the departure tax since its introduction in 1994, when the fee for intra-European travel was GBP 5.00 per departing passenger. Current rates are GBP 13.00 per departing passenger (up to 2,000 miles), increasing to £26.00 as a standard rate and up to £52.00 per departing passenger for the highest class of travel. These rates will be held in 2014, though for distances over 2,000 miles they will be increasing; a business class passenger travelling over 4,000 miles would have to pay a departure tax of £332.

The analysis assumes that all passengers are travelling in economy class on short-haul European services, so the lowest rate of tax is paid in those countries with variable rates. It also assumes that passengers are travelling point-to-point only; this is an important distinction, as many of the departure taxes highlighted above are based on final destination. Passengers connecting onto long-haul flights within 24 hours of their arrival at the first destination would therefore be charged a much higher departure tax at the origin.

The chart below shows the typical impact of state passenger taxes on the full published charges of regional airports in the EU. The charges shown are the average for a basket of regional airports in each country, including runway, environment, security, parking, passenger and infrastructure charges. The analysis was carried out for an 84-seat regional jet with a load factor of 70%.

Source: www.airportcharges.com

In all of these countries, state passenger taxes make up a significant proportion of the combined airport and passenger charges. The most lightly taxed is Austria, with taxes making up 14% of the total charges; next comes the UK, at 28%, followed by Germany at 37%. As indicated above, the nation with the most heavily taxed passengers is France, where over 60% of airport and passenger charges are in the form of state taxes to be paid by the passenger.

Maintaining existing services from regional airports and attracting airlines to open new routes is not an easy task, and such high levels of taxation make it harder still. Regional French airports appear to be compensating for high taxes by keeping their airport charges at relatively low, competitive levels; however, this leaves little room for discounting to attract new business. At the other end of the scale, UK regional airports appear to have higher airport charges, so potentially offer greater scope for new business discounting. But with state taxes already making up almost 30% of airport and passenger charges, any meaningful incentives to attract new services could push the tax element up to and beyond 50%.

The effect of reducing charges income to attract new services could put the profitability of small airports at risk, especially if low traffic volumes limit the potential for non-aeronautical revenue. In trying to support regional air links, and therefore regional economies, airlines and airports are taking significant business risks, yet only the state is guaranteed to make a profit.

by Richard Leigh