A new year...a new tax...but same old story

1 year
365 days
8760 hours

This is approximately the time since my last post on my blog. That is just too long, but a job as an assistant professor with family and social commitments requires priorities. Unfortunately, the blog was relegated to way down the list. However, I hope to increase my rate of posting in the future…at least it probably can’t any worse.

A lot has happened during my absence. Overall, the industry has been suffering from the affects of a global recession and depressed economies. Lately, there has been some positive development, but there is concern that the upward trend is slowing. There has been consolidation all over the globe; Southwest’s acquisition of AirTran has been particularly interesting, if for nothing more than confirming that business models are not chiseled in stone but dynamic models. The developments in Asia with incumbent and fresh low-cost airlines finding common ground through joint ventures, off-shoots, new airlines, etc. is making for interesting reading. In Europe there are repercussions from the economic situation (e.g. Air Berlin and its shake up) and expansion in particular regions (e.g. FlyBe’s entrance into the Nordic region). However, this isn’t a post with a summary of the past year’s events, but a commentary on the political influence in the industry. In this little Scandinavian country there has been an election and the incoming government has announced their passion for an aviation environmental tax of 75 DKK ($14 or €10 as of writing) per departure. This tax has been here before; it was removed a number of years ago and subsequently there has been a positive growth in passenger development, especially on domestic routes.

This proposal does not differentiate itself particularly. It is an equal tax on per passenger ticket per departure from a Danish airport. So, a round trip on a domestic trip will experience an increase of 150 DKK. This can be a large portion of the ticket price, especially when prices can be found as low as 500 DKK round trip. Now it has to be recognized that the proposers of this tax admit that the ambition is to reduce the number of air passengers due to environmental concerns. At least the government recognizes that the tax will reduce the number of travelers. However, they have failed to take into account a number of factors. There is no study researching which transport mode air travelers will chose instead. If a large portion of them jump into their car the environmental affect will certainly go the other way. The train, on the other hand, is a better environmental choice. However, the train is less flexible and requires a higher time-cost. At the same time, a reduction in air travelers will most likely lead to fewer flights, which is an environmental benefit. However, fewer flights mean a need for fewer employees in airlines, airports, suppliers, secondary industries, and tertiary industries. So, the politicians can balance the environmental affects and an increase in state finances on one hand versus fewer employed in the travel industry with the social costs that accompany increased unemployment. One can doubt whether these aspects have been considered. Of course, there are additional aspects. The reduction in flights from outlying areas will reduce their access to the greater world. This reduction means that businesses are unable to sell and attract resources as easily as before. Denmark already has a problem with depopulation and financial struggles in rural areas. This policy will only exacerbate these problems. The costs associated with such a policy far outweigh the benefits, experienced by Ireland and Holland, until they removed similar environmental taxes.

Update (27.9.2011): If politicians just need a reminder of the relationship between the number of frequencies at an airport and employment they need to look no further than Jutland in Denmark. Norwegian, battling for a prominent position in the skies over Scandinavia, just announced that it was going to close the route from Copenhagen to Karup on the 30th of October. Subsequently, the airport announced that it was going to layoff employees at the airport since it was going to be overstaffed after Norwegian ceased operations. A tax will lead to increased ticket prices, which will lead to fewer passengers, which will lead to fewer frequencies (which is good for the environment), which will most likely lead to a reduction in people employed in the airline industry, which will eventually trickle throughout the value chain.

Now, it is commendable that politicians recognize the importance of the environment. However, is aviation really the place to start? The industry accounts for single-digit impact on the environment compared to fields, such as, agriculture, housing, energy, etc. Why not start with the low-hanging fruit rather than punish an industry that is only now crawling out of a financial hole? But what if politicians insist on a tax on the industry? Well, why not actually put some effort into it and reward those airlines that have a lower environmental impact? Why should an airline that strives to reduce its green impact be impacted equally as a notorious polluter? I don’t think this means that airlines will stop striving for green credentials. Remember, a green profile often means fewer emissions, usually from a lower fuel burn, which means less money being burned up in the turbine. Finally, if politicians insist on charging all airlines the same tax, where is this money going? Is it going to improve the industry? Research and development, maybe? Not one has expressed this as a goal; the funds will go into a general fund and improve the transportation infrastructure for other modes. However, I hope the politicians remember the impact of the Icelandic ash cloud in 2010. Airplanes are simply necessary for various types of travel. I am a supporter of the environment, and I do believe in the carrot and stick, however, I disagree with haphazard suggestions of taxes and fees. Implementation of this tax will have repercussions throughout the travel industry, which should not surprise the government if they think about things.