Business

Short‐run impact of passenger tax on air travel

The Federal Airports Authority of Nigeria last week jacked up passenger travel taxes for local and international trips with effect from August 1, 2020, even as it comes with its implications for the country’s aviation sector. Wole Shadare writes

 

 

Burden

It was not unexpected but the timing of raising Passenger Service Charge (PSC) both on domestic and international air travel by hundred per cent has kept tongues wagging about the sensitivity of imposing such taxes at a time citizens have been knocked down by the huge impact of Coronavirus.

 

 

While the N2000 tax is understandable, that of $100 from $50 is considered high and one that is likely to put a huge burden on air travel.

 

Airport taxes are usually charged to passengers departing from or connecting through an airport. Some airports do not levy these fees on connecting passengers who do not leave the airport or passengers who have a connecting flight that is within a specific timeframe from the time of arrival.

 

 

The amount of airport tax levied on a passenger depends on a number of factors, most prominently whether the flight is a domestic or international one.

 

 

International flights typically carry a higher airport tax. In the U.S. international arrival and departure taxes are $18.30 for any international air transportation starting or ending in the U.S. except for transportation from the Continental U.S. from a city within the 225-mile buffer zone.

 

 

Meanwhile, U.S. Domestic passenger tax that applies to journeys that begin and end in the U.S. or the 225-mile buffer that extends into Canada or Mexico is $4.20, as of 2018. This also includes a 7.5 per cent excise tax imposed on all domestic flights. Also, taxes can range in rates depending on several other factors, such as the size of the plane and time of day.

 

Economic impact

 

 

Workers across all strata of the economy have been furloughed as the economy is expected to shrink by 5.4 per cent according to the International Monetary Fund (IMF) and could impoverish additional five million Nigerians.

 

 

The IMF expects poorer nations dealing with the disease to have longer economic recoveries as lockdowns continue in the worst-hit to global GDP since the Great Depression. No doubt, this will put a hole in travellers’ pockets.

 

 

FAAN’s imposition of PSC from August 1, 2020 will definitely lead to higher cost on tickets but the airport authority has defended its position to effect increment from  N1000 to N2000 for domestic flight operations and  from the former $50 to $100 for international passengers.

FAAN’s defence

 

 

The Managing Director of FAAN, Capt  Rabiu Yadudu, in a letter dated June 22, 2020 with reference Ref: FAAN/HQ/MD/18E/VOL.86/72 , titled, “Implementation of the approved new passenger service charge (PSC) effective August 1, 2020 and sent to all airlines, stated that the decision was premised on the approval  given by the Minister of Aviation in a letter referenced FMT/FMA/COM/T/69 dated August 3, 2017, which he said was sought with the intention to improve and upgrade airports infrastructure among others.

 

 

Yadudu noted that the authority recently notified the Minister of Aviation of its intention to commence the implementation effective August 1, 2020, stressing that on several occasions they had engaged the Nigerian Civil Aviation Authority (NCAA) and relevant stakeholders which he said delayed the implementation from 2017 to date.

 

 

The FAAN boss disclosed that the cap on the value of the PSC is simply outdated, explaining that the last review of the PSC is simply outdated.

 

 

According to Yadudu, the last review of PSC on domestic route from N350 to N1000 and from $35 to $50 on the international route was on May 1, 2011 and March 21, 2011.

 

 

His words: “This does not correlate with the prevailing economic situation and the index to meet the needs of today and future growth in passenger traffic by FAAN and airport development, most especially for the airport upgrade to post COVID-19 standards.

 

 

“You will also wish to recall that Bi-Courtney Aviation Services, operators of the MM2 has for years been charging N2,500 as its PSC. Despite the operating PSC, some airlines recently moved operations from the General Aviation Terminal (GAT) handled by FAAN to the MMA2 because of the inability of FAAN to expand GAT. This increase will therefore afford FAAN the needed funds to upgrade our facilities to accommodate new airlines including the anticipated national carrier.”

 

 

Effects on tickets

 

 

Whatever the type of charges and fees, whether they are directly collected from the passenger or the airline, it all adds up to the cost of travel which ultimately will be borne by the passenger as the airline will pass on these charges to the passengers as cost of ticket.

 

Airlines may use different methods to allocate various costs to ticket prices on various routes, however in the end it will be passed on to the travelling passengers.

 

 

In order to realise the huge potential existing in the continent, all stakeholders need to work together to reduce the cost of travel so as to make it affordable to a larger sector of the African population who currently are excluded from the use of air transport because of the high fares, among other reasons.

 

 

Airport taxes around the world

 

New Telegraph takes a cursory look at which countries charge the highest flying fees, what governments have buckled under pressure to reduce or scrap them, and who has managed to steer clear of charging travellers departing from their airports.

 

 

United Kingdom

The UK’s Air Passenger Duty (APD) is the highest passenger tax levied anywhere in the world. Originally introduced in 1994 as a means to pay for the environmental costs of air travel, it has risen by a whopping 824% by 2015.

What started out as £5 ($6.50) for short-haul flights and £10 ($12.97) for long-haul flights, the tax reached £13 ($17) for economy class and £26 ($33) for all other classes. Passengers flying further than 2,000 miles pay £73 ($95) for economy class and up to £146 ($189) for all other classes. A further rise was planned for April next year.

 

Australia

 

Australia’s passenger movement charge (PMC) is one of the highest in the world. The flat rate of A$55 ($42) is imposed on all passengers leaving Australia via international flights or by sea. Introduced in 1995, the PMC replaced a previous departure tax and was initially sold as a way to offset customs and immigration screening costs for the government.

 

 

Last year, Australia ranked 127 out of 140 countries in terms of ticket taxes and airport charges in the World Economic Forum Travel and Tourism Competitiveness Report. The International Air Transport Association (IATA) argues that abolishing the charge would bring A$1.7bn ($1.2bn) worth of tourism to the country.

 

 

Russia

 

 

The most expensive taxes for a long-haul flight are from an airport in Russia, a study by UHY found last year. Passengers taking a long-haul trip pay as much as $272, while a short-haul economy class ticket includes an extra $52.

 

Russia is planning a temporary reduction to taxes raised on domestic flights in order to ease pressure on an aviation industry that is currently suffering severely.”

Bahamas

 

 

Travelling to the Bahamas could set you back as much as $140 in taxes. The Caribbean destination charges passengers an airport facility fee of $34, a passenger departure tax of $29 and a security fee ranging from $3 to $13.

 

 

Germany

 

Germany’s air transport tax came into effect in January 2011 and charges different rates depending on the distance of the flight and destination. Short-haul departures are priced at 7.50 ($8.39) per passenger, while passengers are charged 23.43 ($26) for medium-haul services and 42.18 ($47) on long-haul flights.

 

Belgium

 

In 2008, Belgium planned to introduce a tax on airplane tickets, but backed down a mere 24 days later, following strong opposition from the country’s aviation industry, airlines and regional airports.

The original plans aimed to impose a 10 ($11) for all flights, and up to 50 ($55) for intercontinental and business class trips. The move was advertised at the time as a way to raise 132m ($147m) for the economy.

 

 

Last line

 

 

The tax may affect low-income earners, young people with  restricted  budgets and  leisure travellers harder. The non-significant effect for the regular hubs also indicates that the tax will impose no restrictions on business travellers, who constitute a large share of the number of passengers and can refrain less often from travelling by air.

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