Crisis facing the UK airline industry

[daynehold]

As airlines struggle in the wake of the recession with dropping passenger loads, rising fuel costs and the inequitable APD (charged both ways on UK domestic flights and accounting for 18 per cent of ticket revenues) it is interesting to read Boris Johnson’s recent comment that not enough was being done to return Britain’s economy to growth, adding that it was time to ditch the rhetoric of austerity. He went on to issue a direct challenge to George Osborne’s economic strategy yesterday (25th January) as the Country faced the prospect of an unprecedented triple-dip recession. Unless Messrs Cameron, Osborne and their cronies wake up to the fact that they are rapidly destroying the industry their epitaph will be undoubtedly be “We oversaw the demise of Britain’s aviation and airline industries”. So let the APD RIP!

[Fairdealfrank]

Very good point indeed!

Boris needs to pick his fights more carefully. Instead of critising LHR expansion and banging on about Silver Island, his talents would be better used towards campaigning to have APD scrapped.

Of course those in private jets do not pay any APD, is this how these chaps travel?

[RB311]

I think you will find this present lot of politicians, of all parties will be quite satisfied when the UK aviation industry is destroyed. Its one of their objectives.

[Bagso]

...and the initiatives he did have in mind were all related to London.

[Dannyboy39]

Boris seems to change his arguments almost on a weekly basis. I guarantee that he'll have U-turned on a number of policies this time next year.

He would be a liability as PM.

[Walnut]

Why is APD not levied as a percentage of fare cost,? This would be a much fairer way as it would be raised on those with the broadest shoulders.

[TSR2]

I guarantee that he'll have U-turned on a number of policies this time next year.

Current government have made 39 U-Turns to date so not much difference there.

[bacp]

Dunno what airlines you are thinking of, Easy share price at record high, BA share price ramped up recently, TUI SP up loads, TC share price doubled (from not a lot admittedly) in the last month.
This is more politics and central planning, than airline economics .In the UK the politcos are just too dammed scared to make an unpopular decision.
The reality is that well run lean airlines will make money, dinosaurs and the poorly led will fail, sad but thats the way it always was.

[jabird]

Why is APD not levied as a percentage of fare cost,?

Then it would be called VAT, which afaik cannot be levied on international flights, whereas a fixed departure levy can. There is already a limited proportionality by charging different rates according to end destination and by charging higher rates for business fares (but not, as pointed out above, private jets).

As "Blairforce 1" never happened, top UK ministers tend to "borrow" a BA 777, but either way, they aren't paying, and nor would they (or anyone on govt or other business).

It isn't as simple as just saying they want to kill this industry - they have two legitimate challenges to consider as well as the jobs and economic benefits aviation brings.

The first is that, like it or not, we are a very dirty industry. Whereas the Dutch have decided that charging ever higher rates of APD simply means more Netherlands registered vehicles in the car park at NRN, we do not have the same levels of APD leakage - although they will no doubt grow if it keeps going up.

The second challenge is that Brits spend more abroad on foreign tourism and traded products than inbound visitors spend in the UK or via international trade with the UK. So do we really "want" this industry to do well? You can't just go round taxing "holiday" flights more than "business" routes as that would be obvious protectionism as well.

So actually I sympathise with politicians on this one, Boris is no better or worse than Cameron who is no better or worse than Brown or Blair in this respect, and so on. The only guarantee in this respect is that the Lib Dems really DO hate us!

So two very big elephants in our small island room. Solve for x...

[Heathrow Harry]

TBH the UK airline industry will only survive if it continues to evolve to face the challenges - too many airlines think the Govt should subsidise/protect them instead of getting out and changing their business model

Easy Jet & Ryanair both make money and even BA looks as if it may survive medium term - people continue to fly and long term numbers continue to increase

JA Bird - The Govt DOES pay when it uses a 777 - they get the money back by charging all the journos and businessmen on board unbelievable prices to be fly with The Man

[jabird]

The Govt DOES pay when it uses a 777

I didn't say it didn't, I just said BoJo, Cam & co wouldn't use their own personal funds, and nor should they if they are going abroad to represent interests of UK Plc.

[JobsaGoodun]

TBH the UK airline industry will only survive if it continues to evolve to face the challenges - too many airlines think the Govt should subsidise/protect them instead of getting out and changing their business model

...and yet other forms of public transport receive huge government subsidy?

I know there's no tax on aviation fuel and perhaps this cancels out the subsidy that might otherwise be given? I don't know....but given that rail fares are increasing above the rate of inflation and yet, are still massively subsidised, I can understand the UK airline industry having a valid reason to ask for a level playing field....after all, at least your guaranteed a seat after you've paid for your air ticket unlike some commuter trains.

[LN-KGL]

It's not the ticket prices (included APD) that is killing the UK airline industry. The CPI for air transport has pratically been at a stand still since 9/11. The graph below comes from the House of Commons Library (Standard Note: SN/SG/3760). If you need to complain about the rise in transport expences then you need to look at road transport and even more rail transport.



Since this graph stops at the end of 2010, let's see what the Office of National Statistics in the newly released Consumer Price Indices December 2012 (15 January 2013):

CPI indices for passenger transport by air
- Large downward effect.
- Average air fares rose this year by less than a year ago, with the main downward contributions coming from long haul and European flights, with prices rising by approximately half as much as they did a year ago. The timing of Christmas in relation to the days for which prices were collected may have been a factor.

This below "All Items CPI" growth has been the case for most of the time the last two years.

The graph below (from the same source as above) shows a long term trend - the fare prices shows a downward trend. If the average passenger fly shorter, trade cheaper tickets or it's the LCCs that are the main cause of this I don't know, but clearly the UK passenger spend less for each flight.



Looking at the UK passenger numbers, the growth have declined over the years.
- The average yearly growth measure the last 30 years is +4.55% (in 1982 UK had 58.8 million passengers)
- The average yearly growth measure the last 20 years is +3.82% (in 1992 UK had 105.6 million passengers)
- The average yearly growth measure the last 10 years is +1.75% (in 2002 UK had 188.0 million passengers)
- The average yearly growth measure the last 5 years is -1.45% (in 2007 UK had 240.0 million passengers)

In 2012 UK had 223.6 million passengers according to UK CAA. The growth for 2012 was 2.0%, and the year number was 93.2% of the top year 2007. If the 2012 growth continues, we have to wait until 2016 to see higher year numbers than 2007.

What about the APD? The first step APD came into effect on 1 November 1994 and the rates stayed unchanged until February 2007 when rates were doubled. After that it has only been small changes to the rates for the shortest flights and the lowest class. The biggest raise in APD since 2007 has been for intercontinantal flights and the upper classes. In other words the all included package travelers heading to the Canaries for a well deserved vacation is the least hit of all, but why has there been such a decline for the charter airlines? It must be something else than the APD.