I know Wales online did an article about this but i've just read Ryanair's written statement to the Welsh Affairs Committee on APD and i found it to be very interesting and enlightening so i thought i'd copy it here.
Written evidence submitted by Ryanair (APD0011)
Air Passenger Duty in Wales
Ryanair submission
Summary
- Direct flights generate inbound tourism and business visitors to a region
- Airports across Europe compete for airline capacity based on cost
- Air Passenger Duty has increased costs at the UK’s regional airports to an uncompetitive level, and growth has stalled as a result
- At £13, APD is the highest aviation tax in Europe, and makes the airports among Europe’s most expensive, despite low costs at the airports
- Other countries have removed air travel taxes (Ireland, Netherlands) to generate traffic growth, and those which have introduced them have seen regional airports suffer
- The value of APD in Wales is just £13m, less than one day’s visitor spend in Wales (£17m) yet it holds back traffic growth at Cardiff airport, and therefore tourism development
- Traffic at Cardiff airport remains below 2006’s level, when APD was 38% of the current level
- Scotland and Northern Ireland have confirmed their intention to reduce or remove APD as soon as circumstances allow (including devolution from Westminster)
Background
Ryanair is Europe’s largest airline and has a 15% EU market share. Ryanair will carry 138m passengers in 2019, and will allocate 450 aircraft across 87 existing bases, and other potential new bases in 34 countries. Cardiff is “in the mix” to both retain and grow existing capacity, for which low airport costs are a major deciding factor. Despite market-leading cost control and excellent relationships with Ryanair, Wales is among the most expensive regions in Europe when total cost of access is considered, and therefore stifled in the competition to win capacity.
Since Air Passenger Duty (APD) was doubled from £5 to £10 in 2007, and then increased to £13 in 2017, development at Cardiff and other UK regional airports has stalled. Airlines allocate aircraft capacity to airports which represent best value, to the detriment of the UK regions. APD has rendered the UK’s regional airports uncompetitive, despite their market-leading cost control, since it adds £13 per departing passenger to costs of flying (£5 more than Ryanair’s average airport and handling cost). Cardiff airport cannot compete with airports which offer charges lower than APD, and it is worth noting that, despite recent growth, the airport’s traffic remains lower than in 2006, when APD was 38% of the current level, whilst London airports have gained more than 30m passengers p.a..
At £13, APD is the highest aviation tax in Europe and represents a large part of the air fare, particularly since low cost airlines account for most capacity at Cardiff. As a consequence, the airport has failed to prosper and has lost out to other, cheaper airports in competition for new capacity.
It is incorrect to assume that APD is simply added to the ticket price and paid by passengers. Low cost airlines such as Ryanair are yield passive and load factor active, so set ticket prices at the price passengers are prepared to pay, in order to generate sufficient demand to fill the aircraft.
Countries such as Israel are willing to waive airport charges and pay airlines €60 per arriving passenger, since they recognise the value of air connections to their economy, particularly tourism. Such a large incentive not only proves the importance of aviation in generating tourists, particularly in peripheral regions, but illustrates the fierce competition for capacity. Like Israel, the UK is on the periphery of Europe and, to fly to some of the main tourism target markets, takes longer than other UK or EU airports. APD, combined with above-average sector lengths, results in a high and less competitive cost of flying (Appendix 1).
The UK’s airports recognise the impact of APD on their competitiveness. For example, Derry airport has resorted to a PSO on its London route, to overcome £26 APD per return passenger, which does not apply to passengers travelling to London from Irish airports.
Ryanair operates 2 routes from Cardiff, and has recently announced two new routes for summer 2019. All 4 routes (Faro, Tenerife, Malta and Barcelona) serve outbound tourism and leisure demand. Other routes, including those with business or inbound tourism demand, require long term stimulation in the form of ultra-low fares, for which other airports with shorter flight times and lower airport costs have been prioritised for this type of expansion. There is no “critical mass” of established demand for inbound tourism at Cardiff, and the necessary long term ultra-low fares are unsustainable given the high costs of operating at the airport. APD causes Wales to miss out on these types of routes, since despite its beautiful scenery, compelling history and world class welcome, Wales is still in competition with other regions for inbound tourism.
Airport competition
Airports across Europe compete for airline capacity. Cardiff airport competes not just with other UK airports, but with airports in Germany, France, Holland, Greece, Cyprus etc. These airports offer low costs to incentivise airlines to launch new routes, which in turn require the lowest fares to stimulate new passenger demand. Passengers spend money at the airport (in shops, cafes, car parks etc) and create revenue for the airports.
Despite Cardiff airport’s market leading cost control, APD renders Wales uncompetitive. Similar size regions, such as Vilnius, offer published rates of less than €9 (£7.93), with discounts for new routes (Appendix 2). Airlines enjoy the flexibility to allocate aircraft capacity to airports which represent best value, to the detriment of Cardiff, since the airport simply cannot compete because £13 of the total cost is outside its control. We understand that Flybe’s Cardiff base is only sustained by a negative airport cost, which creates the perverse outcome that the Welsh Government-owned airport pays the airline so that they in turn can pay APD to the Westminster Government.
Structure of APD
APD is a flat tax applied per departing passenger. It penalises efficient carriers which operate with larger aircraft and higher load factors (for example a Ryanair flight with 170 passengers incurs £2,210 in APD, whereas a Flybe flight with 75 passengers pays £975).
“Low fare” airlines represent 60% of Cardiff scheduled capacity, and these airlines are best placed to develop new routes since low fares are proven to stimulate passenger demand for travel. However, APD is more of a burden on low cost airlines since it represents a greater proportion of the ticket price. APD represents more than one third of Ryanair’s average €39 / £34 average fare, compared to Lufthansa’s average fare of €196 / £172 of which APD represents just 8%.
Impact on UK regional airports
Since APD was doubled in 2007, traffic at the UK’s “Big 8” airports (the 6 London airports, plus Manchester and Edinburgh) has grown by 41mppa, or 25%. By comparison, the remaining 30 commercial airports in the UK regions have grown by just 3.5mppa, or 5% - less than 1% p.a. on average, lagging average GDP growth by 0.8% p.a.. In fact, Cardiff airport’s traffic remains below the level prior to the UK Government’s doubling of APD in 2007. Since London, Manchester and Edinburgh enjoy natural demand and a far greater catchment area than any regional airport, APD presents less of a problem than in the regions. As a result, traffic has gravitated towards these large cities, at the expense of the regions, which tend to rely heavily more on tourism. The Big 8 now account for 74% of total UK traffic, whereas in 2007 they accounted for 70% (Appendix 3).
Brexit / Airline instability
Developments over the last 12-24 months have contributed to instability within the aviation industry. Increasing fuel prices (from $45 to over $85) have led to the collapse of airlines including Primera Air, Sky Works, Small Planet (Germany) and Cobalt in recent months. Flybe, responsible for over 40% of capacity at Cardiff airport, issued a profit warning stating weak sterling and high fuel prices as reasons for a £22m pre-tax forecast loss in 2018. Difficult trading conditions are generally more problematic for small, regional carriers, and the industry is in an ongoing consolidation which will most likely see a smaller number of large, pan European carriers emerge. Wales is not competitive for these multi-national airlines, and at the moment is therefore forced to rely on weaker operators. However, removal of APD would transform the airport’s competitiveness, and provide a statement that Wales is “open for business” particularly during the current period of instability.
Air Travel Taxes elsewhere
- Germany – a travel tax of €7.50 was introduced in 2011. This tax prompted a similar outcome to the UK Government’s doubling of APD. Traffic migrated to the large hub airports at the expense of the regions. The 6 large hub airports grew by 32m passengers, or 92% of the total growth, whilst the 18 regional airports had just 3m additional passengers between them. Similar to the UK, low cost airlines make up most traffic at the non-hub regional airports, and the tax impacted this traffic far more than legacy and connecting traffic (Appendix 4).
- Ireland – a travel tax was introduced in 2009, which caused an immediate reduction of 3.8m (13%) passengers across the 3 main Irish airports. The tax was reduced to zero in 2014, at which point traffic was 6.1m lower than 2008’s level. In the 4 years following the tax reduction, traffic grew by 8.1m passengers (32%), and surpassed 2008’s level for the first time (Appendix 5).
In conclusion, APD in Cardiff is worth just £13m to the overall UK economy but not only deprives Wales of the ability to generate traffic and visitor growth and new routes, but risks continuation of existing traffic in an increasingly volatile and competitive environment.
Specific questions asked by the Inquiry:
- The potential benefits and drawbacks of devolving Air Passenger Duty to the National Assembly for Wales:
- The Wales Assembly can make decisions relating to Wales’ airports
- APD in Wales accounts for just c.£13m and therefore represents a far smaller amount than the total value for the UK
- What impact devolution would have on Welsh airports, including those not currently operating international flights.
- Airports would become more competitive and likely to secure more airline capacity
- The airport would be in control of its cost base
- Different options for the devolution of Air Passenger Duty, including full devolution, or devolution for long-haul flights only.
- Ryanair suggests that APD is abolished from all Welsh airports
- Abolition only on long haul flights would unnecessarily ignore the enormous opportunity for short haul flights, of which APD is a large proportion of the ticket price
- How Air Passenger Duty fits with responsibilities that are already devolved, such as regional economic development, aspects of environmental policy and tourism.
- Abolition of APD would improve airport competitiveness and likely secure more routes, including those which deliver inbound tourism and are current unsustainable for airlines due to high taxes.
- Cross-border issues, including the impact on passengers and airports in England.
- The size and “critical mass” of airports such ass Bristol currently means airlines have focused on this airport and serve Wales passengers from England.
- The impact devolution would have on North Wales and airports used by people in North Wales.
- Does not apply to Ryanair
- Lessons learned from the devolution of Air Passenger Duty to Scotland.
- We suggest that APD is devolved and either abolished or reduced to zero. A replacement tax may cause legal or administrative issues with routes which are currently exempt.
http://data.parliament.uk/writtenev...ir-passenger-duty-to-wales/written/91994.html
