Region should brace for more travel taxes

Dennis Morrison, Contributor

Earlier this month, Mr Willie Walsh, the CEO of British Airways, warned of the damaging effect the upcoming increase in the United Kingdom's (UK) Air Passenger Duty (APD) is likely to have on travel to the Caribbean. According to Mr Walsh, the APD, which is a tax on air passengers to compensate for the pollution generated by the aviation industry, has contributed to declining visitor arrivals from the UK to the region. This is bad news for the region's economies that rank as the most highly dependent on tourism.

Up to the middle of the year, Caribbean destinations were recouping last year's losses in visitor arrivals from the United States (US), but traffic from the UK and continental Europe was still declining. Destinations like Barbados, Cuba, the Dominican Republic, Antigua & Barbuda, and Dominica, which draw a significant proportion of their visitor arrivals from these markets, suffered the largest declines. This is expected to intensify after the tax increase on November 1, especially as air fares, which are a major component of the cost of long-haul vacations, have already been moving up significantly, and because the tax will go up disproportionately on Caribbean flights vis-a-vis some competing long-haul destinations.

Discrimination

The discrimination against Caribbean flights arises from the method used to classify air routes from London. The basic logic is that the farther you fly, the more you pay, so strictly applied, passengers flying to Los Angeles from London ought to pay higher pollution taxes than those flying to say Kingston, Jamaica since they are flying a longer distance and contributing more to carbon emission. The UK's four-band system, however, sets the tax according to distances from London to a destination's capital city.

Since Caribbean destinations fall in band C, which covers capital cities that are 4,001-6,000 miles from London, they attract a higher tax than American destinations which fall in band B for capital cities of 2,001-4,000 miles. Prior to the introduction of this system last year, the pollution tax on flights to the Caribbean and the US from the UK was the same, at roughly US$60 per passenger for economy class, or US$240 for a family of four. The tax is now US$78 per passenger to the Caribbean and US$70 to the US, or 10 per cent more.

Starting next week, passengers travelling on London-Caribbean flights will be required to pay US$117 per head or 25 per cent more than the US$94 on London-US flights. It is a big jump that will further skew the advantage in favour of warm weather US destinations like Miami and Hawaii. This is a major disappointment for Caribbean political and business leaders who had mounted a lobbying effort to persuade British parliamentarians of the serious negative impact of the tax on the fragile, tourism-dependent economies of the region.

At the time of the change of government in Britain the new admini-stration indicated it planned to change the tax from a per-passenger to a per-plane basis, which would probably have made the tax increase unnecessary. Instead, the band system has been maintained, while the tax has also been significantly increased. Moreover, there is every indication that there could be further increases.

brace for taxes

Regional tourism interests must brace themselves for the proliferation of environmental passenger taxes in continental Europe. Germany is next in line, where an air travel levy of US$60 per passenger for long-haul trips will be introduced on January 1, 2011. For the time being, however, the Netherlands and Belgium have abandoned their taxes because of the negative impact on their tourist industries. But there is still considerable pressure for European governments to impose air travel taxes to cover the cost of the aviation's climate change emissions, which are regarded as one of the fastest growing.

In the past decade, Caribbean ex-colonies of European countries have seen preferences they enjoyed for their sugar and banana exports disappear. The adjustment of their economies to meet the changing geopolitical environment has in the main been slow and unplanned. It is in this context that the tourist industry has sprung up as the major economic lifeline. The discriminatory application of the UK air passenger duty is the latest setback for the region.

This situation is a sharp contrast to the trade and aid concessions that some developing countries were able to extract as 'political rent' from the power blocs at the height of the Cold War in the decade of the 1980s. During that period, these countries, including Jamaica, wielded influence through their votes in international bodies where the super-powers competed for ideological dominance. In today's uni-polar world we have lost that clout and this partly explains our predicament.

There is, as well, the continuing poor response of the region's leadership to this changing global economic landscape. As pointed out by David Jessop in The Sunday Gleaner of October 17, the failure is not only at the level of governments and business leaders of the region. Caribbean academics, private sector associations and regional institutions have not yet incorporated tourism as a central part of any long-term planning process. Strategic thinking about the industry is therefore not taking place and hence our responses to threats such as the UK air travel tax are ad hoc.

Dennis Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.