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Aviation tax could cost Scotland over one million passengers

18/03/2011

A new report, released today (Thursday) warns that last November’s hike in Air Passenger Duty (APD) could cost Scotland’s airports more than one million passengers over the next three years, damage business competitiveness and drive high spending international visitors elsewhere.

Air Passenger Duty was first introduced in 1994 at a rate of £5 for European destinations and £20 elsewhere. The last three years have seen a succession of increases in the rate of APD, with passengers now paying up to £170 in tax as a result of the most recent rise in November 2010.

The stark report, commissioned by Aberdeen, Edinburgh and Glasgow Airports, suggests that the latest tax rise will cost the cost the Scottish economy up to £77 million in lost tourism spend and jeopardise ambitions to grow Scotland’s international route network.

Overall, Scottish airports are set to lose approximately 1.2 million passengers over the next three years, including around 150,000 inbound international visitors. Domestic routes are set to be hit hardest, losing almost 500,000 passengers, while the lucrative long haul market could decline by as much as 5%.

A drop in demand of this scale could undermine the long term viability of some routes, and harm the prospects of further route development, particularly in the absence of a publicly funded route development fund.

Lifeline routes to the Scottish Islands could also be impacted by the November tax hike, adding a burden to those using the vital links.

The report benchmarked the UK with the rest of Europe and found that our approach to APD is very much out of step with our competitors, including Ireland, which has recently reduced the burden on aviation in order to encourage inbound tourism to fuel its ailing economy. Spain, Denmark and the Netherlands are among several other European competitors to either reduce or abolish aviation duty in order to boost air travel, after the worst downturn in aviation history.

UK aviation tax rates are the highest of any major European country and are forecast to rise under proposals in the Coalition Government’s budget. This increase follows hikes in short haul travel of around 140% and between 200% and 325% for long haul services.

The recent Calman Commission report recommended the devolution of APD to the Scottish Government as part of the Scotland Bill, currently under scrutiny by Holyrood and Westminster. However as the UK Government is exploring changes to aviation duty as per its Programme for Government it has not been included in the Bill in its current form.

Amanda MacMillan, Managing Director of Glasgow Airport, said "Scotland needs a thriving airline industry if it is to compete in Europe and attract jobs, tourism and investment.

"Our geographical location means we are heavily dependent on a strong and diverse international route network. However, with the highest aviation taxes in Europe, Scotland is at risk of losing out on valuable inward investment and inbound tourism.

"Quite simply, if it is too expensive to fly to Scotland, tourists and airlines will go elsewhere. Given the importance of tourism to the national economy, and the number of jobs our airports provide, we believe Ministers must look again at the impact of this damaging and unfair tax."

Derek Provan, Aberdeen Airport Managing Director, said: “There can be no question about the importance of tourism to the North-east, and to the wider Scottish economy. No-one wants to see that vital industry suffer, and the risk of that becomes higher with every tax increase.

“Our message is simple, in the face of this added financial burden, the Scottish aviation industry needs extra support. There is also a very real concern about the impact this could have on vital lifeline services to the Scottish Islands. Support in the form of a substantial route development fund would make a real difference.

“In the light of considerable capital investment in our terminals and services, to make sure we continue to exceed passenger expectations, we urge the Chancellor to think again about any increases to this potentially damaging tax.”

Edinburgh Airport Managing Director Kevin Brown commented, “The unintended consequences of this tax are significant for Scotland and it's travel and tourism industries.  Aviation knows that it has a responsibility to pay for itself which it does, but it cannot bee seen as an easy target to squeeze until dry.

“Further taxation in this area will costs jobs and damage Scotland’s economy.  Ministers must consider this when deciding on tax and the support that our vital industries require.”

Notes to the Editor

The report was conducted by industry analysts York Aviation and sought to:

  • examine the levels of APD (or equivalent) across other EU countries
  • construct a demand impact model to consider the impact of future tax rises on passenger demand
  • analyse the impact on particular long haul, UK and Scottish routes (typically served by two or more airports)

In Aberdeen, the report estimates a potential drop of 27,000 passengers in the first year alone, and a projected 84,000 passenger drop over the next three years. Edinburgh could lose around 140,000 in the first year and more than 460,000 over three years, while Glasgow is expected to lose more than 116,000 passengers in the first year, and more than 363,000 during the next three years.

The report also suggests a significant impact on Scotland’s other airports, which are expected to lose around a quarter of a million passengers over the next three years.

York Aviation have also calculated the economic contribution of Scotland’s main airports, and found that:

  • Aberdeen airport supports around 4,900 jobs across Scotland, and contributes £126 million to the national economy
  • Edinburgh airport supports around 6,200 jobs in Scotland and generates some £146 million for the Scottish economy
  • Glasgow airport sustains more than 7,300 jobs in Scotland and makes the largest economic contribution of any Scottish airport, worth almost £200 million to the national economy.
    (ABZ study and GLA studies published in 2010, EDI study published in 2009.)

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