The government’s plan to showcase Britain during the Olympics risks being undermined by aviation tax hikes, according to one of the event’s official sponsors, British Airways.
BA paid £40m to back the 2012 Olympics but fears that a PR coup for the nation is being offset by a ministerial revenue-grab. In a renewed attack on air passenger duty, Willie Walsh, the chief executive of BA’s parent International Airlines Group, said increases in APD are costing British jobs, diverting businesses abroad and deterring tourists. “We’re spending billions on hosting the Olympics. It’s going to create a great showcase – and then we undermine it by raising APD and keeping people away.”
The tax meant the government was “destroying aviation and destroying jobs”, he said. APD is set to rise again in April by 8% to £13 per passenger for a short-haul economy flight, and to up to £184 for a long-haul business class flight.
Although Walsh said he supported the Olympics, the airline expected to see a short-term negative effect this summer with dampened demand forecast during the games.
Walsh reprised his attacks on the government over its broader aviation policy, with a new consultation on British airports expected in the spring – one that specifically excludes Heathrow expansion.
“If they’re going to do a proper consultation they should consult on everything. Ruling things out before they start isn’t the way. I would have left everything open and considered all of the options …[and not] eliminate the potential solutions.”
IAG reported a jump in profits to €503m in 2011 from €84m a year earlier, after passenger revenues increased 11% to €13.6bn, despite rising fuel costs.
Walsh said he expected a further €1bn rise in IAG’s fuel costs in 2012, and warned that it would inevitably mean further fare increases.
While the merger with Iberia early in 2011 had produced, according to Walsh, savings of €70m in “synergies” last year, the Spanish airline was not performing as well as BA due to problems in the eurozone and what he called “outdated practices”.
He said: “The labour environment and legislation in Spain is different. We’re looking at tackling that.”
IAG is launching a low-cost carrier, Iberia Express, in March, a move that has antagonised Spanish unions. But Walsh warned: “It’s a battle that once we start we’re not going to back down from. We’re clear that we’re launching this airline, and it will fly.”
Strong demand on transatlantic routes boosted profits at British Airways owner International Airlines Group, despite another jump in fuel costs.
Walsh said he remained confident that the acquisition of BMI would pass the competition authoritiers and go ahead. “BMI is effectively bankrupt and the only reason it continues to fly today is that we’ve provided BMI with £60m funding
This is a case of BA and IAG rescuing a British company that has effectively gone bust and the only way that the jobs that exists in BMI can be secured. It’s for the best for BMI and for UK plc.”
The airline group said higher fuel costs and weaker European markets will mean a reduction in results for the first half of this year, although it expects the pressures to reduce as 2012 progresses.
APD distance bands APD £ per passenger from 1 April 2012
(old rates from 1.11.2010)
Miles from UK Reduced rate Standard rate *
(in lowest class of travel) (in other than lowest . class of travel)
Band A (0-2000) £13 (£12) £26 (£24)
Band B (2001-4000) £65 (£60) £130 (£120)
Band C (4001-6000) £81 (£75) £162 (£150)
Band D (over 6000) £92 (£85) £184 (£174)
* premium classes, business class, first class etc
By comparison with these figures for APD, the cost of hotel rooms for a stay in London during the Olympics is immense:
For example (see Telegraph, 23.2.2012
London 2012: hotels persist with Olympian price hikes
Accommodation at the Premier Inn Victoria, for example, during the Games, which runs from July 27 until August 12, costs from £199, a rate that is non-refundable and must be paid in advance. For the rest of August, rooms start at £87. At the Premier Inn Old Street, August rates range from £75 to £132, but during the Games the cheapest rooms are also £199.
A room at the W Leicester Square, for stays at the beginning of August, costs from £559 per night, and at the Park Lane Hotel, rates start at £479. During the second half of the month, accommodation at the same hotels costs from £299 and £188 per night, respectively.
….. and it continues with more examples.
APD is tiny by comparison.
IAG profits up. IAG employed 228 (0.4%) more staff last year with 2.1% passenger growth
Date added: February 29, 2012
IAG has reported an increase in annual pre-tax profits of €503m (£425.6m) in the year to December 2011, after a profit of €84m euros the year before. Revenue rose by 10% to €16.3bn, despite an increase in fuel costs of 29.7%. BA made use of the opportunity of announcing their results to complain – yet again – about Air Passenger Duty, saying it “was reducing by about half the number of new jobs it would create this year.” With an increase of +2.1% in passengers last year, they only employed + 0.4% more staff – just 228 more. Not many. The industry routinely makes complaints about APD, which is all of £13 per outbound flight for a return journey to any European airport. APD is a charge put in place to compensate for the fact that the aviation pays no VAT and pays no duty on fuel, so in effect remains under taxed. As airlines add substantial charges much higher than APD for a range of other services, or just to cash in on popular times for journeys, such as half terms, this APD whinge needs to be taken with a big pinch of salt. Yet again.