EU aid tax may hit airline profits

A mandatory European Union levy on airline tickets to boost aid to Africa could curb demand for air travel and significantly hit airline profitability, a study by the European Commission.
The report compounded negative reactions from the United States and other nations to an idea floated last February by French President Jacques Chirac.
The European Commission study said a 1-euro levy on flights within the EU and a 2-euro tax to places outside could curb demand for air travel by 0.5 and 1 percent respectively.
A tax of five euros on intra-EU flights and 10 euros on international flights would reduce demand by 3 percent and 4 percent respectively, the study found.
"The precise impact of these reductions in demand on the airline industry is difficult to predict, but it is certain that for an industry with high fixed costs even a small reduction in demand could have a significant impact on the profitability of air carriers," the report said.
"Moreover, airlines will not welcome the imposition of an additional levy on their passengers at the time when oil prices are at an all-time high."
Oil prices hit a record of nearly $71 per barrel, and steady rises for more than a year have been pushing up fuel bills for airlines.
British Airways, Europe's third-largest carrier, and the International Air Transport Association (IATA) have also voiced concerns about the plan.

Aid versus airlines
But EU finance ministers, seeking ways to meet their United Nations commitments to boost development aid to Africa before a September 14-16 UN summit on the subject, have focused on an airline ticket tax as one of the best ways to raise new money.
The idea of a fee on airline tickets was floated by France in February and French President Jacques Chirac said on Monday his country wanted to impose such a levy from 2006.
Germany, which initially backed the French idea, said it had no immediate plans to introduce it.
Several other EU member states, notably popular tourist destinations like Greece and Spain and peripheral EU states like Sweden and Finland, oppose the tax and EU finance ministers have so far only agreed that any such fee should be voluntary.
The Commission study said that depending on the level of the tax on intra-EU and international flights, the whole European Union of 25 states could raise between 568 million euros and 2.76 billion euros annually, with France, Germany, Italy, Spain and Britain generating three quarters of the total.
Since the introduction of the levy by all member states was unlikely, the Commission focused on two scenarios -- when countries voluntarily adopt a mandatory levy for all passengers flying from its airports and when countries, if they want to, give passengers a choice whether to pay such a fee or not.
If the choice whether to pay was left to the passengers, the revenues could range between 172 million and 515 million euros if the tax was 1-2 euros and 286 million and 1.43 billion if it was 5-10 euros depending on whether each passenger was asked to give their consent or were automatically charged unless they specifically objected.
The Commission said that were EU countries to introduce such a fee they would be better off if they coordinated it rather than do it unilaterally as the initiative would then be more visible and the political message stronger.