One year later: The German Ticket Tax

ticket-taxGermany has introduced in January 2011 an aviation tax (luftverkehrsabgabe). The effects of the tax are as expected : small and medium sized airports which are dependent on low cost carriers have suffered a loss of passengers. The larger airports have grown. For the country as a whole the growth in passenger numbers is 5%. This is comparable with other large European aviation nations. So, what’s the problem ? And what can be expected from the EU-ETS ?

First we give some more detailed figures about gains and losses by type of airport. We compare the results with the developments on taxation in other countries. We end with the developments around the European ETS and the opposition of non-European countries. Will there be a global carbon tax for the aviation (and maritime) sector ?

Passenger growth and decline at German airports in 2011
The German government introduced the ticket tax in January 2011. The tax is 8 Euro for European flights, 25 for mid-range flights and 45 Euro for long haul flights. No taxes on Freight or Transfers.  Low cost carrier Ryanair reacted by publishing a list of routes and flights to be scrapped from airports Hahn, Berlin, Weeze and Bremen. Indeed routes and flights were scrapped, but some were restored later on.

Ryanair cuts 2011 Route Cuts Weekly Flights Traffic loss (Ryanair website) Actual loss ADV,2012
Berlin

-4

-122

-900,000

– 170.344

Bremen

-8

-58

-400,000

-111.772

Düsseldorf Weeze

-13

-84

-700,000

– 471.240

Frankfurt Hahn

-9

-150

-1,000,000

-629.939

Total Loss (to date)

-34

-414

-3,000,000

1.383.295

Table 1 Flights Threatened to be scrapped by Ryanair at German airports following implementation of air passenger tax. Sources: Ryanair, 2010 & ADV,2012

If we look at the realizations of 2011 we can observe that the real effects were less than half of what Ryanair predicted (or threatened with). However, for Hahn and Weeze the effects were very substantial : 18% and 16% loss of passengers. This finding is in line with the effects of the (now abolished) Dutch ticket tax where low cost airports near the border with other countries appeared to be the most vulnerable.

Airport size

Passengers 2010 (million)

Growth in 2011 (million)

Growth %

>10 million

134,2

10,5

8%

5-10 million

31,3

0,3

1%

1 to 5 million

21,9

-1,3

-6%

The largest German airports (Frankfurt, München, Dusseldorf, Berlin-Tegel and Hamburg) had on average a growth of 8%. The smallest airports experienced a loss of 6% and the middle airports remained stable. The overall growth was 5%.

Table 2 Passenger growth at German airports in 2011.

Compared to other large European  aviation countries (France +6,6%, Italy +6,4%,Spain +6,0 %, UK +4,1%) Germany has had a little smaller growth except for the UK. The latter experienced a substantial growth in taxation by the APD (Airport Duty Tax).

The income for the German government was expected to be 1 billion Euro. The actual income was 905 million Euro#. The difference can be attributed to the avoidance behavior of travelers# and airlines (Ryanair and Germanwings). Weeze reported# a drop in the share of Dutch travelers from 52% to 40%. Conclusion : The ticket tax leads to a drop in demand in the lowest segment of aviation. The effects are especially noticeable at smaller regional airports served by low-cost carriers.

From the start of 2012, emissions from all domestic and international flights that arrive at or depart from an EU airport will be covered by the EU Emissions Trading System. This was heavily opposed by non-European airlines and states. But the European Court of Justice ruled that EU-ETS “infringes neither the principle of territoriality nor the sovereignty of third states, since the scheme is applicable to the operators only when their aircraft are physically in the territory of one of the member states of the EU”.  But important countries like the US, China, India, Japan and Russia want a world-wide system negotiated in ICAO. In total 26 countries form a ‘coalition of the unwilling’ to prevent the inclusion of non-European airlines. They prepare retaliatory measures.

Meanwhile the German government has lowered the luftverkehrsabgabe (-5.5%) with the expected costs of the ETS for the airlines and their customers. This in contrast with the UK government which does not compensate for the ETS but, on the contrary, continues to raise the tax, as indicated in the table below. According to the UK Office of National Statistics the APD-Receipts in 2011 were 2580 million pounds against 2050 mln in 2010 (+26%).

Tax rate

nov 2009 – nov 2010

Tax Rate
nov 2010 – april 2012
Tax rate
>april 2012
Band A (0-2000 miles)

£ 22

£ 24

£ 26

B 2000-4000

90

120

130

C 4000-6000

100

150

162

D > 6000 miles

110

170

184

What next ?
It is uncertain how the struggle around the aviation-ETS will end. But, as we observed in Aerlines 48, there is a strong, permanent pressure from environmental and fiscal considerations to also subject the aviation sector to ‘normal’ taxes. This concerns VAT, which is not levied on international tickets and excise duty on aviation fuel. The European Finance ministers eye for transport levies on aviation and maritime transport to feed a climate fund.

One might expect that there will be some international accepted taxation system.

Complacency: Performance’s Evil Twin.

Automation — the future of the aviation industry. The greatest concern paralleling this automation is the inbreeding of complacency.

The airways and airport terminals are overloaded with thousands of flights, and controllers are managing them electronically. Flight instructors have moved away from teaching pilots how to fly jets, to teaching them how to program and manage. Pilots initially learn aircraft systems, but today the airplanes identify and report failures, and systems knowledge lapses. Flight attendants no longer give the emergency briefing, passengers watch a video— but do they? Pilots sit idly on the backside of the clock, for 10-12 hours, as their planes navigate across the oceans— what keeps them alert? The on board Computer Data Link Communication (CPDLC) eliminates the need for position reports reducing the workload but increasing fatigue of idleness. Mechanics are dependant upon the aircraft reporting maintenance issues, and their diagnosis skills lapse.

Unfortunately the magic and high performance of the modern-day aircraft, and aviation operating systems has created a new challenge: How to stay alert, how to stay involved and for pilots how to avoid CFIT.

CFIT: Controlled Flight Into Terrain is a reality. It’s hard to imagine how a pilot could fly an airplane into terrain, but it happens. The mind’s ability to believe what it wants to see overpowers the reality of what is, and there isn’t time to analyze the difference.  We assume our automated plane is going where it’s supposed to go because it’s done the right thing for the previous hundred flights.

This assumption extends beyond the aircraft to every aspect of aviation. Automation reduces the minds ability to believe the moment when something doesn’t look right. The bombing of Pearl Harbor comes to mind. How was possible to not see and identify hundreds of aircraft on the radar screen? “This can’t be true.”

A Turkish Air 737 crashed short of the runway in Amsterdam because of a radio altimeter flag. The flag was a warning that the pilots failed to acknowledge. The plane responded to a faulty system– yes. But the lack of crew response is why that plane crashed. They delayed 90 seconds before applying power. Their actions were too late. Why didn’t they respond sooner? What were they thinking? They allowed their plane to fly itself into the ground as they were sucked into a comfort zone that everything was fine when it wasn’t.

The fight against complacency extends beyond the automation of the aircraft and the industry, but to seat and management position. I remember when I first started flying jets, how much I assumed the captains knew everything– a misleading assumption. That old saying, “assume is to make an ass out of u and me” is true. Don’t assume anything, especially when you have lives in your hands.  That Turkish Air crash had Check Airman in the left seat.

Don’t assume the plane is doing what it’s supposed to, and don’t assume the guy in the left or right seat or the bigger office, knows what he’s doing either.  Don’t assume your equipment is doing what it’s supposed to. We must trust– but trust “yourself” too. Have the confidence to act.

How do we combat complacency?

  • Always have a plan of action. Pilots, know how you’d fly the descent, approach, departure, etc., Then make sure the airplane is following your plan, not the other way around. When she’s not performing the way you think she should, your mind will ask why, and you won’t be suck down the path of complacency.
  • Know your systems. Know your procedures. When something happens at the most inopportune time, you’ll know why and how to solve the problem.
  • Acknowledge that when you see something that’s not right, your brain will instantly go into a disbelief mode. Have confidence in yourself to stop the snowball from rolling downhill.
  • Prepare yourself to be the best you can be. There might be a time you are unexpectedly, or unknowingly a single pilot, managing on your own, or need to work that second shift in the tower.
  • Don’t trust your plane. Don’t trust your equipment. Don’t trust your operating systems. She may have told you the truth a thousand times, but the time she lies to you may be the last. If something doesn’t look right, chances are, it’s not. Take action.

Complacency is the battle in our new automated world. Take on that fight, and win the war.

Paris Airshow 2005: Getting the Big Picture…

Every aviation analyst as well as aviation enthusiast was anxiously waiting for the opening hour of this year’s Paris Air Show. With the hype around both Boeing and Airbus, this year’s Paris Air Show promised to be yet another milestone in aviation with three breakthrough aircraft being offered to airlines, the Boeing 787 and Airbus’s A350 and A380. Visitors could watch with much amazement the flying capabilities of the A380, while the A340-600 performed its usual flying display at low speeds combined with sharp turns. Big orders placed by (new) Indian airlines came as a surprise to most. Orders from the Middle East were modest with only one major single order placed by an Arabian airline so far.

With Airbus having the A318, A340-600 and the A380-800 present as both static and flying displays, combined with the orders announced during the press visiting days, Airbus dominated the Paris Air Show taking up about 65 percent of all orders announced during the show. With more details published about the A350 airlines are now also looking at the possibilities this aircraft offers. In total Airbus sold 261 aircraft worth 29.1 billion U.S. dollars during the air show, while Boeing chalked up 148 orders worth 14.8 billion U.S. dollars. Of these Airbus orders, at least 125 were placed by Indian airlines. Airbus came back with a vengeance. Even though the Indian airlines appear to be on a rebound, some aviation observers are sceptical about the massive orders placed by these airlines. Most of these Indian airlines are new and still need to prove themselves. Even so one of these airlines ordered 100 A320 aircraft while another ordered the A380-800 to many people’s surprise. Some of these airlines focus on a hub-to-hub strategy while others focus on the point-to-point philosophy giving us a mixed picture of which strategy will prove to become the winner in India. Boeing on the other hand announced smaller orders for the 777 and the 737.

While Airbus is known to announce its orders at major events, Boeing has a more conservative approach by not giving flying displays and announcing orders as they are placed. Some observers think Boeing should be worried with the large Airbus orders but worries are probably an overstatement. Boeing’s orderbook so far has been very good, with the 787 and 737 still leading the way. The new 747 Advanced is also said to enter its final development stage and is almost ready for launch. Boeing still remains determined about the point-to-point strategy becoming the future way of flying which explains Boeing’s confidence in their highly advanced and successful 787 which until now has over 200 orders. Airbus is now seeing the potential of this medium capacity (ultra) long-range market and now offers the A350 which some people still see as a rebuffed A330. Some observers think the end of the A340-200/-300 and the A330-200/-300 is coming closer with the introduction of the A350. The aircraft’s projected capacity and range are very close to Airbus’s own A340 and A330 as well as the 787 and 777 offered by Boeing. Airbus now offers aircraft for both the hub-tot-hub operations as well as to point-to-point operations.

Looking back on this year’s Paris Air Show it shows that Airbus was getting ready for a comeback. The silence on Airbus’s side for the last few weeks only made us wonder more about what Airbus was working on. The sudden rise of Indian airlines gives both aircraft manufacturers more reason to focus on this market. Unlike the doubts that some observers may have, the fact is that airlines have placed large orders whether they have come as a complete surprise or whether the orders were expected. Only time will tell whether these big orders can support the expected growth in air travel. One thing is sure, after this year’s Paris Air Show, it has become clear that the aviation industry is on a rise again with more large aircraft orders expected to be announced before the end of this year. Aircraft manufacturers can look forward to a full production line for the coming years which can be a good indication of more things to come…

Boeing and Airbus: Do or Die…

As some of you already know, Boeing has been very successful with its latest aircraft, the 787. Airbus is struggling to come up with a true competitor to this new aircraft. The A350 has not generated that much interest from airlines around the world as the 787 has. The Paris Air Show is coming closer and every aviation enthusiast as well as every aviation expert is discussing about what we all can expect fro Boeing and Airbus.

With Boeing launching a new aircraft and the first all-composite commercial aircraft, the 787, Boeing has given hints that it will launch a complete new aircraft family based on the technologies used on the 787. Boeing is currently studying a new 747 model under the name 747 Advanced. Also going around in the press these days is the hype around a 737/A320 replacement aircraft with Boeing being rumored to be studying a new 737/A230 replacement aircraft behind the curtains. Boeing has said in the past it will base all its new aircraft on the technologies used on the 787. This would give Boeing a lead over its arch-rival, Airbus. It will take Boeing minimal investment in a complete new family of aircraft once the 787 truly proves its money’s worth. Once proven, the door opens to Boeing to offer a new family of aircraft, from narrowbody aircraft to widebody aicraft, from short-medium range aircraft to ultra-long range aircraft. Airbus has launched the A380 with the first flight already completed. The A350 is Airbus’s answer to the 787. Airbus has only received 10 commitments for the proposed A350, while Boeing has already received 200+ orders for its 787. Up until now the 787 has showed us that this aircraft is clearly the aircraft of choice to a lot of (key) airlines. Airlines are starting to see the benefits of more composites in aircraft and Boeing is currently showing the way. Airbus who before the 787 was known for being the leader in the usage of composite materials in its aircraft is now seeing its market rapidly diminishing with Boeing gaining more ground and popularity with the 787. The thought of Boeing coming with an entire range of new aircraft, does give one the right to say that Airbus must be very worried at the moment and must go back to the drawing boards and brainstorm about the direction in which Airbus wants to go in the coming years.

With Boeing slowly winning back its marketshare from Airbus and the possibility of launching a new 737/A320 replacement aircraft, Airbus has a reason to be worried about its own line of aircraft. Airbus has been very successful with its A320 aircraft family. If Boeing will announce a 737/A320 sized aircraft with 787 technologies, this may hurt Airbus in a bigger way than we might think. Airbus might see their marketshare drop significantly if they don’t come up with a new aircraft design to compete with Boeing’s new products. Airbus may well be in its own dilemma and must determine whether the A350 will be its next ‘attack’ on Boeing or whether a complete new A320NG will be a better move for Airbus. Both these aircraft types are strategically seen as crucial aircraft for the future airline markets. Aircraft in these ranges are the next focus points for many airlines around the world. How this all will play out, will be something worth paying attention to. One thing is sure, the Paris Air Show promises to be the best air show in a very long time with both Boeing and Airbus wanting to be at their best and showing their muscles. We should all pay close attention to Airbus and Boeing and what may lie ahead of us and the commercial aviation industry….

Column: Hedging Fuel Costs in the Airline Industry

Fuel costs comprise a major portion of operating expenses in the airline industry. For most airlines, it is the second largest expense category behind labor. Thus when oil prices nearly double, as they have between 2004 and 2005, dramatic increases in jet fuel costs can create havoc with an airline’s profitability. Read more…

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