By Alexandre de Juniac, Director General and CEO of IATA
It’s fair to say that the election of Donald Trump sent shock-waves of uncertainty rippling to every corner of the planet. I am not at all at ease with the protectionist rhetoric that accompanied this political upset. Aviation is the business of freedom. It makes the world a better place by facilitating trade and connecting people. And this is compromised if borders are not open to trade and welcoming of people.
Having said that, I am hopeful that the business approach to government of President-elect Trump could bring some good news. There is a precedent. The last entertainment celebrity to occupy the White House—Ronald Reagan—came to office with a mission to change the government view of the economy, which he described as “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Over his tenure, President Reagan strengthened the economy by making the US a more business-friendly place with lower taxes and less onerous regulation. Let’s hope that President Trump will leave a similar legacy.
The growth opportunity of reduced taxation
Airlines in general are often at the pointy end of high taxation—one of Reagan’s three evils. In Europe, for example, Sweden wants to create a ticket tax of SEK 430. The Germans want to add 50 Euro Cents to their billion Euro ticket tax. And only the Scots have realized the destructive power of the UK’s Air Passenger Duty and have pledged to roll it back when they get the power to do so in 2018.
It doesn’t take a PhD in economics to understand why taxing aviation is a bad idea. Over the last two decades airline efficiencies have seen ticket prices (adjusted for inflation) fall by about 60%. And the number of travelers has grown exponentially. In 2017 we could even see a new record of 4 billion people boarding planes. That growth is good for the economy. It creates jobs.
But there is a countervailing force—government taxation which makes mobility more expensive. It is difficult to isolate the destructive impact of aviation taxes among the industry’s phenomenal growth. But a recent story illustrates the point. In 2015 the Colombian government dramatically reduced fees at Cartagena airport, a popular tourist destination. The number of travelers surged some 30%. The decision cost the government $62 in direct revenue for each passenger. But that was more than made up for by the jobs created to support the tourists, not to mention the taxes that paid while at destination.
The political message that came out of 2016 was change. If governments interpret that as lowering onerous taxes on aviation, the business of freedom is sure to pay great dividends!