Airlines fear losing business as UK ups tax

PUBLISHED : Friday, 10 December, 2010, 12:00am
UPDATED : Friday, 10 December, 2010, 12:00am

The tax may bite harder than the cold. After Britain raised by 55 per cent the departure tax payable by passengers flying to the Asia-Pacific region, airlines plying the profitable Hong Kong-London route fear they will lose a chunk of their leisure and transit passengers to other European destinations.

The imposition from November 1 of a 'green tax' by means of air passenger duty (APD) increases of between 9 and 55 per cent - depending on flight distance - on all passengers departing from British airports is intended to help reduce the government's budget deficit.

'The departure tax has been increased several times over the past three years and, even without the recent hike, was already high enough to offset twice the amount of carbon emissions by all carriers operating in the country,' said Kevin McQuillan, Far East regional general manager of British Airways.

A family of four travelling between Hong Kong, the mainland, Australia or any other Asian location and Britain in economy class now has to pay GBP340 (HK$4,160) in departure tax, compared with GBP220 before November. However, if the family stops over in Paris or Frankfurt, they will only have to pay GBP48, up from GBP44.

'We want the APD to be scrapped. It should be replaced by a more globalised environmental deal to be formulated in the UN climate summit this month,' McQuillan said.

Some 35 to 45 per cent of BA passengers fly beyond London to cities in Britain or other places in Europe, the reason McQuillan sees a huge chunk of passengers moving to other carriers with hubs elsewhere in Europe.

Although Christmas and New Year bookings still look strong due to the high seasonal demand, BA is bracing for a drop in demand when the holiday season ends. To retain business travellers, it has spent GBP100 million this year refitting its first-class cabins with wider seats and screens.

Cathay Pacific Airways, which runs four daily flights between Hong Kong and London, has seen no immediate impact but said it would closely monitor the situation.

The tax hike could start to pare leisure travel demand for Virgin Atlantic Airways, which accounts for half of the passenger revenue on its Hong Kong-London route, its manager for Hong Kong, Paul Sands, said. 'The tax hike has made the UK less competitive than other European locations. We shall see a big fall in demand if UK hotel rates start rising and the pound appreciates,' he said.

Some 56 per cent of the holidaymakers say they may have to cut their stays abroad in light of the tax increase, according to a Virgin Atlantic survey in October that polled 2,000 long-haul passengers. Some 58 per cent said they would consider opting for cheaper hotels and buying fewer souvenirs.

'It is a bad deal for travellers and a very shortsighted policy for the government,' Sands said.