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“Our goal is to attract more passengers to the system, but how can I do that when taxes are half of the fare?“. A major Low-Cost executive abandons its ever-present diplomacy for a moment and briefly shows its anger. He’s not the only one who will go down that road in a series of events that took place in South America within the last few weeks.
“For us to be competitive, we need to lower taxes“, says Estuardo Ortiz, JetSMART’s CEO. “It’s paramount for route opening, market exploration, and passenger growth that governments realize that they need to ease the percentage taxes represented in an airfare.”
He is not alone in the fight: At Routes Americas, held in Colombia a few weeks ago, several key industry players sided to address the same concern: there is room for growth, but states should reduce their take and provide a more cohesive framework.
The task is not easy: In Argentina, a peso-issued ticket will have seven taxes and fees: Airport Use tax, Airport Police Use tax (not kidding), Migration and Customs tax, security tax (one would think that the Airport Police should suffice for security but, er, well), gross income tax, gross income advance tax (still not kidding), solidarity tax, and the National Tourism Board tax, if applicable.
Add the destination taxes and fees, and you can have an astonishing 47% of the total fare: that results from a simulation we did for a Buenos Aires-Miami round-trip ticket in AerolÃneas Argentinas’ base fare. From 1,551,732.80 pesos total, 727,592.8 are taxes and fees. Can this be reduced? It’s a question of vision.
A bird in the hand: the governmental barter of short-term cash for long-term benefit
A study commissioned in 2016 by IATA to SEO Amsterdam Economics (“Economic benefits of reducing aviation taxes in Latin America and the Caribbean“) stated clearly that a reduction in taxes should drive an immediate additional benefit of around 1.5 billion US dollars for a 20-year accumulated benefit of 13 to 18 billion USD in two scenarios: “Tax Removal” and “Tax Removal and Charges Reduction”, including the passenger charges that contribute to the ticket price rise.
The problem is that governments don’t have the time or money to reduce their cash flow and wait for the bet to pay. Urged by resource constraints, the scenario for states to actively reduce their take is, to be blunt, utterly unrealistic.
Peter Cerdá, IATA VP for Americas, said it clearly: the region has a trip per capita ratio lower than one in almost every country except Panama, Costa Rica, and Chile. While some see a problem, the industry is fighting to see an opportunity and relying on the good sense of its partners. But right now, according to them, governments are engaged in some serious friendly fire.
