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Cutting back could be just the ticket

Jane E. Fraser

Spring 2015

Illustration: Michael MucciIllustration: Michael Mucci

Industry leaders are stepping up their campaign to convince governments that savings for air travellers may bring greater economic benefits.

WE ALL like to imagine a world with fewer taxes but for some in the travel industry, it’s much more than a passing thought. With taxes now accounting for more than half the ticket price of some flights, industry leaders say it’s time to pull back on the government grab in order to grow passenger numbers.

Could removing some taxes result in economic benefits that outweigh the income collected?

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Services between Australia and New Zealand are a prime target, with the potential for the two governments to agree to drop many of the restrictions and taxes that apply to international flights.

While experts say it would be too much to hope for trans-Tasman flights to be reclassified as domestic services, there is potential for a “common border” approach that would reduce customs and quarantine costs – and therefore charges to passengers.

Qantas and Jetstar are among those actively lobbying for this to occur, although it has been discussed for many years with little progress.

Flight Centre carried out an analysis of the cheapest Sydney-Auckland fare and found that the $251 return ticket would drop to $121 if government taxes and levies were removed.

The taxes, which made up 52 per cent of the fare price, included an Australian departure tax of $47, an Australian security levy of $51.16, a New Zealand security levy of $9 and a New Zealand “passenger services charge” (departure tax) of $23.

The managing director of Flight Centre, Graham Turner, says millions of dollars of revenue is generated each year on that route alone and the removal of some taxes would represent significant savings for travellers.

“Undoubtedly, this will stimulate further growth in passenger traffic between the two countries and create further economic benefits,” he says.

Tiger Airways has been drawing attention to air taxes by separating them out when promoting its sales fares. In a clever marketing move, the airline recently promoted a $0 fare, which sold for $19.95 when taxes were added.

On another one-way fare, from Sydney to the Gold Coast, the fare was $2.15 and taxes amounted to $26.80 – more than 90 per cent of the total ticket price.

A spokeswoman for Tiger Airways says the airline wants its passengers to be able to see exactly what they’re paying for.

“It’s similar to many restaurants, where you expect a full breakdown of the items ordered, plus any additional taxes and other charges, on your receipt,” she says.

For the lobby group Tourism & Transport Forum (TTF), the big bugbear is the “passenger movement charge”, or departure tax, applied to all international flights.

This $47 charge, which was identified in the Henry tax review as a tax requiring further attention, accounted for a greater proportion of international fares as ticket prices fell during the global financial crisis.

“While the airlines were ripping into their fares, this $47 fee just sat there,” says the national manager of research and strategy for TTF, Euan Robertson.

“We’ve always thought that it could have been used as a way of stimulating leisure travel (through its removal).”

Robertson says it’s widely known that the tax is over-collected, exceeding the actual cost of customs and quarantine services.

“It has morphed from that (cost recovery) to being a general revenue-raiser,” he says. “The challenge is that both sides of politics are keen to support our case when they’re in opposition, but when they come into government it’s a very tempting revenue source.”

Robertson says the flat tax also fails to take into account the origins and travel routes of passengers, who have vastly varied risk profiles.

Another issue for Flight Centre and other travel retailers is airlines adding fuel surcharges to base fares. While some carriers incorporate all fuel costs into their fares, many have separate charges that have to be added.

The executive general manager of Flight Centre, Colin Bowman, says the fuel surcharge could be between $500 and $700 on a Sydney-London flight, depending on the airline.

“Flight Centre’s position has always been that the fuel component should be included in the fares, without an additional charge,” he says. “Fuel is part of the price the customer is paying; they can’t avoid it.”

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