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Saturday, 5 October 2013

Dutch national airport Schiphol sees 'blackmail' as a way to get rid of the aviation tax. I hope that Dutch PM Mark Rutte now shows some ‘cojones’!

Handle with kid gloves
Handle with kid gloves
Then you learn the weapons
And the ways of hard-knock school

There is one industry that always wants to be handled with kid gloves: the aviation industry.

Where taxes and levies on fuel, maintenance and equipment (fuel tax, value added tax, environmental levies and energy taxes) have always been ‘a fact of life’ for the sea and inland shipping industry and for road and railroad transport of goods and passengers, these taxes have been categorically rejected by the aviation industry over the years .

When some government somewhere in Europe threatens to introduce an aviation tax, you always hear the same worn out arguments from the aviation companies. Although these arguments might carry a sense of truth, they nevertheless start to sound very hollow after all those tax-free years that the aviation industry enjoyed:
  • “If you impose those taxes, people don’t want to fly with domestic airliners anymore”;
  • “People will travel across the border to avoid domestic airports…”;
  • “Imposing taxes will hurt the Dutch economy and might cost thousands of jobs”;
  • “It makes competition unfair, because it gives non-European airliners and airports a competitive edge”;
  • “Our companies might not survive when you raise the ticket prices”. 
Most ministers and high governments officials subsequently swallow the lump in their throat and toss their taxing plans into the dustbin. And when they further behave like good boys, they might get rewarded with a nice position at a domestic airliner or another high-profile job in the air transport business: this is exactly what happened to former Dutch transport minister Camiel Eurlings.

This ‘benevolent minister’ was offered an executive, commercial job by Dutch aviator KLM only months after he left his ministerial office, serving only one term, in order ‘to spend more time with his family’.  Since then, Eurlings has even become chairman of AirFrance/KLM The Netherlands and… a member of this other ‘gentlemen’s club’, the IOC.

Nevertheless, the last argument in the aforementioned list is definitely true, but that can’t be blamed on the aviation taxes alone. No, it has everything to do with the unhealthy state of the aviation industry as a whole, where healthy profits and a healthy financial position have proven to be a mirage over the years.

The following snip comes from a keynote speech of Giovanni Bisignani, chairman of IATA in those days in 2011:

Sustainable Profitability: Bisignani noted that sustainable profitability would be the biggest challenge for an industry with a net return of 0.1% over the last four decades. “We know what will not work. Cost-cutting alone does not increase long-term profits. Unbundling erodes the value of the base product. And re-regulation would kill efficiency and innovation,” said Bisignani.

Still, every now and then there comes ‘a political idiot’, who wants to reintroduce those taxes, in spite of all warnings by the aviation companies. Germany did so a few years ago and a few days ago, this aviation tax plan emerged once again in The Hague, the political centre of The Netherlands.

In that centre, PM Mark Rutte is fighting for his political life, while trying to find new allies. These allies must help him to get the plans of his VVD-PvdA coalition through the First Chamber (Dutch senate), where the Rutte cabinet misses a majority. Of course, these allies demand a certain amount of pork for their efforts.

For GroenLinks, an environmental party with enough seats in the parliament and the senate to be ‘an interesting new partner’ for the cabinet, this pork happens to be… the return of the aviation taxes in The Netherlands.

Schiphol, the national airport and a genuine money machine with everything, but flying, reacted like it was stung by a wasp and immediately decided to take “the bull by the horns”, according to Dutch commercial broadcaster RTLZ:

Schiphol threatens to withdraw a significant part of their earlier announced investments in the airport to the tune of €1.5 bln, when the Cabinet Rutte reintroduces the aviation tax.

The reintroduction of the aviation tax is one of the subjects of discussion, in the negotiations between GroenLinks and the Cabinet for a new state budget for 2014.

Schiphol fears, however, that the introduction of the aviation tax comes at the expense of a decreasing number of transfer passengers, which will cost the airport money. As a consequence, some investments in terminals and gates  would not be funded anymore.

According to chairman of the board Jos Nijhuis, an aviation tax will lead to a substantial decline in the number of passengers, leaving from Schiphol. This will come at the expense of thousands of jobs. It also diminishes the attractivity of the greater airport region for large, foreign companies.

The aviation tax had been introduced earlier, in July 2008, but it had been abolished just one year later [by Camiel Eurlings – EL]. The reason was that passengers from The Netherlands diverged to foreign airports, like Weeze in Germany and Charleroi in Belgium. This diminished the yields at the Dutch airports. The extra tax revenues for the Dutch government didn’t outweigh those missed yields.

First, I consider this statement by Jos Nijhuis to be blackmail. Instead of  Schiphol lobbying silently, Nijhuis decided to run to the press and predict “fire and brimstone”, when this tax plan would be carried through. He hoped that the public opinion would slaughter the Cabinet, when it would seriously discuss this plan with GroenLinks.

Second, I consider the exceptional position of the aviation industry to be bad for the economy: road transport and especially railroads and shipping are much less polluting ways of transport than aviation. On top of that, they would have a much better cost-per-ton-of-freight ratio, when the prices of air transport would not be kept artificially low, due to the absence of aviation and fuel taxes. For real fresh and vulnerable products like flowers and fresh vegetables, which can’t be transported for days, there is no alternative for aviation. I fully understand that.

However, the artificially cheap aviation industry does now lead to roses and green beans from Kenya, garlic from China, avocados from South-Africa and asparagus from Chili, available in Dutch supermarkets during winter time(!). Products, which can only compete on price with domestic and European products, because aviation is almost for free.

Third, I know the airports Weeze and Charleroi by heart. Therefore I can state with confidence that Nijhuis’ argument that passengers would divert to Weeze or Charleroi, when the aviation taxes would be deployed in The Netherlands, is b*llshit in most cases (checkout the map):

Picture of Google Maps, showing Weeze and Charleroi Airport
Courtesy of Google
Click to enlarge
  • When you live within a 70 km perimeter from Schiphol and decide to go to Weeze, Germany  instead, you have two drives of at least 100 km’s ahead.
    • These drives would cost at least about 15 liters of fuel for a four person car, against €1,50 per liter (at least);
  • You are also obliged to park your car at the airport, which will cost you at least €50 per week. For a two week holiday, this will be about €100, turning your total extra costs into €122,50;
  • Thus, for a four person family going on a European holiday, for which the members have to pay about €30 per capita in taxes, the saved amount of money is close to “nil”;
  • Charleroi Airport, at least 210 km’s away from the southern part of the 70 km perimeter around Schiphol, is even much less favorable with a 400+ km drive ahead and parking costs of at least €70 per week (this was about the lowest parking fee you can get there). 
Of course, people who live closer to Weeze or Charleroi, might choose for these airports after all. But believe me, these people are already doing that, irrespective whether they have to pay aviation taxes in The Netherlands or not.

One argument for them might be that Weeze and Charleroi are Ryanair airports and Schiphol certainly isn’t, due to its skyrocketing prices. This has nothing to do with aviation taxes, but everything with Schiphol’s desire to make big profits with their airport.

I hope that Rutte shows some ‘cojones’ and starts to level the playing field for aviation, in comparison with other kinds of transport. When he dares to, he will notice that the negative side-effects of this tax will vanish very quickly.

And again I urge the aviation industry, to do something about their extremely unprofitable business models: 0.1% in net revenues per year in the business over the last fourty years is not what I call ‘viable’.

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