14.03.2013

BlueSky: A Taxing Reality

Patrick Margetson-Rushmore, chief executive of London Executive Aviation (LEA), one of Europe’s largest business jet charter operators, shares his concerns on the impact of increased taxation and calls for the industry to unite to promote the benefits of business aviation.

At the start of next month, another tax, this time in the form of Air Passenger Duty (APD), will be applied to private aircraft flying from the UK, further increasing the financial pressure on an industry that is still recovering from the effects of recession. Although this latest tax, which comes into force on 1 April 2013, has now been accepted, it is vitally important that we continue to promote the advantages associated with business aviation in order to highlight the important role that it can play in the economic recovery, not just in the UK, but across Europe and beyond.

We have always had to battle the misconception that private jets are the playthings of the rich and famous, stressing instead the reality that private aircraft are more frequently used by key decision-makers to save time on travel between business meetings. In the two years since the announcement was made that APD was to be applied to UK business aviation, this case in favour of our industry has grown even stronger.

The Oxford Economics report titled ‘The role of business aviation in the European economy’, which was commissioned for the European Business Aviation Association (EBAA) and published in October last year, aptly highlights the value of flying privately. Among the key findings that caught my eye was that each passenger travelling on a business aviation flight generates the same contribution to GDP as nine business passengers on a scheduled flight. With this in mind, it’s very difficult to understand why the UK government is deterring business leaders from flying on private aircraft.

An argument that I often hear is that the actual rate of APD is rather insignificant when considered in the context of the overall cost of chartering a private aircraft. However, this is not necessarily the case. As with all other taxes, APD is an expense that has to be absorbed into the operator’s overheads and while we must adapt our pricing strategies to recover these costs wherever possible, this is made more difficult by the current economic climate.

At a time when businesses are searching for every way possible to save money on travel costs, operators are keeping their rates flat to remain an attractive proposition. Despite the rising operational and fuel costs, coupled with double taxation by way of the EU Emissions Trading Scheme, in such a competitive marketplace, you increase your rates at the risk of pricing yourself out of the market. Even if you are confident that your service level is superior to that of your competitors, during a time of austerity, cost is often king.

Clearly, the government feels that taxation is necessary to rebalance the impact of the industry’s carbon footprint. However, according to the EBAA, while business aircraft represent 7.3% of EUROCONTROL traffic, they account for less than 1% of aviation emissions and only 0.03-0.04% of all EU emissions. Again, it seems unfair to say the very least that a passenger on a business aviation flight should be subject to the same taxation as a passenger in a Business or First Class seat on a commercial airline.

Just weeks after it was confirmed that the UK economy contracted by 0.3% in the final quarter of 2012, raising fears of an unprecedented triple-dip recession, levying a new duty on an industry that has proven its worth as a key business enabler and a driver of GDP appears to be far from beneficial. While we can do nothing to prevent this latest tax, as an industry we must speak in union to promote the many benefits that we bring and prevent further taxation in the future.

Published in: BlueSky 14 March 2013

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