Written evidence from Virgin Atlantic
Airways Ltd (TE 25)
INTRODUCTION
1. Virgin Atlantic Airways welcomes the Committee's
inquiry into Transport and the Economy and is pleased to submit
comments for consideration.
2. Virgin Atlantic was established in 1984 to
provide a competitive alternative for business and leisure passengers
on long-haul routes between the UK and major destinations. We
now serve 29 destinations in the US, the Caribbean, Africa, India,
Asia and Australia from Heathrow, Gatwick, Manchester and Glasgow.
We operate 38 long-haul aircraft, employ over 7,500 people and
carry more than 5 million passengers and 200,000 tonnes of high-value
exports and imports each year.
3. Successive authoritative studies have confirmed
the compelling link between effective transport systems and economic
prosperity and have recognised the particularly vital role of
aviation in delivering global connectivity. The 2003 Aviation
White Paper, the 2006 Eddington review and the Transport Select
Committee's own 2009 The Future of Aviation report all
came to a similar conclusion: that aviation plays a "crucial
role in the UK economy and in the lives of many residents and
visitors." [53]
4. The importance of aviation to the British
economy is not in doubt, yet policy-makers, politicians, and to
an extent the country as a whole, take the sector somewhat for
granted. It sometimes takes something bad to happen, such as the
insolvency of a big company, to make people truly realise the
importance of an industry. For aviation it took the eruption of
the Icelandic volcano Eyjafjallajökull in April to starkly
demonstrate just how reliant our everyday lives are on air travel.
From cancelled business meetings and stranded tourists, to wasted
perishable goods, thinning supermarket shelves and disrupted production
lines, the crisis was a potent reminder that air travel is integral
to modern economic life.
5. The Department of Transport is facing major
public expenditure reductions that will inevitably impact on its
ability to improve the road and rail networks to support the economy.
Unlike road and rail transport, air transport is largely private
sector-funded. Most airports are privately owned and other costs,
such as air traffic control, airport security and the Civil Aviation
Authority, are recovered through fees and charges to the industry.
6. The Department does not use public expenditure
to deliver air transport improvements; it instead relies on setting
an effective policy framework. Get policy right and aviation will
make an even greater contribution to economic growth. Virgin Atlantic
and our British competitors are revenue raisers for the UK. We
are the engines and catalysts of the economic recovery. So, at
a time when public spending is about to be severely constrained,
Virgin Atlantic calls for public policy to support British aviation.
AVIATION'S
CONTRIBUTION TO
THE UK ECONOMY
7. The Transport Select Committee's 2009 The
Future of Aviation report found the industry was both important
in its own right and vital to the wider economy:[54]
- directly contributed £11.4 billion, or 1.1%
of UK GDP in 2004;
- supports the wider economy including inbound
tourism, finance, knowledge and technology intensive industries
and fresh produce;
- 25% of the UK's trade by value travels by air;
and
- directly employs 200,000 people and 520,000 jobs
either directly or indirectly dependant.
8. Virgin Atlantic directly employs over 7,500
people. Our positions
are not just based at Heathrow and Gatwick - we are currently
recruiting 150 people to a new call centre in Swansea and 150
crew, many of whom will support our Manchester and Glasgow operations.
Our Engineering Training School has trained hundred of engineers
in the industry and our award-winning engineering apprenticeship
scheme takes school leavers with a minimum of four GCSE's at Grade
C and turns out highly competent technicians with great career
prospects.
9. Our operations, particularly our procurement
function, support thousands of other jobs right across the country
in our diverse supply chain - from high-skilled engineers at Rolls
Royce in Derby and aircraft manufacturers at Airbus in Bristol
and North Wales, all the way through to our new uniform supplier
located just outside Birmingham.
10. The most recent economic study of aviation's
contribution to the UK economy was produced by Oxera Consulting
Limited in November 2009.[55]
It was the first such assessment since the Oxford Economic Forecasting
report of 2006. The study found that aviation and its supply chain
had a total "economic footprint" of £18.4 billion
in 2007.
11. In August, the Prime Minister delivered a
major speech on tourism, emphasising its importance to the UK
economy. He described it as one of the fastest ways of generating
jobs and "fundamental to the rebuilding and rebalancing
of our economy." [56]
12. Aviation is absolutely vital to driving UK
inbound tourism. 73.9% of overseas visitors in 2009 came to the
UK by air. Inbound tourism is also an essential contributor to
the revenue of UK airlines. Overseas residents spent £2.9
billion on fares to UK carriers in 2009.[57]
AIR PASSENGER
DUTY AND
THE UK ECONOMY
13. Virgin Atlantic shares the Prime Minister's
desire to increase inbound tourism to deliver growth in the UK
economy. His speech identified correctly the need to be more internationally
competitive. He committed to
"remove some of the obstacles that put people off coming
here"[58]
but failed to mention perhaps the biggest financial disincentive;
UK Air Passenger Duty (APD).
14. It is no coincidence that the UK has been
falling down the World Economic Forum's Travel and Tourism Competitiveness
Ratings when at the same time APD has been increasing so dramatically.
15. In 2006, an American family of four paid
£80 in APD to travel in economy to the UK. From November
this year they will pay £240 - a 300% increase in just four
years. APD payable by the Chinese tourists that the Prime Minister
cited in his speech will have increased, by 1 November this year,
by 200% since 2006, and is increasing by 50% this year alone.
Figure 1
AIR PASSENGER DUTY INCREASES SINCE 2006
| Band | Class
| Increase since 2006 | Increase since 2007
| Increase from Nov 2009 to Nov2010 |
| A | All | 140%
| 20% | 9% |
| B | All | 200%
| 50% | 33% |
| C | All | 275%
| 87.5% | 50% |
| D | All | 325%
| 112.5% | 55% |
16. We cannot expect to continue increasing APD without impacting
on the number of visitors to Britain. We have a history, natural
beauty and attractions of which we are rightly proud, but we should
not assume that these will somehow override the cost of visiting.
Overseas visitors have many other alternative options.
17. It is not just the disincentive effect on tourists that
means ever-increasing APD is bad for the economy. APD is also
a significant addition to the cost of business travel. The Government
is seeking to show that the UK is open for business and is encouraging
international trade and investment. Increasing the cost of travelling
to the UK for business by air contradicts this policy agenda.
18. We understand the need to raise revenue from the aviation
sector and have always agreed that aviation should cover its environmental
costs. The Department of Transport's Aviation Emissions Cost Assessment
2008 concluded that following the 2007 APD increases, aviation
would cover its climate change costs with an excess of £100m.
Despite that independent assessment APD has continued to rise
steeply. As a British company operating in a truly international
marketplace, our concern is that the level of APD is internationally
uncompetitive.
19. The Government is committed to reducing corporation tax
to ensure Britain is internationally competitive, but the very
same rationale applies to air passenger taxes. We understand that
the UK has the least competitive aviation tax rates in the G20
and EU. We are not aware of any other country that taxes air
passengers more than the UK. Virgin Atlantic does not seek special
favours for UK aviation, but we do call for a more level playing
field to enable us to compete fairly.
Figure 2
COMPARISON OF ENVIRONMENTAL AVIATION TAXATION IN OTHER
G20 COUNTRIES
- Argentina, Canada, China, India, Indonesia, Russia, Saudi
Arabia, Turkey - None.
- Australia - Air Passenger Tax 47AUD per passenger (£28).
- Brazil - VAT on fuel for internal flights.
- France - "Solidarity Tax" - 1 Euro economy within
EU, 4 Euro economy non-EU, 10 Euro First and business within EU,
40 Euro First and business non-EU.
- Germany - has announced plans for per passenger "Departure
Tax" (less than 2,500kms EUR 8, 2,500-6,000kms EUR
25, 6,000+kms 45 EUR).
- Italy - "Government Fund Levy" - 4 euro per passenger.
- Japan - VAT Air Transportation ("Consumption
Tax") - 5%.
- Mexico - Tourist Tax - MXN 261.89 (£14).
- South Africa - VAT on fuel 14% internal flights
only & Air Levy on Cargo of 12p per litre.
- Republic of Korea - Departure Tax on international
flights of 10,000 KRW (£5.74).
- USA - Air Transportation Tax on international
flights of $16.10.
20. We understand the Government needs tax revenue
to tackle the deficit and that it is difficult to unpick tax decisions
hard-wired into the Budget numbers, but this Government and future
governments should resist the temptation to make any further increases
beyond the new November rates.
21. Virgin Atlantic is opposed to a Per-plane
Duty as an alternative policy solution. By incentivising passengers
to fly long-haul via Continental hub airports and by taxing transfer
passengers for the first time, a Per-plane Duty threatens the
viability of direct long-haul services from the UK and would be
subject to carbon and tax leakage. This will damage British long-haul
haul airlines and business. The main beneficiaries would be our
European and Gulf competitor airlines and airports.
22. The APD banding system can be reformed to
deliver the Government's desired economic and environmental policy
objectives. Adjusting the banding system so that domestic and
short-haul journeys (where alternative transport options are more
likely to be available) would encourage a shift to lower carbon
travel at the same time as raising the same amount of revenue
for the Treasury.
CONCLUSION
23. A constrained public spending environment
represents an opportunity to concentrate on aviation policy because
it rarely involves public money and a successful aviation sector
is integral to a successful economy.
24. This submission has concentrated on Air Passenger
Duty. By being massively out of kilter with aviation tax regimes
in other countries, APD places the UK economy at a competitive
disadvantage with its international rivals.
25. The need to create a more level playing field
is not limited to aviation taxation. Different international regulatory
frameworks and constrained airport capacity are just two other
policy areas that limit our ability to play our part in delivering
economic growth.
26. We would be pleased to provide oral evidence
to expand on the points made in this submission.
September 2010
53 HC 125-I, House of Commons Transport Committee,
The future of aviation, First Report of Session
2009-10, 2 December 2009, p.3 Back
54
Ibid, p.8-9 Back
55
http://www.aoa.org.uk/admin/uploader/UploadedDocuments/Oxera%20report%20-%20What%20is%20the%20contribution%20of%20aviation%20to%20the%20UK%20economy.pdf Back
56
http://www.number10.gov.uk/news/speeches-and-transcripts/2010/08/pms-speech-on-tourism-54479 Back
57
http://www.visitbritain.org/Images/Inbound%20Tourism%20Facts%20Sept%2010tcm139-195878.pdf Back
58
http://www.number10.gov.uk/news/speeches-and-transcripts/2010/08/pms-speech-on-tourism-54479 Back
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