November 30, 2011

Chancellor gives date for introducing APD to private jet flights

In his Autumn statement yesterday, the chancellor George Osborne announced that Air Passenger Duty on private jet flights would be introduced in April 2013. His statement read “The Government will proceed with the extension of Air Passenger Duty (APD) to flights taken aboard business jets, effective from 1 April 2013. Details will be set out in the Government’s response to the APD consultation on 6 December 2011”.

The extension of APD to business aviation was announced earlier this year in March’s Budget with many expecting it to come into operation next year in April 2012, alongside the increases in APD bands for airline passengers (the details of which will be announced next week). Some commentators are seeing this as a delay, although a start date for APD on business aviation wasn’t clearly set out.

The timings may be unclear but I’m not sure the Chancellor needs to drag his heels, if APD is to be calculated the same way for private jet passengers as it is for airlines. It would add a relatively small increase to the costs of a private charter flight and would be unlikely to cause much alarm with passengers.

Currently, the duty applies to airline flights in bands according to both the distance of the journey and the class of seat. Our average passenger payload is 2.8 per flight, so the impact on a return flight from London to Paris would be to increase the cost overall by 3.5 percent (£134.40 on a typical £3,900 return journey). Or by 2.5 percent on a longer journey, such as London to Cairo (when the increase would be £672 on a typical cost of £26,900)*.

Two areas remain unclear

That said, it is not yet clear if APD will be calculated the same way for business jet passengers – ie according to distance travelled and seat pitch. Should the Chancellor introduce a new APD band for private jet passengers, the reaction may be different.

The other issue I see is with collection of APD from customers. Business jet flights are like taxis and flights departing from the UK can be operated by UK-based operators or by overseas operators whose aircraft happen to be here. UK operators will undoubtedly introduce robust processes to collect APD from passengers and pass this revenue to the Treasury, but who will ensure that overseas operators do the same on flights departing from the UK?
For example a team of US executives coming into Europe from the US for a series of meetings will fly from the UK to other points in Europe. Will they be asked to pay APD to their US-based operator? With a relatively small number of passengers compared to airlines, its important that the administration effort created by APD does not become disproportionate to the revenue raised.

If those issues are solved, I also believe the industry will embrace the change. In the current economic climate, the business aviation sector is embracing the need for more transparency and new ways of operating. Introducing APD for private jet flights is just one way in which it is moving forward and integrating with the travel industry as a whole. Other key areas of change are making business jet flights more widely available through travel agents and providing online aggregation and booking.

VIP service, privacy and comfort are still very much part of private aviation’s appeal, but the stereotype of the ‘fat cat’ private jet user is largely a thing of the past. Private jet charter is increasingly being seen as a viable and comparable form of time-efficient travel, with two thirds of European flights going where airlines don’t operate a direct service**; and offering optimal scheduling flexibility.

And of course, the industry is increasingly in demand when airline flights cannot meet demand, such as for recent evacuation flights out of Japan and the Middle East, or during the snowfall and ash cloud crises which affected Europe last year.

These are the current rates of APD applicable since 1 November 2010 – increases will be announced later this year:

Band A (0-2000 miles) – £24
Band B (2001 – 4000 miles) – £120
Band C (4001 – 6000 miles) – £150
Band D (6000+ miles) – £170
(Standard rates apply when seat pitch exceeds 1.016 metres / 40 inches)

Band A (0-2000 miles) – £12
Band B (2001 – 4000 miles) – £60
Band C (4001 – 6000 miles) – £75
Band D (6000+ miles) – £85
(Reduced rates apply when seat pitch is less than 1.016 metres / 40 inches)

*Charter flight costs are market estimates using the online cost calculator. Prices are subject to availability.

**Source: EUROCONTROL Air Traffic statistics

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