The suspension of Air Passenger Duty (APD) for 12 months has the potential to provide much-needed passenger demand, revenue generation, and a glimmer of hope towards the UK tourism industry’s recovery.
MPs are calling for the UK Government to temporarily suspend its APD charge for 12 months to help stimulate demand, which has hit historically low levels in recent times due to the Covid-19 pandemic.
The UK has some of the highest APD charges in the world. The cripplingly high outbound fee ranges from £13 for a short-haul economy passenger, up to a staggering £176 for a long-haul business passenger. At times when financial concerns are growing, the temporary suspension of APD could bring vital benefits for the UK tourism sector.
The Future of Aviation Group is warning that the UK risks losing 45% of its air connectivity and up to 8,000 aviation sector jobs if decisive action is not taken. With UK unemployment at 4.8%, its highest since 2016, any further job losses would be a devastating blow to the aviation industry, the tourism sector, and the UK economy.
In 2019, 86.3% of UK outbound travellers and 78.2% of inbound travellers travelled by air, according to GlobalData, further highlighting the vital connectivity airlines offer for the country and the importance to the tourism sector.
A reduction in price could stimulate demand
The Covid-19 pandemic has placed a huge financial strain on consumers and the UK tourism sector. According to GlobalData’s Week 9 Covid-19 Recovery Consumer Survey (7-11 October), 52% of UK respondents are ‘extremely’ or ‘quite’ concerned about their personal financial situation.
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By GlobalDataAs financial concerns grow, consumers are likely to become more frugal with their spending. Travel will feel the full force of this, therefore, a cut in APD, followed by a reduction in air fares, will help stimulate demand to support tourism recovery.
A reduction in APD could drive inbound tourism by positioning the UK as a more attractive destination for tourists who may have travelled elsewhere historically. With price often being the deciding factor in destination selection, catalytic benefits should be experienced across the UK tourism sector through increased spending within the hospitality and attractions sector, which is yet to recover.
Consumers have proved there is high pent up demand when travel restrictions allow. Together with a reduction in APD, this will further stimulate the market, even with growing financial concerns.
The whole industry could benefit
Ryanair believes demand will return to 70% to 80% of 2019 levels by summer 2021, but price recovery is likely to be slower. To help airlines maintain healthy margins, APD should be temporarily suspended. This would help to ensure that airlines continue to generate revenue when pricing is reduced.
Airports, who are another victim of Covid-19, would benefit dramatically from the proposal. The heavy reliance on revenue linked to passenger flows has placed many smaller airports on the brink. However, APD’s suspension and pent up demand in the market should increase passenger flows across the UK when restrictions pass, allowing the benefits to cascade to the range of other industries that are involved in outbound and inbound travel in the UK.
The UK must ensure it is well-positioned to retain its high level of connectivity to protect one of the most important methods of travel in and out of the UK. APD suspension will help stimulate demand and provide the industry with a glimmer of hope.
