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- WSJ.com Business Europe March 1, 2006 BUSINESS EUROPE DOW JONES REPRINTS This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com. See a sample reprint in PDF format. Order a reprint of this article now. Taxes That Won't Fly By GIOVANNI BISIGNANI March 1, 2006 European governments are competing among themselves to introduce the most absurd taxes on airline passengers. They say it's all to fund worthy causes that everyone supports. But these new taxes will hurt the very things they're supposed to help. Two in particular could come into force this summer: a Swedish tax purportedly to improve the environment, and a French tax to fund aid for developing countries. The environment and development are important, but what's that got to do with airline travel? The French tax is taking center stage this week at an international conference in Paris, as President Jacques Chirac tries to persuade other countries to follow his lead. France's tax will come into force in July and range from 1 to 40 per flight depending on distance traveled and type of ticket. It will supposedly raise 210 million annually for developing countries. French Finance Minister Thierry Breton argues that the industry should pay because "airlines benefit from globalization." He misses the point: Air transport isn't the beneficiary but the catalyst for globalization and world economic growth. No industry has already done more to aid development than air transport. It contributes by making possible tourism. And it boosts economic growth: A 10% increase in air transport utilization in a given country adds 1.1% to its GDP, according to Oxford Economics Forecasting. In Africa alone air transport supports nearly 500,000 jobs, generating $26 billion in economic output. Why put this at risk? We must kill the myth that air travel is for a select few. We are a mass transit system used by two billion travelers each year. They're not all millionaires! They are families reuniting, businessmen attending meetings or students seeing the world. They shouldn't be singled out to absorb tax after tax. In fact, governments and infrastructure providers already over-recover the costs of making air transport possible through various charges. In Germany, the average air passenger contributes 7.50 to the country's budget -- some 754 million each year. On the other hand, rail travelers cost the German budget 6.20 on average -- a whopping total cost of 12 billion annually. The important point for policy makers to remember is that air transport more than fully funds its own infrastructure, while European rail competitors drain national budgets of 42 billion annually. To put things in perspective, a reduction in the European rail subsidy by just 1% would generate double what the French tax will collect. And now let's turn to the latest absurdity from Sweden. Stockholm plans to slap a new environmental ticket tax on air passengers, ranging 10 from for the cheapest trips to 45 for long-haul journeys, beginning as soon as July. Its stated purpose is to discourage air travel in order to reduce emissions. However, none of the tax revenue will be invested for environmental purposes. It will simply go into general government coffers. This is out-of-sync with a global commitment through the International Civil Aviation Organization, a U.N. body, to achieve a global solution on the environment. At the 2004 ICAO Assembly, member states -- including all EU ones -- agreed not to impose unilateral actions on aviation emissions until at least 2007. Air transport is competitive and very price sensitive. A 10% increase in fares results in a 15% decrease in leisure travel, according to ICAO figures for 1993-2004. The historical operating margin for the industry is only 2%, out of which airlines must finance debt, pay dividends and purchase new aircraft. Taxing the industry will only leave less money for fuel-efficient technology. Governments must remember that air transport supports 8% of the global economy but contributes only 3% of carbon emissions. We take environmental responsibility very seriously. But governments are blocking us with inefficient air space. While Europe has been able to agree to one single currency, we still have 35 air traffic control fiefdoms. If European governments follow through with their plans for a Single European Sky we will see reduced delays, optimized routings and improved efficiency. The resulting shortened journey times would reduce CO2 emissions by up to 48 million tons each year. Even without that measure, fuel efficiency improved by 3.4% in 2004. Let's remember that aircraft today are as efficient as a modern compact car -burning only 3.5 liters of fuel per 100 passenger kilometers. The new Airbus A380 and Boeing 787 are set to take this below 3 liters per 100 passenger kilometers -- the range of a Smart car. To better achieve their environmental objectives, governments ought to earmark money for research into alternative fuels and cleaner technologies, as the G-8 recommended last year. In putting together environmental policies, the challenge is to maintain the economic benefits of air travel, encourage operational improvements and facilitate investment in new technology. It is unfortunate that governments today see air transport as profit center rather than a vehicle (pun intended) of economic growth. It is hard to imagine a competitive Europe in which the transport of people and goods is a constant victim of political posturing. Let's end this absurd competition. Mr. Bisignani is director-general and CEO of the International Air Transport Association. URL for this article: http://online.wsj.com/article/SB114116261064685728.html Copyright 2006 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.

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