Archaic Rules, ‘Sin’ Taxes Holding Growth Back, IATA Says

Archaic rules, taxes as high as those imposed on alcohol and an infrastructure deficit, especially in Asia, are curbing the aviation industry’s growth, the International Air Transport Association said.

Countries should ease regulations and investment restrictions to boost the industry, Tony Tyler, chief executive officer of the world’s biggest grouping of airlines, said in Singapore today. Governments will need a very determined political will to liberalize aviation across borders, he said.

High costs and the lack of infrastructure means an average person in India, the market with the most potential in Asia-Pacific, takes one air trip every 10 years, compared with two annually by those who live in the U.S., Tyler said. Discouraging travel through “draconian” taxes such as the U.K. air-passenger duty hurts the U.K. economy and families that forfeit long-haul vacations because of that impacts jobs, he said.

“It may be a U.K. tax, but the impact is global,” Tyler said Singapore Airshow Aviation Leadership Summit. “Like any industry, aviation should pay its fair share of tax. But taxing aviation at levels equal to the sin taxes applied to alcohol and tobacco makes no sense.”

Airlines globally will post a record $19.7 billion in combined net income in 2014 as a wave of consolidation and streamlining prompted by the global slump helps rein in capacity and support prices, Geneva-based IATA said in December. Passenger numbers topped 3 billion for the first time last year, according to the industry group.

Boeing, Airbus

Countries such as Singapore and China are expanding their airports ahead of demand, while there are others not investing fast enough to meet the growing number of air travelers. Boeing Co. (BA) and Airbus Group NV (AIR), the world’s two biggest planemakers, both count on Asian airlines to buy more aircraft in the next two decades as economic growth in the region enables more people to take flights.

While Mumbai opened a new terminal last month, it still faces constraints, Tyler said. Jakarta and Manila also have similar problems, he said. Air travel is considered a luxury in developing economies, hence India levies high fuel taxes and across Africa there’s a proliferation of facility fees.

India, the world’s second-most populous nation, needs about $12.2 billion of investments in airport infrastructure in the five years to 2017, according to the Planning Commission, a government body that formulates five-year economic and social programs. The number of passengers may surge more than 50 percent to 370 million in that period, it said.

Archaic Rules

In Indonesia, most major airfields were operating at double to triple their capacity in 2011, according to the Indonesia Infrastructure Initiative, a project funded by the Australian government. To accommodate growth, Indonesia’s government is spending about $53 billion to improve transport infrastructure including airports, ports and railroads.

Europe is also struggling with infrastructure issues as airports aren’t expanding fast enough, Tyler said. By 2030, as much as 12 percent of demand could be lost, he said.

Efforts to bring Europe under a single skies pact, which could bring about 5 billion euros ($6.8 billion) of efficiencies to the economies, have been mired in a web of governments’ vested interests, Tyler said.

IATA, with members including Singapore Airlines Ltd. (SIA) and Deutsche Lufthansa AG (LHA), is upgrading operational safety audits on airlines, Tyler said. There were fewer than 300 aviation fatalities last year, while airlines moved about 3.6 billion people.

Route distribution among airlines, carried out in the form of landing rights and service approvals negotiated country-by-country, should be reformed to reflect the current level of air travel, he said.

“Totally archaic rules and regulations, which probably have good historical reasons, still apply to modern-day aviation,” Tyler said. “Could you imagine governments dividing markets in other industries in the same way as they grant international traffic rights?”

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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