Ryanair Cuts Stansted Routes Due To APD

by Jason Gorringe, Tax-News.com, London

28 July 2009

On July 21, Ryanair announced that it would cut its capacity at Stansted Airport by 40% starting October 2009, reducing the number of aircraft operating from the airport from 40 currently to 24. Ryanair anticipates that it will see a 30% reduction in the number of weekly flights from Stansted, and a loss of 2.5m Stansted passengers during the period from October 2009 to March 2010.

In a statement, Ryanair underlined its reasons for the decision. It stated that BAA Stansted is one of its most expensive bases, and that BAA has refused to cut fees levied at the airport during the winter period. The move also pre-empts a potential drop in passengers and revenue from the increase in the government’s Air Passenger Duty (APD), which is to be increased to GBP11 (currently GBP10) in November, with further substantial increases to be introduced in 2010.

Ryanair’s statement notes that in recent months the Belgian, Dutch, Greek, and Spanish governments have retracted their tourist taxes and/or reduced airport charges to zero in order to stimulate tourism. Ryanair has announced that come November, the 16 aircraft removed from Stansted will be relocated to other European bases where the governments are in the process of, or have fully retracted, taxes on tourism.

APD was first introduced in the UK in 1994 but was subject to punitive revisions within the government’s November 2008 pre-Budget report. The new APD system comprises four bands depending on the distance travelled, and has been criticized for being unjust, in particular by imposing higher rates on Caribbean flights compared to those to America and other equidistant destinations. Currently flights within Europe are subject to a GBP10 duty, and those outside Europe up to GBP40 duty. These duties are due to rise to between GBP22 and GBP90 respectively from November 2010.

Caribbean countries and Ryanair’s rivals have backed the airline in its efforts to lobby against the tax. Virgin Atlantic’s Richard Branson spoke out online, stating that the APD is “one of the most unjust taxes out there”. He argued that there is not "a shred of evidence" to suggest that the environmental tax, which generates GBP2bn in revenues, will go towards environmental or sustainable projects. EasyJet, in a separate statement, argued that the tax is not an environmental tax as it is charged at a fixed rate, and recommends that the government should instead encourage the use of more environmentally friendly planes by imposing higher taxes on planes that pollute more. Carbon trading systems, as used in other industries, have also been advocated by British Airways, among others.

Urging the industry and its stakeholders to unite against the proposed increases on long-haul flights, the Association of British Travel Agents stated: “We have a number of common views and all feel very strongly about APD which will see a family of four paying GBP340 tax on a flight to Australia by next year. The tax must be reduced and if not, it will lead to job losses in the UK and have a severe impact on the economies of many developing nations.”

Ryanair’s cutbacks alone are likely to cost 2,500 UK jobs.

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