Seeking Uplift

Lufthansa, Rival Carriers Push for Cuts in German Fuel Surcharges

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Thomas Oppermann, Gerda Hasselfeldt and Volker Kauder in Berlin in May of this year.
  • Why it matters

    Why it matters

    Lufthansa issued a profits warning. Air Berlin is running at a loss. Meanwhile, Emirates and Etihad are booming. Germany’s airlines say they desperately need government help to stay afloat.

  • Facts

    Facts

    • The airline tax introduced in 2011 generates an annual €1 billion ($1.3 billion) for the German government.
    • The transport ministry is keen to stop further burdens on Germany’s airline industry following a secret meeting between executives and politicians in spring this year.
    • The air travel tax places a heavier burden on German airlines than foreign airlines which take off and land in Germany, according to a Handelsblatt Research Institute study.
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    Audio

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High taxes, onerous regulation and fierce competition are crippling the German aviation industry and the government needs to help the sector from buckling under the pressure.

This was the message delivered during a private meeting of senior airline executives, including the chief executive of Lufthansa, and German government representatives held earlier this year.

German airlines complain that they have to operate under unfair conditions, facing greater regulation and taxes than rivals. At the meeting, the German airline managers asked for an easing of restrictions on night flights and the air travel tax. German law regulates what kinds of planes which can take off and land between 10 p.m. and 6 a.m. Some airports only allow take aircraft with low-noise motors to operate, or freight and emergency aircraft.

The German air travel tax ranges from €7.50 for domestic flights and up to €42.18 for intercontinental flights per passenger ticket.

 

“Air travel is crucial to the economy. This is very short term thinking. Politicians think yes we can take a little more tax off the industry, but it will really hurt in the long term.”

Robin Byde, Analyst, Cantor

Carsten Spohr, Lufthansa’s chief executive and Ulrich Grillo who leads the BDI Federation of German Industries, and other aviation industrialists met with politicians including Volker Kauder and Gerda Hasselfeld of the governing Christian Democrat Party CDU, and Thomas Opermann a social democrat from the left wing coalition partner SPD.

Handelsblatt learned of the meeting from people close to the situation.

Lufthansa, Germany’s biggest airline, issued a profit warning in June, complaining that a series of recent strikes by pilots and increased competition from state-backed carriers from the Persian Gulf countries had hit its business. The second-largest German airline, Air Berlin, is also struggling and is expected to announce heavy losses next week.

A report on the Geneva-based International Air Transport Association (IATA) which lobbies on behalf of the airline industry, says the air travel tax is making Germany uncompetitive and removing Germany’s air travel tax will boost GDP by €1.226 billion and create 20,000 new jobs.

Mr. Spohr said the airline has been hit by a double whammy, having to cope with onerous government regulations while competing with rivals such as Emirates and Etihad, which do not have similar tax burdens and in fact receive government subsidies, according to people at the meetings.

The airline industry has managed to convince politicians from both the SPD and the CDU to act, although so far, no changes have been announced.

Alexander Dobrindt, the German transport minister and member of the CDU, has received a cross-party letter asking the government to act “to ensure that Germany remains competitive internationally,” Handelsblatt learned.

Germany’s finance ministry, which receives €1 billion ($1.3 billion) annually from the air travel tax, appears to be at odds with the transport ministry, which wants to ease burdens on the domestic airline industry.

The transport ministry has said it will consider all options, including tax breaks for airlines if they buy aircraft with lower emissions and lower noise.

But analysts say this will not benefit Lufthansa. “It has one of the biggest fleet replacement programs in the industry, anywhere in the world, and they are sticking to their plans, despite their economic problems. Frankly, I don’t think there is more they can do here and it’s unfair to suggest there is,” said Robin Byde, an analyst from Cantor.

“Germany is a big exporting nation. Air travel is crucial to the economy. This is very short term thinking. Politicians think, ‘Yes, we can take a little more tax off the industry,’ but it will really hurt in the long term,” he added.

European airlines have long complained that they are subject to a confusing, ever increasing regime of taxation and regulation that leaves them uncompetitive and expensive, compared to their non-E.U. rivals.

Britain has the highest air travel duty in the world. The Air Passenger Duty is charged by distance flown, and can range from £13 for European flights to £94 for flights to Australia. Industry experts say this just encourages passengers to take a short flight to another country and begin their long haul flight from there.

 

 

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Carsten Spohr, Lufthansa’s chief executive officer, is still smiling. Source: Reuters

 

“In 2014, the European governments will collect nearly $40 billion in taxes from airlines and passengers. To put that into perspective, that is more than double the taxes collected in the Asia-Pacific region,” Tony Tyler, chief executive of IATA, said in a speech in July. “Europe’s air transport sector is in desperate need of leadership to alleviate the tax burden, improve regulation based on global standards and develop infrastructure to enable success.”

Lobbying is sometimes effective. Ireland introduced an air travel tax of €3 per passenger, per flight, five years ago, but abolished it in April 2014 in the face of intense lobbying from Ryanair. Other countries, however have resisted change.

“The whole subject is a nightmare as each country is a law unto itself. In the U.K., we don’t pay VAT on fuel but, my word, they slam on special taxes on just about everything else to the extent that it often exceeds the half the air fare passengers pay,” said Dr. Thurai Rahulan, chairman of the Association of Aerospace Universities, which links academic institutions and the aviation industry.

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