Airport Tax

As true representatives of aviation and as aviation experts, all Crew Members should be aware of what Airport Tax is and how it is calculated in the event of a passenger questioning them on any aspect of Airport Tax.

 

Airport Tax

Whenever we book a flight we can see how the total cost of the ticket is made up. This includes the cost of the flight and the airport tax. However if airport tax is a tax, why is it different for different airlines and for different airports?

Airport tax is generally defined as a 'fee' charged by various airports. This fee is charged to the airlines, which pass it along to each passenger and typically include it in the price of the ticket. The airport then uses this fee to assist them with maintaining and upgrading the particular airport.

There is also an amount paid to SARS, and some to a non-profit company jointly owned by all the airlines to assist with baggage control. However an additional amount is included in the 'airport tax' category, which is a discretionary fee called, a fuel levy. This fuel levy actually makes up the majority of the airport tax.

The following is an article which was written by Maya Fisher-French:

The great airport tax rip-off

JOHANNESBURG, SOUTH AFRICA - May 11 2009 09:02 

Of the R400 in "taxes" one pays on a full service airline from Johannesburg to Cape Town only about 20% actually goes to airport taxes. For a return flight to London at the moment the "taxes" can cost more than the airplane ticket, however, mandatory taxes and insurances are a third of those costs.

The bulk of these so-called taxes are actually a discretionary fee called a fuel levy. The rapid decline in the oil price has meant that the fuel levy has become a neat way for full services carriers such as British Airways (BA) and South African Airways (SAA) to promote cheap tickets -- before you read the fine print.

Comair, which operates both Kulula and BA locally, says that one of the biggest components of these surcharges is the fuel levy, which is linked to the rand/dollar exchange rate as fuel is billed in dollars. "Therefore it is up to the airlines' discretion as to how much they charge as part of the fuel levy as it forms a large part of the business' cost base," says Glenda Zvenyika, Comair communications manager.

Take, for example, an economy return flight between Johannesburg and Cape Town. British Airways and SAA both charge R1 200 for the flights. That looks compelling when compared to no frills, low-cost airline Kulula, which will charge R1 800 . But, once you add in the airport taxes of R951, the low-cost carriers are cheaper. Kulula charges about R150 for airport tax.

Depending on the model, some airlines charge customers separately for their fuel bill. This would be the same as climbing into a taxi, being told the rate to the airport is R150, but when it comes to paying, you discover you still need to fork out R100 for petrol.

 

Both BA and SAA dispute the suggestion that any profit is added to the mandatory taxes and insurances. The price difference is made up by the fuel levy.

A good illustration of how different airlines use different models is to compare the taxes on a flight to Mauritius when booked via Kulula online, versus BA online. If you book through BA you pay R2 990 for the ticket and R1 800 in taxes and surcharges. For exactly the same flight, same plane and same airport booked through Kulula online you pay only R445 in taxes, but the return ticket price is R4 765. The fuel levy disguised as a tax is simply part of the actual ticket price.

Erik Venter, joint CEO of Comair, says the difference between the two airlines is a result of an antiquated airline booking system. In 2004 the fuel levy was introduced because the speed at which the oil price was rising required ticket prices to be revised monthly.

However, for one airline alone this meant changing 2 000 different ticket prices because of the various discounts and special rates provided to various customers and suppliers. All these price changes have to be put through the international airline tariff publications company ATPCO.

It was easier to have a separate fuel levy, which could be changed independently. Venter agrees that it would be more transparent to call it a fuel levy than a tax, but apparently the out-dated airline pricing system did not have additional space for a fuel levy category and it was added to the "tax" box.

Venter argues that although this pricing mechanism lacks transparency it is a function of a poor system rather than a real desire to hide costs. Kulula, as a purely internet-based airline, does not have to do its pricing through ATPCO and therefore has more flexibility in changing its pricing. The emergence of more online-based airlines could see a reduction in the number of airlines that use the fuel levy charge.

But one still has to question the price one pays for fuel. BA currently charges a $141 fuel levy on an economy flight to London. That is about R1 200, so on a return flight that fuel cost is adding R2 400 to your ticket (total taxes are about R3 700). Currently you can buy a return ticket for just over R2 400, so the fuel levy is equal to the price of the ticket, or put another way, the fuel levy doubles the price of the ticket.

BA says it reduced the fuel levy on this flight by $45 in December because of the lower fuel price, but this does not offset the actual fall in the oil price. BA introduced its fuel levy in 2004 and in June 2005 the levy was $48 when the oil price hit $60 a barrel, and the price of jet fuel in dollars was 165c/gallon. Today the oil price hovers just above $50 and fuel prices are 139c/gallon. Yet customers pay a fuel levy that's 300% more today.

BA says it is not correct to use the oil price as an indicator of the fuel levy because of their fuel hedging policy. "While we do periodically adjust our fuel surcharge, it does not mirror the oil price, nor does it necessarily offset our fuel costs.

In fact, although the surcharge was reduced in December our fuel bill for the nine months from April 1 to December 31 2008 rose by 48.4% to £2.244-million. Factors such as hedging and currency fluctuations affect what we pay for our fuel," says Stephen Forbes, spokesperson for BA. Therefore an airline with a better hedging policy could charge a lower fuel levy, so it is worth shopping around to compare taxes.

Venter says that while Comair has halved its fuel levy since its peak, it never fully priced the cost of fuel into the fuel levy. When the levy for local flights reached a peak of $65, Venter says a levy of $95 was actually needed to recoup the full costs, but Comair could not pass this on to consumers. Airlines are therefore now recouping some of their margins.

SAA says there is a lag of between three to four months from when the price of crude oil reduces to when the airline can benefit from this. "A further complicating factor is that SAA pays in rands for crude oil. The rand has devalued against the dollar and is only recovering recently," says Robyn Chalmers, head of group SAA corporate affairs.

Whatever the pros and cons of a fuel levy are, one thing is for sure and that is that frequent flyers are getting a raw deal. As SAA makes clear, "taxes charged on Voyager tickets will not be any different and Voyager miles are not transferable as airport tax, as this is not payable to the airline".

Of course, these taxes include a fuel levy and because it has been lumped in as a tax it cannot be waived, and therefore when cashing in your miles for a "free" ticket you are really paying for half that ticket not just your obligatory taxes. This makes air mile programmes significantly less attractive while certainly being a positive development for the airlines, who are now able to generate some revenue from tickets they promised for free to reward loyal customers.