Proposed flyer levy faces turbulence from aviation sector

The International Air Transport Association (IATA) has opposed the recommendation of the Global Solidarity Levies Task Force (GSLTF) to target flyers with a premium levy.

The proposal, which seeks to increase revenue mobilisation for developing countries and support climate change mitigation, has suggested targeting air transportation through a premium flyer levy.

A frequent flyer levy is a tax that increases with each flight taken by an individual and is suggested as a way to encourage less frequent flying, particularly among those who fly most often, while potentially generating revenue for other sustainable initiatives.

The association said an initial assessment of the GSLTF’s proposals reveals severe deficiencies, including that a competitive airline industry does not generate excessive profits.

“The airline industry is an economic catalyst, not a cash cow," said IATA’s Director General Willie Walsh. 

"Yet governments casually suggest a tax on flyers that is three times the airline industry’s annual profit without considering the real-world side effects for an industry that is a lifeline for remote communities, invigorates tourism markets and links local products to global markets."

IATA said the GSLTF announcement, while lacking any meaningful detail, quotes a research and consultancy firm CE Delft estimation that a premium flyer levy could generate 78 billion euros (Sh11.8 trillion) per year.

That, it said, is approximately three times the airline industry’s global estimated profit of $32.4 billion (Sh4.2 trillion) in 2024.

“Moreover, while the modalities for the GSLTF proposal are not specified, history shows us that these taxes simply go to the general exchequer, with little, if any, of the revenues generated going to climate change adaptation,” Walsh said. 

Airlines’ structurally thin net profit margin (estimated at an average of 3.4 per cent industrywide for 2024 and approximately half the global average for all industries), the association said must also be considered in any policy deliberation.

Another deficiency IATA said is the airline industry has a multi-trillion dollar commitment to sustainability.

It said airlines have committed to achieving net zero carbon emissions by 2050—an effort that is expected to cost USD 4.7 trillion over the period 2024 to 2050.

This will ensure that aviation can deliver its direct contribution of 3.9 per cent of global GDP and 86.5 million jobs globally while addressing its estimated 2.5 per cent share of global carbon emissions.

Increasing aviation taxes on airlines as proposed, it said will limit the industry’s ability to invest in solutions that deliver long-term emissions reductions.

The association, which represents some 350 airlines in over 120 countries said the third deficiency is that a specialised climate financing mechanism for aviation already exists.

The GSLTF’s proposal, it says disregards the role of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which was agreed through the International Civil Aviation Organisation (ICAO) and is the world’s first globally agreed mechanism to manage carbon emissions from an industrial sector—in this case international aviation.

The GSLTF states, it said were among those that created CORSIA under the principle that it would be the single harmonised market-based measure to manage international aviation’s carbon emissions.

Overlapping measures, such as the Solidary Levy, it said would undermine CORSIA and lead towards a fragmented, inefficient and inconsistent global policy framework.

The association said it is essential that all states (those in the GSLTF included) focus on making CORSIA successful rather than advancing overlapping measures.

Topping the agenda of critical support needed for CORSIA it said is states making available the carbon credits so that airlines can fulfill their CORSIA obligations and states can realise their climate financing value.

The association further said failure to assess rising costs is an inescapable consequence of the proposed levy is the fourth deficiency.

In addition, it said the GSLTF has not released any assessment of the impact that such a levy would have on the economies of the very states to which it aims to funnel the funds, or the broader impact it will have on all travelers.

The association added the taskforce has also not detailed how such funds would be used and although the GSLTF is positioning its proposal as targeting premium travel, it fails to recognise the critical importance of this segment to making route networks viable.

Punishing premium travelers or burdening the sector with excessive taxes, it said would upend route dynamics, which enable the connectivity that nearly five billion travelers will rely upon this year.

The impact of the GSLTF’s proposal, it added would make airlines less efficient and more financially strained. This would mean higher costs for all travelers and for items shipped by air.

Such reduced affordability for a sector that is an indispensable economic catalyst, it said ultimately brings the unintended consequence of weaker economic growth.

The GSLTF, Walsh said that, their solidarity levies won’t increase the cost of living for ordinary citizens or impact things like household bills, but if followed, the recommendations will increase the cost of air travel for all travelers and do more harm than good.

“Extracting tens of billions from aviation will cripple its ability to invest in achieving net zero by 2050, change route dynamics to the extent that connectivity will suffer, and short-change countries on the critical economic support that air transportation provides,” said Walsh.

Walsh said to be clear, airlines are not evading doing their part to mitigate the impacts of climate change but the industry is doing everything possible to achieve net zero carbon emissions with Sustainable Aviation Fuels (SAF), more efficient operations and better technology.

“The last thing these efforts need is a USD90 billion gut punch of a tax. With respect to air transportation, the aims of the GSLTF could best be realised by supporting investments in SAF production so airlines can deliver prosperity by connecting people and businesses to global opportunities,” said Walsh.

IATA said the independent global research carried out by Savanta in 15 countries for IATA reveals deep public skepticism over air travel taxation.

Seventy three percent said that green taxes are government greenwashing, 79 per cent said there are too many taxes on flying, 78 per cent said that taxation is not the way to make aviation sustainable, 74 per cent said they don’t trust governments to spend tax money wisely and finally 88 percent believe that taxes collected from air travel should be invested to improve travel for passengers

Taxation was the least popular modality to compensate for carbon emissions associated with flying with only 9 per cent support.

More popular preferences are SAF purchases (25 per cent), carbon emissions reducing technology investments (23 per cent), emissions reduction research (18 per cent) and offsetting 13 per cent.