Simon Williamson

Clip Europe's wings

2012-03-09 07:28

Simon Williamson

Tree-huggers have been enjoying celebratory dinners of roots and tofu over the European Union’s new laws, which drive up the cost of travel in an attempt to do what they think will save the environment. Keeping less-affluent people, and hopefully a whole lot of planes, on the ground, of course, makes Mother Nature very happy.
 
Under a scheme which came into effect on 1 January this year, non-European airlines are required to purchase permits for 15% of the emissions they pump out (85% will be free). European airlines are already governed by this legislation. Airlines that refuse to comply with the legislation will be fined €100 (around R993) per ton of carbon emitted. Quantifying just how much carbon is emitted isn’t easy, but some experts expect that it will cost non-European airlines over €10bn (R99.3bn) from now until 2020. And that will raise fares, according to EU officials, by €4 to €24 (R40 to R238) each way.
 
Has anyone here tried running an airline lately? Bearing in mind of course that the oil price is higher than Herschelle Gibbs, the global economy is performing like Velvet Sky and last year’s increase in passenger demand is thinning like it needs to fit into a wedding dress. The International Air Transport Association (IATA) estimated in June last year that full year results for airlines would total a profit of $4bn. Sounds sweet, huh? Well they spent $598bn earning that for the pretty average return of 0.7%. IATA reckons that in 2001 fuel constituted 13% of aviation expenses. It is now closer to 30%. Slender airline profit margins are being fuelled by some countries which are seeing economic growth like China, Brazil, Russia and a spread of nations on our own continent – you know, none of which are actually in Europe. The boost in demand will therefore be mitigated by this new tax.
 
To make things even more difficult for airlines, some governments have added country-specific airline taxes. For example, in the UK air passenger duty is being raised 8% in April, which is currently £24-£170 (R284-R2014) depending on how far you are flying. To put this into perspective, the taxes on a flight between Johannesburg and London total R4 178. Take away the fuel surcharge (which is the terminology for saying the customer will foot the bill for the high price of oil) and you have R1 942 of taxes left – R1 417 (72%) of which you pay to the UK. This is aside from carbon emissions taxes. I crunched some numbers of flights from six major cities outside Europe to London and Frankfurt – and it could drive fares up as much as 10%. Pretty much the last thing a recovering industry needs when operating on profit margins of 0.7%.
 
Aside from wrecking the space in which airlines do business, there are ethical standards to how these laws are being applied. Of course Europe is allowed to make its own laws, and apply them to its own airlines. And naturally, one should respect the laws of countries one visits. But airlines that are not from Europe feel this is an attack on their country’s sovereignty, dictating business practices where the EU has no power to rule.
 
International air travel is tricky legal territory. An arm of the United Nations called the International Civil Aviation Organisation (ICAO) was created in 1947 to regulate international air travel. The body signed an agreement in the same year called the Convention on International Civil Aviation, which contains two key articles. Article 11 states that airlines from countries affiliated with the UN are subject to the rules made by the ICAO, and not those made by their national government. Article 15 says “airport and similar charges” are “subject to review by the Council”. These carbon emissions charges have not been reviewed by the ICAO – in fact, according to Reuters, the EU enacted the laws because of a failure by the ICAO to work out a plan to reduce emissions. Just because the EU may not be happy with something does not mean it can push through laws outside its authority.
 
And although one should not pass or avoid passing laws because of reaction by a foreign state, these carbon emissions charges on foreign airlines could spark a trade war. Do you know who loses in a trade war? You guessed it: passengers.
 
Increasing the cost of flying will pass the cost onto fliers, which means that rich folks will be able to keep flying no matter how the European government feels about the pollution expunged by aeroplanes. Taxing lower-income travellers off planes is indeed the EU's proposed solution. Less passengers on planes means more planes on the ground. Grounded planes don't make money. And this industry is operating with a 0.7% profit margin.

Do I really need to explain to you what happens if parts of the international airline industry begin shutting down? Hint: major job losses, and a reduction in competition (meaning, again, higher fares).
 
We should all be glad that South Africa, along with 22 other countries, is fighting to kill off these laws.


Simon Williamson is a freelance writer.

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