HM Treasury urged to accelerate the reduction in domestic APD
As part of a four-point blueprint to unleash the economic potential of the UK’s regional airports, RCA, the UK’s leading regional airport operator, is urging the UK Government to designate regional airports as free ports – a defined area where goods can be imported, manufactured or re-exported inside the allocated boundaries without incurring domestic customs duties or taxes.
To fully realise the free port potential of regional airports, however, the Government also needs to address the damaging impact of Air Passenger Duty.
Historically, regional airports have experienced difficulty in developing new routes due to the size of their catchment areas. However, the advent of low cost airlines saw many experience significant growth as a result of market stimulation through low fares. This growth was subsequently stifled by a combination of increasing levels of APD and economic downturn which impacted the viability of many newly established services. Consequently, low cost airlines in particular have reduced the level of activity at UK regional airports in favour of placing capacity at larger UK airports or airports outside the UK that are not burdened by APD.
As regional airports have sought to replace low cost carrier capacity, options have been limited to mid-size jet operations or turbo-prop equipment which have a much higher cost per seat. This structural inefficiency, combined with the effect of APD and the market’s expectation of lower ticket prices, makes it very challenging for these services to be replaced.
The impact of APD on the economics and demand for domestic connectivity, which by definition requires connectivity between regional airports, is even more severe, with domestic journeys being subject to double taxation whereby the short haul rate of APD is charged twice on a return journey.
RCA therefore urges HM Treasury to work towards an Air Passenger Duty (APD) exemption for airports of under 3 million passengers per annum, with an immediate APD holiday on new routes from these airports to encourage growth and effective use of existing airport capacity.
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