Study on airport taxes effect on European hub competitiveness

Abstract

This study is on the effect which taxation has on the competitivenessof European hubs in terms of costs for connecting routes. The original data comes from the 1stof August 2015 routes in Europe and a dataset in created by defining connecting routes at Heathrow which are also adopted by the other alternative hubs in order to compare them. A model is defined for the load factors on all created routes. The costs for each route are calculated by assessing the amount of taxes payed in each flight segment and the operating costs of them. Two alternative scenarios are calculated: Brexit and an introduction of an excise fuel tax.The results are that the current most competitive airport in Europe is Amsterdam and that both Heathrow and Gatwick are very uncompetitive. The reason is the high taxation present in their flights, penalising tremendously each passenger. Tax reductions are recommended for them. It is seen that theair passenger duty is harmful for each country which currently has it and it is recommended that all countries lift them in order to regain competitiveness. The case of Brexit is found to be beneficial if the GBP gets a depreciation in comparison to EUR and USD, being the lower the better for United Kingdom airports. This can be synergic with tax cuts per passenger. In case that the current exemption for the excise fuel tax is lifted it is seen that the countries which have it lower would get less harmed. If a country does not cooperate this harms the overall position of other airports, thus the policy position of IATA of zero-taxes is reinforced in order to preserve the benefits of a free aviation marke