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Caribbean less competitive due to increasing aviation taxes IATA warns

Caribbean less competitive due to increasing aviation taxes IATA warns

Posted by Shanelle Weir on September 18, 2014

The International Air Transportation Association (IATA) Tuesday urged regional aviation authorities to adhere to the key principles set out by International Civil Aviation Organization.

IATA’s regional vice president for the Americas, Peter Cerda said it is unfortunate that many governments had chosen to ignore the principles, a global issue that was particularly acute in the Caribbean.

Addressing tourism and industry officials gathered here on the occasion of World Aviation Day, Cerda noted that aviation taxes continue to increase the cost of travelling to the Caribbean. He said this made the region less competitive to other destinations.

“Taking the islands as a whole, each dollar of ticket tax could lead to over 40,000 fewer foreign passengers,” he said, adding that US$20million of reduced tourist expenditure meant 1,200 fewer jobs across the region.

“Caribbean countries must therefore consider the aviation industry as a key element for tourism development,” he advised.

The IATA official noted that in terms of charges, two airports in the region, Montego Bay and Kingston, both in Jamaica, recently proposed airport tariff increases of over 100 per cent so as to attain a return of capital of around 20 per cent a year in US dollars.

He said that measures such as these do not encourage or support the development of the industry in the region.

“The regulators must act strongly and swiftly against such big increases. Governments have to foster positive business environments through consultation with the industry and transparency in order to ensure win-win situations for all,” he warned.

Cerda said the issue of taxes and charges in the region transcends the formal breaches of global standards and recommended practices and that the simple truth is that this region is a very expensive place for airlines to do business.

In the Caribbean, tourism and the aviation sector facilitate and support some 140,000 jobs and contribute US$3.12 billion, roughly 7.2 per cent of the Caribbean’s gross domestic product (GDP).

The airline industry is celebrating its 100th anniversary year in the black, according to industry figures released here. Globally, airlines are expected to earn a net profit of US$18 billion in 2014.

Cerda noted that while that might sound impressive, on revenues of US$746 billion, this is equivalent to a net profit margin of 2.4 per cent or US$5.42 per passenger carried.

“Looking only at Latin America and the Caribbean, the airlines in this region are expected to earn $1.1 billion.”This is a profit of US$4.21 per passenger and a net margin of three per cent. We are in a tough and very competitive business,” he added.

The aviation official said fuel expense across the Caribbean is estimated at 14 per cent higher than the world average, adding that this represents about a third of an airline’s operating costs.

He noted that in the case of the Dominican Republic, although fuel charges were recently reduced, tax on international jet fuel still remains high at 6.5 per cent.

“Another example is the Bahamas applying a seven per cent import duty on Jet fuel. Jet fuel supply is an issue in the region, the complexity of the fuel supply and the seasonal demand is costly and difficult, making fuel costs in the region a challenge for airlines.”

In addition, Cerda noted that airports are using the fuel concession fees as a source of revenue and they are still waiting to see any of these monies re-invested in improving fuel facilities.

On the issue of safety, he said that this has been in the spotlight in recent months, with July being an especially sad month for all involved with aviation.

However, Cerda said despite the recent tragedies, flying remains by far the safest mode of transportation.

“Every day, approximately 100,000 flights take to the sky and land without incident. Nonetheless, accidents do happen. Every life lost recommits us to improve on our safety performance.

“It is no secret that safety has been an issue in this region. Even though it is still under performing the global average, performance is improving,” he said.

The IATA official said that the aviation industry has come a long way since the very first flight from St. Petersburg to Tampa 100 years ago, turning this large planet into one small world.

He said through it all, one thing has remained constant: when governments support the conditions for a thriving industry the economic benefits are felt by all.

However Cerda cautioned that for the industry to deliver the most benefits to the citizens in the Caribbean and spur additional tourism and trade, “we need to be able to compete on a level playing field and have the infrastructure capacity needed to grow.”

He said he remains confident that if the Caribbean governments continue to strengthen their partnership with the aviation industry, “we will deliver the unique transformative economic growth only our industry can deliver, making the second century of aviation in this region even more beneficial than the first”.

 

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