"An airline is like a fat cow- everyone is milking it." Like most airline executives, Franco Mancassola of UK-based Debonair believes air carriers are overcharged and overtaxed. Many airlines claim passenger and user fees are on the increase, and yet, they say, improvements in infrastructure, services and air traffic control remain slow to materialize.

International departure taxes, embarkation taxes, international air transport taxes, airport security taxes, passenger terminal fees, foreign travel taxes, immigration taxes, passenger facility charges, international passenger service charges; the list is endless. In 1992 the International Air Transport Association cataloged a little under 700 different taxes and charges: the organization says the total now exceeds the 1,000 mark.

"There has been an escalation on charges since the middle of 1996," states Geoff Lipman of the World Travel & Tourism Council (WTTC), adding that most taxes have fallen on the international traveler.

According to the WTTC 'consumer fees' have been going up worldwide. Since 1994 'air passenger charges' have gone up in 46 of the 52 destinations surveyed by the organizations latest 'tax barometer', and have doubled in 13 cities. Only one city, Helsinki, reduced its tax on travel. Eleven cities in Europe increased passenger charges; four of the increases were 'security' related and the rest charged on international departures. Eleven passenger charges were raised in Asia and several US cities raised departure, arrival and head taxes.

One of the more controversial tax hikes in Europe was in the UK. Doubled last November to £20 ($33), the UK's air passenger duty (APD) is levied on all international air travel there.

The UK's Council for Travel and Tourism estimates that every year since the APD's introduction in 1994, over a quarter of a million tourists have abandoned the country for other destinations. And according to Manchester Airport, the doubling of the duty will have a 'significant' effect on outbound travel.

Collected by the airline and incorporated into the price of the ticket, the APD has affected the low-cost carriers the most and is therefore seen as an impediment to competition.

The APD represents a 35 percent levy on EasyJet's lowest one-way scheduled fare, says chairman Stelios Haji-Ioannou. But as a flat rate charge, it accounts for a tiny fraction of the higher tariffs charged by national carriers like British Airways, he says. EasyJet wants the tax abolished and says that, to avoid anti-competitive effects, a tax should be a percentage of the ticket price.

But BA is not particularly happy with the tax either. Ted Hylton, BA's indirect taxes manager, points out that 40 percent of the APD is paid by foreign travelers, of whom there are fewer each year. In addition, the airline says it is losing a six-figure sum from travelers departing from Andean countries, where it is illegal to collect foreign taxes. "We don't intercept passengers at Gatwick because it would cost more to run such a system than the money we would collect," explains Hylton.

However, while British Airways does not deny that the APD hits budget air carriers the hardest, it argues a tax proportional to airfare is contrary to European Union taxation rules.

The only other European countries known to impose taxes which, like the APD, go straight into the general treasury are Denmark and Norway. Outside the EU, Mexico and Trinidad are cited. There are also an enormous number of hypothecated taxes which are earmarked for specific uses. Yet airlines often seem unsure that the funds collected end up where they should.

So-called 'environmental' taxes are a good example. "Some are called 'environmental' taxes, but they don't go towards dealing with environmental problems," says Dave Henderson, manager of information at the Association of European Airlines. Marcel Pisters of the Association of European Charter Airlines concurs: "In many cases there is all sorts of taxation in hidden form. There has been a proliferation of emission-related charges."

Switzerland was the first European country to introduce an emission tax. Kicking in at Zurich airport last September, it does not raise any worries for national carrier Swissair, however. The Swiss tax is 'cost neutral', says a Swissair spokesman, because it penalizes airlines which have older fleets. "We have a young fleet with low emissions and low noise," he adds.

In general the money collected could be used to provide power for docked airplanes which would allow planes to turn off their auxiliary power units while at the gate, says Swissair. Zurich airport already has such facilities but the national carrier says other improvements could be made, such as dealing with the environmental problems resulting from the use of de-icing fluids.

In January the French authorities doubled a three-year old noise tax which is now due to remain in place until 1999. The tax averages out at around 1 French franc per Air France passenger carried and the money helps to pay for sound proofing for local residents, says an airline source. Unfortunately, making less noise means airlines are likely to cause more pollution: "Year after year we try to reduce the noise of our engines. The problem is that when you reduce the noise you also increase nitrogen oxide and carbon monoxide emissions," states the source.

Sources close to the French national carrier say its indirect taxes of FFr 1.5 billion (US$ 245 million) and charges of FFr 4.3 billion are now 10 percent of operating costs, compared with 8 percent a few years ago. The airline will also have to face a 40 percent increase in a security and safety tax later this year. Another source claims only a minority of these funds, administered by the French civil aviation authority, are paying for security or safety while the rest is being used to balance the authority's budget.

France is not the only place where the security bill is rising. 'Security' taxes are now imposed in Madrid and Barcelona, while Amsterdam and Zurich have increased similar charges. Many in the industry continue to argue that these expenses should be covered by general taxation, but to little avail.

Meanwhile the abolition of duty-free, set for 1999, threatens to be another bombshell for the airline industry. Despite a concerted campaign by airlines, ferries and airports, the European Commission appears to be in no mood to reverse its decision to abolish this impediment to the European internal market.

Carriers operating in the EU earned $1 billion- or 14 percent of the EU's total duty- free sales- from this tax concession in 1996, according to the European Travel Research Foundation (ETRF). The foundation estimates that the same carriers will lose some 57 percent of this revenue after the abolition of duty-free.

To compound matters, airports, which made $3.5 billion in 1996 from duty-free sales and stand to lose 55 percent of this, are threatening a massive increase in the fees they charge airlines. They claim that without duty-free sales the demands on them to modernize and expand could only be met in some cases with a 60 percent rise in charges.

The International Air Carriers Association projects that a combination of in-flight sales losses and higher airport charges will force charter carriers to raise their fares by 3.5 and 5 percent and that this will lead to an equivalent fall in traffic.

While the larger airlines and those with a large proportion of business traffic seem less vocal than lower cost carriers over the issue of revenue loss, they are united in their fear of a resulting rise in airport charges.

Debonair's Mancassola believes the duty-free abolition is just another excuse for airports to overcharge their users. "Airports are missing the opportunity of being a partner with airlines instead of a landlord. Why do airports make money on duty-free? Because airlines bring in the passengers." It's a case of "biting the hand that feeds you," says Mancassola, who adds that, being captive customers, passengers are more likely to buy goods in airports with or without the tax. "Anyway, a pair of shoes would probably be more expensive in the high street that in an airport where real estate is better distributed," he says.

CUTTHROAT COMPETITION

Airlines, particularly privately owned ones, are convinced costs can be driven down, but only if airports are liberalized. They point to a recent study by Cranfield College of Aeronautics, and sponsored by the AEA. This reveals that the top four most expensive handling services at European airports are monopolies, run by either national carriers or the airports themselves. In the US, where there is cutthroat competition in this area, and Asia, where a certain degree of competition exists, handling costs tend to be lower.

Airlines feel particularly bitter about high airport charges because, despite their efforts at cost-cutting, they lag far behind airports in the profits rating: European airports' profit margins are around 10 percent compared with just 1-2 percent for airlines. Karl-Heinz Neumeister, director general of Brussels-based AEA, says it is about time airlines stopped financing services that have yet to materialize: "We want banks to finance expansion at airports," he says.

Although Asia and the US are said to have much lower airport charges than in Europe, there are some notable exceptions. At Hong Kong's new Chek Lap Kok airport, set to open in July, the original proposal to raise charges by 300-400 percent has been revised down to a mere 40 percent. Yusri Ithnin, financial advisor to Singapore Airlines, claims that this new airport's charges and others will have a "considerable effect" on future operating expenses. Currently landing, parking and overflying charges account for 6.2 percent of SIA's operating expenditure, he adds.

Carriers in the region are also campaigning to reduce overflight fees in the Philippines and, further afield, Canadian overflight fees, according to the Association of Asia Pacific Airlines. Other locations in Asia which have significantly raised taxes on air travel include Beijing, Bombay, Delhi, Jakarta, Manila and Taipei.

In the US a campaign last year by the country's major airlines to shift a larger portion of the cost of funding the Federal Aviation Administration onto the budget airlines- via an air travel user charge on a per passenger basis instead of the ticket tax- badly backfired. Now the whole industry has been saddled with a massively inflated tax bill.

The current 10 percent tax on domestic flights will be reduced to 7.5 percent of the ticket price. But instead of a $6 departure tax on international flights, flyers will in future pay $24, split equally between departures and arrivals. In addition, passengers will be hit by a new departure tax starting at $1 per segment on 1 October this year and rising to $3 on 1 January 2003.

Frequent flyer programs are also likely to be taxed, at a rate of 7.5 percent on companies buying air miles from airlines. According to Randy Peterson of Frequent Flyer magazine, this is unlikely to be approved by US legislators before the end of the year. It has provoked a certain amount of panic among frequent flyer purchasers, he says, but really it is "not a big deal," since the additional costs passed onto travelers will be small.

Nevertheless the sum total of these tax changes is set to increase the cost of traveling by air by as much as $3 billion over the next five years, according to estimates by the WTTC. Part of the problem is that many governments still favor other transport modes, particularly rail, over air travel. Many airlines complain that the European Commission, whose 'integrated' transport strategy centers on a pan-continental railway network, wrongly considers rail as the only ecologically and economically sound solution to Europe's congested roads. As a result it does not pay enough attention to the airline industry's infrastructure needs, they say. In addition, air travel is still considered a luxury and as such a legitimate target for government taxation.

But more than anything else, air transport taxation is a matter of political expediency. The politicians need to raise money somehow, and according to Rick Miller, an airline industry researcher at Michigan State University, taxing a non-voting constituency, especially international travelers, remains a "very attractive proposition."

"Governments don't particularly want to screw the airline industry," says Lipman of the WTTC. "I think governments have introduced these various taxes in a copy cat fashion." He says most governments are under increasing pressure to balance their budgets and, with the wide variety of prices now quoted as a result of the liberalization process and the added advantage that the tax is hidden in the fare, it is easy to charge passengers without taking the blame for it.

Lipman's argument, however, is that air travel should be recognized as a vital contributor to national economies. "It needs to be appreciated how tourism and travel works its way through the economy. If they treated the foreign visitor as an export in the same way as a good leaving the country, they wouldn't be asking how to tax him but how to find ways of encouraging him."

But as national governments continue to boost their treasuries with airline taxes, it is doubtful that many will be listening.