In an exclusive interview, Tim Clark, President of Emirates spoke to ABTN about Air Passenger Duty (APD), the recent furore over Export Credit on the financing of aircraft purchases, and how Emirates 25th anniversary this year was achieved from a simple 10-point business plan devised in the mid-80s.
First, Tim Clark's thoughts on APD...
Now that APD has increased once again, what are your thoughts?
"I don’t think APD is something that will go away, I’m afraid. I don’t think this government or the last were minded to do anything other than put the tax on and then increase it. We have tried to point out that the money raised doesn’t go towards sources of environmental improvement, but they’ve admitted that. APD is mainly a source of income generation for the exchequers of the countries that implement it which is why they like it. We have pointed out that the aviation community is penalised where other modes of transport which theoretically are as polluting as aviation are not. None of this seems to make a difference to government. No other business has such a track record of improving itself, but it doesn’t seem to matter how many figures we put in front of governments, it doesn’t seem to make any difference. However hard we try we cannot seem to make the case. There is a strong environmental lobby within this government who believe that this is the right thing to do.
The problem for the industry is that the demand for our services continues to grow. The elasticity of demand with regard to the fares that we charge and the duties placed on the flights would seem to suggest, in the eyes of the government, that we were wrong to say we would all lose business. That’s the harsh reality of it. Today you see many airlines reporting an increase in passengers. So on the one hand we are concerned about the single-minded focus in extracting money from us, and on the other what damage has it done?
The point is that that’s OK, but if you continue to see it as an easy source of low hanging fruit, in the end the tide will turn and people will stop travelling or they’ll lessen the amount of trips they take. As we know there is the case of Holland they did introduce the APD and the business reduction was immediate. So it has a backlash, and it’s not just about airlines, but what goes through the airport. The whole of the supply chain to the aviation sector takes a pasting because everyone is spending less in that supply chain.
Germany is introducing his tax, but in Germany they say once the ETS [Emissions Trading Scheme] comes along they will withdraw it. The British government has not made any statement, so we may well be faced with a double-whammy and I don’t know any other industry or type of business which is subjected to this “special” treatment. It’s not wise. Why? Because the aviation entity is precious to the global economy. I know first-hand how powerful and potent it is in the job that it does, and to continue to go after it and take it down makes no sense. One should be finding ways to help it and get it through the difficulties. It’s clearly an industry which is marginal in its net income, it has difficulty in making returns on the investments it has, it is a very capital investment business but is critical to the global economy, so to continue to flog this one when here are many other sources of income which they could tax, and to suggest that this is anti-pollution measure...
There seems to be the suggestion that a levy might be shared on freight as well. But this is a highly competitive global economy, and when we get through this current economic mess it will bring things to a standstill. People won’t come here because of the level of taxes is so high.
The European countries and the airlines in those countries need the sixth freedom business as much as we do, and they need to make their hubs attractive otherwise they will price themselves out of it. It will have an iterative effect over time over the structural of the aviation community in the UK and Europe. What will the happen is governments will say “There are less people flying so we need less airports, and we certainly don’t need a third runway and we don’t need Gatwick as well.” And where are they going?
The current policy presupposes aviation demand is a cake static in size, but it’s growing all the time. If you exclude the European airlines and airports because of taxation, then it will still occur, this expansion, but without Europe. There are the Gulf hubs, the near Eastern hubs such as Istanbul, and others who are ready to take advantage when the global economy picks up again. We can see there is clear resurgent demand in certain sectors and new demand in others. These are people wishing to go between Asia and America, for instance, or the Middle East and Africa. Traditionally some of this traffic went through Western Europe. Now that was changing anyway, but there was enough for everyone because the global demand for travel was increasing. Now it is picking up again after the economic crisis, and a lot of carriers are getting back to where they were in terms of volumes, and that’s why profits are coming back. But you will kill the golden goose if you’re not careful.
We as Emirates will continue to move back into European markets and deal with the ETS taxes and taxation that governments levy and we will do our best to persuade them that it’s not so wise. If they need to raise this money then they should share the taxation load a little bit, with maritime for instance, other forms of transport, other industries."
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