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News - 12 August 2006

Air travel challenged by fuel costs, travel taxes and terrorism

A week that began with both Ryanair and Easyjet reporting record profits has ended on a far from optimistic note. Quite apart from the threat of terrorist strikes both airlines were feeling cautious due to the threat of increased fuel costs and travel taxes.

Europe’s top budget airline, Ryanair saw its profits increase by a record 80% to €115.7 million in the three months to June. Passenger numbers increased by 25% to 10.7 million over the same period but the airline was pessimistic about maintaining this level of growth even before the terrorist plot was uncovered.

Similarly, Europe’s number two airline, Easyjet has seen turnover increase to over £1.57 billion against £1.29 billion in the 12 months to July 2005. It carried 8.8 million passengers in the three months to the end of June, 15.8% higher than the 7.6 million in the same 2005 quarter.

Both airlines are bracing themselves for increases in the cost of fuel and the possibility of travel taxes that will ultimately be passed on to customers. Maintaining the low-cost options could become increasingly challenging and if terrorists continue to disrupt traffic flow significant losses will be incurred.

Meanwhile the government has said that higher transport taxes on gas-guzzling cars and aeroplanes may not necessarily be the answer to rising emissions.

Transport minister Stephen Ladyman remains unconvinced that raising taxes will have the desired effect. He has expressed the view that there may be better ways to tackle the problem.

A Government report has suggested that cutting speed limits on roads or improving current enforcement could be a solution. The Sustainable Development Commission suggests increasing the top band of vehicle excise duty to £1,800, with bands decreasing by £300 intervals down to the least-polluting cars, which would be tax-free. It also suggests a return to the fuel tax escalator.

As regards air travel, there is a suggestion that duty should be charged per flight, rather than per passenger and could also be extended to cover air freight. This would create an incentive to fill planes and would benefit the no-frills airlines.

Transport is the only sector of the UK economy where carbon emissions have risen consistently since 1990 so it is a key target for improvement.

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