In an interview, economist Marc Ivaldi warns that increased taxation on European airlines, proposed in France’s PLF 2025 amendment, may lead to higher ticket prices and vulnerability among local carriers. While he predicts minimal impact on overall travel demand, he notes that hotel prices may be indirectly affected as airlines pass costs to consumers. The French trade organization Fnam believes the tax could harm the domestic airline sector and potentially reduce flight frequency among consumers.
(AOF) – The impending increase in airline taxes is set to render European airlines somewhat more vulnerable. This insight comes from Marc Ivaldi, an esteemed Professor of Economics at TSE and the École des Hautes Études en Sciences Sociales (EHESS), as well as President of the French Association of Transport Economics (Afet). In a recent interview with AOF, he elaborates on the anticipated ramifications of the tax hike proposed in an amendment to the PLF 2025 by the government.
How will the government’s proposed tax impact the airline industry? According to FNAM, the trade association for the aviation sector, this tax is expected to have a disproportionate effect on French-based companies and their employees.
As a result, airfares across Europe are likely to increase. All airlines operating out of Paris will be affected. For instance, Emirates will not compete with Air France or Lufthansa on the Paris-Berlin route; therefore, the tax will lead to elevated ticket prices. Consequently, both Lufthansa and Air France will adjust their fares upward, ultimately passing the burden onto consumers.
What outcomes can we anticipate?
In my view, the overall effect may not be significant. First, as every airline raises prices, the competitive landscape remains unchanged. Second, travel demand continues to be robust. Additionally, the repercussions on CO2 emissions from global aviation are expected to be minimal.
Aside from consumers, who else will bear the tax burden?
Hotels will feel the impact as well, as everything is interconnected. Airlines are likely to increase ticket prices to offset the tax, and to draw visitors to tourist destinations, hotels may refrain from raising their prices as significantly as they would without such a measure. In economy class, passengers could face an additional charge of around 40 euros, a fact that will not go unnoticed by hotels in Bali or Phuket, for example.
What’s the rationale behind this?
When planning a weekend trip to Prague, travelers consider the total expenditure, including hotel and airfare costs. Ultimately, this additional fee is not expected to significantly alter travel volume.
Will airlines experience overall weakness? FNAM predicts that this initiative could lead to the demise of certain segments within French air transport…
It is undoubtedly true that the surtax will increase vulnerability for European airlines. If they also encounter rising fuel prices, their options may be severely limited, potentially placing them in a more disadvantaged position compared to international carriers.
What about the domestic market? Is demand elasticity more pronounced domestically than internationally?
For domestic routes, the tax hike will be largely reflected in the ticket prices. Nevertheless, Air France might not fully pass on the increase for competitive routes like Paris-Marseille. Conversely, on routes such as Paris-Toulouse, where there is virtually no rail competition, ticket prices are expected to rise. Ultimately, this translates into a tax burden on consumers, potentially prompting some to reduce their travel frequency, thus complicating the situation further for Air France.
Interview by Matthieu Richard-Molard.
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