Taxes, Fees and Charges

AFRAA position on Taxes, Fees, and Charges for Better Skies in Africa

1.      Introduction Africa Air Transport Market

Despite high growth rates, the industry economists forecast Africa share to be less than 5% of the world air transport market by 2030, though its population represents 16% of the world currently. The forty-year historical data and the ten-year future forecast trends portray the marginalization of Africa’s air transport market.

2.    African Air Transport Marginalization Challenges

As a result of expensive fuel prices, prohibitive airport fees, excessive air navigation charges, African airlines’ available seat-kilometer costs are much higher than the industry average. African air carriers operate their flights with seat-load-factors much lower than the industry average. Yet, African airlines have been focusing on their market shares. To that end, their charged-fares yielding lower revenue per pax-kilometer against those of European air carriers on comparable distance city-pairs. Consequently, African airlines’ bottom lines continue to be negative since 2009.

The applicable taxes, fees, and charges to the passengers wipe off all efforts of the operators to reduce the fares. Indeed, the total travel ticket prices become double compared to Europe.  The revenue per capita in Africa is lower than the same European indicator. Thus, a middle-class European can travel 26.4 times a year while his African counterpart can undertake only 1.1 trips yearly, based on his purchasing power.

Currently, airlines based outside Africa took advantage and provided air services though hubs outside Africa to one out of three city-pairs within the Continent.

3.    AFRAA Regional Approach on Taxes, Fees, and Charges for better skies

Africa must overcome the air transport market marginalization. The stakeholders need to work together to recover and even increase Africa’s market shares. The paradigm change is possible; air transport must grow at faster rates (double-digit rates). Therefore, the costs of air travel must register significant falls (by twofold) while the middle-class citizens in Africa achieve a significant increase in disposable income.

African regulators ought to reduce the pressures of the taxes, fees, and charges on the air operators on the one hand and, on the traveling public, on the other hand.

The industrialization will transform commodities in goods, which will intensify trade among the African States; hence, the implementation of the AfCFTA will not only increase the size of the middle class but raise the purchasing power of African citizens.

Therefore, AFRAA suggests a four-pillar approach to ensure that the reduction of taxes, fees, and charges contribute in the required double-digit growth rate of air transport market in Africa:

  • The implementation of the ICAO required consultation process before any new introduction of taxes, fees, and charges;
  • The reduction of taxes, fees, and charges applicable to air operators and the passengers;
  • The participation of the private sectors in airport services must result in the reduction of the charges compared to those of the relevant public service providers and;
  • The promotion of AfCFTA for the transformation, industrialization, and trade with the view of increasing the disposable income of Africa’s middle-class.

Pillar 1: Implementation of ICAO required consultation

Because taxes, fees, and charges affect the costs of air transport negatively, ICAO requires a consultation process before the introduction of these charges.

Benchmarking against other regions confirms that the business environment costs are high. These excessive expenses must be reduced through consultation to contribute to reversing the marginalization of the air transport market in Africa.

Pillar 2: Reduction of Taxes, Fees, and Charges Applicable to Air Operators and Passengers

Fuel is the most important operating cost of flight operations. Taxes inflate fuel costs at about 35% more in Africa compared to the rest of the world. High fuel costs and other expensive charges drive down the competitiveness of African air carriers. High taxes, fees, and charges applicable to the traveling public have made unaffordable the costs of air travel in Africa.

Pillar 3: Participation of the Private Sector as Provider in Airport Services

In recent years, States are calling on the private sector to invest in infrastructure development and provide operational airport services. As the private sector focus on fast and high return on investment, States must ensure that airport user charges decrease and reflect the efficiency of private enterprises. Such practices induce the reduction of flight operation costs and air ticket prices through lower charges.

Pillar 4: Promotion of the implementation of the AfCFTA

It is strategically sound that aviation stakeholders promote the implementation of AfCFTA to support the growth of the industry through the need for new connection requirements derived from trade development. The implementation of AfCFTA has got positive impacts on the size of the middle-class and its purchase power.

4.    Conclusion

The forty-year historical trends and the ten-year future forecast together are leading towards the marginalization of Africa’s air transport market. Currently, foreign air carriers have become air service providers for one out of three intra-Africa city-pairs through connection outside the Continent.

Air traffic must be growing at double-digit rates to address the marginalization issues of air transport in Africa. To that end, the costs of air travel must drop by twofold while the disposable income increases for the African traveling public. Applicable taxes, fees, and charges negatively affect flight operating costs and air travel price affordability.

Therefore, it is AFRAA’s view that aviation stakeholders coordinate efforts to reduce taxes, fees, and charges while promoting the implementation of the AfCFTA along four pillars:

  • Implementation of the ICAO required consultation process before any new introduction of taxes, fees, and charges;
  • Reduction of taxes, fees, and charges applicable to air operators and passengers;
  • The participation of the private sectors in airport services must result in the reduction of the charges compared to those of the relevant public service providers and;
  • Promotion of AfCFTA for transformation, industrialization, and trade.
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