Why are airfares so high?

This is the time of year when we find out officially how bad the 09 summer season really was for the travel industry and anyone with property abroad to rent is sorting out their adverts, hopefully taking their first bookings and checking up on airfares. It’s also the time when travel companies announce what their business clients have been up to.

Research from American Express shows that 66% of companies reduced their business travel budgets by at least 31% this year and 61% predict no change in their travel spend with only 20% predicting an increase. This is also supported by research from HRS.com showing only 1 in 5 companies expecting an increase in business travel spend with two thirds of company travel budgets either static or decreased in 2009 versus last year.

Few people realise how important the travel industry is to the economy (outbound travel worth £36.8bn and inbound travel worth £16.3bn in 2008 ) and unfortunately the travel industry has never really lobbied the government effectively.

An increase in airline passenger duty has just come into force this month for all airline travel and is banded according to distance. This duty has significantly increased the taxing of a long haul airfare to £50 this year and £75 next November, and up to £150 per passenger from next November for those in premium class for places such as the Caribbean which are very dependent on tourism.

As the airline industry struggles to survive the recession the government has introduced these taxes to make life even more difficult. The number of visits abroad by UK residents dropped by almost 10 million (14 per cent) to 60.8 million in the year to September 2009 . Inbound travel to the UK was also down by 3 million (9 per cent) to 29.9 million in the same 12 month period and last year visits to the UK fell for the first time in seven years.

Given the general decline in travel I was therefore shocked to see that the cheapest airfare to southern Italy has now more than tripled in price. I used to pay about £50 return for booking ahead but now the cheapest fares are about £180 return. It is clear that airlines have cut back on frequency and increased prices but when you look more closely, more than £61 of the total cost is actually taxes.

These price hikes, together with the strong euro may well deter the many weekend breaks that people used to take and some of you may well decide that one holiday abroad per year is enough and we should all reduce our carbon footprint.

Despite the slump in travel the government is taxing our movements to boost the empty government coffers so watch out for extra taxes on travel. Travel whilst you still can to enjoy some warm weather and to do your business deals, as even higher airline taxes are coming in next November.

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