Norway reviews air passenger tax, but it could be too little too late to stop Widerøe from suspending routes

Norway’s Government recently proposed to make changes to the infamous air passenger tax via its 2019 budget draft. The proposal calls to lower the NOK83 (EUR9) charge on domestic and European flights to NOK75 (EUR8) and raise it on international services to NOK200 (EUR21). The changes are slated to take effect in Apr-2019.


Summary:

  • Norway’s Government recently proposed to make changes to its air passenger tax via its 2019 budget draft;
  • The proposal calls to lower the charge on domestic and European flights and raise it on international services;
  • Lowering the tax on domestic and European flights is considered a step in the right direction, but Scandinavia’s primary regional carrier Widerøe says it is not enough;
  • The carrier said without a greater reduction to the tax it will be forced to downsize its network.

While the lowering of the tax on domestic and European flights is considered a step in the right direction, Scandinavia’s primary regional carrier Widerøe believes the decrease is not big enough. Widerøe stated: “The differentiation of airline tax is far from sufficient to secure the conditions necessary for the further development of the commercial short-distance network in the Norwegian districts”.

The carrier said without a greater reduction to the tax it will be forced to downsize its network, stating: “We will now review our offers and consider which routes should be reduced and which destinations will be cut”. Underperforming routes to small regional airports in Scandinavia will be the first on the chopping block.

MAP – The Widerøe network spreads the length and breadth of Norway and also extends into Denmark, Germany, Sweden and the United KingdomSource: CAPA – Centre for Aviation and OAG (data: w/c 08-Oct-2018)

The air passenger tax has taken a significant toll on the regional carrier’s earnings since its introduction in Jun-2016. The carrier’s profit before tax decreased from NOK335 million (EUR35 million) in 2016 to NOK195 million (EUR21 million) in 2017, a 42% year-on-year decrease. Widerøe’s CEO Stein Nilsen attributed the profit decline to the full year effect passenger tax, stating: “The new air passenger tax is an important explanation. We have not managed to pass the bill to passengers, and several of the regional routes have become unprofitable”.

The carrier has already been forced to make network changes due to the tax. Earlier in 2018, 44 flights to Lofoten and Vesterålen were suspended.

Widerøe anticipates the NOK8 (EUR1) tax reduction will not translate to a significant improvement in profitability, only saving the carrier a mere NOK11 million (EUR1.1 million) in fees per annum. The airline estimates the passenger fee, in combination with the increased carbon tax and increased VAT on domestic services, will result in a NOK200 million (EUR21 million) increase in fees per annum, compared to 2015.

Norwegian and SAS also responded to the proposed changes to the tax. SAS communications manager Knut-Morten Johansen agrees with Widerøe that the fee remains too high, stating: “It’s a step in the right direction, but the fee is still too high to shield the route offering in Norway. In addition, we miss seeing a single penny from the fee being earmarked for environmental purposes”.

Norwegian communications manager Lasse Sandaker-Nielsen takes a slightly different view, commenting: “It’s positive that the government reduces taxes on flights in Europe but the increase on international flights is bad news for Norway’s aviation industry, tourism and business”. Mr Sandaker-Nielsen views the tax increase on international flights as threat to US tourism to Norway, which has increased significantly over the last five years.

Taxes of any kind are bad news for airlines and passengers alike. While the slight NOK8 (EUR1) reduction on domestic and European routes is a positive step, it is unlikely to relieve economic pressure on Widerøe’s operations or incentivise more passengers to fly. The real victims of Norway’s air passenger tax however are Scandinavia’s small, regional communities which depend on air service for tourism and business. These communities need the services regional carriers such as Widerøe provide to keep their economies alive and healthy. Without a significant reduction to the passenger tax, these communities are at risk of losing the air service they depend on.