Regulation and taxation Encouraging the right framework
Air transport cannot generate global prosperity and thereby fulfill its role as the “business of freedom” without an efficient and enabling regulatory system and, specifically, fair and reasonable taxation. Regulation should be developed and implemented using smart principles, and excessive or poorly targeted taxation should be avoided.
IATA’s smarter regulations deliver clearly defined, measurable policy objectives in the least burdensome way. A policy framework based on smarter regulation principles positions a country for sustainable aviation growth.
Developments in 2018
Throughout 2018, the industry engaged in coordinated advocacy that resulted in adherence to smarter regulation principles in several countries. The Malaysian Aviation Commission introduced an airports quality service framework that ensures more transparent and objective policy setting and airline involvement in decision-making. And in Brazil, the government introduced guidelines for regulatory quality. ICAO, meanwhile, agreed to work with IATA on implementing good regulatory practices worldwide under the auspices of its “No Country Left Behind” initiative.
Specific regulatory improvements were wide ranging. They spanned the reduction of administrative burdens through better European Union (EU) agency collaboration in EU countries, the adoption of global standards for electronic communications in Brazil, and the introduction of globally harmonized ground-handling regulations in India.
IATA’s launch of a regulatory competitiveness benchmarking toolkit will help to rank the “smartness” of nations’ approaches to regulation across a number of policy areas. This will, in turn, inform industry priorities in 2019 and beyond (see “Regulatory Competitiveness Benchmarking” right).
Consumer protection
Airlines have always worked hard to retain customers in an ultracompetitive marketplace. In an age of social media and citizen journalism, any incidents where standards of customer care are perceived to fall short can rapidly go viral. Airlines, therefore, are highly incentivized to offer good customer service and, if problems occur, to try to put them right.
Airlines have agreed to core principles for passenger rights. When the circumstances of a flight delay or cancellation are within an airline’s control, airlines agree that passengers have the right to care and assistance in the case of delays and rerouting and to refunds or other monetary compensation in the case of cancellations.
Numerous actions were undertaken in 2018. Industry advocacy dissuaded the government of Mexico from applying domestic aviation consumer laws to international carriers. Malaysia was induced to abandon a proposal to cap ticket fares. And further regulations were opposed in South Africa; in the Arab Civil Aviation Commission (ACAC) region of the Middle East;, and, as a result of the FAA Reauthorization Bill, in the United States. In all such cases, IATA partnered with local industry and stakeholders to lobby for smarter regulation principles to be used to inform decision-making. It is particularly vital that governments, regulators, and the flying public understand the balance between protecting consumer rights and providing sustainable air services.
Regulatory Competitiveness Benchmarking
Although the economic benefits of aviation connectivity are well documented, the link to providing governments with policy guidance to maximize those benefits is less well understood. IATA prepared a regulatory competitiveness benchmarking tool in 2018 that is designed to provide governments with an analysis of the principal areas of aviation competitiveness and with the priorities they should focus on to improve their air transport–related competitiveness. The first dozen reports, focused on European nations, are planned for release in 2019.
The five competitiveness benchmarks are
- Passenger facilitation
- Cargo facilitation
- Supply chain management
- Infrastructure
- Smarter regulations
Aviation’s growth
IATA’s 20 Year Passenger Forecast predicts a doubling of passenger demand over the next two decades. Harder to predict are the challenges of that growth and of the then global political environment. IATA, therefore, produced its Future of the Airline Industry 2035 report to assist airlines and policy makers with strategy development. The report has been used by a number of carriers and governments (New Zealand’s, for example) in framing policy and strategy.
Single African Air Transport Market
In January 2018, the Single African Air Transport Market (SAATM) was launched as an initiative of the African Union to implement the principles of the Yamoussoukro Decision and create a single unified air transport market in Africa. The SAATM’s development continued throughout 2018, with industry support at the technical and political levels. As a result, the African Union incorporated and circulated, for example, the entirety of IATA’s smarter regulation principles for use by regional economic organizations in devising the regulatory texts that underpin the SAATM.
Brexit
Throughout 2018, the industry warned the UK government and EU authorities of the implications for air transport of a “no-deal” exit of the UK from the European Union. The concern was that failure of the British parliament to accept an interim Brexit agreement would result in cancelled flights and chaos for the industry and passengers.
Industry advocacy and communication and pragmatic political and regulatory discussions resulted in the EU and UK agreeing to maintain the bulk of the current air services agreement for a period of up to a year, even in the event of a “no-deal” Brexit. In March 2019, the EU granted an extension to the UK’s Brexit process to enable a political consensus to be found. It is unclear when or if Brexit will occur, but the industry remains vigilant to ensure that connectivity is maintained and disruption to passengers and cargo minimized.
Montreal Convention 1999
Montreal Convention 1999 (MC99) is an example of smarter regulation. MC99 sets out rules on airline liability during international carriage that deliver significant benefits for all stakeholders. It ensures protection for passengers and is a prerequisite to cargo transformation initiatives, such as electronic air waybill (e-AWB) and e-freight, that deliver shipments faster and more efficiently than ever. MC99 also ensures that airlines benefit from streamlined claims management and heightened processing regarding their liability for passengers, baggage, and cargo.
During 2018, countries including Ghana, Nepal, Sri Lanka, Uganda, and Vietnam ratified MC99. The total number of parties to MC99 is now 136, representing just over 97% of passenger traffic. The campaign to promote MC99 ratification is effectively complete, though efforts to encourage countries that have not yet ratified MC99 to do so will continue.
Rebalancing the value chain
Original Equipment Manufacturers (OEMs) are crucial not only to the supply but also the maintenance of aviation equipment. But airlines believe that this market has been tipped for much too long in the OEMs’ favor. In July 2018, following 18 months of negotiations, IATA announced an agreement with CFM, the engine manufacturing partnership of GE Aviation and Safran Aircraft Engines, that will ensure beneficial competition in the aftermarket for the maintenance, repair and overhaul of CFM’s and GE’s engines. The agreement includes important new Conduct Policies that will assure airlines of greater freedom to use non-CFM parts and to have maintenance work performed by third-party shops. The agreement demonstrates what can be achieved through pursuing legal options and collaboration to achieve a win-win outcome. IATA is encouraging other participants in the aftermarket for aviation equipment and services to adopt policies similar to those embraced by CFM.
Airline and IATA advocacy regarding slots and taxation
Slots
More than 200 airports worldwide are slot constrained, meaning that they have insufficient capacity to meet demand at all hours of the day. This number is set to rise substantially over the coming decades because airport construction is failing to keep pace with increased demand for aircraft movements. Globally applied rules for the use of what capacity there is at constrained airports will therefore become increasingly important.
IATA’s Worldwide Slots Guidelines is the global standard for the policies, principles, and procedures of airport slot allocation and management. The independence of the slot coordinator and the harmonized, consistent application of the WSG provides for the certainty, sustainability, flexibility, and transparency that the industry requires and that passengers benefit from, including dependable services and an expanding route network.
Comprehensive strategic review of the WSG continued in 2018 in conjunction with Airports Council International (ACI) and the Worldwide Airport Coordinators Association (WWACG). The review also saw the start of a trial of an earlier slot return deadline to assess its feasibility and its benefits for slot planning. Further enhancements to the WSG will be made in 2019 and will include sections on slot performance monitoring and on airport capacity declaration (see map below).
Slots
1. Africa and the Middle East
IATA worked with the authorities in Iran in 2018 to introduce and train stakeholders in the principles of its Worldwide Slot Guidelines and to develop regulations based on the WSG. Progress has stalled, however, because of international sanctions on Iran.
2. India
Inconsistencies in airport slot coordination at airports in India where concession agreements have been awarded have led IATA to work with the Indian Ministry of Civil Aviation to encourage the harmonization of airport slot coordination. IATA is also working with the authorities in India to establish a single, centralized, independent slot coordinator tasked with slot coordination for all Level 2 and Level 3 airports.
3. China
IATA organized a session in March 2019 for airlines to discuss with the Civil Aviation Authority of China (CAAC) the CAAC’s slot allocation regulation published on 1 April 2018. The intent was to foster understanding of the new allocation policy and of capacity management developments ahead of the opening of Beijing’s new airport, Daxing International, in October 2019.
4. The Americas
Brazil followed its engagement with IATA with the decision to align with the WSG and eliminate the harmful links between punctuality and historic slots in Brazilian Slot Regulation Resolution 338.
Colombia worked in 2018 toward the full implementation of its slot regulation. That regulation is fully aligned with the WSG and was issued in 2017 to manage congestion issues at the country’s airports.
Mexico recognizes the need to align with global standards. But the industry continues to await the country’s full implementation of the WSG to benefit the management of congestion at its airports.
5. Europe
Europe remains the world’s most significant region for congestion, accounting for just over 50% of all Level 3 coordinated airports. IATA has worked closely with the European Commission (EC) to see EU Slot Regulation 95/93 applied by all member states and to determine interest in reviewing the EU Slot Regulation.
The EC proposed in September 2018 to end seasonal changes to European daylight savings time from 2019 onwards while leaving member states free to decide whether to permanently apply summer time or winter time beginning in summer 2019. This proposal would have significant negative impact on flight schedules and planning. IATA as a result requested the European Council and Parliament and other stakeholders to either reject the proposal or to extend the period for implementation to permit the industry to adapt and to coordinate its approach.
Taxation
Excessive taxes on aviation affect the ability of air transport to meet demand and impede economic growth. Aviation taxes, moreover, should not be used to subsidize other modes of transportation or to make up budget deficits. IATA and its members are running active campaigns to this effect in numerous countries (see map below).
1. Bali
The Governor of Bali is considering the imposition of a $10 levy per foreign tourist to fund environmental and cultural conservation. No official proposal has been issued, but the idea was widely covered in the media. In an effort to preempt the levy, IATA submitted a protest letter in January 2019.
2. Bangladesh
Without warning, the Bangladeshi government removed air transport from the list of value-added tax (VAT) exemptions in its 2018 budget and levied a 15% VAT on international transport on a prospective basis and retroactive to 2009. IATA and the local Board of Airline Representatives are challenging the government to reverse this decision.
3. Bermuda
A pre-budget report from the Bermuda government suggested imposing a goods and services tax (GST) of 5% on all air tickets. In late January 2019, IATA argued in writing that the GST would contradict international taxation standards if imposed on air services to and from Bermuda and would negatively affect the local economy. The government’s 2019–2020 budget statement of 22 February made no mention of the GST on air tickets.
4. Japan
Despite industry efforts to explain the negative consequences to the Japanese government, a tourism tax of ¥1,000 ($9) per passenger departing on international flights was introduced in January 2019.
5. Malaysia
In November 2018, the government of Malaysia announced its intention to introduce an air passenger departure levy on international passengers effective 1 June 2019 of RM20 or RM40 depending on passenger destination. IATA registered its concerns with the Ministries of Finance, Transport and Tourism, and Arts & Culture. The tax contravenes ICAO principles and negatively affects passenger demand and, consequently, Malaysia’s economy.
6. Netherlands
Airlines and IATA responded to a public consultation on a green aviation tax in the Netherlands. IATA’s protest letter to the Dutch Ministry of Finance notwithstanding, in February the Netherlands presented a paper on aviation taxation to the EU Finance Council. The paper invited EU members to consider a coordinated approach to aviation taxation within the EU and was supported by Belgium and Sweden. In the event the EU-wide tax does not happen, the Netherlands has announced that it will introduce a ticket tax in 2021.
7. Philippines
IATA held constructive discussions with the Philippines’ Tourism Infrastructure and Enterprise Zone Authority to discuss a proposed travel tax for non-Filipino travelers.
8. Spain
IATA was instrumental in obtaining an important clarification from Spain confirming that domestic segments of international air transport were to be exempt from VAT. This ruling is in effect as of July 2018.
9. Sweden
On 12 December 2018, a coalition of Swedish Moderates and Christian Democrats adopted a budget proposal abolishing Sweden’s aviation tax effective 1 July 2019. On 18 January 2019, however, the country’s newly appointed government coalition stated that it would maintain the ticket tax after all.
10. Thailand
The Thai government is considering a mandatory travel insurance levy on foreign visitors. IATA is arguing, however, that this contravenes ICAO principles and that such a levy should be collected by tour operators where tourists engage in high-risk activities.
Unruly passengers
The unruly behavior of a minority of passengers cannot be allowed to compromise flight safety or disturb the journeys of the majority of customers. The industry takes a zero-tolerance approach to disruptive incidents.
In 2017—the latest year of available statistics—there were 8,731 unruly passenger incidents voluntarily reported to IATA. This amounts to 1 incident per 1,053 flights.
The industry strategy for dealing with unruly passengers involves improving the prevention and management of incidents. This includes enhancing the legal deterrent. Montreal Protocol 2014 (MP14) provides legal deterrent powers, but 22 nations must ratify MP14 before it can come into force. In 2018, countries including Ghana, Kazakhstan, Kuwait, Malaysia, Senegal, and Singapore ratified the protocol. Turkey’s ratification in March 2019, brings the total number of parties to MP14 to 19.
Irresponsible alcohol consumption remains one of the top three causes of unruly behavior. In the UK, IATA partnered with Airports Council International (ACI) and the Travel Retail Foundation on a campaign to discourage alcohol consumption at the airport and onboard. The industry also defended its right to serve alcohol responsibly in the face of calls for regulations to restrict this ability. A robust response, for example, was submitted to the UK Home Office Consultation on Airside Licensing at Airports in England and Wales.
Human trafficking
The trade in people is an illegal industry worth $32 billion a year that the United Nations Office of Drugs and Crime estimates involves the trafficking of almost 25 million human beings annually. A significant number of traffickers are suspected of taking advantage of the global air transport network.
The aviation industry is determined to play its part in preventing this and to help law enforcement identify traffickers and their victims. At the 2018 IATA AGM, a resolution was unanimously passed committing airlines to sharing best practice and to training staff to spot instances of human trafficking. The resolution also called for improved reporting protocols to be put in place by governments. Tutorials and guidance materials were published, and awareness raising through the media and social media continued throughout 2018, the focus, together with ACI, being on International Human Trafficking day on 30 July.
Solutions from IATA Consulting
IATA Consulting has comprehensive experience of the full array of aviation-sector business challenges. It draws on IATA’s more than 70 years of service to the airline industry and thus is unrivaled in offering its clients the best solutions. IATA Consulting’s depth and breadth of aviation industry knowledge enables it to help its clients maximize the value of their operating models, realize their growth ambitions, and gain insights that translate into sustainable competitive advantages.
IATA Consulting’s projects in 2018:
