Business News of 2014-06-03

Domestic airlines warn of fare-hikes

Domestic airlines are despondent and apprehensive about the potential effect of the revised value added tax (VAT) on domestic air travel.

The airlines currently charge a tax of GH¢20 on every ticket price, comprising a GH¢5 airport tax and GH¢15 fuel surcharge.

They contend that a 17.5 percent VAT on tickets, on top of existing taxes, will lead to an increase in air fares and deter people from choosing air transport as an option to travel within the country.

“Maybe the decision to impose VAT on air travel is not well-informed. If there had been consultation, maybe a different way could have been found to raise money for government and at the same time promote domestic air transport,” Mr. Apiigy Afenu, the Chief Operating Officer of Africa World Airlines, the domestic and regional carrier, told the B&FT.

“People were getting used to flying by air, and then all of the sudden it’s like we are going backward. I just feel that if there was enough consultation things would have been different.”

Mr. Eric Antwi, Chief Executive Officer of Starbow, believes that taxing domestic travel is likely to lead to a drop in passengers and negatively affect operators -- who are already hard-hit by the depreciation of the cedi by more than 20 percent between January-May.

“If we charge the 17.5 percent on the price of tickets, the fare will go so high it will deter people from travelling by air,” he said.

“Our expenditure in terms of cedis has almost doubled. The cost of doing business has gone up. We need to get the passengers to be able to break-even.”

He stressed how the industry is seriously affected by the weak cedi, saying: “All our spare-parts are paid for in dollars.

The charges by Ghana Civil Aviation Authority (GCAA) and Ghana Airports Company Limited (GACL), even though they are in cedis, go by the dollar rate so they keep on changing. Our insurance is also paid in dollars”.

Mr. Apiigy added: “We know government needs money, they need to raise revenue -- but here is a situation where you say you want to grow the domestic aviation industry [and] you want this place to be an aviation hub. These things don't happen through excessive taxation; and you will not get that effect if you don't have a viable domestic airline industry.

“The airlines are bleeding. GH¢100 one year ago was worth more than US$50. Today, it’s US$30, but we are charging the same fare when a huge percentage of our costs is in dollars.

Aviation fuel is priced in dollars; they only bill us in cedis. So anytime there is a change in the exchange rate it affects us.”

He added that the new tax, which is not being charged yet, will erode airlines’ ability to raise fares to match rising costs.

The 2014 budget approved by Parliament reviewed and broadened the application of VAT to cover domestic air travel. The new VAT regime has also seen an increase in the rate from 15 percent -- including the National Health Insurance Levy -- to 17.5 percent.

Domestic airlines, unhappy about the development, petitioned the Finance Ministry through the Ministry of Transport and are scheduled to meet the Finance Ministry over the petition.

In 2013, with four airlines -- Antrak, Starbow, Africa World Airlines and Fly540 -- operating flights to Kumasi, Takoradi, Tamale and Sunyani, there was an estimated 40 percent increase in passenger throughput over the 2012 figure of 543,379. But these gains could be eroded with the introduction of the new tax, the airlines warned