Tuesday, February 14, 2012

Government Policy and the Airlines

Mr. Tony Tyler, IATA's DG and CEO, in an address in Singapore urged governments to use airlines as strategic assets (read full story here). He cited two examples of how government policy towards their airlines affects their contribution to the country's overall economy, Singapore and India. Singapore support of aviation as a strategic industry contributed 119,000 jobs and a 5.4% contribution to GDP. While India's policy of high taxes, blind support for Air India is driving the airline industry towards a potential meltdown and a contribution to GDP of no more than 0.5%. Another example is Emirates in Dubai where the airline contributes 22% to GDP and 19% of the total employment (around 250,000 jobs) and is profitable.

Airlines have always been an instrument of government economic policy and national security especially in smaller countries. Government owned airlines were allowed operational losses because their contribution to the GDP in terms of employment, investment and tourism related businesses far outweighed any losses they may have incurred. The other issue is the ability to stay connected when so called bad times hit and most international airlines stopped operating; something countries like Egypt, Tunis and Jordan experienced and are still experiencing during the Arab Spring, regardless of how good or bad the security situation was.

Of course, aviation policy is not about state owned airlines only. It is about a policy framework for aviation that includes an open sky regime that promotes and facilitates bilateral and multilateral traffic rights similar to what Singapore, UAE and Jordan have and does not institute protectionist policies. It also includes a tax regime that does not view aviation as a luxury product and tax it accordingly, but as a vital component of the economy. There are several countries that have imposed taxes and fees that are rendering their industry uncompetitive like Germany, India and Canada.

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