Report

Aviation taxes and charges

CE Delft was commissioned by the Ministry of Infrastructure and Water Management (Ministerie van Infrastructuur en Waterstaat) to analyse the development of aviation-related taxes, charges, monies and the cost of tradable emission rights in the Netherlands. We have done this for the years 2018 – 2030. This analysis is an update of an earlier study conducted by CE Delft ‘The price of air travel – 2023 edition’. The analysis reveals that taxes and charges on aviation have increased in recent years, including as a result of the introduction of air passenger tax.

In this part of the study, we looked at how airlines are coping with rising taxes and charges. We examined the following two questions:

What part of the taxes/charges are passed on by airlines to passengers and what part of the costs are borne by the airline itself?

How are the costs of the taxes/charges passed on strategically distributed to passengers by airlines?

Based on a review of the literature, we conclude that increases in airline taxes and/or charges are likely to be largely passed on in ticket prices by airlines. Exactly how these higher costs are reflected in individual ticket prices is less clear. Because airlines employ highly dynamic and demand-based pricing strategies, it is difficult to determine how they pass on the cost of higher taxes and charges to individual passengers. However, some general principles can be deduced:

Airlines will start passing on a higher proportion of increases in taxes and charges especially to passengers with low price sensitivity, such as business travellers, business class travellers and passengers on long-haul flights.

Airlines entering both competitive and less competitive markets are likely to pass on a greater proportion of the higher costs to passengers in less competitive markets. This is because they are less likely to lose market share and therefore sales in these markets.