The British Government has announced it’s looking to reduce the amount of Air Passenger Duty (APD) for domestic travel. This fits with the Government’s aim to “level up” imbalances between the UK’s regions. Better connectivity, by road and rail as well as by air, is seen as an economic enabler.
APD has clearly been a factor in the ups and downs of UK domestic air travel. When domestic APD doubled to £10 each way in 2007, it looks like this caused a significant fall for travel domestic air travel. Domestic passenger numbers fell by 21% between 2006 and 2010.
The APD rise didn’t have a big impact on air travel between Northern Ireland and the rest of the UK. Sea travel is a relatively unattractive alternative to air. But there was a significant shock to air travel between London and the GB (UK mainland) regions; and to routes connecting GB regional airports.
That’s only part of the story. Domestic air travel took a knock as recession hit after 2008. It suffered a bigger drop than air travel to and from the rest of the EU. But air travel from London to the GB regions had already started falling after 2005, so APD wasn’t the only reason.
At the same time as domestic APD doubled, rail was becoming more competitive. In late 2007, Virgin Trains cut journey times and boosted frequency between London, the Midlands, the North West and Scotland. Rail’s market share grew on competing routes, such as between London and Scotland.
Rail has continued to grow its share, even though domestic APD hasn’t increased since 2015. Greater rail frequency and capacity will have influenced that growth, perhaps bolstered by rising environmental consciousness.
Source: CAA airports data; ORR rail statistics
So, will a cut in APD lead to a renaissance in UK domestic air travel?
There’s potential for routes from London to grow in the short term if carriers choose to deploy slots and aircraft. That’s particularly true for low cost carriers which can stimulate most from a £13 cut in fares. Domestic flying will be more attractive while Covid restrictions and worries continue to deter air travellers from flying abroad.
But it will not be a long-term shift. Rail is an attractive alternative on routes to and from London which make up the largest market for domestic air travel. It will become even more competitive when the first phase of HS2 cuts journey times to the north in around ten years’ time.
Inter-regional air connections could benefit significantly from a cut in APD bringing fares down. There’s a big “but” to that. This market grew very fast in the early 2000s, partly because of disruption in the rail industry after the 2000 Hatfield crash and partly as easyJet and Flybe grew. Rail’s reputation recovered. Flybe’s growth turned out to be unsustainable.
A new, lower cost, Flybe’s fortunes would be boosted by an APD cut - as long as it and other UK carriers don’t end up repeating the exuberance of the early 2000s when they added 30% to domestic capacity in four years. That is highly unlikely.
There’s plenty of room for regional traffic growth from the post-Flybe and Covid-induced low, but air traffic within Great Britain isn’t going to reach 20 million annual passengers again.
