Monday, December 19, 2011

The new airport tax increase

Sitio Futuro Aeropuerto en Palmerola?
I believe we need to put the issue of the increase in the Honduras airport tax into perspective. Certainly I can understand the personal impact of the tax on travel, especially those who travel to do volunteer work which benefits a lot of people in my country. Yet, the tax does not apply only to tourists, missionaries, or volunteers. The departure tax applies to everybody including us Hondurans who travel to and from the country.

Certainly an increase in airport taxes has a negative impact on the flows of persons in and out of a country. The magnitude of this impact will depend on who reactive are people to increases in transportation costs – how elastic the demand for travel is in economic terms. In those situations, where the increase in user fees is paid separately from the ticket, as is the case in Honduras, then we can speculate the impact may be larger.

In those countries, like the USA, where the user fees and taxes are included in the cost of the ticket – that is billed jointly with airline fares- then the impact may be smaller. In the USA, all travel and airport related fees are included in the ticket cost directly under the rubric US Domestic transportation tax, US international arrival and departure tax, Airport facility fees, US customs fee, APHIS custom fee, Federal flight segment tax, and so on.

In fact, for a Honduran travelling to the USA, user fee can be much higher than the $60 charged by Honduras for airport use fees. As an example, for a Honduran travelling to the USA, let’s say traveling from San Pedro Sula with one stop in the USA, and a second domestic destination such as New York, the total fare of $589 would be $518 for the airline fare and $71 in taxes and user fees. The domestic federal segment fee is a fixed percent (around 6.29%) of the domestic share of the ticket, so if somebody pays more than the base fare shown here, taxes will climb rapidly. USA Fees will also climb significantly if the person is travelling to a third country as these fees are billed per segment or entry/exit to the country.

The most important questions are: What will the impact be on overall travel and by user segment? And What is the rationale behind the increase in airport tax cost? Under the newly approved Interairports extension to the airport concession to 10 more years, the construction of the airport in Palmerola seem to be financed by that company to be later recovered through user fees and other sources of income. Yet, this increase seems to be signaling that user fees will start financing the airport construction now, and this to me signals the need to discuss in a more open manner the agreement with Interairports to figure out if this is indeed the best deal for the country. 

Let’s not kid ourselves. All users will have to pay for any new airport and expansion or improvements of the old ones. The challenge at this point is finding the best way to do these investments that will benefit the country in the end and which make economic sense.

Using emotional appeals and arguments seem to be counterproductive for advancing the discussion on the appropriateness of this increase, which should have started from asking if there was any serious study which has examined the potential impact of such measure, compared to the potential benefits of expanding or building a new airport. That is surely the way to conduct serious policy analysis.