Ameer Randolph
The aviation industry is heavily subsidized, with airlines, airports, and aircraft manufacturers all receiving financial support from governments. These subsidies take various forms, including direct payments, loans, grants, and tax exemptions. One of the most significant subsidies is the exemption from Value Added Tax (VAT) and fuel tax for jet fuel, which results in tens of billions of euros in savings for airlines each year. In the United States, President Biden's budget proposal for 2022 included $7 billion for a sustainable aviation fuel tax credit. While some argue that these subsidies are necessary for economic growth and investment, others criticize them for artificially reducing ticket prices, making air travel seem more attractive than more sustainable alternatives like train travel.
| Characteristics | Values |
|---|---|
| Global fuel subsidy amount for airlines | Tens of billions of euros each year |
| Countries with minimal tax burden for international flights | UK, USA, Canada, Brazil, Mexico |
| Number of European countries that apply taxes on international flights | 7 |
| Amount of tax exemptions for the aviation sector in the UK | €10.4 billion (US$10.7 billion) annually |
| Amount of government subsidies given to the US aviation sector between 1918 and 1998 | $155 billion |
| Amount of direct transfers given to US airlines by the US government after 9/11 | $15 billion |
| Amount of direct transfers given to US airlines by the US government during the pandemic | $54 billion |
| Amount of bailout money received by European airlines during the pandemic | €37 billion |
| Amount of indirect subsidies received by the aviation sector in the EU each year | €26.4 billion |
| Amount of savings for the aviation sector in the EU due to tax breaks on VAT | €13.6 billion |
| Amount of savings for the aviation sector in the EU due to fuel tax breaks | €10.7 billion |
| Amount of money lost every hour by European governments due to untaxed aviation | €4 million |
| Percentage of aviation's CO2 emissions that are not subject to a carbon price | 78% |
| Percentage increase in fuel prices comparing 2024 to 2019 | 53% |
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What You'll Learn
Airlines receive billions in subsidies annually
During the COVID-19 pandemic, the aviation industry received significant financial support from governments. European airlines received over €37 billion in COVID-19 bailout money, demonstrating the industry's privileged access to public funding. Additionally, the US government provided $15 billion in direct transfers to US airlines after 9/11 and $54 billion during the pandemic. These subsidies have been a long-standing practice, with the US aviation sector receiving $155 billion in government subsidies between 1918 and 1998.
Indirect subsidies also play a significant role in the aviation industry's finances. Through tax breaks on VAT and fuel tax, the sector receives billions of euros annually. In the European Union, domestic flights are subject to VAT, while international flights are often exempt, creating an uneven playing field with other modes of transport. This indirect form of subsidy allows airlines to offer attractively priced tickets, masking the true environmental and social costs of flying.
Some countries provide additional subsidies in the form of interest-free loans. For instance, Emirates, Etihad Airways, and Qatar Airways have benefited from state-interest-free loans amounting to dozens of billions of dollars. Moreover, local, regional, or national authorities provide aid to airports, often breaching EU guidelines on state aid. Aircraft manufacturers also receive substantial subsidies, including at the EU and national levels, despite a lack of meaningful CO2 efficiency standards.
The aviation industry's dominance over less emitting modes of transport is attributed to this long history of substantial government subsidies. Despite the climate crisis, the sector continues to receive support, hindering the transition to more sustainable alternatives. The removal of these subsidies is crucial for incentivizing a shift towards more environmentally friendly modes of transportation, such as high-speed rail.
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Jet fuel is often exempt from tax
The aviation industry has long been subsidised by governments, with airlines often operating at a loss. Aviation subsidies are a significant contributor to the industry's growth, with the number of flights increasing from 40 million per year to 80 million between 2003 and 2019. However, this has come at a cost to the environment, with aviation emissions increasing by 33% during the same period.
The exemption of jet fuel from taxation has led to a competitive advantage for the aviation industry over less emitting modes of transport. This has resulted in a barrier to choosing more sustainable alternatives, such as train travel. According to Greenpeace, the price difference between air and rail travel due to subsidies is the main factor preventing a shift towards rail. Additionally, the "polluter pays" principle does not apply to aviation, further exacerbating the issue.
There have been calls from organisations and individuals like Greenpeace and individuals like Doug Parr of Greenpeace UK to end aviation subsidies and tax exemptions for jet fuel. They argue that taxation and ticket prices should reflect the environmental impact of frequent flights, especially in the context of the global climate emergency. By eliminating these subsidies, significant investments can be made in alternative sustainable mobility options, such as high-speed rails and electric aviation, ultimately reducing emissions from the aviation industry.
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Subsidies result in artificially cheap tickets
Subsidies in the aviation sector result in artificially cheap ticket prices, which drives up demand and reduces incentives for more sustainable aviation. Airlines benefit from subsidies in the form of tax exemptions on their fuel and tickets. Unlike motorists across Europe, airlines pay zero duty on their fuel, and plane tickets are mostly exempt from VAT. This lack of taxation on jet fuel and tickets is a longstanding promotion of the International Civil Aviation Organisation (ICAO). While some countries like the UK, the US, and Canada apply a minimal tax burden for international flights, most countries do not. For example, the UK benefits the aviation sector with tax exemptions that amount to €10.4 billion (US$10.7 billion) annually.
In addition to tax exemptions, airlines also receive direct financial support from governments. During the COVID-19 pandemic, airlines in Europe requested a total of €12.8 billion in government support. The US government provided US airlines with direct transfers totalling $15 billion after 9/11 and $54 billion during the pandemic. Furthermore, airlines benefit from subsidies paid for with regional or national taxpayers' money, while railways and train operators are subject to fuel or energy taxes, VAT, and rail tolls in some countries. This encourages citizens to fly rather than take the train, as cheap flight tickets come at a high environmental cost.
Greenpeace has advocated for an end to airline and airport subsidies, proposing the phasing out of tax exemptions for fuel and the introduction of climate tickets to make train travel more affordable. A study for the European Commission supports this idea, illustrating that incrementing ticket prices by 10% through taxes can reduce air traffic by 9-11%. Similarly, the Austrian government introduced a uniform €12 environmental tax on all airline tickets, and the Belgian government implemented an aviation tax ranging from €2 to €10 based on the destination's distance.
While some argue for the elimination of aviation subsidies to reduce air traffic and emissions, others defend their necessity. For example, the Essential Air Service (EAS) is a US government program that subsidizes airlines serving small communities that would otherwise not receive scheduled air service. As of June 1, 2015, 159 communities in the US received EAS subsidies, with critics questioning the program's economic and environmental efficiency. However, it remains politically popular in the cities receiving the subsidized flights.
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Subsidies are a barrier to choosing train travel
Aviation subsidies have long been a subject of debate, with many arguing that they are a significant barrier to the adoption of more sustainable modes of transport, such as train travel. While the aviation industry has received substantial financial support from governments, the same cannot be said for the rail industry, creating an uneven playing field that disincentivizes travellers from choosing trains over planes.
The aviation industry has a history of receiving massive government subsidies, even during times of climate crisis. These subsidies have contributed to the industry's ambition of increasing the number of flights, with air traffic doubling every 15 years until the Covid-19 pandemic. While the aviation sector has consistently operated at a loss, it continues to receive support, with governments handing out $300 billion during the pandemic alone. In contrast, the rail industry, which offers a less emitting mode of transport, receives relatively smaller subsidies in most countries. For example, the United States has relatively small subsidies for passenger rail, while freight rail receives no direct subsidies.
One of the most significant barriers to choosing train travel is the difference in ticket prices between air and rail. A Greenpeace report titled "Ticket prices of planes vs trains – a Europe-wide analysis" found that travelling by train is on average twice as expensive as flying in Europe, with some rail routes costing up to 30 times more than their corresponding flights. This price difference is largely due to the subsidies and tax exemptions that the aviation industry enjoys. Airlines pay neither kerosene tax nor VAT on international flights, resulting in subsidies worth billions of euros annually. Additionally, low-cost airlines use corporate structuring and register in low-tax regions to further reduce their taxation burden and take advantage of subsidies not available to the rail industry.
The impact of these subsidies is significant. Even without considering the elimination of aviation subsidies, a report by Transport & Environment estimates that if major EU cities were connected by high-speed rail, intra-EU air traffic would fall by 25%. By subsidizing the aviation industry, governments are incentivizing behaviours that contribute to climate change and global warming. As Doug Parr, Greenpeace UK's director of policy, states, "Short-haul flights are priced so attractively because pollution is so cheap. Taxation and ticket prices should reflect the climate cost of frequent flights that are fuelling heatwaves across Europe and a global climate emergency."
To address this issue, Greenpeace and other organizations advocate for an end to aviation subsidies and tax exemptions. They propose phasing out tax exemptions for kerosene and implementing a frequent flyer levy to level the playing field between air and rail travel. Additionally, they suggest banning short-haul flights where reasonable rail alternatives exist and redirecting subsidies towards the rail industry to make train travel more affordable and accessible.
In conclusion, aviation subsidies are a significant barrier to choosing train travel. They contribute to an uneven playing field, with the aviation industry receiving substantial financial support while the rail industry lags behind in terms of subsidies and investments. By eliminating aviation subsidies and reallocating resources to the rail industry, governments can incentivize travellers to choose more sustainable modes of transport and help mitigate the impact of climate change.
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Subsidies are provided by governments
The aviation industry is a major beneficiary of government subsidies, which have been estimated to amount to billions of dollars annually. These subsidies come in various forms, including direct payments, tax exemptions, and financial support for expansion. While the specific amount of fuel subsidies is challenging to pinpoint, the industry's overall reliance on government assistance is significant.
Direct subsidies are a key component of government support for the aviation sector. This involves direct payments or transfers of funds from governments to airlines and aviation companies. For instance, the US government provided $15 billion in direct transfers to US airlines after 9/11 and an additional $54 billion during the COVID-19 pandemic. Similarly, the Austrian government offered a support package of 150 million euros in taxpayer grants and 300 million euros in loans to Austrian Airlines during the pandemic.
Tax exemptions are another significant form of subsidy provided by governments to the aviation industry. Airlines often enjoy zero or minimal taxation on jet fuel, with countries like the UK, the US, Canada, Brazil, and Mexico imposing a negligible tax burden on international flights. The exemption from Value Added Tax (VAT) and jet fuel taxes results in substantial financial benefits for airlines. For example, the UK's tax exemptions for the aviation sector amount to €10.4 billion (US$10.7 billion) annually.
In addition to direct subsidies and tax exemptions, governments also offer financial support for the expansion and development of the aviation industry. This includes subsidies for airport infrastructure projects, research and development grants for manufacturers, and loans or loan guarantees for airports and airlines. Local and regional authorities often provide substantial funding to maintain regional airports, even if they are not profitable.
The impact of these subsidies is significant. They contribute to artificially low ticket prices, driving up demand for air travel and reducing incentives for the industry to adopt more sustainable practices. The aviation sector's dominance over less emitting modes of transport, such as rail, is partly attributed to these subsidies. By forgoing taxes and providing financial assistance, governments effectively subsidize the industry, making air travel more affordable than environmentally friendly alternatives.
While the exact proportion of fuel subsidies within the overall aviation subsidies is not readily available, it is clear that fuel tax exemptions play a crucial role in the industry's financial landscape. The absence of fuel taxes allows airlines to offer cheaper tickets, encouraging air travel over less polluting transport options. As a result, there is a growing call from organizations like Greenpeace for governments to phase out these tax exemptions and create a more level playing field for sustainable alternatives.
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Frequently asked questions
Airlines pay little to no tax on fuel. In the US, most states tax jet fuel, but in Europe, airlines pay zero duty on their fuel.
Aviation fuel subsidies contribute to climate change. Aviation emissions increased by 33% from 2013 to 2019 and currently account for 2-3% of global greenhouse gas emissions.
Aviation fuel subsidies can take various forms, such as direct payments, tax breaks, or reduced infrastructure fees. For instance, US airlines received $15 billion in direct transfers after 9/11 and $54 billion during the pandemic.
Instead of subsidizing aviation fuel, governments could invest in sustainable mobility and reduce emissions by boosting high-speed rails (HSR) and developing emission-free electric aviation.
