The Tax and the Trend

This is one of those German stories that takes some explaining.

Around three years ago....the German environmental folks and the German political folks came to this mutual understanding.  They would create a airline carbon tax.  Short distance trips would run around 7.50 Euro ($8.50 roughly).  The long-haul trips (to the US, China, Japan, etc) would be 42 Euro ($50). 

The general feeling was that it would show Germany more in a positive light for environmental policies.  Fixing the carbon issue?  Well....no scientist has ever shown any data that a minor tax changes anything to carbon or pollution....but facts like this generally don't matter.  People travel....people pay....and the general cost to living escalates.

The airline industry wasn't happy, but they had little choice on the matter.

So days, weeks and months passed.  An interesting episode is unfolding right now.  Chancellor Merkel is preparing to consolidate the new government of Germany, and she wants the carbon tax on airlines tossed.  She says....it has not shown any evidence of fixing anything, and there is a report by the airline industry showing almost half-a-billion in lost revenue for German flights.

What happened to the lost revenue.  This is a curious episode.  The airlines noted the German rules.  Short flight out to Copenhagen, Warsaw, Amsterdam, Lux City, and Brussels (along with dozens of others)....had the 7.50 Euro tax.  So the international airlines realized that using those other hubs created a way around the tax.

You got on a KVM flight in Frankfurt, traveling to Amsterdam where you'd sit for two hours, and then fly onto Philly or Denver.  The long-distance tax was not a player in this game because you weren't using the Frankfurt airport to fly direct to Denver or Philly.

The hubs outside of Germany....quietly added a couple of extra flights each week.  The big airports of Germany (Stuttgart, Frankfurt, Munich, Koln, Hamburg)?  They kinda hit their peak two years ago.  Localized flights to the hubs jumped a small bit.....helping to move the German passengers out of the tax zone.....to a better deal.

Now, I admit.....some folks are picky about this and want absolute direct flights.  So they paid the tax and just accepted the gimmick.  Others?  They were going to waste an extra four to ten hours.....saving forty-odd Euro in taxes.

You can sense here.....there's some problems.

Some countries in Europe have added various fees and carbon-related taxes....so the game is on a continual change of pace.  Some move up.....some move back.

Added to this mess....is the EU tax on carbon being discussed.  The executive committee of the EU....wants an across-the-board carbon tax.  It'd basically force each state in Europe to accept the gimmick tax that they set.  The airline industry would be unable to shift out of this.  The talk indicates that it'll come up in 2014, and probably be debated to a serious extent.  Passage?  Unknown.

Around forty years ago.....most all air travel was expensive, and was not typically the choice of most folks in traveling.  If you had to go to Rome or Spain.....you either drove, went by bus, or by rail.  The countries and airlines eventually realized methods and gimmicks to bring the cost of air-travel down.  Today?  We basically have hit rock bottom on prices, but now facing new gimmicks and methods to push the tickets back up.....where fewer people will utilize the service.

Naive bureaucrats generally write white-papers over tactics and strategy like this.    Few ever understand business concerns, or the people they represent.

So I'll make a simple prediction.  Carbon taxes come up and pass via the EU....so the Chancellor's game is only short-lived.  By 2023, most all long-travel tickets will have a hundred Euro carbon tax tied to them.

Eventually.....someone will figure out that it's cheaper....to drive a bus all the way to Rome, than it is to fly a plane down.  The Bureaucrats will wake up by 2028, and realize that they've now created a new problem.....people wanting to travel more cheaply....thus avoiding the airline industry.

It's like tinkering with a car engine, and never being sure how the timing was originally.....but you just accept a badly running car from that point on.