Recent European aviation ticket taxes show no measurable impact on traffic

Despite being a rapidly increasing contributor to greenhouse gas emissions and non-CO₂ effects, the aviation sector has historically benefited from significant tax exemptions. Our prior analysis highlighted the scale of this issue, showing that these tax exemptions cost European governments €34.2 billion in lost revenue in 2022 alone. Some governments responded with ticket taxes to begin correcting this imbalance, in particular in the Netherlands, Germany, the United Kingdom and France. These ticket taxes can be absorbed by the airline's profit margins, if they are big enough, or passed on to the ticket price. To oppose these recent ticket tax increases, the aviation industry claims that they have a negative effect on traffic levels, the economic health of airlines and economic benefits for the regions concerned. Some airline lobbies even claim they can quantify the potential loss of tourists and economic benefits only 8 months after the introduction of the tax.

A measurable effect of taxation on demand could be expected to occur in the long term and with higher taxation levels. According to economic theory, raising ticket taxes should impact air travel: making flights more expensive should dampen demand. Yet, the reality is highly heterogeneous and, as we highlighted previously, ticket prices are far from the only factor that influence traffic levels. Indeed, as economists have emphasised, a number of other factors shape air travel demand, including economic conditions, the maturity of the air transport market, airline commercial strategies and aircraft manufacturers deliveries, geopolitical developments, geographic characteristics, societal shifts or even exceptional events. While statistically significant relationships between traffic levels, GDP and ticket prices can be found at a global level over a 30-year period, such broad elasticity estimates cannot reliably predict responses in individual countries in the short-term. Hence, it does not seem credible to directly link a dampening of traffic with the introduction or a small increase of a national ticket tax after a few months.

In order to bring more clarity to the debate, T&E has attempted to isolate the effect of such recent ticket taxes on traffic levels. We applied an advanced econometric method, called “difference-in-differences” to the recent tax increases in the European countries mentioned above. The study was reviewed by Cambridge Econometrics.

Our analysis found no statistical evidence that recent ticket taxes reduced passenger traffic across the four European case studies. The results lead us to believe that the effect of moderate tax changes are extremely difficult to detect in aggregate passenger data during a volatile post-pandemic recovery period. Across all four countries, estimates cluster around zero or show counterintuitive patterns. The tax changes certainly didn’t substantially affect aviation demand, as often claimed. Several factors explain why we detect no statistical evidence that ticket taxes reduced passenger traffic. Tax size and visibility matter, but even the largest absolute increase in our study (the Dutch €18 increase to all tickets) failed to produce a statistically detectable impact. In France and Germany, tax increases were relatively small (a few euros per ticket, rising to a few tens on long-haul flights). Airline business decisions and market context also shape outcomes. Besides, we must put these findings in context of the methodological constraints of exceptional circumstances: the unprecedented disruption of the COVID pandemic and the subsequent travel rebound. National aviation markets recovered at different speeds for reasons unrelated to taxation. To account for these differences and isolate the ticket tax impact, we employed different statistical methods. However, no statistical model can perfectly isolate every influence. Whether this reflects genuinely negligible behavioural responses or simply the difficulty of measuring small effects amid market turbulence remains an open question, but for practical policy purposes the conclusion is the same: recent European ticket taxes have not measurably curbed air travel demand.

National ticket taxes are the most appropriate tool today for Member States to quickly fill the significant tax gap from which the aviation sector still benefits. Industry tries to keep the myth alive that such taxes could cause a collapse of traffic, but in the four countries analysed, the model we used didn’t find such evidence. If increased, ticket taxes should, at best, help slow down the strong growth of traffic planned by the sector. Such growth is not compatible with the decarbonization of aviation. So ticket taxes play an essential role to both generate necessary revenues to fund clean technologies and make traffic levels compatible with net zero objectives.

T&E recommends governments to pursue ticket tax increases in order to fill the tax gap. On average across Europe, this translates into a ticket tax of €23 for a domestic journey, €51 for an intra-European journey, €259 for an extra-European journey.

Watch the presentation of the results of this study by Giacomo Miele: