February 21, 2007
Yesterday Ryanair paid for full page advertising space in several major UK daily newspapers to introduce us to the idea that Gordon Brown is more of a road side - or rather mid air - robber rather than the UK governments treasurer. The statement can also be read on Ryanair's Webpage.
Interesting, how did Ryanair come to that conclusion? It's all about a suggested increase of the so called air passenger duty (APD). In the last pre-budget report Gordon "greedy" Brown announced that the APD will rise from £5 to £10 for economy-seat passengers taking domestic and European short-haul flights and from £20 to £40 for economy-seat travellers on long-haul flights. Business and first class passengers will face bills of £20 for short-haul flights and £80 for long-haul.
Ryanair: "This is just skyway robbery and will do NOTHING for the environment."
Do they have a point? Indeed it could be that demand for air tickets is - at least partially - very inelastic. Thus whether or not you pay 10 or 20 pounds more on your ticket won't change your mind about travelling. Thus you fly and pollute anyways and the only thing that is different is the treasury's revenue (I made a related point before here). However, if this case applies is an empirical matter. To make progress we should get some data on air travel demand and prices and do a bit of statistical analysis.
But then again...just because time is scarce we can try to answer this question with some economic theory. According to economic theory, firms maximise profits. Assuming that Ryanair is a firm they should only spend money on expensive advertising space if it increases their profits. The trouble is that if Ryanair's claims are true and the tax won't reduce travel then they have nothing worry about because they can fully pass on the cost of the tax to passengers. But then running a costly campaign against it is a waste of money.
Therefore Ryanair should admit either of the following:
Interesting, how did Ryanair come to that conclusion? It's all about a suggested increase of the so called air passenger duty (APD). In the last pre-budget report Gordon "greedy" Brown announced that the APD will rise from £5 to £10 for economy-seat passengers taking domestic and European short-haul flights and from £20 to £40 for economy-seat travellers on long-haul flights. Business and first class passengers will face bills of £20 for short-haul flights and £80 for long-haul.
Ryanair: "This is just skyway robbery and will do NOTHING for the environment."
Do they have a point? Indeed it could be that demand for air tickets is - at least partially - very inelastic. Thus whether or not you pay 10 or 20 pounds more on your ticket won't change your mind about travelling. Thus you fly and pollute anyways and the only thing that is different is the treasury's revenue (I made a related point before here). However, if this case applies is an empirical matter. To make progress we should get some data on air travel demand and prices and do a bit of statistical analysis.
But then again...just because time is scarce we can try to answer this question with some economic theory. According to economic theory, firms maximise profits. Assuming that Ryanair is a firm they should only spend money on expensive advertising space if it increases their profits. The trouble is that if Ryanair's claims are true and the tax won't reduce travel then they have nothing worry about because they can fully pass on the cost of the tax to passengers. But then running a costly campaign against it is a waste of money.
Therefore Ryanair should admit either of the following:
- Gordon is actually doing a little bit of something for the environment, or
- It's actually them that are wasting air traveller's and shareholders money by running pointless campaigns.
Labels: climate change, economics
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