Virgin Atlantic Labels UK Budget as “Tax on Growth”

Virgin Atlantic CEO Shai Weiss criticized the U.K. Labour government’s October budget on Monday, describing it as a “tax on growth” due to increased rates imposed on the aviation industry. Speaking at the Airlines 2024 conference in London, Weiss highlighted the financial strain the new Air Passenger Duty (APD) places on airlines, arguing that both the Labour and previous Conservative administrations have failed to recognize aviation as a strategic asset for the U.K.

“We’ve seen an increase in Air Passenger Duty,” Weiss stated. APD is a tax levied on airlines and aircraft operators based on the number of passengers, with rates varying by distance traveled and cabin class. Typically, this cost is passed on to consumers through higher ticket prices. Weiss emphasized that while addressing the budget deficit is necessary, it is equally important to acknowledge aviation’s contribution to the broader U.K. economy.

Under the new Labour policy, APD will rise on short-haul economy class tickets from £13 to £15 starting April 2026. For other cabin classes, the rate will increase from £28 to £32. Additionally, for journeys between 2,001 and 5,500 miles, APD will escalate to £102 from £90 in economy and £244 from £216 in higher classes. The U.K. Treasury explains that these increases align APD rates with the Retail Price Index and account for inflation not previously included in budgets. Treasury forecasts suggest that APD revenue will surge from approximately £100 million to £500 million annually, partly due to a 50% rate on private jet passengers.

Aviation taxes like APD are becoming popular for governments aiming to boost revenue while also pursuing carbon emission reduction targets. However, the industry contends that airlines already operate on thin margins and that higher airfares negatively impact the economy by discouraging investment in areas such as sustainable jet fuels.

The U.K. Transport Minister Louise Haigh was also present at the conference, underscoring the government’s stance on the budget. Labour’s recent electoral victory hinged on promises of regulatory reform and pro-growth policies, but many British corporations and trade groups have reacted unfavorably to the budget’s £40 billion ($50.2 billion) in business-oriented tax hikes.

Finance Minister Rachel Reeves defended the budget, asserting that the measures are essential to address a £22 billion fiscal deficit and stabilize the country’s public finances. A Treasury spokesperson told CNBC, “With our public services crumbling and an inherited £22 billion fiscal black hole, we had to make difficult choices to fix the foundations of the country and restore desperately needed economic stability to allow businesses to thrive.” The spokesperson added that more than half of employers will see a reduction or no change in their National Insurance bills, with additional funds allocated to the NHS and protections for workers’ paychecks from higher taxes.

Rain Newton-Smith, head of the Confederation of British Industry, stated that businesses are delaying expansion and investment decisions following the budget announcement and recent labor market reforms. The rise in employer National Insurance contributions and the Employment Rights Bill have imposed a “heavy burden on business,” Newton-Smith noted.

Amidst these economic challenges, Virgin Atlantic faces additional operational hurdles. Weiss mentioned ongoing issues with Rolls-Royce Trent 1000 engines, which have affected many carriers operating Boeing’s B787. These engine problems have delayed Virgin Atlantic’s flight launches to Accra and the resumption of its Tel Aviv route until winter 2025-2026. Despite these setbacks and broader industry supply chain issues reducing passenger capacity, Weiss remains optimistic about maintaining relatively stable pricing into next year.

Virgin Atlantic reported a £139 million ($175 million) loss in 2023 despite achieving record revenues of £3.1 billion. The airline is 49% owned by U.S. carrier Delta and 51% by Richard Branson’s Virgin Group. Weiss expressed hope for a return to profitability in 2024 as pandemic-era challenges diminish.

The combined impact of the increased APD and operational issues presents significant challenges for Virgin Atlantic and the wider U.K. aviation sector. As airlines navigate these financial pressures, the future of aviation growth in the U.K. remains uncertain amidst evolving economic policies and industry-specific obstacles.

Sources: AirGuide Business airguide.info, bing.com, cnbc.com