Air Passenger Duty - Research Paper Example

 Air Passenger Duty Research Specification for a Research Project Contents 1. Background/Introduction 2. Aims/Objectives and/or The Requirements 3. Methodology 4. Key Sources of Information 5. Product 6. Costs 7. Timetable/Milestones 8 Changes to Specification 9 Conditions of Contract for Research Services RESEARCH SPECIFICATION TEMPLATE Air Passenger Duty Research CONTRACT No A-456/2011/2012 1 Introduction Taxes are one of the commonest ways of generating income for any functioning jurisdiction or constituency such as a town, city, metropolis or nation as a whole. Commonly, taxes are imposed with legal and legislative backing from central government to ensure that the imposition of specific taxes is in line with the larger constitutional provisions of the land1. Indeed, taxes come in different forms and for different purposes. Commonly, new taxes are introduced when it is identified that a specific group of citizens are making earnings without giving realistic portion of their earnings back to society for development. There could also be specific introduction of taxes at times when the government is in need of raising a specified amount of money within a limited time frame. In Wales, there are similar taxes that are introduced to different sectors and departments of the economy as a way of raising sufficient capital for government business. One of such taxes that are currently in force is the air passenger duty. In this tender, the existing air passenger duty is critically researched into as a way and means of finding out its impact on the Welsh economy and the Cardiff Airport to be specific. This means that the tender is going to be undertaken as case study with specific emphasis on the Cardiff Airport but with extended implication to the Welsh economy. As part of the tender, areas and aspects of air passenger duty such as the mode of operation of the duty shall be analysed. What is more, the current allocation of duties and to specific air passengers and the propriety of these duty allotments shall also be emphasised. More specifically, there shall be recommendations as to whether these duties need to be reviewed downwards or upwards and how any of these would impact the wellbeing of the Cardiff Airport. It is expected that at the end of the paper, there shall be a definitive decision taken by the Welsh Minister on the way forward, as far as air passenger duty is concerned. 2 Background The air passenger duty could be said to be the brainchild of the Holtham Commission, which in 2010 came out with a recommendation to the Welsh Government on the need to make significant adjustments to its existing tax policies, especially those on minor taxes2. As part of the minor taxes to be considered was the air passenger duty. But since its imposition, the air passenger duty has come under intense public, academic and professional debate as to whether or not everything is being done right with the tax in terms of the allotment of duties and whether or not the air passenger duty should continue to exist at all. Currently, the air passenger duty is charged as a levy on a group of passengers tagged as chargeable passengers, using a group of aircraft tagged as chargeable aircraft from a United Kingdom airport3. Even though the passenger may be the eventual payer of the levy, the duty is actually charged to the owner of the aircraft and thus the operator of the aircraft becomes payable to the Welsh Government. The Welsh Government does not therefore have any direct interactions with the passenger as far as the levies are concerned and it will be noted that even with the operator of the aircraft, the charge of the air passenger duty takes effect once the passenger aircraft first becomes airborne4. Currently, there are no fixed rates of duties or levies cutting across all chargeable aircrafts and for chargeable passengers. Rather, there are variations in the charges depending on the destination of the chargeable passenger. In the tables below, there are outlines of the major charges that are imposed on chargeable aircrafts to various destinations from United Kingdom per flight take off. Old Rate Previous Rate February 2007 to October 2009 European destination; lowest class £5 £10 European destinations, other classes £10 £20 Other destinations, lowest class £20 £40 Other destinations, other classes £40 £80 By interpretation of international law, the use of European destination refers to all regions or areas that come under the European Economic Area, as well as other countries in Europe, whether or not they are part of the European Economic Area5. The table below also gives rates for the new levies New Rate Effective Nov. 2009 Effective Nov. 2010 Effective April 2012 Effective April 2013 Band A (0 – 2000 miles) £11 £12 £13 £13 Band B (2001 - 4000 miles) £45 £60 £65 £67 Band C (4001 - 6000 miles) £50 £75 £81 £83 Band D (over 6000 miles) £55 £85 £92 £94 By interpretation, it would be noted that the authorities saw the need to be more definitive on the destinations and so instead of using flight types and the European region as a measure, specific allocation of flight distance was measured in the new rates. It is worth mentioning however that the air passenger duty is currently non-devolved, meaning that not all countries within the United Kingdom are forcibly obliged to be implementers of the law. For example it will be noted that in the Scotland and Wales for example, the United Kingdom government is still undertaking feasibility study to ascertain the likely effects that devolution would have on these countries; and thus the current study that is being undertaken. As part of the feasibility study and review that is taking place is the consideration on the constitutional and financial arrangements in Wales that would enhance or otherwise detract the successful implementation of the duty6. It is therefore expected that by the close of the roles assigned to the commission in charge, known as the Silk Commission, there will be a clearly statement on how financial accountability can be improved when the duty is brought into enforcement in Wales. Even more, the package of powers that give a constitutional right for the implementation of the duty shall adequately be considered to ensure that the provisions of the law does not conflict with any existing State legislations7. It will be based on the findings that further action will be taken on the devolution of the air passenger duty. But even ahead of that, it is academically mandated that there will be public research to guide the course of the commission and thus the present tender. As pending is made of the final outcome of the commission’s work, it is important that discussions begin on how the air passenger duty will affect the larger Welsh economy and particularly the air transport industry. It will be noted that it was not long that the global economy regained consciousness from a global economic meltdown. To this end, several governments have become radical in terms of macro and micro economic policies that will ensure and assure rapid growth and development from where the recession left their countries. The air passenger duty may therefore very well be that little secret for the Welsh Government. But this cannot be a conclusive statement if it is not backed by empirical study and research. At least, there is evidence to suggest that Wales is one of the busiest locations when it comes to aircraft take off8. His has generally been so because of the traditional hospitality associated with the country and the fact that the country has become a stop point for most tourists who visit the United Kingdom. The country also boasts of a competitive advantage of being regarded as a very peaceful destination for visitors and business personnel who would want a shine away from the normal busy schedules of a day in the United Kingdom. To this end, using any form of air passenger related levies to raise income for the State may have a very large target base but literature has also advised that when there is much pressure on the passenger in terms of air fare, air transport patronage could actually reduce9. With Cardiff Airport being the only international airport in Wales, it is important to make a case for the airport in terms of how the air passenger duty may affect the airport in its operations and business activity. The Cardiff Airport serves areas in the regions of West, South and Middle of Wales and lays some 19 kilomters in Rhoose, Vale of Glamorgan, away from Cardiff’s main city centre. The Cardiff Airport has always faced strict competition from other international airports in the United Kingdom and in the Wales region including competition from Briton Airport. Interesting, Cardiff Airport has recorded significant reduction in passenger numbers from 201010. In 2007, what can be called a peak growth for the airport was recorded with 2.10 million passengers over the year but this reduced to 1.42 million in 2010 and further down to 1.2 million in 2011. Meanwhile, Briton Airport has recorded growth in passenger number in all of these years11. This premise therefore leaves one to wonder what the factors could be in this trend and how the air passenger duty may worsen or better things at the airport. The research that is currently being conducted puts forth two major hypothesis in that, the air passenger duty may further take away interest of passengers from using Cardiff Airport, and that the air passenger duty may be a blessing in disguise, making it possible to raise more revenue for the company in declining business times. 2 Aims and Objectives The aims of the tender generally refer to those tangible achievements that the researcher would want to see at the end of the research. They may also be referred to as generalised goals. These aims are stated as below. 1 Identification of any potential practical barriers to the successful devolving of air passenger duty in Wales. 2 Listing all major competitive advantages that Cardiff Airport would derive as a key stakeholder of the air passenger duty in Wales. 3 Outlining all costs and benefits involved at the wider social pedestal when the air passenger duty comes to force in Wales. Because the aims are much generalised, it is important that the researcher spells out more specific activities to be undertaken in order to achieve the aims. These specific activities are referred to in this contest as the objectives and come under different dimensions depending on the aims that the researcher wants to achieve. Some of these specific objectives are thus given as followers: i. Estimate the existing passenger demand for various aircrafts working at the Cardiff Airport. ii. Undertake a comprehensive projected demand for air passenger travel according to Bands A, B, C and D as used in classifying new rates under the air passenger duty. iii. To undertake a comparative analysis between Cardiff Airport and its key competitors including Bristol Airport to understand the trend of passenger numbers and routes used by these. iv. To undertake a quantitative study on the flow of revenue to the Welsh Government through air passenger duty and how these are distributed along lines of long and short haul routes. v. To undertake a price sensitivity analysis to understand the trend of demand that exists for air travel in relation to price allocation of fares. vi. To quantify the existing market size and the target market available for Cardiff Airport in relation to the airport’s short and long haul. vii. To critique what the impact would be if the existing air passenger duty that are charged on airline administrative costs are changed. viii. To understudy what the impact of a reduction in air passenger duty would be to the competitive position or commercial viability of Cardiff Airport as a key competitor in the airline business in Wales ix. To study how a reduced rate of air passenger duty would also impact on the other major international airlines in Wales, especially Bristol Airport. x. To ascertain what the projected effects of the air passenger duty would be on general investment in Wales as market destination in the United Kingdom including industry areas such as trade, tourism and aerospace. 3. Methodology The tender undertaken includes a well elaborated methodology, specifying how data are going to be collected for subsequent analysis and decision making. In this, a mixed research approach shall be employed to involved both qualitative and quantitative methods. The qualitative methodology will be used to involve the collection of data that do not have use of numeric indexes but are generated from sources such as secondary literature and interview with respondents in a primary data collection. The quantitative method shall on the other hand involve the use of numeric indexes and other mathematical interpretations of data including charts, tables, percentages and graphs. These quantitative data are particularly important because the issue of air passenger duty involves numerals, figures and values that need to be given quantitative interpretations. With the mixed research approach, the researcher is very certain that data that will be collected will cover all areas of the specific objectives that have been outlined above and will help in achieving the research aims in the long run. This is because the objectives were set with both qualitative and quantitative backgrounds and in such situations, depending on only one of the methods causes several inadequacies12. The use of mixed research approach will also make it possible for the researcher to use both primary and secondary data collection techniques to collect data from as varied a source as possible. The use of primary data collection is going to take a very central stage in the tender. This is because the researcher would have to visit the field of research, which in this case is the Cardiff Airport to collect key data that relate to the aims and objectives of the study, as well as the research problem. It is therefore going to so happen that two groups of respondents are going to be identified for primary data collection from the field of study. These are going to be professionals or experts in the field of air passenger travel and consumers. The experts are mainly going to be staff of the airport, including top management members, who will be in a position to provide the researcher with data relating to the financial and commercial impact of the air passenger duty on the company. The customers on the other hand will be involved in primary data collection pertaining to how they perceive the impact of the air passenger duty on their travel behaviour. This information will be highly relevant for further decision making as to what exactly should be done to the air passenger duty in the case of Wales. Particularly for the primary data collection, it is important that the contractor follows all ethical consideration in the conduct of research of this nature13. Some of these include the need to seek official permission from authorities of the Cardiff Airport far ahead of the data collection exercise. Customers to be involved must also be given consent forms to endorse before being made part of the data collection process. 4 Key Sources of Information Because of the nature of the methodology, which involves the use of both qualitative and quantitative methods, the sources of information are going to be very varying; especially as the mixed methodology makes it possible for both primary and secondary data to be collected. The information is however going to come from two major sources labelled as primary sources and secondary sources. As far as primary sources are concerned, the contractor is expected to use two major instruments namely interview and questionnaire for the collection of data and as the sources of primary information to the tender. Interview is going to be used on the staff of the Cardiff Airport, who would have to answer series of questions to be given from an interview guide. These questions will produce information on the impact of the air passenger duty, how the company seeks to build a competitive advantage in the nearest future to give it a better competitive positioning against its competitors, identified factors for the abysmal performance of the company in the past years, as well as strategies that can best be used in changing the current fortunes of the airport, including how the airport seeks to handle the issue of air passenger duty in a manner that will not affect its clients. The questionnaire on the other hand is going to be a source of information from the clients or customers of the company. A questionnaire is preferred to interview for the customers for a number of reasons. In the first place, the number of respondents to be included from this scope is going to be large and so using an interview will be high time consuming and affect the effectiveness as well as the efficiency of the tender14. What is more, the questionnaire can be used in a number of ways that will not affect the movement and business activities of customers in any way. It would be noted that most people do not spend much time at the airport and so questionnaires could be given to them for them to take it along with them on their trip and mail their responses back to the contractor through an electronic means. For the secondary data, a number of existing literature and government classified sources are going to be used as sources of information. Internet sources to key governmental agencies and institutions and the Cardiff Airport its self shall also be used. Some of the key secondary sources that can be mentioned include Oxera (2009), which shall be used for information on the contribution of the aviation industry to the larger economy of the United Kingdom. Green Book (HMT 2003) shall also be used as a treasury document. Civil aviation authority research and statistics shall also be used. 5 Products The completed tender is going to get to the contracting agency in the form of a well documented Microsoft word product, spelling out all major aspects of the tender process and what was done in each area of the study. This hard copy is going to be needed for future references to be made. It is also going to serve as evidence for the successful completion of the tender. Furthermore, it is going to be the whitepaper with which major decisions are going to be taken on the way forward for the air passenger duty. Of the hard copies, there are going to be three printed documents that have all been bounded according to accepted academic standards. There is also going to be one of such printed copy that is unbound. As a way of keeping up with modernity and technological advancement, the researcher is going to produce a softcopy version of the whole tender, which shall be produced on a compact disk. The softcopy version shall serve a number of useful purposes including the fact that it shall help in the easy manipulation of parts of the tender that would need changes later in the implementation stage. The softcopy will also make the movement of the tender from one point to the other very easy by use of the electronic mail or the internet. 6 Costs There are a number of costs that are going to be incurred as part of the tender preparation process. Generally, these costs are divided into three main component namely pre-design phase, design phase and post-design phase. At the pre-design phase, a number of feasibility studies are going to be undertaken to come to terms with the deliverables that will be needed when the actual implementation starts. This exercise is going to be accompanied with costs on transportation, phone calls and secondary data research. At the design phase, there are going to be funding for the printing of questionnaire as well as honorarium for people to be involved in the data collection exercise. There shall also be travelling expenses especially as the researcher would need to use more than one day to be at the data collection field to interview respondents. Cost of research shall also come under the design phase as well as cost of interpretation of interview questions and questionnaire. After the main tender and thus at the post-design phase, there is going to be cost covering the production of the products for submission to the contracting agency as well as cost for transportation. A projected allocation of available funds according to percentage of use is therefore expected to follow what is presented in the chart below. 7. Timetable/Milestones The entire tender is projected to be completed in a period of ninety working days. This will span around 4 months just to ensure that there is no rush with the data collection process as well as the interpretation and analysis of data (Bell, 2005). There is also allocation of sufficient time as a way to ensure that there is enough contact between the client and the contractor before the finalisation of the project. It would be important that the contractors have sufficient time to review draft works of the completed phases before the final work is produced. Regardless of this generalised consented decision, the researcher shall ensure that there is so much effort put into the work to ensure that the work is completed ahead of the deadline if possible. Once this should happen, the researcher shall have enough time to go over everything that has been done in order to make necessary correction where necessary. In the table below, there is a detailed description of what will be done at each stage and how much time will be used in doing each of these. Task/Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Formulation of tender problem Preparation of aims and objectives Formation of themes for secondary data collection Preparation of literature log Literature review Preparation of consent forms Distribution of consent and permission forms Conduction of interview Distribution of questionnaire Data analysis Preparation of first draft Submission of first draft Meeting with stakeholders Completion 8 Changes to the Specification It is not expected that there will be any changes to the specifications that will be prepared ahead of the tender. However, in research works such as this, there is never a guarantee that such specifications will be maintained because of stakeholder involvement15. Part of the factors that are envisioned to possibly affect the original specification and bring about possible changes include the response that will be received from the authorities at the field where primary data collection has been marked or targeted to take place. There is the possibility that these authorities will not allow the field work to take place in their premise. If this happens, it would means that there will have to be a change in the methodology to make use of only qualitative method, where there will not be the need for any primary data collection. There could also be a change to the identified setting for primary if such permission is not granted. There is also the likelihood that the authorities would want changes in the date specified for them. In such a situation also, the researcher would have no other option than to agree to effect changes and adjustments to the specified time frame. What is more, depending on the course of data, the researcher may decide to change the number of targeted respondents in order to adjust it to available variables16. 9 Conditions of Contract for Research Services The research service that is being provided for the Welsh Minister on the impact of air passenger duty on the Cardiff Airport and the economy of Wales at large is being conducted under the following conditions. It is understated therefore that the contractor must sign to these conditions of contract to make the tender take effect. 1 That the contractor shall be responsible for all funding covering the tender 2 That the client is the copyright holder of the completed paper and that the contracting party may use contents and parts of the work only under official permission from the client 3 That the client is responsible for any ethical breaches that arise from the work and not the contractor. 4 That the contracting party shall have the right to make any changes to parts of the study once the necessary permission is sought from the owner of the copyright REFERENCE LIST Anderson, S., 2002. Business The Ultimate Resource, Bloomsbury Publishing, Plc, London. Babbie, E. 2010. Survey research methods. 2nd ed. Belmont, CA: Wadsworth. Babita G, Lakshmi S. Iyer, Jay E. Aronson, 2011. Knowledge Management: practices and challenges. PrintMark Publications: London Becken, S. 2004. 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