Austrian Air Transport Levy - Oxford Study - Final

The economic impact of changing
the Air Transport Levy in Austria

October 2012

The economic impact of changing to the air transport levy
October 2012

2

Contents

Executive Summary.................................................................................. 4
1 Introduction ..................................................................................... 6
2 Methodology.................................................................................... 7
2.1 Stage 1: Modelling air passenger numbers ............................................... 7
2.2 Stage 2: Modelling the impact on the Austrian economy......................... 10
2.3 Stage 3: Modelling the impact on tourism................................................ 10
3 The economic impact of air transport in Austria......................... 12
3.1 The aviation sector................................................................................... 12
3.2 Tourism.................................................................................................... 12
4 Impact of alternative ATL structures............................................ 14
4.3 Direct economic impact............................................................................ 14
4.4 Total economic impact ............................................................................. 16
4.5 Tax impact................................................................................................ 17
4.6 Tax revenue forecasts.............................................................................. 18
5 Other impacts of changes in the ATL structure .......................... 19
5.1 Connectivity and the implications for economic development ................. 19
5.2 Consequences for the environment ......................................................... 21
6 Appendix methodology.............................................................. 23
6.1 Channels of economic impact .................................................................. 23
6.2 Input-output tables ................................................................................... 23
6.3 Tourism.................................................................................................... 24

The economic impact of changing the air transport levy
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List of charts

Chart 2.1: Total air passengers by market segment, 2011 ...................................... 8
Chart 3.1: Austrian jobs and GDP supported by the aviation sector, 2011............ 13
Chart 4.1: Total passengers handled at Austrian airports, 2011............................ 14
Chart 4.2: Total passengers under different scenarios, 2011 ................................ 15

List of tables

Table 0.1: ATL structures under three scenarios ..................................................... 4
Table 0.2: Total impact of a proposed change in the air transport levy ................... 5
Table 2.1: ATL structures under three scenarios ..................................................... 7
Table 2.2: Average airfares for a return journey to/from or within Austria, 2011 ..... 9
Table 2.3: InterVISTAS estimates of price elasticities for air travel......................... 9
Table 4.1: ATL structures under three scenarios ................................................... 14
Table 4.2: Direct impact of a proposed change in the air transport levy................ 16
Table 4.3: Total impact of a proposed change in the air transport levy ................. 16
Table 4.4: Implications for government revenue .................................................... 17
Table 4.5: Estimated ATL revenue projections 2011-2015 .................................... 18
Table 5.1: Impact of the Icelandic volcanic eruption in Europe, 2010.................... 21

October 2012

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Executive Summary
The aviation sector in Austria makes a significant contribution to the economy
In 2011, the aviation sector (airlines, airports and ground services and aerospace manufacturing)
contributed over 5.3 billion (1.8%) to Austrian GDP, supporting 78,200 jobs. This total comprises:
2.1 billion directly contributed by the output of the aviation sector, supporting 33,100 jobs;
1.4 billion and 18,700 jobs indirectly supported though the aviation sectors supply chain;
0.7 billion and 9,800 jobs supported through employee spending; and.
A further 1.1 billion generated by the expenditure of foreign tourists arriving by air, supporting
additional employment of around 16,600 people.
In addition, total tax revenues generated through the different channels amounted to an estimated 2.3
billion.

Reducing the Air Transport Levy could increase annual passengers by up to 1.1 million
Falling airfares will increase the affordability of air transport services, therefore increasing the
number of people flying to/from or within Austria. Three different alterations to the current
structure of the Air Transport Levy (ATL) where analysed as part of this research.
Table 0.1: ATL structures under three scenarios

Current Ministry of Finance proposals, planned for January 2013, would lead to an increase in
passengers of around 141,000 per annum, while a uniform 25% reduction in the level of ATL
would double this figure. Complete abolition of the ATL could induce as many as 1.1 million
additional air passengers flying to/from and within Austria, an increase of 4.4% on current levels.
One of the primary justifications of the Austrian ATL was to compensate for the environmental
impact of air transport. However, with the inclusion of aviation within the scope of the EU
Emissions Trading Scheme (ETS) in 2012, this aim now becomes redundant.

boosting the impact of the aviation sector by up to 184 million in GDP
An increase in passengers flying to/from and within Austria will increase the revenues of firms
engaged in the aviation sector. Airlines will be able to offer more flights to a greater range of
destinations, at higher levels of occupancy. Airports will see an increase in aviation related
revenue such as landing fees, while an increase in the flow of passengers passing through airports
will boost sales in shops and restaurants located on-site.
Air Transport Levy -
Market Segment Current Rate ()
Scenario 1 ()
MoF proposed change
Scenario 2 ()
25% reduction
Scenario 3 ()
Complete removal
Short-Haul 8.0 7.0 6.0 0.0
Medium-Haul 20.0 15.0 15.0 0.0
Long-Haul 35.0 35.0 26.3 0.0
Source: Stat ist ics Austria, Oxford Economics
October 2012

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The increase in total GVA under scenario 1, stimulated through the increase in passengers, would
be around 23.0 million, with 340 additional jobs supported.
Under scenario 2, these impacts would increase to 46.0 million and 680 jobs
Scenario 3 would help stimulate additional GVA in the Aviation sector of 183.9 million and
support 2,700 jobs.

encouraging more foreign visitors
Austria is a net benefactor from international tourism. The impact depends on the level of reduction in
ATL;
Under scenario 1 the contribution of the tourism sector will increase by approximately 5.4 million
as a consequence of an increase in inbound foreign visitors, supporting 80 jobs in the process.
Under scenario 2, these impacts increase to 11.3 million and 160 jobs; while
Complete abolition under scenario 3 will boost GDP by 45.2 million and support 660 jobs.
Table 0.2: Total impact of a proposed change in the air transport levy

and stimulating positive tax revenues for the government of up to 6.5 million.
Under each scenario, direct tax revenues will fall as a result of altering the structure of the ATL,
even when accounting for additional revenue generated through other streams such as increased
corporation and employee-related taxes in the aviation sector.
Direct tax revenues of the aviation sector will fall by 5.0 million under scenario 1, while under
scenario 2 the fall in revenue will be around 11.7 million. Full abolition of the tax will decrease
direct tax revenues by 49.9 million.
However, when considering the extra activity generated through the indirect and induced channels,
and the knock-on tax revenue generated as a result of this, the total contribution to public finances
may actually even see an increase ranging from 2.0 million under scenario 1, to 2.4 million
under scenario 2 and 6.5 million under scenario 3.
Scenario 1 Scenario 2 Scenario 3
Change in average fare (%) -0.5% -1.1% -4.2%
Change in total passengers (%) 0.5% 1.1% 4.4%
Aviation Sector Change in GVA (m) 23.0 46.0 183.9
Change in GVA (%) 0.5% 1.1% 4.4%
Change in Employment 340 680 2,700
Change in Employment (%) 0.5% 1.1% 4.4%
Tourism Sector Change in GVA (m) 5.4 11.3 45.2
Change in GVA (%) 0.5% 1.0% 4.0%
Change in Employment 80 160 660
Total impacts Change in GVA (m) 28.4 57.3 229.1
Change in GVA (%) 0.5% 1.1% 4.3%
Source: Stat ist ics Austria, Eurostat, Austrian Airlines, Oxford Economics
Total Economic
Impact
Operating Statistics
October 2012

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1 Introducti on
In April 2011, the Federal Ministry of Finance in Austria (MoF) introduced an Air Transport Levy (ATL) on
the departure of any passenger from a domestic airport. The rate of tax varies depending on the
destination. For short-haul destinations, passengers are subject to an 8 levy on top of their air fare, for
medium-haul, the figure is 20, while for long-haul destinations the figure rises to 35 per passenger.
Taxing passengers increases the cost of air travel, impacting domestic businesses reliant on aviation and
reducing the attractiveness of Austria as a tourism destination for international visitors.
Oxford Economics were commissioned by a consortium of stakeholders including the Austrian Chamber of
Commerce (WKO), the Federation of Austrian Industries (IV), Austrian Airlines, Vienna International Airport
and the Working Group of Austrian Commercial Airports (AOEV), to investigate the impact of changes to
the structure of the ATL on the Austrian economy. One such change the MoF are currently considering is
a small reduction of the levy in both the short and medium-haul segments to 7 and 15 respectively
scheduled to come into effect in January 2013.
This document presents the findings of the research, analysing the potential economic impact of three
distinct changes to the structure of the ATL, including both the current proposal and a complete abolition of
the ATL, as well as a flat 25% reduction across all market segments. The report is arranged as follows:
Chapter 2 details the methodology behind the analysis;
Chapter 3 provides an assessment of the economic impact of the aviation sector in Austria;
Chapter 4 presents the results of the analysis for the three different scenarios;
Chapter 5 discusses a number of other channels of impact through which the aviation sector
contributes.

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2 Methodol ogy
In April 2011, the Austrian MoF introduced a Levy to be included in the price of a ticket for the departure of
any passenger from a domestic airport. The levy is structured into three bands such that the fee depends
on the distance to the final destination. For short-haul destinations, passengers are subject to an 8 levy
on top of their air fare. For medium-haul, the figure is 20, while for long-haul destinations the figure rises
to 35 per passenger
1
. It is argued that the imposition of a levy on passengers flying to/from and within
Austria is eroding the competitiveness of the Austrian aviation sector, and affecting its ability as an
important facilitator of economic growth in the economy.
In order to evaluate the impact of changes in the structure of the ATL on the Austrian economy, it is
necessary to undertake a three stage process of analysis. For the first stage, a model of demand for air
travel in Austria is required to estimate the impact of a change in air fares on passenger behaviour, and
hence the number of people travelling by air. The second stage involves translating the change in
passenger numbers, estimated in stage one, into an economic impact for the aviation sector in Austria.
Finally, the third stage involves assessing the impact of reduced airfares on international tourism in
Austria. This is repeated for three distinct changes to the structure of the ATL:
Scenario 1 provides an assessment of the impact of current proposed changes to the ATL,
scheduled to come into effect in January 2013;
Scenario 2 presents an assessment of the impact of a 25% reduction in each market segment of
travel from the current rate;
Scenario 3 provides an assessment of the impact of a complete removal of the ATL across all
market segments of travel.

The remainder of this section presents the approach used to analyse the economic impact of alternative
ATL structures.
2.1 Stage 1: Modelling air passenger numbers
Based on official passenger statistics published by Statistics Austria, over 25.7 million air passengers were
handled at Austrian airports in 2011 (excluding transit passengers). The vast majority of these passengers
were flying to/from short-haul destinations (including domestic passengers), with this market segment
accounting for nearly 23.8 million passengers, or 92% of passengers in total. In contrast, there were 0.8

1
For a full list of destinations, please refer to the MoF website http://english.bmf.gv.at/allgemeines/airtransportlevy_918.htm
Scenario 1 ()
MoF proposed change
Scenario 2 ()
25% reduction
Scenario 3 ()
Complete removal
Short-Haul 8.0 7.0 6.0 0.0
Medium-Haul 20.0 15.0 15.0 0.0
Long-Haul 35.0 35.0 26.3 0.0
October 2012

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million passengers flying to/from medium-haul destinations and just over 1.0 million flying to/from long-haul
destinations (Chart 2.1).

Chart 2.1: Total air passengers by market segment,
2011

Source: Statistics Austria, Eurostat, Oxford Economics

The impact of a change in ATL on passenger numbers flying to/from and within Austria can only be
determined if airfares are known prior to a change. Using operating statistics provided by Austrian Airlines
for 2011, combined with a breakdown of total air passengers by international destination, obtained from
Eurostat, Oxford Economics were able to estimate the average airfare by market segment; weighted by the
number of passengers travelling to each destination within the relevant market segment of travel Table 2.2
presents the results of this exercise, both including and excluding the relevant rate of ATL
2
. Across all
market segments, both domestic and international, the weighted average return fare for 2011 was
estimated to be 267.

2
The ATL is charged on the departure of any passenger from a domestic airport. As such, a domestic passenger with a return ticket
will be charged twice the short-haul rate while international passengers will only be charged for the return leg of their journey.
Short-haul,
92%
Medium-haul,
3%
Long-haul, 4%
Total Passengers 2011:
25.7 million
October 2012

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Table 2.2: Average airfares for a return journey to/from or within Austria, 2011
3

Changing the cost of air travel for passengers will impact on the number of people choosing to travel by
air. The scale of this effect can be estimated using a model of the demand for air travel, and more
specifically through the use of a measure of the responsiveness of passengers to changes in air fares,
known as the price elasticity of demand for air travel. Oxford Economics conducted a search of publically
available literature, assisted by Austrian Airlines, to establish the most appropriate estimates for the price
elasticity of demand for air travel for the purposes of this analysis. In the absence of any estimates
specific to the Austrian market, Oxford Economics choose to use figures contained within a far-reaching
global study conducted on behalf of IATA
4
. In this study, a comprehensive econometric analysis was
undertaken, making use of IATA Passenger Intelligence Services (PaxIS) data, claimed by IATA to be the
most comprehensive airline passenger market intelligence database available today. The advantage of
using this study is that it contains a highly disaggregated set of elasticities that vary by length of route
(short or long-haul), by purpose of travel (business or leisure), by region of origin/destination and by level
of aggregation (i.e. whether price changes are at a route, national or pan-national level), facilitating a more
comprehensive analysis of the different market segments in Austria. Table 2.3 presents the elasticity
estimates used for this research, indicating the percentage change in passenger numbers that would occur
following a 1% increase in airfares (for example, a 1% increase in prices in the Trans Atlantic market would
lead to a 0.96% decrease in passengers).

Table 2.3: InterVISTAS estimates of price elasticities for air travel

3
Given a near unit elasticity of demand, the direct economic benefit is insensitive to assumptions about airline industry's cost
structure. Domestic flights include VAT of 10%.
4
Estimating Air Travel Demand Elasticities, InterVISTAS Consulting, prepared for IATA, 2007
Short-haul Long-haul
Intra Europe
-1.23 -1.12
Trans Atlantic
(North America - Europe) n/a -0.96
Europe-Asia
n/a -0.72
Source: InterVISTAS Consulting (2007)
Market Segment
Average Fare for a
return flight ()
Average Fare for a
return flight, including
ATL ()
Domestic 163 179
Short-haul 258 266
Medium-Haul 565 585
Long-Haul 886 921
Source: Austrian Airlines, Eurostat, Oxf ord Economics
October 2012

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Combining the estimates for average fare and price elasticity of demand for each destination, the impact
on total passenger numbers can be modelled for each destination such that estimates for the change in
passenger numbers for each market segment following a change in the structure of the ATL can be
calculated.
2.2 Stage 2: Modelling the impact on the Austrian economy
The second stage of the process is taking this change in passenger numbers and estimating what impact
this would have on the Austrian economy, in terms of the output and employment in both the aviation and
tourism sectors. In order to model this, Oxford Economics began by estimating the economic impact of the
air transport in Austria in 2011, updating the figures presented for calendar year 2009, in a recent study by
Oxford Economics on behalf of IATA, in terms of its contribution to Gross Value Added (GVA) and
employment
5
. A more detailed explanation of what constitutes the aviation and tourism sectors for the
purposes of this study and how the economic impact is measured, including a definition of GVA, is detailed
in the Appendix. In order to update the estimates for the economic impact of air transport, data was
obtained from a variety of sources, including official statistics from Statistics Austria, Austrian Airlines and
published airport company annual financial accounts.
From this baseline estimate of the economic impact, varying approaches were used to estimate the impact
of a change in passenger numbers on GVA. Historical data on passengers and revenues, obtained from
annual accounts data, suggests there is a strong correlation between passengers handled at airports and
their GVA. This historical relationship was therefore used to estimate the impact of an increase in
passengers at Austrian airports. Applying the same approach to airline data however displayed very little
correlation, such that a different approach was required. Therefore in this instance, the ratio of GVA
contribution per passenger for 2011 was used to estimate the impact of additional passengers on the GVA
of airlines. For other on-airport site activities, extrapolation was done using the growth in total passengers.
All figures assume a base year of 2011 to allow for comparison between the different scenarios. Estimates
for employment were derived by exploring the relationship between GVA and employment.
The level of direct tax contribution was estimated through operating statistics, obtained from Austrian
Airlines and annual financial accounts. Gaps were filled using official government statistics on the average
levels of revenue collected through the different channels of tax as a proportion of GVA
6
. Indirect and
Induced Tax contribution is approximated by applying an economy wide average tax figure (as a proportion
of GDP) to the Indirect and Induced GVA estimates, using data from the Oxford Economics Global
Macroeconomic Model.
2.3 Stage 3: Modelling the impact on tourism
A reduction in the cost of air transport will enhance the attractiveness of Austria as a tourism destination,
increasing the number of international visitors choosing to holiday in Austria. Austria is a net benefactor
from international tourism. According to official travel balance of payments statistics
7
, inbound tourism

5
Economic Benefits from Air Transport in Austria, Oxford Economics, prepared for IATA, 2011.
6
Statistics Austria
7
International Travel: Receipts and expenditure 2011, Statistics Austria
October 2012

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receipts amounted to 14.3 billion in 2011 while outbound tourism expenditure was 7.5 billion. As such,
there was a net benefit in terms of spending to the Austrian economy of 6.7 billion. Over 23 million
people travelled to Austria for either leisure or business purposes 90% of which travelled from other short
haul destinations. In comparison, there were less than 10 million outbound trips taken by Austrian
residents
8
.
Due to Austrias proximity to its primary markets, such as Germany and Italy, the majority of foreign visitors
still travel by land. While arrivals by road accounted for 86% of international arrivals and train passengers
accounted for a further 7%, it is estimated that only 6% of inbound visitors in 2011 arrived by air
9
.
The starting point for calculating the impact on tourism was to estimate the average expenditure of inbound
tourists. This was done by comparing official balance of payments statistics on tourism expenditure by
country of origin with data on the number of arrivals from the same countries. Countries were separated
into market segment (short-, medium- or long-haul), allowing for an estimate of the average spend per trip
for inbound foreign visitors. The next step was to grow total inbound tourism arrivals using the growth in
total air passengers under each scenario in order to estimate the number of additional tourists induced to
travel to Austria as a consequence of reduced travel costs which, when multiplied by the average spend
per visit, approximated the gross effect on the travel and tourism balance of payments. From this, the
impact on GDP and employment could be estimated.

8
Holiday and business trips of the Austrian population, 2011. Statistics Austria
9
Austrian Economic Chambers, Tourism in Numbers, 48
th
Edition, May 2012
October 2012

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3 The economi c i mpact of air transport i n Austri a
Air transport services in Austria make a significant contribution to the domestic economy, both through the
domestic resources that the sector deploys to deliver its services, the Austrian produced goods and
services consumed by the workers who depend on the sector for their employment, and the tourism reliant
on the international connections that only the air transport network can provide. This section provides up
to date estimates for the economic footprint of the aviation sector in Austria, in terms of its contribution to
GDP and employment.
3.1 The aviation sector
The aviation sector in Austria, comprising the airlines, the airports and ground services, and the aerospace
manufacturing industry, makes a significant contribution to the domestic economy. In 2011, the
contribution of the sector in terms of its GVA was approximately 2.1 billion, equivalent to 0.7% of the
Austrian economy
10
. The sector is also a major employer providing jobs for 33,100 people in the
process.
In addition to its direct contribution, the aviation sector supports other businesses across the Austrian
economy through its purchases of goods and services. This is known as the indirect effect. A further
important channel through which the aviation sector supports the Austrian economy comes through wage
expenditure. Employees of the aviation sector and of firms in its Austrian based supply chain (indirect
employment) spend part of their income on goods and services produced domestically. The GVA and jobs
supported by this expenditure, in sectors such as retail trade and leisure activities, is known as the induced
impact. Through the indirect and induced impacts, the aviation sector supports jobs and businesses
throughout the Austrian economy
11
.
The aviation sectors total contribution to the Austrian economy is the sum of its direct, indirect and
induced impacts. Oxford Economics estimate this impact to be worth 4.2 billion in 2011 (1.4% of GDP).
When accounting for jobs supported through its direct, indirect and induced impacts, the aviation sector
supports a total of 61,600 jobs in the Austrian economy (1.5% of total employment).
The aviation sector is also an important contributor to Austrian public finances. Through the taxes levied
on GVA, such as employee and corporation taxes, domestic VAT and, not forgetting, the ATL, the aviation
sector supports government finances and the public services that depend on them. It is estimated that the
direct activities of the aviation sector in 2011 generated approximately 848 million in tax revenue,
equivalent to 40% its GDP contribution.
3.2 Tourism
Travel and tourism in Austria makes a significant contribution to the domestic economy. In 2011, the
sector generated some 14.5 billion in direct GDP, equivalent to 4.8% of the economy, supporting over

10
GVA is measured as the value of output (essentially income of airlines and airports) less the value of goods and services
purchased from other sectors of the economy. It represents the aviation sectors contribution to national output (GDP). See Appendix
for a more detailed definition.
11
See Appendix for more detail on how these channels of impact are estimated.
October 2012

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216,000 jobs in the process
12
. When considering the wider impacts of the industry, through the indirect
and induced channels, the travel and tourism sector supported nearly 607,000 jobs. Putting this into some
context, approximately 1 in every 7 jobs in Austria is reliant on the travel and tourism sector.
The aviation sector is instrumental to international tourism. Visitors from medium and long-haul
destinations are particularly dependant on the speed and affordability of air transport services. In total, it is
estimated that 6% of foreign visitors arrive by air
13
, such that Oxford Economics estimate that foreign
visitors arriving by air contribute 439 million in GDP to the Austrian economy, supporting 6,500 jobs in the
process. Taking into account the direct, indirect and induced impacts, it is estimated that aviation related
tourism contributes 1,136 million in GDP and 16,600 jobs to the Austrian economy.

Chart 3.1: Austrian jobs and GDP supported by the
aviation sector, 2011

Source: Austrian Airlines, Statistics Austria, Eurostat, Oxford Economics

12
WTTC
13
Austrian Economic Chambers, Tourism in Numbers, 48
th
Edition, May 2012
33.1
9.8
16.6
18.7
2,130
716
1,363
1,136
-
10
20
30
40
50
60
70
80
90
Jobs
0
1,000
2,000
3,000
4,000
5,000
6,000
Direct Indirect Induced Tourism
Headcount
'000
million
GDP
October 2012

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4 Impact of al ternati ve ATL structures
This section presents the results of the analysis on three distinct changes to the structure of the ATL in
Austria. The three different scenarios are outlined in section 2 of the report, with table 4.1 reproduced for
reference.

4.3 Direct economic impact
In 2011, over 25.7 million passengers were handled at Austrian airports, the vast majority of which were
handled at Vienna airport, Austrias largest international airport (Chart 4.1). The propensity for people to
use air transport services to/from and within Austria increases as the cost of using those services
decreases. Therefore, as the ATL is reduced under each scenario, there will be more passengers handled
annually at Austrian airports. Under scenario 1, based on 2011 passenger numbers, it is estimated that
there would have been up to 141,000 additional passengers handled at Austrian airports than there were
under the existing ATL structure. This figure doubles to approximately 282,000 additional passengers
under scenario 2, following a uniform 25% reduction in the ATL rate across each market segment, while
abolishing the ATL would have induced over 1.13 million additional passengers, equivalent to an increase
in passenger volume of 4.4% over actual figures (Chart 4.2).

Chart 4.1: Total passengers handled at Austrian
airports, 2011

Source: Statistics Austria, Oxford Economics
Vienna, 82%
Graz, 4%
Innsbruck,
4%
Klagenfurt,
1%
Linz, 3%
Salzburg, 7%
Total Passengers 2011:
25.7 million
Scenario 1 ()
MoF proposed change
Scenario 2 ()
25% reduction
Scenario 3 ()
Complete removal
Short-Haul 8.0 7.0 6.0 0.0
Medium-Haul 20.0 15.0 15.0 0.0
Long-Haul 35.0 35.0 26.3 0.0
October 2012

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Chart 4.2: Total passengers under different scenarios,
2011

Source: Statistics Austria, Oxford Economics

An increase in passenger numbers will boost revenues for domestic firms operating in the Austrian aviation
sector. Airlines will be able to offer more flights to a greater range of destinations, at higher levels of
occupancy. Airports will see an increase in aviation related revenue such as landing fees, while an
increase in the flow of passengers passing through airports will boost sales in shops and restaurants
located on-site.
The domestic tourism sector also stands to benefit. Through its speed, convenience and affordability, air
transport lies at the heart of global business and tourism, expanding the possibilities for people to
experience a diversity of geography, climate, culture and markets. A reduction in airfares will increase the
competitiveness of Austria as a destination for international travellers, boosting a sector that already
directly contributes over 14.5 billion to the domestic economy, equivalent to 4.8% of GDP
14
, and supports
nearly 220,000 jobs.
The direct impact of the increase in passenger numbers under each scenario is illustrated in table 4.2.
The results represent an ex-post analysis using 2011 statistics, comparing changes in the ATL compared
to the current structure. Under scenario 1, it is estimated that the fall in airfares would lead to an increase
in GDP contribution from air transport of 13.7 million, split between the aviation sector (11.6 million) and
the gross effect on international tourism (2.1 million). In the process, approximately 210 additional jobs
would be supported.
A similar pattern of results arise when looking at scenarios 2 and 3, with the increase in passenger
numbers boosting national output by 27.6 million and 110.5 million respectively.

14
World Travel & Tourism Council
141
282
1,129
25,700
25,000
25,500
26,000
26,500
27,000
Baseline Scenario 1 Scenario 2 Scenario 3
Passengers 2011
('000)
October 2012

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Table 4.2: Direct impact of a proposed change in the air transport levy

4.4 Total economic impact
The additional economic activity generated by an increase in air passengers will also spur wider economic
benefits through the indirect and induced channels of impact. These additional impacts are illustrated for
each scenario in table 4.3 below. Under scenario 1, economic output will be boosted by an estimated
28.4 million per annum in total, supporting 420 additional jobs in the process. Scenario 2 would generate
a further 57.3 million of economic activity across the aviation (46 million) and tourism (11.3 million)
sectors, supporting up to 840 extra people in employment, while the full abolition of the ATL could boost
output by as much as 4.3% compared to current levels and create 3,360 jobs.

Table 4.3: Total impact of a proposed change in the air transport levy

Change in GVA (%) 0.5% 1.1% 4.4%
Change in GVA (%) 0.5% 1.0% 4.0%
Change in GVA (%) 0.5% 1.1% 4.3%
Direct Economic
Impact
Change in GVA (%) 0.5% 1.1% 4.4%
Change in GVA (%) 0.5% 1.0% 4.0%
Change in GVA (%) 0.5% 1.1% 4.3%
Total Economic
Impact
October 2012

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4.5 Tax impact
A reduction in the rates of ATL charged on flights departing Austrian airports will impact on the amount of
government revenue collected from the aviation sector. Based on official Austrian MoF projections, the
ATL is estimated to generate up to 90 million per annum in revenues.
For the purposes of analysing the impact on government tax receipts, Oxford Economics assumes that the
current structure of ATL would indeed raise the estimated 90 million. As such, table 4.4 illustrates the
impact on government revenues of the three different scenarios under consideration, comparing them to a
base ATL intake of 90 million.
Table 4.4: Implications for government revenue

Despite boosting total passenger numbers flying to/from and within Austria, each scenario leads to a fall in
ATL revenue through direct channels. Under scenario 1, annual ATL revenues would amount to
approximately 80 million, an 11% reduction compared to the current structure, while revenues under
scenario 2 would fall by 24% to 68.3 million per annum. Increased output in the aviation and tourism
sectors would however limit these losses, as revenue raised from corporation, employee-related and sales
taxes would increase. When considering these offsetting revenues increases, the implications for direct tax
revenue for the Austrian government under scenarios 1, 2 and 3 would be a fall in revenue of 5.0 million,
11.7 million and 49.9 million respectively.
Activity generated in the wider economy through the indirect and induced channels of economic impact will
however stimulate further tax collections. Indirect and Induced Tax contributions are approximated by
applying an economy wide average tax figure (as a proportion of GDP) to the Indirect and Induced GVA
estimates
15
. When considering this activity stimulated in the wider Austrian economy, additional revenue is
collected such that restructuring the current ATL may actually boost total government revenue for the
Austrian government, of between 2.0 million under scenario 1 to 6.5 million under full abolition in
scenario 3.

15
Oxford Economics Global Macroeconomic Model
Change in Air Transport Levy revenue (m) -10.0 -21.7 -90.0
Change in Aviation related tax revenue (m) 4.3 8.5 34.1
- of which corporation tax revenue 0.4 0.8 3.3
- of which employee tax revenue 2.9 5.9 23.4
- of which sales related taxes 0.9 1.9 7.4
Change in tourism related tax revenue (m) 0.7 1.5 6.0
Change in direct government revenue (m) -5.0 -11.7 -49.9
Change in indirect government revenue (m) 4.7 9.4 37.7
Change in induced government revenue (m) 2.3 4.7 18.7
Change in total in Government revenue (m) 2.0 2.4 6.5
Source: Stat ist ics Austria, Eurostat, Oxford Economics
Total tax impact
Wider tax impacts
Direct tax imapct
October 2012

18
4.6 Tax revenue forecasts
Projecting passenger numbers forward using the IATA airline industry forecasts 2011-2015 for the
European market gives an indication as to how government revenues may evolve under each scenario.
Based on figures published by the ministry of finance on the monthly tax collected from the ATL, revenues
collected for 2011 amounted to 74.4 million
16
. Extrapolating this to produce an annual figure (accounting
for negligible revenues collected in June of that year
17
), it is estimated that, if the ATL was in place for the
entire year, total revenues collected for 2011 would have amounted to 107.1 million. Under the current
structure, nominal revenues from the ATL could amount to over 130 million by 2015, an increase over
21% from 2011 (table 4.5). This is in stark contrast to the Austrian MoF forecasts of annual revenues to
remain at 90 million per annum going forward.
Table 4.5: Estimated ATL revenue projections 2011-2015
18

Assuming each scenario was in place for the beginning of 2012, estimated revenues would be 12.5
million lower under scenario 1 and 27.2 million lower under a uniform 25% reduction in rates across each
market segment for the calendar year 2012. Projecting these figures to 2015 suggests that, for scenario 1,
there could be an annual shortfall in revenue by as much as 14.4 million per annum by 2015 compared to
the current levels of taxation. This figure increases to 31.4 million under scenario 2, while a full abolition
of the tax would lead to zero revenue for the government.

16
The air transport levy is paid on or before the due date, 2 calendar months after the period for which it arose
(http://english.bmf.gv.at/allgemeines/air_transport_levy.pdf). As such, revenue figures reported in January and February 2012
correspond to calendar months November and December 2011 respectively.
17
Revenues collected in June 2011 were minimal due to additional exemptions in place during the initial implementation phase
18
Excluded from this analysis are additional indirect costs associated with administration, collection and monitoring of the ATL. As
such, revenue estimates are presented gross of any administration costs.
ATL Revenue ( million) 2011* 2012 2013 2014 2015
Forecast annual passenger growth 5.1% 4.7% 4.9% 4.6%
Current Rate 107.1 112.8 118.3 124.2 130.1
Scenario 1 - 100.3 105.2 110.4 115.7
Scenario 2 - 85.6 89.7 94.2 98.7
Scenario 3 - 0.0 0.0 0.0 0.0
Source: Stat ist ics Austria, IATA Airline I ndustry Forecast 2011-2015, Oxford Economics
* Based on off icial passenger stat istics (Statistics Aust ria), assumes t he ATL was in place f or the whole year, scenarios in place for start of 2012
October 2012

19
5 Other i mpacts of changes i n the ATL structure
In addition to the primary implications of reducing the ATL outlined in section 4, there are other channels,
often less quantifiable, through which the increased number of passengers flying to/from and within Austria
will impact the domestic economy. This section of the report provides some further discussion on two
important secondary impacts, those on connectivity and the environment.
5.1 Connectivity and the implications for economic development
Connectivity reflects the range, frequency of service, the economic importance of destinations and the
number of onward connections available through each countrys aviation network. In recent decades,
significant improvements have been made in the level of connectivity, driven largely by a steady decrease
in the real cost of air travel. This has brought benefits to users of air transport services by: reducing time
spent in transit, increasing the frequency of service, allowing for shorter waiting times and better targeting
of departure and arrival times; and improving the quality of service, such as reliability, punctuality and
quality of the travel experience.
A number of these city-pair connections have point-to-point services, where passenger flow density is
sufficient to make the economics work. However, many of the city-pair connections that make up Austrias
connectivity to both international and domestic markets can only be served by airlines aggregating flows
from a number of origins through a hub airport in order to generate a sufficiently dense flow of passengers.
Vienna airport is a key hub, particularly well placed for providing connectivity to Eastern Europe and the
Far East.
Arguably however, the largest economic benefit from increased connectivity comes through its impact on
the long-term performance of the wider economy through enhancing the overall level of productivity. This
improvement in productivity in firms outside the aviation sector comes through two main channels: through
the effects on domestic firms of increased access to foreign markets, and increased foreign competition in
the home market, and through the freer movement of investment capital and workers between countries.
Improved connectivity can also enhance an economys performance by making it easier for firms to invest
outside their home country, which is known as foreign direct investment (FDI). FDI may come about
because foreign investment entails some movement of staff; whether to transfer technical know-how or
management oversight; or it may arise through creating a more favourable environment for foreign firms to
locate their operations, by improving links with both their home country and trading partners. Located in
the heart of Europe, Austria offers an outstanding geographical location for international companies. Most
European destinations are accessible by air in less than 3 hours, while its central location makes Austria a
key gateway into the Central and Eastern European growth markets. As a consequence, Austria is an
attractive location in which many international companies choose to locate their regional headquarters.
The onward connections available at Austrian airports (in particular at Vienna) play a vital role in attracting
and retaining this level of inward investment.
Measuring connectivity is difficult and, given that the supply-side benefits are likely to manifest themselves
over time, it is very challenging to disentangle and isolate the contribution of connectivity on long-term
economic growth. Despite this, a number of recent studies have attempted to quantify the positive impact
of connectivity. One such study suggests that a 10% increase in connectivity (relative to GDP) will raise
October 2012

20
the level of productivity in the economy by a little under 0.5% in the long run
19
. A more recent, far reaching
study concludes that the boost in long run productivity is however a more conservative 0.07%
20
.
Aviation taxes will stifle growth in the aviation sector and limit the number of passengers using air transport
services. As a consequence, it will inhibit the ability of airlines to expand services in terms of both
frequency of routes and destinations. This in turn will constrain levels connectivity which will have knock-
on effects in the wider economy. This is especially pertinent at a time of financial austerity when
governments are struggling to stimulate domestic economic growth across the whole of Europe. The
coming years will be key in shaping the structure of the aviation market in Europe, with countries
competing to maintain their hub airports and with it, the connectivity benefits that flow from this.
The Dutch government recognised the impact of connectivity when suspending its own aviation tax in
2009. Research into the impacts of the tax domestically indicated that at Amsterdam Schiphol airport,
approximately 2 million passengers were lost during the period in which the tax was in force, instead
choosing to either cancel travel plans or use airports in neighbouring countries such as Germany and
Belgium. If similar behavioural responses are to be expected, then the proximity of alternative airports to
both Vienna and the other regional airports in Austria makes them obvious candidates for substitution.
Likewise, a cut in the ATL could boost the competitiveness of Innsbruck, Salzburg and Linz airports as
alternatives, especially to Munich, as Germany imposes its own ticket tax. The Dutch also found that
passengers were slow to return to Schiphol following the abolition of the tax; it is estimated that there was
a further loss of 1 million passengers in the period immediately thereafter
21
. The Netherlands is not an
isolated case; other European countries have also decided against the imposition of additional passenger
taxes on the aviation sector. In 2011, Ireland announced its intentions to abolish aviation taxes in a bid to
increase inbound visitors, while both Sweden (2006) and Belgium (2008) decided against introducing
similar taxes in the first place.
The importance of air transport on the European economy and the potential impact of reduced connectivity
are no better illustrated than through the experience immediately following the eruption of the Icelandic
Eyjafjallajokull volcano in 2010. As an ash plume descended across Europe, assisted by prevailing winds,
large portions of European airspace was closed for the preceding week following the eruption. Over
100,000 flights were cancelled during this time, with 80% of airport capacity affected. The effects of the air
space closures extended beyond just the direct impact on air transport industry.
Oxford Economics estimate that the total impact on the European economy amounted to nearly 2.0 billion
for the week preceding the eruption, equivalent to 0.67% of one-weeks GDP in the region. This was split
between the total net impact on the air transport sector as a consequence of the sheer number of
cancelled flights (when accounting for rearranged and deferred travel), destination impacts due to forgone
spending from lost scheduled arrivals (net effect allowing for alternative travel options and the additional
spending of stranded travellers), and productivity impacts stemming from stranded workers (Table 5.1).

19
The Economic Catalytic Effects of Air transport in Europe, by Oxford Economic Forecasting (2005) on behalf of EUROCONTROL
Experimental Centre.
20
Measuring the Economic Rate of Return on Investment in Aviation, InterVISTAS Consulting, prepared for IATA, 2007
21
Effects of the Air Passenger Tax: Behavioral responses of passengers, airlines and airports, KiM Netherlands Institute for
Transport Policy Analysis, 2011
October 2012

21
Table 5.1: Impact of the Icelandic volcanic eruption in Europe, 2010
22

These knock-on effects keenly illustrate how modern economies of Europe are dependant on air transport
connectivity; facilitating tourism, trade and underpinning the wider aims of the European single market.
The impact was felt acutely not just by the aviation sector, but by travellers and destinations; exporters and
those reliant on imported inputs; as well as general production and productivity globally. In just one week
the sharp contraction in air transport connectivity in Europe had a measurable impact on GDP, affecting a
diverse cross-section of individuals and businesses. Any longer and the closures across Europe would
have compounded these negative impacts and inhibited the recovery further.
5.2 Consequences for the environment
In comparison to other EU countries, the impact of greenhouse gas (GHG) emissions by the Austrian
Aviation sector is relatively modest. Austria accounts for just 0.4% of total civil aviation emissions in the
EU, despite accounting for over 2.0% of total passengers. However, the sector is still keenly aware of its
obligations to combat climate change. With fuel costs on average accounting for around 26% of total
operating costs, there is no better incentive for airlines to improve efficiency. As such, the aviation industry
collectively agreed in 2008 to the worlds first set of sector-specific climate change targets. The ambitious
target of reducing its net carbon footprint to 50% below what it was in 2005 reflects the seriousness in
which the industry approaches the issue
23
. These targets will only be achieved through a combination of
different efficiency opportunities and working with the support of governments and supra-national
institutions.
A key argument against abolishing the ATL is that an increase in passengers will lead to a proportional
increase in aviation related emissions. However, this will not necessarily transpire. In 2011, airplane
occupancy rates for flights to/from and within Austria were at 70.7%, an increase of over 5 percentage
points since 2004 and representing a very similar level to that of the EU as a whole
24
. A significant number
of additional international passengers will originate from countries such as Germany, Spain and the UK,
where the infrastructure is already in place. As such, the reduction in taxes may help to facilitate

22
The Economic Impacts of Air travel Restrictions due to Volcanic Ash, Oxford Economics, prepared for on behalf of Airbus, 2010
23
Aviation: Benefits Beyond Boarders, ATAG, 2012
24
Eurostat, occupancy rates calculated as total passengers on board divided by the total seats available
Passengers Affected 5.9 mill ion
GDP Impact million
Direct - Air Transport 698
Indirect - Air Transport 323
Induced - Air Transport 102
Destination Impacts 710
Productivity Losses 128
Total 1,962
Share of one-week GDP 0.67%
Source: Oxford Economics
October 2012

22
improvements in efficiency through higher levels of flight occupancy rates, limiting the potential
environmental impacts through higher emissions.
One of the primary justifications of the Austrian ATL was to negate and compensate for the environmental
impact of air transport. However, with the inclusion of aviation within the scope of the EU Emissions
Trading Scheme (ETS) in 2012, this aim now becomes redundant.
The EU Emissions Trading Scheme (ETS) is a major pillar of EU climate policy designed to reduce the
emission of harmful greenhouse gases and combat climate change. At the time of its inception in 2005, it
was the first and largest international scheme of its type in the world. By 2020, the aim is to deliver a
reduction in the emission of greenhouse gases in the EU of 21% on 2005 levels.
The mechanism by which the ETS works is through a cap-and-trade principle. Total emissions are
capped by the European Commission and then allocated either directly or through an auction to
companies which can then trade them on the open market. Establishing a market for emissions ensures
that emissions will have an associated cost attached to them for the companies concerned. As such, as
the cap is incrementally decreased every year by the European Commission, the cost of emissions will
increase, encouraging firms to invest in better technology and ensuring a more efficient allocation of
emissions across sectors.
From 2012, the emissions from all domestic and international flights that arrive or depart an EU airport are
included in the EU ETS, regardless of whether the carrier is based in the EU or not. Following a
consultation of stakeholders, the European Commission concluded that incorporating aviation into the ETS
was the most cost-efficient and environmentally effective option for controlling aviation emissions. The
result is that airlines in Austria, and ultimately their passengers, are now being charged twice to
compensate for their impact on the environment, disproportionately penalising the aviation sector and
diminishing global competitiveness of an industry that punches above its weight in terms of contribution to
economic growth.
October 2012

23
6 Appendi x methodol ogy
6.1 Channels of economic impact
Section 3 of the report details the contribution that the aviation sector makes to the Austrian economy in
terms of the value of the sectors output and the number of people it employs. The output component is
measured by Gross Value Added (GVA). The sum of GVA across all industries in the economy will
approximate the economys overall GDP.
GVA is the contribution to the economy of an individual producer, industry or sector. It is probably easiest
understood as the value of a producers output (goods or services) less the value of inputs used in the
production process for that output. An equivalent measure of GVA is the sum of profits and employee
costs generated by the producers activity. GVA differs from Gross Domestic Product (GDP) in the price
used to value goods and services. GVA is measured at producer prices that reflect the price at the factory
gate together with cost of distribution. GDP is measured at market prices that reflect the price paid by the
consumer. The two prices therefore differ by the taxes less subsidies levied on the goods or services.
The Direct Impact of the aviation sector is calculated by summing the GVA and employment (measured in
terms of headcount, to enable comparisons with national statistics) contributions for all those firms
engaged in the aviation sector. Data was sourced from a combination of annual financial accounts,
supplemented by operating statistics provided by Austrian Airlines. For the purposes of this study, the
aviation sector comprises three distinct types of activity:
- Airlines transporting people and freight.
- Ground-based infrastructure that includes the airport facilities, the services provided for
passengers on-site at airports, such as baggage handling, ticketing and retail and catering
services, together with essential services provided off-site, such as air navigation and air
regulation.
- Aerospace manufacturing that builds and maintains aircraft systems, airframes and engines.
In addition to its direct impact, the aviation sector contributes to the economy through two other channels,
known as the indirect and induced channels of impact. The Indirect Impact of the aviation sector
quantifies the activity supported in the national supply chain, as a result of the procurement of inputs of
goods and services from the aviation sectors suppliers. Without the presence of a thriving aviation sector,
this domestic supply chain activity would not exist and thus it is important to consider when evaluating the
sectors impact. The Induced Impact of the aviation sector quantifies the activity supported by the
consumer spending of those individuals employed through both the direct and indirect channels outlined
above. Through the spending of their wage income, activity is supported in the industries that supply these
purchases, including retail and leisure outlets and in a range of service industries. Taken together, these
three channels give the aviation sectors total economic impact in terms of GVA and jobs.
6.2 Input-output tables
The indirect impact is measured using an input-output table. Input-output tables are designed to give a
snapshot of an economy at a particular time, showing the major spending flows from final demand (i.e.
consumer spending, government spending and exports to the rest of the world); intermediate spending
patterns (i.e. what each sector buys from every other sector the supply chain); how much of that
October 2012

24
spending stays within the economy; and the distribution of income between employment income and other
income (mainly profits).
The idea behind the input-output table is that the economy can be divided into a number of producing
industries, and that the output of each industry is either used as an input into another industry, or in final
consumption. For example, grain produced by the farm sector becomes an input into flour milling; flour
produced by the milling sector becomes an input into the baking sector, and so on. In essence an input-
output model is a table which shows who buys what from whom in the economy.
As input-output tables describe how an industry uses the output of other industries as inputs in the
production of its goods or service, they describe its full supply chain its direct suppliers, those industries
that supply its direct suppliers, and so on as well as the proportion of the inputs that are imported. This
is reported as the indirect output component.
The input-output table reports how much of final output is sold in the domestic economy. Using similar
methods as that used to derive the indirect output component, the input-output table can be used to
estimate how much spending on completed goods (known as final domestic consumption) is supported
through the employees of the industry and its full supply chain. This is reported as the induced output
component.
6.3 Tourism
In quantifying the benefits from Travel & Tourism (T&T) we were seeking to capture the spending by
tourists and businesses on accommodation, food etc outside of their airfare (which forms part of our
estimate of the direct calculation). In doing this we relied heavily on the Oxford Economics Travel &
Tourism model prepared on behalf of the World Travel & Tourism Council (WTTC) which simulates
Tourism Satellite Account (TSA) data across over 180 countries. From the model we obtained an estimate
of the level of GVA created by foreign visitors, and assigned a share of this to the aviation industry based
on the share of foreign visitor arrivals travelling by air. We then used coefficients within the model to divide
this between T&T providers (direct) and their supply chain (indirect). Finally, we attributed a share of the
total induced effect to the aviation industry by dividing our estimates of aviation-related direct and indirect
GDP by total T&T direct and indirect GDP. It should be noted that the initial figure presented for the
contribution of aviation related tourism is a gross measure of the benefit from tourism and therefore does
not account for the spending which is effectively lost when domestic residents travel abroad by air.
There is some uncertainty on the correct number to use for the proportion of foreign visitors arriving by air.
In order to be consistent with previous research on aviation's economic contribution to the Austrian
economy
25
, we use data sourced from the Austrian Economic Chambers Tourism in Numbers publication
(48th Edition, May 2012), that gives the proportion of foreign visitors arriving by air as 6%. This estimate
may however be on the conservative side, as the Austrian Tourism Board (Oesterreich Werbung) has
indicated that they believe the proportion to be nearer 10%. We have chosen to base our calculations on
the estimate contained within the Austrian Economic Chambers publication. Had we instead taken an
average of the two, our headline finding for the total economic impact for air transport (including tourism)
would have been higher by 7.1%.

25
Economic Benefits from Air Transport in Austria, by Oxford Economics (2011)

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