VAT on tickets and tax reform, among the challenges of the airline sector

The Colombian aviation sector sees a complex panorama for its developmentafter the economic rebound after the passage of the covid-19 pandemic, which has led it to lead this recovery in the region.

(Read: Latin America will need 2,550 new planes in the next 20 years).

This was stated by the business leaders of the airline sector in the framework of the most recent summit of leaders of the Latin American and Caribbean Air Transport Association (Alta) held in Buenos Aires earlier this week.

Among the issues raised by the executives is the return of VAT collection at 19% for air ticketsthe carbon tax for climate compensation and the impact on equity, since aircraft are operated under lease.

“It is difficult to coordinate public policies that, on the one hand, want more competition with lower prices, with the tax burden of tickets, in the region extremely high. A ticket in Colombia more than half of what you are paying is already taxes (…) That goes against the grain”, said Adrián Neuhauser, executive president of Avianca. The director pointed out that these issues have already been raised to the relevant political authorities.

“We believe that it is the wrong signal in relation to what is being sought (…) Once we have already done everything we can, if there is no incentive from the tax side, it will be very difficult for prices to continue to fall although we demand competition”, he added.

Local and foreign recovery

Columbia is one of the countries with the greatest commercial recovery in Latin America two years after the total stoppage derived from the covid-19 pandemic. This, according to the new aviation performance report published by Alta, within the framework of its 2022 leaders summit that is being held this week in Buenos Aires.

(Read: Together but not scrambled: Viva does not work with Avianca, it is competition).

Thus, at the domestic level, Colombia registered a recovery of 114% in August compared to the same month of 2019. The country is followed by Mexico (109%); Brazil (92%); Chile (87%) and Peru (86%).

Now, at the international level, Colombia has a recovery of 110%, which places it in second place compared to the Dominican Republic (120%), while it is above Mexico (108%).

It is worth noting that Mexico and Colombia are the only two member countries of the organization that currently have 100 points, the highest rating for freedom.
In fact, within the 20 most searched air routes, between September 2022 and the same month of last year there are three Colombians, with the Bogotá-Madrid connection being the second most searched, behind Sao Paulo-Lisbon. The other routes are Bogotá-Medellín and Bogotá-Cartagena.

At the business meeting, the directors were emphatic in reiterating the potential that the region has to continue with sustained growth in 2023, taking advantage of the momentum that countries such as Chile or Argentina have given it with the recent lifting of the latest health restrictions for foreign flights to enter the country.

“Air travel is historically correlated with economic growth. However, by 2023 Alta forecasts that the region will continue to grow and recover 2019 levels”, summarized the report.

(Also: Alliances, unions and returns, the ‘moves’ of the air sector).

However, the executives mentioned that what could slow down this growth would be the price of fuel, which has increased due to the war in Ukraine, and the possibility that its value is not related to the foreseeable global economic slowdown.

“We are in a period of reconsolidation that will continue in 2023 and we hope that by 2024 the industry will return to total normality. Although we must be optimistic about the recovery of passenger traffic, we must not forget that we are coming from the deepest crisis in the history of aviation”, expressed Roberto Alvo, executive president of Latam and outgoing president of the Executive Committee of Alta.

One of the leading airlines of the event was the Colombian Avianca, whose leader Adrián Neuhauser was appointed as new president of the Executive Committee of the union organization.

Among his lines of work, the manager mentioned that he will seek to work for the tax burdens that currently fall on the sector, in favor of greater competitiveness.

Regarding its future plans with connectivity to Venezuela, the airline mentioned that it is analyzing flying to the neighboring country from various regional points, while reiterating “being ready” to start with the connection from Bogotáonce the respective permits are authorized.

“It is a natural connection for Avianca, but it is also for any airline today due to the important diaspora of Venezuelan citizens in Latin America that generates a lot of demand for travel (…) We welcome the efforts of the two governments”, Neuhauser specified in a press conference, where they highlighted other routes that will operate by 2023.

Regarding the Abra Group, the business umbrella that links Avianca with the Brazilian company Gol, the executive confirmed that they continue to wait for the approval for the ‘low cost’ firm Viva to be linked to the organization by the Civil Aeronautics of Colombia, as well as reaffirmed the expectation for the Chilean Sky Airlines to be part of the ‘hub’.

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