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East Africa plans to cut air transport costs

Transport officials and the aviation industry in East Africa are exploring ways of cutting the cost of air travel. The discussions follow complaints from East Africa’s political leadership that the cost of air travel is uncompetitive and is impeding free movement among the region’s inhabitants.

Mustwafa Muran (left), Astral Aviation Route Network Coordinator and D. Rajdev, Director of Operations at ALS, during a discussion held on 22 October 2014 on reducing the cost of air travel.

Mustwafa Muran (left), Astral Aviation Route Network Coordinator, and D. Rajdev, Director of Operations at ALS, during a discussion on 22 October 2014 on reducing the cost of air travel in East Africa.

From discussions held so far, it is emerging that while taxes are a major part of air transport costs, there are other factors at play.

This weekend, regional ministers will be meeting in Nairobi to look at strategies aimed at cutting air travel costs. Transport and Infrastructure Principal Secretary Nduva Muli says the agenda includes signing the Memorandum of Understanding on the Establishment, Implementation and Management of the Northern Corridor Airspace Block for, “states that would be ready to sign.”

Last Wednesday (22nd October 2014), there was another industry meeting on the cost of air travel. Kenya Civil Aviation Authority (KCAA) acting Director General Joseph Kiptoo noted that though government taxes were often blamed for raising the cost of air travel especially in the pricing of fares, other factors are at play albeit in the background.

“Overheads such as water and power, infrastructure, penalties meted on offending air operators, competition and efforts for efficiency passed over to consumers, greatly influence the pricing set by airlines,” said Mr. Kiptoo.

However, airline representatives pointed out to a myriad of taxes that contribute to the cost of air travel.

Kenya Airways’ Manager for Tax Beatrice Njagi said that the cost of buying an air ticket outside Kenya does not attract value added tax (VAT) but spare parts imported into the country are charged 16% VAT. This, she said, “forces airlines to borrow in order to finance payment of VAT.” Furthermore, VAT refunds generally come late.

Njagi noted that Kenyan airlines are subjected to 1.5% Railway Development Levy on all imported goods and 2.25% Import Declaration Fee on jet fuel. More taxation could be in store, including the Excise Duty Bill which proposes a levy of Shs19.895 per litre of imported fuel.

Jambojet CEO Willem Hondius explained why there is disparity in pricing between tickets booked in advance and those booked just before travel. Hondius suggested that the cost of air travel could be further reduced if several factors were considered. He noted maintenance and choice of airport handling company or lack of it (in the case of monopolies) and the 20% Withholding Tax. Hondius called for the Kenya Revenue Authority to pay market rate interest on VAT refunds that come late.

Kenya Association of Airline Operators CEO Col. (Rtd) Eutychus Waithaka said competition should be encouraged among air operators and called for an Open Air policy in the region. He said improved BASAs (Bilateral Air Service Agreements) between states would encourage more flights in the region and bring fares down. Col. Waithaka recommended that aircraft spares be exempted from VAT and other taxes. Air Navigation Services (ANS) should also not be taxed.

Wednesday’s discussion was a forerunner to this weekend’s ministerial meeting.

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