Airline stocks including British Airways owner International Consolidated Airlines (IAG) are set to be affected by planned changes to aviation tax, in which long haul flights will incur more tax and domestic flights less tax.

The Government has announced planned hikes to air passenger duty for long haul flights, while the duty domestic flights is set to be reduced as part of what the treasury calls the ‘polluter pays principle’.

The plan is to ensure ‘those who travel furthest internationally, and consequently have the greatest impact on the environment, incur the most duty.’

Initial reaction to the tax changes were muted for most airline stocks, with budget airline EasyJet (EZJ) and tour operators TUI (TUI) and Jet2 (JET2) already weak due to the threat to holidays this summer, and with it their potential recovery in earnings from a dismal 2020.

IAG HEADS SOUTH

However, IAG headed lower than the rest shortly after 2pm, now down 5.4% today to 185.3p, with a majority of its revenue coming from long haul flights.

The aviation industry has been increasingly outspoken about the lack of government support during the pandemic. Ryanair (RYA) boss Michael O’Leary has repeatedly urged MPs to focus on reforming air passenger duty, something echoed by aviation industry trade bodies.

The aviation tax changes come as the Government publishes more than 30 tax updates, consultations and documents in a move it hopes will ‘strengthen policymaking and modernise the UK tax system’.

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Issue Date: 23 Mar 2021