Economics 28/12/2009: More evidence against Ireland's travel tax

Updated

My favorite topic is back... travel figures. RTE reports on industry estimates of 12% fall off in the number of foreign tourists (not visitors) to Ireland (here). More interesting data is courtesy of Ryanair release (these guys really should win a transparency award for publishing the data that some parts of the public sector do not want us - the public - to know).


Dublin Airport’s seat capacity has slumped from 10 to 17 ranked in a league of EU airports this winter. The report, by RDC Aviation, also shows that Dublin Airport has suffered the largest capacity cuts of any of Europe’s 25 largest airports. This slump proves that the Govt’s €10 tourist tax has devastated Irish traffic and tourism in 2009 and disproves the Dept of Transport’s false claims that Dublin Airport’s traffic collapse is “an international phenomenon” (per Ryanair statement).
Notice that table above (reproduced from the RDC raw data) clearly shows that Dublin Airport traffic fall off in 2009 relative to 2007 is also out of line with other leading airports. Table below stresses this point:
Notice airports that outperformed Dublin (in blue above) - all selected on the basis of their traffic similarity with Dublin - localized, regional traffic with smaller share of transit passengers for international connections.

Now, ANOVA for the above: while Dublin numbers changes do belong in the sample for 2008, the same is not true for 2009. This tends to support the argument that changes in Dublin capacity are not consistent with overall deterioration in economic conditions internationally.
So here we have it - another source of evidence to support 'Gurdgiev-Ryanair' conjecture that airport taxes and charges are undermining Irish airlines and travel sectors. Note - the fact that airlines are being hurt is evidenced by the fact that all major airlines present at the Dublin Airport - not only Ryanair, but also Aer Lingus, EasyJet and BMI - have made such a claim to the Government.

Per Kevin's very incisive comment (see in comments section) several points worth addressing:

"First of all you have to consider the timing of the tax, to what extent does it coincide with the fall in numbers."

This is precisely what is addressed in 2007-2008 and 2008-2009 growth rates that I added to the data. Full impact of travel tax took place in 2009. Notice the discrepancy in the rates of decline at Dublin and the differences in the Anova table - they show that 2009 regime was completely different from the 2007 and 2008 regimes.

"Then you need to allow for any other taxes/charges in these other places and their change."

Actually, no - I do not need to do so. If other places had any change in their travel tax rates, there will be an effect on these airports in the first order, and on Dublin airport at the very best in the second order. The first order effect, I would assume, will be simply much larger. Furthermore, several airports on the list have lowered their charges and several governments have repealed their travel tax. I do not control for this precisely to err on the skeptics side. Re-weighting figures by removing from the sample those airports where charges and taxes were reduced in 2009 actually changes the Anova bands by less than 0.2 points, without altering the conclusions.

"And of course you need to control for any other factors that differentially impact on capacity which may or may not be correlated with the variable you are interested in."

True. But what these might be? Macro shocks are suggested. Ok, take the logic here - the figures are bi-lateral capacity. So, if, say, potential Italian tourists to Ireland were less adversely impacted by macro shocks, their propensity to travel to Ireland would be less adversely effected by income shocks. Since Ireland experienced the worst 'macro shocks' of the entire Eurozone, then the differences in macro shocks will act to improve traffic through Dublin Airport.

What other forces can be acting here? Higher airfares? Not really - Dublin offers some of the lowest airfares, net of taxes and charges in the EU15. And it is being compared against other full cost (not low cost) airports. So price effects, again, are acting to strengthen my argument, not to weaken it.

Optimally, an econometric exercise should be carried out, alas, two obstacles prevent this from being performed:

1. lack of coherent data across various airports; and
   
2. lack of time dimension post-tax introduction.

So we can wait for another 10 years to get the data sufficient to test causality (if we do get it - remember - Dublin Airport alongside Tourism Ireland and DofT are actively attempting to suppress public releases of data on tourism flows through Dublin). Or we can just settle for the second best - an Anova.

Finally, as in medicine, economic policy should always err on the side of upholding the principle of inflicting no harm. this means, that absent full analysis of economic feasibility, no tax policy change should take place. Can anyone point me to such analysis in the case of our travel tax?

Economics 06/08/2009: Travel Figures, Budget, ECB

Travel figures are in - abysmal showing for tourism and leisure industry here. As predicted, the fall off in foreign visitors to Ireland continues, while the number of Irish people traveling abroad is showing signs of stabilizing.

Per CSO:

• Overseas visits to Ireland fell 15.1% to 636,600 in June 2009 compared to the June 2008.
• Visits by residents of the two main visitor markets declined substantially, Great Britain was down 19.8% to 260,700 and Other Europe fell by 12% to 219,600.
• Irish residents made 709,900 overseas trips in June 2009, 7.6% fewer than in June 2008.
• In the first six months of 2009, overseas trips by Irish residents totaled 3,439,300 or 9.8% less than in the same period in 2008.
  
• Six months total visits to Ireland from abroad fell by 10.7% to 3,304,100.

So here we go - jobs are being lost, hotels are shutting down, airlines are cutting services (and revenue), while DAA is raising charges, the Government is raising taxes and our venerable retired bureaucrats (the ones with IMF appointments on their CVs) are penning idiotic missives about how the crisis is the fault of the ordinary folks (SBPost) and how tariff protection of internationally trading sector is a great way to build Irish economy.

Sadly, Michael O'Leary is on vacation or I would have brought to you his explicative in the address of the Leinster House on the latest CSO release. Instead - a picture:

Market to watch: RWR-Reit index and US financials.


How long the circus of our Exchequer meltdowns can continue, one of you asked.

In May this year I wrote in a related note (here): "Cowen also stated that "we have a way out that is working". Remember the brilliant German movie Downfall about the last days of the Third Reich? (See a reminder/spoof here). Say no more... our unbeloved leader is in a state of delusion that is equivalent to awaiting the arrival of a miracle weapon (which does not exist) as the real enemy tanks are crushing your city."

That was then. Now, we pretty much know that the Government has deployed all its imaginary weapons and divisions against the enemy. The latest signs from the Cabinet pronouncements (and this includes their advisers) suggest that the Government has assumed the enemy away.

They have borrowed up some €25bn on the estimated liability of of over €35bn (counting recapitalization demands) that in their view will get them (alongside NPRF cash and left-overs from 2008) through this year. The Government is so short-termist that they have no clue / plan/ idea as to what happens after.

From this vantage point - anything is possible. Note the latest ECB statement today:

ECB stated that there are “increasing signs that the global recession is bottoming out”. Eurozone economy's pace of contraction is “clearly slowing”. Compared to July when it was noted that the activity “should decline less strongly” than in Q1 2009 - the latest statement suggests the ECB is already pacing potential interest rates increases in months to come.

And then in Q&A, Trichet did leave open a possibility that growth outlook for the Eurozone might be revised upward in the forthcoming ECB Staff Macroeconomic Projections before September meeting. The forecast update might move growth from current -0.3% expected for 2010 to 0% or even the consensus level of 0.4%. Another issue is timing - the ECB used to forecast return to growth for Q2 2010. This time around, no mentioning of Q2 anywhere, suggesting they are moving for growth to resume in Q1. And then there was Trichet's view that deflation is temporary and that by the end of this year we shall see inflation.

All of this points to a rising interest rates environment sometime in 2010, possibly as early as the end of Q1 2010 if inflation firms up and growth resumes in Q1. Remember, all that quantitative easing will have to go somewhere - i.e into price increases. When that happens, Mr Cowen will be sweating profusely in his air conditioned Merc, because the la-la land of endless borrowing will be over in a second.

Before then, he will pile cash reserves through aggressive borrowings from the ECB to make sure he can pay public sector wages and keep unions from completely imploding. The ICTU/SIPTU have already sensed the weakened leadership and are ganging on Mr Cowen's positions left, right and center. The problem is that comes Q1 2010, the QE will be over, as will be the Lisbon vote, so Mr Cowen will face the real problem of having no cash left by, approximately Q2 2010 or possibly the end of Q2 2010 - depending on how his borrowing will go down in the next few months.

What bothers me most, however, is why on earth no one in the markets realising this?