Taxation policy

At the same time, one of the most obvious ways in which the economic environment affects demand is through the taxation policy of the regime in power. Where taxation rates are high they result in low disposable incomes, which can depress demand, and in contrary, low taxation tends to be a spur to growth. But there are two main types of taxes. Direct taxation taxes incomes and hence affects the overall disposable income available for purchases.

Indirect taxation, on the other hand, taxes incomes and shift demand from one area to another through its selective application. The indirect taxation in UK that affects the airline industry great is the tax of fuel. On top of rising oil prices, the UK has one of the highest levels of taxation on fuel in the world. The data show that the costs related to fuel are the largest part of running costs in the expenses of airline, they account about 15% of the overall expenses (Year Report of European Airlines, 2003).

Meanwhile, over 70% of the cost of petrol is derived from taxes. Therefore, the high fuel taxation policy is a great negative factor for the airline of UK. According to the forecast of GDP development, unemployment rate, together with the real wage changing during the last 10-15 years, we could expect a better economic environment of UK. The further increasing GDP and real wage, as well as the continuously declining unemployment provide a basis for the growing market demand for the air travel.

However, the high fuel taxation policy in UK is a negative factor that affects airlines operating greatly; it causes lots challenges on the management of the airline running, particularly at present all the carriers in this industry are facing tough competition not only within the industry itself, but also from other transport sector. Such kind of economic factors show that the optimistic forecast data in terms of GDP, unemployment, real wage could not provide a real attracting business in the future.

Therefore, in order to get a correct overview of UK airline industry, we must look into some important data and factors that could illustrate the business environment of the airline industry, and then help us to learn weather this industry is attractive. The major data and rates that we used to examine the business environment of airline industry are industry revenue, profit level and major traffic flows. Because they will show the outcomes of this industry, the investment return, and the major market of this industry. The load factors are also applied to analysis the market development in addition with major traffic flows.

The operating revenue of UK airline industry has been steady increasing since 1990, from i?? 6325. 2m to i?? 14102. 8m in 2000; the revenue is doubled in the last ten years (Source: UK Airline Statistics, Economic Regulation Group, 1990-2003). When we look into the chart of the major airline operating revenue, we could find out such kind of steady development, although there are revenue declines during 2001, 2002. The reason for the declines is very simple, the terrorist attack of 11 September 2001. The world's major scheduled airlines are affected greatly, primarily in the US but also in other parts of the world.

However, the airline industry, not only UK, but also the world, is recovering from it. Therefore, we could expect that in the long-term growth, the revenue of the airline industry will develop in line with the GDP development of UK. The regression model is applied to forecast the revenue in the future, from 2004 to 2008 (Appendix 3. 1). The revenue will increase from i?? 15923m to i?? 18609m, the development rate is about16. 9%. This trend shows us that, the airline industry will experience further development in the future, and there will be more market occurs in this industry.