Willingness to pay for the APD

Seetaram et al. (2014) used macro-level data, because they deemed that this topic requires micro-level survey data, which give a better indication of the consumer’s behaviour, by doing away with aggregations that eliminate information in the process. Therefore, in Seetaram et al.’s 2018) study, a survey questionnaire was used to collect information ofBritish consumers’ expenditure patterns on overseas visits. The survey collected data on the sociodemographic information of the respondents, including their gender, age, education level, current employment status, number of family members, gross household income per year, domestic travel experience and international travel experience in 2015. Also, there were questions related to the respondents’ knowledge and opinion of APD and thus their level of awareness of APD and other relevant charges, in addition to their preferences for the way APD is charged and spent. Finally, the survey included a section that provided the respondent with six air travel scenarios (two flight classes times three trip lengths), and they were asked the maximum that they were willing to pay for each of these on the basis of nine intervals: 0, £0.01 to £15, £15.01 to £30, £30.01 to £45, £45.01 to £60, £60.01 to £75, £75.01 to £90, £90.01 to £105 and more than £105. The final WTP amount is based on the median value of each interval. The survey was administered through a market research company with a track record of generating robust and reliable panel data, and the survey was conducted online from 9 to 28 February 2016. In total, 2,002 responses were collected. The social demographic characteristic of the sample is given in Table 14.3.

Table 14.3 Distribution of the respondents’sociodemographic attributes

Gender	N	%	Education		%
Male	827	41.3	GCSE or O level or equivalent	460	23.0
Female	864	43.2	A or AS level or equivalent	365	18.2
Female	864	43.2	Higher qualification below degree level	249	12.4
Total valid	1,691	84.5	Undergraduate degree	455	22.7
Missing	311	15.5	Postgraduate degree	287	14.3
Total	2,002	100.0	Other qualification	95	4.7
Total	2,002	100.0	School Leavers Certificate	41	2.0
INCOME
< 10,000	180	9.0	Total valid	1,957	97.5
10,000-20,000	482	24.1	Missing	50	2.5
20,000-30,000	400	20.0	Total	2,002	100
30,000-40,000	265	13.2	Total	2,002	100
40,000-50,000	220	11.0	EMPLOYMENT
50,000-60,000	174	8.7	Employed full time	763	38.1
60,000-70,000	98	4.9	Employed part time	320	16
> 70,000	183	9.1	Self-employed	178	8.9
> 70,000	183	9.1	Retired	492	24.6
Total valid	2,002	100.0	Student/training	80	4
			Unemployed/looking for work	79	3.9
			Looking after family/home	90	4.5
			Total valid	2,002	100

Source: Seetaram et al. (2018)

From the data, 74 per cent of the respondents are willing to pay for the APD on short-haul economy trips, and these values increase to 78.2 per cent for long-haul business trips. Of the 28.3 per cent who are not willing pay for it, the two key reasons provided are the lack of information on the APD and respondents’ stating that they already pay enough taxes. The consumers’ preferred way for the government to use this revenue is on environmental projects (35.9 per cent), followed by airport developments (26 per cent) and tourism-related projects (15 per cent). The key findings of this study are provided in Figure 14.2. As discussed, the willingness to pay for the APD is higher among business travellers and it increases with distance travelled.

In the second part of the analysis, the demand curve with respect to the APD is obtained for each of the six trip categories. All six demand curves are downward sloping and convex, displaying the expected properties of demand functions. These properties imply that elasticity along the curves is not constant. Demand is inelastic for lower values of APD and an increase for higher values of APD. The critical point is reached when demand changes from inelastic to elastic, which is approximately £37.50 for all scenarios except for long-haul

Figure 14.2 Marginal willingness to pay (MWTP)

Source: Adapted from Seetaram et al. (2018)

Table 14.4 WTP for APD

		WTP+ (£)	Actual (2018)++ (£)
Economy	Short haul	16.54	13
Economy	Long haul	22.90	78
Business	Short haul	24.11	26
Business	Long haul	39.80	156

Source: Seetaram et al. (2018)

Notes: + HM Revenue & Customs

++ 2019

business travel, where the critical value is approximately £52.50. The implication is that if APD is charged below £37.50, an increase in the figure up to the point of £37.50 will increase government revenue but that a further increase beyond this point will reduce government revenue.

According to this study, MWTP for short-haul trips is £16.54 in economy class compared to the actual rate of £13 chargeable (HM Revenue & Customs, 2017). This will remain unchanged in the foreseeable future. Long haul increased by £6 in 2018 but is expected to remain unchanged as of April

2019, after which it will be linked to the RPI. The actual band does not define medium-haul travel. According to this study, the long-haul economy-class passengers and long-haul business-class passengers are charged an APD that is higher than their MWTP, which indicates a loss in consumer surplus, which is transferred to the government in the form of revenue. However, part of the loss in consumer surplus is likely to be a deadweight loss for the economy. The next study, by Song et al. (2019), questions how consumers fund the taxes.