Abolishing domestic-flight fees not the answer

We will not solve the problem of high fares on domestic flights and falling passenger numbers by abolishing State-imposed fees, as such fees make up just a small part of the overall cost, according to Ólöf Nordal, Icelandic Minister for Home Affairs. The issue of domestic flights in Iceland was discussed in the Icelandic Parliament (‘Alþingi’) this morning.

Val­gerður Gunn­ars­dótt­ir, MP for the Independence Party (‘Sjálfstæðisflokkurinn’), launched this morning’s debate. She chaired the Ministry’s working group on domestic-flight fees which presented its recommendations to the Minister on Monday. One of their conclusions was that abolishing passenger fees, landing fees and input VAT could reduce domestic fares by an average of ISK 1,700 (approx. €11).

Fees only a fraction of total costs

The Minister indicated that the working group’s report was currently being considered in the Ministry. In her view, domestic flights are one link in the chain of Iceland’s public transport system and an expensive one. The costs are spread between passengers, flight operators and the State.

Nobody denies the vital importance of domestics flights in Iceland – but there are diverging opinions on how they should be run and how costs should be shared. Nordal expressed her surprise at how little of the overall cost State-imposed fees account for, given that a major argument in the ongoing debate on falling passenger numbers has been that such fees are so high.

Nordal consequently does not see abolishing State-imposed fees as a useful stand-alone solution. It has apparently not been demonstrated that passengers will see any benefit at all from lower State-imposed fees. Attention should be turned rather to the State’s role in this matter. In Nordal’s view, State involvement is to some extent necessary to ensure development in certain parts of the country.

The future of domestic flights

That said, Nordal wondered whether State involvement was necessary in any other respect, i.e. whether domestic flights might thrive in market conditions or if the role of the State was to support the development of airline business. She also wondered about the tourism-related opportunities related to domestic flights.

“Numbers of foreign tourists are rising, as I trust they will continue to do. When considering the future of domestic flights, we must look into better marketing of domestic flights as part of the overall Icelandic public-transport system,” she added.