Air fares are expected to reduce next year, as a consequence of the Cape Town Convention ratification by Parliament early this month.
The Convention was part of eight other conventions and treaties tailor-made for the aviation sector that were ratified by Parliament.
By this, domestic airlines are now able to secure relatively inexpensive aircraft leases that will ultimately translate into reduced direct operating costs. This is expected to translate into cheaper fares for passengers.
Prior to ratification of the Cape Town Convention, airlines (lessees) have had to pay about US$500,000 per month to their lessors for the use of the lessor’s equipment on wet lease. The cost of aircraft leasing is expected to reduce by some 20-30 percent following ratification of the Convention.
The Convention on International Interests in Mobile Equipment and Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, otherwise known as the Cape Town Convention, is designed to facilitate asset-based financing and leasing of aviation equipment, expand financing opportunities, and reduce costs; thereby providing substantial economic benefits.
It does so by reducing a creditor’s risk and by enhancing legal predictability in these transactions, including in case of a debtor’s insolvency or other default. The Cape Town Convention entered into force in 2006.
“On Dec 9, through the Committee on Roads and Transport, these agreements were rectified by Parliament. It is divided into three categories — we have those that border on security, aviation sector generally, those on airlines and those that border on passengers.
“Non-ratification of the Cape Town Convention made it difficult for the acquisition and finance of equipment, and made the cost of equipment for domestic airlines very high. With this law (Cape Town Convention) in place, they can acquire equipment’s more easily,” Theophilus Tetteh Chaie, Chairman of the Parliamentary Select Committee on Roads and Transport said in an interview.
Passengers are expected to benefit from approval of the Cape Town Convention, with improved service and increased capacity on all four domestic routes — Kumasi, Takoradi, Tamale, and Sunyani.
There has been a public outcry over the increase in airfares between Accra and Kumasi, Sunyani, Tamale and Takoradi.
The increase, due largely to the depreciation of the local currency against major trading currencies, especially the dollar — and 17.5 percent Value Added Tax (VAT) imposed on the gross ticket prices this year, has led to a significant reduction in the volume of passengers choosing air travel as an option.
A one-way ticket from Accra to Kumasi that used to cost under GH¢250 one-way now costs about GH¢297 as a result of imposing 17.5 percent VAT on the gross fare — which already includes a mandatory GH¢5 cedi airport tax.
Passengers now travelling to the Ashanti regional capital Kumasi, the largest domestic destination, now prefer to travel by road in a comfortable air-conditioned VVIP buses that charges a mere GH¢40 one-way.
President John Mahama, acknowledged the difficulties created by imposition of the tax at a recent Ghana Airports Company Limited Annual General Meeting saying: “We are willing to look at it again when all the facts are presented to government”.
Dr. Camynta Baezie, Executive Chairman of the State Enterprises Commission, joined calls for an immediate review of imposing VAT on domestic airfares.
“The State Enterprises Commission would like to bring to the attention of the President, sector ministry and, more importantly, the Ministry of Finance the high cost of domestic flights is something that has been said over and over again.
“We need to reduce the airfares, and to do that we think government needs to take out the 17.5 percent VAT and remove the taxes on aviation fuel. Taxes are meant to benefit the people, and removal will lead to increases domestic passenger travel and create jobs –and hence employment for the benefit of the very people that we are imposing the taxes on,” Dr. Baezie said.
Benefits:
- Cape Town Convention will facilitate acquisition of modern fleets
- Domestic airlines pay a minimum of about US$500,000/month on current wet lease
- Cost to reduce by some 20-30% following passage of Convention
- Domestic airlines will be able to engage local crews