Russel Norman

Flight tax vs oil price

by Russel Norman

I have posted earlier about the PM’s short sightedness when it comes to considering the potential impacts of oil price increases on tourism, versus his loud complaining about the potential impacts of flight taxes being imposed by the UK govt.

But I wondered if it was possible to quantify the comparison between the departure tax and oil price increases.

According to the Herald the cost of the departure tax is: “Premium tickets to New Zealand face taxes of up to $355 while economy class travellers will be charged half that amount.” So roughly $175 for an economy ticket.

So how does that compare to the impact of oil price rise? The library had a go at it for me:

A Boeing 747 consumes 0.0167 gallons of jet fuel per passenger per mile – that comes to about 4.6 oil barrels for a one-way flight from Wellington to London.

Jet fuel costs about 20% more barrel than crude oil – it was selling for USD$95 on October 29th and crude was about USD$80. This rough relationship appears to have held in the past.

So, if crude hits USD$100 a barrel, then jet fuel should be about USD$120 a barrel, a USD$25 a barrel increase from now.

USD$25 multiplied by 4.6 barrels equals USD$115. At the current conversion rate, that’s about NZD$150.

So, a rough measure would see the cost of the fuel needed to fly someone one-way from Wellington to London increase by about NZD$150 if the price of a barrel of crude rose from the roughly USD$80 it costs today (actually, currently trading at USD$85 on the back of the US quantitative easing announcement) to USD$100.

Can anyone put a hole in these figures?

So, if these calculations are correct, the increase in cost of a ticket due to the increase in departure tax is roughly comparable to the increase in cost of a ticket due to an increase in oil prices to US$100 a barrel.

Published in Environment & Resource Management by Russel Norman on Tue, November 9th, 2010   

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