New Airline-Ticket Tax to Aid the Developing World

  • Share
  • Read Later
Frederick J. Brown / AFP / Getty

A passenger holds her ticket and waits in line at a Cathay Pacific Airlines counter

Correction Appended: Sept. 18, 2009

Starting next January, whenever you buy an airline ticket at a travel agency or online, there'll be a new question to answer before you hand over your credit card: Would you be willing to donate $2 to help fight HIV/AIDS, malaria and tuberculosis in Africa?

It sounds like a small step, and many airline travelers, already irritated by compulsory surcharges for fuel, baggage and wider seats, may simply ignore it. But behind this call for a voluntary contribution is an unprecedented worldwide effort to make up a shortfall in official government aid to poor countries — a shortfall exacerbated by the world financial crisis.

The scheme, the idea of a small U.N. agency, is backed by the travel industry and heavyweights of international aid such as the William J. Clinton Foundation and the Bill and Melinda Gates Foundation. It will be formally announced in New York City on Sept. 23 on the fringes of the U.N. General Assembly, and accompanied by a marketing blitz. British Prime Minister Gordon Brown and the head of the World Bank, Robert Zoellick, are expected to participate in the launch, as well as the chief executives of the three companies that have made it technically possible: Amadeus, Sabre and Travelport/Galileo, who run the reservation and ticketing systems for most of the world's airlines. Barring any last-minute technical or legal hitches, the scheme will roll out in late January in the U.S. and several European countries, including Britain, Germany, Spain and Switzerland.

The initiative is the brainchild of Philippe Douste-Blazy, a former French Foreign Ninister who is now a U.N. Under Secretary charged with finding innovative ways to finance projects. He runs an agency called UNITAID that is attached to the World Health Organization and already channels funds to fight disease in poor countries. UNITAID was founded in 2006. Its $400 million annual budget is funded by Britain, France, Norway, Brazil and Chile. Douste-Blazy is now trying to turbo-charge those efforts by bringing in private donations. He's set up a foundation linked to UNITAID that will collect the voluntary airline-ticket levy and distribute it to key players in the field of medical assistance in Africa and elsewhere. Recipients will include the U.N. children's agency UNICEF and the Clinton foundation. As well as targeting HIV/AIDS, tuberculosis and malaria, the money will also be spent on improving maternal health and reducing child mortality.

If the plan works, it'll help the U.N. out of a dilemma of its own making. Back in 2000, the U.N. agreed on a set of lofty targets known as the Millennium Development Goals that aimed to lift African nations and other poor countries out of their cycles of poverty, illiteracy and disease by 2015. But of the $150 billion development assistance pledged by governments, just $104 billion has been provided. Douste-Blazy believes that only individual philanthropy will be able to make up the shortfall. "The architecture of development is changing," Douste-Blazy tells TIME.

The world financial crisis has made such change a necessity, says Bjorn Skogno, a senior official in the Norwegian Foreign Ministry, who is a board member of the Millennium Foundation, the entity set up by UNITAID to collect and distribute the private donations. Overseas development aid "is likely to go down because of the crisis, so there's a need to be innovative to find new sources of funds," Skogno says.

Consulting firm McKinsey & Co estimates that the levy could raise as much as $1 billion a year, although Douste-Blazy cautions that it will take several years to reach that goal. He promises that administrative expenses will remain extremely light, especially by U.N. standards — less than 5% of the money raised.

Crucially, he has managed to win over key players in the travel industry. Airlines and others have long been skeptical about attempts by France and some others to levy compulsory taxes on airline tickets to pay for development aid. But the reception to this initiative has been friendly, because the donations are voluntary. "Travel is already taxed pretty highly," says Gordon Wilson, the CEO of Travelport GDS, which runs two big reservation systems, Galileo and Worldspan. But asking people if they are willing to donate is a different issue: "The overall response is that it makes people feel good about travel but also embraces responsibility," Wilson says.

The success or failure of the scheme will depend on how it's perceived by the public. The Sept. 23 U.N. meeting will kick off a marketing campaign that seeks to win over consumers. And the travel industry has been busy making sure the technology works perfectly before launch. "It's all a question of how it's presented to the consumer," Wilson says. Travel agents will be automatically given the prompt to ask for the donation as they process an order. Online, a new box will show up in the shopping cart just before customers are asked for their credit-card details.

If it does take off, it will mark a comeback for Douste-Blazy, a medical doctor by training who received withering press at home during his brief stint as Foreign Minister from 2005 to 2007. It's no accident that he's a Frenchman: the French have for several years levied a compulsory tax on airline tickets to help fund development projects and have long sought to get others to join them, with mixed success. Brazil is one of only a few countries to have followed suit. Norway also taxes airline CO2 emissions and uses the receipts for overseas aid.

Consumers in nations that already have such official taxes won't be included in the first phase of the voluntary contribution. If the initiative proves successful, though, expect it to expand. As for the size of the suggested contribution, Douste-Blazy says it was kept at a modest $2 so as not to take funds away from UNICEF and other aid organizations that rely on donations. If the initiative does take off, is there a risk that governments will view it as an excuse to spend even less on international aid? Douste-Blazy is firm: "It's an addition, not an alternative."

The original version of this story misstated that the Bill and Melinda Gates Foundation will be receiving money from the new airline-ticket voluntary surcharge to help fund development projects.