As Delta increases the amenities it provides to its extra-legroom economy Comfort+ passengers, and transitions its Comfort+ tickets within the US and Canada to the W fare class, the airline is opening itself up to a $111 increase on the amount of tax Comfort+ passengers are charged when departing the UK, and hitting constraints on just how much additional amenity it can provide for Comfort+.
The crux of the matter, particularly given Delta’s increased focus on transatlantic flights, is the United Kingdom’s Air Passenger Duty tax, which has two rates: reduced (for the lowest class of travel) and standard (for everything else).
What’s the difference? At the 2016 rates, the reduced rate for flights over 2,000 miles is £73 (US$ 111), and the standard rate is £146 (US$ 222).
The problem Delta faces is that it is butting up against the threshold for Comfort+ to still qualify for the reduced rate on international flights, with the 50% extra recline in Comfort+ already differentiating that product from Main Cabin.
Delta’s solution so far seems to have been to increase a number of the amenities for international Main Cabin passengers to reduce the number of criteria on which Comfort+ differs from the lowest class of travel.
Runway Girl Network approached HM Revenue and Customs (HMRC), the UK tax authority, for clarification on the position of Comfort+. “We do not comment on identifiable taxpayers so we would not comment on the APD liability of a particular service,” HMRC spokesperson Paul Conroy told RGN.
However, RGN did receive some clarification with regard to sections 2.5 and 2.6 of the tax rules governing APD.
“When determining the class of travel for APD purposes, we consider a number of things, including standards of comfort, service, privacy and amenities,” Conroy noted, paraphrasing the section. “Generally, if all passengers on the aircraft enjoy the same standard of comfort, service, privacy and amenities, we would consider there to be one class of travel for APD purposes and, provided the 40 inch seat pitch criteria was met, the reduced rate would apply.”
“However, if passengers enjoy different standards of comfort, service, privacy and amenities, we would consider there to be more than one class of travel and the standard rate would apply,” Conroy continued. “In relation to extra-legroom seats, we would expect these to attract the reduced rate only if they were not separated from other ordinary seats in any way and provided there were no other benefits associated with the seat.”
Conroy’s wording echoes section 2.6.3 of the rules, which state that:
The following in themselves do not affect the class of travel:
- the purchase of goods and services on board (whether by way of a supplement), unless those goods or services amount to an upgrade
- paying extra for the right to choose a seat (so long as it is not a better class of seat)
- paying extra for a seat with extra legroom, provided that seat is not separated from the ordinary seats in any way and provided there are no other benefits associated with the seat
- paying extra for benefits such as pre-booking, reduced check in times, fast track through security, priority boarding, access to VIP lounges, transport to or from the airport, superior baggage allowances
- paying extra to be seated next to an empty seat
- paying for an empty seat
The key issues would seem to be in the third test: “provided that seat is not separated from the ordinary seats in any way and provided there are no other benefits associated with the seat”.
Let us examine the second issue first. Delta advertises “on most long-haul international flights, up to 50% more recline” in Comfort+.” That, in and of itself, would seem to be an “other benefit” referred to in the third test. With HMRC’s refusal to comment on the tax liabilities — since Delta is the taxed party here, despite the fact that it passes those taxes on directly to passengers — it is unclear why Comfort+ doesn’t fail the third test on the basis of recline alone.
Yet to the first issue, Delta’s significant extra amenities in Comfort+ US/Canada flights would seem to also open up tickets where passengers connecting to a US/Canada Comfort+ flight from a UK flight in Main Cabin or Comfort+ to the additional $111 of standard rate APD.
Domestic Comfort+ would seem plainly to fail the third test in section 2.6.3 on a number of counts: additional food and beverage benefits, amenity items — and the recent decision to add a separating divider above the seatbacks between Comfort+ and its Main Cabin economy product.
— Eric (@GoldboxATL) October 12, 2015
This curtain has, to RGN’s knowledge, appeared only on domestic aircraft. Yet even if the current state of international Comfort+ were not to trigger the more expensive standard rate of APD, Delta’s domestic Comfort+ fare class move would appear to open up any trips with connecting US domestic or Canadian flights with a Comfort+ booking (even if Comfort+ is solely on the US/Canadian leg) to the extra $111.
Section 3.1.5 of the APD rules states:
Where a passenger travels in the lowest class of travel on a flight from a UK airport that subsequently connects (see provisions outlined above and in section 4) to a flight where they are not in the lowest class of travel, then the standard rate of APD will apply.
The rules in section 4 seem clear: if a passenger flies from the UK to point A and connects on the same ticket within 24 hours to point B, and the flight between point A to point B is not in the lowest class of travel, the passenger is liable to the extra $111 charged when moving from the reduced rate to the standard rate of APD.
HMRC’s Paul Conroy confirmed to RGN, which specifically asked about US and Canada connections, “Only if the passenger travels in the lowest class available on every flight of his journey does the reduced rate apply, and this principle applies whether or not the final destination is in the UK.”
Could that be why Delta is disallowing Comfort+ upgrades on domestic segments of international trips, as industry veteran Brett Snyder discovered?
In a very evasive exchange, Delta spokesperson Anthony Black refused to comment on questions from RGN despite being redirected to them four times. Our questions were, for both the ancillary Comfort+ model and the new fare type Comfort+ model:
1) Does Delta believe Comfort+ should not be subject to the higher rate of APD?
2) What is the basis of that belief?
3) Has Delta taken UK-specific tax advice on the APD classification of Comfort+?
4) What discussions has Delta had with HMRC around the tax liabilities for Comfort+?
5) What would Delta’s reaction be to a decision that Comfort+ were liable to the higher rate of APD? Would Delta pass that on immediately to passengers?
Delta itself seems to be anticipating these questions, with a FAQ asking “Is Delta now offering four cabins of service?”. The airline answers:
No. Delta offers a variety of flight experiences tailored to meet your needs. Our Delta One / First Class and Main Cabin are Delta’s primary cabins of service. Delta Comfort+, Main Cabin, and Basic Economy are three experiences within our Main Cabin.
The problem for Delta is that UK tax rules appear to disagree.