Increasing air connectivity is Central America's strategy to encourage more flights and the arrival of more multi-destination tourists. To this end, a first step is to reduce the cost of airline tickets for intra-regional flights by lowering the departure tax to US$15, half the current amount. In the case of Guatemala, the issue needs to be raised by the relevant government institutions, a bill needs to be proposed, and there needs to be a great deal of political will to avoid falling behind its peers.

For years, governments and presidents in the region have raised the need for flights in Central America to be treated as domestic, eliminating unnecessary requirements and procedures for traveling within these destinations, which would lead to an increase in demand.

A single tax for flying in Central America and the Dominican Republic.

There is consensus that, for now, the most viable option is to reduce the taxes that make up the cost of airline tickets in order to make domestic flights in the region cheaper. This involves establishing a single, differentiated departure tax of US$15 for flights to Central America and the Dominican Republic, as Panama has already done, and is a move that Costa Rica and, more recently, El Salvador are already working on, according to Ronny Rodríguez, director of corporate development at Volaris, one of the low-cost airlines operating in these countries.

Meanwhile, the Mundo Maya Organization, to which Guatemala belongs, along with El Salvador, Honduras, Belize, and five southern states of Mexico, is considering the same idea to reduce airfare costs between these destinations.

Currently, the departure tax in Guatemala is US$30; in Honduras, US$49; in El Salvador, US$47; and in Belize, US$50. Reducing these taxes would make flights to Guatemala and from other countries in the isthmus, including the Dominican Republic, cheaper, leading to more affordable travel to these destinations and, consequently, an increase in visitor numbers and economic revenue.

“Central American countries offer complementary tourism options. A reduction in airport taxes for intraregional flights would allow, for example, a tourist from Turkey to enjoy Panama's sun and beaches and extend their visit to Guatemala to experience the rich natural and cultural heritage that characterizes us. It would also facilitate the emergence of more regional airlines, as well as new routes between regional aerodromes or airports. For example, a route from Roatán in Honduras to the Quetzaltenango aerodrome. These are examples of the benefits that this effort would bring. Let us remember that tourism growth cannot be conceived without strengthened commercial aviation," said Esther Brol, leader of the Guatemala Moving Forward Tourism Roundtable.

It should be added that in Guatemala, in addition to the departure tax, US$3 is added to the airline fare for airport tax, apart from Value Added Tax (VAT). As a result, the average airport tax in the region is US$50. In addition to these taxes, depending on customer preferences, the fare may increase for each passenger for services such as luggage or seat class.

The charges included in an airline ticket include the direct and indirect costs of operating in a destination, such as aircraft, human resources, fuel, onboard and ground supplies, among others, to which companies are subject in each country. Similarly, the profit margin that the airline considers appropriate also takes into account other items such as social assistance at the destination where it operates, or for the environment, sustainability, and others, says Motty Rodas, executive director of the Guatemalan Airline Association (AGLA) [for its acronym in Spanish].

What needs to happen for flights to become cheaper?

Until now, the private and organized tourism sector interested in the growth of its segments will have to push for this proposal to be reviewed so that Guatemala does not lose its competitiveness vis-à-vis other countries in the region, warns Rodas.

This reduction in departure tax would, at the end, generate tax revenues greater than the initial loss suffered by the treasury and the destinations of said tax. It should be considered that Guatemala not only has visitors for tourism, but also corporate travel, among others, says Anaité Castillejo, president of the Tourism Commission of the Guatemalan Exporters Association (Agexport).

Rolando Schweikert, president of the Guatemalan Chamber of Tourism, points out that “although there are regional efforts, at the local level it is a matter of political will, an initiative that should be led by the executive branch, the Ministry of Economy, and the Ministry of Communications, together with Inguat. [for its acronym in Spanish: Guatemalan Tourism Institute]”

He states that “there are many benefits: increased intraregional tourism, international inbound tourism that would give a major boost to multi-destination travel, and the number of weekly flights.”

They have to draft the bill and submit it to Congress for approval of the decree establishing a differentiated, reduced, and special rate of US$15 for flights to Central America, provided that the airline's base fare is less than US$50, Rodríguez says.

If Mineco does not do so, in any case, the Tourism Commission of the legislative body can draft it. The proposal is already on the table; all that is needed is political will and the support of Congress to start doing something about it, stresses the Executive Director of AGLA.

Five additional weekly flights would compensate for resources

In the case of Guatemala, an initial calculation suggests that the decline in tax revenue due to the reduction from US$30 to US$15 would be offset by five additional weekly flights. In this context, Volaris is offering to operate new flights and frequencies in the country to sufficiently compensate for the loss of revenue. “The economic impact of new tourism and new travelers would generate additional fresh income for the state,” says Rodríguez.

If a single reduced airport tax of US$15, were agreed upon as public policy in Central American countries, it could generate new demand that has been neglected until now and promote multi-destination travel within Central America.

The commitment to reduce the tax on travelers' departure stems from a proposal by the World Bank (WB), based on a study presented in 2022 to the governments of the isthmus.

Based on the World Bank's proposal, the next step for the country is to develop a public policy that supports the government's decision, which should include an agreement between the different institutional actors that receive income from the tax collection, as well as a guarantee from the Ministry of Public Finance to compensate for the temporary reduction in current tax revenue with direct resources.

From the US$30 international departure tax, 33% goes to Inguat; 32% to the Ministry of Education; 27% to the General Directorate of Civil Aviation (DGAC); 4% to the Ministry of Culture and Sports; and 4% to the Commission for Protected Areas (Conap). “In the long run, we lose competitiveness with other markets. The ideal solution would be to present a bill in Congress to reduce this tax,” adds Castillejo.

Francis Argueta, director of the General Directorate of Civil Aviation, supports the proposal to lower rates, but believes that this reduction should be accompanied by a change in the distribution of this departure tax, "so that what aviation produces goes to that sector. The proposal is that 50% of the tax goes to Inguat and the other 50% to Civil Aviation. If we reduce the tax, the volume of revenue will be higher."