Air France-KLM, the only European carrier operating in the Philippines, will be phasing out direct Manila-Amsterdam flights due to issues with the country's taxes.

Reduced flights will start by end-October and the nonstop service will cease in April next year, said Cees Ursem, general manager for South China Sea at KLM Royal Dutch Airlines.

He told BusinessWorld last week that this was in response to taxes levied by the Philippines on international carriers.

"The airline industry is in a very, very bad shape already for a couple of years now... and here, we are punished with taxes of 5.5% over gross receipts," Mr. Ursem said.

Foreign airlines are slapped with a 3% common carriers tax and a 2.5% gross Philippine billings tax on cargo and passenger revenues originating from the country.

By month's end, Air France-KLM will be reducing Manila-Amsterdam flights to six times per week from seven, to be halted during the first quarter of 2012.

Flights starting April will now have a Hong Kong detour.

"We have to consider our operations... so by the end of October, we are reducing flights from seven to six.  From April next year, we are not flying direct anymore to Manila," Mr. Ursem said.

"We are making an intermediate stop by Hong Kong to make sure that we reduce the amount of tax payments because we will not have so many passengers anymore to Manila," he added.

Mr. Ursem noted that Air France-KLM was the only airline offering direct flights from Manila to Europe, with all other European carriers having left within the last decade.  December 5 would mark the airline's 60th year of flying to the Philippines uninterrupted, he added.

"After all the meetings with different stakeholders of the [Philippine] government in the past year... it all turned out to be unsuccessful," Mr. Ursem said.

The reduced service and end to direct flights will also mean Air France-KLM ending accommodation tie-ups with local hotels.

"We're also stopping our crew accommodations in Sofitel [Philippine Plaza] and that's about 11,000 rooms per year," Mr. Ursem said.

Sofitel officials were not immediately available for comment.

A European Chamber of Commerce of the Philippines (ECCP) official, meanwhile said Air France-KLM's move was the result of the Philippines unwillingness to address foreign carriers' concerns.

"We have been discussing with this government the need to reduce the costs for the foreign airlines," ECCP Executive Vice-President Henry J. Schumacher told BusinessWorld.   "This is bad for tourism and investment as travellers will no longer reach the Philippines non-stop."

The Civil Aeronautics Board (CAB), for its part said Air France-KLM's move would likely have a minimal impact on tourist arrivals.

"I don t think the effect will be very adverse as we have seen small numbers of tourist arrivals from Europe in the last couple of years as compared to other regions like Asia," CAB Executive Director Carmelo L. Arcilla said.

"We still have to wait and see how this will affect [tourism].  This will be a sad news for the country because that's our only direct connection to Europe," he added.

Source: Business World; News; 17 October 2011