It’s unclear whether the proposed ‘Fat Tax’ from Ryanair could ever be properly realised. It could be explained away as a publicity stunt by the notorious airline. More likely, it will not gain ground as the practical costs and difficulty of instituting such a levy become clearer. However, most consumers would benefit from such a move.

By transferring the extra marginal cost of conveying extremely heavy travellers onto the individuals themselves, at least to some extent, the levy would reduce the cost on other passengers. This is predicated on the assumption that the savings will be passed onto consumers, rather than simply increase profit margins et cetera.

This is not an unreasonable assumption. The airline industry is extremely competitive (even if the market for airports isn’t) and this would force airlines to pass the savings onto consumers. This reasoning is supported by Ryanair’s business model, of the firm which has consistently under-priced its competitors and prospered.

Their success stems from the idea that lower prices will increase traffic enough to boost profits. The productivity of all resources, notably staff and planes, is maximised by not letting them hang around on the landing strip for longer than necessary. Thus, the drive for lower fares come from the profit derived from increasing the number of passengers and not just competition.

However, if there really is a notable difference in marginal cost between the two classes of passenger (as there must be to motivate Ryanair’s suggested new policy), the most efficient outcome for society can only be achieved by pursuing this price discrimination. This would place the full marginal cost of travel firmly on the individual that initiates it.

Even if obese passengers travel less, this is a positive outcome from the perspective of everyone else. In that case, the marginal benefit to that consumer is exceeded by the marginal cost. Since the contribution in revenue made by the heavy pilgrim is less under the status quo, the ‘Fat Tax’ system would stop the current situation whereby overweight travelers are simply subsidised by other passengers.

The result is cheaper fare for most passengers, an elimination of the unfair cost imposed by heavy individuals on the rest, and greater efficiency in the airline industry. It may not seem very important now, but the future will impose heavier cost constraints on transport. The ‘Fat Tax’ is coming.

© The Free Marketeer 2009


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