Michel Taly, a tax lawyer at Arsene Taxand, said on 19 November in Les décodeurs de l’info on BFM that « tax niches are a form of yield management when tax is too high ».

« Why do we create niches? Theoretically, it’s to encourage you to do this or that. But it’s also because the higher you raise the tax rate, as the degree of resistance of the various categories of taxpayers is not the same, there comes a time when you feel that it’s cracking on one side but not on the other. So the only way you can maintain your revenue is to give a little relief to the one that’s cracking so that you can maintain tax for the other. You know, it’s a bit like getting two people to sit in the same seat on a plane, even though they didn’t pay the same price. They call it yield management. Well, the tax niche is yield management when the tax is too high ».

Interesting! If we compare the contribution made by passengers on a long-haul flight with the income tax contribution made by different population groups:

  • 1.6% of taxpayers pay 40% of the tax, this is the First Class.
  • 8.4% of taxpayers pay 35% of the tax, this is Business Class.
  • 40% of taxpayers pay 25%, this is Premium Economy Class.
  • 50% of taxpayers pay no tax, this is Economy Class.

For example, on a 400-seat long-haul aircraft, we would have :

  • 6 First Class seats
  • 32 Business Class seats
  • 160 seats Premium Economy
  • 200 Economy Class seats

This is a fairly accurate representation of the layout of a long-haul aircraft.

Two comments:

  • According to IATA, for airlines as a whole, the highest taxpayers (First Class and Business Class) account for 8% of passengers and 30% of aircraft revenue. For French tax, these ‘passengers’ represent 10% of taxpayers but 75% of tax revenue!
  • Another differentiating factor between taxpayers and our Long-haul passengers is that the 200 airline economy class passengers pay. Much less than the others, but they pay. On the plane piloted by Bercy, the 200 ‘passengers’ on the lowest incomes pay nothing. Not even a token contribution. They travel for free thanks to the High Contribution ‘passengers’.

Part of the airlines’ strategy is to fill their First and Business Classes by offering service, building customer loyalty and charging prices that are acceptable to the market. They fear that one of their High Contribution customers will switch to the competition, as this would have a direct impact on their margins. And this High Contribution represents ‘only’ 30% of revenues. What can we say about the concern that the tax authorities should have about their High Contribution taxpayers, who account for 75% of income?

If I had a Yield Manager for an aircraft whose high contribution represented 75% of my income:

  1. I pamper these customers, I offer them a tailor-made service, I give them a belly-dance of the devil, I flatter them by showing them how important they are to my company. Because if one of them leaves, at this level of contribution, it’s my company that closes.
  2. Above all, I don’t raise rates, so as not to run the risk of them leaving for the competition. On the contrary, I’m looking at possible price cuts to take market share from other competitors.
  3. I try to attract new customers by praising the quality of my aircraft, by communicating positively instead of pointing out everything that’s wrong with my company.
  4. I would go so far as to ask my two hundred Pax who are travelling free of charge to form a guard of honour for them when they get on the plane, instead of blocking their path with ‘Casse-toi, sale Riche’ (‘Fuck off, you rich bastard!’).

It’s not the strategy of the moment, but it’s changing.

Now, according to Michel Taly, niches allow the government to « demand segment » by offering different prices for High Contribution demand, which would make it possible to charge everyone the maximum price.

As Yield Manager of this aircraft: 

  1. I’m not going to set different prices for each of my 6 passengers. If I try to optimise one of them, I run the risk of upsetting the other, making him leave and losing everything.
  2. What’s more, my sample is too small to be able to determine whether my actions are positive or not. So I don’t Yielde this First Class (or very very little). That’s what the airlines are doing by offering simple, clear pricing for these High Contribution customers.

On the other hand, airlines are using Yield on economy classes. Because they are large enough to be able to segment them and get feedback on the actions taken. But on my plane, economy class doesn’t pay.

So, from an economic point of view, it’s too risky for my recipe to apply niches to my high contributor and I can’t apply them to the low contributor.

From a Revenue Management point of view, tax breaks are of no use to me in maximising my revenue.

A simple, clear and effective tax: this is the flat tax advocated by Philippe Manière. It consists of eliminating all tax niches and having a single tax rate for all taxpayers. He also proposes exempting the first 2,000 euros per month, for example, so as not to penalise the most disadvantaged.

Keywords : les décodeurs de l’info, BFM, Michel Taly, Tax Niche, long-haul