Air passenger duty should be abolished on all flights departing from Northern Ireland's airports, an influential group of MPs has said.

Direct services to Northern Ireland from Great Britain should also be exempt to counter the threat posed by the tax to the local economy, the Northern Ireland Affairs Committee said.

On June 29 Continental Airlines warned that Northern Ireland's only transatlantic air route could be axed in less than a year if action was not taken to cut passenger duty.

Executives from the US airline, which runs the Belfast International to Newark service, told a committee of MPs that it could not justify paying £3.2 million annually in departure tax when the levy in the Republic of Ireland would soon be zero.

Chairman of the committee Laurence Robertson said: "If the current tax rate is not addressed as a matter of urgency, the implications for Northern Ireland are deeply troubling." The MPs recommended that two air tax bands be merged and that a zero duty rate be applied.

The detrimental effect of the duty on the Northern Ireland economy is significant and its continuation may threaten the viability of Northern Ireland's connections to Great Britain and North America, the report added.

Witnesses to the committee's inquiry have highlighted serious concerns, including Northern Ireland's geographic location and reliance on air travel; the sharing of a land border with the Republic of Ireland, which levies air duty at an extremely low rate, and the need for investment from businesses and tourism.

Brian Ambrose, chief executive of George Best Belfast City Airport, said: "We welcome the findings of this timely and important report and hope that Government give it serious consideration." Paul Simmons, the UK director of budget airline easyJet, said: "We wholly support the committee's recommendation to abolish APD. Indeed we think the UK Government should abolish APD for all flights."

A Treasury spokesman said: "The Government recognises the unique position of Northern Ireland, given its land border with the Republic of Ireland, and welcomes the report by the Northern Ireland Affairs Committee. At Budget 2011, the Government froze APD rates for this year and launched a major review of APD. The aim of this review is to ensure a simple and fair system of aviation taxation, and the input of the NIAC and industry is valuable. Further discussions are planned, and the Government will provide a response to the consultation in the autumn."

Finance Minister Sammy Wilson said it would cost the Treasury £2 million to resolve the air duty problem in Northern Ireland. "It is one which has massive benefit to the Northern Ireland economy and it is something the Treasury could deal with," he said.