Skyrocketing taxes, fees hitting regionals hardest

 - November 1, 2006, 10:11 AM

As a percentage of a $200 airline ticket, taxes and fees more than tripled between 1972 and 2004 thanks to inflation, a decline in the real cost of airline travel and, more recently, increased security charges, as the government struggles to keep pace with the cost of providing the infrastructure necessary to support airline flights. For a one-stop domestic round trip with the maximum passenger facility charge per airport, taxes now account for 26 percent of every fare.

Taxes and fees affect service because the airlines’ fare pressure doesn’t allow them to pass increases on to passengers. With average leisure fares down 10 percent last year compared with 2003, and business fares down 8 percent, airlines must absorb the increased costs or they could lose passengers to other modes of travel.

The situation has become particularly alarming for regional airlines, because the relatively short legs they fly make alternative modes of travel more competitive; even those who must fly tend to more readily drive to distant airports with lower fares.  

Of course, increases in these taxes and fees and proposed cuts in the FAA budget account for just some of the issues under attack by the RAA. In the short term, the association will address cuts in the Bush Administration’s fiscal year 2006 budget, which includes less money for the Airport Improvement Program (AIP) and for the FAA’s facilities and equipment account, as well as the increase in the security tax.

“We will be lobbying hard in the House and Senate as the summer appropriations cycle starts to restore that funding and to make sure those cuts are not embraced,” said RAA vice president of legislative affairs Faye Malarkey. “Looking into the larger picture, we have deficit spending, we have shortfalls in the Airport and Airways Trust Fund, and we’re seeing a budget where offsets are being sought for appropriations elsewhere.”

Funding for programs such as Essential Air Service (EAS) and AIP “that we’ve always been able to count on in the past” are now going to present more of a struggle, if not this year, in the future, she told AIN.

During a presentation at the FAA’s 30th Annual Aviation Forecast Conference in Washington in March, Malarkey noted that the aviation security fee in the budget request would increase by 120 percent, to $5.50, although there would be a cap of $8 for one-way trips and $16 for round trips.

While the new charges would bring the total federal security tax on airlines to $4.7 billion per year, passengers traveling on regional airlines would feel a disproportionate effect because multiple flight segments result in additional security tax charges.

This fee increase would raise fares for travel to rural communities, divert resources away from carriers serving rural markets and make the service even more expensive for carriers, according to Malarkey. That would put air service to smaller communities at risk, she added.

On another front, Malarkey said the $600 million AIP cut represents one of the largest in the entire budget request, despite a proven track record that enhances airport safety, capacity and security.

The White House has suggested that airports respond to the AIP cuts by imposing maximum PFCs as a potential revenue source of $350 to $400 million per year. But as airport rates and fees increase, the air service becomes more expensive.

Because of continuing financial pressure on the aviation industry, about 37 communities have been forced into the EAS program since 9/11. EAS currently ensures commercial air service to 146 communities.

However, the 2006 budget request would severely cut and potentially dismantle the EAS program. Malarkey said that funding for EAS would fall by $52 million, forcing out one-third of the communities that now use the program.

The cost-sharing criteria imposed on EAS communities depend on their distances from the nearest hub airports. Communities within 100 miles of large-hub airports, 75 miles of small-hub airports or 50 miles to airports with jet service would lose commercial air service and get only half of previous funding for surface transportation use.

Communities that lie fewer than 210 miles from large or medium hubs would see 25-percent funding cuts. Communities more than 210 miles away would suffer a 10-percent funding cut.

With regional airlines offering the only air service at 72 percent of the 655 airports they serve, the RAA also opposes peak-hour pricing systems, on the basis that they conflict with national goals to enhance air service competition. “At nearly three-quarters of U.S. airports, regional airlines are providing the only source of scheduled air service,” said Malarkey. “At many small communities, it’s us or the bus.

“Regional passengers pay the same aviation taxes and fees as other travelers and should not face higher ticket prices or limited travel options because we failed to modernize and expand the airport and airway system,” said Malarkey. “Congestion pricing limits service and fare choices of passengers in small or medium-sized cities and is not an appropriate solution.”

Malarkey said the RAA favors federally mediated voluntary negotiations to address capacity concerns, similar to those used effectively by the FAA for Chicago O’Hare.

“We don’t think we’ll see any legislation go very far this year on an alternate way to fund the Airport and Airways Trust Fund,” Malarkey told AIN. “But I know we’ll see quite a few hearings, and I think next year, looking forward into the next FAA reauthorization, we will absolutely start to see those bills.”

She said the RAA will work with its members, board of directors, the FAA, the Air Transport Association and the other stakeholders on finding alternate means to fund a system that won’t disenfranchise the regional airlines and passengers from smaller communities.

“We feel good about the prospect of restoring all of the EAS funds this year,” said Malarkey. “But as we move forward it will be more of a struggle over those issues, so we are gearing up for a fight.