U.S. Airlines, Airports Wage War Over Passenger Facility Tax

 - March 12, 2015, 2:01 PM
This Airlines for America graphic shows components of airline ticket taxes, saying Americans should support an increase 'when pigs fly.'

The trade group that represents major U.S. airlines projects that passenger traffic this spring will rise to its highest level in seven years. At the same time, Airlines for America (A4A) ramped up its opposition to a proposed passenger tax increase that airports say they need for critical infrastructure improvements.

Announcing the industry’s 2014 financial results and spring forecast on March 11, A4A said airlines recorded their fifth consecutive year of what it terms “modest” profitability, with the 10 publicly traded airlines it tracks reporting a net profit of $7.3 billion, or 4.6 percent of revenues. Their $158.6 billion in operating revenues rose 5 percent year over year, outpacing 3.3 percent higher costs.

The number of international travelers flying to and from the United States reached a record high of 197.3 million last year, with U.S. carriers transporting 52 percent of that number. A4A predicts U.S. airlines will carry 135 million domestic and international passengers in March and April, the highest level in seven years. They will increase their number of seats by 3 percent, or 64,000 seats per day, during this period.

Concurrent with the financial briefing, A4A raised the prospect of the Passenger Facility Charge (PFC) airports collect to help finance their capital improvements nearly doubling. In 2000, the U.S. Congress capped the PFC at $4.50 per enplaned passenger. For the fiscal year that begins in October, the Federal Aviation Administration has proposed increasing the PFC to $8, less than the $8.50 the airport industry seeks. According to A4A, federal taxes represent 21 percent of the cost of a domestic round trip fare of $300 with one stop each way; raising the PFC would increase that portion to 26 percent. “Airlines firmly support airport infrastructure development,” said Sharon Pinkerton, A4A senior vice president for legislative and regulatory policy. But she added that airports have a variety of resources to raise money without raising the PFC.

Pinkerton’s comments were the latest salvo in A4A’s mounting campaign to defeat the proposed PFC increase, which the trade group says is unnecessary and would only add to the tax burden passengers already pay. “Airports are putting on a great show for Congress, trying to invent a funding crisis, but it’s all flash and no substance,” the group contends, arguing that airports are flush with unrestricted cash and investments and have a year’s worth of liquidity.

A4A president and CEO Nicholas Calio argued the case in an op-ed The Hill newspaper published on March 5. On March 4, the group released a letter addressed to House and Senate leaders from its board of directors—which includes the CEOs of Alaska, American, Delta, Hawaiian, JetBlue, Southwest and United airlines—opposing an increase. On March 3, it released the findings of a nationwide survey of 1,026 voters The Tarrance Group conducted on its behalf, which found that 82 percent of respondents also oppose the increase.

The airport industry contends that it needs more than $15 billion annually to improve aging runways and terminals, more than twice the $6.2 billion airports received last year in PFC charges and federal Airport Improvement Program grants. Airports Council International-North America and the American Association of Airport Executives launched their own “Airports United” initiative last fall to influence Congress in setting the FAA’s budget.

“Let’s talk about polls for a minute,” states a message running on the Airports United website. “In a recent poll, the airlines say Americans aren’t willing to invest in airport infrastructure. That’s hot air. The real question is: how many Americans are willing to continue investing in airline profits by paying outrageous bag fees? Americans still hate bag fees and most lack a preferred airline.” The airport organizations cite a telephone survey of consumer preferences The Street commissioned and released last August. That survey found that 73 percent of respondents were “annoyed” by airline ticket costs, 70 percent by luggage charges, 68 percent by cancelled or delayed flights, 64 percent by uncomfortable seats and 63 percent by rude staff.