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Airline Lobby: Margins Are Wafer-Thin, New “Hidden Taxes” Will Mean Higher Fares

Airline Lobby: Margins Are Wafer-Thin, New “Hidden Taxes” Will Mean Higher Fares
Jeff Edwards

In recent weeks, Airlines for America released a detailed breakdown of the operational expenses US airlines face and issued a stern statement warning Congress about the perils of raising fees.

Airlines for America (A4A), the largest airline trade organization in the U.S., is coming out strongly against plans to nearly double the Passenger Facility Charge (PFC) from $4.50 per passenger to $8.50 per passenger. A4A told Senate members in a statement late last month that airlines will not be able to absorb the increased fees through lower ticket prices, and the dramatic jump in the PFC will amount to direct, but hidden, taxes on millions of travelers each day.

“Airline passengers already pay over $20 billion a year in taxes for the tickets they purchase, adding another $3.2 billion tax hike on American travelers simply cannot be justified,” A4A President Nicholas E. Calio said in the strongly worded statement to lawmakers. “The truth of the matter is that airports are flush with cash. It is disingenuous at best for Congress to repeatedly saddle traveling families and businesses with tax-hike after tax-hike while airports are sitting on billions in unused funds. Congress has access to over $7 billion in un-obligated tax revenue sitting idle in the aviation trust fund that could be used instead of raising taxes. Choosing to increase this tax is a completely unnecessary poke in the eye and wallet of air travelers.”

According to Calio’s organization, the proposed PFC hike will cost air travelers nearly $3.2 billion in additional taxes annually. A4A predicts that the new federally imposed surcharges will increase the price of roundtrip fares by as much as 26 percent or more in some cases.

While the trade group points out that airports are flush and that billions of dollars in aviation-related federal tax coffers remain untouched, the airlines themselves are already saddled with huge operating costs and an exceptionally large tax burden. Although US airlines have reported record profits in recent years, the group insists that profit margins remain razor-thin in the face of those enormous expenses.

As if to underscore this point, A4A has also released the latest available data on US carrier operational costs. The Passenger Airline Cost Index (PACI) interprets US Department of Transportation (DOT) statistics “to monitor trends in the cost of inputs (e.g., labor, fuel, food, aircraft ownership, airport landing fees, insurance, utilities, interest) to the provision of air service over time.”

Some of the results of the latest PACI are somewhat expected; labor costs, for example, account for 33 percent of operating costs. Fuel costs, while down sharply in recent quarters, still account for a more than 15 percent drain on profits. More surprisingly, airport landing fees account for nearly two percent of airline spending, more than the operating costs associated with inflight catering, maintenance materials, aircraft insurance, communications or advertising.

According to Travel+Leisure, airlines only make around 16 cents’ profit for every dollar spent on airfare. Lobbyists for the airline industry warn that doubling the taxes paid by passengers could have a catastrophic effect on an industry already struggling year-in and year-out to maintain profitability.

[Photo: Shutterstock]

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5 Comments

  1. rylan

    August 14, 2017 at 4:04 pm

    Just airline lobby whining again… they aren’t going to pay a dime of any new tax, but will pass it on to the passengers instead. We already pay the passenger facility charge now. How would this impact the airlines at all?
    On top of that, airline margins and profits are at or near all time record highs since they stack confiscatory fees on top of the base ticket prices.

  2. Sabai

    August 14, 2017 at 10:41 pm

    Oh cry me a river.

    Why doesn’t Airlines Against Americans address the inflated executive compensation in the industry feeding their lust for fees? Their faux concern for anyone but themselves is quite transparent.

  3. strickerj

    August 15, 2017 at 9:41 am

    Please, the U.S. airlines are enjoying record profits. Besides, isn’t the Passenger Facility Charge a separate line item, not bundled with the fare? Where do they get the idea that it’ll affect their ticket revenues?

  4. dbusiness

    August 16, 2017 at 1:52 am

    Quote Airports Council International
    “Airports are increasingly funding more infrastructure, including those traditionally funded by airlines and the federal government, such as baggage systems, gates, expansion of security checkpoints and international arrival facilities. Much of this funding comes from local airport user fees known as Passenger Facility Charges (PFCs). ”

    This is paid for by the Passenger. Airlines just collect and submit the charge.
    According to the hill they want to reduce Federal AIP Airport Improvement Grants by about 400 million (passing the charge to the passenger or users).

    If the PFC money is used properly to improve the overall airport experience then I can live with it for a while.

  5. KRSW

    August 17, 2017 at 7:54 pm

    Considering the airlines made $9.2bn profit for the first half of 2017, I don’t have a lot of sympathy for them, YET at the same time I question the taxes. …and it’s probably worse than the $20bn figure being tossed around, as that probably doesn’t account for on-site parking, inflated prices passengers pay for airport concessions, additional taxes and fees paid by pax using ground transportation to/from the airport, etc.

    The problem with the “Passenger Facility Charges” is that passengers are already paying for the use of the airport through the aforementioned upcharges AND landing/airport fees the airlines pay.

    Just to land at JFK, you’re looking at a minimum of ~$1,200 for an A320 to a minimum of $5,500 for a 744. Given JFK has ~1500 flights/day, that’s $1.8M minimum per day (1200*1500) in landing fees alone. Realistically it’s at least 2-4x that since JFK has a large number of widebody flights. ~164,000 pax per day fly through JFK; that’s another $680k right there. So a minimum of $2.5M/day ($1BN) in those two items alone, and I’m factoring waaay light.

    Just north over at LGA, PANYNJ is throwing $600M towards reconstructing the Delta terminal. DL is throwing $3.6BN into it. So where’s all of this tax money going?

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