Government Taxes on Rise for Pax; Weekend/Overnight News

Last month Air Transport Association (ATA) Chief Executive James C. May wrote Congress about a proposed increase in the passenger facility charge contained in H.R. 915, the Federal Aviation Administration (FAA) Reauthorization Act of 2009. ”I write in strong opposition to the proposed increase in the passenger facility charge (PFC) contained in H.R. 915, the FAA Reauthorization Act of 2009,” he said in a May 18 letter to House Speaker Nancy Pelosi and Minority Leader John Boehner.

“H.R. 915 will significantly raise the cost of air travel, with passengers paying as much as $2 billion more each year in PFC taxes to supplement already amply-funded airport coffers. The legislation would authorize a $7 passenger facility charge on passengers passing through their airports – a 56 percent tax increase over today’s maximum $4.50 head tax,” May wrote. He explained that the increase could add more than $112 in PFCs alone for a family of four traveling on round-trip tickets with one stop, the most commonly-purchased ticket by passengers traveling from small and mid-sized communities in this country.

May urged House leaders to take up the Minnick amendment, which would disallow the bill’s proposed $2 billion PFC increase and require the Secretary of Transportation to establish and conduct a pilot program at up to six airports under which an eligible agency may impose a passenger facility charge. The amendment was named for Rep. Walt Minnick, D-Idaho, and co-sponsored by eight other House members. May said House consideration of the amendment would encourage that “full debate can occur about whether to increase passenger taxes during a time of severely weakened travel demand.”

“Airports are well-funded already, with $27 billion in unrestricted financial assets, including cash, at their disposal,” May argues. “Airports enjoy an enviable financial status. Of the 77 airports rated by S&P, 77 are investment grade. They received $13 billion each year from 2001-2005 for capital improvements according to the GAO, in addition to billions in annual AIP [Airport Improvement Program] funding and billions more from airport concessions and other nonaeronautical sources.” He says “modernization of the nation’s outdated, inefficient air traffic control system is what will reduce delays, not more money for airports to spend on ‘nice to have’ but nonessential projects.”

ATA’s May said such an unprecedented PFC tax increase ignores the current economic realities and the effect of the downturn on the airline industry. In fact, an April 2009 Government Accountability Office (GAO) report to Congress underscores the precarious state of the U.S. passenger airline industry, citing staggering losses of more than $4.3 billion in the first three quarters of 2008. The GAO says this year’s “demand for air travel now appears to be weaker than expected – especially among business and international travelers – and revenues appear to be declining.”

The worldwide airline industry has contracted due to a major reduction in passengers, especially business passengers, and the volatile and escalating cost of fuel. Fewer passengers mean airlines pay fewer taxes to governments, which need more revenue to fund their ways through the economic turmoil.
May’s plea to Congress is just one of many voiced by air carriers around the world. In Europe and Asia too, airlines are questioning the logic of government-imposed taxes and fees that they feel are a burden to the tough economic forces facing the international air transport industry. But the taxes just keep on coming.

On June 4, the House passed H.R. 2200, the Transportation Security Administration (TSA) Authorization Act of 2009, authorizing more than $15.6 billion in appropriations to the TSA for FY 2010 and FY 2011. (The bill now must go to the Senate for further action.)

H.R. 2200 triples funding for surface transportation security, increases general and commercial aviation security, and security training for the U.S. transportation workforce. Rep. Bennie G. Thompson, D-Miss., chairman of the Committee on Homeland Security, said H.R. 2200 will help TSA better use technology, including biometrics, “to address gaps in security.”

“The nation’s air transit system collectively generated $117 billion since 1997 – mostly from the pockets of airline passengers,” the Associated Press said as of April 2007. “A smaller portion comes from airlines and freight carriers in the form of fuel and cargo fees, and these costs also are frequently passed along to customers.

The International Air Transport Association (IATA) says worldwide airlines and their passengers pay about $48.8 billion in charges and fees a year to airports and air navigation service providers. In its report, GAO says airlines paid $2.66 billion in total PFC collections in 2008, up from $1.56 billion in 2000.

Here’s how ATA breaks it out. As of January 1, 2009, the Airport and Airway Trust Fund (AATF) includes these special aviation taxes or fees: passenger ticket tax of 7.5 percent; flight segment tax of $3.60; frequent flyer tax of 7.5 percent; international departure tax of $16.10; international arrival tax of $16.10; cargo waybill tax of 6.25 percent; commercial jet fuel tax of $ 0.043; noncommercial jet fuel tax of $0.218, and noncommercial avgas tax of $0.193.

Additionally, the Environmental Protection Agency levies a Leaking Underground Storage Tank (LUST) fuel tax of $0.001 cent to provide money to enforce and oversee clean up of leaking tanks. Airports levy a passenger facility charge of up to $4.50 that goes to fund local airport projects.

The Department of Homeland Security (DHS) collects a September 11th fee of $2.50; a variable aviation security infrastructure fee; two U.S. Animal and Plant Health Inspection Service (APHIS) fees -- $5.00 per passenger and $70.50 per aircraft; customs user fee of $5.50, and immigration user fee of $7.00.

The AATF funds the FAA’s capital programs and most of its operations. Funding currently comes from collections related to passenger tickets, passenger flight segments, international arrivals/departures, cargo waybills, aviation fuels, and frequent flyer mile awards from non-airline sources like credit cards.

Ticket taxes: This 7.5 percent federal levy is attached to every ticket, and collected by the airlines for the Internal Revenue Service. They are deposited in the AATF. Passengers traveling between Alaska or Hawaii and the mainland U.S. pay an additional $8.00. The Associated Press said $49.6 billion had been collected in the 10 years prior to 2007.

Segment taxes: The $3.60 Passenger Flight Segment Tax is charged each time a passenger takes off and lands. Passengers flying nonstop from San Francisco to New York would pay $3.60, or $7.20 for a roundtrip. Passengers flying from those cities via Chicago would pay an additional $3.60 for stopping in Chicago. Passengers flying additional segments would be charged accordingly. Passengers paid more than $14.4 billion in segment taxes from 1997 to 2007; more than half of that was paid between 2004 and 2007.

International arrival and departure tax: Passengers arriving or departing on flights to and from foreign cities pay $16.10. The tax is tied to the Consumer Price Index. AP says the tax rose 12.7 percent in the five years prior to 2007. The tax raised $12.7 billion in the 10 years from 1997 to 2007.
Passenger facility charge: The PFC is a local tax collected by airlines and paid directly to the airport where it is levied. This tax generated $18.4 billion between 1997 and 2007, most which has been used for airport construction and other improvements, according to the Associated Press. PFCs only can be used to fund federally approved capital improvement projects “that enhance safety, security, or capacity; reduce noise; or increase air carrier competition.” As of June 1, 2009, ATA says 378 locations were approved to collect PFCs, including 97 of the top 100 airports. Total PFCs allocated and approved for collection by the FAA as of June 1, 2009, totaled $68.2 billion since the program’s inception in June 1, 1992.

Security fees: The $2.50 September 11th fee is charged per boarding, but cannot exceed $5.00 per one-way trip or $10.00 per round trip. The DHS uses it and the aviation security infrastructure fee to fund the TSA. AP says the September 11th fee raised $7.6 billion between its start in 2002 and 2007.

ATA says these fees and taxes do not include those levied directly on the airline such as income, property, franchise, sales/use, payroll, fuel. The FAA also charges overflight fees to operators of aircraft that fly in U.S.-controlled airspace, but do not take off or land in the U.S.

Pushback for New European Taxes
Earlier this year in London, British Airways asked the British government to cancel a planned 112 percent tax increase on flights from the U.K. BA’s CEO Willie Walsh said the increase would only hurt attempts to bolster the economy, adding that an increase in the Air Passenger Duty (APD) would penalize working families, further harm the economy and give the U.K. a competitive disadvantage.

“APD was doubled two years ago, making air travel from the U.K. the most heavily taxed in the world,” Walsh told an investor relations meeting in New York in April. He said the British government seemed “determined to pile yet more misery” on airlines and passengers.

Walsh said the Dutch government recently had dropped a controversial new departure tax because of concerns it would hamper the country’s efforts to stimulate the economy. He urged U.K. Chancellor of the Exchequer Alistair Darling to take similar measures. Many legacy airlines are facing major losses this year as potential passengers cope with the deepening worldwide recession. The International Air Transport Association, which represents 230 airlines around the world, said it expects the industry to lose $4.7 billion this year.

Protests by airlines, airports and tour operators overturned the Belgian government’s 2008 proposed airline passenger ticket tax that would have raised an estimated 132 million euros ($170 million) annually. In just two weeks, 36,000 people signed an online petition to stop the tax.

‘Just Plain Crazy’
The decision to scrap the Belgian passenger tax “brought a note of sanity to the ticket tax debate,” said Ulrich Schulte-Strathaus, secretary general of the Association of European Airlines (AEA), noting that Denmark had withdrawn a similar tax in 2007 and Malta rescinded a tax on outgoing passengers in late 2008. “It has become fashionable for governments to plunder the airline industry and its customers, and cynically pretend they are doing so for the sake of the environment,” he said. “It should come as no surprise that the U-turn should have been prompted by the realization that aviation brings jobs and prosperity, and is an essential part of national and regional infrastructure. Taxing a national asset is just plain crazy,” Schulte-Strathaus said.

John Hanlon, secretary general of the European Low Fares Airline Association (ELFAA), said the decision was a victory for passengers. “A tax on air tickets would have been the wrong move at the wrong time," he said. Calling it a victory for passengers, Hanlon said the move would have hurt “ordinary citizens. It would also have dealt a very punitive low to the industry, which is already reeling from the combined shock of global economic downturn and volatility in fuel price.”

Late last year Hanlon said Sweden also abandoned its plans to introduce a tax. “We now call on the Netherlands to scrap the counterproductive holiday tax that was introduced on 1 July, [2008] and on Ireland to abandon its tax plans.”

ATA’s May said the Belgian government made the “right decision” to drop the proposed tax. “It would have been an enormous mistake to invoke this tax scheme on airline passengers,” he said.

In an attempt to demonstrate the folly of the current tax and fee system, European low-cost carrier RyanAir advertises one million flights for £10 pounds on its website. That includes one-way flights from Britain’s London-Stansted airport to Frankfurt-Hahn, Germany; Bratislava, Slovakia; Brno, Czech Republic, and Venice, Italy. However, the list of £10-pound fares warns that the fares don’t include option fees and charges. The website directs the user to click to a list detailing fees that can add more than £100 to the £10-pound fare.

“The real question is why there are taxes on air transportation in the first place,” says Dr. Kenneth J. Button, professor at the George Mason University School of Public Policy in Fairfax, Va., and a world-renowned expert on transportation policy. “We really need a simple user-fee system that charges people for what they use and is easier to understand.” He also says user costs are meant to detail the real cost of using the air transport system − runways, air traffic control and airports − and should be transparent. “Have you every looked at the whole list of taxes on the back of your airline ticket?” he asks. “Not even transportation experts understand it.”

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