And just about none of it is taxed by Uncle Sam.
Taxpayers are paying the tab as airlines raise fees instead of airfares.
There’s a 7.5 percent federal tax on every airline ticket. The money goes into a fund that pays for the air transportation system: airports, capital improvements and the operation of the Federal Aviation Administration.
But over the past decade, the amount of money flowing into that fund – mostly ticket-tax revenues – has fallen short of projections. When that happens, Congress can increase general fund contributions to cover the FAA’s budget. In both fiscal 2009 and 2010, Congress appropriated an additional amount of almost $1 billion.
When the airlines keep ticket prices down by shifting billions of profit to baggage fees, they also save hundreds of millions in federal taxes they would have owed if they had hiked ticket prices by that amount.
The airlines are bypassing aviation-specific taxes that come out of ticket prices and the aviation system itself is ending up poorer.
Obviously this is a loophole that must be closed, which would probably make air fares rise but airlines would again be forced to offer decent service to be competitive.
The report says about half of these fees are things the customer will never see, or forced upon the customer. For United Airlines they include things like mileage payments from Chase, Economy Plus and first class buy-ups.
The breakout of Southwest’s revenue is particularly interesting, since they have no bag fees.
“Every year, key numbers are getting larger. The most aggressive airlines easily generate more than 20 percent of their revenue from a la carte fees,” according to the report by IdeaWorks
All these extra charges add up to deceptive advertising, making it harder for passengers to know and compare the true cost of tickets at the time of booking.
United Airlines was tops among carriers in the total amount of non-fare revenue collected last year, followed by Delta, American and Southwest, the study found. Ultra-budget carrier Spirit Airlines collected the most as a percentage of its total income, with fees and other extras making up 38.5 percent of its revenue.
The whole system is insane and needs an overhaul, and that’s what FlyersRights is hoping to do this week in Washington
But we’re up against airline lobbyists whose job is to ensure Congress do nothing to change the present structure.
Frontier Charges Delaware’s Fliers Extra for Houston, After Route Canceled
A banner hangs at the New Castle County Airport advertising Frontier Airlines’ destinations from Delaware. Among them is Houston, which Frontier canceled service to last week. / KYLE GRANTHAM/THE NEWS JOURNAL
It was, they believed, a stroke of incredible luck. In May, 14 members of a Wilmington-area family heading to Houston, Texas, for an Oct. 5 wedding were able to book tickets from New Castle Airport for a bargain price.
But Tuesday, with less than a month before the wedding, they received emails from Frontier telling them their flight had been canceled. The airline, which discontinued service from Delaware to Houston as of Oct. 2, still will offer connecting service through Denver, but customers holding direct-to-Houston tickets must pay the difference in price.
“It was so convenient. Now it’s turned into, there’s drama here,” said Loria Bafundo, of Wilmington, whose boyfriend is the bride’s uncle. They were told that paying for a connecting flight would cost an additional $376 per person, each way, Bafundo said. “Honestly, I don’t think we’re going to go at all.”
Analysts said the inconvenience associated with an airline’s decision to discontinue a route from a small airport like New Castle is a part of life, especially one at Frontier, a small airline that has struggled financially.
But even under those conditions, Frontier is sending unhealthy signals by bucking an industry standard, said Jay Sorensen, president of the IdeaWorks Company, an airline consulting firm based in Milwaukee. As long as there’s a connecting flight, it’s normal for the airline to absorb the added costs to get the passengers to their destination, he said.
Frontier started service at New Castle Airport in July, offering flights to Houston, as well as Chicago-Midway, Denver, Orlando and Tampa, Fla. Service to Fort Myers, Fla., begins Nov. 16. Airline officials say ridership has been strong out of New Castle Airport for every destination except Houston.
Maureen Cushing, the bride’s aunt, said she was told that if she chose to take a connecting flight, she would need to leave the prior day and then spend 11 hours in transit.
Fliers making such a switch would have their change fee waived but would have to pay the difference in price, confirmed Kate O’Malley, Frontier spokeswoman.