With the aviation trust fund dwindling, airport modernizing postponed and infrastructure
As airlines are on a binge to avoid taxes, our airport infrastructure deteriorates. Ranked as the worst airport in America, LaGuardia was cited by Vice President Joe Biden as an example of declining American infrastructure.
projects delayed, it’s time to take a closer look at lost tax revenue due to “unbundling” of fares.
The government funds a large portion of the aviation system through a 7.5% tax on the price of commercial airline tickets.
But the Treasury Department considers charges outside the base cost of a ticket to be exempt from that tax. Ancillary fees, otherwise known as nickel and diming and junk fees, are not taxed.
“This is manna from heaven, and a real windfall for the airlines,” Rick Seaney, chief executive officer of Dallas-based ticket researcher FareCompare.com, told CNNMoney.
If these fees were included in the base fare, as they were before unbundling, this revenue would be subject to the 7.5% transportation tax, so the rise in fees results in a loss of tax revenue to the government.
Airlines On Tax Holiday
The airlines are enjoying a bonanza by maintaining current ticket prices while escaping paying into the aviation trust fund.
by Dan Woodger
The untaxed fees are slowly starving the system of revenues. Right now, Spirit could charge a $9 airfare, and then tack on $100 in fees to a ticket and the tax would only be paid on the $9. It may be good for Spirit, but hurts the ability to fund the FAA and air-traffic control system.
Congress has a duty to get involved if fair business practices are being compromised. the airlines are tip-toeing gingerly on that line between what is acceptable and what is not.
So if fees were taxed, airlines would ditch them. Email your Congress member to close this loophole, and support the FlyersRights Passenger Bill of Rights 2.0. Let’s stop this madness.
Airline Ticket Fees Reach $400+
Airline fees for everything ranging from booking a trip by phone to checking a bag are up, and four carriers are levying fees of $400 or more a USA Today survey of a dozen U.S. airlines shows
Delta charges $400 to change a ticket on some international flights. American Airlines charges $450 for an overweight checked bag weighing 71 to 100 pounds for some international flights, while such a bag on United Airlines’ international flights and Hawaiian Airlines’ Asian flights costs $400.
Fees are a major source of revenue and tax avoidance for the industry.
According to the DOT’s Bureau of Transportation Statistics, U.S. airlines reported revenues of $2.6 billion from baggage fees and $2.1 billion from reservation-change fees during the first three quarters of 2013.
Lack of Competition
How do these airlines justify a $400 flight change fee? This is not a service people get to choose. There has to be some kind of control on these fees at some point. The lack of competition with only four large airlines left was the theme of a recent economics report titled: Product Unbundling in the Travel Industry: The Economics of Airline Bag Fees.
“Fees” may be the wrong term. “Fines” is more accurate. “Customers willing to pay fees for ‘services'”, is also inaccurate. “Customers forced to pay fines or face losing even more money” is more accurate.
So mergers have eliminated the competition and innovation is now the implementation of fees.
Spirit CEO Says Luggage “not Essential”
The CEO of Spirit, Ben Baldanza, testified
before the House Committee on Aviation in 2010 that baggage is “not essential” to vacationers, so it’s their right to charge extra for that privilege.
Luggage is not essential to someone going somewhere for a week? Yes, and Spirit fails to see how that’s a problem at all.
Anyone who’s ever flown would likely suggest this is a fundamental misunderstanding of the traveling experience. Of course checked bags are related to the transport of a person! Would any reasonable traveler take a weeklong trip without a few changes of clothes?
Naturally, the airlines oppose taxing fees. Spirit’s CEO cleverly told Congress that taxing fees “will … raise prices for all consumers and thereby dampen travel demand and likely result in less total government excise tax revenue.”
The problem is that under the law, (being fought against
by airline lobbyists), when you advertise a fare, you must advertise the whole fare, including surcharges.
Since Spirit is primarily an airline that caters to leisure passengers, virtually all of them will need to carry some luggage, either checked or carried on. Therefore, ALL of those passengers are being charged this so-called “optional” fee. Thus, the fares being advertised are not true fares. It is a deceptive and dishonorable practice that is infuriating the flying public.
When 100% of passengers are getting charged an “optional” surcharge, it’s just false advertising. And this is why Congress needs to step in
and put some limits on what is acceptable.