Thursday, May 24, 2018

As airlines raise fees instead of fares, taxpayers pick up the tab

WASHINGTON — For those who fly, the squeeze has become the way to beat the system.

The art of the squeeze is a matter of measurements. When Ross Davis flew to San Francisco this month, he paid $25 to check his larger bag but squeezed his other bag, 5 inches smaller, into the overhead compartment.

American taxpayers are feeling the squeeze, too, even those who never board an airplane.

When the major airlines began charging fees for baggage a few years ago, the rationale they announced was straightforward: Fuel prices had spiked dramatically. Rather than increase ticket prices just as dramatically, airlines would charge for baggage.

Since then, they have collected $12.8 billion for something that once was free.

That has allowed the major airlines — called the legacy carriers — to keep their ticket prices competitive with low-cost airlines.

For taxpayers, however, here is the catch: 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 in nine of the past 11 years, 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 kept ticket prices down by shifting $12.8 billion to baggage fees, they also saved almost $964 million in federal taxes they would have owed if they had hiked ticket prices by that amount.

Was it a windfall, or was it salvation for a beleaguered industry?

"Last year, our profit amounted to about 77 cents per passenger," said Jean Medina, spokeswoman for Airlines for America, the leading industry trade group. "It's a razor-thin profit margin, so any additional taxes on that is certainly not helpful to the industry and certainly not helpful to the consumer."

The Sept. 11, 2001, terrorist attacks that grounded flights for a while left the public skittish about flying for even longer. Then the cost of fuel nearly doubled by 2008, increasing the share of operating revenue that it gobbled up from 10 percent in 2001 to 35 percent in 2011.

Next, the recession made matters worse.

More than 50 passenger and cargo airlines went bankrupt, the legacy carriers began to merge to withstand competition from low-cost airlines.

As baggage and other fees mounted, the Department of Transportation stepped in to make sure that passengers weren't being beguiled by advertised low fares that didn't reflect the true cost of a trip. It directed airlines and ticket agents to disclose baggage fees up front in online advertising and during the reservation process.

While still too bruised to wax optimistic, the industry seemed to be regaining its footing in the second quarter of this year. Federal data released last month showed that all the major airlines made a profit in the quarter, after mixed results for several quarters.

Together, the airlines posted $2.3 billion in operating profit. But that does not take into account taxes, interest payments and investments outside the core business. Net profit, which does account for those other outlays, was a less imposing $647 million, Medina noted.

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