An Airfare Tax Holiday Too?


Certainly air travelers and the airlines are not benefiting from higher airline ticket prices -- so who is?

Would you be surprised if I told you the answer is our federal government?

Week after week, as their survival instincts kick in, airlines have been raising airfares to try to keep up with the breakneck pace of rising fuel costs.

In fact, airlines have attempted 37 domestic U.S. airfare hikes in the last 16 months, 14 of which came in 2008 alone. Just this week, fuel surcharges on domestic airline tickets peaked over the $100 mark for roundtrip fares.

Even with these hefty price increase efforts, the legacy network airlines have lost more than $1 billion combined in the first quarter of this year, and it appears that trend will continue as oil climbs through $120 a barrel and beyond. OPEC says it could hit $200.

The issue really hadn't struck me until recently when I was watching a debate between politicos and economists on the merits of rescinding the federal gasoline tax this summer. The tax is approximately 18.4 cents per gallon.

The idea behind this "plan" is to provide a brief respite for shell-shocked consumers who are likely to be coughing up more than $80 to fill up their tanks later this summer. This same issue exists for the air traveling public.

What most consumers, and I dare say politicians, probably don't realize is that a good chunk of the out-the-door price of your airline ticket goes directly to the federal government and airports. In fact, the amount is in the billions of dollars each year, and every time airlines raise their prices that number gets proportionally larger.

Let me break it down: You have just dinged your credit card for a connecting roundtrip coast-to-coast flight for $400 -- not a bad price actually, especially if you are a procrastinator. The following shows how that $400 pie is divvied up:

$240 -- Roundtrip Airfare

$93.02 -- Fuel Surcharge

$18 -- Passenger Facility Charge -- Airport Improvements

$14 -- Federal Flight Segment Tax -- FAA projects

$10 -- Sept. 11 Security Fee -- TSA

$18 -- Federal Sales Tax (7.5 percent) on Airfare

$6.98 -- Federal Sales Tax (7.5 percent) on Fuel Surcharge

Incredibly the federal government and various airports across the country are snagging almost $67 of that $400 ticket, just less than 17 percent. A $200 out-the-door airline ticket with a similar fuel surcharge has a whopping 25 percent of the total price heading to the government and airports.

To put this into perspective, we had slightly less than 300 million U.S. domestic passengers last year, which would make the total "tax revenue" north of $14 billion, assuming an average $400 ticket price. That is three times larger than the market cap of all six legacy airlines in the United States combined.

Rescinding the 7.5 percent tax on just the fuel surcharges alone would save passengers more than $1.5 billion a year. These are dollars that the federal government wasn't even collecting early last year when there were little or no fuel surcharges. At minimum, this windfall should be earmarked for fixing air traffic control or ensuring that passengers aren't stuck in sardine cans for six hours on the tarmac.

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