An Airfare Tax Holiday Too?

May 2, 2008 — -- 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.

The tax story doesn't just end there -- the federal government is actually double dipping on jet fuel. Turns out that airlines also pay a 4.4 cent per gallon federal excise tax on jet fuel, plus a sales tax that varies depending on the city and state of purchase, similar to the gas tax for automobiles. Airlines accumulate these charges on their bottom line, and that invariably ends up getting passed on to travelers.

Simply put, the 7.5 percent sales tax is overly onerous on air travelers, especially as ticket prices begin to skyrocket, not to mention the fact that international airline tickets don't even have a percentage-based federal sales tax.

Sales tax on international tickets is fixed at $30.80 roundtrip -- only 2 percent of the total cost of a summertime airline ticket to Europe, and half of that for inbound foreign travelers. This tax is wallet friendly, as the charge is fixed (not a percentage of airfare) and doesn't apply to the average add-on of $240 and $310 roundtrip for trans-Atlantic or trans-Pacific fuel surcharges.

If the federal government really wants to help out air travelers who are feeling the sting of the highest airline tickets in more than a decade, then why not rescind the bulk of those federal taxes on domestic airline tickets?

Crazy you say?

In the summer of 2003 the federal government rescinded the $10 connecting roundtrip TSA Sept .11 security fee for the summer. The reason? It was part of the Emergency Wartime Supplemental Appropriations Act.

And in September President Bush had to sign a bill at the last second to keep the bulk of the federal taxes on airline tickets from expiring at the end of September 2007.

The argument for not rescinding the automobile gasoline tax is that people will use more gas and subsequently drive prices up -- effectively negating any tax relief. Planes, however, are going to be in the air with the same amount of fuel whether these air travel fees are rescinded or not, so that debate would be moot.

Legislators should seriously consider temporarily suspending some if not all of these fees until we can get fuel prices back to where they "should be." (Sixty dollars a barrel is what many industry analysts say is "fair.")

Maybe then airlines will cut out all this "nickel-and-dimeing" of passengers with additional fee charges at every step in the process of air travel, including purchasing a ticket, changing that ticket, checking in bags, sitting on the aisle and bringing your pet.

Wishful thinking probably, as this bell has already been rung -- even if we slide back to $60-per-barrel oil.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Rick Seaney is one of the country's leading experts on airfare, giving interviews and analysis to news organizations, including ABC News, The New York Times, The Wall Street Journal, Reuters, The Associated Press and Bloomberg. His Web site FareCompare.com offers consumers free, new-generation software combined with expert insider tips to find the best airline ticket deal.