Issue
The House Committee on Transportation and Infrastructure recently asked the Government Accountability Office to undertake a study regarding certain fees being charged by airlines. The request includes information on (1) what additional fees airlines are charging passengers, including fuel surcharges; (2) whether additional fees, including baggage, fuel surcharges, and change ticket/cancellation fees are commensurate with the cost of providing those services; and (3) baggage delivery delays, compensation for delayed baggage, and changes in the amount of checked bags since fees were instituted. The request also asks the GAO “to study ways that Congress can effectively capture these fees for the Airport and Airways Trust Fund.”
Background
From 2001 through 2008, U.S. passenger and cargo airlines reported cumulative losses of more than $55 billion, with additional losses expected in 2009. In an effort to try and at least mitigate these losses, some airlines began charging fees for certain services they provide passengers, or increased existing fees. For example, the average price paid for a gallon of jet fuel jumped 96 cents in 2008 – the largest annual increase in history – to an all-time high of $3.08. Fuel expenses increased $16 billion year-over-year. This unprecedented event caused some carriers to impose fuel surcharges in an attempt to recoup some of the additional costs they incurred.
In addition, some carriers have changed the amount of baggage certain passengers can check without paying an additional baggage fee. By imposing fees only on those checking bags, and not increasing all fares, those passengers not checking bags are not required to pay for a service they do not use.
Also, in order to obtain the lowest possible ticket price, many passengers buy “restricted” tickets that, as opposed to “full fare” tickets that allow free changes to the itinerary, require a fee to be paid if the passenger wants to change his original itinerary. By imposing these fees only on those passengers that make changes, the original price of the restricted ticket can remain low for those passengers that don’t make changes.
ATA Position
The commercial aviation industry is vital to the U.S, economy, driving $1.1 trillion in economic activity and more than 10 million U.S. jobs. Aviation consumers have benefited greatly since the industry was deregulated in 1978. Those benefits include lower fares, increased competition, and expanded airline networks, making getting from one point to another easier. When the industry was deregulated, airlines were freed from government control over their fares and other fees. The fees being charged by the airlines are for the most part optional fees for services that airlines provide to passengers who request those services. If the government limits the ability of the airlines to charge these fees, airlines would most likely look for ways to recover the lost revenues, which could include increasing fares for all passengers, including those not using the services currently offered for a fee.
We are concerned that the GAO was asked to determine whether the fees being charged are commensurate with the cost of providing the services to passengers. This suggests that airlines should be considered unique among businesses, in that they not be allowed to try and make a profit. For example, if you but a movie ticket, and then decide to buy a soda for $4 and popcorn for $5, should the amounts charged for those items be commensurate with their costs? It should also be noted that if airlines were covering their costs, the industry would not have lost $55 billion over the last eight years.
The GAO was also asked to determine how Congress can make these fees subject to the excise tax that partially funds the Airport and Airways Trust Fund. Since its inception, that tax has applied only to the “amount paid for taxable transportation of any person”. The fees discussed above are generally not paid for transportation. Rather, they are fees for additional services other than transportation offered by the airlines. The Internal Revenue Service recently issued guidance confirming that baggage fees are not subject to the excise tax. Subjecting these fees to the excise tax would either increase costs to the airlines (which are already struggling), or increase costs to passengers, thus reducing demand.
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