High Jet Fuel Tax Causes Airlines to Avoid Re-Fueling in Chicago, Los Angeles

Published February 1, 2005

According to sources in the airline industry, high jet fuel taxes have commercial airlines going out of their way to avoid fueling up planes in Chicago and Los Angeles.

“We bypass the high-priced locations,” Southwest Airlines spokeswoman Whitney Eichinger told the Chicago Tribune, as reported in a December 13 article (“Airlines fly but don’t fill up here”).

Both of Chicago’s major airports–O’Hare International and Midway–are being avoided because of Chicago’s high jet fuel taxes.

Even United Airlines, headquartered in suburban Chicago, avoids the Chicago tax as much as possible.

“We lift 20 to 30 percent less fuel in Chicago than we otherwise would because the price is not competitive due to the taxes,” United spokesperson Jeff Green told the Tribune. “Any flight coming to Chicago is taking on as much fuel as it possibly can before it gets here.”

William Warlick, an airlines analyst at Fitch Ratings in Chicago, told the Tribune, “Even if the savings are small, in some ways they’re the only option the airlines have to cut costs.”

Some of the highest jet fuel taxes in the country are currently in Chicago and Los Angeles, where taxes are levied by percentage of price instead of per gallon. Basing the tax on price means that as fuel prices go up, so does the amount of tax paid, even if the amount of fuel purchased remains unchanged.

John Heimlich, chief economist for the Air Transport Association, labeled the percentage-based jet fuel taxes “particularly offensive, because if the price of jet fuel doubles, we pay the states twice as much in taxes even though we are not relying on them to provide more services.”

According to the Tribune, a one-cent increase in the jet fuel tax costs the airline industry an additional $180 million annually. The mid-December 2004 price for jet fuel, including tax, is $1.76 per gallon in Los Angeles and $1.60 in Chicago. That compares to $1.39 in Denver and $1.42 at Dulles International Airport outside Washington, DC.

Excluding taxes, the average jet fuel price for major U.S. airports was $1.25 per gallon in September 2004. That is up from 82 cents in September 2003. Jet fuel, like home heating oil, is a crude oil byproduct, and their prices rise as the price of a barrel of oil rises.

John Skorburg ([email protected]) is associate editor of Budget & Tax News and a visiting lecturer in economics at the University of Illinois-Chicago.