Commercial airlines recently have been forced to increase fares because of the rising cost of oil. Now travelers could pay even higher fares under a proposal to raise the Passenger Facility Charge (PFC) tax used by airports for FAA-approved projects such as security enhancements and noise pollution reductions.
The Obama administration proposes to raise the PFC from a maximum $4.50 per flight to $7 per flight. For example, a passenger traveling roundtrip from New York to Los Angeles with a connection in Chicago has to pay the PFC for all four flights, so the total charge would go from $18 to $28, and under the President’s plan, it would be indexed to increases in the cost of construction.
The PFC, which was first instituted in 1992, has raised more than $27.5 billion, and was raised from $3.00 to $4.50 in 2002.
Airports vs. Airlines
The proposal has pitted airport operators, who claim they need more money to fund security projects, against the airline operators, who argue any increases in the PFC will result in fewer people flying.
“All we are trying to do is keep up with inflation,” said Todd Hauptli of the American Association of Airport Executives, which represents airport management personnel. The group favors raising the PFC, saying it is necessary to fund construction projects and tighten security.
In his $129 billion budget proposal for the FAA, President Obama has cut grants to airports by $1.1 billion, or 31 percent. Administration officials say the cuts are necessary to fund other transportation projects, such as high-speed rail, and that airports can make up for the lost funding by increasing in the PFC tax.
Several airlines declined to comment for this article. However, Delta Airlines CEO Richard Anderson wrote in a recent issue of his company’s in-flight magazine Sky, “Increasing the PFC tax would add unnecessary costs to customers and have the very real potential of hampering the industry’s returning demand.”
Anderson went on to say the increase was not necessary and that “PFCs are already expected to produce $2.8 billion for airports this year. This is in addition to $2.1 billion available for airport improvement projects and security equipage through stimulus legislation.” He also noted airports receive additional money through parking and landing fees, grants, and rents.
Higher Travel Costs
The Air Transport Association (ATA), an association representing commercial airlines, also opposes the tax hike. “The additional $2 billion in PFC taxes would raise the cost of travel, harming consumers and the entire travel and tourism industry at a time when policymakers are trying to stimulate the economy,” the group said in a release.
Obama’s proposal has hit turbulence in both houses of Congress, where it faces an uncertain future. In separate FAA reauthorization bills passed by the House and Senate for FY 2011, the PFC tax was kept at its current rate, but because of other differences, the bills must be reconciled and passed again by both Houses. If a final version of the bill is sent to Obama’s desk without the PFC increase, it is unclear whether he will sign it.
The Obama administration has repeatedly framed the tax increase as necessary to improve security. In testimony before the Senate Transportation Committee, Homeland Security Secretary Janet Napolitano said an increase in the PFC is justified given the high number of terrorist threats to airlines over the past two years.
Triple the Tax Burden
ATA President and CEO Nicholas Calio told the House Transportation Committee, “The tax burden on a typical $300 domestic round-trip ticket has nearly tripled since 1972, from $22 [then] to $61 today. The number of taxes and fees that U.S. airlines and their customers pay has also nearly tripled from 1990 to 2011. The result of this unchecked proliferation is breathtaking.”
“Government today should be encouraging the use of air transportation because of its speed, efficiency, and ability to generate jobs, not repeatedly weighing it down,” Calio said in his testimony. “New taxes on our already-overburdened industry must be rejected.”
Nick Baker ([email protected]) writes from Washington, DC.