Airlines win again when US Congress stumbles over funding

Travel predictors over the weekend were blithely telling consumers to buy their airline tickets now because a federal tax had lapsed. But guess what? Virtually all airlines raised prices to make up the difference.

The suspended taxes could have saved passengers 10 percent to 15 percent on their ticket prices, but most US carriers have boosted fares to the levels ticket prices would have been with the taxes still in place.

This will allow the airlines to take in roughly an extra $25 million a day, according to Rick Seaney of FareCompare.com.

So far, only Spirit and Alaska seemed to be bucking the trend.

This has not made fee-conscious consumers happy.

"Hiking fares to grab what was tax money to the government is just plain nuts," said Bob Lorentzen, a consultant.

By failing to reauthorize the FAA’s 7.5 percent airline ticket tax, the US Congress did more than furlough 4,000 employees and raise questions about the future of air safety. It also effectively means the government will be losing up to $25 million a day in funding.

Wrote Portfolio.com:

“That led virtually all airlines to raise fares by the exact amount of the expired taxes, but not before some alleged travel ‘experts’ took to the media over the weekend proclaiming a one-time windfall of fare reductions. Rather than admit they got it wrong, the ‘experts’ then erroneously claimed that the airlines were grabbing tax revenues for themselves.”

The $25 million figure came up because in addition to the 7.5 percent tax, there’s also has a $3.70 segment fee, a $16.30 international arrival/departure tax and an $8.20 departure tax for flights between Alaska/Hawaii and the US mainland.

“It is estimated that these fees can amount to some $25 million a day,” says the American Society of Travel Agents (ASTA).

ASTA and the Business Travel Coalition (BTC) issued an advisory to travel management companies and others in the business about potential issues stemming from the government’s failure to extend the tax.

Would the US government try to collect the tax in the future?

Details are not yet know, according to ASTA and BTC.

The last time US federal authority to tax airline passengers lapsed was in 1996 and 1997. “Travelers seeking a tax refund during that period were required to submit an excise tax refund application, along with a copy of their ticket receipt, to the IRS,” according to ASTA.

The groups say the IRS is expected to provide more information on the tax in the future.

Why did congress fail to authorize FAA funding?

A major “sticking point” was legislative language that would make it more difficult for unions to organize within the airline industry, ”a contentious issue that not be quickly resolved,” according to ASTA.

But Congressional inaction also raised the issue of the $200 million so-called “Essential Air Service” or EAS program.

Created in 1978 to help rural airports and small communities face a deregulated airline system, EAS should have expired in a decade. But it’s still around.

“It is also fast becoming the metaphoric poster boy for wasteful government spending, entrenched interests, political gridlock, and (surprise!) an airline industry so completely clueless that it demands more money to operate the supposedly ‘essential’ flights even as the nation is struggling to find ways to spend less,” writes Portfolio.

In addition to the union squabble over unions, the Essential Air Service program was another issue in not funding the FAA.

But the issues get even more cloudy because the FAA has not had a permanent budget since 2007. Since then, the US House and Senate routinely pass interim spending measures to keep the agency going.

“But in the currently poisonous Washington climate, temporary reauthorization No. 21 got hung up over some EAS spending cuts and a Republican attempt to reverse a recent National Mediation Board ruling that makes it easier for airline unions to organize,” wrote Portfolio.

PS: one of the problems of the EAS program was that money was being paid to areas where roads don’t exist or are impassable in winter (Alaska) and other unlikely recipients such as tiny airports operated by marginal carriers with dubious safety records.

The Essential Air Service program survives because “it’s a tasty bit of pork that legislators on both side of the aisle like to bring home to their constituents,” Portfolio explains.

By David Wilkening