A Commercial Aviation Consultancy

By Kathryn B. Creedy

The ground-swell opposition for HR-4156 — The Transparent Air Fares Act — has resulted in many articles illustrating a distinct lack of understanding of a complex issue.

Consumer advocates oppose the bill, allowing airlines to return to past practices showing the base fare without taxes and fees. They say such taxes are required and should be baked into the base fare just as they are for a gallon of gas.

The airline industry supports HR-4156 to highlight that 20.5% of a ticket is taxes and fees. Indeed, a 20% tax is high for any consumer product and exceeds sin taxes designed to reduce consumption such as alcohol and tobacco.

These are two separate but related issues that have a greater impact on the economy than consumer advocates realize.

The first issue is whether or not aviation taxes and fees should be baked into the price of a ticket and consumer advocate’s opposition fails because it sets air fares apart from any other consumer product and does not address the fact that aviation is not the only consumer sector with opaque pricing.

If consumer advocates are so exercised about taxes and fees why are they singling out airlines? Why are they not proposing legislation to include hotel and car rental taxes and fees as well as airfares? What about other transportation modes that are not required to include transportation taxes and fees in base prices? Consumers understand that the price they are quoted for a car, a washing machine, or even a hamburger does not include taxes, so why should airline tickets? Wouldn’t consumer advocate energy be better spent on supporting legislation that encompasses these sectors and others that have opaque pricing strategies? It is silly to focus only on airlines.

As important as transparency in consumer pricing is, the rule requiring airlines to include government taxes in the base price hides the fact that consumers are not getting what they pay for when they launder their money through Washington. Indeed, airlines are right in highlighting this issue because of its impact on consumers and the economy at large.

These taxes go into the Aviation Trust Fund raising $19 billion annually to support government aviation functions — air traffic control, the Federal Aviation Administration, TSA, and the like. Similarly, gasoline taxes go to the Highway Trust Fund raising about $300 billion annually to support road and other infrastructure spending. Meanwhile, infrastructure spending continues to decline.

Under investing in infrastructure, wrote Economist Laura D’Andrea Tyson in 2011, has left us with “congested roads, freight bottlenecks, airport delays and overcrowded or nonexistent public transit operations.” She said infrastructure spending in the U.S. was only 2.4% of GDP compared to 5% in Europe and 9% in China. According to a landmark study — America’s New Transportation Agenda, published in 2010 by the University of Virginia — the annual shortfall in infrastructure spending ranges between $134 billion and $262 billion through 2035. This is bad for business and has led to an infrastructure crisis that left us a legacy of aviation gridlock and deadly bridge collapses.

Failure to update the air traffic control system is contributing to climate change. Since 1978, aircraft manufacturers have done what they could to reduce their carbon footprint improving fuel efficiency by 120%, eliminating 3.4 billion metric tons of carbon dioxide even as passenger numbers grew exponentially. But, their quest for carbon neutrality by 2050 will never happen without system modernization, which promises to reduce aviation greenhouse gas emissions between 10% and 15% by allowing more direct routings, reducing delays and decreasing fuel burn. We have been waiting for modernization for many decades and it remains woefully behind schedule.

While infrastructure spending has been declining, user fees and taxes for that spending have been rising illustrated by this simple statistic: taxes on a typical $300 round trip domestic ticket rose 48.5% from 7% of the ticket in 1990 to more than 20% today. In fact, the recently increased TSA fee is not designed to cover TSA costs but to go into the general fund to pay down the deficit. Should airline passengers really be the government’s unfettered ATM machine?

While consumer advocates and journalists alike love to rail against airline ancillary fees, they fail to recognize that the government invented the business model decades ago when it could no longer raise taxes. This gave birth to user fees across nearly every government department, siphoning billions of dollars from users such things as air traffic control.

While some say users should pay for government-provided services, we now have decades of experience with shortfalls on infrastructure spending despite the billions of dollars raised for that purpose. For passengers, the most recent disruption was the failure of the system to accommodate demand this winter when serial blizzards forced 1.3 million delays and cancellations, disrupting nine million passengers and costing the economy $6 billion, according to widespread press reports.

It should be noted that the industry’s effort to stem the impact of taxes and fees is not altruistic. The industry wants them lowered and have proven that they will raise fares if they are. When federal authority to collect taxes and fees expired momentarily in 2011, airlines raised fares pocketing the income that would have gone to the feds.

© 2014, Addison Schonland. All rights reserved.

14 Responses to Opinion: Debate over Transparent Fares Act Masks Larger Economic Issues

  • Users fees are ok but what is this bit about climate change? An extra one billion people by 2050 cause climate change.

  • This act is quite a stupid proposal and the article is not much better…

  • Good insight on a complex issue.

  • Car rental agencies do post the fees and taxes. I agree that hotels should be required to disclose the total cost. The issue is states rights…if a hotel in inside a single state and does not cross state lines, the federal gov’t has little juristiction…

  • Like most other defenders of this extremely misleadingly titled act, you, too, fail to correctly state what the current rule requires the airlines to show.

    You claim “the rule requiring airlines to include government taxes in the base price”. That is incorrect.

    The airlines are, in fact, required to show the full amount including all taxes as the most prominent number, but are absolutely and completely free to clearly show the the amount of taxes, provided it is less prominent.

    Open up Word or some other word processing software, write “Total fare: $300″ in a 72 point font, then write “Including $62 in government taxes” in, say, a 64 point font directly below it.

    That’s what airlines are currently permitted to do, without any change whatsoever to the current rules required. None.

    Why airlines are choosing to ignore the existing possibility for price-transparency, which they claim they so urgently desire, is something that everyone should form their own judgement about.

    Your opinion piece, unfortunately, does nothing to enlighten people about the legislation currently being proposed.

    • While it may be true that airlines have every opportunity to break out taxes and fees separately, you miss the point. The point is that all these taxes and fees are being collected from passengers and with every gallon of gas and are not being spent making this entire debate more petty than anything else.

      We have two issues here. Why are airlines being treated differently than other travel companies? And, my question still stands, if consumer advocates, who complain as much about car rental agencies and hotels, are so interested in this as a consumer issue, they should address it as a whole, not just from the airline perspective. That would be far better for the consumer.

      The second issue is the fact that money is being laundered in Washington and our infrastructure investment has left us with a deadly legacy. The debate on the TAFA is distracting us from more important issues.

      • I look forward to seeing your lengthy reasoned op-ed explaining why gas stations should be allowed to show their base price independent of the federal and state taxes. In the interest of transparency and all that.

  • “Why are they not proposing legislation to include hotel and car rental taxes and fees as well as airfares?”
    I don’t know. They should be, so fine, let’s change that too. Include cable companies too. Meanwhile, leave the rules for airfares the way they are now!

    “Consumers understand that the price they are quoted for a car, a washing machine, or even a hamburger does not include taxes, so why should airline tickets?”
    Because no one knows how much the airline taxes will be! They change all the time. Sales tax is familiar and predictable. Air travel taxes are much higher, as you point out.

    • I think airline taxes are pretty consistent year on year. It usually takes Congress to change them. But over time they have grown from 7% to 20%+ of the ticket between 1990 and today. That is not insignificant. It is also more than most products including alcohol, tobacco and firearms. Airline taxes and fees such as the security and passenger facility charges, really are no different that sales taxes. Ancillary Fees — baggage, change fees, and the like — may change a lot but that is a separate, unrelated issue. If you have a problem with that, then you haven’t been watching the dismal profit margins the industry has always had. Until a few years ago, they lost money more often than not. That was a management issue which, I hope, has now been resolved with the new business model. As for fees rising so much. Despite the plethora of fees, airlines have not recovered their cost of fuel. It was the fuel prices that drove unbundling and the imposition of fees more than anything else.

  • Another fallacious argument. It’s not consumers who are proposing anything, it’s airlines trying to repeal a DOT rule that they don’t like. The DOT does not have jurisdiction over hotels and car rental, only airlines, who have a collective history of consumer abuse. They couldn’t clean up their own houses so government action was required.

    Perhaps a law that requires all advertised goods to be priced including taxes and fees would be a good thing, but that’s not the issue today. The issue is the DOT rule and that’s only aimed at airlines.

  • Read California civil code 1946. It requires rental car companies to quote the full price to customers. The writer is not well informed on this issue. Is there one good reason to hide the full price from consumers?

    • No, there is no good reason but….. Why single out travel products? Why not do bottom-line pricing for everything? It is probably not reasonable but then why is it reasonable for airlines and no one else? But the bigger picture is that we are laundering money through Washington that is not being spent on infrastructure. That is the real consumer ripoff that is told in aviation and on-the-road gridlock.

  • Consistency in how retail pricing is displayed to the consumer is the obvious issue. The more subtle and important issue is how infrastructure funding is NOT being directed back towards the source of that funding, but rather to other issues. In the end, and several years from now, we all will look back and wonder how this or that particular transportation system failed to keep pace with modernization.

  • There is absolutely nothing stopping any airline which chooses to do so from calling attention to the portion of the fare which is taxes. In fact four A4A members do so today. But the airlines want more than that. They want to skew the view of the data so that customers are willing to spend more – money the airlines will pocket – by hiding the total cost until the end of the transaction. That’s not good for anyone.

    As for the rest of the industry there are two factors at play:
    1) I have no problem with showing all prices as all-in all the time. That would likely be much better for consumers overall.
    2) Hotels and rental cars are not federally regulated; airlines are. That’s the way the game is played.

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