RAA in the News: Airlines Balk at Tax Proposal - Wall Street Journal
Wednesday, October 05, 2011
Posted by: Admin
Source: Wall Street Journal
By SUSAN CAREY
Airlines are expressing alarm over an Obama administration proposal to help cut the federal deficit by imposing a new tax on aviation and raising another.
Carriers, airline labor unions, private pilots, corporate-jet builders and a host of other groups are lobbying hard to make the case to Congress that their barely profitable industry is being unfairly singled out.
"The airline industry is an easy target," said Richard Anderson, chief executive of Delta Air Lines Inc. "Perhaps there's a sense in Washington that wealthy people fly. But over the past 20 to 30 years, flying in the U.S. has been a very middle-class activity."
The administration says fees assessed on travelers cover less than half the costs of beefed-up security at airports. Officials also say that small private jets need to shoulder more of the burden of the air-traffic-control system.
The industry will pay $17 billion in fees and taxes this year, compared with $3.7 billion in 1993, said Mr. Anderson. An average $300 domestic ticket now includes more than $60 paid for by the passenger but distributed to 17 federal taxes and fees, leaving the airlines with just $240 of that purchase, not including fees for checked luggage, ticket changes and the like.
A committee of lawmakers, the so-called super committee, is working with President Obama's Sept. 19 proposal to try to find ways this fall to trim the deficit by $1.5 trillion over 10 years.
In its September proposal, the administration said a large commercial jet "would pay between $1,300 to $2,000 in taxes for a flight from Los Angeles to San Francisco while a corporate jet flying the same route and using the same Federal Aviation Administration air traffic services would pay about $60 in taxes."
So the administration proposed a $100 tax on each flight departure, including corporate jets and general-aviation aircraft that require federal air-traffic-control services, in a bid to more evenly spread out the burden of those costs. The fee is expected to raise $11 billion over a decade to support the Federal Aviation Administration's airport and airways trust fund. The commercial carriers say it would be hard to pass this cost along to their passengers.
The proposal includes a doubling of the federal security surcharge of $2.50 per one-way trip to $5. Annual increases would triple the fee to $7.50 by 2017.
About $10 billion of the new revenue over 10 years would go toward the Transportation Security Administration to cover security costs, and $15 billion would go to debt reduction.
Gary Kelly, CEO of Southwest Airlines, estimates the proposed departure tax alone would cost his company $140 million a year. "We are already struggling with huge (fuel) cost increases and challenges to our profitability," he said. Southwest earned $459 million last year on $12.1 billion of revenue.
US Airways Group Inc. estimates the departure tax could cost it $110 million a year. AMR Corp.'s American Airlines pegs its expense at $124 million.
Delta's Mr. Anderson said if his company couldn't pass on that expense, it would have to shrink further.. He and others in the industry think smaller communities would be the hardest hit.
"Passengers and small communities will be paying one way or the other: through higher fares or no service," said Roger Cohen, president of the Regional Airline Association, the trade group representing commuter carriers that fly on behalf of the major airlines.. "Why is aviation always an ATM?" he asked. "We're visible, vulnerable and measurable."