Extra taxes weigh heavily on airlines

By Barbara De Lollos
USA Today

They get you coming and going.

Sarah Carter, from Rockford, Ill., vacationing in Hawai'i last month, submitted her luggage to an airport search. Passengers are being taxed to pay for increased security measures. Advertiser library photo

This month, airlines began collecting yet another fee on behalf of the federal government as a result of Sept. 11.

As part of the Aviation and Transportation Security Act, Congress approved a security service fee to help finance the government's takeover of aviation security. The tax — as much as $10 on a round-trip ticket — will be used to pay for luggage screeners, sky marshals, bomb-detection devices and other security measures.

"The feeling was the flying public will be supportive of it," said Steve Hansen, spokesman for the House Committee on Transportation and Infrastructure. "Because people want assurance, from the moment they approach the airport until they leave, (that) they have the best security procedures in place."

Unlike the other taxes that go mostly to the Federal Aviation Administration and local airports, this one will finance the newly created Transportation Security Administration under the Department of Transportation.

No doubt people want to feel safer. Airlines, however, worry the new tax will make flying less affordable for both business and leisure travelers at a time when most airlines are desperate to stem historic losses.

On a $100 round-trip domestic ticket with one connection, four taxes account for $44.19 of the full ticket price. All but one of the taxes — the 7.5 percent passenger ticket tax — are structured as flat fees, so the percentage of ticket costs paid as taxes decreases as fares increase. A person paying a low fare would pay a higher percentage in taxes than a passenger in business class.

"We're hoping this is it for a while when it comes to taxes," says Ed Stewart, a spokesman for low-fare carrier Southwest Airlines, the only major airline that didn't lose money after Sept. 11.

Will a fee hurt business any worse than it already has been hurt?

Midwest Express, for one, does not expect to see negative effects.

"What we've heard is that people are more than willing to pay the fee to feel more secure flying," says spokeswoman Lisa Bailey.

But struggling airlines such as US Airways, which last month reported a $1.2 billion loss for 2001, aren't so sure.

"We're collecting this because it's a federal mandate," says US Airways spokesman David Castelveter. "It's yet to be seen what customer reaction will be."

For large corporations — the biggest buyers of airline tickets — the fee could add thousands or even millions of dollars a year to travel budgets already strained by other taxes. And that could translate into cutting travel expenses elsewhere.

The National Business Travel Association estimates the fee of $2.50 a flight segment will add about $625 million to U.S. corporations' annual air fare tab.

"It's really going to hit the bottom line of companies," says Marianne McInerney, executive director of the travel association. "There will be some trips that will not be taken."

Corporate travel managers, however, seriously doubt important business trips will be sacrificed as a result.

"I don't think that $2.50 to $10 will impact travel," says Cheryl Hutchinson, global travel director for American Management Systems in Fairfax, Va., and a member of Frontier Airlines' corporate travel advisory board. "I think people want to see better security."

If the security tax follows the history of other taxes, one day Congress may increase it.

"The hardest thing for Congress to do is get a tax on the books," says John Heimlich, the Air Transport Association's economic and market research director. "Once it's there, raising it is a piece of cake."

Three of the four taxes that domestic passengers pay are growing, as are some of the taxes paid on international fares. Passengers pay the bulk of aviation taxes, which go toward paying everything from FAA costs to air-traffic control to the airport grant program. Those rising are:

• The passenger segment fee, which pays for the FAA's Aviation Trust Fund. It grew this year to $3 a segment (defined as one takeoff and landing). It began as $1 a segment in 1997, says FAA spokesman Bill Shumann.

This tax raised $1.7 billion in 2000, about 17 percent of all federal aviation taxes. The passenger ticket tax raised the most money — $5.1 billion, or 52 percent of all aviation taxes.

• The cap for the airport departure tax or "passenger facility charge," which is levied by local airport authorities for improvements often related to congestion problems, rose in April from $3 to $4.50. Airports are allowed to increase this tax only with FAA approval. Between April and Dec. 31, the FAA has approved applications from about 120 airports to raise their charges.

• The Animal and Plant Health Inspection Service's fee on international tickets to pay for agricultural inspections is rising from $6 to $7.

The only tax Congress actually reduced is the passenger ticket tax, which also finances the FAA Aviation Trust Fund. Before the Taxpayer Relief Act of 1997, the tax was 10 percent of the base fare, the FAA's Shumann says. It gradually fell to its current 7.5 percent, which stays in place through 2007.

Airports are worried about too much of the burden falling on passengers, but they also worry the government may fall short of the money needed to implement a secure and reliable system.

The difference "can be made up by shorting security, which we don't want to do, hiking the fee on passengers, which is already very high, or it can be made up by funding it adequately by the general fund," says Stephen Van Beek, senior vice president for policy at Airports Council International-North America, an industry trade group.

"The fee is clearly inadequate for all the tasks that have been provided to it," he says. "But it is a starting point."