The
political brinksmanship that led to the weekend expiration of the U.S. government's authority to collect air ticket taxes continued this week, keeping
the Federal Aviation Administration partially dark, prompting the Internal
Revenue Service to ask airlines to provide applicable tax refunds to passengers
and presenting many other questions. The immediate ramifications included FAA
worker furloughs, suspension of various airport construction projects and new
airline fare hikes. Because the price increases offset the removal of the
ticket taxes, air travelers generally aren't paying more, but airlines are
realizing more revenue.
As
of Thursday morning, a resolution was nowhere in sight. Sen. Jay Rockefeller
(D-W. Va.), chairman of the Senate Committee on Commerce, Science and
Transportation, planned on Wednesday to convene a House of Representatives-Senate
conference to hammer out a deal that would allow funding to resume, "but
House Republican leadership rejected that offer," according to a statement
from Rockefeller's office.
The
House of Representatives passed what would have been a 21st extension of the
previous FAA authorization, but the Senate objected to an item that would
eliminate subsidies to some small markets. "If the Senate cannot agree to
a simple provision, which it approved earlier this year, to eliminate excessive
subsidies between $1,358 and $3,720 per ticket at three airports, then we don't
need to convene a conference meeting," according to a Monday statement
from Rep. John Mica (R-Fla.), chairman of the House Transportation and
Infrastructure Committee.
Rockefeller
also "told airlines to stop profiting on the FAA shutdown" and
"warned Delta and other airlines about the risks to the industry if the
House insists on making its anti-worker agenda part of the FAA
authorization."
Responding
to the first point during Delta's quarterly earnings conference call on
Wednesday, general counsel Ben Hirst said, "What the industry has done is
simply to maintain prices at market clearing levels. We are not quite sure what
Sen. Rockefeller expects the industry to do."
On
the second point, Hirst said, "The issue on the FAA bill was the Essential
Air Services program. Republicans insisted that as a condition of extending FAA
funding, 13 markets which were pretty clearly able to function without subsidy
ceased to receive subsidy. There was no labor-related condition attached to
that. It is not a Delta issue. It is between Republicans and Democrats in
Congress."
Taxation Implications
FAA
since Saturday has not collected the 7.5 percent federal excise tax on the base
ticket price or the sale of frequent flyer miles, the $3.70 domestic segment
tax, the $16.30 international travel facilities tax on flights to or from the
United States and the $8.20 departure tax for flights between Alaska or Hawaii
and the continental United States. State taxes, security fees, excess baggage
fees and passenger facility charges are among the fees still being levied.
The
affected fees combined, according to various reported estimates, amount to
between $25 million and $30 million per day. Delta executives pegged the number
for their carrier at $4 million to $5 million per day.
While
airlines are collecting more revenue than they were before FAA's tax authority
expired, the logistics of the situation may cause headaches for some travelers
and travel agencies.
The Internal Revenue
Service, which in 1996 and 1997 accepted excise tax refund applications from
affected travelers during similar air ticket tax holidays, on its website,
wrote that "passengers who paid for tickets on or before July 22, 2011,
for travel beginning on or after July 23, 2011, may be entitled to a refund of
the tax. Airlines are permitted to refund the tax to the passenger, just as
they do in the ordinary course of business when issuing refunds for unused
refundable tickets (including the associated taxes). The IRS has asked the
airlines to provide refunds to eligible passengers when requested. However,
passengers who are unable to obtain a refund from the airline may obtain a
refund by submitting a claim to the IRS."
IRS also posed this
question to itself: "If I purchase my ticket at a time when the tax is not
in effect but I travel after the tax is reinstated, will I be subject to
tax?" The not-so-simple answer: "That depends on how such travel is
treated in any legislation reinstating the tax. The legislation could either
impose tax on all travel occurring after its enactment or provide an exemption
for passengers who purchased tickets during the period when the tax was not in
effect."
According
to a joint statement issued by the American Society of Travel Agents and the
Business Travel Coalition, the two groups do not expect "any retroactive tax collections," but
suggested ticket taxes "will apply to a reissued ticket in cases where the
ticket was issued during the no-tax period and exchanged once the tax is
restored."
'Windfall' For Airlines
According
to a July 26 research note from J.P. Morgan analysts, "all-in ticket prices
for consumers haven't changed, but fare collection (which translates into
revenue down the road) is now approximately 9 percent higher than at the same
point last week. Each day FAA remains out of commission, cash collection is
reflecting this windfall."
The
analysts quantified that windfall in a few ways:
- Delta "could earn back its second-quarter Japan-related revenue hit [of
$125 million] in under three weeks."
- "Each week of shutdown is expected to lift Delta quarterly earnings [per
share] by $0.07, AMR's by $0.12 and UAL's by $0.15."
- "A shutdown lasting a single quarter would improve AMR results by $1.39.
That is close to what AMR earned in the entire year of 2006."
Though
an FAA shutdown is temporary, J.P. Morgan analysts cautioned that it could last
a while and reminded investors of the nine-month tax holiday in 1996 and a
three-month one a year later.
LaHood: Congress Can 'Avert
The Worst'
In
a posting this week to his official blog, Department of Transportation
Secretary Ray LaHood detailed some of the other consequences and implored
Congress to reach a deal. "Congress'
inaction has forced the FAA to issue stop-work orders on dozens of control
tower construction projects already underway," he wrote. "Even worse,
$2.5 billion slated for additional airport construction is sitting idle rather
than paying salaries." LaHood also noted that FAA was forced to furlough
4,000 workers.
"Of course, Congress still has time to avert
the worst," LaHood continued. "On 20 separate occasions since 2007,
it has passed short-term measures to keep the FAA up and running. This is a
deeply flawed solution because it creates enormous uncertainty for states,
airports and contractors, but at least it keeps American workers on the job
site. There is absolutely no reason that Congress can't pass another temporary
fix while it works out the details of a longer-term vision for the future of
America's air transportation system."