Fees Would Cost Corporate Buyers
<H1>Fees Would Cost Corporate Buyers</H1>A critically important debate is heating up over how the Federal Aviation Administration will be funded into the next century. Hanging in the balance are issues of safety, pricing levels and the economic viability of low-cost airlines. Corporations indirectly fund the FAA budget, 85 percent of which is provided through taxes on air travel. Corporations are therefore important customers and stakeholders in this debate, and their perspectives and concerns need to be factored into any change in approach to FAA funding.
Proposals have been advanced to replace the efficiently administered 10 percent ticket tax with assorted user fees, including per-passenger embarkment charges, miles-flown fees and available-seat surcharges. This approach would add to complexity, double taxes on low-cost airlines' airfares and dilute the FAA's safety mission.
Congress, which establishes the ticket tax rate, has proposed that the FAA be spun off from the Department of Transportation as an independent federal agency with authority to establish taxation policy and rates for the industry. This approach would allow the agency to greatly influence low-cost airlines' cost structures, which in turn affect fare levels, the types of planes used and where and when they fly. Most importantly, it does not seem prudent to have FAA administrators shift attention away from their safety mission to become activity-based accounting experts, tax collectors and political arbitrators forced to deal with contending factions of the aviation industry.
A user fee-conservatively estimated at $12-would transfer about $600 million in taxes from mega airlines to low-cost and start-up airlines. This would lower what business travelers pay in taxes for travel on mega airlines. In the short term, a few percentage points might be saved, but in the longer term, business fares would likely increase dramatically if low-cost airlines are crippled or do not survive. A fee also would increase low-cost carriers' airfares, reduce demand for their products and weaken them financially.
Corporations need financially healthy low-cost airlines, which have provided benefits to businesses and communities by introducing price competition and encouraging efficiency among high-cost airlines. When a discount carrier enters a market, it induces new air travel demand with the added benefit of contributing incremental revenue to FAA overhead.
Indeed, DOT recently reported that in 1995, low-cost carriers were responsible for savings to consumers of $6.3 billion and for 47 million new airline passengers. Economists conservatively project that a user fee would result in the loss of 28 million of these passengers.
Low-cost airlines are responsible for some cities-Reno, for instance- having air fares 31 percent lower than other large and medium-size hubs around the country. By contrast, cities with little or no low-cost airline presence, like Cincinnati, pay premiums of up to 48 percent over similar-size hubs. User fees would curtail the spread of low-cost airlines into new markets, and precipitate withdrawal from others.
Some airlines argue that a user fee is a fairer way of allocating cost. Putting aside the confounding task of identifying and equitably assigning cost, since when did fairness become a virtue of the airline industry? The risk for low-cost airlines is already exceptionally high due to the marketing tools available to established airlines, such as override commission, frequent flyer, CRS and corporate discount programs.
The 10 percent ticket tax needs to be immediately reinstated, and a replenished aviation trust fund should be used only for aviation safety-related purposes. Elected Congressional members, not a federal agency, need to be responsible and accountable for taxation policy. And corporations need to become more engaged with aviation industry issues that can affect their own competitiveness.