Government taxes and fees account for more than one-fifth of the price of a typical domestic flight, making air travel one of the highest-taxed sectors of the American economy. Travelers pay a 7.5 percent excise tax, a $4.10 fee per flight segment, a commercial jet fuel tax, and a $5.60 security fee per flight segment, among other costs. But that’s not stopping some politicians from trying to make flying even more expensive by hiking the passenger facility fee (PFC) at airports.
Congress created the PFC in 1992 to help fund airport infrastructure. In 2001, it was increased to $4.50 per flight segment with a maximum of two PFCs charged on a one-way trip. So a passenger with a round trip ticket and a layover each way could pay up to $18 in PFCs.
Proposals being contemplated in Congress would increase the PFC cap — which could result in a family of four paying well over $100 in PFCs alone to go on a summer vacation or reunite with family for Thanksgiving. Some are trying to eliminate the cap altogether, paving the way for untold billions in airport tax hikes on consumers. And that’s before any other government taxes, fees, or airfare are factored into the cost of the trip.{mosads}
In a new analysis by the American Consumer Institute, my coauthor and I estimate that a PFC hike would reduce the number of air passengers in the U.S. by 7.5 million in 2019 and cause consumer welfare to drop by $3.1 billion per year — nearly $25 for the average American household. Taking into account both direct and indirect impacts, a study by the International Air Transport Association found that a higher PFC could reduce U.S. GDP by $5.1 billion and destroy more than 52,000 jobs.
Airports argue that raising the PFC is necessary to fund critical infrastructure improvements. Yet the numbers tell a different story. In reality, with air traffic up and reserve funds growing, U.S. airports are thriving, and asking price-conscious air travelers to pay a higher PFC is unnecessary.
In the last decade alone, more than $165 billion has been dedicated to capital projects that have been completed, are underway, or have been approved at America’s 30 largest airports. In 2017, airport revenues broke records, reaching nearly $30 billion. This 87 percent increase in revenues since 2000 has outstripped the growth in flights, passengers, and inflation.
On top of healthy revenues and positive industry forecasts, airports are sitting on $14.7 billion in unrestricted cash and investments on hand — a 49 percent increase since 2010. That’s enough money to finance airports’ infrastructure needs for more than a year without collecting a penny in taxes.
Nonpartisan analysts predict that the federal aviation fund will have an uncommitted balance of $7.7 billion by the end of 2019, up from $6.1 billion in 2018. By the end of 2029, the fund’s uncommitted balance is projected to reach $47.7 billion. These surpluses, which Congress could use to address airports’ capital needs, far exceed the projected revenue gains from lifting the PFC cap.
And despite no increase in the PFC in nearly two decades, strong passenger growth has sent PFC revenues soaring to an all-time high of $3.29 billion in 2017, more than double the amount collected in 2001. The FAA estimates that 2018 PFC revenues totaled $3.43 billion and will climb to $3.57 billion in 2019. Today, PFC collections are more than $1 billion higher than if they had merely kept pace with inflation.
Congress has repeatedly rejected efforts to increase the PFC, and it should continue to resist proposals to make air travel more expensive. An increase in the PFC would raise consumer prices, suppress market demand, and reduce consumer welfare. That’s a high price to pay to give airports money they don’t need.
Liam Sigaud works on economic policy and research for the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org.