Airlines say budget deal will hike ticket prices

Before leaving town for the holiday, Congress voted to increase the cost of your airplane tickets next year.

At least that is what airlines are asserting, following the budget agreement that was approved by the House this week.

{mosads}The budget deal, negotiated by Sen. Patty Murray (D-Wash.) and Rep. Paul Ryan (R-Wis.), included a $3.10 increase in the fees that are tacked onto plane tickets for airport security as part of a package of revenue-raising measures that provide the rationale for turning off $63 billion in sequester budget cuts.

“The first takeaway from the change, or the potential change, in the TSA piece is that air fares are going up for consumers,” Delta Airlines CEO Richard Anderson told investors and financial analysts on Thursday, the day the budget bill was approved by the House.

“That tax increase will not be absorbed by Delta,” Anderson continued.{mosads}

Lawmakers have claimed that the budget agreement does not contain any tax increases, but Anderson said the aviation security increase should be referred to as one.

“It’s a tax increase, let’s call it what it is,” Anderson said. “Let’s not say it’s some sort of a service fee or whatever fiction folks use around that…It’s a sales tax, and the sales tax will have to be paid by consumers.”

The budget agreement raises the aviation security fee from its current level of $2.50 per trip to $5.60, beginning on Oct. 1, 2014. Previously, there was a cap of $5 per trip. The cap will be removed under the terms of the new deal.

The fee increase is expected to generate $390 million in 2014 and more than $1 billion in subsequent years – but the money will not be used to pay for airport security like it normally does.

Instead, the legislation containing the budget agreement specifies that the money will go to the federal government’s general fund.

The airline industry has fought off previous attempts to increase the aviation security fee, an effort which goes back as far as the 2011 Simpson-Bowles recommendations.

This time, the headwinds the airlines were facing were too strong, Eno Center for Transportation President Joshua Schank told The Hill on Friday.

“[Airlines] have been pushing back on any fee increase of any kind in anticipation of this kind of problem,” Schank said. “They’ve been guarding against this for a long time because they know in this Congress there is a desperate search for revenue and for avoiding anything that looks like a tax increase.”

Schank said the airlines lost because the forces going against them were “stronger this time,” citing the desire in Congress to have a bipartisan agreement after the recent government shutdown and the desire among Democrats to turn off some of the sequestration budget cuts.

The lobbying group for airlines, Airlines for America (A4A) said this week that the airport security-fee increase was not as clear-cut a loss for their industry as it seemed.

“As we have said consistently, airlines and our customers are already overtaxed, and we are disappointed that fees on air travel were increased, and believe those higher taxes will impact demand, jobs and our economy,” the group said in a statement that was provided to The Hill.

“At the same time we appreciate the reforms in TSA funding that the conference committee incorporated and the recognition that exit lane staffing in airports is a federal security function,” the A4A statement continued.

The issue of exit-lane staffing has been a contentious one. The TSA had previously planned to transfer control of the checkpoints, where airline passengers are not allowed to return after departing terminals, to airports. The aviation industry opposed the change because it would have had to bear the cost of the new arrangements.

“These two items are critical to a more rational regime of regulations, taxes and fees and, we hope, the beginning of Congress considering additional reforms in the way our industry is taxed and the ways that fees are used,” A4A said. 

The Eno Center’s Schank balked at that interpretation, saying the security fee increase would be easier for airlines to swallow if the money was actually going to the TSA.

“What’s relevant is what the money is used for — potentially to benefit the traveling public,” Schank said. “I don’t have reason to believe that it is going to be. Right now, we’re not getting a lot of return on our investment on TSA. Most people think TSA is a large agency that isn’t doing its job very effectively.” 

Schank said there was merit to both the airline industry’s argument that the security fee increase would led to higher ticket prices and lawmakers’ contention that the impact of the extra couple of dollars on tickets that usually cost upwards of $300 would be minimal.

“Airlines are right when they say that marginal price increases have economic consequences,” he said.  “It’s not like you can add it and act like there’s nothing there. But the consequences are small when you compare them to something that 99 percent of American use, like gasoline for cars. That’s going to have a greater impact. That’s what Congress is looking at.”

The tax that is paid by drivers on gasoline purchases, which is 18.4 cents-per-gallon, has not been increased since 1993, to the chagrin of advocates of higher transportation funding.

Schank said airlines were not as lucky as drivers in the latest round of budget fighting because “airfares are relatively inelastic.”

“If they’re changing by a couple of dollars — as long as they are all changing by a couple of dollars — it’s not going to have much of an impact on travelers’ behavior,” he said.