Congress Investigates Airline Fees In Search Of Tax Revenue

Congress is concerned about the new fees that airlines seem to enjoy piling on their passengers. But not out of any sense of concern for consumers’ wallets. The problem is the lost tax revenue that airports are missing out on when airlines increase their prices through the use of fees instead of by raising fares.

This is no small matter—there are hundreds of millions of dollars at stake.

So far this year, United States airlines have taken in more than $3 billion in fees. If all those fees were subject to the same 7.5 percent excise taxes as fares, then the government would have at least $225 million more to distribute to airports for improvements and expansions.

Won’t someone please think of the airports?

For their part, airlines insist that they’re just trying to find new revenue sources without raising fares, at a time when revenues are down.

The airlines counter that the recession has forced them to think up new revenue streams. This fall, for example, they began adding a surcharge on tickets booked during the most popular travel days during Thanksgiving, Christmas and spring break.

“We have been aggressive and creative,” John Tague, president of United Airlines, told analysts last month. And it has paid off: United collects about $13 in fees per passenger, or 30 percent more than the industry average.

Both higher fees and higher fares are passed on to consumers…as are the additional taxes that would come with higher fares. As a consumer, would you rather pay a higher fare or additional fees?

“Neither” is not an option.

Worried About Losing Tax Revenue, Congress to Investigate Airlines’ Fees [NY Times](Thanks, Andrew!)

(Photo: Chris Rief aka Spodie Odie)

Comments

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  1. huadpe says:

    I make my own airlines at home.

    But seriously, the tax dodging is probably a small help to consumers relative to fare increases if it means the total cost is up to 7.5% lower.

    But I still go with higher fares in this choice for transparency. I want to be able to book a fare and have that be the price. With all the fees, comparison shopping becomes more and more difficult.

    • Jevia says:

      @huadpe: I agree. As much as I try to avoid most of those fees (luggage, etc.), I’d still rather have the price up front all at once so I could see which airline will give me the best value for my money.

    • RogerTheAlien says:

      @huadpe and Jevia: +1. I know there’s that argument that says, “Well, just consider the fees PART of the fare.” But I call BS on that. Just like huadpe mentioned, I’d rather just know what the full-service fare (with seemingly-free checked baggage, a meal, all surcharges, etc) would be, and then compare it against all other airlines. I want the bottom line up front. We shouldn’t have to pick our way through various add-ons to know if we’re getting screwed.

    • Vengefultacos says:

      @huadpe: I doubt the tax-dodging is any real help to the passengers in the long run anyhow. Think about it: if the airport runs into financial problems because airlines are shorting them on tax collections, then guess who ends up footing the bill to make up the shortfall? Yup. The taxpayer.

  2. outlulz says:

    So they claim they’re looking for ways to make up revenue without increasing fares…by increasing fees? Lipstick on a pig.

  3. madog says:

    Option C: “The Airlines can go FT.”

  4. humphrmi says:

    I believe it was the peak travel fare that finally got congress’ attention. This “fee” is included in the fare that you’re quoted, but is not being taxed as a fare.

    Remember that it was the IRS that finally put Al Capone in prison.

  5. Tim says:

    Well, the government definitely has a point. Why should a “fare” be taxed, but not a “fee”? Especially if the airlines openly admit that they’re increasing fees in order to avoid increasing fares.

  6. Cant_stop_the_rock says:

    The poll question is kind of meaningless without dollar amounts. Some fees can be avoided, i.e. by bringing less luggage and checking in online. Fare increases can’t be avoided. So fees are preferable unless the fees are higher than the fare increase, in which case my answer depends on how much of the fees I can avoid paying.

    The poll results are interesting though. It’s funny how worked up people get about fees. If you only look at the bottom line cost, it really doesn’t matter how much is comprised of fees, taxes, whatever.

    • nsv says:

      @Cant_stop_the_rock: Fees can’t be avoided if we don’t know about them in advance. I swear they make these things up on the spot.

      “…and another $10 for a Rainy Tuesday fare, and $15 for having black luggage, and $25 for having a piece of luggage that isn’t black, and what did you say? Oh, you’ve just triggered the $20 Cranky Customer fee!”

    • Megalomania says:

      @Cant_stop_the_rock: If you’re shopping for tickets then it’s a huge extra hassle to figure out what your final cost will be thanks to fees. If all the companies charged the same fees it would be trivial, but you have to know what United is currently charging for each bag versus American, or maybe the fees are lower if you can stuff it all into one bag but American will screw you if you end up taking two… I’d much rather just have a number up front.

    • BigSlowTarget says:

      @Cant_stop_the_rock:

      The problem is that hidden fees artificially add pricing risk into the transaction. You don’t actually know what you will be paying and the amount can vary significantly. At the point that the fees are imposed you have no negotiating leverage and are going to pay them.

      Finding out about and estimating hidden fees is possible but takes time. Time costs money. It is very difficult to say how long it will take to run down all the fees involved in a trip but the effort to do so is duplicated for each competitor you are trying to compare.

      The anger about fees may very well be anger because the companies are deliberately and by choice making pricing less comparable and more risky and making getting an accurate price more expensive.

    • lmarconi says:

      @Cant_stop_the_rock: If the fees were transparent, I’d be in favor of them vs raising fares, because there’d be at least some chance that some passengers can avoid them.

      Funny how the government will get involved when greedy airlines are failing to give them tax revenue, but not when greedy airlines overcharge or deliberately confuse consumers.

  7. Zeratul010 says:

    As a consumer, I’d rather take the *expletive deleted* train. Or a car. Or a bus.

    Seriously, short of transcontinental travel, or business-mandated arrival times, just drive. It’ll cost way less, be some nice alone time/time with the family, and the journey is an experience in itself.

  8. coren says:

    What the airlines really mean is “we’re trying to make money without having to give the government a cut”. Cuz god knows the consumers aren’t thanking airlines for keeping fares lower by tacking on fees that may or may not be fully disclosed or even public knowledge. It’s getting to be like the damend iPhone – “You have a child? There’s a fee for that”

  9. SG-Cleve says:

    The airlines should learn from eBay sellers:

    Charge $20 for airfare and add a $250 fee for passenger “shipping and handling”.

    • QuantumRiff says:

      @SG-Cleve: I was thinking Gas stations need to start doing this..Start listing gas at 99c/gal, then charge “pumping fees”, “Card fees”, cash fees, environmental fees, regulatory fees, then throw state and federal gas tax on top!

    • Dondegroovily says:

      @SG-Cleve: E-bay is actually making that harder to do. They usually make you go thru a wizard where you indicate size and weight and it gives buyers actual UPS/Fedex/USPS shipping costs for their specific region.

      • LadyTL says:

        @Dondegroovily: Actually thats only accurate for Fedes and UPS since Ebay has refused to go by the current USPS shipping standards. So the ebay wizard always undercharges the sellers for USPS shipping if they use it.

  10. BrotherFlounder says:

    Kinda surprised that the FTC hasn’t started an investigation of these fees as false advertising, especially since so many of the airlines are charging them now, and there is pretty much no way to avoid them.

  11. Deranged_Kitsune says:

    Wow… yeah, sounds totally like the government there. “Wow, those are some pretty fees you’re collecting there. You know, maybe if you share some of those fees with us, we’ll allow you to continue collecting them.”

    I swear, the only difference between the mafia and the government is that in most cases you can choose your government.

  12. H3ion says:

    The government would collect tax on these fees by means of the income tax, except that the airlines, through creative accounting, probably don’t pay much income tax.

    The tax law should probably be modified to include anything paid by the consumer to the airlines, whether called a fee, a fare or a charitable contribution. At the same time, the government ought to require the airlines to quote the real cost including all fees when advertising their “fares.”

  13. MooseOfReason says:

    Congress isn’t worried about the fees it imposed on the airlines, security and otherwise. That sounds like a double standard.

  14. jamesdenver says:

    Hey look – no post yet saying “I don’t fly and drive everywhere and so should you and I’ll never fly until things change.” (never)

    And then I respond saying I live out west 800 miles from any other big city and enjoy going to Europe – and sitting in a chair for X hours a cheap price is worth the experience of globe trotting.

  15. RedwoodFlyer says:

    What uninformed dolt wrote the article? The “$10 surcharge” for thanksgiving travel IS TAXED at the standard fare rate. Stop trying to stir the pot.. airline’s aren’t exactly basking in profits as it is.

  16. AllanG54 says:

    The FAA is sitting on a boatload of dough and they’re not shelling out to upgrade ATC facilities and equipment or runway incursion equipment. You know if there’s more money for the government to waste they’re just going to …well…waste it.

  17. katycorp says:

    Considering that all passenger taxes go into an FAA trustfund for airport improvement, and MOST of the trustfund money goes to tiny general aviation airports that most people without private planes can’t use, I say no taxes. Citation: [subsidyscope.com] . The airport passenger fees are the only fees that go directly back into the airport of origin. Also, the airport improvement program is functioning in the black. So why increase the taxes? To subsidize more private airfields?

  18. metsarethe... says:
  19. GadgetsAlwaysFit says:

    @Cant_stop_the_rock: BUT they don’t always stipulate them up front. Example: Go book on Delta’s website. Indicate you won’t be checking any luggage. There is no information at that time to notify that if you are going to check a bag you will save $5 by checking it online and paying right then. At least the last time I booked at their website that was the case. If it turns out you must check a bag for whatever the reason you find out once you are there that it is $20 vs $15. So now what do you do? Assume you are going to check a bag and pay the non-refundable fees up front or hope you can make it work out that you don’t have to check one and gamble paying a little more? Dodgy behavior on the airlines part.

  20. Tiber says:

    @Cant_stop_the_rock: Even the ones the company doesn’t tell you about?
    See here and here.

  21. dreamfish says:

    @metsarethe…: Inappropriate apostrophe fee? ;)

  22. frodolives35 says:

    @RogerTheAlien: If it was you or I it would be tax evasion. Large corporations look at it as a loophole to be exploited untill it is closed.

  23. jenjen says:

    @GadgetsAlwaysFit: And then there was that other story earlier this month where American charged $100 EXTRA to prepay your baggage fee, where Delta is giving you a break for doing so. Is the consumer supposed to keep a detailed chart of all this?

  24. SalParadise says:

    @RogerTheAlien:
    It’s not tax evasion, it’s just a case of trying to minimize your tax obligation.

    Carried to it’s logical extreme, the airlines would not charge us at all for the fare, but levee a seat fee on us.

    More likely, though, it’s just a case of unintended consequences. Nobody thought to make fees subject to taxes.

    I suspect this will change shortly, followed by a round of fare and fee increases to make up for the lost revenue the airlines experience.

  25. Vulcaex says:

    @Dondegroovily: You’re forgetting that the airlines, like all companies, don’t pay taxes. The consumer/employee/investor pays the taxes.

    I would rather see what the total cost is going to be up front than get hit with it later.