Over the past decade, the airline industry has struggled to maintain its economic footing in the face of higher gas prices and an overall increase in operating costs. While average ticket prices have remained relatively steady, passengers are shelling out more than ever for additional charges such as baggage and exchange fees. A proposed airline tax could soon make air travel even more expensive.
In April, President Obama released his proposed budget, which features a lofty goal of reducing the federal deficit by $1 trillion over the next decade. At the core of the budget plan is a series of deep spending cuts combined with key tax increases, including the proposed airline tax. If the measure is approved travelers would see an approximately $14 increase in the cost of airfare, bumping the current average ticket price from $374 to $388 according to the U.S. Bureau of Transportation Statistics.
In putting together his budget proposal, the President has argued that the new airline tax would serve two purposes. First, a portion of the tax would be used to improve airline services and infrastructure, including things likes customs and immigration inspections and checkpoint screenings. Part of the tax would go to agencies like the Federal Aviation Administration (FAA) and the Transportation Security Administration (TSA), which are responsible for air traffic control and airline security respectively. Second, a portion of the money would be used to reduce the federal deficit.
Under the budget proposal, taxes for customs inspections on international flights would increase from $5.50 to $7.50. The tax for immigration services would go from $7 to $9 and the security fee for one-way flights would double to $5 per flight segment. This fee would be increased incrementally, eventually maxing out at $7.50 by 2019. Passengers would also pay nearly twice as much for facility charges, which would increase from $4.50 to $8. An additional $100 tax would also apply to every flight departure. According to the White House, the new tax measures would generate an estimated $9 billion in additional revenue over the next five years and $25.9 billion over the next decade.
Approximately $7.9 billion of the tax revenue would go towards aviation security while the other $18 billion would go towards the deficit.
Similar tax hikes have been proposed in the past but failed to gain congressional support. The airline industry has been critical of the measure, claiming that higher taxes would lead to reduced profit margins if passengers are forced to avoid air travel due to increased costs. Others have argued that increasing airline taxes is simply a way of keeping up with inflation and that it would have a minimal impact on air travel. While it’s unclear which side has the stronger argument, what seems certain is that the cost of air travel will most likely continue to grow. In fact, fares increased industry-wide by 3 percent from 2011 to 2012 while the number of total flights dropped by 6 percent. Baggage fees continue to be the number one moneymaker for airlines, bringing in approximately $3.5 billion in revenue in 2012, according to the Bureau of Transportation Statistics.
The President’s budget proposal is just one of several that are under consideration and it doesn’t appear that a final agreement will be reached any time soon. If the measure succeeds, world-weary travelers could find themselves paying even more to fly the friendly skies.
This post was published on June 4, 2013