Don’t Blame the Airlines for Their Policies, Blame the IRS

February 17, 2016 by · Leave a Comment 

After the busy holiday travel season, you may have felt like many of your fellow travelers, that you were bleeding money. But before you blame the airline for gouging you, you may be surprised to learn that Congress and the FAA are the real Scrooges in this Dickensian scenario.

Airline seatsWhen the IRS ruled in 2009 that ticket fares were subject to corporate taxation, but add-on fees weren’t, airlines found their loophole for profitability. As we consumers know, the government can regulate all it wants, but businesses will still find a way to pass the costs created by those policies on to us to achieve the ROI that their shareholders demand.

For example, baggage fees are considered an add-on fee, not taxable by the government. Same with fuel surcharges each airline has to pay Uncle Sam. There’s also the Domestic Passenger Ticket fee, the fees on arrivals and departures for international flights, mileage rewards, and flights between the continental US and Alaska or Hawaii. All these fall outside your ticket price and are fair game for increasing profit margin. And the airlines have become masterful at creating ways to make tax-free profit.

In the first quarter of this year, American Airlines announced it was cutting its capacity projection for next year while reporting profits that were double last year’s performance for the same quarter. Couple this news with headlines this summer about the nation’s crumbling airport infrastructure and the government’s complaints about its inability to pay for it, and there seems to be no consumer-friendly solution. If businesses aren’t going to do the right thing for travelers and government can’t be relied upon to objectively distribute the taxes it collects, isn’t the system doomed to fail?

On the contrary. Increasing a little-known Passenger Facilities Charge (PFC), combined with an airline tax cut in exchange for eliminating the add-on taxes, could have been the cautionary tale the industry needed to wake up and change. But Congress didn’t pass an increase for the PFC, so we’re still stuck in the Dickensian era of travel. Don’t blame the airlines. Blame Uncle Sam.

Photo credit: camknows (Flickr, Creative Commons)

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