Should airlines be allowed to advertise fares without including taxes and fees?

Should airlines be allowed to advertised fares that do not include taxes and fees? Screengrab: Kayak.

Should airlines be allowed to advertised fares that do not include taxes and fees? Screengrab: Kayak.

Are you familiar with the Transparent Airfares Act of 2014?

The proposed bill in Congress would allow airlines to go back to the practice of advertising their airfares without taxes. So a carrier could advertise a $99 fare online, but then customers would be hit with additional taxes. The actual ticket would cost a good deal more than the advertised price.

I’m no Washington, D.C. insider, so I can’t tell you if the bill, introduced by Rep. Bill Shuster (R-Penn.) has a chance of becoming law. I do know that Airlines 4 America, the trade group for major airlines, including American, Delta, Southwest and United, supports it.

On April 9, the House Transportation and Infrastructure Committee moved to support the bill.

“We thank Chairman Shuster and Representative DeFazio (D, Ore.) for their leadership in promoting government transparency, protecting customers and holding Washington accountable for the taxes they impose on air travel,” “A4A President and CEO Nicholas E. Calio said a statement after the committee moved the bill.

This would essentially move the industry back to where it was prior to 2012, when the DOT instigated a rule requiring airlines to include all taxes and fees in their advertised fare. The goal then was transparency.

But here’s the airline industry’s argument. It believes it is unfairly taxed, and it argues that current rules hide this fact from the public. The industry gives as an example a $300 airplane ticket. On that ticket, airlines say the consumer pays $61 in federal taxes, or about 20 percent. Because the government has raised the TSA passenger security tax starting in July, that number will soon rise to $63. The airlines also argue that few other industries have similar advertising rules. Other than gas stations, can you name an industry that advertises an all-in-one price?

The airline industry is suggesting that if the public is more aware of these taxes, people might begin to push back against them. Others, however, believe this is part of a ploy among airlines to raise ticket prices. What do you think?

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Airline lobbying group criticizes TSA portion of budget deal

Airlines are closely watching a proposed budget deal that seems likely become law, saying a possible increase increase in Transportation Security Administration fees is not necessary.

The security fee that airlines collect would go up to $5.60 each way on every ticket. Now, passengers pay $2.50 for each segment, though that fee is capped at $5 for every one-way ticket.

So passengers with non-stop flights would see the biggest increases — from $2.50 to $5.60

“This tax increase which will provide no new benefit whatsoever to travelers comes at a time even when TSA is doing less with more resources,” said John Heimlich, chief economist for industry lobbying group Airlines For America, in a conference call Thursday with reporters. “That is not the direction we would like to see. We would like to see better use of existing tax dollars.”

Then Heimlich shared a slide showing that the TSA’s budget and staff levels have increased even as the number of travelers it serves has decreased.

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Airline industry doesn’t want increase in TSA ticket fees

Airlines for America is not in favor of added airline ticket taxes.

Airlines for America is not in favor of added airline ticket taxes.

Airlines 4 America, the lobbying group representing major airlines, was handing out air sickness bags Monday at Reagan National Airport in Washington, D.C. The reason: The airlines don’t want Congress to add any more taxes to your plane tickets.

According to the group, Congress could increase passenger security fees as part of a new budget deal. That’s a problem, the airline industry says, because it is already considerably taxed. The group’s release says: ” Over the past four decades, the tax burden on a typical $300 round-trip ticket has nearly tripled from $22 to $61.”

Airlines 4 America has created an entire website called Stop Air Tax Now. According to the group:

  • Aviation is subject to 17 different federal taxes and fees, with the industry contributing nearly $19 billion to federal coffers in 2012. 
  • Airlines and passengers paid $2.3 billion in taxes and fees to fund the TSA in 2012, twice as much as the industry paid in 2002.
  • Between 2007 and 2012, the TSA budget rose 19 percent while the number of people screened dropped 11 percent.
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Airlines trade group reports carriers are getting stronger, more profitable

Airlines 4 America, the industry lobbying group, released some interesting data on Thursday. I’ll summarize some of it here, but it is worth remembering that this data is generated by people who are paid by airlines.

In this slide, we learn that airlines — even though they have had a very profitable year by their standards — lag far behind other American industries. 

Airlines 4 America 1

Airports, including LAX, have far more secure balance sheets than airlines.

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As I mentioned in a story last month, airlines are investing more money in their product than they have in a decade. It’ll be interesting to see how long this trend lasts.

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For several years, airlines have been practicing “capacity discipline,” or reducing the number of seats in each market so they could make a great profit. But slowly, according to Airlines 4 America, seats are beginning to re-enter the marketplace.

Airlines 4 America 5

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Nation’s top 10 airlines earned $1.6 billion in profit (combined) in the first half of 2012

The nation’s 10-largest airlines reported profit margins of a combined 2.1 percent in the first six months of 2012, according to data released Thursday by Airlines 4 America, an industry group.

Combined, the carriers earned $1.6 billion in profit, an increase of $400 million from the same period in 2012, the groups’ records show. The industry profit margin in the first half of 2012 was 1.6 percent, according to industry statistics.

Making money is better than losing it, of course. But the data just shows exactly how thin profits are in this industry — in which fixed costs, like airplanes, fuel and labor — are enormously high. We’re talking 2 cents on the dollar here.

In a release, Airlines 4 America economist John Heimlich tried to put the profit margin in context. He said that if jet fuel had risen by 20 cents per gallon during the first six months of the year, all airline profits would have been completely wiped out.

The nation’s top 10 airlines (not in order) are:  Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways.

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