Reality Check

Reality Check

Vets the truthfulness of claims and measures the efficacy of public policy

Reality Check: Proposed Flight Tax Sparks Discussion of Airline Services

President Obama is proposing a tax hike on airfares to help pay for the deficit

By Sam Brock
|  Tuesday, May 28, 2013  |  Updated 10:34 PM PDT
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President Obama is proposing a tax hike on airfares to help pay for the deficit. Sam Brock reports.

President Obama is proposing a tax hike on airfares to help pay for the deficit. Sam Brock reports.

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In the new world of airline travel, a world replete with baggage fees and nickel and dime charges, a myth exists about the cost of air fare -- that it’s getting more expensive.

“Oh it’s more,” said Terry Dentoni, a traveler passing through Norman Y. Mineta San Jose International Airport on her way to Southern California. “It’s much more.”

One thing is for certain: Air fare will be more expensive if President Obama succeeds in getting a roughly $14 per flight tax approved, a move the administration has proposed to help reduce the deficit and improve infrastructure at airports.

Another thing is also quite certain, that neither passenger nor airline is crazy about the proposal.

The airlines contend they would do a far better job than the government in handling higher fees and rates on passengers.

“The goal of the airline industry is to reinvest any profits that we make in new planes, new services and additional jobs to make the travel experience that much better for the public,” said Sean Kennedy, Senior Vice President of Global Government Affairs for Airlines for America, a trade group representing the country’s airlines.

“Right now air fare still remains a bargain,” Kennedy said, warning that a federal tax hike will undoubtedly raise ticket prices on all consumers.

And as it turns out, Kennedy’s claim about air fare is accurate.

According to the U.S. Bureau of Transportation Statistics, average air fare costs peaked in 2000 at $449 a flight, and have been dropping or stable ever since. In 2008, the year baggage fees were introduced, flights averaged $377. By the end of 2012, the average plane ticket cost $374.

It should be noted those average costs include taxes and fees applied by outside groups (like the federal government), but not baggage fees or other charges incurred at the airport or onboard the plane.

Nonetheless, the consumer is still paying less than several years ago.

“Fundamentally, the cost of travel has gone down precipitously,” said Marc Casto, the President and Chief Operating Officer of Casto Travel Management, based in San Jose. “And as we can see with the emergence of low-cost carriers, consumers are really concerned about the price.”

But what about the second part of the airlines’ claim- that money collected through fees and increased fares goes directly to improving flight availability and services for passengers?

Here’s where the numbers were a little more conflicting.

The amount of money collected through baggage fees in 2012 set a record high of $3.5 billion. Airlines also generated another $2.6 billion in exchange fees for changing your reservation.

So what did passengers see as a result of all those new fees?

U.S. airlines transported 1.2 percent fewer passengers in 2012, total flights fell by almost 6 percent, domestic airline capacity dropped by 2.6 percent and staff levels were cut by about two-and-a-half percent.

NBC Bay Area asked Kennedy how airlines could be reinvesting money in customer experience and new planes, while simultaneously experiencing drops in all the key categories previously mentioned.

“Travelers are still paying less now than they were 10 years ago,” Kennedy said, “and our costs continue to go up. Every year, we have record year-over-year increases in fuel prices. We, airlines, are generally absorbing that. That’s cutting into profit margins.”

And the numbers do reflect smaller profit margins. Kennedy said airlines made an average profit of 21 cents per passenger last year.

According to the Bureau of Transportation Statistics, the top 10 carriers lost $145 million in the fourth quarter of 2012, and lost money overall for fiscal year 2011 and the first half of 2012.

“It’s the ancillary fees that the airlines charge that determines if there is any profit for the airline,” Casto said, who estimated that about 90 percent of all earnings made in 2012 came from baggage fees and exchange fees.

As it pertains to ticket prices, those fees have been used to keep costs stable.

But regarding the number of available flights, capacity, staffing and even the old niceties of traveling, the figures tell a different story.

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