The debate over a proposal to change the way the Federal Aviation Administration (FAA) is funded has pitted low-fare carriers against the so-called Big Seven, the nation's seven largest airlines (American, Continental, Delta, Northwest, TWA, United, and US Airways).
Low-fare airlines say the user fee the Big Seven favor over the current ten percent tax on all tickets is a punitive measure threatening their survival. The Big Seven call the user fee fairer and more efficient than the outdated ten percent tax. A user fee would be a set amount paid for every leg of a trip; the ticket tax is paid once regardless of stopovers, its amount being dependent on the price of the ticket.
"This whole issue has been raging for almost two years," since the ten percent tax first lapsed on January 1, 1996, says Todd Rogers, Southwest Airlines' manager of governmental affairs. Rogers says the majors at that time proposed a "three-pronged" user fee that, according to a General Accounting Office (GAO) study, would shift $550 million in fees paid by the Big Seven to the low-fare carriers. "User fees penalize us for offering low fares, for flying short hauls, and for trying to cater to leisure travelers."
Long Overdue But the Big Seven maintain that FAA funding reform is long overdue. The fairness of funding the FAA with a ticket tax disappeared along with government-mandated ticket prices in 1978 when the airline industry was deregulated, according to a statement from one Delta Air Lines spokesperson.
"Like highway toll taxes, which are based on the miles driven, not the price of your car, a usage tax would treat all passengers alike," says the statement.
Both sides are closely watching the progress of a Congressional conference committee, which is hammering out a compromise between a House tax bill and the Senate's version. The Senate bill retains the ten percent sales tax on domestic tickets, due to expire September 30; raises the departure tax on international flights from $6 to $8; and imposes a new $8 tax on international flight arrivals. It also imposes the ten percent ticket tax on any domestic portion of an international flight. Currently a passenger flying from Chicago to New York and then on to Europe does not pay the ten percent tax on the domestic leg.
The House bill is itself a compromise measure that lowers the ten percent tax to 7.5 percent but also institutes a $2 per passenger, per flight user tax from October 1997 through 1998. After 1998 the user fee would rise incrementally until it reaches $3 in 2002, when it would then be tied to the consumer price index (CPI). The House measure calls for a $15.50 per person tax on international departures and arrivals, indexed to the CPI starting in 1999.
Supporting the Senate bill are the low-fare carriers and the Business Travel Contractors Corp. (BTCC), composed of companies that spend $1 billion a year on business travel.
BTCC President Kevin Mitchell says that user fees would, ironically, trigger a drop in business fares initially. But by jeopardizing the low-fare carriers' survival, the fees would eventually result in higher business fares. By offering a competitive alternative, low-fare carriers have forced the majors to respond with cost-reduction programs and products like Delta Express and Shuttle by United, Mitchell says.
"These guys are precious to us," he says of the low-fare carriers. "We're opposed to anything that acts as a barrier to their continued growth."
The Big Seven support the House bill, calling it a fair compromise between user taxes and the status quo. They add that the Senate bill singles out U.S. carriers with international routes to shoulder nearly all of the projected $4 billion increase in departure/arrival taxes. And according to the majors, the measure gives foreign carriers, not subject to these new taxes, a competitive advantage.