LaHood: Government Considering Recovery of Airline Fees

When the FAA's taxes expired, passengers could have saved money, but instead the airlines raised ticket prices. Now, the Treasury may try to claw that money back.
by | August 1, 2011
 

Federal officials are trying to determine whether the government can recover money from the country’s major airlines after they increased their ticket prices in response to a temporary suspension of federal airline taxes, Transportation Secretary Ray LaHood said during a conference call with the reporters today.

The Federal Aviation Administration has been on a temporary shutdown since July 23, when Congress allowed the agency’s reauthorization to expire without passing an extension. As a result, the FAA was required to stop collecting a 7.5 percent tax and other fees on airline tickets.

That tax is paid by airline customers to the airlines when they buy their tickets. The airlines then send that money to the government.

But when the tax expired, airlines didn't pass the savings on to customers -- they increased their fares. Passengers paid about the same amount for a flight, but money that once went to federal coffers instead went directly to the companies’ bottom lines. Now, LaHood says, the Treasury Department is trying to determine whether it has the ability to claw back that money.

“I think we’ll get it figured out,” LaHood said, though he added that the situation is “more complicated than I think most of us really thought it might be.”

A Treasury spokeswoman tells Governing that Treasury officials are working with the airline industry to address the collection and payment of those taxes, but the ultimate decision of whether to reinstate them retroactively is up to Congress.

The Wall Street Journal recently reported that Delta is earning $4 million to $5 million per day in extra revenue by not passing the savings on to customers.

LaHood says he’s already discussed the situation with the CEOs of several airlines and told them that he believes the decision to increase fares “was not right.”

“I don’t think that’s right or fair for the airlines to do that,” LaHood said. “I have made that known to some CEOs. I’m not backing away from that.”

Nearly every major airline, including American, United, Continental, Delta, US Airways, Southwest, AirTran and JetBlue all raised their fares about 7.5 percent as a response to the end of the tax, according to the AP. They defended the move by saying customers would pay the same amount for tickets. They’ve also cited already thin profit margins.

The lack of an FAA law means that the agency can't collect about $200 million a week in taxes and fees that are deposited into a special trust fund that funds some of the FAA’s work, according to the Department of Transportation.

Meanwhile, more than 4,000 FAA workers are furloughed, and the agency has had to issue more than 200 stop worker orders for research and airline modernization and renovation projects nationwide, deputy FAA administrator Michael Huerta said. About 40 FAA safety inspectors are doing their jobs without pay and using their own money to travel for work across the country. The halted construction projects have put 70,000 construction workers out of a job, LaHood said.

The secretary said he discussed the situation last week with Sen. Jay Rockefeller (D-W.V.) and Rep. John Mica (R-Fla.), who chair the Senate and House transportation committees. He spoke Saturday and Sunday on the phone with Barry Jackson, chief of staff to House Speaker John Boehner (R-Ohio), since it appeared that Mica’s position in the FAA negotiations was being influenced by the House leadership.

LaHood, a former congressman from Illinois, said he also has been in touch with members of Congress he once worked with. Now that the debate over the debt ceiling has concluded, lawmakers should be able to focus on the FAA situation, LaHood said. “They’re trying to come up with a compromise,” LaHood said. “I’m encouraging them to continue those discussions.”

The debate began when the Republican-controlled House passed an FAA authorization in April that included a provision that would make it more difficult for airline and railroad workers to unionize. The Democratic-controlled Senate, meanwhile, approved a re-authorization that lacks those provisions.

Lawmakers knew they needed to pass a stopgap bill to temporarily fund the agency while the dispute over the labor language was addressed, so Mica introduced a bill that would fund the FAA through Sept. 16, which House ultimately passed.

But that stopgap includes a controversial provision that would make cuts to a program that subsidizes the cost of air travel for flights at small airports, which Republicans believe is wasteful. Democratic Senators balked at the move and refused to pass a stopgap with those strings attached. The two sides have been at an impasse ever since.

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