Economy could sputter from high airline taxes

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Economy could sputter from high airline taxes

The burden of high airline taxes is threatening the health of an industry that represents a powerful economic engine for the national economy, the chairman of the Business Travel Coalition (BTC) told the Senate Commerce Committee this month.

According to Kevin Mitchell, taxes that are now "baked into" airline tickets can exceed a third of the price. He also said the airline industry should be provided some permanent relief from post-Sept. 11 security and insurance-related costs. Moreover, once a baseline financial responsibility has been established for the airline industry for security, it should be codified, according to Mitchell. In other words, any future increases in security fees should be born by the taxpayer.

One focus of the Jan. 9 hearing was whether the hub-and-spoke model of major carriers can coexist with the low-fare, point-to-point business model. Mitchell thinks the two models are compatible. He said both can coexist, somewhat like U.S. automakers coexist with low-cost foreign competitors.

The question is how fast major airlines can reconfigure their cost and productivity to stem threatening financial losses and market share to the low- fare airline segment.

"Every day major airlines operate with relatively high cost and low asset utilization levels they cede ever more share to low-fare competitors," he said. "This competitive reality is encouraging pro-customer reforms such as America West's new air fare structure, or American Airlines' fare structure reduction and simplification experiment--now in several hundred markets."

Meanwhile, the National Business Travel Association (NBTA) said it supports federal funding of airline security costs. In preparation for the reauthorization of federal highway and aviation programs, Congress and the Administration need to ensure that transportation security is funded as a national security priority, according to the group.

It says Congress needs to make distinctions between funds that were historically appropriated for improving transportation infrastructure and funds the Transportation Security Administration and Department of Homeland Security will need to upgrade airport and transportation security.

NBTA also wants Congress to explore alternative screening methods such as a registered traveler program to allow seamless processing of frequent travelers. In a recent NBTA survey, over 40 percent of respondents believed U.S. passport holders and foreign travelers with immigration papers should have access to a trusted traveler program.

Over 54 percent said "registered travelers" should go through the same security screening as others but should pass through a separate screening line.

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