Much is being said about the need for transparency, particularly when purchasing air travel. Airlines have more options and provide the ability for passengers to customize their travel as never before. Airlines fully support transparency, and want to ensure customers know exactly what they are paying for when they are buying a ticket.
The government has made it that much harder for customers to know where their travel dollars are going. In 2012, the U.S. Department of Transportation (DOT) reduced transparency for consumers when it implemented a rule requiring airlines to include taxes and government fees in advertised fares, effectively singling out air travel as nearly the only commercial product that must include taxes in the base price. The effect of this “full fare advertising rule” is to hide from consumers the substantial tax bite the federal government takes on each ticket. Nearly a quarter of the price of an average $300 round-trip ticket goes to the federal government. The rule also makes air travel appear to be less price-competitive than other modes of transportation, especially in short haul markets such as Washington-New York, where airlines compete with trains and buses.
Why is tax transparency important? Here’s why: while the average price of round-trip airfare has declined in real terms over the past couple decades – from $454 in 1995 to $378 today – the amount of taxes and fees imposed by the government has increased dramatically. On a typical $300 roundtrip domestic ticket, customers currently pay $62 in federal taxes, or 21 percent of the ticket price. That amount will increase to $63 in July when the TSA passenger security tax more than doubles from $2.50 per passenger enplanement to $5.60 for a one-way trip.
Thanks to the current DOT rule, passengers are under the impression that the extra cost is being imposed by the airlines, not the government. They deserve the real story, particularly because some of the government fees aren’t even going toward improving the nation’s aviation system. The latest increase, for example, which will cost customers more than $1 billion annually, won’t be used to improve aviation security, even though it’s part of a “security” tax. Instead, it will be used to reduce the federal deficit.
Customers are very familiar with the concept of taxes being applied to the base price. Whether they are buying a box of cereal, a computer or renting a car, they understand that the base price is what is offered by the company selling a product and that federal, state and local taxes are added later. Yet, somehow the government wants to bury what it is effectively charging customers into the base price.
That is wrong. Way back in 1978 Congress passed the Airline Deregulation Act, which established that the airline industry should be governed by market forces just like other commercial industries. DOT’s rule is contrary to that principle – it treats airlines far differently than other businesses are treated and conceals the taxes we all pay when we buy airline tickets.
The Transparent Airfares Act would restore the transparency that was taken away by the rule change in 2012. Consumers should have as much information as possible when booking their next flight. The airlines, which are fighting to contain the rising federal aviation tax burden, believe that it is always wise to err on the side of more transparency, not less. Consumers deserve better than DOT’s hide-the-ball scheme. They deserve what they crave most – transparency.
Calio is president and CEO of Airlines for America.