Government Fees Growing Portion Of Air Travel Costs

Government fees on the airline industry are pretty high and set to go higher.

Airline passengers are giving an ever-increasing portion of their travel dollars to Uncle Sam, according to data released by MIT's Global Airline Industry Program and Daniel Webster College.

Airline ticket prices overall have actually dropped over the past several years, the researchers emphasize. However, many of the taxes and fees passengers pay, which fund a significant portion of the costs of U.S. air-traffic control and airport systems, are not linked to the base price of the tickets and have remained about the same.

As a result, the effective tax rate on airline tickets is steadily increasing, and will increase more under the Bush administration's recently released federal budget proposal, researchers report.
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After the administration's proposed hike in security fees, passengers would, on average, pay 19 percent in taxes and fees on top of the ticket price, the researchers found in their update of last year's study. In 2004, passengers paid 16.1 percent in taxes on top of the price of a domestic ticket. This is up from 15.5 percent in 2002 and 10.9 percent in 1993.

Professor Joakim Karlsson of Daniel Webster College explains the significance of the study's results: "The airlines have lost the ability to raise airfares, even to just keep pace with inflation. The average round-trip ticket has dropped 40 percent in real terms since 1993. Meanwhile, average ticket taxes and fees have stayed relatively constant at $45 per ticket."

Karlsson adds: "With the total cost of taxes changing only slightly, the relative share of each ticket that goes to taxes and fees has been steadily increasing."

The federal government and airports currently add four types of taxes and fees to the basic cost of each domestic airline ticket. The administration's new proposal increases the security fee associated with passenger and baggage screening by up to $6.

$45, let alone $51 with the proposed new fees, strikes me as a lot of money for the government's portion of the costs for getting passengers from point A to point B. Where does that money go?

Private companies have to find cheaper ways to do things. By contrast, government services can become more expensive and, well, government does not have to worry about a competitor offering a cheaper alternative. Of course the terrorist threat has increased the amount of security precautions that are necessary. But the government probably doesn't need as much money per ticket to run the air traffic control system per passenger as it used to. The cost of operating the air traffic control system surely must scale up more slowly than the number of passengers carried. Airplanes have gotten bigger and so carry more passengers per flight. Also, computers have become far more able to track flights and route flights to avoid collisions and computers have become cheaper. Also, the basic software development costs for the system don't go up much as traffic goes up.

Governments need to try to develop ways to automate more government functions. Ticket fees for air flights are a reminder that all government services need to be scrutinized to look for obvious inefficiencies. The market is not going to enforce enough cost discipline on governments. Government operational costs need to be published in formats that would allow better outside scrutiny by knowledgeable citizens to identify areas ripe for potential savings

By Randall Parker   2005 March 15 12:39 AM   Economics Government Costs
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