For those wishing to get into this business and interviewing realize the hurdles for companies to make money is difficult. There is great inefficiency out there within the ATC and airport operations, TSA included (government runned services...who'd thunk that
) and this adds a burden to any airline company & to the customer that is an untold story in light of all the struggles of airlines. It isn't the primary cause mind you but certainly contributes...this articles points out some of those problems clearly I believe.
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Are U.S. Airlines Overtaxed?
By R2A Management Consulting
No other U.S. industry is compelled to depend so extensively on government-controlled, user-provided infrastructure funds (airports and airways), and no other U.S. industry has its minute-by-minute operating efficiency capped by the daily operating efficiency of the federal government (air traffic control). Consequently, since air transportation is an essential element of the U.S. economy, it is imperative that government’s core role and responsibilities do not impede the efficiency of this vital sector. As the National Commission to Ensure a Strong Competitive Airline Industry (Baliles Commission) put it in its 1993 report to the president and Congress:
The air transportation system has become essential to the economic progress for the citizens and businesses of this nation.Without it, our country will be hamstrung in its ability to participate in an increasingly global community and marketplace. Air transportation makes possible the quick movement of millions of people and billions of dollars worth of goods to markets around the world. We need to be able to compete in those markets, and there is often no practical alternative to air transportation. Similarly, the growth of a competitive domestic economy depends more and more on our ability to move by air.
In 2004, the major U.S. scheduled airlines lost $9.2 billion on system revenues of $92.9 billion, a negative margin of 10%. Prospects for financial improvement in 2005 range from poor to non-existent.
Yet, taxes and fees levied on charged the industry and its customers will increase in 2005 and are estimated by the Air Transport Association of America (ATA) to be $15.8 billion. Federally mandated but unfunded security requirements add another $1.3 billion. As dismal as this sounds, it gets worse. These fees and charges are expected to continue to increase, with little industry input and apparently with no end in sight.
In 1972, U.S. airlines had three federal tax categories, an 8% passenger ticket tax, a $3 international departure tax (no international arrival tax), and a 5% cargo waybill tax. This year, the number of tax categories has risen to 15. The passenger ticket tax has dropped only a half a percentage point, to 7.5%, despite the introduction of a new flight segment charge—currently $3.20—and the waybill tax is up 1.25 percentage points to 6.25%. The international departure tax has increased $11.10 per passenger to $14.10, and then doubled by charging international arrivals as well.
In 2001, the PFC cap was raised from $3.00 to $4.50, and there is now a frequent flyer sales tax of 7.5%, a jet fuel tax of 4.3 cents per gallon, and a security fee of $2.50. The airlines also now face user fees on Customs, Immigration, and Animal and Plant Health Inspection services, the last of which was raised unilaterally by the Department of Agriculture in January of this year.
This is a huge increase in taxes and fees paid largely by airline customers at the very time the industry is undergoing painful restructuring. The funding mechanism for aviation infrastructure development and vital industry services is severely damaged and may be irreparably broken. Like the airline industry itself, the system must be radically changed. Since the current tax-and- fee regime is complex, with little or no accountability or transparency for taxes and fees assessed, the answer to the above question of whether the airline industry is overtaxed is—yes, but we suspect the main culprit is significant inefficiency of the existing system. In commenting on the state of the airline industry in 1993, the Baliles Commission stated in its report:
There are obvious signs for concern: airlines are liquidating, merging or filing for bankruptcy protection. Delays and other system inefficiencies are costing the American economy billions of dollars per year. Manufacturers of aerospace products are consolidating and even leaving the business entirely. Jobs in these high-wage high-skilled sectors are being lost by the thousands. Airline debt levels are reaching historic and unsustainable proportions.
Sound familiar?
The Economy Ultimately Pays
Although many of the taxes and fees are paid by the customer and some by the airline, ultimately it is the economy who must pay. Call it what you want, operating costs, taxes, fees, the resulting increased overall price of air transportation drives down market demand that produces less revenue for airlines, lost jobs and personal income, and a slowing in the trade economy. As currently structured, taxes and fees for passenger travel range from around 12% of the base air fare to more than double the base fare.
As a benchmark, the average domestic passenger base fare for the year ended September 30, 2004, was $145.50 one-way or $291.00 round-trip. If the 2005 service provided at this fare is nonstop, the total price to the customer will be $333.23, with taxes and fees amounting to $42.23 or 15% of the base fare. If the 2005 service is in the same market, but with one connection, the total price rises 6% to $353.63, including $62.63 in taxes and fees or 22% of the base fare. If two connections are made traveling in this market (logically more typical of travel to/from the smaller communities), the total price rises to $360.03, including $69.03 in taxes and fees—24% of the base fare.
As air fares are continuing to decline, the relative tax-and-fee burden on airline customers necessarily will rise. The trend of downward average fares has accelerated since 2000 as the availability of low fares has spread domestically. With Delta’s new Simplifares, and the competitive reaction by other network airlines, average fares will trend lower still.
__________________
) and this adds a burden to any airline company & to the customer that is an untold story in light of all the struggles of airlines. It isn't the primary cause mind you but certainly contributes...this articles points out some of those problems clearly I believe._____________
Are U.S. Airlines Overtaxed?
By R2A Management Consulting
No other U.S. industry is compelled to depend so extensively on government-controlled, user-provided infrastructure funds (airports and airways), and no other U.S. industry has its minute-by-minute operating efficiency capped by the daily operating efficiency of the federal government (air traffic control). Consequently, since air transportation is an essential element of the U.S. economy, it is imperative that government’s core role and responsibilities do not impede the efficiency of this vital sector. As the National Commission to Ensure a Strong Competitive Airline Industry (Baliles Commission) put it in its 1993 report to the president and Congress:
The air transportation system has become essential to the economic progress for the citizens and businesses of this nation.Without it, our country will be hamstrung in its ability to participate in an increasingly global community and marketplace. Air transportation makes possible the quick movement of millions of people and billions of dollars worth of goods to markets around the world. We need to be able to compete in those markets, and there is often no practical alternative to air transportation. Similarly, the growth of a competitive domestic economy depends more and more on our ability to move by air.
In 2004, the major U.S. scheduled airlines lost $9.2 billion on system revenues of $92.9 billion, a negative margin of 10%. Prospects for financial improvement in 2005 range from poor to non-existent.
Yet, taxes and fees levied on charged the industry and its customers will increase in 2005 and are estimated by the Air Transport Association of America (ATA) to be $15.8 billion. Federally mandated but unfunded security requirements add another $1.3 billion. As dismal as this sounds, it gets worse. These fees and charges are expected to continue to increase, with little industry input and apparently with no end in sight.
In 1972, U.S. airlines had three federal tax categories, an 8% passenger ticket tax, a $3 international departure tax (no international arrival tax), and a 5% cargo waybill tax. This year, the number of tax categories has risen to 15. The passenger ticket tax has dropped only a half a percentage point, to 7.5%, despite the introduction of a new flight segment charge—currently $3.20—and the waybill tax is up 1.25 percentage points to 6.25%. The international departure tax has increased $11.10 per passenger to $14.10, and then doubled by charging international arrivals as well.
In 2001, the PFC cap was raised from $3.00 to $4.50, and there is now a frequent flyer sales tax of 7.5%, a jet fuel tax of 4.3 cents per gallon, and a security fee of $2.50. The airlines also now face user fees on Customs, Immigration, and Animal and Plant Health Inspection services, the last of which was raised unilaterally by the Department of Agriculture in January of this year.
This is a huge increase in taxes and fees paid largely by airline customers at the very time the industry is undergoing painful restructuring. The funding mechanism for aviation infrastructure development and vital industry services is severely damaged and may be irreparably broken. Like the airline industry itself, the system must be radically changed. Since the current tax-and- fee regime is complex, with little or no accountability or transparency for taxes and fees assessed, the answer to the above question of whether the airline industry is overtaxed is—yes, but we suspect the main culprit is significant inefficiency of the existing system. In commenting on the state of the airline industry in 1993, the Baliles Commission stated in its report:
There are obvious signs for concern: airlines are liquidating, merging or filing for bankruptcy protection. Delays and other system inefficiencies are costing the American economy billions of dollars per year. Manufacturers of aerospace products are consolidating and even leaving the business entirely. Jobs in these high-wage high-skilled sectors are being lost by the thousands. Airline debt levels are reaching historic and unsustainable proportions.
Sound familiar?
The Economy Ultimately Pays
Although many of the taxes and fees are paid by the customer and some by the airline, ultimately it is the economy who must pay. Call it what you want, operating costs, taxes, fees, the resulting increased overall price of air transportation drives down market demand that produces less revenue for airlines, lost jobs and personal income, and a slowing in the trade economy. As currently structured, taxes and fees for passenger travel range from around 12% of the base air fare to more than double the base fare.
As a benchmark, the average domestic passenger base fare for the year ended September 30, 2004, was $145.50 one-way or $291.00 round-trip. If the 2005 service provided at this fare is nonstop, the total price to the customer will be $333.23, with taxes and fees amounting to $42.23 or 15% of the base fare. If the 2005 service is in the same market, but with one connection, the total price rises 6% to $353.63, including $62.63 in taxes and fees or 22% of the base fare. If two connections are made traveling in this market (logically more typical of travel to/from the smaller communities), the total price rises to $360.03, including $69.03 in taxes and fees—24% of the base fare.
As air fares are continuing to decline, the relative tax-and-fee burden on airline customers necessarily will rise. The trend of downward average fares has accelerated since 2000 as the availability of low fares has spread domestically. With Delta’s new Simplifares, and the competitive reaction by other network airlines, average fares will trend lower still.
__________________
