Sunday, February 6, 2005

Airlines and business travelers are bristling over a Bush administration proposal to double the airport security tax created by Congress after the September 11, 2001, terrorist attacks.

When he submits his budget to Congress today, President Bush is expected to outline a plan to increase the security fee from $2.50 to $5.50 for a one-way airline ticket, and from a maximum of $5 to $8 for a trip that has multiple legs. The increase would generate an additional $1.5 billion for the Department of Homeland Security’s Transportation Security Administration.

Homeland Security said it would not comment until the budget is released.

Airlines plan to fight a security tax increase.

Air travel is heavily taxed, with passengers and airlines paying billions of dollars to fund Homeland Security and the Federal Aviation Administration (FAA), said John Heimlich, chief economist for the Air Transport Association, which represents U.S. cargo and passenger carriers.

“It’s easy once these taxes are on the books to increase them. It’s easier to raise them than it is to engage in fiscal self-discipline,” he said.

Airlines and passengers pay 13 major taxes and fees, the Government Accountability Office said in a report completed last year.

“The taxes were added over many years as Congress and administrations have looked at aviation as a cash cow,” said Mike Miller, a partner at the Velocity Group, an aviation consulting firm in Washington.

More than 600 million passengers flew on U.S. airlines last year, and consumer interest in flying shows no sign of slowing down, especially in light of fare wars that continue to lower the cost of air travel.

Passengers are responsible for the airport security tax and three others that are assessed on tickets for domestic flights.

The federal ticket tax amounts to 7.5 percent of the cost of a ticket. Another tax of $3.20 is added for each leg of a flight. Both taxes help fund the FAA.

Passengers also pay a facility charge of $4.50 to each airport in which they set foot, up to a maximum of $18.

International passengers pay additional taxes, including arrival and departure taxes that add up to $28.20 and a $5 fee to fund inspections by U.S. Customs and Border Protection.

A $200 round-trip, domestic flight with one stop each way can include taxes of nearly $52, accounting for 26 percent of the cost of the ticket, Mr. Heimlich said.

Airlines pay taxes on fuel and cargo, and a $70 fee to fund inspections of agricultural products on international flights.

Airlines and passengers will pay an estimated $15.8 billion in fees and taxes this year. Without an increase, the airport security fee will account for about $1.8 billion.

“The issue isn’t the security tax. The issue is the cumulative effect of all the taxes,” Mr. Miller said.

When taxes on air travel increase, airlines can’t justify raising fares and the cost of flying further, so it prevents them from making money, said Joakim Karlsson, associate professor at Daniel Webster College, in Nashua, N.H., and co-author of a study last year that concluded taxes added about 15 percent to the cost of a domestic flight in 2002.

“The airline industry for some time has made a fairly big deal about the overall level of taxation. Their case has significant merit,” Mr. Karlsson said.

The Bush administration might use an increase in the airport security fee to fund Homeland Security’s $100 million proposal for equipment to detect explosives smuggled by passengers.

The increase would go into effect for fiscal 2006, which begins Oct. 1.

Record losses by airlines call into question the wisdom of the administration’s plan to raise the airport security tax now, Mr. Karlsson said.

Not all airlines have reported fourth-quarter earnings, but losses could reach a combined $9.4 billion for 2004, Mr. Heimlich said.

Homeland Security “is apparently either unaware of the anemic airline industry pricing environment or does not understand the economics of the industry,” said Kevin Mitchell, chairman of the Pennsylvania-based Business Travel Coalition.

A separate group, the National Business Travel Association, said the increase would cost businesses an extra $400 million annually.

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