Congress has once again shown its inability to get anything done by actually letting the FAA reauthorization bill expire. What does that mean? Well, when Friday ended, so did the FAA, at least temporarily. Different airlines have used different tactics to profit, but for the general public, there is no benefit to this impasse at all. To be honest, the entire situation is simply pathetic.
Politics has gotten in the way of progress, probably to the surprise of nobody. The FAA has continued to be funded over the last few years with a series of extensions because Congress couldn’t agree on a new reauthorization, something that’s desperately needed so that we can move forward with programs like next generation air traffic control. While both sides of the aisle squabble over the details, at least they were smart enough to keep issuing extensions to keep the wheels of FAA going. This time, they apparently decided to take a stand and let it expire.
What’s the upshot? Until the FAA is reauthorized, all non-essential employees are laid off. (Yes, air traffic controllers still work and air travel remains unaffected operationally.) Funds for federally-assisted projects also dry up until this is done, so construction projects around the nation lie in peril. On top of that, the FAA no longer has the ability to collect taxes. This is a bonanza for airlines and sometimes for customers.
There are two distinct camps in the airline industry. Some took this as an opportunity to implement a “fare increase.” I put that in quotes, because the fare paid by the customer doesn’t change – it’s just that the airlines increased fares to replace the amount no longer being paid in tax. All of the bigger airlines are doing this, including Southwest and JetBlue. (Airline Reporter is keeping tabs on this in detail.)
The little guys, on the other hand, are just passing on the savings to customers and they’re not being shy about talking about it. The airlines in this camp include Alaska, Frontier, Hawaiian, Virgin America, and Spirit. Spirit is probably the most interesting, because it is using this as an opportunity to promote two things. One, it says it’s on the side of the people by passing back the savings and being transparent about it. Two, it’s encouraging people to write to their reps to tell the feds to allow taxes to be broken out in the future. (This is scheduled to change in the near future as part of new regulations from the DOT.)
You have to hand it to Spirit. When Spirit implements a new fee, it usually lowers fares. And when the feds stop charging taxes, Spirit gives it right back. This really does make Spirit look good, though to be honest I can’t blame the other airlines for trying to get a revenue spike at the same time. In other words, all airlines will get a temporary benefit one way or the other.
With any luck, this will end sooner rather than later and we can finally get moving forward with important projects. What’s the hold up anyway? It seems to be two things right now, and both are political games. First is over Essential Air Service Funding. The Republicans approved a bill that would change which cities would be eligible, and it just happens to leave out airports in important Democratic districts. The other is over union issues. Democrats pushed through a change before that made it easier for unions to organize at airlines. Republicans are trying to reverse that.
For an agency which has a multi-billion dollar budget, these little skirmishes are a complete joke and should in no way hold anything this important from going through. Unfortunately, that seems to be the way Congress works. So, take advantage of the tax decrease on those airlines that let you, and just shake your head at the incompetence in Washington for letting something like this happen.
21 comments on “Congress Blows It, FAA Shuts Down, Airlines Profit in Different Ways”
Sorry guys. Not sure why the comments were turned off, but they’re back now.
The hypocrisy of ATA and airlines complaining about how taxes increase the consumer’s out-of-pocket cost and thereby depress demand, then keep the out-of-pocket at the same level ex-taxes cannot go unnoticed.
Actually, the airlines complain that the tax burden is so high that airlines can’t make enough revenue at fares that people are willing to pay. So this isn’t hypocrisy at all. The airlines set fares at levels that will generate the best revenue, but then it gives a chunk back. Now they get to keep that chunk, at least for a few days.
I agree. The situation in Washinton has become pathetic. EAS cuts targeted at Democratic districts is not only vindictive but ignores American citzens whose only “crime” was electing a Democrat. democrats engage in this kind of behavior, too, so this isn’t partisan. Sadly, most of the debate in Washington lacks real substance. The issues are real and serious, but the debate is a farce. It’s all about “gotcha.” And it’s gotten far too personal. There’s been partisan wrangling before, but the extent of the fighting and the personal attacks demonstrate a real lack of responsibility on the part of elected officials of both parties. As a political Independent and citzen of this country it saddens and angers me that politicians and voters put their parties first – not their coutry.
I thought United and Delta were also passing on the savings to customers.
They may not have been quick to up their fares, but they have now. And I believe that may even be the case with Frontier now.
I told people Friday when I heard about this to wait until after midnight to buy an airline ticket but to if fast. I was saying fast before congress reinstated it even if a special session was called over the weekend. I didn’t think fast meant before the airlines just raised fares to cover the missing tax so they got more money.
Now the big issue will be once it’s reinstated, will people need to pay the tax if they haven’t already flown, or if they make a change to their ticket.
But this whole thing shows why the American people need to stop electing children to represent them in Washington and elect people who remember they work for ‘We the People’ and not for their own agenda or their parties agenda.
So, I keep wondering why we don’t move the FAA’s air traffic control and management systems to a non-profit like Canada did with NavCanada.
The FAA’s setup is like having the fox guard the hen house..
Well, that’s another hugely political issue, and it may not be the right way to go. Air traffic control is pretty expensive up in Canada, and I’m not necessarily sure that it functions better. Anyone from the great white north care to chime in?
Question about the taxes…Does the airline pay them when the ticket is purchased or when the flight is flown?
Though I don’t know this for sure, I believe it’s paid after the ticket is flown. But ultimately the revenue goes into a big settlement house where the funds are distributed, IIRC.
I have a question: What ever happened to the “Aviation Trust Fund” which was started, by the Congress to fund “important infrastructure development” in the 1970’s? I recall having to pay this tax whenever I bought AvGas and I was under the impression that there was also a surcharge on airline tickets for it. The last I saw (a very long time ago) there was a huge chunk of cash just sitting there and accumulating because no one was spending it. Any one know the answer? Thanx
The Trust Fund is still there, but while it had a balance over $7 billion ten years ago for available funds, it’s now down to under $1 billion:
http://www.gao.gov/products/GAO-11-358T
The union issue is weird to me. Apparently for these workers, you needed a majority of all eligible voters to have a vote for organisation, as opposed to a majority of all participating voters? If I have that right, it seems strange to me that it was ever this way to begin with, and changing that rule makes sense.
As has been discussed here, EAS needs to be reformed. But this isn’t the way to do it.
The problem is that anyone in the airline business can be unionized with a minority of people saying “yes.” Then, the only way to get rid of the union is elect another union. It’s a one way street that allows unions to get elected by just having maybe 20-30% of the employees elect in a union and forced to keep it forever.
Be that as it may, I think it is unusual to assign a default position to non-voters. Whether one generally likes unions or not, I think it’s only fair to require a majority of those voting, not all those eligible. It’s not as if the voters don’t know there is a vote going on; people who want to vote ‘no’ should actually do so.
well, in that case maybe we should just count every eligible voter who doesn’t vote in an election as a vote for the incumbent.
The point of the original rules was to see how many people wanted a union. Now, the rules make it easier to unionize. This was a rule change (after having the same rules for 70+ years) solely aimed at unionizing Delta Air Lines. The simple solution would be to eliminate the NMB and just put airlines (and railroads) under the NLRB. The NMB is just a pro-union board that it would just be nice to work under the rules all other industries live by.
By the way, it used to be that unions wanted to get out the vote, nowadays, the airline wants to get out the vote and the union claims interference because the airline tried to get out as many people as possible to vote (see current Delta Air Lines union elections).
Can somebody fill me in on the legal fineprint? The concept of a government or governmental organization forgoing taxes seems absolutely alien to me. Wouldn’t they just collect the taxes retroactively afterwards?
I would assume that if the feds want to collect the taxes after the fact, they’d have to put that in the reauthorization. Unfortunately for them, it would probably be extremely difficult to do that since they can’t exactly go back to each traveler and ask for the tax. Nobody is collecting the tax now, so it would be an awful, painful, manual process.
Hm, thanks for clearing that up. But it wouldn’t surprise me anyway if they tried to pull off some sort of shenanigans to at least try and recoup some of the lost tax revenue. We’ll see!