ATW Daily News

US airline ticket taxes: High . . . but not that high

Thursday March 24, 2005

The tax burden on US airlines and passengers continues to rise, but not to the level regularly cited by airlines themselves as well as industry trade groups, according to the Ticket Tax Project, a joint effort of MIT's Global Airline Industry Program and Daniel Webster College. "The airline industry usually computes taxes by picking a single 'typical' ticket. That choice usually results in a much higher estimate of the tax impact, and we usually see the airline industry report the tax as 26%," stated Prof. Joakim Karlsson of Daniel Webster College, which determined that the actual rate is around 10 percentage points less.

For example, last month 15 airline, business and labor groups led by the Air Transport Assn. protested the Bush Administration's plan to raise the passenger security tax (ATWOnline, Feb. 11). In a joint statement, they claimed that the total tax burden represents 26% of a typical $200 roundtrip ticket, up from 7% 20 years ago.

However, the Ticket Tax Project found that in the second quarter of 2004, on an average US domestic base roundtrip fare of $268.29, the tax rate was 16.1%, up from 10.9% in 1993. Furthermore, according to the researchers, "the gradual increase of the effective tax rate&is almost entirely due to the drastic reduction in the base fare."

Karlsson noted: "The airlines have lost the ability to raise airfares, even to just keep pace with inflation. The average roundtrip ticket has dropped 40% in real terms since 1993. Meanwhile, average ticket taxes and fees have stayed relatively constant at $45 per ticket." In fact, on an inflation-adjusted basis, total taxes and fees actually declined from $48.40 to $44.25 for roundtrip tickets. Should the administration succeed in boosting the security fee, the tax rate will rise to 19.2% assuming airlines absorb 100% of the cost, or 18.3% if passengers absorb the hike.

Ticket prices in the study were determined using the US DOT Origin and Destination Data Bank 1A Ticket Dollar Value Survey to obtain a representative sample of domestic airline tickets. The study included the federal ticket tax (7.5% of base fare), the federal segment tax ($3.20), passenger facility charges (up to $4.50) and the federal security service fee (currently $2.50). Updated data tables and a summary may be viewed at http://web.mit.edu/TicketTax/.

by Perry Flint

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