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October 22, 2012

As airlines raise fees instead of fares, taxpayers pick up tab

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WASHINGTON —

"Any profit is better than a loss, but if you look at the full year we're still a billion in the red," she said, pointing to a net loss of $1.7 billion in the first quarter.

A second untaxed fee has been almost as lucrative for the airlines. Though fees for changing reservations have been around longer than baggage fees, income from them has more than doubled in the past six years, netting almost $11 billion in revenue since 2007.

In the second quarter, airlines collected $932 million in untaxed baggage fees and $661 million in reservation change fees, both record-high amounts, the government reported. It does not break out the other new untaxed airline fees for premium seat selections, early boarding, food, beverages, pillows, blankets and entertainment.

A report by the DOT's inspector general last month quoted industry sources in estimating that on average, a passenger paid $22 in round-trip fees in 2010, up from $3 in 2000.

The fragility of the industry, a pressing need to fund multibillion-dollar aviation advancements and overarching concern about the federal deficit weighed on Congress last year as it moved forward with a major FAA funding bill.

At a hearing, several senators asked Gerald Dillingham of the Government Accountability Office how much could be raised by taxing baggage fees. About $240 million a year, he estimated.

Pressed by reporters afterward on whether he was considering that option, Finance Committee Chairman Max Baucus, D-Mont., said, "Not this time."

Asked last month about his current thinking, Baucus said he continues to look at the issue and all revenue options are on the table.

Dillingham recalled that there wasn't much interest in taxing the fees more than 18 months ago. But with revenues from baggage and change fees amounting to $23.7 billion over the past six years, and that untaxed income setting records every quarter, he said Congress may reassess its position.

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