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Airlines Crippled by High Taxes, Bad Policy

January 22, 2010 By: George Dooley

Excessive taxation, inadequate infrastructure, outdated regulation and dysfunctional behavior— both within and outside the airline industry— are barriers to the promise of a safe, secure, sustainable and profitable airline industry that provides good value to customers, Glenn Tilton, chairman of the Air Transport Association (ATA) and UAL Corporation’s president, chairman and CE0, said at the Wings Club of New York.

“The U.S. airline industry is a critical economic engine of commerce” Tilton said. “We drive 8 percent of global gross domestic product and $1.1 trillion in U.S. economic activity, but paradoxically, the industry has lost nearly $60 billion in the past decade, $28 billion in just the last 2 years. We support more than 10 million industry related U.S. jobs, but we shed jobs in order to survive – more than one third of all airline jobs, to be exact, in the last 9 years. We in this industry face a continuing and daunting challenge: How to navigate to sustainable profitability in light of our financial instability? Economic viability is critical for our industry, just as it is for our country. And… safety, security and jobs are not detached from economic viability.

“It is an unfortunate but accurate commentary on the U.S. passenger airline industry that losses and volatility have been the norm, as has our systemic failure to earn our cost of capital and achieve any level of consistent financial resilience,” Tilton said in a devastating critique of the airline industry. “Poor access to capital, limited ability to invest in new technologies and passenger amenities, shrinking fleets, reduced service, continuing losses, and poor credit ratings are not the touchstones of a thriving, vibrant, sustainable industry. Without dramatic course correction, our future is not likely to be materially different from our past. Our airlines will continue to be marginalized and the U.S. will become a less relevant player in the global economy. We must be able to operate successfully in a global business environment.”

Government is not the only factor inhibiting the airlines success, Tilton said, citing unsustainable labor contracts, non-compensatory fares offered in an effort to gain market share or generate cash and devastating over-capacity. “Managements have made decisions that have simply compounded our industry’s economic dysfunction and eroded industry credibility.”

Tilton applauded Department of Transportation Secretary Ray LaHood’s recently convened Federal Advisory Committee of all stakeholders, including airlines, airports, labor leaders, investors, consumer advocates and manufacturers and urged a open and candid discussion.

He also condemned protectionism, saying. “We bring the world closer together, yet we are constrained by anachronistic restrictions that preclude us from using business tools and options available to virtually every other industry for investment, cross border ventures, business alliances, mergers and acquisitions.”

Excessive taxes also came under fire. ”What is it about this economically challenged industry that compels legislators to continuously impose taxes and regulators to regularly ratchet up their fees?" Tilton asked. "Taxes imposed by airports, the FAA and the Department of Homeland Security represent as much as $60, or 20 percent of a $300 domestic round trip ticket. To put our industry tax and fee burden into context: Annually, airlines collect a total of some $23 billion from our customers and ourselves to pay to the FAA, homeland security and airports – Payments that are not far off our current total market cap of some 30 billion dollars. Are there many industries whose annual tax burden matches its total market cap?”

Secretary LaHood’s Committee should closely examine the full impact of the combined tax and fee burden – and the ramifications for our industry – especially given current pressure on Capitol Hill to raise taxes and fees even more, Tilton said.

Tilton urged the government to accelerate and fund the next-generation air traffic control system and move to a core shared objective: “a safe, secure, sustainable and profitable airline industry that fulfills its potential to be the successful economic engine of our nation’s global competitiveness.”



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