Analysis: New Airfare Tax Legislation Faces Tough Test

washington dcShould your customers be aware of exactly how much of their ticket price goes to federal taxes and still know the full price of travel before they purchase? This issue is gaining attention as the airlines trade group, Airlines for America (A4A), applauded the House Transportation and Infrastructure Committee’s passage of legislation to achieve this.

Known as the Transparent Airfares Act of 2014, (H.R. 4156) the A4A says the bipartisan legislation - introduced by Chairman Bill Shuster (R-PA) and Representative Peter DeFazio (D-OR) - would end the ability for the government to bury ticket tax hikes in advertised prices. It would reverse the Department of Transportation’s (DOT) Full Fare Advertising (FFA) Rule which A4A says is "misguided."

The DOT fundamentally changed U.S. airline price advertising practices in 2012, A4A says, when it imposed the FFA rule requiring that federal taxes and fees be included in the base price of an advertised fare. 

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This, the association says, reduces transparency and treats airfare advertising differently than advertising for virtually all other consumer products, rendering air travel less price competitive when compared with other modes of travel.

“Air travel remains one of the best bargains for consumers, but that affordability is imperiled by rising government taxes and fees,” said A4A president and CEO Nicholas E. Calio. “We thank Chairman Shuster and Representative DeFazio for their leadership in promoting government transparency, protecting customers and holding Washington accountable for the taxes they impose on air travel.”

Calio noted that commercial aviation, which helps support more than 10 million jobs, is already shouldering an excessive tax burden that has increased nearly thirtyfold since 1972. The 17 different taxes and fees imposed on aviation and its customers totaled more than $19 billion last year alone. 

On a typical $300 roundtrip domestic ticket, A4A says, customers pay $61 in federal taxes, or 20 percent of the ticket price. That number will increase to $63, or 21 percent, in July when the TSA passenger security tax more than doubles – from $2.50 to $5.60, costing passengers more than $1 billion annually.

But already the legislation faces opposition. Flyersrights.org, a consumer group, took exception to the legislation in a release called "AirLying."

"The airlines are at it yet again. Those deceptive and infuriating ads that were banned years ago are sneaking back. Making its way thorough the U.S. House, without public submissions or any debate, is a bill called H.R. 4156, deceptively named the "Transparent Airfares Act of 2014". Translation: the "Keep Air Travelers in the Dark Act". 

Flyersrights.org says the legislation was written by airline lobbyists and is "completely anti-consumer while at the same time denigrating customers and constituents alike."

"The proposed law would give airlines free rein to quote artificially low ticket prices, minus taxes and government fees, leaving you with the mistaken belief that your total airfare is far cheaper than it is. The supporters of this bill want airlines to be able to advertise a flight without the fees and taxes added on. For example, a $300 flight would be advertised for $239 - omitting the fees and taxes."

Flyeresrights.org urges opposition to HR 4156. "The consumer deserves to have the final price of an airline ticket prominently displayed before taking out a credit card to pay for it. As it is today, the consumer can see the whole price before booking, no last-page surprises--and that should never be changed." 

"What this legislation would most risk is a return to the most egregious examples of 'bait and switching' where you'd see a low advertised airfare, but only after getting all excited, and working through 95 percent towards paying it, do you then discover a morass of fees and surcharges - carrier-imposed as well as government-imposed - that total more than double the price you thought you were going to pay," Flyersrights.org says.

Joining the fray is the Business Travel Coalition (BTC). In a paper prepared for the U.S. Senate Commerce Committee, Subcommittee on Aviation Operations, Safety, and Security, entitled "Are Airlines Brutally Regulated And Overtaxed; Treated Differently Than Other Industries?" the BTC urges the Senate not to support the House legislation.

"Airlines’ highly unusual and aggressive efforts to undermine DOT’s authority to safeguard consumers from unfair and deceptive airline practices are stunning and set a dangerous precedent for participants in any industry, such as gas stations and banking, to undermine their regulator," the BTC says.

What Congress should consider, according to the BTC, is a new look at airline price transparency, including a Government Accountability Office (GAO) investigation into the issues. 

"Airlines are waging a war on price transparency in the U.S. Unlike in any other industry, consumer protections, as few as there are in commercial air transportation, are consolidated at a federal agency - DOT. Congress should be evaluating ways to strengthen DOT’s consumer-protection authority and not considering airline-sponsored legislation to undermine it."

"Congress should likewise consider legislation to repeal the narrow federal preemption provision of the Airline Deregulation Act that cancels out consumers’ rights to legal redress in federal and state courts for harm due to unfair and deceptive marketing practices," the BTC says in its paper.

"Treating consumers fairly is not mutually exclusive of the notion of an industry expanding its revenues. Actually, the inverse is more certainly true, i.e. the more consumers trust a shopping and purchasing process the more likely it is that they will buy more services more often."

BTC concludes: "Over the long term, providing consumers with 'all-in' transparent pricing will increase competition, create market efficiencies, encourage innovation, expand markets, increase sales of airline services and satisfy customers. These are outcomes that benefit all stakeholders in any industry."

Visit www.businesstravelcoalition.com

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