Some New Thinking For Airports

About Passenger Facility Charges
With FAA reauthorization on Congress’s agenda this year, the perennial battle between airlines and airports over airport passenger facility charges (PFCs) is shifting into high gear. The two principal airport organizations—ACI-NA and AAAE—have formed a joint lobbying effort called Airports United. Increasing the federal cap on PFCs from the current $4.50 to $8.50 is first on its list of eight core issues for Congress.
Shedding some useful light on the debate is a new report from the Government Accountability Office: “Commercial Aviation: Raising Passenger Facility Charge Would Increase Airport Funding, but Other Effects Less Certain” (GAO-15-107). The main take-away from this report is GAO’s finding that the likely reduction in airline passengers due to any of the likely PFC increases would be very small. As calculated by GAO using best-available estimates of the elasticity of demand (-0.8), the reduction in airline revenue (and hence in Aviation Trust Fund ticket tax revenue) ranges from a low of 0.58% (current PFC cap adjusted for inflation using the CPI) to a high of 1.68% for the $8.50 cap. These numbers are all for revenue in 2024, nine years after the assumed start of the higher PFC in 2016. But given that airlines, the FAA, and nearly everyone else assumes that air travel will continue increasing between now and 2024, the Trust Fund impact simply means the growth in its revenue will be slightly less than otherwise, not that it would go down due to the higher PFCs. So that’s one score in favor of the airports.
A second potential score for airports appears without comment on page 8 of the report. GAO finds that “All these taxes and fees [including the PFC] are part of the ticket purchase transaction and together make up 13.7 percent of the total cost of a ticket on average, with the PFC representing about 2.9 percent of the total ticket cost.” That’s considerably less than the 20% regularly cited by Airlines for America as the fraction of a “typical $300 roundtrip domestic ticket” consisting of aviation taxes. GAO provides no details on how it arrived at its number, and A4A does not make it easy to see whether their number is actually typical or something of a worst-case example. . . .ISSUE NO. 104 – February 2015 REASON Foundation Policy News

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