The Seven Sisters, as Washington now refers to the US major carriers which are united in their determination to rid themselves of the ticket tax, have lost their cause. The 10 per cent flat-rate tax lives again, giving a reprieve to the low-cost, low-fare airlines - at least until 30 September.
But the Sisters need not be too despondent. When even US Vice President Al Gore is publicly voicing his support for a user fee system to replace the ticket tax, few doubt the longer-term trend.
In the short term, however, and despite a strenuous campaign by the majors to convince it otherwise, Congress had little choice but to reinstate the tax, albeit temporarily. The Airport and Airways Trust Fund, into which the collections are poured, has taken on the demeanour of Old Mother Hubbard's cupboard since the tax lapsed in December.
Without a swift resolution, the FAA - the world's most prestigious aviation governing body - would have been in the undignified position of having to cut back some services from mid-year. The most expedient way to top up the coffers was a vote for the ticket tax.
Both senators Bob Graham and John McCain expressed disappointment that the extension will last only until 30 September. They pointed out that a report by the Civil Aviation Review Commission on the issue of ticket tax versus user fee will not be available until October, and that more time will be needed to review that document before decisions can be made.
Which all goes to imply that the issue might not be as simple as the majors would have us believe.
A user fee offers one compelling advantage for all concerned: it would ensure that the money goes where it is supposed to - the airport and airways system - rather than into the Trust Fund melting pot, from where it leaks into all kinds of other pots. But it is less easy to define the right user fee, especially when the low-cost airlines - which would be sorely affected - have so far failed to come up with any realistic solutions of their own.
The Seven say the formula on the table is a fair solution and is cost-related, unlike the present system. Even if this formula is unacceptable, AMR chairman Robert Crandall does not understand why another cannot be devised, and he posed this question in typically Texan tones in a recent speech: 'We are the greatest country in the world and we are not smart enough to work out a user fee system? The French can do it!'
It is not so straightforward, however. Crandall argues that the current ticket tax forces the majors to subsidise low-cost airlines such as Southwest Airlines. 'That's inappropriate,' he says. 'I certainly don't ask them [Southwest] to subsidise our peanuts.'
Crandall is largely right. The cost of providing air traffic control for an aircraft flying into Dallas-Fort Worth Airport is the same whether a passenger is paying $50 or $850 for the privilege. Yet the $50 passenger pays $5 towards that service; the other $85.
While in theory it is the passenger who pays the tax, the airlines collect it as part of the fare and in practice see it as a cost. However changes in tax are not necessarily reflected in the air fares.
There are two major problems to be overcome before it will be possible to introduce cost-related ATC charges. First, no-one today - especially the Federal Aviation Administration - knows what it actually costs to provide the airports and airways service. This problem should be resolved as FAA reform takes a hold and some clear and definite figures begin to emerge out of the old bureaucratic quagmire.
The second problem is more delicate. The Seven's user fee proposal would effectively burden the low-cost carriers with extra taxes estimated at an annual $550 million - over $200 million on Southwest's head alone. While no airline should be allowed to shirk its financial obligations, such a massive penalty brought down upon one segment of the industry in one blow would be difficult to bear at the best of times.
And these are far from the best of times for US low-cost airlines. In sharp contrast to the majors, they had an unkind 1996 and this year is not looking any more promising. In the 12 months since the ValuJet crash, the FAA has reduced the flow of new startups to a trickle and greatly curtailed the ability of airlines such as ValuJet to expand at anything other than a snail's pace; the Gore Commission has proposed a host of potentially expensive safety and security recommendations which will hit the small guys hard; accusations of predatory pricing by the majors are echoing across the US; and public confidence in low-cost carriers is still not fully restored.
Against this background, the user fee in its current proposed form seems confirmation of the widely held belief that the mood has changed. Where once the Department of Transportation encouraged the competition heralded by the low-cost carriers, it is now suspected to be erring on the side of the majors.
Ed Beauvais, chairman of Western Pacific Airlines, points out why, in the longer term, this attitude is not in anyone's interests. 'There is very little doubt in my opinion that the low-cost, low-fare operation is critical to the health of this industry,' he says. 'The low-cost carrier represents the competitive effect of this deregulated marketplace.' Beauvais believes that the outcome of the current tax debate 'could literally re-regulate the industry by encouraging certain groups'.
Meanwhile, the Sisters have moved swiftly to pass on a portion of the tax to the passenger. Having pocketed the tax - which had not been renewed - since December, several of them raised fares by 4 per cent as soon as President Clinton signed the ticket tax back into law. Yet Southwest absorbed the tax and launched a two-for-one ticket sale.
Source: Airline Business
