Airlines are defrauding the government ancillary charges. Taxpayers are being charged new fees and airlines are diverting money away from government coffers.
Take baggage surcharges, for example. Checking an extra bag used to be included in the base price of an airline ticket. That ticket was taxed at a rate of 7.5 percent.
Now the service is no longer part of the taxable base fare. United Airlines and several other airlines are now charging $15 for the first checked bag and $50 for the second checked bag.
For the average Joe, United would collect an additional $130 round trip. But United pays no tax on that $130.
Since they didn’t actually lower the fare, but used it to raise their revenues, airlines are effectively defrauding the tax authorities (specifically the FAA).
How much have they taken? Judging by the current programs alone – United, at the current new program charge scheme, has probably escalated a revenue shortfall to the US government to over $20 million. Just one airline!
The insidious nature of this is that everyone is confused.
Airline departure ticket taxes are likely to decrease in total revenue terms due to a reduction in passengers flying. So the FAA is likely to experience a short fall in its collections.
I don’t like complicated taxes and I don’t like being charged for things that are not fairly applied. We should all be paying a simplified tax and surcharge supplement to the ticket. It seems hypocritical of all the taxation authorities that we are constantly bombarded with extra fees and charges.
The Europeans have now implemented a new regime of quoting an all-inclusive fare. Perhaps the U.S. should do the same and be clear and transparent about it.
Timothy O’Neil-Dunne blogs at T2 Impact.
{ 2 comments… read them below or add one }
I think that consumer protection law should be invoked to require the airlines only to advertise the final price based on a realistic set of assumptions. My assumptions would be: non-refundable coach fare, all applicable taxes and airport/government charges, 1 x 20 kg checked bag per passenger, 300 mL of water per passenger per hour of the flight, 1 main meal for flights greater than three hours, 1 main meals and one snack ffor flights greater than six hours, and 2 main meals and one snack for flights greater than 9 hours. I don’t think that it is reasonable to expect that someone must fly from New York to Honolulu without sustenance or checked luggage.
I don’t think the airlines can make such assumptions. I’d rather save $15 (or whatever) than be served a tastefree airline meal and pay $15 more. I can eat before I get on the plane and/or carry my own food. Likewise with the baggage. Many people can pack lighter if they have to, and those who can’t should be willing to pay more for the extra service.
I don’t know, however, if some of these charges are being used as a way to avoid taxes or contractual obligations the companies may have. I can see lawsuits coming on those matters. The “fuel surcharge” is surely simply bait and switch, and I really wonder how long that can remain legal, if it is.