A deadlocked Congress refuses to advance legislation and government functions grind to a halt. Sound familiar? Actually, this isn’t the debt ceiling debate. It’s a dispute that’s put the Federal Aviation Administration in an operational holding pattern.
Democrats and Republicans have been squabbling over labor-related issues tied to a long-term FAA funding deal, exacerbating a state of financial limbo for the agency that has dragged on since 2007. This resulted in a string of 20 short-term funding deals, all of which have been approved without incident; in the most recent extension, Rep. John Mica (R-Fla.) tacked on a requirement that would do away with $16.5 million in subsidies for 13 rural airports. The Democratic-controlled Senate rejected it, charging that the subsidy elimination was an attempt to extract concessions on the labor dispute, and the stalemate was on.
It’s a legislative headache, but for a while it looked like it could be a boon for travelers. A suspension of the FAA’s operating authority means the agency has no mechanism to collect federal taxes on airline tickets. “On a $300 domestic ticket, the tax and fee total makes up approximately 20 percent of the fare,” airline industry consultant Robert Mann says via email. Mann adds that the FAA will lose about $25 million a day until this drama is resolved. (Kind of makes the $16.5 million that Congress is bickering over look like small change, doesn’t it?)
But don’t grab your credit card and your sunscreen just yet. Following the FAA shutdown Friday at midnight, most U.S. carriers jacked up their airfares by the same amount as the disappearing taxes. U.S. Airways and American Airlines were first out of the gate with the increases, according to this article; most of the others, including low-fare heavyweights Southwest and JetBlue, followed suit. One holdout is Spirit Airlines, which put out a press release to say it’s passing the tax “discount” onto travelers.
Unfortunately, Mann says carriers probably aren’t going to engage in an industry-wide fare rollback once the taxes are reinstated. “It will be interesting to see how many carriers will attempt to add taxes back … to create a higher, post-lapse fare base,” he says. “I anticipate some will try to raise fares to business customers in this manner, then discount those fares via spot sales to sustain price-seeking discretionary demand.”
Translation: This is one “tax holiday” consumers won’t get to celebrate, and the long-term upshot is higher airfares.