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 The Brancatelli File

joe LITTLE AIRLINE LIES
AND PETTY DECEITS


BY JOE BRANCATELLI

October 3, 2002 -- Sometimes it is the little lies and the petty deceits that reveal the big picture and the larger truths. And when you stare into the heart of darkness that is the Big Six airlines, you can see how their little fibs are greasing the skids for their fast-track ride onto the scrap heap of history.

We frequent flyers know all about the carriers' big lies: the phony schedules; the at-the-gate kabuki whenever a flight is late or delayed or cancelled; the cat-and-mouse fare games and upgrade scams; and the code-share deals that allow one airline to claim another carrier's flights and services as its own. These deceits are so ingrained in the system that we are inured to their deleterious effects on our lives.

But every once in a while there is a moment of startling business clarity that perfectly illustrates the moral and governance bankruptcy of the hopeless little men who are destroying the Big Six.

When they trudged before the House Aviation Subcommittee on September 24 to demand another taxpayer-funded handout, Delta chief Leo Mullin and American chairman Don Carty rolled out a fusillade of charts, statistics, pseudo-facts and psycho-babble. And then Carty went off on a stunning screed on taxes.

"Today," Carty began, "federal taxes and fees on airline tickets account for $51.16, or 26 percent, of a $200 roundtrip ticket involving a single connection--that's a $11.16 federal ticket tax, $12 federal segment tax, $10 federal security surcharge and up to an $18 airport passenger facility charge [PFC]. This is a 26 percent tax burden on airlines--up from 15 percent five years ago--compared to 11 percent on a bottle of rum, 9 percent on a pack of cigarettes and 0 percent on bus and rail tickets. Moreover, in addition to the taxes on tickets outlined above, airlines pay a federal fuel tax of 4.3 cents per gallon."

There are so many little lies and petty deceits in that one paragraph that you need to deconstruct them one by one to understand exactly how venal and shameless the Big Six truly are.

1) The "26 percent tax burden on airlines" actually represents not a single penny of taxes on airlines. Every cent of that supposed $51.16 worth of taxes and fees is paid by the passenger, not the airline. Airlines collect those fees and taxes from passengers, they do not pay them.

2) That $51.16 federal fee and tax portion of Carty's hypothetical $200 one-connection, roundtrip ticket is miraculously slashed by almost 50 percent when the itinerary is defined in a slightly different way. Let's say that $200 fare represents a nonstop roundtrip ticket instead of Carty's hypothetical connecting itinerary. That reduces the federal flight segment tax in half (to $6 roundtrip), cuts the federal security surcharge in half (to $5 roundtrip) and cuts the PFC fee in half (to a maximum of $9 roundtrip). And if that $200 roundtrip ticket was applied, for example, to the nation's busiest route--New York to Los Angeles--the PFC charge would further decline to $6 roundtrip. That makes the fee and tax burden just $28.16, not $51.16. And that reduces the passenger's tax burden on a $200 fare to just 14 percent, not 26 percent.

3) Federal excise taxes on airline fares are substantially lower than they have been in decades. And statistics provided by the Big Six's trade group, the Air Transport Association (ATA), prove it. In 1943, for example, the federal excise tax was 15 percent. It was 10 percent in 1990, when the ATA began complaining that a flat-rate excise tax penalized passengers paying higher fares and subsidized travelers on low-fare carriers such as Southwest Airlines. So the tax was changed at the behest of the high-fare carriers we now call the Big Six. The excise tax is currently 7.5 percent of the fare plus a fee of $3 per flight segment. That formula dramatically lowers the total excise tax as a percentage of the fare as the ticket price increases.

4) Carty's comparison of airfare taxes and fees to levies on booze and butts is an outrageous misrepresentation at best and a snide lie at worst. Only one entity--the federal government--is permitted to tax airline tickets. So Carty's 26 percent tax burden on a $200 fare (or the alternate 14 percent formulation) represents the entire levy on an airline ticket. By comparison, alcohol and cigarettes are taxed by a legion of state and local agencies as well as the federal government. The total tax burden on a 750-milliliter bottle of booze is as much as 55 percent, if you believe the Distilled Spirits Council. And if you believe R.J. Reynolds, the nation's second-largest tobacco company, taxes represent 47 percent of the retail price of a pack of cigarettes.

5) Carty makes note of the 4.3 cents per gallon federal fuel tax, the one tax on his laundry list that the airlines actually pay. Fair enough. But when you go to the pump to fill up your car, you pay 18.4 cents per gallon in federal gasoline taxes. Truckers pay 22.4 cents per gallon in federal diesel-fuel taxes. And consider this, since the Big Six seem so enamored of comparing airlines to the liquor business. The Federation of Tax Administrators reports that state excise taxes on a gallon of liquor range from $1.50 to $6.50. The national median is $3.30 a gallon.

As I said, lots of little lies and petty deceptions. But remember that startling moment of clarity I mentioned? Well, here it is, courtesy of Rep. William Lipinski, an Illinois Democrat who is usually a sycophantic supporter of the Big Six on the House Subcommittee.

"A lot has been mentioned about the taxes and the fees that the airline industry pays," Lipinski said to Carty and Mullin. "But, to the best of my knowledge, there is no tax or fee that you pay, other than your corporate tax when you make a profit, that doesn't go for somehow improving the aviation system. Would everybody agree with that? We're not taking any money out of the airline industry and subsidizing the railroad industry or the trucking industry or social security. Right?"

In answer to that clumsily worded, but dead-on-target, question, Carty made an equally clumsy attempt to suggest that the $2.50 federal security fee imposed on passengers after September 11 could "technically" be considered funding for national security.

But Lipinski would have none of it.

"All the fees, taxes you were paying," he said, "all of that actually was going for the aviation industry improvements in some way, shape or form. Correct?"

"Yes," mumbled Carty.

"Yes," murmured Mullin.

In other words, fellow travelers, far from being overtaxed, the airline industry pays virtually no taxes at all. That terrible "burden" of taxes Carty claimed the airline industry pays is actually a reasonably fair package of fees and taxes that we pay. And every dime, by the airlines' own admission, goes to maintaining the nation's air-transportation system. Taxpayers and travelers pay for everything, the airlines pay for almost nothing and now they're once again demanding a bailout.

Like I said, fellow flyers, it's amazing how little lies and petty deceits somehow reveal the big picture and the larger truths.

This column originally appeared at JoeSentMe.com

Copyright 1993-2004 by Joe Brancatelli. All rights reserved.