New Study Confirms the Obvious: PFC Hike Would Raise Airline Ticket Prices.

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Posted by Mike Palicz on Tuesday, January 21st, 2020, 12:33 PM PERMALINK

Last week, Congress released a new study on airport infrastructure funding. The study in part focuses on the impact of the Passenger Facility Charge (PFC) – a government-imposed fee collected from enplaned passengers at commercial airports controlled by local and state governments. Revenue earned through the PFC program is used to fund airport improvement projects and is currently capped at $4.50 per enplanement at a maximum of $18 per round trip.

The study comes as Congress is expected to consider raising the PFC in the coming weeks. As taxes and fees already account for over 20% of the cost of a domestic airline ticket, Congress should be focused on reducing this burden placed upon consumers rather than adding to it. Americans for Tax Reform has continuously opposed efforts to raise the PFC and urges lawmakers to reject any effort to raise the cap on the PFC.

Key findings from the study:

  1. Raising the PFC cap will increase ticket prices for airline travelers - The study concludes that “an increase in the PFC cap would likely result in higher ticket prices for passengers traveling through airports that raised their PFC collections.” This finding is in line with a past study conducted by the Government Accountability Office which also concluded raising the PFC cap would increases ticket prices, causing “reduced passenger demand” that “could also marginally slow passenger growth and therefore the growth in revenues to the Airport and Airway Trust Fund (AATF).”

 

  1. Inflation is an invalid argument to raise the PFC – The authors of the study note that although inflation has caused the purchasing power of a dollar of PFC revenues to erode, aggregate PFC revenues have grown to outpace inflation. Here is the finding straight from the report:

 

“It is important to note that increases in the number of airports that charge a PFC, the number of airports that charge the maximum allowable PFC of $4.50, and the number of passengers at these airports have resulted in the inflation-adjusted value of total PFC collections increasing over time despite declines in the value of a single passenger’s PFC.”

Translation: airports collectively have greater purchasing power from their total PFC collections in 2018 than they did in 2000, the last time the PFC cap was raised.

  1. No evidence the PFC promotes competition between airlines – Proponents of raising the PFC cap often claim a higher PFC would promote competition between airlines as projects funded from PFC revenues don’t require the same sign-off from airlines that alternative funding sources necessitate, thus handing more control over airport expansion decisions back to airports. Airports, the argument goes, would then be less beholden to large airlines benefiting from restrictive leases of gates and other essential facilities.

 

However, it remains unclear that there is any data backing up this pro-competition assertion from those advocating for a PFC hike. The authors of the study point out that they are “not aware of any analysis that estimates the effect of PFCs on competition or prices at airports or city markets.”

In fact, reality has proven the PFC to have the opposite effect, adding an additional barrier for smaller airline companies who operate under an ultra-low-cost business model. These smaller airlines have the most price-sensitive customers with a high demand-elasticity in reaction to price-increases. Higher ticket fees hit them hardest. This explains why ultra-low-cost carriers such as Spirit Airlines have testified in Congress against raising the PFC.   

This argument against raising the PFC is only bolstered by the fact that the study’s authors concluded their analysis “cannot determine whether an individual PFC project affects competition and prices.” However, the study did find that “any effects of individual PFC projects are, on average, small relative to other factors, such as local economic conditions and airline hubbing decisions,” and that “no single PFC project is likely to significantly alter the competitive landscape in an individual market.” While PFC funded projects are unlikely to alter competition, the higher ticket prices caused by fee hikes will disproportionately impact smaller airlines, thus damaging competition between airline companies.  

Despite these findings, the authors of study recommend raising the PFC and do so with no compelling reason offered.

While recommending that the PFC cap be raised from $4.50 per enplanement to $7.44 for passengers – a staggering 65% fee hike – the authors state, “We are not aware of compelling evidence or data justifying a particular level for a new cap. Any number could be chosen, but we note that if the $4.50 cap had been indexed to inflation in 2000 using the Producer Price Index for construction materials, it would now be set at $7.44.”

Despite completely debunking the inflation argument in their own study (as outlined above in key findings) the authors almost comically conclude that the PFC should be raised anyway. Rather than laying out a case justifying such a drastic fee hike for American travels, the authors just throw their hands in the air and highlight that this is what the cap would be had Congress initially pegged the PFC to inflation, which lawmakers at the time deliberately chose not to do.

Americans for Tax Reform urges lawmakers to reject this recommendation from the authors of the study and to protect American travelers and consumers from inflated ticket prices resulting from even more government taxes and fees. After all, as the authors themselves states, there is no “compelling evidence or data” justifying a hike to the PFC.

Photo Credit: Eric Salard

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