White House discussing allowing airlines to keep ticket tax

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White House officials are discussing temporarily allowing cash-strapped airlines to keep some taxes and fees they collect from passengers as a way to help as travel plummets due to the spread of coronavirus.

The option is being discussed for the 7.5 percent tax on airline tickets, which provides a substantial part of the $16 billion a year collected for a trust fund used to help pay for the U.S. aviation system, according to three people familiar with the issue who asked not to be named.

Another possibility would be to allow airlines to temporarily keep a fee as high as $4.50 per passenger that goes to airports for construction and maintenance, the people said.

A Southwest aircraft stands on the tarmac at San Francisco International Airport.
A Southwest aircraft stands on the tarmac at San Francisco International Airport.

Discussion of such a plan has come up at White House meetings with industry officials, according to one of the people. No decision has been made on whether to go ahead with such a move.

Airports are also suffering huge financial losses from the coronavirus outbreak, and Airports Council International - North America criticized the possibility that its fee might be disrupted.

“Diverting revenue from the passenger facility charge would be disastrous for airports, airlines and air travelers alike,” Matt Cornelius, executive vice president of the airport trade group, said in a statement. “It would deprive airports of a critical funding stream at a time when financial losses are mounting across the entire travel industry.”

Canceled flights

American Airlines Group Inc., Delta Air Lines Inc., United Airlines Holdings Inc. and Southwest Airlines Co. confirmed they were discussing potential aid from the government, without providing details. Treasury Secretary Steven Mnuchin said the companies were likely to need assistance because of their “short-term liquidity issue.”

The carriers are cutting flights, slashing spending and parking jets. A Standard & Poor’s index of major U.S. airlines whipsawed investors this week, jumping 13 percent on Friday after a 20% percent decline the day before — the biggest slide since just after the 9/11 terrorist attacks. The stock gauge is down 38 percent this year, more than twice the drop in the S&P 500 Index.

“The speed of the demand falloff is unlike anything we’ve seen,” Delta Chief Executive Officer Ed Bastian said in a letter to employees Friday. He warned that the situation was likely to get worse.

It’s not clear whether the plan would also include a separate, $4.20 fee collected for each flight leg. In fiscal 2016, the excise tax and fee combined to a total of $9.9 billion, or more than two-thirds of revenues collected for the Airport and Airway Trust Fund, according to the Congressional Research Service.

The trust fund is used to help pay for the air-traffic system and airport construction projects. As a result, if fees and taxes used for the trust fund are diverted, that could prompt the federal government to make up shortfalls in the budget of the Federal Aviation Administration.

The fund’s revenue fund has been surging in recent years as airlines enjoy higher tickets and an expanding market, but it has historically been subject to sharp decreases during economic downturns, according to the Congressional Research Service. The current situation is almost certain to lower its revenues.

No bailout

Nicholas Calio, the head of Airlines for America, the trade group representing the large U.S. carriers, has told people that the industry isn’t seeking what he called a “bailout,” according to a person familiar with his recent comments.

The group didn’t immediately respond to requests for comment on the possible diversion of ticket taxes and fees.

After air travel fell dramatically in the wake of the Sept. 11, 2001, terrorist attacks, Congress approved a program to keep the industry afloat that included $10 billion in loans and $5 billion in direct cash payments.

In addition to a domestic travel slump, travel restrictions on Europe announced on Wednesday by President Donald Trump will create significant cash-flow pressures on airlines, the International Air Transport Association warned in a statement Thursday. The group represents roughly 290 airlines globally.

“Governments should be looking at all possible means to assist the industry through these extreme circumstances,” IATA CEO Alexandre de Juniac said. “Extending lines of credit, reducing infrastructure costs, lightening the tax burden are all measures that governments will need to explore.”

— Alan Levin and Saleha Mohsin, with assistance from Ryan Beene

Alan Levin and Saleha Mohsin
Bloomberg News