U.S. House Democrats criticized airlines Wednesday for increasingly charging for checked baggage, seat selection and other services, and indicated they are considering legislation to tax the revenue collected from the fees.
Airlines are increasingly relying on ticket surcharges to offset spikes in fuel prices and overcome weak demand. Airlines collected $1.3 billion from fees for checked baggage and reservation changes in the first three months of this year, a 13% increase over the same period in 2009, government data show.
House Transportation Committee Chairman James Oberstar (D., Minn.) called the fees a "backdoor price increase" in airfares, with consumers now paying for many items that until three years ago were included in the price of a ticket. He and Rep. Jerry Costello (D., Ill.) held the hearing to determine whether legislation should be proposed to rein in the fees and ensure the government gets a cut of the revenue.
"You can impose these taxes with impunity by calling it a fee," Rep. Oberstar said. "Passengers are paying for meals, for pillows, for blankets, for headphones, for beverages, to check the luggage."
Currently the government collects a 7.5% excise tax on passenger fares but not on ancillary fees. Applying the excise tax to baggage fees, which provided about $2.5 billion in revenue for airlines last year, would have led to an additional $186 million in federal excise taxes, congressional investigators said.
Rep. Costello said he's concerned that by reducing the portion of revenue taxed by the government, the fee model is diverting money from a fund used to finance airport renovations and construction. The fund is increasingly short on revenue.
Spirit Airlines Inc. President Ben Baldanza defended the "a la carte" fee model, saying it gives passengers a choice of what services to pay for.
Taxing the fee revenue would hurt industry and consumers, he said. "Such taxes would surely harm competition, raise costs and slow the industry's recovery from a decade of losses," he said.
He added the ancillary fees shouldn't be taxed because such services "do not use the infrastructure that the tax is intended to pay for."
David Ridley, senior vice president of marketing and revenue management Southwest Airlines Co., which has resisted extra fees, criticized the model but said airlines should be able to choose whether to employ it.
He said he supported proposed rules by the Transportation Department requiring greater disclosure of the fees on airline and travel websites.
The Transportation Department recently proposed rules requiring greater transparency of fees. The rules would require that ticket prices include fuel surcharges and greater prominence of other ancillary fees on websites. The rules would also require that passengers be reimbursed when their luggage is late or lost.
Consumer advocates praised the proposed rules, saying they would help consumers compare prices more easily.
