Written by: Felipe A. Rodriguez, MBA, MPA, CM
MIAMI – There is a very hot topic in aviation currently, that is whether to increase a particular user fee. In years past, to assist in the financial shortages that arose from the demand of airport capacity and development, a legislative response was enacted: the Passenger Facility Charges (PFCs).
The PFC was part of the Aviation Safety and Capacity Expansion Act of 1990 (The Act), which allowed commercial service airports to implement a fee, ranging from $1-$2 to today’s current rate of $4.50, per enplaned passenger (outbound and inbound).
The total collected amount of these fees are remitted to the airport sponsor, whether it be the city, state, county, or authority.
From the airports’ perspective, many supportive organizations—such as the American Association of Airport Executives (AAAE) and Airports Council International-North America (ACI-NA)—which support airports throughout the country by providing symposiums, conventions and conferences, are asking Congress to raise the PFC from its current rate of $4.50, and cap it around $8.50.
If this increase was to take place, it could help offset the cost of building and modernizing the infrastructure of many airports, thus, alleviating the strain on the Airport Improvement Program Funding (AIP).
A large number of airports in the United States currently have antiquated infrastructure, technology, and equipment; including out-of-date signage that is there to provide guidance for the pilots, Operations, and Maintenance crew that maintains, inspect and monitor the airfield.
Where did it come from?
Let’s go back to the origin of this fee. The Act allowed domestic, commercial airports to assess a fee on enplaned passengers. In April 2000, The Wendell Ford Aviation Investment and Reform Act for the 21st century authorized the PFC increase to $4.50. However, the debate around another PFC increase is put under a microscope.
Airports have been advocating for this increase for a long period of time. The argument is that there is nearly a $100 billion need for infrastructure costs alone. This is due to the increase in volume of passengers, along with items being shipped across the country, hence the increase in cargo growth.
There are a few reports that are projecting the infrastructure needs for the upcoming years spanning from 2017-2021. Terminal, Landside, and Airside project needs, worth an estimated $100 billion, resulting in 9.6 million jobs, $1.1 trillion in annual economic output, and better accommodation of the more 800 million passengers served by these airports.
The organizations, such as the ACI-NA and the AAAE, are the ones coming up with these figures, all of which reflect an increase in airline and passenger traffic, as well as the infrastructure needs that are on the rise.
Many airports throughout the U.S. are antiquated and utilize old technology. Of course, when you look at it from an airport perspective you cannot—and must not ever—compromise security, overall operations, and passenger convenience.
These are a few of the reasons why the airports, along with their supporters, ACI-NA and AAAE, are so adamant about the need for raising the PFC cap and lobbying Congress to do so.
Airlines and Passenger Facility Charges
Since we were able to look at the issue from the point of view of the airports, let’s analyze the issue from the airline’s point of view. The airlines have a major concern, and that concern is that the PFC will not only increase but double the fee.
The airports have a very compelling argument against an increase in the fee, arguing that it could hurt their cost basis.
By increasing the PFC fee, it would increase the fee on the ticket, possibly decreasing their passenger volume, which would then affect their bottom line. With a loss of revenue, there would be a commensurate decrease in employees’ salaries, fuel, and maintenance for the aircraft (fleet), operations, and marketing to keep the airlines’ bottom line in the black.
This is a major concern for both airlines and passengers.
A major organization and supporter for the airlines, Airlines for America (A4A), has been very vocal about this. Their concern is that passengers are taxed enough, and are overwhelmed with user fees.
Some fail to realize that there are other fees on the itinerary that the passenger must pay. Such as the Domestic Passenger Ticket Tax; Domestic Flight Segment Tax; International Arrival Tax; International Departure Tax; September 11th Security Fund, and of course, The Passenger Facility Charge.
The whole premise of this argument is whether airports that need to modernize their infrastructure, such as their landside, airside, and terminals, have enough funds to support such major projects.
Is there justification for an increase? Airlines say no
Airlines feel that airports have funds that are available and there is no need to raise the user fee, especially having it doubled. As mentioned above, the concern is that the increase would affect their passenger loads and most likely the air carrier’s operations.
There is the strong possibility that less people would / could afford to fly, hence have less of a load factor. This would then result in less flights and minimize the airline’s overall operations.
One thing is certain, the taxpayer/consumer/passenger is still recovering from the Recession of 2008. As you may recall, many lost their retirement savings, their homes, and their economic stability. The airlines along with their supporters, (A4A) have a strong persuasive argument.
As someone with a background in both Airlines and Airports, I understand both perspectives very clearly. From an airport perspective, airports need to modernize every possible entity that can be updated. It is imperative not only to the success of the air carriers, but also for the passenger, and the passenger experience.
Therefore, in my opinion, the PFC user fee should be increased. I believe that a minimal amount would not have a major impact on the overall passenger’s demand for travel, nor their overall experience, but it would help with the modernizing of domestic airports. This would then trickle down to have better equipment and provide better service to the air carriers in general.
It is important to keep all factors in mind; Airports costs (construction, maintenance, operations, and security, etc.), Airlines costs (salaries, fleet, operations, and maintenance, etc.), along with the Passenger’s costs (includes tickets cost and required fee costs).
All three parties are affected and must be included in any decision making when it comes to the discussion of an increase of taxes, charges, or user fees. Let’s just hope Congress can come to a consensus that benefits all involved and rectifies this matter quickly so that airports and airlines can continue to provide excellent service to all passengers.