Spirit discourages taxing ancillary fees

Washington DC
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Spirit Airlines CEO Ben Baldanza believes taxing ancillary fees would curtail travel demand, and are unwarranted since unbundled services are not charges associated with actually transporting passengers.

Baldanza testified on 14 July in front of a US Congressional committee examining ancillary fees. Coinciding with the hearing was a report released by the Government Accountability Office (GAO) that determined an increasing reliance by airlines on ancillary fee revenues reduces the proportion of total passenger revenue that is taxed to help fund the US FAA.

GAO states the Internal Revenue Service has determined that many ancillary fees are not related to passenger transport, which is the basis for a 7.5% excise tax on US domestic air transportation.

Revenues from excise taxes decreased from $12 billion fiscal 2007 to $11 billion last year, says GAO, largely from lower fares and falling demand during the economic downturn.

At the same time in 2009 US carriers collected roughly $2.5 billion from baggage fees. The GAO estimates that if those fees were subject to the excise tax, the aviation trust fund would have garnered an additional $186 million, or less than 2% of the fund's revenues.

But Baldanza warns if ancillary revenues are folded into the excise tax, "the primary impact of such a change will be to raise prices for all consumers and thereby dampen travel demand, and likely result in less total government excise tax revenue".

Spirit's chief also contends that government policy requires airlines to include the excise tax as part of base fare. "We are not aware of any other retail product where, by government fiat, merchants are prevented from showing consumers how much of their payment is for tax."

Baldanza tells legislators that in addition to excise taxes, other taxes include a $3.70 segment fee, a $2.50 security fee, a 4.3 cent per gallon charge on fuel and in some cases a $4.50 passenger facility charge. He estimates on a 300 mile trip taxes represent 20%, or $35.40 of a $180 fare. Noting Spirit has some of the lowest fares in the industry Baldanza argues the carrier's passengers already pay the highest taxes as a percentage of a total fare.

Ancillary fees, says Baldanza, "do not impose any costs on airport infrastructure, on the nation's air traffic control system or any other government services funded by the aviation federal excise tax".