US airlines love raising fees on passengers, but now airports are trying to do the same, and airlines are rallying against it. Shocking, I know. 😉
This debate isn’t actually new, but rather has been going on for years, though it’s once again actively being discussed by lawmakers. Here are the basics, and then I’ll share my take.
The passenger facility charge debate
In addition to the revenue that airports get from vendors, airlines, etc., airports (including improvement projects) are funded in two primary ways:
- With every one-way ticket there’s a $4.50 passenger facility charge (PFC); that amount is federally capped, and limited to two fees per one-way, and four fees per roundtrip (so on a roundtrip ticket with a connection in each direction you’re paying $18)
- There’s a federal airport improvement program (AIP) that provides funding for airports to improve facilities
The big debate now (and for the past several years) is whether airports should be allowed to increase the passenger facility charge. Airports are in favor of it, while airlines are against it.
Airports arguing in favor of higher PFCs
Many airport executives are asking lawmakers to increase the cap on the PFC to $8.50.
The argument is that the PFC cap hasn’t been increased in nearly 20 years, so the fee simply doesn’t have the same buying power that it had 20 years ago. This is putting a lot of airports in situations where making improvements is very costly.
The Spokesman-Review presents the case of Spokane Airport, which is probably pretty representative of an airport where this would be hugely beneficial. The airport has grown like crazy (in the past five years they’ve gone from an average of three million passengers per year to an average of four million passengers per year), but actually funding expansion has proven difficult. For example, the CEO of Spokane Airport told congress the following:
“The $4.50 cap on PFCs has not been adjusted in nearly 20 years, meaning that its purchasing power in today’s dollars is about half of what it once was. The status quo is not working when it comes to funding the infrastructure investments our airports desperately need.
The PFC cap forces us to finance investments over a longer period of time, meaning that we ultimately pay almost as much in interest as we do for the project itself.
The bottom line is that increasing the PFC is the most viable way to increase funding for improvements to our nation’s airports’ infrastructure. The cost of doing nothing is simply too high.”
The airport has grown a lot and has a $190 million improvement plan that would allow for updated security screening checkpoint capacity, and additional baggage claim and gate capacity, as well as updating the heating and air conditioning.
Without additional funding, the project would be paid for with bonds, and they estimate that would cost $342 million including interest, and would take 38 years to pay off.
Airports are also arguing that this won’t impact demand. Their argument is that airlines raise fees constantly and more people are flying than ever before, so airports raising fees shouldn’t impact demand either.
Airlines arguing against higher PFCs
They argue that they support airports making investments, and say that airline collaboration has paved the way for widespread airport investments without “unnecessary” tax increases.
Their argument boils down to the following:
- Airport revenues are soaring, as US airports collected nearly $30 billion in 2017
- The amount collected as part of the PFC increases significantly every year due to more people flying
- Airport revenue outpaces inflation, and from 2000 to 2017, airport revenue per passenger grew 47%
- The AIP was given an additional $1 billion from the general fund as part of the FY2018 omnibus, and another $500 million in the most recent THUD bill
- US airports ended 2017 with a record $14.5 billion in unrestricted cash and investments
- Airlines say they want a PFC increase to secure long-term funding, but A4A argues that PFCs were never intended to be the primary source of funding of airport projects, but rather that’s the point of bonds
This is something I’ve gone back and forth on for quite a while.
On the one hand, I totally see where airports like the one in Spokane are coming from. Their $4.50 PFC hasn’t increased in almost 20 years, and that makes it really costly to fund improvements. If the $4.50 fee was considered reasonable two decades ago, it shouldn’t be unreasonable to adjust it for inflation.
Furthermore, this is especially challenging for airports that are trying to grow in order to accommodate increased demand. It’s not just about maintaining facilities, but about expanding.
At the same time, airport funding also works a bit differently than in the past:
- Airports are much more robust than they used to be in terms of retail, renting out space, etc., so there’s a lot more money to be made off non-PFCs
- You can’t really compare a mandatory additional $4 fee to the ancillary fees airlines have been charging, since a $4 fee is a price increase that is likely to impact demand, and it’s not an optional fee
- Often the way airport renovations work nowadays have changed; terminal renovations are often a collaboration between the airline and airport
All that being said, I do think this leaves smaller, non-hub airports at a disadvantage. Airports like JFK and LAX can make a ton from retail, lounge space, etc., and work with airlines to renovate terminals.
But that’s not as much the case for small airports like Spokane, that are growing significantly, but don’t have as many retail or lounge opportunities.
On the one hand I have concerns about all tickets in the US being increased in price by $8-16 roundtrip, which is what we’re looking at here. At the same time, I also find the general state of our airport infrastructure in the US to be really bad and behind the times, so maybe this is what’s needed to counter that?
Lastly, maybe it’s worthwhile to note that in Canada airport improvement fees are charged on all tickets, and range from 23-30CAD. Oddly part of that is given back to the airline as a “processing fee.”
Where do you stand on an increase in the cap of passenger facility charges?