US Airports Want To Increase Passenger Fees

Filed Under: Travel

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

A4A is a lobbying group for US airlines, and is funded by airlines like American and United. You can read their written testimony for why they oppose a higher PFC.

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

My take

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?

Comments
  1. I think the fees should be raised so that true fast TSA lanes . The fees would dynamically increase so that the waiting time is under 1 min

  2. USA has some of the crappiest airports to be found. If you fly worldwide you know what I am talking about. Chinese airports blow the US airports out of the water. Americans need to wake up to their crumbling infrastructure and figure out how to fix it. Kicking the can down the road ad infinitum is just going to make things worse.

    In January Cleveland couldn’t even offer safe drinking water at their pathetic airport. Appalling. https://www.cnn.com/2019/01/01/us/ohio-frontier-airlines-passengers-sick/index.html

  3. Glad that you compared it to the Canadian situation at the end. Our fees have been climbing like crazy over the last twenty years.

  4. the argument should be made against replaceability instead of just airport size.

    E.g. in Orlando’s case, lots of ULCCs use SFB, so if MCO jacks it up a lot, it’ll only send business across the street

    But say Las Vegas. No one realistically bothers with any of the so called “alternatives” to LAS like the far out SGU, so LAS can pretty much have Carte Blanche to jack it if they truly desires so.

    but sometimes even physical proximity doesn’t act much as a self balancing mechanism. MFM SZX aren’t all that far from HKG (but weirdly in 3 diff jurisdictions), and they split the air space around it, but one would find the hassle to trek back to the Hong Kong too overwhelming only the most frugal of folks will seek the cheaper deals if HKG were to jack theirs higher.

    Back to Lucky’s examples, JFK doesn’t have much of that leverage cuz EWR is very much a viable alternative even in the long haul space, but LAX would be one they can act that way cuz let’s not fool ourselves thinking a stampede to ONT will actually happen

  5. For non-hub, medium and low traffic airports, it probably would be a good thing. When I think of airport fees, my mind automatically goes to LHR and their outrageous fees. For all the money they’re raking in there, the place remains among the worst large airports I’ve ever been through – unorganized, crowded, ugly, and dirty. I have to admit, I haven’t been through there in four years, so perhaps things have improved, at least one hopes.

    From a passenger standpoint, I wouldn’t mind paying a few dollars more per flight if the money was being spent wisely for improvements that benefit passengers, not sifted off for other purposes.

  6. Not all airports charge $4.50. While it’s by far the norm, some charge $3, $1, or even no PFC.

  7. “since a $4 fee is a price increase that is likely to impact demand, and it’s not an optional fee” – sorry if $4 extra is going to impact someones decision to fly then they really shouldn’t be traveling at all as it would seem they are broke AF.

  8. I find insulting the airports saying “because airlines charge X to passenger , we can charge too”. Like, if airlines can exploit the passengers, we want in it too. lol

    But yeah, US airports blows. Though are money really being properly used, they get so much money already, from many revenue streams.

  9. The piece of this that keeps getting lost is the fact that airlines (passenger and cargo) are fully responsible for funding airport projects through rates and charges. Every major airport project thats currently underway across the country such as JFK, LGA, ATL, LAX, etc has been approved jointly by the airlines and the airport. Airports have much greater discretion as to how PFC revenue is spent without having to ask the airlines for the ok (even though airlines are paying the bill). Additionally, US airports want the ability to force airlines to collect their fees for them, rather than them having to look like the bad tax man. If an airport wants to raise additional revenues they can set up a toll booth outside to collect the fee similar to the way that some international airports make you pay a tax prior to leaving (or entering the country).

  10. When your average roundtrip is something like $300, I don’t think an extra $4 will impact behavior, especially given framing effects (a $4 increase on $10 can be seen as unreasonable, but a $4 increase on $100 isn’t even noticed). It’s basic decision-making psychology.

  11. The real question is what are they responsibly doing with the money currently collected, the answer is always ask/take more instead of getting ones books in order.

  12. Steven M to be fair some US airports are great – Denver , Tom Bradley terminal at LAX, SFO. Honolulu is still stuck on the 70s others are terrible and whilst Chinese airports look great , customer service is non existent

  13. Lots of people don’t understand inflation. Fees should always be indexed and increase annually otherwise we end up having to make major adjustments or neglecting maintenance.

    Neglecting maintenance and putting off renovations just makes the project more expensive and complicated down when the grandkids have to deal with it.

  14. The FAA hands out massive amounts of money to airports. Last year they awarded “$205 million in supplemental funding for infrastructure grants to small airports” They also gave 3.31 billion out as part of their Airport Improvement Program in 2018.
    (https://www.faa.gov/news/press_releases/news_story.cfm?newsId=23174)

    My local airport used some of that money to cover the walls and floors of some of their bathrooms with marble. I get the feeling that airports have more available money than they know what to do with.

    Apparently this funding can only be used to improve or expand airport facilities. Pittburgh had to fight the FAA to get funding to reduce the size of their current airport, which was overbuilt in the late 90’s in anticipation of US Air making Pittsburgh a hub
    (https://archive.triblive.com/local/pittsburgh-allegheny/pittsburgh-international-airports-1-1b-project-prepares-for-takeoff-2/)

  15. PFC’s are going to end up like USPS postage stamps/shipping rates – constant increases for little to no apparent improvement in service.

  16. This reminds me of the stealth “resort fee” hotels in Vegas started charging which has now spread around the World, passengers at the airport will be charged a fee to get free wifi etc

  17. “I also find the general state of our airport infrastructure in the US to be really bad and behind the times”

    But ALL infrastructure in the US is really bad and behind the times…why should airports be any different from all the roads, schools, hospitals, and virtually everything else?

    The US is a sh*t-hole, because it’s leaders are too cheap to bother spending money on maintaining anything (because citizens are too stupid to know any better).

    Go to some “developing country” and when you come home to the USA, you quickly see what a complete dump this place is.

  18. There is usually no accountability on how these fees are spent. Money is wasted for “signature” projects, and construction is slow and costly because there is in incentive to control costs. For example its taking longer for PHX to remodel T3 than it originally took to build it and T4

  19. Forget the government. Airline tickets should be outsourced to the likes of Ticketmaster. Think you pay high ticket fees and get great value/accountability for what you pay now?? Try them.

  20. The US has consistently the very worst airport infrastructure in the developed world. Of course they should raise the fees, they are absurdly low compared to most other countries, and relying on airline investment has not only not worked, it’s led to a wildly impractical system of individual airline terminals (eg JFK).

    Even Heathrow on a bad day is still so much better than any major US airport I have flown through. Hell, Phnom Penh airport in Cambodia which I just flew through is better than most mid-size US airports.

    The fact this is even being debated is amazing – another example of the US letting a once world-leading infrastructure crumble into sub-3rd world condition because of this bizarre idea than any and all taxes are “evil”.

  21. As a foreign visitor, I don’t actually find US airports that bad at all – many of them have improved significantly over the last few years, e.g. LAX (esp. TBIT). As others have noted, SFO and DEN are fine, and PDX is a dream. For airports of their size, DFW and ATL have generally been efficient as well. I appreciate that US airports are functional – they don’t force you through a chicane of duty free junk just to get to your gate.

  22. And some airports in other high-income countries are pretty ordinary – NRT is really quite tired, and international arrivals into T2 there currently are an absolute mess.

  23. @Tom – the issue is one of inflation. $4.50 today simply isn’t worth what it was 20 years ago. It would be like you working for 20 years with no pay raise (while prices of everything around you go up), then asking your boss for a raise and being told nope you need to get your books in order. That would be pretty insulting if you ask me.

    Bigger picture, fees should never be capped at an absolute dollar amount. Inflation (and sometimes deflation) happens. It just does. Fees should be set to an index like CPI or something to that effect, and adjusted yearly. It would allow for small changes over time, rather than a sharp increase overnight, and would minimize the outrage that comes along with sudden price hikes.

  24. Here’s their budget for 2019: http://business.spokaneairports.net/core/files/business/uploads/files/Business/2019_Board%20Budget%20Book.pdf

    PFCs are the one area they aren’t raising prices. Airports are funded by PFCs, landing fees, terminal rent, taxes on car rental, and all the land and uses around the airport. Pull the last 3 budgets and see that they’ve increased spending by more than 10% every year for the last 3.

    More passengers mean more planes and more revenue. Seems like they want to do things quicker than their revenues allow.

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