Update: See here for the latest letter from US airlines to Congress.
Today Delta revealed some drastic measures they’re taking in light of the current situation, including grounding 300 planes, canceling 40% of their flights, and… asking the government for help?!?
How the government may help US airlines
I think Delta’s request for government aid caught a lot of people off guard:
- Is the situation so bad already that even the most successful of the “big three” US carriers needs help for the government?
- What kind of help should the government be providing to airlines (especially given the lack of help for individuals so far)?
As reported by @SalehaMohsin, the White House is apparently considering providing aid to airlines, and is primarily considering two options.
Let airlines keep the federal excise tax
Ordinarily airline ticket prices include a 7.5% federal excise tax, and the White House is allegedly considering letting airlines keep this tax. It’s not yet known for how long they’d let airlines keep this or quite how big the impact would be.
To give a sense of the scale we’re talking about, Delta’s revenue in 2019 was $47 billion, though not nearly all of that is subjected to the 7.5% tax, as many fees and other types of revenue aren’t subjected to it.
Depending on how long airlines would be allowed to keep the federal excise tax, this could be worth hundreds of millions, or even billions, of dollars.
Let airlines keep the passenger facility charge
Every airline ticket comes with a $4.50 per segment passenger facility charge, which is intended to be invested into airport infrastructure, etc. Apparently the White House is considering letting airlines keep the passenger facility charge.
Presumably airlines wouldn’t get to keep both the federal excise tax and passenger facility charge. I’d assume that for most legacy airlines, keeping the 7.5% federal excise tax might be greater, while for ultra low cost carriers, keeping the passenger facility charge might be better.
Bottom line
When I first heard that Delta was seriously considering asking the government for aid I wondered what form that could possibly come in. The options that the White House is considering aren’t unreasonable, in my opinion, given just how dire the situation is.
Being able to keep either the federal excise tax or passenger facility charge would presumably make a huge difference for airlines, depending on the period of time over which they’d be allowed to keep it.
For what it’s worth, the hotel industry is also asking for government aid.
What do you make of the airline aid options that the government is considering?
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