U.S. House of Representatives
On behalf of the millions of Americans our free-market, pro-taxpayer organizations represent, we urge you to reject inclusion of any provisions in the Federal Aviation Administration (FAA) Reauthorization Bill that would effectively reimpose long-discredited federal price control regulations on air travel. The so-called “FAIR Fees Act” contained in the Senate’s version of the FAA bill not only endangers the affordability, flexibility, and choice that air travelers have come to appreciate over the years, it also violates sound fiscal policy.
Since 1980, shortly after passage of the Airline Deregulation Act in 1978, the average inflation-adjusted airfare (including fees) has fallen by 40 percent – a direct result of increased competition in the airline industry, which was allowed greater freedom to experiment with pricing structures, route arrangements, and combinations of services. Ultra low-cost carriers, which have decoupled fees for services not everyone uses from their base airfares, exert pressure on major traditional airlines to modify their offerings in ways that appeal to consumers.
The FAIR Fees Act contains one-size-fits-all regulations that give the Department of Transportation the power to determine what are “reasonable” fees for ticket changes, cancellations, and such items as baggage and seat selection. The results will be the same as they have for any good or service subject to price controls: the commodity will become scarcer, or the price “balloon” will be squeezed to affect something else. In this case, taxpayers could be the ones caught in such a squeeze. One reason certain carriers are able to serve smaller communities is through pricing models that permit budget-conscious consumers to opt out of services they’re unwilling to add to their base fares. Price controls undermine this dynamic, making these communities less attractive to carriers – and more likely to clamor for additional federal subsidies through the Essential Air Service program, which already costs taxpayers over $250 million annually.
Commercial air travel is already regulated by some 20 different government entities. Congress should be finding ways to ease this burden, which includes an average rate of 21 percent in government-imposed taxes and charges on airline tickets. In any case, the recently-passed Tax Cuts and Jobs Act (TCJA) will deliver more for competition in air travel than any onerous law like FAIR Fees could. Airlines tend to pay close to the full statutory corporate tax rate on net profits. As industry analysts are pointing out, new entrants to the market now face far lower rates and better expensing rules for equipment purchases, while established carriers will eventually benefit from TCJA too. This means a more robust and diverse competitive environment ahead.
Allowing Washington to re-regulate airfare pricing through schemes like the FAIR Fees Act would turn back the clock four decades to a time when only better-off Americans could afford to fly. It would also send a signal that pro-market reforms in other segments of transportation could come under attack. We therefore urge your committees to keep the FAIR Fees Act out of the FAA Reauthorization Bill, as well as any future legislation.