Airlines: Tax break would help contain fuel costs

John Hughes

Friday, Sept. 9, 2005 | 9:45 a.m.

U.S. airlines, many of them losing money and some trying to avoid bankruptcy, are asking Congress for a $600 million tax break to help offset record fuel prices, said James May, president of the industry's Washington trade group.

Airlines want a one-year exemption from a 4.3-cents-per- gallon fuel tax, said May, of the Air Transport Association, in an interview today in Washington. "Our principal focus is trying to get a holiday," he said. "Every little bit helps. It's $600 million more than we've got today."

Carriers including UAL Corp.'s United Airlines and Northwest Airlines Corp. have been raising airfares and conserving fuel to try to lower energy costs. Carrier fuel costs this year will rise by almost a third to $28.1 billion, from $21.4 billion in 2004, May's group estimated Aug. 29. Those fuel costs, airlines' second largest expense after labor, averaged only $11.8 billion from 1992 through 2001, the group said.

Two of the seven largest U.S. airlines, United and US Airways Group Inc., are operating in bankruptcy, and two others, Northwest and Delta Air Lines Inc., have said they may have to file for Chapter 11. The airlines have successfully turned to Congress before in troubled times, for instance winning as much as $10 billion in loan guarantees after Sept. 11.

Airline Executives

May's interview followed a meeting he held today with the chief executives of major U.S. airlines who make up his group's board. May said he plans to detail the group's proposal Sept. 14 to the Senate Aviation Subcommittee, which is holding a hearing on the impact of the Hurricane Katrina on the airline industry.

Carriers are also seeking to exempt fuel surcharges from a 7.5 percent passenger ticket tax. Jeff Shane, the Transportation Department's undersecretary, said yesterday the agency wouldn't be able to administratively grant airlines' request for the surcharge exemption, because the agency lacks authority to do so.

Airlines have increased fuel charges as a way to recoup energy costs. AMR Corp.'s American Airlines has a $55-each-way surcharge on international flights. Airlines currently must collect the same 7.5 percent tax on the surcharges that they do on the regular airfare.

Shane said today the department is still considering a separate request from the airlines for an administrative change.

Fuel Surcharges

U.S. rules require airlines to include fuel surcharges as part of the airfare in the main print of advertisements. Airlines have asked the Transportation Department to instead let them separate out the surcharges and put those costs in the fine print of ads, Shane said.

Carriers believe separating out the costs will help them persuade Congress that the fuel charges are "nothing but a pass through" to cover rising fuel costs and shouldn't be taxed, Shane said in an interview.

The proposed advertising change was discussed with Transportation Secretary Norman Mineta at today's meeting of airline executives. Mineta attended the executives' meeting, mainly to thank airlines for helping to evacuate people from New Orleans after the hurricane, spokesman Brian Turmail said.

"We've been kicking it around, trying to understand its implications," Shane said of the advertising proposal. "We're hoping to get it resolved quickly" and make a decision by next week, he said.