Wednesday, November 24, 2010

On Airline Fees

Slate's guide to sneaky airline fees. - By Timothy Noah - Slate Magazine: "The airlines lay on fees for three reasons. First, it allows them to make your airline ticket look cheaper than it really is, since all the customer typically knows when purchasing a ticket is the basic fare. People don't have a lot of money to waste in this economy, and airlines want them to think they're getting a bargain. Second, the laying-on of fees reduces the impact of price competition among airlines, since airlines compete only on basic fare, not on fees. Third (and least widely known), fees represent a tax dodge for the airlines. The Federal Aviation Administration charges a 7.5 percent tax on every ticket sold for domestic air travel. This tax is (with a few exceptions) levied only on the basic fare; divert some cost from the fare into a separate fee, and the airline reduces its tax burden. All the Internal Revenue Service requires is that the separate airline fee be unrelated to the transport of a person. (If it is related, like the unaccompanied-minor fee, then it gets taxed, too.) According to the Government Accountability Office, the two biggest fees—the baggage-handling fee and the reservation change or cancellation fee—brought the airlines $7.9 billion in untaxed revenue in 2008 and 2009. (Even so, U.S. airlines collectively accumulated $4.4 billion in operating losses during those two years.)"

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