Commentary

Allow Airports to Raise Passenger Facility Charges, but Consider Requiring that Large Hubs Give Up Airport Improvement Program Funds

Currently, U.S. airports coordinated by trade associations Airports Council International—North America (ACI-NA) and the American Association of Airport Executives (AAAE), and the airlines coordinated by trade association Airlines for America (A4A) are fighting a public battle over Passenger Facility Charges (PFCs). PFCs are one of the main mechanisms to fund capital projects such as baggage systems, gates and international arrival facilities. Airports want to increase the fee, and argue that the current $4.50 passenger facility charge, which has not been increased/adjusted since 2000 and equates to $2.45 today, is insufficient. A4A argues that the PFCs should be kept at $4.50 since over the past 25 years the number of taxes airlines pay has increased from six to 17 and the amount paid has increased from $3.7 billion to $20 billion.

Sorting out the truth from both side’s slick marketing campaigns is not easy. But the airports make a better argument. In fact, airports should be allowed to increase PFCs to whatever level they deem necessary.

First, our aviation system follows the same users-pay/users-benefit principle as our surface transportation system. And PFCs are the purest users-pay/users-benefit funding mechanism. A users pay system is fair since those who pay are the ones who benefit. A users pay system is proportional since those who fly more pay more and vice versa. A users pay system is self-limiting since the taxes will be used only on needed infrastructure. A users pay system is predictable, since such a system, unlike airport improvement funds, will not disappear at Congress’ whim. Finally, a users pay system provides guidance on the correct amount of investment to make.

Second, airports need continual improvement. Passenger traffic is set to grow again this year; many airports need additional gates. Others need to modernize their badly aging security areas and baggage systems. While airports have other tools, principally bonding and airport improvement program (AIP) funds, both these tools are limited. AIP funds require matching, and two-thirds of AIPs fund airside projects (runways, taxiways, aprons). The ability to bond is limited to the financial resources of the airport. Airports needing to make significant expansions can cover only a fraction of the cost through bonding. PFCs are more versatile and can be used for a variety of projects including landside (terminal) projects, road access, noise-remediation projects, bond-interest and airside projects.

Third, airports as quasi-independent agencies should be able to raise their own funds. Airlines have added a bevy of tax-exempt fees, which incur no taxes because they are special services and not a part of standard fares. (The addition of these fees has lowered the amount of AIP funds collected). Passengers now pay to check bags, use internet service, reserve seats, purchase food, and purchase priority boarding services. Just as it is the airlines’ right to charge passengers for these optional services, it is the airport’s right to charge passengers for a better baggage system or a terminal with sufficient seating.

Fourth, just as passengers have some choice of airlines they also have some choice of airports. In most of the 20 largest aviation markets, which serve the vast majority of passengers, there are two or more airports. If an airport goes on a drunken spending spree as Miami International Airport did, airlines and passengers can choose the cheaper alternative of Fort Lauderdale International. Price is a powerful motivator that should keep airports from unreasonable PFC increases.

However, I understand the airlines concerns of overcharging. And while the cheaper Fort Lauderdale provided an option to overpriced Miami, it would be preferable if such exorbitant costs were prevented in the first place. So in exchange for removing the limit on PFCs, large hub airports should give up AIP funds. Large hub airports rely less on AIP funds than other airports and with PFC funds uncapped, AIP funds become a nice to have product not a requirement. Giving up AIPs would also signal to the airlines and to passengers that the airports are serious about being good stewards of taxpayer dollars.

Baruch Feigenbaum is assistant director of transportation Policy at Reason Foundation a non-profit think tank advancing free minds and free markets.