Airlines could pocket millions of dollars per day starting Sunday when the Federal Aviation Administration’s authority to collect taxes on airline tickets and fuel expires — a potential lapse that's increasingly likely.
The FAA’s statutory authorization — which primarily allows it to collect and spend tax revenues used to run the aviation system — is due to expire at 11:59 p.m. Saturday. By coincidence, that is the same moment that the agency and the rest of the federal government would shut down unless lawmakers reach a last-ditch spending deal.
Planes will continue to fly, and the FAA’s air traffic controllers will remain on the job — without being paid. But the expiration of the agency’s authorization would keep the FAA from tapping into a trust fund that fuels part of its spending — and it wouldn’t be able to collect taxes on airline tickets. Last week, the FAA said it will lose an estimated $54 million in excise tax revenues every day if Congress doesn’t act.
The airlines could decide to lower their fares to reflect the temporary halt in tax collection. Or they could keep their taxes the same and just pocket the difference. The 7.5-percent tax on the price of a ticket amounts to $15 for a $200 fare.
Transportation Secretary Pete Buttigieg said Wednesday that a lapse in the FAA’s authorization would mean the agency couldn’t collect or spend tax revenues and that some of that lost money “might never come back in.”
“So it’s effectively kind of like a tax holiday for airline charges that never come in to improve airports and other critical needs. It’s right alongside the other forms of disruption that we don’t need right now,” Buttigieg said during a press conference Wednesday.
The last time Congress allowed the FAA’s authorization to expire, in 2011, many airlines modified their computer systems to stop collecting the taxes — but some raised their fares by the same amount, according to news coverage at the time. This prompted outrage from Capitol Hill, even though some airlines eventually offered to refund passengers the difference.
The commercial airline industry’s trade group, Airlines for America, declined to comment on whether its member airlines planned to lower ticket fares or keep them the same this time if the FAA’s authorization expires.
But the industry has pleaded with Congress to end its stalemate: On Tuesday, a coalition of airlines and other business groups such as the U.S. Chamber of Commerce told lawmakers that any interruption in the FAA’s authorities for “even a few hours or days — would undermine public confidence and interrupt progress on critical initiatives to advance safety, efficiency, innovation, and airport infrastructure.”
Former House Transportation Chair Peter DeFazio (D-Ore.) said in an interview that the airlines “had a nice windfall” in 2011. DeFazio, now an adviser for the lobbying firm Summit Strategies, was a senior lawmaker on the committee during the last FAA lapse.
There is earlier precedent as well. During a government shutdown in 1996 and a partial shutdown in 1997, the FAA was not able to collect its excise taxes, prompting some airlines to cut their fares while others raised fares to make up the difference. A Congressional Research Service report published in 1997 observed that those two lapses “provided an economic windfall for the many airlines.” The report noted that the eight-month lapse in authority in 1996 cost the FAA over $4 billion in revenues, and the two-month lapse in 1997 an additional $1 billion.
There is widespread bipartisan support for extending the FAA’s authority, even if the rest of the government shuts down, and both chambers are readying bills that would provide a temporary bridge through the end of the year. But it’s not clear whether they can make it through the fractious House Republican caucus.
Asked about how the airlines would handle a lapse in taxing authority, Airlines for America spokesperson Marli Collier would only observe that “if the statutes expire, there are no legal authorities in place for airlines to collect taxes.”
Delta Air Lines spokesperson Lisa Hanna, meanwhile, said any changes to ticket prices, regardless of any FAA lapse, are directly “driven by the market.”
In a statement, Southwest Airlines spokesperson Laura Swift said the company hopes lawmakers will pass an extension, which would squash the issue. United Airlines declined to comment. JetBlue Airways, American Airlines and Frontier Airlines had no comment.
In 2011, the Air Transport Association (now Airlines for America) acknowledged that some airlines had raised their fares to offset the lack of a tax and defended the practice, saying profitable airlines ultimately benefit consumers.
"This short-term additional revenue for airlines, which does not mean a fare increase for consumers, benefits all stakeholders — customers, employees and investors — by temporarily improving tiny industry margins to better cover costs and enable airlines to invest in their product and service," ATA told CBS News in 2011.
In a 2011 letter, Sen. Maria Cantwell (D-Wash.), who is now chair of the Senate Commerce Committee in charge of aviation, wrote to the head of the Air Transport Association to urge the nation’s airlines “to put all of the profits that they are making from the lapse of the aviation taxes into an escrow account so they can be transferred back.”
Cantwell’s office declined to comment when asked if she supports a similar idea in 2023.
Ultimately, after the 2011 lapse in authorization, the Internal Revenue Service declined to collect the estimated roughly $400 million in lost taxes retroactively, from either airlines or customers. Some carriers such as Delta Air Lines and US Airways had agreed to issue refunds to customers before the IRS decision, while others such as Spirit Airlines and Alaska Airlines had reduced prices to reflect the lowered tax burden, according to media reports at the time.
John Breyault, the vice president of public policy at the National Consumers League, an advocacy group representing consumers, said that if the airlines don’t have to pay a 7.5 percent ticket tax, then they should adjust their prices accordingly, so passengers aren’t paying a “phantom tax.”
“If [airlines are] not paying that tax, then consumers shouldn't be paying for it either,” Breyault said in an interview. “Ticket prices should go down seven and a half percent to reflect that — anything less than that is airlines basically stealing from consumers.”
Breyault, who also sits on the Transportation Department’s aviation consumer protection advisory committee, said it may be appropriate for DOT to investigate the airlines over the practice to see “if that conduct is violating protections against unfair and deceptive practices, or unfair methods of competition.”
DOT had no comment about whether it would consider investigating.
But Paul Rinaldi, who led the National Air Traffic Controllers Association from 2009 to 2021, said airlines that collect federal taxes from passengers before passing that money along to the federal government “can’t change their fee structure overnight.” The uncertainty makes it harder for airlines to know if they will need to keep collecting taxes in the event a lapse is prevented.
“If I buy a ticket to fly in October, I’m paying taxes on it now,” said Rinaldi, who is now an independent aviation consultant focusing on aviation safety and modernization issues. “It’s a weird thing.”