How Airlines Are Affected by the Excise Tax on Airline Tickets

With the rise in air travel demand and the growing competition in the airline industry, a significant contributing factor to the airline’s revenue comes from taxes and fees. One such tax that affects the airline industry is the excise tax.

In 1997, the Federal Government introduced the excise tax on airline tickets, which is a government-imposed tax on all passengers traveling within the United States. The tax is calculated based on the percentage of the ticket price, and the percentage varies depending on the number of miles a passenger has traveled. While this tax might seem insignificant to the passengers, it significantly impacts airline revenue.

The Excise Tax on airline tickets has three different rates: 7.5%, 6.25%, and 4.3%. The rates are applied based on the distance traveled. For example, for travel distances of less than 150 miles, the tax rate is 7.5%. For distances between 151-1,000 miles, the tax rate is 7.5% with a cap of $4.50, and for distances over 1,000 miles, the tax rate is 7.5% with a cap of $18.

How Does the Excise Tax Affect Airlines?

The excise tax has a significant impact on airlines, as it adds a significant burden to their operating costs. In fact, it is estimated that airlines pay billions of dollars each year in taxes and fees. These taxes and fees do not only apply to the airline industry but also to the passengers. The price of an airline ticket is a result of several factors, one of which is the taxes and fees imposed by the government.

To compensate for these taxes and fees, airlines often raise their fares, and this is an added burden to passengers who have to pay more money for their tickets. Additionally, the high fares discourage many people from traveling altogether, resulting in fewer passengers for airlines.

The excise tax also leads to a ripple effect as airlines’ high operating costs result in lower net income for airlines. This decrease in income results in fewer funds being allocated to airlines, which, subsequently, are detrimental to the industry’s growth and development.

Impact on Passengers

The Excise Tax on airline tickets has an adverse effect on passengers as it results in higher prices for airline tickets. The high ticket prices make air travel less affordable for many people, and this reduces the number of people who can afford to travel by air, which impacts the passenger volume for airlines. This is why many airlines have lowered or removed their fees and taxes, such as baggage fees, in an attempt to attract more customers.

Conclusion

The Excise Tax on airline tickets is a necessary evil for the government, but for airlines and passengers, it’s a burden that can be detrimental to growth and affordability. The high taxes and fees make air travel more expensive for passengers, and this, coupled with the rising fares resulting from airline operating costs, has led to fewer passengers travelling by air. To ensure a thriving and growing airline industry, the government should reduce the tax rates or better yet, remove the excise tax altogether.