Air Carriers Divided Over Tax Proposals

WASHINGTON — The nation’s major airlines Friday were preparing for a fight with their low-fare competitors over the best way for Congress to tax their passengers.

The battle lines were drawn early Friday when the Senate Finance Committee approved a ticket tax plan favored by the low-fare carriers that conflicts with a plan the major airlines pushed before the House Ways and Means Committee.

American Airlines Inc. President Donald Carty called the Senate version “grossly unfair” to such carriers as American Airlines and others that operate international flights. He said “the employees and customers of these airlines will be punished by this extraordinary level of taxation.”

At issue for the major airlines is the Senate committee’s proposed new tax on the domestic portions of international flights and an increase to $8 from $6 in the per-passenger departure and arrival fees already in place. This would have no effect on low-fare carriers such as Southwest Airlines or ValuJet, which do not operate international flights.

Both the House and Senate tax proposals would increase tax revenues by about $4 billion over the next five years. The leaders of both the House and Senate hope to bring their respective tax bills for floor votes as early as Wednesday, according to airline lobbyists. The two bills then would have to be reconciled in a House-Senate conference committee.

The seven major airlines--American, Continental, Delta, Northwest, TWA, United and US Airways--are opposed to the Senate plan. A United Airlines executive said the Senate plan would raise taxes on the airline by $190 million a year, or 23%. The bill for American was estimated by industry officials at $230 million, a 33% increase.

The tax on international flights is not the only problem for the major airlines, however. The major carriers want to reduce the current 10% tax on tickets and make up the revenue loss to the government by charging a per-passenger fee--which would have a proportionately larger effect on the ticket costs of low-fare carriers.

Low-fare carriers, led by Southwest Airlines and Alaska Air, want to keep the tax a flat percentage of the cost of a ticket. With generally lower fares, they can charge passengers less.

Ron Ricks, senior vice president for government affairs at Southwest Airlines, called the Senate proposal “a very fair compromise and a very sound public policy.”