Air-Travel ‘Junk Fees’ Come from the Government

D espite other pressing policy concerns, the Biden administration really wants to talk about what it calls “junk fees.” It announced a suite of new regulatory actions earlier this month. White House social-media accounts have posted about “junk fees” dozens of times in the past year, with concentrated efforts in February, June, and now again in October to make the issue stick.

If the administration really wants to talk about junk fees, let’s talk about how the government makes junk fees worse.

The White House defines junk fees as “hidden, surprise fees that companies sneak onto customer bills.” One of the industries frequently targeted in such efforts is the airline industry, where it has become more common to charge separately for services that were bundled more often in the past. The president’s Twitter account has said part of his crusade against junk fees is “making sure airlines show full ticket costs upfront.”

Being charged separately for amenities beyond the base fare might be annoying, but there are good reasons for airlines to do it. One is that it’s not annoying to people who don’t want to pay for the additional amenities. When airlines include the costs of all amenities in their prices, people who don’t want them all have to pay for them even though they weren’t using them. By charging for amenities separately, airlines allow people who don’t want them to save money, while the people who do want them can still get them. Airlines ought to be able to serve different types of travelers without the government saying one way is better than another.

But there’s another nonmarket reason that airlines disaggregate their pricing. The federal government charges a 7.5 percent excise tax on airfares. That tax only applies to the base fare, not to additional charges. By separating charges for amenities and keeping the base fare lower, airlines reduce the amount of excise tax customers have to pay. Because the government requires advertised air-travel prices to include all taxes, airlines have a good reason to minimize the excise-tax exposure so they can advertise a lower price.

In addition to the 7.5 percent excise tax, a typical domestic flight is also subject to two federal fees: the flight-segment fee of $4.80 per segment and the September 11 security fee of $5.60 per one-way trip. Airports, nearly all of which are government-owned, also add passenger-facility charges, which are currently capped at $4.50. These fees can add up if you have a connecting flight, because then the flight-segment fee gets charged twice and another airport gets to charge a passenger-facility fee.

Mandating that advertised air-travel prices include all taxes and government fees also means that customers oftentimes don’t realize how much tax they are paying. On a typical domestic flight, taxes and fees from the government amount to an effective tax rate of about 20 to 25 percent on the base fare. That’s four to five times higher than the average state’s sales tax.

On top of that, the federal government also taxes jet fuel, some of the burden of which gets passed on to consumers. And there are extra fees that apply only to international flights as well. All the revenue from government taxes and fees on air travel gets dumped into the Airport and Airway Trust Fund, where it is used for government spending on air-travel infrastructure.

There’s a good argument to be made that users of air-travel services should pay for their upkeep, so using this system of taxes and fees to fund them makes sense. But Congress regularly has to provide general-revenue funds to make up for shortfalls anyway. And that argument elides the bigger question: Why does government have such a large role in air-travel infrastructure in the first place?

The U.S. is unusual among developed countries in having nearly all of its major airports be government-owned. As a result, they suffer from the same problems government-owned infrastructure usually suffers from: maintenance backlogs and soaring costs. They perform poorly on international rankings of customer satisfaction and are constantly begging the government for more money to make overdue improvements.

The U.S. is also stuck with an outdated, government-run system of air-traffic control. Canada successfully privatized its air-traffic-control system in 1996, creating a nonprofit corporation funded by users of the system that doesn’t cost taxpayers anything. In the nearly three decades since then, the results have been clear: An improved safety record with modernized technology at lower cost.

And the Transportation Security Administration, which federalized airport security after 9/11, isn’t very good at its job. Multiple studies have found failure rates in excess of 75 percent for detecting banned objects. A 2022 Department of Homeland Security inspector general report entitled “Vulnerabilities Continue to Exist in TSA’s Checked Baggage Screening” was classified. An unclassified 2021 inspector general report found that 20 years after 9/11, the TSA has still not implemented one-third of the provisions Congress gave to it to improve airport security, and many of the ones it did implement were late. The TSA’s unionized workforce (which Biden gave more power to) suffers from the same inefficiency and unaccountability as public-sector unions elsewhere in government. And, of course, corruption: The president of the TSA union’s Boston local pleaded guilty on fraud charges last June.

The federal government’s charges on air travel are hidden by the mandate that they be included in airlines’ advertised prices, allowing the government to sneak them onto travelers’ bills. They exist to support an unaccountable and underperforming bureaucracy that is performing tasks the private sector could perform better. “Junk fees” are from the government.