[IP] airline subsidies, tax breaks, etc.
Begin forwarded message:
From: Edward Hasbrouck <edward@xxxxxxxxxxxxx>
Date: January 30, 2006 1:22:31 PM EST
To: dave@xxxxxxxxxx
Subject: airline subsidies, tax breaks, etc.
Somwhat long post prompted by the thread in IP:
http://hasbrouck.org/blog/archives/001001.html
Airlines whine about "regulations" and "freedom of the skies", but it
in fact they receive a wide range of subsidies, tax preferences, and
other forms of special treatment from Federal, state, and local
governments in the USA. (The phenomenon is widespread elsewhere in
the world, even if the details vary from country to country.)
How? Let me count the ways (in no particular order):
1. Airports and air trafffic control infrastructure are built and
operated by tax-exempt government entities (consider the real estate
and other taxes that would be paid by privately owned airports on
huge tracts of land in prime urban and suburban locations) with below-
market capital costs (tax-exempt government bonds).
2. Employee training for pilots, mechanics, etc. is provided by the
military at no cost to airlines. (Ex-military pilots and mechanics
may require additional training and certification for specific
civilian aircraft types, but they've already logged thousands of very
expensive hours of jet aircraft experience.)
3. Air traffic control and other services to airlines are provided by
the government. (Airlines will claim that they pay for this in user
fees, but that ignores the taxes that would be paid on private ATC
infrastructure, and the artificially depressed labor costs: As
government employees, air traffic controllers and many other civil
aviation workers are forbidden to strike, enabling the government
unilaterally to impose below-market wages.)
4. Airlines are paid all the time, even when their aircraft aren't
being used, for agreeing to make their planes available on demand to
the government as part of the "Reserve Air Fleet". But the times when
they are needed -- times of war -- are generally times of reduced
civilian air travel, when they would otherwise be idle. And when the
"Reserve Air Fleet" is used, airlines are paid market rates for
government charters.
5. Government funding for military aircraft subsidizes production and
operation of civilian aircraft: Manufacturers of aircraft and
associated equipment pay nothing for knowledge transfers from
government-funded military aircraft research and development,
prototyping, testing, maintenance experience, etc. to civilian
aircraft. Military aviation provides critical support for economies
of scale and continuity of operations for manufacturtes of aircraft,
support equipment, and related services during cyclical declines in
civilian aircraft demand. Many civilian aircraft types are sold
directly to the military, and these sales are often essential to
enlarging production runs to the break-even point.
6. Airlines have a statutory exemption from Federal anti-trust law to
allow them to participate in IATA "traffic conferences" to fix
standard "industry fares".
7. Under the preemption clause of the Airline Deregulation Act of
1978, airlines are exempt from state and local truth-in-advertising
and other consumer protection laws. (This wouldn't matter if the
Federal government enforced similar rules, But, as state Attorneys
General have pointed out , the Feds allow many practices that enhance
airline profits but would be forbidden under state and local fraud
laws.)
8. Airlines based in the USA are protected by Federal law from all
foreign competition: No airline based anywhere else in the world is
allowed to carry passengers between points in the USA, and no foreign
entity is allowed to own more than 25% of the voting stock in any
airline based in the USA. This applies even to US colonies: It's
illegal to buy a through ticket on a foreign airline between Guam and
the mainland USA via eg. Seoul, Taipei, or Tokyo (even though travel
agents occasionally issue such tickets by mistake), no matter how
much cheaper that would be than a ticket on Continental Micronesia,
the only USA airline with service between those places. You have to
buy 2 separate tickets, and claim and re-check your luggage at the
transfer point. Under "Buy American" rules, all travel funded, even
in part, by the US government must be on a US-flag airline, no matter
how much more it costs than a foreign-flag competitor. Where, as is
often the case, there is often only one US-flag airline serving a
given destination, this gives them a de facto monopoloy on government-
funded travel, a large and often high-revenue (last minute business
travel by government contractors, etc.) portion of the traffic on
some routes.
If airlines really want to be free of governmewnt regulation and
oversight, they first should have to agree to give up their
government subsidies and special privileges and protections.
--------------------
Edward Hasbrouck
edward@xxxxxxxxxxxxx
http://hasbrouck.org
+1-415-824-0214
"The Practical Nomad: How to Travel Around the World"
(3rd edition, 2004)
"The Practical Nomad Guide to the Online Travel Marketplace"
http://www.practicalnomad.com
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