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US airlines ask Congress to roll back jet fuel tax

Posted on: Wednesday, 14 September 2005, 17:20 CDT

By John Crawley

WASHINGTON (Reuters) - U.S. airlines on Wednesday asked Congress to rollback the tax on jet fuel to make it easier for them to raise fares and counter sustained high fuel prices made worse by Hurricane Katrina.

Senate Republicans at a Commerce Committee hearing said they wanted to help the beleaguered industry, but some noted the one-year tax holiday would require an estimated $600 million in new federal spending to offset the loss of tax receipts.

No Democrats attended the hearing.

Jim May, the chief executive of the industry's leading trade group, the Air Transport Association, told the panel soaring fuel costs, which are projected to total $30 billion in 2005, have driven up projected industry losses for 2005 to at least $9 billion.

Prices were nearly 20 cents higher at the start of this week -- roughly $2.05 per gallon -- than they were a week before Katrina hit the Gulf Coast on August 29. May estimates the industry will pay $9 billion more for fuel in 2005 than airlines did last year.

"No business model at any airline can sustain such a rapid increase in fuel prices," May said.

U.S. airlines have long complained about taxes and government fees that can account for a quarter of the price of a ticket. Carriers have had mixed success in convincing lawmakers to reduce those charges, which include the 4.3 cents a gallon tax on jet fuel.

But with four big carriers now in bankruptcy -- UAL Corp.'s United Airlines, US Airways Group Inc., Northwest Airlines Corp. and Delta Air Lines Inc. -- and fuel costs weighing heavily on the industry after the hurricane, Congress may act this time.

"I don't think we should ignore any option," said Sen. John McCain, an Arizona Republican.

"We need to look into the overall structural relationship between the government and airlines," said Sen. Ted Stevens, an Alaska Republican.

If the government removed the jet fuel tax, airlines could fill the gap with fare increases to boost their bottom line. But since fuel tax receipts go into a federal trust fund to help pay for Federal Aviation Administration air traffic programs, Congress would have to bridge the gap by spending $600 million to avert a large shortfall in the FAA budget.

The Bush administration has frowned on any spending that would drive up the budget deficit, but lawmakers said they could wrap help for the airlines into emergency Hurricane Katrina legislation.

Source: REUTERS

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