FAA Shutdown: Airlines Pocket The Difference, Customers Pay The Same

A partial shutdown of the Federal Aviation Administration is costing the government about $30 million a day -- and instead of passing along savings to the customer, many airline companies are pocketing the difference for themselves.

Last Friday, portions of the FAA shut down for the first time in history after Congress failed to pass a bill to fund the agency. Air travel has continued normally, and air traffic controllers are not affected, but the shutdown has furloughed about 4,000 FAA employees and suspended more than 100 construction and maintenance projects at airports around the country.

With these projects suspended, between 70,000 and 90,000 construction workers have been laid off without a paycheck, according to estimates from the Association of Flight Attendants, a union that has spoken out against the shutdown.

“Working American families are suffering as a result of this shutdown,” Veda Shook, international president of the AFA, said during a press call on Friday. “Improvement projects that are employing people all over the country have ground to a halt.”

The total value of the suspended projects is about $2.5 billion dollars in blocked FAA grants.

These projects represent a cost to taxpayers as well. When a construction project is put on hold, it costs money; contractors pay thousands of dollars a day to rent their equipment, and now much of that equipment is sitting idle. The Las Vegas Journal-Review recently noted that unfinished construction at McCarran International Airport could cost between $8,500 and $8,700 a day.

In addition to the halted construction, the shutdown means that the government can’t collect the standard tax on tickets, which comes to about $30 million a day, or $200 million every week. Ordinarily, the ticket tax amounts to 7.5 percent of the base ticket price.

Now that the tax has been suspended, some airlines -- including Virgin America, Alaska Airlines and Frontier Airlines, according to the Associated Press -- have elected to keep their base fares the same, meaning the customer can save a bit of money. But a number of other companies -- among them Delta, JetBlue, United, Continental and US Airways -- raised their base fares instead, meaning the customer saves nothing.

As of Thursday, JetBlue had posted a notice on its Web site encouraging customers to submit a claim for a tax refund directly to the IRS. United and Continental have posted similar notices.

Delta, American Airlines, US Airways and Southwest, all of which have reportedly raised their base fares since the FAA shutdown took effect, did not mention the possibility of a tax refund on their Web sites.

For its part, the IRS has pointed customers back to the airlines. In a note published Wednesday, the IRS said that it “has asked the airlines to provide refunds to eligible passengers when requested.” It goes on to say that “passengers who are unable to obtain a refund from the airline may obtain a refund by submitting a claim to the IRS.”

Transportation Secretary Ray LaHood has said that the $30 million in uncollected taxes each day is money that could be going to the U.S. Treasury, which is currently facing a historic revenue shortfall as lawmakers spar over a deal to raise its borrowing authority.

Before the shutdown can be resolved, lawmakers will have to reach an agreement on a number of issues, including a possible elimination of service to a number of rural airports, and a push amongst House Republicans to make it harder for airline employees to unionize.