The impact of infrastructure-related taxes and fees on domestic airline fares in the US

This paper estimates the impact of infrastructure-related add-on taxes and fees on the direct cost of domestic air travel in the US. We work with the large DB1A database of the Bureau of Transportation Statistics of the US Department of Transportation to conclude that the effective tax rate (ETR) on the average base fare (BF) was 15.5% in the Second Quarter of 2002. Depending on the filtering rules for extremely low and high fares in the database, the ETR ranges from 15.4% to 16.3%. The incidence is much heavier on the least expensive tickets, because three out of the four add-on taxes and fees are based on the passenger's itinerary and are independent of the BF. Partly as a result, the ETR on tickets issued by low-cost carriers is somewhat greater than on those issued by other airlines. A comparative analysis of 1993 data indicates that the ETR was 10.9% at the time. A large portion of the increase between 1993 and 2002 is due to a striking 25% decline in the yields achieved by the airlines during that period. (C) 2004 Elsevier Ltd. All rights reserved.