Continental Airlines Chairman urges reduction in Aviation Taxes, work towards Lower Fuel Prices

Gordon Bethune, chairman and chief executive officer of Continental Airlines has urged Congress to reduce the growing aviation tax burden and to consider ways to reduce the skyrocketing price of oil, as taxes and record high jet fuel prices jeopardize the recovery in the aviation sector.

In testimony before the House Subcommittee on Aviation, Bethune also called on Congress to more fairly distribute the burden of funding the Federal Aviation Administration, Transportation Security Administration, Customs & Border Protection and other agencies whose services are used by industries other than the U.S. commercial airline industry.

"As to the financial condition of our industry: it is perilous, and the skies are only getting darker," Bethune said. "But until the government realizes that we are not a cash cow and the budget for FAA, DHS, TSA and CBP cannot be balanced off the backs of our companies and our beleaguered employees, we will not survive."

In mid-May, Continental, which in the past three years has reduced costs and improved revenue by $900 million a year, announced it is considering additional employee furloughs and significant wage and benefit concessions should the price of oil not fall from current levels in the range of $40 per barrel. While the airline's business plan called for the company to break even in 2004 - for the first time since 2001 - the high cost of jet fuel has added $700 million on an annualized basis to Continental's fuel bill.

Each $1 increase in the price of oil increases the airline industry's cost of jet fuel by $450 million on an annualized basis.

The airline also said it is considering a reduction in pension plan financing to legal minimums. Before the current takeoff in the price of oil, industry analysts, who generally agree Continental is the strongest and most efficient of the nation's major network carriers, had predicted Continental this year would be the first major network airline to return to sustained profitability.

Additionally, Bethune said the airline industry is hobbled by requirements it pay for more than its fair share of federal air transportation and security services. For example, Bethune said the general aviation community, which contributes less than 2 percent of the $9.75 billion in user fees directed to the FAA for fiscal year 2004, should pay a proportionally greater share. Commercial airlines share runways, radars, air traffic control and other FAA services with the general aviation community, but pay more than 98 percent of the FAA's user fees, he said. 

Likewise, taxes and fees assessed on commercial airlines far outweigh those assessed on the cruise ship, rail and shipping industries.

"Some of these taxes are vital to the safety and security of our operation. But we need a dose of common sense when it comes to taxes, fees and unfunded mandates," Bethune said. "That 800-pound government jockey needs to consider a diet. I don't care if it's low-fat, low-carb, Atkins, South Beach or Palm Beach." 

Among the array of taxes and fees paid by commercial airlines are passenger ticket taxes, passenger flight segment fees, passenger security charges, aviation security infrastructure fees, passenger facility charges, international departure taxes, international arrival taxes, Immigration & Naturalization Service user fees, Customs user fees, APHIS passenger fees, frequent flyer taxes and jet fuel taxes.

Wall Street analysts predict airlines will lose $3 billion this year. Despite these losses for 2004, which analysts had not expected in 2003, the industry is projected to pay $14 billion in aviation-specific taxes.

While network and new-entrant carriers have attempted fare and fuel surcharge increases in recent months to offset the rising cost of fuel and taxation, most of the attempts have failed. Notwithstanding polls that say travelers are willing to pay more for increased security, yields, or the amount that airlines collect from paying passengers, have fallen more than 19 percent since 2000, according to the Air Transport Association.