Government subsidies to airlines

There's a discussion on Dave Farber's Interesting-People mailing list about the ways that governments subsidize commercial passenger airlines.

As I've been writing about for years, airlines whine about "regulations" and "freedom of the skies", but 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):

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).



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.)



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.)



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.



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 manufacturers 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.



Airlines have a statutory exemption from Federal anti-trust law to allow them to participate in IATA "traffic conferences" to fix standard "industry fares".



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.)



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 e.g. 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.



Fuel for international airline flights has been exempted from all taxes and duties by provisions of the Chicago Convention on Civil Aviation and many other bilateral and multilateral international aviation treaties to which the USA is party.

If airlines really want to be free of government regulation and oversight, they first should have to agree to give up their government subsidies and special privileges and protections.