Commercial Aviation:

Raising Passenger Facility Charges Would Increase Airport Funding, but Other Effects Less Certain

GAO-15-107: Published: Dec 11, 2014. Publicly Released: Jan 12, 2015.

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Gerald Dillingham, Ph.D.
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dillinghamg@gao.gov

 

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What GAO Found

Increasing the Passenger Facility Charges (PFC) cap would significantly increase PFC collections available to airports under the three scenarios GAO modeled but could also marginally slow passenger growth and therefore the growth in revenues to the Airport and Airway Trust Fund (AATF). GAO modeled the potential economic effects of increased PFC caps for fiscal years 2016 through 2024 as shown in the table below. Under all three scenarios, AATF revenues, which totaled $12.9 billion in 2013 and fund Federal Aviation Administration (FAA) activities, would likely continue to grow overall based on current projections of passenger growth; however, the modeled cap increases could reduce total AATF revenues by roughly 1 percent because of reduced passenger demand. These projected effects depend on key assumptions regarding consumers' sensitivity to a PFC cap increase, whether airlines would pass on the full increase to consumers, and the rate at which airports would adopt the increased PFC cap.

Stakeholders said that the current PFC collection method generally works well, but airport officials said that transparency over PFC collections could be enhanced. Stakeholders universally said that the current method is preferred because the PFC is paid at the time of purchase. Airlines are required to have audits of their PFC collections and FAA provides audit guidance to help provide assurance that collections are accurate. However, the guidance is voluntary and FAA does not know if airlines' auditors use it. FAA relies on airports to alert them of discrepancies but some airports may not be aware they can review audits. FAA could take additional steps beyond what is stated in the guidance to inform airports about their rights, and thus provide reasonable assurance to Congress, airports, and airline passengers about the reliability of those audits and PFCs remitted to airports.

Stakeholders GAO interviewed generally said that alternative methods to collect PFCs, such as airport kiosks or online or mobile payments, are technologically feasible but they would impose additional steps for passengers, costs for airports, and changes in business processes. Therefore, stakeholders said that that the current collection method is better than the identified alternatives.

Why GAO Did This Study

About $2.8 billion in Passenger Facility Charges (PFCs) were collected in 2013. PFCs are federally authorized fees paid by passengers at the time of ticket purchase to help pay for capital development at commercial service airports and have been capped at $4.50 per flight segment since 2000. Airports are seeking an increase in the PFC cap to $8.50. Airlines, which collect PFCs at the time of purchase and remit the fees to airports, oppose an increase because it could potentially reduce passenger demand. Some airports have suggested that alternative PFC collection methods could allow the PFC cap to be raised without adversely impacting demand.

GAO was asked to examine these issues. This report discusses (1) the potential effects of PFC cap increases, (2) how well the current PFC collection process works, and (3) alternative PFC collection methods. GAO developed a model to assess the potential effects of PFC cap increases on funds for airport investment and the aviation system. GAO interviewed 26 stakeholders, including airports and airlines representing a range of sizes, as well as consumer groups, to discuss PFC collection methods.

What GAO Recommends

GAO recommends that FAA review the extent to which airline independent audits of PFC collections follow FAA guidance and take additional steps to educate airports about their right to review these audits. The Department of Transportation (DOT) agreed to review the extent to which airline audits use FAA guidance, but noted they may not be able to require airlines to respond; and agreed to take additional steps to educate airports about their rights. DOT also provided technical comments which GAO incorporated as appropriate.

For more information, contact Gerald Dillingham at (202) 512-2834 or dillinghamg@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: FAA concurs. The FAA agrees that it would be useful to conduct this review. This review would consist of an informal sampling of airline audits of several air carriers. The FAA will check these audits against the recommendations of the FAA's audit guidance. In addition, the FAA will interview these carriers to ascertain how each incorporates the requirements from the FAA guidance in any contracts or agreements with their independent auditors. The FAA will also investigate the costs associated with the preparation of the PFC portion of each carrier's audit and how these costs might be affected by a requirement to strictly adhere to the published guidance. Upon completion of this review, the FAA will produce a report that summarizes its findings. The Agency estimated that this process will be completed by February 1, 2016.

    Recommendation: To ensure the accuracy of Passenger Facility Charge collections and remittances to airports, the Secretary of Transportation should require the FAA to review the extent to which airlines' auditors use FAA's audit guidance and, if found to be minimal, evaluate whether airlines' auditors should be required to use the FAA's audit guidance by considering the soundness of existing airline audits and the associated costs of airlines' having to follow the guidance.

    Agency Affected: Department of Transportation: Federal Aviation Administration

  2. Status: Closed - Implemented

    Comments: About $2.8 billion in Passenger Facility Charges (PFCs) were collected in 2013. PFCs are federally authorized fees paid by passengers at the time of ticket purchase to help pay for capital development at commercial service airports. Airlines collect PFCs at the time of purchase and remit the fees to airports. In 2014, we reported that FAA requires all airlines that annually collect at least 50,000 PFCs have an annual independent audit of their PFC accounts and processes, which would help ensure that airports receive the full amount of the collections they are due. Airports can request a copy of the independent auditor's report, but airlines are not required to provide audit reports absent a request. FAA officials told us they do not know how many airports are receiving the audit reports, but explained that disputes over the accuracy of collections have been rare and have been generally limited to collections by smaller airlines or those in bankruptcy. However, it would be very difficult for an airport to know if its PFC remittances were not accurate, and in some cases, airports are not receiving audit reports and may not be aware they can be requested. Moreover, although airports have the right to review audits, our interviews with a limited number of airport officials raise questions about the extent to which airports are aware of their rights to review the audits. Nevertheless, FAA relies on airports to alert it to potential inaccuracies in PFC collections, which makes it important that airports are aware of their right to request copies of airline PFC audit reports and to ask for additional follow-up by FAA. Therefore, we recommended the FAA take additional steps to educate airports about their rights to review airline audits and ask for additional investigation if the audits reveal issues or inaccuracies are suspected. On October 26, 2015, the FAA Office of Airports published on the FAA website the notice to remind airports of their rights and to report to FAA any suspected inaccuracies. As a result, airports are better positioned to understand their rights including the potential for requesting further investigations, as needed.

    Recommendation: To ensure the accuracy of Passenger Facility Charge collections and remittances to airports, the Secretary of Transportation should require the FAA to better educate airports that collect PFCs, such as through notifications or the FAA's website, about airports' rights to review airline audits and ask for additional investigation if the audits reveal issues or inaccuracies are suspected.

    Agency Affected: Department of Transportation: Federal Aviation Administration

 

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