Photo: SuperFantasticCigarettes are some of the most heavily taxed goods around. According to this source, the average state tax per pack of cigarettes is $1.23, plus an additional $1.01 of federal taxes, as well as any local taxes. With an average price per pack in the United States of $4.82, the combined state and federal taxes make up 46 percent of the price. In Chicago, total taxes per pack are a whopping $4.67 per pack! I don’t know the exact price of cigarettes in Chicago, but taxes must be around two thirds of the total cost.
So what does this have to do with airline tickets? The overall tax rate on airline tickets hasn’t reached cigarette proportions just yet (according to this site, taxes are 16 percent of airline ticket prices), but in some special cases, the tax on plane tickets makes the purchaser wish they were getting the cigarette treatment.
Recently, my friend and co-author Chad Syverson decided to take his parents to Europe. Their itinerary took them from Fargo, North Dakota, to Chicago to London to Munich. Their return trip takes them from Frankfurt to Chicago and finally back to Fargo, roughly 10,000 miles of flying later. All of the flights are on the same airline.
The tickets were remarkably cheap — only $438.82 per passenger round trip. How much of that money goes to the airline? A paltry $138. The rest — over $300 — is taxes. Percentage-wise, that’s even higher than the cigarette taxes in Chicago.
It also makes you wonder how the airline can sell the ticket so cheaply. The fuel costs alone for the extra weight of a passenger and luggage must get close to their revenue on the ticket. It wouldn’t surprise me if it took 100 gallons of fuel to fly one passenger 10,000 miles with numerous takeoffs and landings along the way. (That would still be only one third as much gas as it would take to drive that distance.) Even so, it would mean the airline was pricing below marginal cost, which is a serious no-no in economics.
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So talk about Jet Blue, the airline company that sells very cheap tickets. Some are just $60 for a fare. So, is the ticket just $20 and $40 is the tax. If it is true, then, WOW!!!
And I still wonder why the tax on air ticket is so high. I don’t think the governmnet wants to restrict travelling because moving from states to states will make business easier than thus boost the economy.
Could it be about Global Warming???
http://www.nguyenhtuan.com
does anyone have an idea why airlines are taxed so highly? im sure that lowering air traffic/carbon expenditures is one reason, but it hardly seems to justify such a gratuitous amount of tax.
I would imagine that the marginal cost increase incurred by one additional passenger is far less than the revenue gained, as the plane is flying whether that one extra passenger is on it or not. I recently flew from Rio de Janeiro to Washington, DC, through São Paulo, and the flight would have cost exactly the same with or without the first leg from Rio to SP.
Cigarettes are dangerous to the smoker and the people around her: airplane emissions are deadly for the environment, which affects us all.
I think airplane tickets should be taxed much more highly.
Remember after September 11, when all the planes in the U.S. were grounded for a couple of days, and researchers could see a change in the climate immediately.
This issue is rarely seen in the media because media people themselves (and I am one of them) love to fly and visit new places. But it is a huge climate issue and I think we’ll be hearing a lot more about it.
Airlines aren’t taxed highly, few industries are more subsidized than the domestic airline industry. There is almost no comparison to cigarettes. Very little of the taxes that one pays for an airline ticket actually go to the “government.” The vast majority go to pay for the airports that the government provides for the airlines, if the governments didn’t provide the airports, the cost of tickets would be higher.
Much speculation (and some errant conclusions above, but here are the real figures:
Example; B767-300 269 passengers (24 premium & 245 economy) 340,891 pounds take-off weight cruise fuel flow schedule in pounds/hr. (A gallon of kerosene is 6.8 lbs. and cost abou $1.50). Passengers weigh 200 pounds or so. AvFB=lbs./hr average fuel burn.
ACFB=accumulated fuel burn in lbs.
ACT=elapsed (accumulated) time
Here are realistic figures for a long flight on a B767-300
( http://www.fsbuild.com/features/aircraftperf.htm ):
0:23:56 ACT taxi, & TO to 41000 ft. AvFB 19605 ACFB7842
5:19:04 ACT Cruising 9034 AvFB ACFB 52267
7:12:45 ACT Fuel flow 8824 AvFB ACFB 69151
8:34:36 ACT Fuel flow 8333 AvFB ACFB 80590
8:43:09 ACT Fuel flow 7906 AvFBACFB 83385.
8:58:25 ACT Descent fuel flow 2200 AvFB ACFB 83783
9:15:13 ACT Apprch land taxi 2500 AvFB ACFB 85891
I think the answer to how they can make money should include the following: First and business class are money makers, The maintenance cost of jets/hr. is extremely low. There are some subsidies from governments. They also haul mail and freight. So for a 9hr:15 min. flight, the airplane used $18,947 in Jet-A. The 269 passengers each paid only $70 in fuel. Add on all the extra costs and there is still room to make a profit.
Cigarettes have this high tax rate because, first of all, it creates a negative externality, therefore, taxes should be implemented so that less cigarettes are sold, making the society better off. Another reason for the high taxes is that the inelastic demand makes people buy the cigarettes at whatever price, so the tax doesn’t affect the producers but basically only the consumers.
If this article is indeed correct and the airlines are producing setting their prices below their marginal costs, then the industry is not producing where MC=MR, the golden rule for economics, making them maximize profits. Any time a government implements a tax, the price of the product should increase and therefore, the quantity demanded should decrease; in the case of airplane travel, the opposite happened; more people are traveling at a cheaper price.
@12: “Remember after September 11, when all the planes in the U.S. were grounded for a couple of days, and researchers could see a change in the climate immediately.”
In a matter of days, the climate doesn’t change, weather does. It would have regardless of airplane activity.
I’m a global warming skeptic myself, but this type of over-the-top alarmism about anything causing ‘climate change’ is just pushing people like me further from your camp.