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Uncle Sam: Jacking up your airfare

February 21, 2011, 3:00 PM UTC

It’s hard to defend all the fees that airlines charge, but it sure is easy to get mad at all the taxes the government tacks on.

Which item do you think has the most federal taxes and fees attached to it: (1) a can of Budweiser, (2) a carton of Marlboro Reds, (3) a Smith & Wesson Centennial revolver, or (4) a roundtrip airline ticket from Chicago to St. Louis?

If you guessed the beer, cigarettes, or gun, you’d be wrong. Federal taxes and fees tally up to about 5% for the beer, 18.2% for the cigarettes, and 10% for the revolver. But buying an airline ticket pushes the boundaries of government taxation, initiating a slew of taxes and fees most of us never knew existed — a passenger ticket tax, a flight segment tax, a frequent-flier tax, a cargo waybill tax, a commercial jet fuel tax, and a 9/11 fee, just to name a few. I recently found a reasonably priced fare of just $151 for that roundtrip ticket to St. Louis. But tack on the fees and taxes and the total price came to $185.80, a markup of more than 20%.

Now, I’m generally not one to defend the airlines, and I can rattle off a long list of things I hate about air travel, from endless lines at security to tightly crowded seats to the stale-smelling air on most planes. And the airlines haven’t won any sympathy from me with their latest round of nickel-and-diming, charging extra for everything from checking a bag to changing a ticket to the right to stretch out in an exit-row seat. But airline travel is what I consider a necessary evil, both for business and for leisure.

More important, the airline industry is an extremely critical part of our national infrastructure and our economic growth. And to be carrying such an unfairly disproportionate burden of fees and taxes seems, at best, short-sighted from a national policy perspective.

Tell that to any airline executive and you’ll get the same reaction: “We’ve been complaining about that for years — where have you been?” That’s what I heard from Gordon Bethune, the man who led Continental Airlines (UAL) from a company that was losing millions and facing bankruptcy to one that regularly reported a profit and improved customer loyalty to boot.

He says that the airlines are an easy target for the government, and that it’s a big reason airlines have had so much trouble earning healthy profits. “The government doesn’t think anything of adding fees and thinking it doesn’t matter,” Bethune tells me. “Well, it does. There’s an elasticity of price for airline tickets, and every extra dollar they take is one we lose.”

But the bigger problem with all of these taxes is that they’re not being used for what they should be: rebuilding and shoring up our air traffic control system, which is woefully out of date. The current system has been around since the 1960s. “Your car has more navigation technology in it than most airplanes,” says Richard Anderson, the CEO of Delta Air Lines (DAL) and the new chairman of the Air Transport Association. “Everybody’s car has a GPS system, but most airlines still use altimeters and compasses.” (Lawmakers in Washington are mulling a bill to reauthorize the Federal Aviation Administration that would include funding for modernization, but final passage has been plagued by, well, delays. At least the airlines know how we feel.)

It isn’t just plane technology that’s out of date. The airlines use prescribed pathways in the sky to get from one city to the next — the airway from Atlanta to New York is the same today as it was 40 years ago. But obviously there are many more planes in the air today than there were 40 years ago. And that means planes have to wait to get their spot on the grid. Think of it as driving on a metropolitan highway that hasn’t been expanded in decades, and you begin to get the picture. The airlines say a new, satellite-based system would make everything more efficient. Travel time on a trip from Chicago to New York, for instance, could be cut by about 25 to 30 minutes.

For frequent fliers, that’s even better than bonus miles. And maybe even something that would justify all of those taxes and fees.

–Becky Quick is an anchor on CNBC’s Squawk Box.

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