The Passenger Facility Charge (PFC)
The Passenger Facility Charge: passenger facility charge (PFC), aviation, airport improvement program (AIP)
PFCs: Pros or Cons – Should They Be Raised to Pay for 21st Century Airport Infrastructure?
Abstract
The passenger facility charge is a user fee that has been congressionally authorized and regulated federally for local airport use fees. The PFC and the Airport Improvement Program exist together abs account for almost half of the airport funding available for capital projects. The AIP funds are only used for runways, taxiways, land acquisition, and noise reduction projects.
Keywords: passenger facility charge (PFC), aviation, airport improvement program (AIP)
PFCs: Pros or Cons – Should They Be Raised to Pay for 21st Century Airport Infrastructure?
- Summary
The Airport Improvement Program is a program that is funded by the federal grant system through aviation taxes. The money collected from the AIP fund is used in airports for purposes such as land acquisitions, taxiways, and Building runways (Scribner, 2019). On the other hand, the passenger facility charge is a fee that is authorized by congress and regulated by the local airport user fee. Unlike the AIP fee, the PFC fee can be used for other purposes than air airside projects. It can be used alongside the AIP fund and do other things, such as ground transportation improvements (Imes, 1994). It can also be used to service debt. The differences in the flexibility of these two types of funds have led to commercial airports, with many passengers preferring the PFC over AIP funding.
- Problem
The PFC fund is more flexible than the AIP fund in what it can do in the airport. This meant commercial airports prefer using PFC funding over AIP funding. However, the increasing inflation has led to airports being unable to make the improvements they need to make within the airports. The federal cap was raised by congress in 2000, and public airports can only charge a maximum of $4.50 per boarding (Scribner, 2019). The inflation has led to the airports being negatively impacted. The proposed alternatives to PFC are inferior from the customer welfare perspective and the airport revenue collection. This has posed a problem as airports are in trouble without a better plan and are unable to raise the PFC fee. In 2017, a bill was introduced in congress which required large airports that wanted to charge more for the PFC to return 100% of the AIP funding.
- Significance of the Problem
Evidence shows that PFC has had a positive effect on airport efficiency. On the other hand, the AIP has had a negative effect. The current legislation, however, does not allow airports to raise the PFC fees, and raising the fees means that they will need to relinquish the AIP funding. PFC has provided airports with predictable and sustainable revenue for years; also, since it is charged regardless of their use of airport facilities, it was a low-risk and predictable source of revenue (Chang et al., 2016). Getting rid of this fund could prove detrimental to airports. It also promoted airline competition as with a standard fee; they had to do their best to get the customers. Being unable to raise the fees is a loss of a source of revenue for many airports.
- Alternative Actions
Alternative action 1. The government could allow the airports to use the AIP fund alongside the PFC fund and make it flexible for airport use in all projects.
Advantages. It eliminates the problem of raising the PFC fund or eliminating it.
Disadvantage: Airports could mismanage the funds.
Alternative Action 2. Let the airports charge more for the PFC fund.
Advantages. The airports will have enough money to maintain the airports. They will also continue competing with each other. Modernizing the PFC fund will lead to decreased airfares.
Disadvantages. It raises the cost of flying for the passengers.
- Recommendation
The PFC fund is an essential airport financing tool. The fund is misunderstood, and thus, the importance of understanding the importance of the fund. The PFC fund was last reviewed in 2000, and thus, there is a need for congress to review the cap. Airports are more competitive and are in a better position to compete with each other with the PFC fund. The PFC and AIP fund work alongside each other to improve airports, and thus the fee should be increased.
The Passenger Facility Charge: References
Chang, Y. T., Park, H. K., Zou, B., & Kafle, N. (2016). Passenger facility charge vs. airport improvement program funds: A dynamic network DEA analysis for US airport financing. Transportation Research Part E: Logistics and Transportation Review, 88, 76–93.
Imes, S. (1994). Airline Passenger Facility Charges: What Do They Mean for an Ailing Industry. J. Air L. & Com., 60, 1039.
Scribner, M. (2019). Modernizing the Passenger Facility Charge to Increase Airport Investment, Reduce Federal Spending, and Save Travelers Money. Competitive Enterprise Institute, August, p. 13.
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