American Airlines Fuel Subsidies May Be Safe For Now

American Airlines had apparently feared losing their fuel tax exemptions in North Carolina which amount to big government breaks on the cost of fuel there.

[T]he cost to North Carolina taxpayers to US Airways has amounted to over $58 million. Each year, airlines in North Carolina get $37 million in tax breaks, which is particularly important to American Airlines since it’s merger with US Airways. In North Carolina under the exemption, airlines are only required to pay tax on fuel used within the state. Additionally, there is a cap on the amount of jet fuel sales tax paid by airlines.

The North Carolina House passed its budget without touching American’s tax subsidies. The state Senate has yet to take up the budget.

But wait. I’m confused. American Airlines CEO Doug Parker says it’s unfair that he has to compete with big Middle East airlines which he claims are the ones getting government subsidies.

Never mind that American’s first major aircraft order was backed by the Reconstruction Finance Corporation, that US Airways offloaded its pension obligations on the federal Pension Benefit Guaranty Corporation, or that Parker personally lobbied for American West’s cash injections from the Air Transportation Stabilization Board.

Of course Parker doesn’t compete with these airlines for the most part. American doesn’t fly to the Mideast. They don’t fly to India or Pakistan. And they partner with two of the three big Gulf carriers, Etihad and Qatar.

What’s more they even share revenue with British Airways and Iberia, whose single largest owner is… Qatar.

So why not lobby hard for your own subsidies while lobbying the government for protection from competition too?

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Ah, it wouldn’t be a day without another bizarro and grossly inaccurate post claiming that the US airlines are subsidized, and that they’re no different than the Middle East airlines.

    First, and most obviously, what AA is getting from North Carolina is not a “subsidy.” North Carolina is not paying for AA’s fuel. Rather, they are reducing the taxes AA has to pay when they buy fuel. This is called a “tax break,” and pretty much every company in the world (and most individuals) get them. I’m sure you know this.

    This is in start contrast to what happens in the United Arab Emirates. Like when Emirates lost $1.6 billion hedging fuel, the government covered those loses. That’s what a subsidy is, and in this case, it was a staggering one.

    http://www.huffingtonpost.com/rob-britton/why-emirates-is-not-a-rea_b_8116510.html

    No rational human being could see these situations as “equivalent.” The US airlines are “real businesses” that have to make money to stay in business, and the Middle East airlines are not. Now you could try to intelligently argue that it’s OK for them to be massively subsidized, and that could be a real discussion. But instead you just spout propaganda.

  2. I’m sure it’s in the details but how does $37m cost them $58m?
    Also AA is in an alliance with other airlines that have Middle East investors.

  3. @iahphx when airlines lobby for an exemption from paying tax that businesses otherwise pay that’s a subsidy administered through the tax code.

    US airlines gained nearly $20 billion by offloading pensions onto the federal government.

    During the first 80 years of US aviation the federal government spent $150 billion in support of the airline industry
    http://viewfromthewing.boardingarea.com/2015/04/08/us-airlines-have-received-more-subsidies-than-middle-east-ones/

    The industry’s infancy was nearly entirely supported by the postal service and through 1978 its profitability by ensured by the Civil Aeronautics Board.

  4. A glaring difference is that AA isn’t operating enormous airplanes to strange destinations all over the world. And I suppose another is that the govt doesn’t have an actual stake in AA either…

  5. @iahphx Your story links to a guy that’s never said anything bad about domestic carriers and nothing good about ME3, so I’m going to say he’s not exactly a fair/balanced source.

    The US/States/Metros have heavily subsidized the US4 by building/expanding airports on the public dime, subsidizing airline offices/HQs, subsidizing fuel, etc. Not to mention propping up the segment for the first 50 years of aviation. Why wouldn’t the ME3 do the same for their growth years?

    The ME3 are built on a different model than the US4. The US4 have US hubs and are largely P-to-P internationally. The ME3 are all about international hub based operations. Qatar doesn’t care if there are only 12 people going ATL-DOH a day; they care about the others going ATL to India/Asia/Australia/Africa that they can put on planes in Doha with others coming together, just as AA isn’t relying on Amarillo to Dallas passengers solely to make that route work.

    Are the ME3 being subsidized? Sure. Are the US4? Also yes. Were the subsidies greater earlier in their life cycle? Absolutely.

    If it’s a big enough problem, the US4 need to figure out how to make it a big enough deal to either get congress to change the law, get voters fired up about the issue or give up and go home. Right now they’re wasting PR $$$, b/c they aren’t moving the needle.

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