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Would Increase Airport Funding, but Other Effects Less Certain' which 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

December 2014: 

Commercial Aviation: 

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

GAO-15-107: 

GAO Highlights: 

Highlights of GAO-15-107, a report to congressional requesters. 

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 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. 

Figure: Estimated PFC Collections Available to PFC Approved Airports 
and Associated Changes to Airport and Airway Trust Fund Revenues, 2016-
2024 (Dollars in millions): 

[Refer to PDF for image: table] 

Current PFC collections baseline estimate: 

Scenario: $4.50 cap; PFC; 
Year: 
2016: 3,073; 
2017: 3,149; 
2018: 3,225; 
2019: 3,301; 
2020: 3,373; 
2021: 3,437; 
2022: 3,498; 
2023: 3,561; 
2024: 3,628. 

Estimated changes to PFC baseline and AATF revenues: 

Scenario: $6.47 cap ($4.50 cap adjusted for CPI); PFC; 
Year: 
2016: +1,341; 
2017: +1,375; 
2018: +1,409; 
2019: +1,444; 
2020: +1,476; 
2021: +1,505; 
2022: +1,533; 
2023: +1,561; 
2024: +1,592. 

Scenario: $6.47 cap ($4.50 cap adjusted for CPI); AATF; 
Year: 
2016: -90; 
2017: -93; 
2018: -95; 
2019: -97; 
2020: -99; 
2021: -100; 
2022: -102; 
2023: -103; 
2024: -105. 

Scenario: $8.00 cap; (President's budget); PFC; 
Year: 
2016: +2,364; 
2017: +2,424; 
2018: +2,485; 
2019: +2,546; 
2020: +2,604; 
2021: +2,655; 
2022: +2,705; 
2023: +2,756; 
2024: +2,810. 

Scenario: $8.00 cap; (President's budget); AATF; 
Year: 
2016: -161; 
2017: -164; 
2018: -168; 
2019: -172; 
2020: -175; 
2021: -178; 
2022: -180; 
2023: -183; 
2024: -186. 

Scenario: $8.50 cap, CPI adjusted (ACI/AAAE proposal); PFC; 
Year: 
2016: +2,696; 
2017: +2,886; 
2018: +3,093; 
2019: +3,316; 
2020: +3,551; 
2021: +3,787; 
2022: +4,033; 
2023: +4,291; 
2024: +4,562. 

Scenario: $8.50 cap, CPI adjusted (ACI/AAAE proposal); AATF; 
Year: 
2016: -184; 
2017: -196; 
2018: -210; 
2019: -225; 
2020: -240; 
2021: -255; 
2022: -271; 
2023: -287; 
2024: -304. 

Source: GAO analysis of DOT data. GAO-15-107. 

Note: Model assumptions are (1) an elasticity rate of -0.8; (2) 
airlines would pass the total fee increase to passengers through 
higher ticket prices; and (3) airports that currently impose a PFC 
would raise it to the maximum allowed in the first year. ACI/AAEE 
proposal does not specify which inflation index so we used the CPI as 
it is the federal inflation index standard. 

[End of figure] 

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 the current collection method is 
better than the identified alternatives. 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-15-107]. For more 
information, contact Gerald Dillingham at (202) 512-2834 or 
dillinghamg@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Increasing the Cap on PFCs Would Significantly Increase Airport 
Funding but Could Also Have Other Effects: 

Stakeholders Reported That the Current PFC Collection Method Works 
Well but Lacks Some Transparency for Airports: 

Alternative Methods of PFC Collection Are Feasible but Would Impose 
Additional Steps and Costs: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Economic Demand Model: 

Model's Structure and Data Sources: 

Key Assumptions: 

Sensitivity Analysis: 

Appendix IIIGAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Estimated Passenger Facility Charge (PFC) Collections 
Available to PFC Approved Airports, 2016-2024 (Dollars in millions): 

Table 2: Estimated Changes to Airport and Airway Trust Fund (AATF) 
Baseline Revenues from 2016 to 2024 under Various Scenarios for an 
Increase in the Passenger Facility Charge Cap (Dollars in millions and 
as percentage of total passenger AATF revenues): 

Table 3: Estimated Passenger Facility Charge (PFC) Collections 
Available to PFC Approved Airports and Associated Changes to Airport 
and Airway Trust Fund Revenues by Airport Hub Type from 2016 to 2024 
with $8 PFC Cap (Dollars in millions): 

Table 4: List of Interviewees and Airports and Airlines from Which We 
Collected Responses to Follow-up Questions: 

Table 5: Estimated Changes in Passenger Facility Charge Collections 
Available to PFC Approved Airports and Associated Changes in Airport 
and Airway Trust Fund Revenues under Alternate Elasticity and Pass-
Through Scenarios from 2016 to 2024 (Dollars in millions): 

Table 6: Estimated Changes in Passenger Facility Charge Collections 
Available to PFC Approved Airports and Associated Changes in Airport 
and Airway Trust Fund Revenues under Alternative Airport Adoption 
Scenarios from 2016 to 2024 (Dollars in millions): 

Figures: 

Figure 1: PFC Collection, Remittance, Auditing, and Review Process: 

Figure 2: FAA-Approved Passenger Facility Charges by Type of Project 
Category as of August 1, 2014: 

Figure 3: Airport Adoption of Passenger Facility Charges for Fiscal 
Years 1992 through 2014: 

Figure 4: Potential Passenger Facility Charges Alternative Collection 
Methods: 

Abbreviations: 

AAAA: American Association of Airport Executives: 

AATF: Airport and Airway Trust Fund: 

ACI-NA: Airports Council International-North America: 

A4A: Airlines for America: 

AIP: Airport Improvement Program: 

CPI: Consumer Price Index: 

DOT: Department of Transportation: 

GDS: Global Distribution System: 

FAA: Federal Aviation Administration: 

NFC: near field communication: 

NPR: National Priority Rating: 

PFC: Passenger Facility Charge: 

TAF: Terminal Area Forecast: 

TSA: Transportation Security Administration: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

December 11, 2014: 

The Honorable Bill Shuster: 
Chairman: 
Committee on Transportation and Infrastructure: 
House of Representatives: 

The Honorable Frank A. LoBiondo: 
Chairman: 
The Honorable Rick Larsen: 
Ranking Member: 
Subcommittee on Aviation: 
Committee on Transportation and Infrastructure: 
House of Representatives: 

We have previously found that funding for planned airport development 
from Airport Improvement Program (AIP)[Footnote 1] grants and 
Passenger Facility Charges (PFC) will not be sufficient to fund 
planned airport development eligible for this support.[Footnote 2] 
Other airport revenues may not be available to fund any shortfall, as 
they are often committed to projects not eligible for federal grants 
like parking garages, airport concessions, and operating costs. AIP 
grants have declined in recent years, and the amount of PFCs that 
airports can collect per passenger has not changed since 2000, when it 
was capped at $4.50.[Footnote 3] Airports are seeking an increase in 
the PFC cap to help fund their planned development projects, such as 
terminal rehabilitation and expansion. However, airlines--which 
collect PFCs at the time of purchase and remit to airports--oppose an 
increase, because they believe that airports have adequate access to 
outside funding sources. Airline representatives also assert that an 
increase in the PFC cap could lead to a higher cost of travel, thereby 
reducing passenger demand and airline revenues. While many aviation 
stakeholders believe that the current system of collecting PFCs as 
part of the ticket purchase is the most efficient means possible, some 
airports have suggested that alternative PFC collection methods could 
be used, which could allow the PFC cap to be raised without greatly 
affecting demand. 

In February 2013, we issued a correspondence report, "Alternative 
Methods for Collecting Airport Passenger Facility Charges," in 
response to a requirement in the 2012 Federal Aviation Administration 
(FAA) Reauthorization that we examine the potential for collecting 
PFCs outside of the airline ticket process.[Footnote 4] The report 
identified three basic alternatives but found that each faces 
considerable challenges to implement. You asked us to do follow-up 
work on this topic. This report addresses the following questions: (1) 
What are the potential effects of raising the PFC cap on airport and 
federal aviation revenues? (2) How well does the current PFC 
collection process work? and (3) What is known about alternative PFC 
collection methods and how well they might work? 

We developed an economic model to assess the potential effects of 
increasing the PFC cap on funds for airport investment and the 
aviation system, taking into account their effect on passenger demand 
and consequently on aviation taxes that contribute to Airport and 
Airway Trust Fund (AATF) revenues which help fund the FAA, AIP, and 
other aviation programs and activities. To develop this model, we 
collected and summarized the most recently available data from FAA on 
(1) PFC collections by airport hub[Footnote 5] category from 2009 to 
2013 and (2) FAA passenger boardings (i.e., enplanement) forecasts 
from 2016 to 2024. We determined that the data were sufficiently 
reliable for our purposes by reviewing documentation and interviewing 
knowledgeable FAA officials. We conducted a literature search on 
elasticity rates[Footnote 6] for air travel, interviewed a non-
generalizable sample of industry experts selected for their knowledge 
of airline passenger demand modeling to discuss our research, and 
selected a spectrum of rates to show the potential effects of PFC 
changes on passenger demand. With these results, we estimated the 
effects on anticipated taxes and fees that fund the AATF. To assess 
how well the current PFC collection process works and alternatives, we 
updated work from our February 2013 report through a literature review 
and interviews with key FAA and industry stakeholders, including the 
principal airline and airport trade associations, technology 
companies, airline passenger consumer representatives, and four 
airlines and five airports. We selected the airlines based on airline 
size measured by the number of departures and passengers and type of 
carrier (legacy, low cost, and regional carrier). We selected the 
airports based on airport size, amount of PFC charged, and percentage 
of originating versus connecting passenger traffic. We interviewed 
representatives from companies that have developed or installed 
technologies that could be used in potential alternative collection 
systems. We reviewed applicable statutes and regulations on FAA's 
authority to audit collections and interviewed FAA officials on their 
role in auditing airlines' PFC collections and remittances. To 
understand how another federal agency audits its passenger fee 
collections and modeled increases to its security fee, we interviewed 
officials from the Transportation Security Administration (TSA). 
Additional information on our methodology is provided in appendices I 
and II. 

We conducted this performance audit from April to December 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient and appropriate evidence to provide a reasonable basis for 
our findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

PFCs are federally authorized fees which were established in 1990 to 
help pay for capital development at commercial service 
airports.[Footnote 7] PFCs are currently capped at $4.50 per flight 
segment with a maximum of two PFCs charged on a one-way trip or four 
PFCs on a round trip, for a maximum of $18 total. About $2.8 billion 
in PFCs was collected by airlines on behalf of airports in 2013. 
Certain categories of passengers and flights are exempt from paying 
PFCs. For example, passengers flying on frequent-flier award coupons 
are exempt from paying a PFC.[Footnote 8] The intent of the PFC 
program is to further airport development that (1) preserves or 
enhances airports' safety, security, or capacity; (2) reduces noise 
generated by airport activities; or (3) enhances airline competition. 
[Footnote 9] PFCs give airports a source of funding for airport 
development over which they have greater local control because 
airlines have more limited say regarding how PFCs are used than they 
may have regarding the use of airport terminal rents or landing fees. 
This way, if an airport wants to build additional gates to attract new 
competition, an incumbent airline cannot block the project by refusing 
to fund it. PFCs can be applied to FAA approved eligible projects, 
[Footnote 10] and can be used as a match for AIP grants or to finance 
the debt on approved projects. 

Airports must apply to the FAA for authority to collect PFCs for use 
on approved projects, and if approved by FAA, airlines are required to 
collect PFCs and remit them to appropriate airport recipients. Each 
airport's application must list specific eligible projects that PFCs 
will fund and the total amount to be collected. Once PFC applications 
are approved, airlines must add any approved PFC to the base fare 
(along with other federal taxes and fees) at the point of sale on the 
ticket by an airline, a travel agent, or Global Distribution Systems 
(GDS).[Footnote 11] Airlines must remit PFCs to airports on a monthly 
basis. Airlines are able to keep the "float"--that is, interest 
accumulated on the fees between the time they are collected and 
remitted--as well as 11 cents per PFC collected for administration 
costs.[Footnote 12] Airlines that annually collect at least 50,000 
PFCs are required to have annual independent audits of their PFC 
collections, and airports can request and receive the results of 
audits.[Footnote 13] FAA has the authority, though not an obligation, 
to review the audits.[Footnote 14] (See figure 1). 

Figure 1: PFC Collection, Remittance, Auditing, and Review Process: 

[Refer to PDF for image: process illustration] 

Customer pays Passenger Facility Charge (PFC): 
PFC paid by the customer when paying for a ticket either directly 
through an airline, a travel agent, or Global Distribution System 
(GDS). 

Airlines hold PFCs: 
PFC is remitted to airlines which hold the PFCs before remitting them 
to the airports. 

PFCs remitted to airports: 
PFCs must be remitted to airports by the last calendar day of the 
month after the PFC is collected. 

Annual audits: 
Airlines are required to have annual independent audits of their PFC 
collections. 

Airport review: 
Airports can request and receive the audits. 

Federal Aviation Administration (FAA) review: 
FAA has the authority, though not the obligation, to review the audits. 

Source: GAO. GAO-15-107. 

Note: Airlines that annually collect at least 50,000 PFCs are required 
to have annual independent audits of their PFC collections. 

[End of figure] 

From 1990 through August 2014, FAA approved airports' requests to 
collect a total of around $89 billion in PFCs. This amount includes 
future approved collections--with about a third of collecting airports 
approved to collect PFCs to at least 2024 or later. Of the $89 
billion, about 34 percent has been committed for "landside" projects 
such as terminals; 34 percent for interest on debt used to pay for 
projects either in development or completed; 18 percent for "airside" 
projects such as runways and taxiways; 7 percent for airport access 
such as roads and rail connecting to airports; 4 percent for noise 
reduction; and 4 percent for the construction of Denver International 
Airport.[Footnote 15] (See figure 2). 

Figure 2: FAA-Approved Passenger Facility Charges by Type of Project 
Category as of August 1, 2014: 

[Refer to PDF for image: pie-chart] 

Landside: 34%; 
Interest: 34%; 
Airside: 18%; 
Access: 7%; 
Noise: 4%; 
Denver International Airport: $5. 

Source: GAO analysis of FAA data. Percentages do not add to 100 
because of rounding. GAO-15-107. 

[End of figure] 

Most airports that are eligible to collect PFCs do so at the maximum 
rate $4.50 per flight segment. As of October 1, 2014, according to FAA 
data, 358 out of 538 eligible airports were collecting PFCs, and 351 
of the 390 approved airports chose to collect at the maximum rate. 
[Footnote 16] In all, 98 of the top 100 airports have been approved to 
collect PFCs, with approximately 90 percent of all PFCs (by amount) 
collected by large and medium hubs. Airports that impose a PFC may 
become ineligible to receive up to 50 percent (if collecting PFCs at 
the $1, $2, or $3 level) or 75 percent (if collecting PFCs at the $4 
or $4.50 level) of the formula AIP grants that they would otherwise 
receive.[Footnote 17] The vast majority of the funding reduction (87.5 
percent) is then made available to smaller airports through AIP 
discretionary grants through the Small Airport Fund,[Footnote 18] with 
the remainder available to any airport under FAA's AIP discretionary 
grant program.[Footnote 19] 

The President's 2015 Budget proposes an increase of the PFC cap to 
$8.00, while the airport trade associations have proposed an increase 
in the PFC cap to $8.50 but also periodically adjusted for inflation 
thereafter. Some airports have advocated for a complete lifting of any 
cap on PFCs, and while one airport trade association previously 
advocated for alternative collection methods to collecting the PFC on 
the ticket as a way to increase the PFC cap; the association is no 
longer doing so. As part of the last FAA reauthorization process, 
legislation was introduced that would have allowed up to six airports 
to impose an unlimited PFC collected directly from passengers by the 
airport, if the fee were not collected on the ticket; [Footnote 20] 
however, this proposal was not part of the final Act.[Footnote 21] 

In addition to PFCs, there are federal taxes and fees that support 
aviation activity, including the 7.5 percent ticket tax and a $4.00 
per-flight segment fee for domestic flights and an international 
arrival and departure tax of $17.50 per segment for international 
flights which are deposited into the AATF, as well as security and 
customs and border protection taxes, among others which are 
distributed to their respective agencies. All these taxes and fees are 
part of the ticket purchase transaction and together make up to 13.7 
percent of the total cost of a ticket on average, with PFCs 
representing about 2.9 percent of the total ticket cost. In Fiscal 
Year 2013, aviation taxes contributed almost $12.9 billion to the 
AATF, with roughly $11.7 billion (91 percent) from passenger-related 
taxes and the rest from fuel-based or cargo taxes. 

Increasing the Cap on PFCs Would Significantly Increase Airport 
Funding but Could Also Have Other Effects: 

Increasing the PFC Cap Would Significantly Increase Airport PFC 
Collections, but Key Assumptions Influence These Estimates: 

To estimate the potential amount of funding available to airports, as 
well as associated effects on passenger demand and ticket tax revenues 
from increasing the PFC cap, we developed an economic demand model. 
The general approach of this analysis was to model airport collections 
and passenger traffic under various PFC cap levels. We modeled three 
different increases in the PFC cap amount each starting in 2016. 
[Footnote 22] Those three scenarios are: 

* PFC cap of $6.47 (which is the 2016 equivalent of $4.50 indexed to 
the Consumer Price Index (CPI) starting in 2000 when the cap was first 
instituted); 

* PFC cap of $8 based on the President's 2015 budget proposal; and: 

* PFC cap of $8.50 that would be indexed to inflation based on the 
airports' trade associations' legislative proposal.[Footnote 23] 

Assuming that the PFC increase is fully passed on to consumers and not 
absorbed through a reduced lower base (before tax) fares, the higher 
cost of air travel could reduce passenger demand according to economic 
principles. Economic principles and past experience dictate that any 
increase in the price of a ticket--even if very small--will have an 
effect on some consumers' decisions on whether to take a trip or not. 
For example, an increase in the price by a few dollars may not affect 
the decision of a business flyer going for an important business 
meeting but could affect the decision of a family of four going on 
vacation. An increase in the price will also have different effects 
depending on the type of air travel, for example, on short-haul and 
long-haul flights, and the availability of substitutes such as driving 
or taking a train instead of flying. Thus, the extent to which people 
decide whether to fly depends on the extent of consumer sensitivity to 
changes in the cost of air travel and is referred to as the 
"elasticity of demand"--the more elastic the demand, the more 
passenger air traffic is reduced by increases in price.[Footnote 24] 
For our base model analysis, we assumed a demand price elasticity of -
0.8. In addition, to show the potential funding available to airports, 
we assumed that airports would adopt the maximum possible PFC cap at 
the start of 2016, but in reality, adoption of higher PFC levels would 
likely be a gradual process undertaken by individual airports 
according to their financial needs. Accordingly, model results in this 
report should be considered upper bound estimates of the funds 
available to airports that were approved to collect PFCs as of July 
31, 2014. A full description of the model, data sources, and key 
assumptions appears in appendix II. 

Increasing the PFC cap under the three different scenarios that we 
modeled would significantly increase the potential amount of PFC 
collections in comparison to what could be available without an 
increase in the PFC cap. (See table 1). 

Table 1: Estimated Passenger Facility Charge (PFC) Collections 
Available to PFC Approved Airports, 2016-2024 (Dollars in millions): 

Current baseline estimate for PFC collections available to PFC 
approved airports: 

Scenario: $4.50 cap[A]; PFC; 
Year: 
2016: 3,073; 
2017: 3,149; 
2018: 3,225; 
2019: 3,301; 
2020: 3,373; 
2021: 3,437; 
2022: 3,498; 
2023: 3,561; 
2024: 3,628. 

Estimated changes to the baseline estimate for PFC collections 
available to PFC approved airports under various cap scenarios: 

Scenario: $6.47 cap[B] ($4.50 cap adjusted for CPI); 
Year: 
2016: +1,341; 
2017: +1,375; 
2018: +1,409; 
2019: +1,444; 
2020: +1,476; 
2021: +1,505; 
2022: +1,533; 
2023: +1,561; 
2024: +1,592. 

Scenario: $8.00[C] cap; (President's budget); 
Year: 
2016: +2,364; 
2017: +2,424; 
2018: +2,485; 
2019: +2,546; 
2020: +2,604; 
2021: +2,655; 
2022: +2,705; 
2023: +2,756; 
2024: +2,810. 

Scenario: $8.50 cap, CPI adjusted[D] (ACI/AAAE proposal); PFC; 
Year: 
2016: +2,696; 
2017: +2,886; 
2018: +3,093; 
2019: +3,316; 
2020: +3,551; 
2021: +3,787; 
2022: +4,033; 
2023: +4,291; 
2024: +4,562. 

Source: GAO analysis of DOT data. GAO-15-107. 

Notes: These projections assume: 1) 100% adoption of maximum allowable 
PFCs in 2016 by airports approved to collect a PFC as of July 31, 
2014; 2) a -0.8 elasticity rate and 3) 100% pass through of the cost 
of the PFC increase to passengers. 

Results are reported in nominal dollars. 

[A] Baseline PFC revenues under current cap ($4.50). 

[B] Change in PFC revenues relative to baseline under $6.47 PFC cap. 
This cap was developed by using the CPI to adjust for inflation 
between 2000 and 2016. 

[C] Change in PFC revenues relative to baseline under $8 PFC cap. This 
cap was proposed in the President's 2015 budget. 

[D] Change in PFC revenues relative to baseline under $8.50 PFC cap 
which is adjusted for inflation using the Congressional Budget 
Office's projected CPI for each calendar year in our analysis. This 
amount was proposed by Airports Council International-North America 
(ACI-NA) and American Association of Airport Executives (AAAE). The 
trade associations have not proposed an inflation rate so GAO has used 
the CPI to adjust for inflation as this is a federal inflation index 
standard. 

[End of table] 

As with any modeling exercise, these projections depend on assumptions 
about participants' behavior, in this case the behavior of consumers, 
airlines, and airports. The results presented above reflect three key 
assumptions about these behaviors. 

* Elasticity of demand. There is uncertainty associated with demand 
analysis, because the estimated reductions in air travel are highly 
dependent on the assumptions about consumers' sensitivities to changes 
in price. As noted above, to account for this uncertainty, we used an 
elasticity rate of -0.8, meaning that a 1 percent increase in price 
would result in a 0.8 percent reduction in the quantity of air travel. 
[Footnote 25] This rate is based on the assumption that PFC increase 
will affect all routes across the nation and will affect all routes 
equally. If PFC increases occur at fewer airports, demand would be 
more elastic because consumers could substitute their routing to some 
extent and the elasticity rate might be greater. As a result, we 
modeled three different elasticity rates drawn from economic 
literature to test the sensitivity of our results to these rates and 
found that for small price increases, small differences in the 
elasticity rate have very little impact.[Footnote 26] We discussed the 
selection of this elasticity rate with experts who have published on 
aviation economics, and they generally agreed with the selection. The 
model results from all three elasticity rates are shown in appendix II 
(table 5). 

* PFC pass-through. We assumed that the entire PFC increase would be 
fully passed on to consumers and not absorbed by the airlines by 
adjusting of their base fares downward. Airline statements and experts 
with whom we spoke largely support our assumption that airlines would 
attempt to pass the PFC increase on to consumers. However, consumers' 
response may vary from market to market and may not happen all at 
once, as airlines adjust capacity to respond to higher fares. For 
example, in the immediate period when airlines have fixed capacity, 
airlines' may have to absorb all or some of this increase in order to 
maximize their revenues.[Footnote 27] In the following years, as 
airlines adjust their capacity, they may gradually pass on the PFC 
increase to passengers. In addition, funding airport projects through 
PFCs instead of through airline rates and charges could reduce airline 
costs in the long run. If such conditions occur, airlines may adjust 
their airfares downward so that an increase in the fee is not fully 
passed onto consumers. The more the airlines absorb, the less the 
increase in the cost of travel for passengers and the lower the 
adverse effect on passenger demand. We consider the effect of 
different pass-through rates in appendix II. 

* Airport adoption. We assumed that airports that currently impose a 
PFC would raise it to the maximum allowed amount in the first year. 
While it is unrealistic to assume that all airports would immediately 
raise their PFC level in the first year, based on near universal 
adoption of the current maximum by nearly all of the largest airports, 
it is not unrealistic to expect that most airports would be at the 
maximum by 2024. Following the introduction of the PFC in 1991 and the 
increase in the level in 2000, airports quickly moved to the higher 
PFC level as indicated in figure 3 below. If fewer airports increase 
their PFC level that would proportionally reduce PFC collections and 
the associated changes to the AATF and allow some consumers to avoid 
the PFC making the consumer response more elastic as noted above. The 
results of using a scenario with a reduced PFC adoption rate by 
airports are shown in appendix II (table 6). 

Figure 3: Airport Adoption of Passenger Facility Charges for Fiscal 
Years 1992 through 2014: 

[Refer to PDF for image: vertical bar graph] 

Enplanements (in millions): 

Fiscal year: 1992; 
PFC level: 
$3.00: 63.1 million. 

Fiscal year: 1993; 
PFC level: 
$3.00: 246.1 million. 

Fiscal year: 1994; 
PFC level: 
$3.00: 357.3 million. 

Fiscal year: 1995; 
PFC level: 
$3.00: 408.9 million. 

Fiscal year: 1996; 
PFC level: 
$3.00: 463.6 million. 

Fiscal year: 1997; 
PFC level: 
$3.00: 496.3 million. 

Fiscal year: 1998; 
PFC level: 
$3.00: 537.0 million. 

Fiscal year: 1999; 
PFC level: 
$3.00: 564.1 million. 

Fiscal year: 2000; 
PFC level: 
$3.00: 589.3 million. 

Fiscal year: 2001; 
PFC level: 
$3.00: 409.8 million; 
$4.50: 171.9 million. 

Fiscal year: 2002; 
PFC level: 
$3.00: 239.6 million; 
$4.50: 315.5 million. 

Fiscal year: 2003; 
PFC level: 
$3.00: 185.3 million; 
$4.50: 389.8 million. 

Fiscal year: 2004; 
PFC level: 
$3.00: 190.9 million; 
$4.50: 427.3 million. 

Fiscal year: 2005; 
PFC level: 
$3.00: 190.2 million; 
$4.50: 494.8 million. 

Fiscal year: 2006; 
PFC level: 
$3.00: 126.7 million; 
$4.50: 562.0 million. 

Fiscal year: 2007; 
PFC level: 
$3.00: 87.5 million; 
$4.00: 22.6 million; 
$4.50: 605.8 million. 

Fiscal year: 2008; 
PFC level: 
$3.00: 71.9 million; 
$4.00: 21.8 million; 
$4.50: 616.5 million. 

Fiscal year: 2009; 
PFC level: 
$3.00: 74.4 million; 
$4.50: 605.7 million. 

Fiscal year: 2010; 
PFC level: 
$3.00: 65.0 million; 
$4.50: 624.4 million. 

Fiscal year: 2011; 
PFC level: 
$3.00: 61.4 million; 
$4.50: 648.9 million. 

Fiscal year: 2012; 
PFC level: 
$3.00: 60.1 million; 
$4.50: 658.7 million. 

Fiscal year: 2013; 
PFC level: 
$3.00: 54.1 million; 
$4.50: 665.8 million. 

Fiscal year: 2014; 
PFC level: 
$3.00: 56.0 million; 
$4.50: 677.7 million. 

Source: GAO analysis of FAA data. GAO-15-107. 

Notes: This figure is a representation of the total number of 
enplanements that took place at PFC-collecting airports by PFC level 
and fiscal year. The PFC level was derived from PFC approval data, and 
this figure is not a representation of the number of enplanements that 
were actually charged a PFC during those fiscal years. 

[End of figure] 

Fiscal Year 2014 enplanements are forecasts. 

Increasing the PFC Cap Could Marginally Slow Growth in Revenues to the 
Airport and Airway Trust Fund: 

Increasing the PFC cap under the three different scenarios that we 
modeled could marginally slow the growth of AATF revenues compared to 
what it could have been without the PFC increase. About 91 percent of 
AATF revenues in 2013 were derived from taxes and fees on passengers. 
[Footnote 28] Under all our cap scenarios, AATF revenues from 
passengers would likely continue to grow overall based on current 
projections of passenger growth; however, passenger growth could be 
slower with a PFC cap increase if it results in a higher total cost of 
air travel and thus reduces passenger demand. As a consequence of 
fewer anticipated passengers flying, the tax base on which these taxes 
are levied would be reduced compared to the tax base with no PFC 
increase. If the PFC increase is not passed on to consumers but 
absorbed by airlines through their adjustment of base fares downward, 
it would still reduce the trust fund's revenues from the ad valorem 
tax that is levied as 7.5 percent on the base fare. Similarly, when 
airlines introduced ancillary fees for such services as checked 
baggage, there is some evidence that airlines adjusted their base 
fares downward to lessen the effect on passenger demand but not by as 
much as the amount of the fees.[Footnote 29] Because ancillary fees 
are not taxed, both reduced passenger demand and reduced base fares 
resulting from the introduction of fees would have reduced trust fund 
revenues. We did not include ancillary fees as part of our base fare 
calculation due to the lack of comprehensive ancillary fee data; 
[Footnote 30] but including ancillary fees would result in higher air-
travel costs thereby making any PFC increase a smaller percentage of 
the total price and therefore resulting in a smaller loss of passenger 
demand. Under an $8 PFC cap and the entire PFC increase passed on to 
consumers, AATF revenues could be lower by $161 million to $186 
million annually, as compared to what they could be without a PFC 
increase, assuming a demand elasticity of -0.8. This potential loss in 
AATF passenger revenues is small relative to total AATF passenger 
revenues--for example, between -0.58 and -1.68 percent of the total in 
2024 depending on the size of the cap increase. The extent to which 
the AATF is affected will depend on the extent of the reduction in 
passenger traffic (elasticity assumption) as well as the extent to 
which the increase is passed on to consumers under each scenario (pass 
through rate). (See table 2.) 

Table 2: Estimated Changes to Airport and Airway Trust Fund (AATF) 
Baseline Revenues from 2016 to 2024 under Various Scenarios for an 
Increase in the Passenger Facility Charge Cap (Dollars in millions and 
as percentage of total passenger AATF revenues): 

Estimated Changes to Baseline AATF Revenues (Dollars in millions and 
as percentage of total passenger AATF revenues): 

Scenario: $6.47 cap[A]; ($4.50 cap adjusted for CPI); 
2016: -$90; -0.71%; 
2017: -$93; -0.69%; 
2018: -$95; -0.67%; 
2019: -$97; -0.65%; 
2020: -$99; -0.64%; 
2021: -$100; -0.62%; 
2022: -$102; -0.61%; 
2023: -$103; -0.59%; 
2024: -$105; -0.58%. 

Scenario: $8.00 cap[B]; (President's budget); 
2016: -$161; -1.26%; 
2017: -$164; -1.22%; 
2018: -$168; -1.19%; 
2019: -$172; -1.16%; 
2020: -$175; -1.13%; 
2021: -$178; -1.11%; 
2022: -$180; -1.08%;
2023: -$183; -1.05%; 
2024: -$186; -1.03%. 

Scenario: $8.50 cap, CPI adjusted[C]; (ACI-NA/AAAE proposal); 
2016: -$184; -1.44%; 
2017: -$196; -1.46%; 
2018: -$210; -1.49%; 
2019: -$225; -1.52%; 
2020: -$240; -1.56%; 
2021: -$255; -1.59%; 
2022: -$271; -1.62%; 
2023: -$287; -1.65%; 
2024: -$304; -1.68%. 

Source: GAO analysis using DOT data. GAO-15-107. 

Notes: These projections assume: 1) 100% adoption of maximum allowable 
PFCs in 2016 by airports approved to collect a PFC as of July 31, 
2014; 2) a -0.8 elasticity rate and 3) 100% pass through of the cost 
of the PFC increase to passengers. Passenger demand effects on AATF 
passenger excise, segment, and international arrival and departure 
taxes were calculated and presented as a percentage of total passenger 
taxes. Although the impacts of raising the PFC cap on the AATF 
passenger revenues are negative, AATF passenger revenues will likely 
continue to grow overall because of an increase in enplanements. 

Results are reported in nominal dollars. 

[A] Change in AATF revenues relative to baseline under $6.47 PFC cap. 
This cap was developed by using CPI to adjust for inflation between 
2000 and 2016. 

[B] Change in AATF revenues relative to baseline under $8 PFC cap. 
This cap was proposed in the President's 2015 budget. 

[C] Change in PFC revenues relative to baseline under $8.50 PFC cap 
which is adjusted for inflation using the Congressional Budget 
Office's projected CPI for each calendar year in our analysis. This 
amount was proposed by Airports Council International-North America 
(ACI-NA) and American Association of Airport Executives (AAAE).The 
trade associations have not proposed an inflation rate so we used the 
CPI to adjust for inflation as this is a federal inflation index 
standard. 

[End of table] 

A PFC Cap Increase Could Benefit Airports, but the Effects Differ 
Depending on Their Size: 

Because passenger traffic is highly concentrated at larger airports, 
that is, large and medium hub airports, PFC collections are similarly 
concentrated. Thus, larger airports could benefit most from an 
increase in the PFC. A hub level analysis of a PFC cap increase shows 
that large hub airports could receive nearly three-quarters of all 
PFCs, while large and medium hubs together could account for nearly 90 
percent of total PFCs, similar to what they do now. For example, under 
an $8 PFC, large hub airports could receive additional PFC revenues of 
$1.74 to $2.08 billion annually and medium hubs could receive 
additional PFC revenues of $372 to $435 million annually from 2016 to 
2024. Small and non-hub airports could receive up to $212 million and 
$82 million in additional annual PFC revenues respectively from 2016 
to 2024. (See table 3.) 

Table 3: Estimated Passenger Facility Charge (PFC) Collections 
Available to PFC Approved Airports and Associated Changes to Airport 
and Airway Trust Fund Revenues by Airport Hub Type from 2016 to 2024 
with $8 PFC Cap (Dollars in millions): 

Current baseline estimate for PFC collections available to PFC 
approved airports under $4.50 PFC cap: 

Hub type: All hub types; 
Revenue type: PFC revenue; 
2016: 3,073; 
2017: 3,149; 
2018: 3,225; 
2019: 3,301; 
2020: 3,373; 
2021: 3,437; 
2022: 3,498; 
2023: 3,561; 
2024: 3,628. 

Total estimated changes to PFC baseline and AATF revenues after PFC 
cap increase to $8: 

Hub type: All hub types; 
Revenue type: PFC revenue[A]; 
2016: +2,365; 
2017: +2,425; 
2018: +2,486; 
2019: +2,547; 
2020: +2,605; 
2021: +2,656; 
2022: +2,705; 
2023: +2,756; 
2024: +2,810. 

Revenue type: AATF revenue[A]; 
2016: -159; 
2017: -163; 
2018: -167; 
2019: -170; 
2020: -174; 
2021: -176; 
2022: -179; 
2023: -182; 
2024: -184. 

Estimated changes to PFC baseline and AATF revenues by hub type after 
PFC cap increase to $8. 

Hub type: Large hubs[B]; 
Revenue type: PFC revenue; 
2016: +1,743; 
2017: +1,788; 
2018: +1,834; 
2019: +1,880; 
2020: +1,924; 
2021: +1,964; 
2022: +2,002; 
2023: +2,041; 
2024: +2,083. 

Hub type: Large hubs[B]; 
Revenue type: AATF revenue; 
2016: -112; 
2017: -115; 
2018: -117; 
2019: -120; 
2020: -122; 
2021: -124; 
2022: -126; 
2023: -128; 
2024: -130. 

Hub type: Medium hubs[C]; 
Revenue type: PFC revenue; 
2016: +372; 
2017: +381; 
2018: +390; 
2019: +399; 
2020: +407; 
2021: +414; 
2022: +420; 
2023: +427; 
2024: +435. 

Hub type: Medium hubs[C]; 
Revenue type: AATF revenue; 
2016: -28; 
2017: -29; 
2018: -30; 
2019: -30; 
2020: -31; 
2021: -31; 
2022: -32; 
2023: -32; 
2024: -33. 

Hub type: Small hubs[D]; 
Revenue type: PFC revenue; 
2016: +181; 
2017: +185; 
2018: +190; 
2019: +194; 
2020: +198; 
2021: +202; 
2022: +205; 
2023: +209; 
2024: +212. 

Hub type: Small hubs[D]; 
Revenue type: AATF revenue; 
2016: -14; 
2017: -14; 
2018: -14; 
2019: -15; 
2020: -15; 
2021: -15; 
2022: -15; 
2023: -16; 
2024: -16. 

Hub type: Non-hubs & Non-primary[E]; 
Revenue type: PFC revenue; 
2016: +70; 
2017: +72; 
2018: +73; 
2019: +75; 
2020: +76; 
2021: +78; 
2022: +79; 
2023: +80; 
2024: +82. 

Hub type: Non-hubs & Non-primary[E]; 
Revenue type: AATF revenue; 
2016: -6; 
2017: -6; 
2018: -6; 
2019: -6; 
2020: -6; 
2021: -6; 
2022: -6; 
2023: -6; 
2024: -6. 

Source: GAO analysis using DOT data. GAO-15-107. 

Notes: These projections show changes in revenue for an $8.00 PFC cap 
scenario relative to the baseline assuming 100% airport adoption of 
maximum allowable PFCs in 2016, a -0.8 elasticity rate and a 100% pass-
through of the cost of the PFC increase to passengers. 

Results are reported in nominal dollars. 

[A] Due to rounding, annual revenue totals for all hubs may not 
exactly match the sum of annual revenues at the four hub categories. 
In addition, annual revenue totals for all hubs may not match totals 
for the same scenario in tables 1 and 2 because additional assumptions 
needed for the hub analysis cause the results to vary slightly. 

[B] Large hubs are airports with at least 1% of total U.S. passenger 
boardings. 

[C] Medium hubs are airports with at least 0.25% but less than 1% of 
total U.S. passenger boardings. 

[D] Small hubs are airports with at least 0.05% but less than 0.25% of 
total U.S. passenger boardings. 

[E] Non-hubs are airports with at least 10,000 passenger boardings 
annually but less than 0.05% of total U.S. passenger boardings. Some 
non-primary airports (i.e., those with less than 10,000 annual 
passenger boardings) that are approved to collect PFCs as of July 31, 
2014, are included in this category. 

[End of table] 

While an increase in PFCs could largely flow to the larger airports, 
smaller airports could also benefit from increased PFC collections, 
especially under the President's proposed budget for 2015. As 
previously noted, under current rules, large and medium hubs' 
apportionment of AIP formula funds may be reduced, which in fiscal 
year 2014, resulted in a redistribution of approximately $553 million. 
The majority of this funding (87.5 percent) goes to the Small Airport 
Fund for redistribution among small airports. The remaining 12.5 
percent became available as AIP discretionary funds, which FAA uses to 
award grants to eligible projects regardless of airport size. Under 
the President's 2015 budget proposal, all AIP formula grants for large 
hub airports, which FAA estimates to be $80 million in fiscal year 
2015, would be eliminated in return for an $8 PFC.[Footnote 31] In 
addition, the President's 2015 budget proposal calls for a decrease in 
the total amount of AIP funds, a decrease that under current law would 
result in automatic changes in how AIP grants are allocated. 

Increasing PFCs also could affect the dynamics of how airports and 
airlines can influence airport investment decisions. Airports rely on 
several funding mechanisms in order to pay for airport development 
projects. These include PFCs, non-aeronautical revenues (e.g., parking 
and concession revenue), AIP grants, rates and charges agreements with 
airlines, and state and local funds. Generally, PFCs offer airports 
relative independence over investment decisions at their airports. 
While airports must notify and consult with the airlines on how they 
spend PFCs, as long as FAA approves, airlines cannot block these 
decisions. Airlines can choose to serve other airports, however, so 
airports have an incentive to listen to airline concerns. Airport 
representatives said that one of the reasons airports want an 
increased PFC cap is because airports have already committed a 
significant portion of their current PFCs to past and current projects 
and have relatively fewer PFC-approved funds available with the $4.50 
cap in place. According to FAA, $30 billion in PFCs was approved 
from1992 to September 2014 to pay interest on debt, with some airports 
scheduled to service debt for as long as 2058. Some airports have 
indicated that an increased PFC would allow them to reduce their debt 
costs, which could limit revenues available to those airports to 
secure new debt financing. Conversely, airline representatives told us 
that in their view, airports have many sources of revenue available 
and ready access to debt markets, so there is no need to increase the 
PFC cap. All else being equal, lower PFCs can provide airlines with 
more influence over airport infrastructure decisions and higher PFCs 
can provide airports more control over local capital-funding 
decisions, including the ability to decide how to apply PFC revenues 
to support capital projects and thus how those revenues might 
influence airline rates and charges. 

Stakeholders Reported That the Current PFC Collection Method Works 
Well but Lacks Some Transparency for Airports: 

Stakeholders Said That the Current PFC Collection Method Works Well: 

In order to evaluate the current PFC collection method, we used the 
following factors that we identified as key considerations for 
evaluating passenger fee collection methods in our February 2013 
report: passenger experience, costs to administer, legal issues, 
customer transparency, and technology readiness.[Footnote 32] 

Passenger Experience: 

Industry experts and representatives from airports, airlines, trade 
associations, and consumer groups universally said that the current 
method of PFC collection has the least impact on passenger experience, 
because the PFC is paid as part of the total ticket price and at the 
time of purchase. Airlines and travel agencies use computerized 
reservation networks that facilitate payments for fares and required 
taxes and fees (including the PFC) as part of one transaction. 
Passengers therefore do not need to determine which taxes and fees 
they must pay in accordance with their itinerary, as this is done 
automatically through the ticketing process. In addition, passengers 
are only required to pay one time, a method that saves passengers 
time, provides transparency, and reduces confusion. Including taxes 
and fees as part of the ticket purchase is also the standard globally 
for collecting government and airport fees, such as the PFC. 

Costs to Administer: 

Both airport and airline representatives that we spoke with agreed 
that the administrative and infrastructure costs of the current 
collection method system are relatively low, as the method is 
integrated into existing infrastructure and business processes. As we 
mentioned previously, airlines currently keep 11 cents per PFC to 
cover their costs--which include costs for transactions such as credit 
card fees, legal and audit fees, and maintenance and upgrades of 
information systems--as well as the "float" (interest accumulated on 
the fees between the time they are collected and remitted). Airline 
representatives told us that they do not regularly track their 
administrative costs associated with collecting PFCs and therefore 
could not immediately say whether the administrative fee covers these 
costs. The administrative fee was last raised from 8 to 11 cents per 
PFC in 2004. 

Legal Issues: 

The statute that authorizes the PFC program[Footnote 33] provides an 
exemption to the Anti-Head Tax Act which generally prohibits states, 
local governments, and airport authorities from levying or collecting 
any tax, fee, head charge, or other charge, directly or indirectly on 
individuals traveling by air.[Footnote 34] The statute authorizing 
PFCs also authorizes the Secretary of Transportation to require 
airlines to collect the fee and remit it to airports.[Footnote 35] 
Given the statute's clarity that a PFC can be collected by an airline, 
we did not identify any legal issues associated with the current 
collection method as part of this work. 

Customer Transparency: 

Representatives from consumer groups that we spoke with said that the 
current collection system provides transparency to the customer in 
terms of total travel costs. Current DOT policy requires that fares be 
advertised with PFCs and other taxes and fees, and included at the 
time of purchase. However, one airline representative with whom we 
spoke told us that there could be greater transparency for customers 
in terms of other factors, such as how fees are used for airport 
projects. Some airports provide information about their PFC-funded 
projects through their websites, signage at the airport, and community 
outreach, and all airports are required to distribute a notice locally 
to the public, with general information about PFC projects, amounts, 
and timing, in advance of submitting an application to impose or use 
PFCs. FAA does not publish information on specific PFC-funded projects 
at airports on its website but does provide aggregated information for 
the entire PFC program on PFC approval amounts and project categories, 
such as landside, airside, and noise reduction, and subcategories. 
According to FAA, airports' PFC applications and the FAA's decisions 
are public documents that airports may release to the public. In 
addition, the FAA provides information on applications and decisions 
upon request if they are not under deliberation. FAA does not require 
airports to track each fee paid to a specific project at an airport, 
only to an approved application which may be for many projects. Thus, 
a passenger may not have readily accessible information about the use 
and intended purpose of their fee payment at the time of payment but 
could obtain some additional information if desired. 

Technology Readiness: 

The current collection method has been in place since the inception of 
the PFC program in 1992 and relies on widely used and accepted 
ticketing technologies for both online and in-person transactions. 
Technology company representatives whom we interviewed generally 
indicated that PFC collection is not constrained by current 
technology. However, implementing new fee rules could be problematic. 
For example, according to media reports, instituting the TSA security 
fee increase in July 2014, which uses the same ticketing technologies 
as PFCs, resulted in inaccurate collections while the programming code 
was being updated. According to an airline industry representative, 
that problem was subsequently fixed. 

The Accuracy of PFC Collections Is Not Transparent to Airports: 

Airport officials with whom we spoke generally told us that the PFC 
collection process by airlines is not adequately transparent to them, 
and therefore, they cannot be sure they are receiving all of PFC 
collections they are due. While airports receive monthly remittances, 
quarterly reports, and in some cases, annual audit reports from 
airlines, airport officials told us it can be very difficult for 
airports to ensure the accuracy of the remittances because they cannot 
be reconciled to passenger enplanements at the airport. Passengers 
flying on frequent flyer coupons as well as flight segments beyond the 
first two, Essential Air Service flights, and some Alaska and Hawaii 
flights are exempt from paying PFCs. In addition, airlines and 
airports have different fee-collection and remittance systems, and 
airline code shares mean that the airline collecting and remitting 
PFCs may not be the airline transporting the passenger. Furthermore, 
airport officials told us that the timing of collections and 
remittances can hinder their efforts to track and verify the accuracy 
of PFC remittances. Airlines receive PFCs with ticket payments, while 
airports receive remittances on a monthly basis. Passengers, however, 
may fly on a later date well outside the monthly window. 

To help ensure that airports receive the full amount of the 
collections they are due, FAA requires that all airlines that annually 
collect at least 50,000 PFCs have an annual independent audit of their 
PFC accounts and processes.[Footnote 36] Airports can request a copy 
of the independent auditor's report, but airlines are not required to 
provide audit reports absent a request.[Footnote 37] In addition, FAA 
may periodically audit or review the collection and remittance of 
airline PFC collections under the FAA's federal oversight 
responsibility.[Footnote 38] To assist airlines, FAA has developed 
audit guidance for airlines' auditors to follow in conducting their 
audits. This guidance is comprehensive and includes testing procedures 
to ensure that airline systems are properly recording PFC collections. 
While adherence to the guidance is voluntary, FAA has determined that 
using the guidance will provide sufficient assurance that the airline 
has met its PFC regulatory requirements and that additional reports, a 
government audit, or other investigations will not normally be needed. 
FAA's guidance expressly underscores the importance of the assurance 
that using the guidelines provides, stating that it is reflected in 
FAA's approach to resolving alleged collection and remittance 
discrepancies raised by airports to estimate local PFC collections. In 
cases where the airlines' auditors did not use the guidance, any 
allegation of a discrepancy by airports could trigger additional FAA 
activities, including additional reporting or an audit by the 
Department of Transportation's Office of Inspector General. 

FAA officials told us they do not know to what extent airlines' 
auditors use the audit guidance and only review the audit reports if 
questions are raised by airports about possible discrepancies. FAA 
officials also told us that they generally do not receive airline 
audits and do not know how many airlines' auditors follow the audit 
guidelines. FAA officials also 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.[Footnote 
39] However, as noted above, 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. Three of the five airport managers whom 
we interviewed told us that they have received unsolicited copies of 
audits in the past, whereas two other airport managers had not 
received copies. Absent a request, there is no requirement for 
airlines to give airports or FAA the audits, even if there is a 
qualified or adverse audit opinion.[Footnote 40] FAA officials told us 
that while airports' rights to review the audits are set forth in FAA 
guidance that is available to all airports,[Footnote 41] they could 
consider additional steps to ensure that all airports understand their 
right to request copies of the airline's audits as well as FAA's 
reliance on airports to identify discrepancies. Doing so would be 
consistent with Standards for Internal Control in the Federal 
Government, which call for agencies to ensure that there are effective 
means of communicating with, and obtaining information from, external 
stakeholders' that may have a significant impact on the agencies 
achieving its goals.[Footnote 42] Given that FAA relies on airports to 
alert it to potential inaccuracies in PFC collections and those 
airports have difficulty determining the accuracy of PFC collections 
for the reasons discussed earlier in this report, it is 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, such as an 
audit by the Department of Transportation's Office of Inspector 
General if the audits or other information indicate discrepancies. By 
taking actions to better educate airports about the importance of 
obtaining and reviewing airline PFC audits, such as through 
notifications or posting this on the FAA's website, FAA would better 
position airports to understand their rights including the potential 
for requesting further investigations, as needed. Thus, both FAA and 
airports could be better informed about the accuracy of PFC 
remittances. 

Standards for Internal Control in the Federal Government call for 
agencies to design their internal controls to assure that ongoing 
monitoring occurs in the course of normal operations.[Footnote 43] 
However, as previously discussed, FAA does not know the extent to 
which airlines use its audit guidance or generally review the 
airlines' audit reports. Thus, FAA is not well positioned to provide a 
reasonable assurance to Congress, the airports, or airline passengers 
who pay the PFCs about the reliability of those audits or the PFCs 
collected. Determining the extent to which airlines' independent 
auditors use FAA's guidance could provide FAA with additional 
assurance about the reliability of those audits. Moreover, if the 
guidance is not being extensively used, then taking additional actions 
to assess the soundness of existing airline audits and the associated 
costs of airlines following the guidance would better position FAA to 
determine if it should make its guidance mandatory. 

Similar to PFCs, TSA imposes a security fee on passengers which is 
collected by the airlines; however, unlike PFCs, security fee revenues 
are remitted directly to one entity--the TSA.[Footnote 44] TSA charges 
$5.60 per one-way trip on passengers on each ticket. TSA conducts 
direct audits of its fee collections through which it has found 
remittance discrepancies. This process suggests that, without adequate 
assurance that airlines are following FAA's audit guidance, some PFCs 
may not be collected or, if collected, not accurately remitted to 
airports. TSA has a compliance office that performs its own on-site 
audits of approximately 20 airlines annually. TSA officials stated 
that they regularly identify additional funds that should have been 
collected and remitted to TSA, though these unremitted funds are 
relatively small when compared to overall collections. According to 
TSA officials, the agency identified and collected $2 million in 
unremitted funds in fiscal year 2013 from its audits compared to its 
$2-billion annual fee collections. TSA's audit findings have been 
upheld in court when challenged by an airline. For example, a TSA 
audit of Alaska Airlines found that the airline owed an additional $1 
million in security fee remittances for flights between 2002 and 2006, 
which Alaska Airlines unsuccessfully challenged. TSA officials stated 
that the agency used to require that all airlines that collect the 
security fee from at least 50,000 passengers provide an annual audit 
to TSA. However, this audit requirement was waived on January 23, 
2003, because according to the federal registry announcement, TSA 
initiated its own audits of air carriers, and according to TSA, air 
carriers have demonstrated a high level of compliance with TSA's 
collection and remittance rules and thus find it unnecessary for air 
carriers to expend resources for independent audits.[Footnote 45] 

Alternative Methods of PFC Collection Are Feasible but Would Impose 
Additional Steps and Costs: 

Stakeholders Identified Three Alternatives to the Current Ticket-Based 
PFC Collection but Said They Could Diminish Passenger Experience: 

Stakeholders we interviewed identified three general alternatives to 
the current method of PFC collection, alternatives that could be used 
in combination or independently. 

Kiosks/Counter Payments: 

An alternative collection method that has been used at a few airports 
internationally is the use of a self-service kiosk or payment counter 
to pay for airport fees. Departing passengers pay the fee at the 
airport using a kiosk or payment counter as part of the check-in 
process. Connecting passengers could pay the fee at a facility within 
the terminal between departure gates. Payment could be verified prior 
to departure at check-in, security, or the boarding gate. We 
identified few airports around the world that currently use this 
method. Those that do include Blackpool Airport in the United Kingdom, 
which required passengers to purchase an airport-development fee 
ticket at a kiosk or retail outlet at the airport. In addition, 
Ireland West Airport Knock in the Republic of Ireland requires 
passengers to pay a development fee that can be done at a dedicated 
desk at the airport. Both of these are relatively small regional 
airports and Blackpool Airport closed on October 15, 2014. Other 
airports have instituted kiosk and payment counters but later 
abandoned the method in favor of imposing the fee on the ticket at 
time of purchase. For example, Vancouver International Airport, 
Calgary International Airport, and Montréal-Pierre Elliott Trudeau 
International Airport (all in Canada) initially used payment counters 
to collect airport-improvement fund fees from passengers following 
airport privatization in Canada in the 1990s. However, the payment 
counter approach was abandoned, and the fee was added back onto the 
ticket after payments at the airport became cumbersome and 
inconvenient for passengers, according to a Canadian airport trade 
association representative. There is some evidence, however, that in-
airport kiosks and payment counters can work. Airlines use self-
service kiosks and counters for their airline check-in processing and 
ancillary fee purchases, such as for checked baggage. Some airports, 
such as McCarran International Airport in Las Vegas, have implemented 
common use self-service kiosks in which passengers can check in to any 
airline that operates at the airport and make ancillary fee purchases. 
Such kiosks could also be configured to collect PFCs. 

Online Payments: 

Another alternative collection method that the Airports Council 
International-North America (ACI-NA), an airport trade association, 
identified more than 10 years ago is online payments in which a 
passenger would pay the PFC fee through a dedicated website at the 
time of ticket purchase or at some point before check-in. Individual 
airports or a group of airports would directly operate or contract 
with a third party provider to manage a website to collect required 
fees directly from the passenger who would pay via credit card or 
debit card. Passengers could also be automatically directed to the 
website to pay PFCs after paying for a ticket online, a process that 
would require airline and travel agent cooperation. Passengers could 
go directly to the website at any time before check-in to pay the fee. 
In all these cases, airports would have to establish or contract with 
a clearinghouse that would collect and distribute PFCs or perform that 
function. Payments could be verified at the airport at a check-in 
counter, security checkpoint, or the boarding gate. We did not 
identify any airports currently using this method, but clearinghouses 
collect and distribute other aviation taxes and fees on tickets 
purchased online through GDSs. 

Mobile Payments: 

Another alternative collection method technology company 
representatives identified are mobile payments. Passengers would pay 
the PFC at the airport using a mobile technology--such as a smartphone 
or tablet, or a credit, debit or prepaid card--with payment 
functionality embedded or added through an application. Departing 
passengers could scan their mobile device or card at kiosks, payment 
counters, or other payment stations. Connecting passengers could also 
use this method to pay at kiosks or payment counters and stations as 
they move through the airport to their next departure gate. Like the 
other alternative collection methods, airports could individually or 
as a group develop and implement information systems and 
infrastructure to collect and distribute PFCs on their own or contract 
through a third party. Airports could also use an existing 
clearinghouse such as those used by airlines which could collect and 
distribute PFCs to airports. We did not identify any airports using 
this method, but technology company representatives told us that they 
are being used in other sectors such as retail. In addition, 
technology company representatives with whom we spoke said that 
airport kiosks used for check-in could be modified or configured to 
accept additional forms of payment, including near-field communication 
(NFC)-enabled devices, chip-and-PIN or magnetic strip, or mobile 
wallets.[Footnote 46] Many airlines also have mobile applications for 
check-in and boarding processes, which could be modified to transmit 
payment of PFCs. Airlines also use handheld devices to collect 
ancillary fee payments for additional services like carry-on luggage, 
and in-flight meals and beverages. NFC payment through mobile phones 
has been implemented by MasterCard, mobile phone providers such as 
Verizon, and retailers such as Office Max® and Toys "R" Us®. Some 
transit systems have also begun to pilot NFC payments for passenger 
travel, such as the Metropolitan Transit Authority in New York City 
and the Washington Metropolitan Area Transit Authority in Washington, 
D.C. 

Though the Technology Exists, Alternatives Would Impose Additional 
Steps and Costs: 

We evaluated these alternative methods relative to the current ticket-
based PFC collection method using the same factors that we identified 
as key considerations for evaluating alternative passenger-fee 
collection methods--passenger experience, costs to administer, legal 
issues, customer transparency, and technology readiness. Stakeholders 
including airports and airlines and their respective domestic and 
international associations, and industry experts that we interviewed 
said that the current collection method is better than the identified 
alternatives. Stakeholders told us that the technology to support 
alternative PFC collection methods is ready to be implemented, though 
it would require additional steps and costs and changes to business 
processes. 

Passenger Experience: 

All three alternative-collection methods introduce additional steps to 
the ticketing and boarding process, which could potentially diminish 
the passenger experience. Payment at kiosks or payment counters 
introduces an additional requirement at check-in, which could increase 
check-in time for passengers. Technology company representatives told 
us that it can take between 2 and 4 minutes for a passenger to 
interact with a standard airport kiosk. Additionally, a technology 
company representative told us that only about 50 percent of eligible 
passengers at one large airport use check-in kiosks, and unfamiliar 
passengers may need additional time or assistance to complete 
transactions. Connecting passengers could be required to pay the fee 
between flights, a step that could lead to missed connections or 
flight delays. 

Online payments introduce an additional step to online ticket 
purchases and potentially additional costs. Customers who are not 
aware of the required PFC purchase could be confused or suspicious of 
additional websites. Technology company representatives suggested that 
additional steps for online payment may cause consumers to abandon 
their purchase. Required mobile payments could present challenges for 
customers who do not use enabling devices. While 91 percent of 
individuals in the United States currently use mobile phones, only 50 
percent of cell phone owners download applications, according to a 
2013 nationwide survey.[Footnote 47] This would require the airport to 
create enforcement and backup collection systems to ensure that it is 
collecting all required PFCs. 

Airport and airline trade association representatives whom we spoke to 
reported that the industry is focused on reducing customer check-in 
times, and expressed concern that PFC payments at airports could delay 
these efforts. The International Air Transport Association is 
developing international standards for mobile check-in to streamline 
the passenger experience with a goal of moving the passenger from curb 
to gate in 10 minutes. Other airlines are increasing the use of mobile 
applications and automatic check-in. For example, Air New Zealand 
terminals in Auckland, Wellington, and Christchurch in New Zealand 
allow passengers to drop off their checked baggage and proceed 
directly to security and then to the gate, where passengers can also 
scan their boarding pass for domestic flights. JetBlue has introduced 
automatic check-in processes for select passengers, where boarding 
passes are emailed 24 hours before flight, and Air France introduced 
an NFC-enabled boarding pass and check-in process pilot in Toulouse, 
France. 

Costs to Administer: 

Airports would incur greater administrative and infrastructure costs 
if they implemented an alternative PFC collection method. A technology 
company representative told us that electronic payment kiosks can cost 
from $10,000 for a computer screen and magnetic credit card reader to 
$60,000 for a payment kiosk that incorporates additional methods of 
fee collection and higher-end design standards and elements. 
Technology company representatives also told us that electronic kiosks 
require network connections and infrastructure in order to send 
payment to banks through payment networks. Kiosks would require 
additional terminal space, increasing the need for terminal 
modifications at a time when pre-departure areas of terminals are 
shrinking. However, as we discuss later, existing airport kiosks could 
be reconfigured to allow for PFC collections. 

Technology company representatives told us that online payments would 
require website development and information service infrastructure and 
that all methods could require additional staff to verify collections 
and provide oversight to payments. An airport representative expressed 
concern that in order to collect PFCs from all eligible passengers 
when using alternative collection methods, airport operators would 
need to establish new systems. For example, in an airport which 
establishes a mobile payment system, customers that do not own NFC-
enabled mobile phones would need to pay using a credit card or other 
means. Passengers who could not pay using a credit card would require 
a cash transaction. This process could increase financial security 
risk and associated costs related to securing and accounting for cash 
transactions. 

Mobile payments present additional difficulties, as NFC standards have 
not been created. The two dominant forms of mobile phones--Subscriber 
Identity Module and Global System for Mobile Communications--have 
different readers, and a kiosk or mobile payment station utilizing NFC-
based payment would require two separate scanners. In addition, an 
industry survey has shown that only 12 percent of mobile phone owners 
in the United States have utilized their phones as payment 
devices[Footnote 48] and some stakeholders we interviewed cited lack 
of awareness, difficulty and unfamiliarity of use, as well as security 
and privacy concerns, as barriers to mobile payment adoption. 
Alternative collection methods would thus require additional steps and 
costs and changes to business processes. (See figure 4). 

Figure 4: Potential Passenger Facility Charges Alternative Collection 
Methods: 

[Refer to PDF for image: method illustration] 

Customer pays Passenger Facility Charge (PFC) to airport: 
* Customers pay online before going to airport; 
* Customer pays at airport using a kiosk, payment counter, or payment 
station; 
* Connecting passengers could also use these methods within the 
terminal between arrival and departure gates. 

Airport verifies payment: 
Airport verifies payment at check-in, security, or near departure gate. 

Needed for implementation: 
* New infrastructure such as kiosks, payment counters, payment 
stations, and physical network connections; 
* New website development and information services infrastructure; 
* New network connections and infrastructure in order to send payments 
and changes in business processes; 
* New staff needed for verification of payments and oversight. 

Source: GAO. GAO-15-107. 

[End of figure] 

Legal Issues: 

All alternative methods would require legal modifications to enable 
airports to collect the PFC directly. As discussed above, the Anti-
Head Tax Act prohibits local and state governments, and airport 
authorities from collecting user fees or taxes on travelers. The Anti-
Head Tax Act was enacted in response to significant public concern and 
objection to local and state governments that imposed a tax on 
enplaning or departing passengers. Any alternative collection method 
implemented by an airport would require an exemption to the Anti-Head 
Tax Act or express statutory authority in order to collect fees. 
Furthermore, current DOT regulations require airlines to disclose the 
total price of airfare, including all taxes and fees; and would need 
to be revised if airports directly collect the fee from passengers. 
[Footnote 49] Also, airlines cannot be required to publicly disclose 
proprietary business information, including individual airfare 
transactions and passenger itineraries, which airports would need to 
determine whether a particular passenger is required to pay a PFC and 
to ensure that the total PFC imposed does not exceed the statutory 
maximum (currently $18). 

Customer Transparency: 

All alternative collection methods could decrease transparency to the 
customer because individuals may not be aware of the need to pay the 
PFC until after the ticket has been purchased. In addition, since 
payment of the PFC is not verified until check-in or departure, 
passengers may not be prepared to pay an unexpected fee. In this way, 
customers may not know the full cost of travel at the time of ticket 
purchase, which raises questions about transparency. An industry 
expert and representatives from consumer groups that we spoke to noted 
the importance of informing customers of all mandatory fees and taxes 
at the time of ticket purchase to ensure that customers are aware of 
the full cost of their travel. Similarly, we have recommended that the 
Department of Transportation (DOT) require airlines to consistently 
disclose optional fees at the time of purchase.[Footnote 50] DOT has a 
Notice of Proposed Rulemaking that proposes to require airlines and 
ticket agents to disclose optional fees at the time of purchase. 
[Footnote 51] 

Technology Readiness: 

Stakeholders such as technology company representatives told us that 
all the alternative collection methods discussed above are feasible, 
have been implemented for other applications by airports or retailers, 
and could be adapted for use in the airport environment. For example, 
kiosks could be adapted to collect PFCs. Technology company 
representatives we spoke to said that existing common-use self-service 
and airline kiosks could be modified, if not already enabled, to have 
a magnetic stripe card reader and an NFC reader. Technology company 
representatives also stated that airlines have online websites and 
mobile applications for passenger ticketing, check-in, and ancillary 
fees payments that could automatically link a passenger to an airport 
or third-party website to pay the fee as well as handheld devices that 
are used to accept ancillary fee payments that could also be used at 
the gate to collect PFCs. However, some means of verifying payment 
would still be needed before boarding the flight. Retailers in the 
United States have accepted online payments for decades and have begun 
to integrate mobile payments into their business practices. Some 
merchants have established "tap and pay" NFC terminals alongside 
traditional magnetic stripe readers, allowing customers to use credit 
cards as well as NFC-enabled mobile devices. 

Conclusions: 

As part of any consideration of an increase in the PFC cap, it is 
paramount that FAA and airports have confidence that airlines are 
accurately collecting and remitting existing PFCs. Ensuring the 
accuracy of PFC collections and remittances to airports depends on 
audits conducted by airlines' auditors and oversight by FAA and 
airports to identify possible inaccuracies. However, while FAA has 
promulgated comprehensive audit guidance for airlines' auditors' use, 
it is voluntary and FAA does not know to what extent airlines' 
auditors' use the guidance, if at all. Thus, FAA is not well 
positioned to provide reasonable assurance to Congress, airports, or 
passengers who pay PFCs on the reliability of those audits and the 
PFCs collected. Further, some airports may not be aware that they can 
request and review airline audits and ask for an investigation if they 
suspect PFC remittances are inaccurate. As a result, FAA does not have 
sufficient assurance that PFC collections and remittances to airports 
meet its own regulatory requirements. 

Recommendations for Executive Action: 

To ensure the accuracy of Passenger Facility Charge collections and 
remittances to airports, we recommend that the Secretary of 
Transportation should require the FAA to take the following two 
actions: 

* 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. 

* 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 Comments and Our Evaluation: 

We provided a draft of this report to DOT, ACI-NA, AAAE, and Airlines 
for America (A4A) for their review and comment. In an email received 
on November 24, 2014, the Deputy Director of Audit Relations at DOT 
provided us with the Department's comments. Specifically, in response 
to our recommendations, DOT partly concurred with the first 
recommendation to review the extent to which airlines' auditors use 
the FAA's audit guidance. DOT noted that responses by the airlines 
will be voluntary, as FAA's PFC oversight authority may not be 
sufficient to compel responses. However, based on the responses FAA 
does receive, if airlines' auditors' usage is found to be minimal, FAA 
stated that it will evaluate whether the auditors should be required 
to use the guidance pursuant to regulation or policy. GAO believes 
that this will fully address the intent of our recommendation. DOT 
fully concurred with the second recommendation to better educate 
airports about their rights to review airline audits and noted that it 
planned to better educate airports by including notification on its 
website. GAO believes that this will fully address the intent of our 
recommendation. DOT also provided technical comments that we 
incorporated as appropriate. In an email received on November 19, 
2014, an Executive Vice President at ACI-NA provided us with the 
association's comments, principally noting that the model estimations 
of future collections under various PFC caps could be misconstrued by 
some readers to be the actual amounts that airports will be collecting 
rather than the PFC-funding capacity of airports. They also noted that 
they believe -0.65 is a more appropriate elasticity rate than the -0.8 
that we used in our base model. We disagree for two reasons. First, 
our report clearly notes that depending on the assumptions applied, 
the model could provide different results and indicates that the base 
model reflects the funding capacity of airports under each cap 
scenario and not the likely outcome. Second, we believe -0.8 is a more 
appropriate elasticity rate based on our economic literature review of 
air traffic demand elasticity rates and discussions with experts who 
have published on aviation economics. Nonetheless, we also modeled -
.65 and found very little difference in the model results, as 
demonstrated in appendix II. ACI-NA and AAAE provided technical 
comments that we incorporated as appropriate. A4A reviewed the draft 
and did not have any comments. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
appropriate congressional committees, the Secretary of Transportation 
and other interested parties. In addition, the report will be 
available at no charge on GAO's website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-2834 or dillinghamg@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. Contact information and major 
contributors to this report are listed in appendix III. 

Signed by: 

Gerald L. Dillingham, Ph.D 
Director, Physical Infrastructure Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The objectives of this report were to examine (1) what are the 
potential effects of raising the PFC cap on airport and federal 
aviation revenues? (2) how well does the current PFC collection 
process work? and (3) what is known about alternative PFC collection 
methods and how well they might work? 

To assess potential impacts of increasing the PFC cap, we developed an 
economic demand model, including a series of scenarios that vary the 
amount of the cap and various assumptions. The development of this 
model is discussed in detail in appendix II. 

To determine how well the current PFC-collection process works and 
alternative fee-collection methods, we updated GAO's report 
Alternative Methods for Collecting Airport Passenger Facility Charges 
issued in February 2013 in response to a congressional mandate. 
[Footnote 52] In summary, we identified three basic alternative 
methods to the current airline-ticket-based method of PFC collections. 
These methods are not mutually exclusive and could be used by either 
individual airports or a group or airports--methods such as 
kiosk/payment counter; online payment; and mobile payments. We 
evaluated these alternative methods relative to the current ticket-
based collection method using factors that we identified as key 
considerations for evaluating alternative passenger-fee-collection 
methods--the factors: passenger experience, customer transparency, 
administrative costs, technology readiness, and legal effects. For 
this study, we conducted additional work by interviewing 17 aviation 
stakeholders and we interviewed or collected responses from officials 
representing airports and airlines that we had interviewed in our 
February 2013 report to obtain any additional views on the current 
collection method.[Footnote 53] We selected the airlines based on 
airline size measured by the number of departures and passengers and 
type of carrier (legacy, low cost, and regional carrier). We selected 
the airports based on airport size, amount of PFC charged, and 
percentage of originating versus connecting passenger traffic. Our 
interviews with these airlines and airports provided qualitative 
information that is non-generalizable to all airlines and airports. 
Given that work, we examined issues regarding the verification of 
airline PFC collection and remittance amounts with airlines and 
airports and their trade associations and consumer groups. We reviewed 
the FAA's Passenger Facility Charges Audit Guide for Air Carriers to 
identify audit requirements and recommended internal controls audit 
procedures for airline collection, handling, remittance, and reporting 
of PFCs. We reviewed an airline's independently conducted audit of PFC 
collections for an airport. We reviewed applicable statutes and 
regulations regarding FAA's role and authority to audit airline PFC 
collections and remittances and discussed with the agency its efforts 
to revise the PFC FAA Order 5500.1, which provides guidance and 
procedures for FAA's airports' offices to administer the PFC program. 
We also interviewed Transportation Security Administration officials 
to discuss the agency's procedures and processes for audits of its 
security fee collections. 

For this study, we also conducted additional work looking at 
alternative collection methods by conducting a review of literature on 
changes that have occurred since February 2013 that could support 
alternative collection methods. We spoke with technology company 
representatives, including those companies that have implemented 
kiosks for passenger check-in and customs and border protection 
processing at airports, to obtain their views on the applicability of 
using kiosks to collect payments at airports. We interviewed officials 
from technology companies that develop emerging technology systems and 
devices to obtain their views on the applicability of using online and 
mobile payment systems to collect payments. We interviewed FAA, 
principal airport and airline trade associations and airline-passenger 
consumer representatives, and interviewed or collected responses to 
our follow-up questions from five airports and four airlines to obtain 
their views on the use of alternative methods to collect PFCs. As we 
did for our February 2013 report, we evaluated these alternative 
methods relative to the current ticket-based collection method using 
factors that we identified as key considerations for evaluating 
alternative passenger-fee-collection methods--passenger experience, 
customer transparency, administrative costs, technology readiness, and 
legal effects. For a list of interviewees and airports and airlines 
from which we collected responses to our follow-up questions, see 
table 4. 

Table 4: List of Interviewees and Airports and Airlines from Which We 
Collected Responses to Follow-up Questions: 

Interviews: 

Trade associations.
American Association of Airport Executives (AAAE).
Airports Council International-North America (ACI-NA).
Airports Council International-World.
Airlines for America® (A4A).
International Air Transport Association (IATA). 

Technology companies: 

Rockwell Collins.
SITA.
Google.
MasterCard.
Accenture. 

Industry experts: 

InterVISTAS.
GRA, Inc.
Mr. Joakim Karlsson, Senior Operations Research Analyst, MCR Federal, 
LLC. 

Consumer groups: 

Travelers United.
Consumers Union. 

Government agencies: 

Federal Aviation Administration.
Transportation Security Administration. 

Airlines: 

JetBlue Airways. 

Airports: 

Los Angeles World Airports.
Metropolitan Washington Airports Authority.
Port Authority of New York and New Jersey.
Spokane International Airport. 

Airports and airlines from which we collected responses: 

Airports: 

Dallas/Fort Worth International Airport. 

Airlines: 

Alaska Airlines.
Delta Air Lines.
Southwest Airlines. 

Source: GAO. GAO-15-116. 

[End of table] 

[End of section] 

Appendix II: Economic Demand Model: 

The model described in this appendix is designed to estimate the 
potential impact of increases in the PFC cap on funds available for 
airport investment and federal aviation revenues between 2016 and 
2024. This model presents results for three PFC-cap level scenarios in 
addition to a baseline scenario representing no change in the current 
PFC cap. The first scenario is a $6.47 cap, which is the 2016 
equivalent of the $4.50 cap indexed to the Consumer Price Index 
starting in 2000 when the cap was first instituted. The second 
scenario is taken from the President's budget proposal for 2015, which 
sets the cap at $8. A hub level analysis of this scenario was also 
conducted to illustrate the distributional effects of the PFC 
increase. The third scenario is the airport trade associations' 
proposal of $8.50 annually adjusted for inflation using the CPI. The 
following sections describe the 1) model's structure and data sources; 
2) key assumptions; and 3) sensitivity analysis. 

Model's Structure and Data Sources: 

The general approach of the model was to use passenger enplanement 
forecasts from 2016 through 2024 to project changes in PFC revenue 
under the four scenarios outlined above for the 362 airports that had 
approval to collect PFCs as of July 31, 2014. Passenger enplanement 
data for these airports were taken from FAA's Terminal Area Forecast 
(TAF) enplanement projections. Enplanements were separated into 
international enplanements (i.e., enplanements originating in the U.S. 
with a foreign destination) and domestic enplanements (i.e., 
enplanements originating in the U.S. with a U.S. destination). We used 
projections from FAA Aerospace forecasts, which indicate that 
international enplanements will gradually rise from 12 percent of 
total enplanements in 2014 to 14 percent in 2024. The remaining 
enplanements were considered to be domestic. 

Due to several exemptions to PFC collection, including for segments 
beyond the first two and nonfare (e.g., frequent flyer) passengers, a 
PFC is not collected for all enplanements at airports that charge a 
PFC. Thus, we reduced international enplanements by 4 percent and 
domestic enplanements by 10 percent for each year in order estimate 
the total number of chargeable enplanements. The 4 percent exemption 
rate for international enplanements is based on the percentage of 
passengers using frequent flyer miles to purchase international 
tickets. The 10 percent exemption rate for domestic enplanements is a 
5-year average calculated using data from 369 airports that collected 
PFCs between 2009 and 2013. To calculate the domestic exemption rate, 
PFC revenues from international enplanements (estimated assuming the 4 
percent international exemption rate) were first subtracted from total 
PFC collections to get domestic PFC collections. These domestic PFC 
collections were then divided by the average PFC level for that 
calendar year in order to estimate how many enplanements were charged 
a PFC. This estimate was compared to the total enplanements from the 
TAF data, and the gap between the two was considered to be the number 
of domestic TAF enplanements that were not charged a PFC (10 percent 
on aggregate). 

The model assumes that all increases in PFC are passed onto the 
consumers and not absorbed by the airlines. When these PFC increases 
are passed onto the consumers, it increases their air travel costs. 
Our model thus takes into account these effects of raising the total 
cost of air travel on passenger demand and the resulting secondary 
impacts on PFC and trust fund revenues. Generally an increase in the 
cost of air travel will convince some number of passengers to seek 
other travel arrangements or to not travel at all. In order to model 
this potential decrease in passenger demand, we calculated the 
increase in the PFC level as a percentage of both international 
roundtrip and domestic average gross fares per enplanement. Data on 
average gross fares were collected and summarized from Department of 
Transportation Origin and Destination survey data for average annual 
fares from calendar year 2013.[Footnote 54] Fares were adjusted for 
inflation annually from 2014 onwards using the CPI. In order to 
calculate the fare per enplanement, we divided the domestic fare by 
the average number of flights per ticket (1.37), which is derived from 
U.S. DOT's non-directional data from calendar year 2013. International 
trips are assumed to have only one flight per ticket because other 
domestic flights that may be part of the ticket are captured in the 
domestic category. We also use roundtrip fares for international 
enplanements as that is the relevant cost of travel to which PFCs 
should be compared since incoming international flights do not have to 
pay a PFC. The increase in the PFC was added to the domestic ticket 
price per enplanement and international roundtrip ticket price to 
calculate the percentage change resulting from the change in the PFC 
cap. 

To translate the increase in ticket price into an impact on passenger 
demand, an elasticity rate was applied. The elasticity rate is a ratio 
representing the percentage change in quantity to a percentage change 
in price. Air travel elasticity thus shows the percentage change in 
trips demanded by customers as result of percentage change in air 
fare. Applying the elasticity rate provides an estimate of the 
reduction in passenger demand for enplanements due to the increase in 
price per enplanement, which is used to calculate net chargeable 
enplanements. The net enplanements are then used to estimate PFC 
revenues. PFC revenues are estimated by multiplying these demand-
adjusted enplanements by the maximum allowable PFC under each scenario 
less an 11-cent administrative fee kept by the airlines. PFC revenues 
thus reflect the collections that the airports would expect to receive 
if all 362 airports adopted the maximum rate starting in 2016. It is 
important to note that adoption of the maximum rate is likely to be a 
gradual process, and thus actual collections are likely to be lower 
than these estimates, especially in earlier years. The reduction in 
enplanements due to higher ticket costs also affects trust fund 
revenues as it reduces the passenger tax base that contributes to the 
trust fund. Our model results show the projected change in trust fund 
revenues from passengers under the various cap scenarios relative to 
the baseline. Negative estimated changes in trust fund revenue would 
likely represent a marginal slowing of growth in trust fund revenues 
from passengers rather than an absolute decline. The impact on the 
trust fund is calculated by multiplying the change in domestic 
enplanements due to demand effects by the $4 segment tax and the 
change in international enplanements by the $17.50 international 
arrival and departure tax.[Footnote 55] We also calculate the loss 
from the ad valorem tax based on the fewer number of trips that are 
taken as a result of the higher PFC. 

Key Assumptions: 

Elasticity of Demand: 

As indicated above, elasticity rates are a measure of the demand 
response of passengers to changes in price, and thus, they can have an 
impact on passenger demand projections. The higher the demand 
elasticity, the more sensitive the demand is to a change in price, and 
hence the higher the reduction in enplanements due to a PFC increase. 
The elasticity rate we chose for our base model analysis was -0.8, 
which was drawn from a 2007 study conducted by InterVISTAS consulting 
for IATA[Footnote 56] and is based on a universal price increase at a 
national level. We also examined different elasticity rates of -0.65 
and -1.122 to see how it affected our results. The -0.65 elasticity is 
drawn from a November 2014 study of demand elasticity also conducted 
by InterVISTAS Consulting Inc. for ACI-NA.[Footnote 57] The -1.122 
elasticity comes from a study completed by D.W. Gillen et al. in 2003. 
[Footnote 58] 

PFC Pass-Through: 

Assuming that airports adopt higher PFC rates, passenger demand and 
airline capacity decisions will determine how much of the cost of the 
PFC increase is passed on to passengers or absorbed in the form of 
lowered base fares. For our base model, we assumed that the entire PFC 
increase would be fully passed on to consumers. Airline statements and 
experts with whom we spoke largely support that airlines would attempt 
to pass the PFC increase on to consumers, at least in the longer run. 
However, consumers' response may vary from market to market and may 
not happen all at once, as airlines adjust capacity to respond to 
higher fares. For example, in the immediate period when airlines have 
fixed capacity, airlines' may have to absorb all or some of this 
increase to keep planes full. In the following years, as airlines 
adjust their capacity, they may have greater ability to pass on more 
of the PFC increase to passengers. One paper, which examined the 
change in ticket price after PFCs were introduced at individual 
airports, suggests that ticket prices may increase by more or less 
than the fee depending on the characteristics of the route.[Footnote 
59] In addition, it is not clear that airlines oppose all PFCs, as 
many of the projects that PFCs have funded in the past have been 
supported by airlines. For example, one airline representative told us 
that the airline supports many PFC projects at a local level, but 
airlines and their industry's trade association generally oppose PFC 
increases at a national policy level. However, if funding airport 
projects through PFCs instead of through airline rates and charges 
would reduce airline costs, then it would increase the ability and 
likelihood of airlines absorbing some of the PFC increase by lowering 
fares instead of making consumers pay for it. The more the airlines 
absorb, the less the increase in travel costs and the lower the 
adverse effect on passenger demand. However, under any PFC increase 
and pass-through scenario, trust fund revenues from passengers will be 
reduced relative to the baseline because even if airlines lower fares 
enough to absorb the entire PFC increase, the lower fares will result 
in less revenue from the 7.5% excise tax on fares. 

Airport Adoption: 

We assumed that airports that were approved to impose a PFC as of July 
31, 2014, would raise their PFC to the maximum allowed amount in the 
first year and that airports that do not currently have approval to 
collect a PFC would not obtain approval to impose one. Interviews with 
FAA and airport representatives indicate that the number of airports 
charging PFCs is not expected to change significantly in the future. 
While it is unrealistic to assume that all airports that are currently 
collecting a PFC would immediately raise their PFC in the first year, 
based on near universal adoption of the current maximum by nearly all 
of the largest airports, it is not unrealistic to expect that airports 
would be at or near the maximum by 2024. Following the introduction of 
the PFC in 1991 and the increase in 2000, airports quickly moved to 
the higher PFC level as indicated in figure 3 in the report. However, 
the extent to which airports continually have projects that fall under 
the PFC-eligibility criteria and gain FAA approval will also influence 
the adoption of higher PFCs by airports over time. Small airports in 
particular may not have as many PFC-eligible projects to justify 
moving to a higher PFC. If a significant number of airports that 
currently collect a PFC do not move to the maximum under a new cap, it 
would offer passengers more alternatives as passengers could avoid 
paying the higher PFC by substituting a nearby airport that does not 
charge at the higher rate. This would result in a higher overall rate 
of demand elasticity. Thus the final effect would depend on the 
specific pattern of airports that do or do not adopt a higher PFC. 

Sensitivity Analysis: 

In order to test the sensitivity of the results to changes in the key 
assumptions about elasticity and pass-through, changes to PFC and 
trust fund revenue from passengers were modeled using a -0.65 and a -
1.122 elasticity rate, and a 50 percent pass-through rate. The results 
are presented below in table 5. Under these alternative elasticity 
scenarios and the $8 cap, estimated changes to PFC revenues vary by 
less than 1.5 percent from the standard scenario estimated using a -
0.8 elasticity. Similarly, under a scenario that uses an $8 PFC cap, 
an elasticity rate of -0.8, and a 50 percent pass-through rate, 
estimated changes to PFC revenues varied by less than 2 percent 
relative to the standard scenario. Changes in trust fund revenues from 
passengers showed greater sensitivity to changes in elasticity rate 
and pass-through in percentage terms as these are the only variables 
in the calculations of these changes. 

Table 5: Estimated Changes in Passenger Facility Charge Collections 
Available to PFC Approved Airports and Associated Changes in Airport 
and Airway Trust Fund Revenues under Alternate Elasticity and Pass-
Through Scenarios from 2016 to 2024 (Dollars in millions): 

Current baseline estimate for PFC collections available to PFC 
approved airports under $4.50 cap: 

Elasticity: N/A; 
Pass-through: 100%; 
Revenue: PFC[A]; 
2016: 3,073; 
2017: 3,149; 
2018: 3,225; 
2019: 3,301; 
2020: 3,373; 
2021: 3,437; 
2022: 3,498; 
2023: 3,561; 
2024: 3,628. 

Estimated changes to PFC baseline and AATF revenues after increase to 
$8 PFC cap: 

Elasticity: -0.8; 
Pass-through: 100%; 

Revenue: PFC[B]; 
2016: +2,364; 
2017: +2,424; 
2018: +2,485; 
2019: +2,546; 
2020: +2,604; 
2021: +2,655; 
2022: +2,705; 
2023: +2,756; 
2024: +2,810. 

Revenue: AATF[B]; 
2016: -161; 
2017: -164; 
2018: -168; 
2019: -172; 
2020: -175; 
2021: -178; 
2022: -180; 
2023: -183; 
2024: -186. 

Estimated changes to PFC baseline and AATF revenues after increase to 
$8 PFC cap: 

Elasticity: -0.65; 
Pass-through: 100%; 

Revenue: PFC[C]; 
2016: +2,380; 
2017: +2,440; 
2018: +2,501; 
2019: +2,562; 
2020: +2,620; 
2021: +2,671; 
2022: +2,720; 
2023: +2,771; 
2024: +2,825. 

Revenue: AATF[C]; 
2016: -131; 
2017: -134; 
2018: -137; 
2019: -139; 
2020: -142; 
2021: -144; 
2022: -146; 
2023: -149; 
2024: -151. 

Elasticity: -1.122; 
Pass-through: 100%; 

Revenue: PFC[D]; 
2016: +2,330; 
2017: +2,390; 
2018: +2,451; 
2019: +2,512; 
2020: +2,570; 
2021: +2,621; 
2022: +2,671; 
2023: +2,722; 
2024: +2,776. 

Revenue: AATF[D]; 
2016: -225; 
2017: -231; 
2018: -236; 
2019: -241; 
2020: -245; 
2021: -249; 
2022: -253; 
2023: -257; 
2024: -260. 

Elasticity: -0.8; 
Pass-through: 50%; 

Revenue: PFC[E]; 
2016: +2,407; 
2017: +2,467; 
2018: +2,528; 
2019: +2,589; 
2020: +2,647; 
2021: +2,697; 
2022: +2,747; 
2023: +2,797; 
2024: +2,851. 

Revenue: AATF[E]; 
2016: -138; 
2017: -141; 
2018: -145; 
2019: -148; 
2020: -151; 
2021: -153; 
2022: -155; 
2023: -157; 
2024: -160. 

Source: GAO analysis using DOT data. GAO-15-107. 

Note: Results are reported in nominal dollars. 

[A] Baseline PFC revenues under current cap ($4.50). 

[B] Change in PFC and AATF revenues relative to baseline under 
standard scenario (presented in the body of the report) using an $8 
PFC cap, 100% pass-through of cost to passengers and 100% adoption of 
maximum PFC level in 2016 by PFC-approved airports. 

[C] Change in PFC and AATF revenues relative to baseline under 
alternative scenario using an $8 PFC cap, a -0.65 elasticity, 100% 
pass-through of cost to passengers, and 100% adoption of maximum PFC 
level in 2016 by PFC-approved airports. 

[D] Change in PFC and AATF revenues relative to baseline under 
alternative scenario using an $8 PFC cap, a -1.122 elasticity, 100% 
pass-through of cost to passengers, and 100% adoption of maximum PFC 
level in 2016 by PFC-approved airports. 

[E] Change in PFC and AATF revenues relative to baseline under 
alternative scenario using an $8 PFC cap, a -0.8 elasticity, 50% pass-
through of cost to passengers, and 100% adoption of maximum PFC level 
in 2016 by PFC-approved airports. 

[End of table] 

To test the sensitivity of our results to key assumptions about 
airport adoption, we developed an alternative adoption scenario based 
on airport adoption behavior after the previous increase in the PFC 
cap in 2000. For the results located in Table 6, we assume that 50% of 
airports charge the maximum rate of $8 from 2016 to 2018, 75% of 
airports from 2019 to 2021 and 90% of airports from 2022 to 2024. The 
results show that additional revenue from the increase in the cap 
varies proportionally to the percentage of airports that adopt the 
higher cap. The impact on trust fund revenues from passengers is lower 
relative to the standard scenario because fewer passengers are 
affected by the PFC cap increase if fewer airports adopt it. 

Table 6: Estimated Changes in Passenger Facility Charge Collections 
Available to PFC Approved Airports and Associated Changes in Airport 
and Airway Trust Fund Revenues under Alternative Airport Adoption 
Scenarios from 2016 to 2024 (Dollars in millions): 

Current baseline PFC collections available to PFC approved airports 
under $4.50 PFC cap: 

Elasticity: N/A; 
Pass-through: 100%; 
Category: PFC Revenue[A]; 
2016: 3,073; 
2017: 3,149; 
2018: 3,225; 
2019: 3,301; 
2020: 3,373; 
2021: 3,437; 
2022: 3,498; 
2023: 3,561; 
2024: 3,628. 

Estimated changes to PFC baseline and AATF revenues after increase to 
$8 PFC cap: 

Elasticity: -0.8; 
Pass-through: 100%; 

Category: Percent of Enplanements at $8 cap[B]; 
2016: 50%; 
2017: 50%; 
2018: 50%; 
2019: 75%; 
2020: 75%; 
2021: 75%; 
2022: 90%; 
2023: 90%; 
2024: 90%. 

Category: PFC Revenue[C]; 
2016: +1,182; 
2017: +1,212; 
2018: +1,243; 
2019: +1,910; 
2020: +1,953; 
2021: +1,991; 
2022: +2,434; 
2023: +2,480; 
2024: +2,529. 

Category: AATF Revenue[D]; 
2016: -80; 
2017: -82; 
2018: -84; 
2019: -129; 
2020: -131; 
2021: -133; 
2022: -162; 
2023: -165; 
2024: -167. 

Source: GAO analysis using DOT data. GAO-15-107. 

Note: Results are reported in nominal dollars. 

[A] Baseline PFC revenues under current cap ($4.50). 

[B] This represents the percentage of enplanements that would charge 
the maximum allowable PFC under this alternative scenario. All other 
enplanements continue collecting at the previous cap of $4.50. 

[C] Change in PFC revenues relative to baseline under $8 PFC cap. This 
cap was proposed in the President's 2015 budget. 

[D] Change in AATF revenues relative to baseline under $8 PFC cap. 

[End of table] 

[End of section] 

Appendix III: GAO Contacts and Staff Acknowledgments: 

GAO Contact: 

Gerald L. Dillingham, Ph.D, 202-512-2834, or dillingham@gao.gov. 

Staff Acknowledgments: 

In addition to the contact named above, the following individuals made 
important contributions to this report: Paul Aussendorf, Assistant 
Director; Namita Bhatia Sabharwal; Benjamin Emmel; Bert Japikse; 
Delwen Jones; Maureen Luna-Long; Josh Ormond; Madhav Panwar; and Reed 
Van Beveren. 

[End of section] 

Footnotes: 

[1] AIP grants are provided to public agencies and in some cases to 
private owners and entities for the planning and development of public-
use airports that are included in the National Plan of Integrated 
Airport Systems. 

[2] GAO, Airport Funding: Aviation Industry Changes Affect Airport 
Development Costs and Financing, [hyperlink, 
http://www.gao.gov/products/GAO-14-658T] (Washington, D.C.: June 18, 
2014). 

[3] 49 U.S.C. § 40117(b)(4); C.F.R. §§ 158.5, 158.17. 

[4] GAO, Alternative Methods for Collecting Airport Passenger Facility 
Charges, [hyperlink, http://www.gao.gov/products/GAO-13-262R] 
(Washington, D.C.: Feb, 14, 2013). 

[5] FAA categorizes commercial service airports into four primary 
hubs--large, medium, small, and nonhub. Large hubs are defined by 
statute as having at least 1 percent of total passenger traffic in the 
most recent year (approximately 7.4 million passengers in 2013), while 
medium hubs have between 0.25 and 1 percent (approximately 1.85 
million to 7.4 million passengers in 2013) of total passenger traffic. 
Small hub airports are those with at least .05 percent but less than 
.25 percent of total passenger traffic and non-hub airports are at 
least 10,000 enplanements but less than .05 percent of enplanements. 
Non-primary commercial service airports that have scheduled air 
service and process at least 2,500 enplanements annually are eligible 
to collect PFCs. 49 U.S.C. § 40102(a)(29), (32). 

[6] Price elasticity of demand is a measure used in economics to show 
the responsiveness of consumers in terms of the quantity demanded of a 
good or service to a change in its price. 

[7] Aviation Safety and Capacity Expansion Act of 1990. Pub.L. No. 101-
508, §§ 9110-9112, (1990), recodified as amended at 49 U.S.C. § 40117. 

[8] In addition, passengers on flights which receive Essential Air 
Service, flights in Alaska on aircraft with a seating capacity of less 
than 60 passengers, and flights between two or more points within 
Hawaii are also exempted from paying PFCs. 14 C.F.R. § 158.9. 
Essential Air Service (EAS) flights are federally subsidized flights 
to small communities. The EAS program was established to guarantee 
that small communities that were served by air carriers before airline 
deregulation in 1978 maintain a minimum level of scheduled air service. 

[9] 14 C.F.R. § 158.15(a); various restrictions may apply, see 14 
C.F.R. § 158.15(b). 

[10] Large and medium hub airports that want to impose a $4 or $4.50 
PFC are subject to additional requirements under the PFC statute and 
regulations. Namely, these airports must demonstrate that the proposed 
PFC-funded project will make a significant contribution to improving 
air safety and security, increasing competition among air carriers, 
reducing current or anticipated congestion, or reducing the impact of 
aviation noise on people living near the airport among other things. 
49 U.S.C. § 40117(b)(4)(A). 

[11] GDS are computerized centralized services that provide travel-
related transactions. 

[12] 14 C.F.R. § 158.53(a). 

[13] 14 C.F.R. § 158.69(b), (c). 

[14] 14 C.F.R. § 158.71(b). 

[15] FAA reports PFCs separately for the new Denver International 
Airport given it is a large stand-alone project that represents a 
significant percentage of PFC approvals. 

[16] An additional 32 commercial service airports beyond the ones 
currently collecting have been approved to collect PFCs since the 
program started in 1992; however, these airports may have reached 
their approved collection amounts and not reapplied for additional 
approvals. 

[17] 49 U.S.C. § 47114(f)(1). 

[18] The Small Airport Fund distributes funds to small hub, nonhub, 
non-primary and general aviation airports primarily for the 
construction of new runways and airport development among other 
activities. Funds are distributed as follows: 1/7TH of funds to small 
hubs; 4/7TH of funds to nonhub and non-primary airports, and 2/7TH of 
funds to general aviation airports which includes reliever as well as 
certain public use airports with restrictions. 49 U.S.C.§ 47116. 

[19] AIP formula grants are apportioned by formula or percentage and 
are divided among four types of airport categories--primary airports, 
cargo service airports, general aviation airports, and Alaska 
supplemental funds. Discretionary funds are those not distributed by 
formula grants as well as the foregone PFC revenues that were not 
deposited into the Small Airport Fund. Hub designations under the 
primary airports category establish some rules for AIP formula grants, 
and discretionary funds may be based on eligibility for various types 
of projects. The hub designations are also one factor used in the 
calculation of the National Priority Rating (NPR) for various project 
types, and the NPR is itself one of many factors in how the FAA 
manages AIP grant funds. 14 C.F.R. §§ 158.93, 158.95. 

[20] S.223, §202, 112TH Cong.(2011). 

[21] FAA Modernization and Reform Act of 2012, Pub. L. No. 112-95, 126 
Stat. 11 (2012). 

[22] As noted earlier, under current law, the maximum of two PFCs can 
be charged on a one-way trip or four PFCs on a round trip. Thus, the 
maximum total that could be charged to a passenger in our scenarios 
would be $25.88 with a $6.47 cap; $32 with an $8 cap; and $34 with an 
$8.50 cap. 

[23] The FAA and the airports trade associations--Airports Council 
International-North America (ACI-NA) and the American Association of 
Airport Executives (AAAE)--used construction cost indices to calculate 
their proposed cap amounts. FAA used the Bureau of Labor Statistics' 
BHWY and BONS indices, whereas ACI-NA and AAAE used the Construction 
Cost Index. FAA, ACI-NA and AAAE told us they used these indices, 
given that planned development costs are aligned with construction 
costs. The trade associations have not proposed an inflation rate so 
we used the CPI to adjust for inflation as this is a federal inflation-
index standard. 

[24] In air travel, "demand elasticity" measures the percentage change 
in tickets sold as a result of percent change in price of the tickets. 
For example, an elasticity of minus one would imply that a 10 percent 
increase in price of the ticket would lead to a 10 percent reduction 
in tickets sold. The higher the elasticity, the more responsive or 
sensitive the demand is to a change in price. 

[25] This estimate is based on the national level estimate presented 
in Estimating Air Travel Demand Elasticities, InterVISTAS Consulting 
Inc. (December 2007) 

[26] We modeled -.65 as suggested by Estimating Air Travel Demand 
Elasticities, InterVISTAS Consulting Inc. (November 2014); -.8 as 
estimated in Estimating Air Travel Demand Elasticities, InterVISTAS 
Consulting Inc. (December 2007); and -1.122 as estimated in Air Travel 
Demand Elasticities: Concepts, Issues and Measurement, D.W. Gillen, 
W.G. Morrison and C. Stewart, Department of Finance, Government of 
Canada (January 2003). 

[27] While airlines may pass the full amount of the PFC increase onto 
advertised fares, they may have to sell more lower priced tickets to 
keep planes full and maximize profit, thus lowering the average fare. 

[28] The taxes that we modeled are the passenger ticket tax, passenger 
segment tax, and the international arrival and departure tax. There 
are other aviation taxes and fees that do not go into the AATF 
including fees for security, customs and border protection, health and 
plant inspection, among others. Those fees go to their respective 
federal agencies--the U.S. Department of Homeland Security's 
Transportation Security Administration and Customs and Border 
Protection and the U.S. Department of Agriculture. 

[29] Jan Brueckner, Darin Lee, Pierre Picard, and Ethan Singer, 
Product Unbundling in the Travel Industry: The Economics of Baggage 
Fees (February 2014). 

[30] Airlines report revenues from checked baggage and cancellation 
and change fees but do not separately report on other ancillary fees. 

[31] FAA's estimate assumes the statutory provision that doubles 
entitlements for primary airports and the Alaska supplement functions 
as written. 

[32] [hyperlink, http://www.gao.gov/products/GAO-13-262R]. 

[33] 49 U.S.C. § 40117. 

[34] 49 U.S.C. § 40116. 

[35] 49 U.S.C. § 40117(i). 

[36] 14 C.F.R. § 158.69(b). 

[37] 14 C.F.R § 158.69(b)(3). 

[38] 14 C.F.R. § 158.71(b). 

[39] Airlines operating under bankruptcy protection are subject to 14 
C.F.R. § 158.49(c). 

[40] 14 C.F.R. § 158.69. A qualified opinion is a limitation in scope 
such that, except for the effects of the matter(s) to which the 
qualification relates, the financial statements present fairly, in all 
material respects, the financial position, results of operations, and 
cash flows of the entity in conformity with generally accepted 
accounting principles. An adverse opinion states that the financial 
statements do not present fairly the financial position, results of 
operations, or cash flows of the entity in conformity with generally 
accepted accounting principles. 

[41] FAA Order 5500.1, Section 5, 7-27(d). "Upon request, a copy of 
the audit shall be provided [by the air carrier] to each public agency 
for which a PFC is collected." In addition, according to FAA, every 
PFC decision document includes auditing requirements. 

[42] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (November 
1999). 

[43] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[44] Prior to the security fee increase effective July 21, 2014, the 
fee was based on a per-flight-segment basis like the PFC. 

[45] 68 Fed. Reg. 3192 (Jan. 23, 2003). 

[46] NFC is a form of short-wave wireless communication that can 
enable mobile devices such as smartphones to make payments. Chip-and-
PIN and magnetic strip cards are embedded in credit, debit, and ATM 
cards. Chip-and-pin cards have a computer chip embedded that is used 
in conjunction with a personal identification number (PIN) to make a 
payment. Magnetic stripe cards have a magnetic reading head that when 
swiped can make a payment. Mobile wallets allow consumers to use NFC-
enabled mobile devices to make a payment by opening an application on 
the device. 

[47] Pew Research Center, Internet & American Life Project, Cell Phone 
Activities 2013 (Washington, D.C.: Sept. 16, 2013). 

[48] Pew Research Center, Internet and American Life Project, The 
Future Money: Smartphone Swiping in the Mobile Age (Washington, D.C.: 
Apr. 17, 2012). 

[49] 14 C.F.R. § 399.84(a); cf 14 C.F.R. § 158.45. 

[50] GAO, Commercial Aviation: Consumers Could Benefit from Better 
Information about Airline-Imposed Fees and Refundability of Government-
Imposed Taxes and Fees, [hyperlink, 
http://www.gao.gov/products/GAO-10-785] (Washington D.C.: July 14, 
2010). 

[51] Transparency of Airline Ancillary Fees and Other Consumer 
Protection Issues , 79 Fed. Reg. 29970 (May 23, 2014). 

[52] GAO, Alternative Methods for Collecting Airport Passenger 
Facility Charges, [hyperlink, http://www.gao.gov/products/GAO-13-262R] 
(Washington, D.C.: Feb. 14, 2013). 

[53] We interviewed officials from five airports and four airlines as 
part of our work on the February 2013 report. Two of the airports that 
we previously interviewed did not respond to our follow up questions. 

[54] Our average fare estimates exclude ancillary fees that many 
passengers pay for checked or carry-on baggage, seat assignments, 
early boarding, etc. Since airlines are not required to provide data 
to DOT on some of these fees, we did not have data to include these in 
our calculations. Including ancillary fees as part of the total travel 
costs would lessen the demand effect of a PFC increase because the PFC 
would represent a smaller percentage of the overall travel costs. 

[55] Both taxes are indexed to inflation using the CPI. 

[56] InterVISTAS Consulting Inc., Estimating Air Travel Demand 
Elasticities (Dec. 28, 2007). 

[57] InterVISTAS Consulting Inc., Estimating Air Travel Demand 
Elasticities (November 2014). 

[58] D.W. Gillen, W.G. Morrison, and C. Stewart, Air travel demand 
elasticities: concepts, issues and management, Department of Finance, 
Government of Canada (January 2003). 

[59] Edward Huang and Adib Kanafani, Taxing for Takeoff: Estimating 
Airport Tax Incidence through Natural Experiments (January 2010).

[End of section] 

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